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As filed with the Securities and Exchange Commission on March 24, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
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[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO.
[ ] POST-EFFECTIVE AMENDMENT NO.
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] AMENDMENT NO.
EXCELSIOR PRIVATE EQUITY FUND II, INC.
(Exact name of registrant as specified in charter)
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 852-3949
DAVID I. FANN
DOUGLAS A. LINDGREN
EXCELSIOR PRIVATE EQUITY FUND II, INC.
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
(Name and Address of Agents for Service)
COPIES TO:
LAWRENCE G. GRAEV, ESQ. RONALD A. SCHWARTZ, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP UNITED STATES TRUST COMPANY OF NEW YORK
30 ROCKEFELLER PLAZA 114 WEST 47TH STREET
NEW YORK, NEW YORK 10112 NEW YORK, NEW YORK 10036-1532
PHONE NO.: (212) 408-2400 PHONE NO.: (212) 852-1315
FAX NO.: (212) 408-2420 FAX NO.: (212) 852-1310
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Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis in reliance on Rule 415 under the
Securities Act of 1933, other than securities offered in connection with a
dividend reinvestment plan, check the following box . . . . . . . . . [x]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Title of Securities Proposed Proposed
being Registered Amount Maximum Maximum Amount of
being Offering Price Aggregate Registration
Registered Per Unit Offering Price Fee
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Common Stock ($0.01 par value) ......................... 150,000 shares $1,000 $150,000,000 $45,454.55
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The registrant hereby amends this Registration Statement under the Securities
Act of 1933 on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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CROSS REFERENCE SHEET
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PART A
ITEM NUMBER LOCATION IN PROSPECTUS
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Item 1. Outside Front Cover Outside Front Cover
Item 2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page
Item 3. Fee Table and Synopsis Fee Table; Prospectus Summary
Item 4. Financial Highlights Not applicable
Item 5. Plan of Distribution Terms of The Offering and Purchase
of Shares; Selling Arrangements
Item 6. Selling Shareholders Not applicable
Item 7. Use of Proceeds Use of Proceeds
Item 8. General Description of the Registrant Cover Page; The Company; Risk Factors;
Investment Objective and Policies;
Regulation
Item 9. Management Management
Item 10. Capital Stock, Long-Term Debt, and Other Securities Description of Shares
Item 11. Defaults and Arrears on Senior Securities Not applicable
Item 12. Legal Proceedings Not applicable
Item 13. Table of Contents of the Statement of Additional Not applicable
Information
Part B
Item Number
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Item 14. Cover Page Not applicable
Item 15. Table of Contents Not applicable
Item 16. General Information and History Not applicable
Item 17. Investment Objectives and Policies Investment Objective and Policies
Item 18. Management Management
Item 19. Control Persons and Principal Holders of Securities Management
Item 20. Investment Advisory and Other Services Management
Item 21. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
Item 22. Tax Status Federal Income Tax Matters
Item 23. Financial Statements Financial Statements
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 24, 1997
PROSPECTUS
EXCELSIOR PRIVATE EQUITY FUND II, INC.
150,000 SHARES OF COMMON STOCK $150,000,000
$1,000 Per Share
Minimum Investment-25 Shares
Excelsior Private Equity Fund II, Inc., a Maryland corporation (the
"Company"), is a newly organized, non-diversified, closed-end management
investment company electing status as a business development company ("BDC")
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), and which has registered its securities under the Securities Act of
1933, as amended (the "Securities Act"). The Company's investment objective
is to achieve long-term capital appreciation by investing in private
later-stage venture capital and private middle-market companies ("Portfolio
Companies") and, subject to the limitations of the Investment Company Act, in
certain venture capital, buyout and private equity funds ("Private Funds")
which the Managing Investment Adviser (defined below) believes offer
significant long-term capital appreciation. There is no assurance that the
Company's investment objective will be attained. Current income will not be a
factor in the selection of investments. By statute, a BDC must invest at
least 70% of its assets in specified investments including "eligible portfolio
companies" (as defined in the Investment Company Act). See "The Company" and
"Regulation."
United States Trust Company of New York is the Managing Investment
Adviser of the Company ("U.S. Trust" or the "Managing Investment Adviser") and
is responsible for the Company's private equity investments. The Managing
Investment Adviser is organized under the laws of New York. The Managing
Investment Adviser will perform the management and administrative services
necessary for the operation of the Company. See "Management."
This Prospectus sets forth concisely the information about the
Company that a prospective investor should know before investing and should be
retained for future reference. The address of the Company and U.S. Trust is
114 West 47th Street, New York, New York 10036-1532, and the telephone number
of the Company is (212) 852-3949. There is no public market for the Shares and
none is expected to develop. If the Shares are listed on a securities
exchange or quoted on NASDAQ in the future, there is no assurance that an
active trading market will develop.
The minimum number of shares (the "Shares") that may be purchased by
an investor is 25 Shares and the minimum investment amount is $25,000. The
Company has the right to waive the minimum, at its discretion.
Investors may obtain other information or make inquiries about the
Company by writing or calling the Company at (212) 852-3949.
SHARES OF THE COMPANY ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, U.S. TRUST, AND THE SHARES ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY.
THESE ARE SPECULATIVE SECURITIES. THE COMPANY IS A NEWLY ORGANIZED
ENTITY AND THE COMPANY'S SECURITIES HAVE NO HISTORY OF PUBLIC TRADING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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SALES LOAD
PRICE UNDERWRITING DISCOUNTS PROCEEDS TO
TO PUBLIC(1) AND COMMISSIONS COMPANY(2)
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Per Share (25 Share Minimum) $1,000 None $1,000
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Total Minimum (100,000 Shares) $100,000,000 None $100,000,000
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Total Maximum (150,000 Shares) $150,000,000 None $150,000,000
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(1) The Shares are made available through UST Financial Services Corp. (the
"Selling Agent") to clients of U.S. Trust and its affiliates who meet the
investor suitability standards set forth herein. See "Investor Suitability
Standards" and "Selling Arrangements."
(2) Before deducting organizational and initial offering expenses estimated at
$222,000 payable by the Company.
The Company reserves the right to withdraw, cancel or modify the
offering and to reject any subscription in whole or in part. The offering
will terminate on July 31, 1997 or such other subsequent date not later than
December 31, 1997 as the Managing Investment Adviser and the Company may
determine (the "Termination Date"). If a minimum of 100,000 Shares or
$100,000,000 has not been subscribed for by the Termination Date, the offering
will terminate and all proceeds from the offering will be refunded to
investors with any interest earned thereon and without any deductions. It is
expected that a first closing will be held and that certificates representing
the Shares will be delivered on or about the fifth business day after receipt
by U.S. Trust of subscription funds representing 100,000 Shares or
$100,000,000. Funds paid by investors will be deposited in an
interest-bearing bank escrow account with U.S. Trust pending each closing.
The Company may continue to offer for sale the remaining unsold Shares and
accept subscriptions for such Shares from time to time at subsequent closings
until the earlier of the Termination Date or the date all the Shares are sold.
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FEE TABLE
STOCKHOLDER TRANSACTION EXPENSES
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Sales Load
Underwriting Discounts and Commissions . . . . . . . . . . . None
ANNUAL EXPENSES (as a percentage of net assets attributable to common shares)
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50%*
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25%**
Total Annual Expenses . . . . . . . . . . . . . . . . . . . . . . . 1.75%
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* Does not include the Managing Investment Adviser's incentive fee of
20% of the Company's cumulative realized capital gains (net of
realized capital losses and unrealized net capital depreciation) on
investments other than investments in Private Funds ("Direct
Investments"). No incentive fee will be paid to the Managing
Investment Adviser with respect to the Company's investments in
Private Funds. The Management Fee will amount to 1.5% of the
Company's net assets, determined as of the end of each calendar
quarter, that are invested or committed to be invested in Portfolio
Companies and Private Funds and will amount to 0.5% of the Company's
net assets, determined as of the end of each calendar quarter, that
are invested in Short-Term Investments (defined below) and are not
committed to Portfolio Companies or Private Funds. See "Investment
Objective and Policies," "Management" and "Regulation."
** "Other Expenses" are based on estimated amounts for the current fiscal
year and may be less than the maximum of 0.25% of the Company's net
assets if actual expenses incurred by the Company are lower. U.S.
Trust has agreed to waive or reimburse such expenses to the extent
they exceed 0.25% of the Company's net assets. "Other Expenses"
include organizational expenses of approximately $15,000 and offering
expenses of approximately $207,000. See "Management-Expenses of the
Company."
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EXAMPLE 1 YEAR 3 YEARS
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You would pay the following expenses on a $1,000
investment, assuming a 5% annual return:
Example 1(1) ............................................. $18 $55
Example 2(2) .............................................
$28 $85
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THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLES.
The purpose of the above table is to assist the investor in understanding the
various costs and expenses that an investor in the Company will bear directly
or indirectly. For a more complete description of the various costs and
expenses, see "Management."
(1) Assumes Management Fee of 1.50% and other expenses of 0.25% of the
Company's net assets and does not include the Managing Investment
Adviser's incentive fee of 20% of the Company's cumulative realized
capital gains (net of realized capital losses and unrealized net
capital depreciation) on Direct Investments.
(2) Assumes Management Fee of 1.50% and other expenses of 0.25% of the
Company's net assets and includes the Managing Investment Adviser's
incentive fee of 20% of the Company's cumulative realized capital
gains (net of realized capital losses and unrealized net capital
depreciation) on Direct Investments. These expense estimates are
based on the assumption that the entire 5% annual return is the result
of realized capital gains on Direct Investments.
AVAILABLE INFORMATION
As of the effective date of this Prospectus, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports, proxy
statements and annual reports and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and annual
reports and other information filed by the Company can be inspected and copied
at the public reference facilities maintained by the
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Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
certain of its Regional Offices located at 7 World Trade Center, New York, New
York 10048 and Northwest Atrium Center, 500 Madison Street, Room 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such materials can also be inspected on the
Internet at http://www.sec.gov.
REPORTS TO STOCKHOLDERS
The Company will furnish to its stockholders annual reports
containing audited financial statements and such other periodic reports as it
may determine tofurnish or as may be required by law.
_______________________
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INVESTOR SUITABILITY STANDARDS
THE PURCHASE OF SHARES INVOLVES SIGNIFICANT RISKS AND IS NOT A SUITABLE
INVESTMENT FOR ALL POTENTIAL INVESTORS. SEE "RISK FACTORS."
SUBSTANTIAL MEANS AND NET WORTH. An investment in the Shares is
suitable only for investors who have no need for liquidity in this investment
and who have adequate means of providing for their annual needs and
contingencies. Accordingly, no Shares will be sold to a prospective investor
unless such investor (i) has a net worth (exclusive of homes, home furnishings
and automobiles) of $250,000 or (ii) has a net worth (exclusive of homes, home
furnishings and automobiles) of $60,000 and expects to have during each of the
current and the next three tax years income from any source of $60,000 or more.
Shares will not be sold to a trust account unless such trust account has total
assets in excess of $500,000. Residents of certain states are required to
represent that they meet the investor suitability standards established by such
state. See "Terms of the Offering and Purchase of Shares -- Investor
Suitability Standards."
ABILITY AND WILLINGNESS TO ACCEPT RISKS. The economic benefit from
an investment in the Company depends upon many factors beyond the control of the
Company and the Managing Investment Adviser. The Company's investments involve
a high degree of business and financial risk that can result in substantial
losses. See "Risk Factors." Accordingly, the suitability for any particular
investor of a purchase of the Shares will depend upon, among other things, such
investor's investment objectives and such investor's ability to accept
speculative risks. The Shares are not a suitable investment for investors
seeking current income.
ABILITY TO ACCEPT LIMITATIONS ON TRANSFERABILITY. Investors may
not be able to liquidate their investment in the event of emergency or for any
other reason because there is not now any public market for the Shares and
none is expected to develop.
RETIREMENT ACCOUNT CONSIDERATIONS. Most financial and tax planning
experts recommend a balanced investment portfolio for retirement savings and
suggest that the amount of funds to be invested by an employee benefit plan or
a retirement account in high-risk securities, such as the Shares, be
appropriate to an investor's particular retirement savings needs. The Company
recommends that any purchase of Shares be considered accordingly.
PURCHASES ON BEHALF OF MINORS. In the case of a custodian
purchasing Shares on behalf of a minor pursuant to the Uniform Gifts to Minors
Act, (i) if the funds used for the purchase of the Shares are funds gifted from
a donor (who is normally the custodian for and the parent of the minor) to the
minor at the time of purchase of the Shares, then the donor must meet the
financial suitability standards set forth under "Investor Suitability
Standards" and (ii) if the funds used for the purchase of the Shares are funds
belonging to the minor prior to the time of the purchase of the Shares, then
the minor must meet such financial suitability standard.
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
appearing elsewhere herein. Each prospective investor is urged to read this
Prospectus in its entirety.
THE COMPANY
Excelsior Private Equity Fund II, Inc., a Maryland corporation (the
"Company"), is a newly organized, non-diversified, closed-end management
investment company which has elected to be treated as a business development
company ("BDC") under the Investment Company Act. The Company aims to provide
investors with the opportunity to participate with a minimum investment of
$25,000 in direct private equity investments and privately offered investment
funds managed by third parties. These investment opportunities are generally
not available to the public and typically require substantially larger
commitments than the minimum investment in the Company. Other advantages which
might otherwise be unavailable to investors if they were to engage directly in
private equity investments include professional management, investment and
portfolio diversification, and administrative convenience. See "The
Company."
INVESTMENT OBJECTIVE AND POLICIES
The Company's investment objective is to achieve long-term capital
appreciation, rather than current income, by investing at least 70% of its
assets in private later-stage venture capital companies ("Later-Stage Venture
Capital Companies") and private middle-market companies ("Middle-Market
Companies"). Later-Stage Venture Capital Companies and Middle-Market Companies
are companies in which the equity is closely held by company founders,
management and/or a limited number of institutional investors (Later-Stage
Venture Capital Companies and Middle-Market Companies, collectively, the
"Portfolio Companies"). Subject to the limitations of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), the Company also
intends to invest up to 30% of its assets in privately offered venture capital,
buyout and private equity funds ("Private Funds") managed by third parties
which have attractive investment return prospects and offer compelling
strategic benefits to the Company. Pending investment, operating purposes and
for temporary or emergency purposes, the Company will make liquid investments
in interest-bearing bank accounts, money market mutual funds, U.S. treasury
securities and/or certificates of deposit with maturities of less than one
year, commercial paper, and other short-term securities (collectively, the
"Short-Term Investments"). The Company expects to maintain approximately 10%
of its assets in Short-Term Investments in order to pay for operating expenses
and to meet contingencies. The Company will seek to invest in opportunities
consistent with the investment philosophy of U.S. Trust including the portfolio
strategies and investment themes approach used by U.S. Trust in its investment
management and advisory business. Following its initial investments in
Portfolio Companies, the Company anticipates that it may be called upon to
provide additional funds to Portfolio Companies or have the opportunity to
increase investments in successful operations. The Company may from time to
time borrow funds for operating purposes in an amount up to 25% of its total
assets to facilitate the making of follow-on investments, to maintain its
pass-through tax status or to pay contingencies and expenses. The Company will
not borrow to pay the management fee payable to the Managing Investment
Adviser. There can be no assurance that the Company's investment objective
will be attained. See "Investment Objective and Policies."
MANAGEMENT AND COMPENSATION
U.S. Trust is the Managing Investment Adviser and is responsible for
identifying, evaluating, structuring, monitoring and disposing of the Company's
investments and providing, or arranging for suitable third parties to provide,
any and all management and administrative services reasonably necessary for the
operation of the Company and the conduct of its business. The Managing
Investment Adviser will also make available personnel and services to Portfolio
Companies requiring managerial assistance.
The Managing Investment Adviser has served as the managing investment
adviser to UST Private Equity Investors Fund, Inc. ("Fund I"), a registered
BDC, since its inception in September 1994. The Company's investment strategy
is similar to that of Fund I. As of March 15, 1997, Fund I had investments in
eight portfolio companies and six private funds with an aggregate of
approximately $31.0 million of invested and/or committed capital.
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The Company will pay the Managing Investment Adviser a management
fee equal to (a) 1.5 % of the Company's net assets that are invested or
committed to be invested in Portfolio Companies or Private Funds and (b) 0.5%
of the Company's net assets that are invested in Short-Term Investments and are
not committed to be invested in Portfolio Companies or Private Funds. In
addition, the Managing Investment Adviser will receive an incentive fee equal
to 20% of the Company's cumulative realized capital gains (net of realized
capital losses and unrealized net capital depreciation) on investments other
than investments in Private Funds, less the aggregate amount of incentive fee
payments in prior years, for providing advisory and administrative services to
the Company. No incentive fee will be paid to the Managing Investment Adviser
with respect to the Company's investments in Private Funds. See "Management."
TERMS OF THE OFFERING AND PURCHASE OF SHARES
The Company is offering up to 150,000 Shares of Common Stock at a
price per Share of $1,000. The minimum investment is $25,000, or 25 shares.
The Company has the right to waive the minimum, at its discretion. The
offering will terminate on July 31, 1997 or such other subsequent date not
later than December 31, 1997 as the Managing Investment Adviser and the Company
may determine (the "Termination Date"). If a minimum of 100,000 Shares or
$100,000,000 has not been subscribed for by the Termination Date, the offering
will terminate and all proceeds from the offering will be refunded to investors
with any interest earned thereon. See "Risk Factors--Minimum Proceeds; Funding
and Portfolio Balance." The Company may continue to offer for sale the
remaining unsold Shares and accept subscriptions for such Shares from time to
time at subsequent closings until the earlier of the Termination Date or the
date all the Shares are sold. Each Subscriber will be required to complete,
execute and deliver to the Selling Agent an executed copy of the Subscription
Agreement attached hereto as Exhibit A (the "Subscription Agreement"). Funds
paid by subscribers will be deposited in an interest-bearing bank escrow
account with U.S. Trust pending each closing. Any change in the price of the
Shares will be set forth in a supplement to this Prospectus. See "Terms of the
Offering and Purchase of Shares."
USE OF PROCEEDS
The Company intends to apply the net proceeds of this offering to make
investments in furtherance of its investment objective and policies. See "Use
of Proceeds."
RISK FACTORS
The Shares offered hereby involve a high degree of risk relating to
both the Company and to the Company's investments. Such risks include, but are
not limited to, the Company's lack of operating history, transactions with
affiliates and potential conflicts of interest, limited public market for the
Shares of the Company, risks associated with and illiquidity of private equity
investments, the possible need for follow-on investments in Portfolio
Companies, competition for investments, lack of diversification in the
Company's portfolio and risks relating to regulation. Investors should
carefully review the section entitled "Risk Factors" in this Prospectus prior
to investing in the Company.
DESCRIPTION OF SHARES
The duration of the Company will be ten years from the final closing
of the sale of the Shares; however, the Managing Investment Adviser has the
right, in its sole discretion, to extend the term for up to two additional
two-year periods, after which the approval of investors who represent 66 2/3%
of the Company's outstanding Shares may determine to extend the term of the
Company. Upon the expiration of the Company's term, the Company will be
dissolved and the Company's portfolio securities will be sold. Each
stockholder will receive a pro rata share of the net proceeds of such sale.
See "Description of Shares."
SELLING ARRANGEMENTS
The Shares are made available through the Selling Agent to clients
of U.S. Trust and its affiliates who meet the investor suitability standards
set forth herein. The Selling Agent may enter into agreements with one or more
sub-selling agents to arrange for
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<PAGE> 9
the sale of the Shares in certain states. Residents of certain states are
required to represent that they meet the investor suitability standards
established by such state. See "Investor Suitability Standards" and "Selling
Arrangements."
FEDERAL INCOME TAX MATTERS
The Company intends to elect the special income tax treatment
available to "regulated investment companies"' under subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). As a result of such
election, the Company will not be subject to federal income tax on that part
of its net investment income and realized capital gains which it pays to its
stockholders. See "Federal Income Tax Matters."
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THE COMPANY
The Company is a newly organized, non-diversified, closed-end
management investment company which has elected to be treated as a BDC under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
which has registered its securities under the Securities Act of 1933, as amended
(the "Securities Act"). The Company's investment objective is to achieve
long-term capital appreciation, rather than current income, by investing in
private equity securities of Later-Stage Venture Capital Companies and
Middle-Market Companies and, subject to the limitations of the Investment
Company Act, in Private Funds which the Managing Investment Adviser believes
offer significant long-term capital appreciation. In addition, the Company will
offer managerial assistance to certain Portfolio Companies. The Board of
Directors may change the Company's status as a BDC under the Investment Company
Act only with the vote of a majority of the outstanding Shares. The Company
provides investors with the opportunity to participate in investments which are
generally not available to the public and typically require substantially larger
financial commitments than the minimum investment in the Company. The Company
is managed by the Managing Investment Adviser under the supervision of the
Company's Board of Directors. The Company was incorporated in Maryland on March
20, 1997. The Company's and U.S. Trust's principal office is located at 114
West 47th Street, New York, New York 10036-1532, and the telephone number of the
Company is (212) 852-3949.
As a BDC, the Company will invest at least 70% of its assets
("qualifying assets") in securities of companies that qualify as "eligible
portfolio companies" under the Investment Company Act. An eligible portfolio
company generally is a United States company that is not an investment company
and that (i) does not have a class of securities registered on an exchange or
included in the Federal Reserve Board's over-the-counter margin list; or (ii) is
actively controlled by a BDC either alone or as part of a group acting together
and has an affiliate of a BDC on its board of directors; or (iii) meets such
other criteria as may be established by the Commission. Control under the
Investment Company Act is presumed to exist where a BDC either alone or as part
of a group acting together owns more than 25% of the outstanding voting
securities of the eligible portfolio company. The Company may maintain up to
30% of its assets as non-qualifying assets; however, the Company intends to
retain maximum flexibility in connection with its investments and, therefore,
does not have a policy as to the minimum percentage of its assets that will be
so invested. The Company expects to maintain approximately 10% of its assets in
Short-Term Investments in order to pay for operating expenses and to meet
contingencies. Short-Term Investments will qualify for determining whether the
Company has 70% of its total assets invested in eligible portfolio securities.
With respect to investment of qualifying assets, the Company intends to
place its emphasis on direct and secondary purchases of:
- Private placements of Later-Stage Venture Capital Companies.
- Private placements of Middle-Market Companies.
The Company intends to invest non-qualifying assets directly or
on a secondary basis primarily in Private Funds.
The Company has no fixed policy concerning the types of businesses or
industry groups in which it will invest or as to the amount of funds that it
will invest in any one issuer; however, the Company currently intends to limit
its investment in any one issuer to 10% of its net assets, at the time of
investment. The foregoing is not a fundamental policy of the Company and may be
changed without stockholder approval. In addition, because of the Company's
election to be treated as a "regulated investment company" under the Code, the
Company will be subject to the diversification requirements of the Code. See
"Federal Income Tax Matters."
The Company will originate its investment opportunities from many
sources including unsolicited proposals from the public, personal contacts of
the Managing Investment Adviser or its affiliates, other venture capitalists,
buyout and private equity investors and referrals from investment banks,
commercial banks, lawyers, accountants and other members of the financial
community, including U.S. Trust personnel. Mr. David Fann, the President and
Chief Executive Officer of the Company and the Division Manager of the
Alternative Investments Division of U.S. Trust, and Mr. Douglas A. Lindgren, the
Chief Investment Officer of the Company and a Senior Vice President of U.S.
Trust, have principal responsibility for evaluating, structuring and selecting
the Company's investments, subject to the review and approval of the Investment
Committee of the Managing Investment Adviser. Mr. Fann and Mr. Lindgren also
serve as President and Chief Executive Officer and Executive Vice President,
respectively, of Fund I.
In general, the Company will make its direct equity investments in a
manner consistent with the general investment philosophy employed by U.S. Trust
in its investment management advisory business. U.S. Trust believes in
following a long-term
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investment philosophy based on identifying opportunities with sustainable
fundamental values. Such values may be found in a company's future earnings
potential or in its existing resources and assets. See "Investment Objective
and Policies."
RISK FACTORS
The Shares offered hereby involve a high degree of risk, including, but
not limited to, the risk factors described below. Each prospective investor
should carefully consider the following risk factors inherent in and affecting
the business of the Company and this offering before making an investment
decision. Prospective investors should consider the information set forth under
"Management -- Potential Conflicts of Interest."
A. RISKS RELATED TO THE COMPANY
LACK OF OPERATING HISTORY
While the key personnel of the Managing Investment Adviser and its
affiliates have considerable experience in venture capital and private equity
investing, including experience with Fund I, the Company has recently been
formed and has no operating history of its own upon which an investor may base
an evaluation of the likely performance of the Company.
MINIMUM PROCEEDS; FUNDING AND PORTFOLIO BALANCE
The Company will begin operations upon the sale of a minimum of 100,000
Shares or a minimum capitalization of approximately $100,000,000. The number of
investments, portfolio balance and potential profitability of the Company could
be affected by the amount of funds at its disposal and, with the minimum
capitalization, the Company's investment return might be adversely affected. The
funding level could negatively impact the number and diversity of investments,
increasing the Company's volatility and risk.
RELIANCE ON THE MANAGING INVESTMENT ADVISER
The investment decisions of the Company will be made exclusively by the
Managing Investment Adviser. Investors will have no right or power to take part
in the management of the Company and will not receive the detailed financial
information made available by issuers to the Managing Investment Adviser in
connection with the review of possible purchases for the Company's portfolio.
Accordingly, investors must be willing to entrust all management aspects of the
Company to the Managing Investment Adviser.
REGULATION
The Company has elected to be treated as a BDC under the Investment
Company Act. The applicable provisions of the Investment Company Act impose
numerous restrictions on the activities of the Company, including restrictions
on the nature of its investments, its use of leverage and its issuance of
securities, options, warrants or rights. Among the restrictions is the
requirement that a majority of the directors be individuals who are not
"interested persons" within the meaning of the Investment Company Act and that
the Company must generally invest at least 70% of its assets in securities of
companies that meet the requirements for "eligible portfolio companies" under
the Investment Company Act. In addition, a BDC must make significant managerial
assistance available to a significant number of the companies whose securities
it purchases. The Managing Investment Adviser believes that the constraints
applicable to BDCs are consistent with the objectives of the Company. However,
such constraints could prohibit the Company from investing in some potentially
attractive situations that might otherwise be available if such an investment
would not disqualify the Company from its status as a BDC.
While the Company is not aware of any judicial rulings under, and is
aware of only a few administrative interpretations of the portions of, the
Investment Company Act applicable to the Company, there can be no assurance that
such provisions will be interpreted or administratively implemented in a manner
consistent with the Company's objectives and intended manner of operation. In
the event that the Board of Directors determines that it cannot operate
effectively as a BDC, the Board of Directors may at some future date decide to
withdraw the Company's election to be treated as a BDC and transform it into an
operating company not subject to regulation under the Investment Company Act and
the special income tax provisions available to "regulated investment companies"
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under the Code, or cause the Company to be liquidated. Should the Board of
Directors seek to withdraw such election, it must obtain the approval of
investors who represent a majority of the Company's outstanding Shares. See
"Regulation."
TRANSACTIONS WITH AFFILIATES; POTENTIAL CONFLICTS OF INTEREST
The Investment Company Act restricts transactions between the Company
and any "affiliated person" (as defined in the Investment Company Act)
including, among others, the Company's officers, directors, principal
stockholders and employees, and any other affiliates of the Company. In many
cases, the Investment Company Act prohibits transactions between the Company and
such persons unless the Company first applies for and obtains an exemptive order
from the Commission. Delays and costs involved in obtaining necessary approvals
may decrease the profitability of such transactions or make it impracticable or
impossible to consummate such transactions. Further, provisions of the Federal
Reserve Act impose restrictions on certain types of transactions ("covered
transactions") between a member bank and its affiliates, as defined in those
provisions. For purposes of these provisions, the Company is an "affiliate" of
the Managing Investment Adviser and Fund I.
Prior to commencement of operations, the Company's Board of Directors
will implement written procedures approved by a majority of the disinterested
Directors that are designed to regulate investment activity by affiliates in
conflict with or in conjunction with the Company's activities, including
adopting a code of ethics containing provisions designed to prevent employees
from engaging in acts prohibited by Rule 17j-1 under the Investment Company Act.
However, circumstances could develop which would require Commission approval in
advance of proposed transactions by the Company or its affiliates with Portfolio
Companies or their affiliates. Depending upon the extent of the Managing
Investment Adviser's influence and control with respect to such Portfolio
Companies, the selection of any affiliates of the Managing Investment Adviser to
perform various services for Portfolio Companies may not be a disinterested
decision and the terms and conditions for the performance of such services and
the amount and terms of compensation to be received therefor may not be
determined in arms-length negotiations, although the terms and conditions of any
such selection are expected to be consistent with those which would be offered
in good faith to an unaffiliated third party retained to provide such services.
The selection of the Managing Investment Adviser or any of its affiliates to
perform services for a Portfolio Company must be approved by a majority of the
disinterested Directors of the Company and the independent and disinterested
directors of the Portfolio Company.
In addition, officers or Directors of the Company or its affiliates,
including the Managing Investment Adviser, may serve as directors of or as
consultants to certain Portfolio Companies and, in connection therewith, may
earn consulting fees, finder's fees, and other fees and commissions, which may
be paid in the form of cash, securities or other forms of consideration. While
the Managing Investment Adviser is obligated to use its best efforts to provide
the Company with a continuing and suitable investment program consistent with
its investment objective and policies, the Managing Investment Adviser is not
required to present to the Company any particular investment opportunity that
falls within the investment objective and policies of the Company except as set
forth in the procedures adopted by the Company's Board of Directors. Such
procedures provide that the Managing Investment Adviser must endeavor to offer
to the Company on an equal basis investment opportunities that would be suitable
for both the Company and other similar private equity funds for which the
Managing Investment Adviser provides discretionary investment advisory services.
The Company's Portfolio Companies may also enter into certain financial
arrangements with the Company and/or its affiliates subject to appropriate
regulatory guidelines or approvals as required. The Company intends to seek an
exemptive order from the Commission relieving the Company, subject to certain
terms and conditions, from certain provisions of the Investment Company Act to
permit co-investments by the Company with Fund I, which is an affiliate of the
Company and the Managing Investment Adviser, and certain other affiliates of the
Company or the Managing Investment Adviser, including certain companies or funds
that may be set up in the future. Such co-investments will be in specified
amounts and on terms and conditions that are the same in all material respects,
subject to the availability of capital for investment on the part of the Company
and each such affiliate and certain other considerations. There can be no
assurance that the Commission will grant such an order or that such affiliates
will have capital available to co-invest with the Company. See "Regulation."
The Managing Investment Adviser and its affiliates will not enter into any such
arrangement with a Portfolio Company unless such arrangement has been approved
by a majority of the disinterested Directors of the Company and by the
independent directors of the Portfolio Company who also have no interest in the
arrangement. Because of their potentially varying investment objectives or
other factors, conflicts could arise between the Company and its affiliates
relating to such co-investments, which can only be resolved through the exercise
by the Managing Investment Adviser of such judgment as is consistent with its
fiduciary duties to the Company. Even with the proper exercise of such
judgment, however, there can be no assurance that potential conflicts will be
resolved in a manner favorable to the Company. The Company will not have
independent management or employees and will rely upon the Managing Investment
Adviser and its affiliates for management and administration of the Company and
its assets. Conflicts of interest may arise in allocating management time,
services or functions between the Company and other entities for which the
Managing Investment Adviser and its affiliates may provide similar services. The
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Company's Board of Directors will supervise the activities of the Managing
Investment Adviser. See "Management--Potential Conflicts of Interest."
UNSPECIFIED USE OF PROCEEDS
Inasmuch as the Company has not identified the particular uses for the
net proceeds from this offering other than to make investments on the basis of
opportunities as they may arise, prospective investors must rely on the ability
of the Managing Investment Adviser to identify and make portfolio investments
consistent with the Company's investment objective. Investors will not have the
opportunity to evaluate personally the relevant economic, financial and other
information which will be utilized by the Managing Investment Adviser in
deciding whether or not to make a particular investment or to dispose of any
such investment. See "Use of Proceeds."
FEDERAL INCOME TAXATION
The Company intends to elect to be treated as a "regulated investment
company" under subchapter M of the Code. As a result of such election, the
Company will not be subject to federal income tax on that part of its investment
income and realized capital gains which it pays out to its stockholders.
However, to the extent it makes insufficient distributions, the Company will be
subject to a nondeductible 4% excise tax and may lose pass-through tax treatment
under subchapter M. See "Federal Income Tax Matters."
LIMITED PUBLIC MARKET FOR THE SHARES; TRADING BELOW NET ASSET VALUE
There is no public market for the Shares and none is expected to
develop. The Shares initially will not be listed on a securities exchange or
quoted on Nasdaq. The Company may subsequently consider applying to have the
Shares listed or quoted; however, there is no assurance that the Shares will
ever be listed or quoted or that an active trading market for the Shares will
develop, and if a market does develop, it may be small and inactive. In
addition, any purchasers must meet the investor suitability standards set forth
herein. Consequently, investors may not be able to liquidate their investment in
the event of emergency or any other reason. To the extent that the Shares may
be listed on a securities exchange or quoted on Nasdaq, investors should note
that shares of closed-end investment companies often trade at prices different
than their net asset value and frequently trade at a discount from net asset
value. See "Regulation."
B. GENERAL RISKS OF INVESTMENTS
RISK OF PRIVATE EQUITY INVESTMENTS
While the Company will be a non-diversified company as defined by the
Investment Company Act, it does not expect to invest more than 10% of its total
assets in any one Portfolio Company. The Company's investments in Private Funds
serve to further diversify its holdings. Since the Company's assets may be
concentrated in relatively few investments, substantial declines in the values
of its investments could have a material adverse effect on the net asset value
of the Company. Although private equity investments offer the opportunity for
significant capital gains, such investments involve a high degree of business
and financial risk that can result in substantial losses. Among these are the
risks associated with investment in companies in an early stage of development
or with little or no operating history, companies operating at a loss or with
substantial variation in operating results from period to period, companies with
the need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage. Such
companies may also face intense competition from others including those with
greater financial resources, more extensive development, manufacturing,
distribution or other attributes, over which the Company will have no control.
The Company anticipates that it may also make investments in high-technology
companies that may face risks of product obsolescence.
ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS
Because of the competition for investments that meet the requirements
for "qualifying assets," the Company anticipates that it may take up to four
years before it is fully invested or committed to invest in Portfolio Companies.
Private equity investments may typically take from four to seven years from the
date of initial investment to reach a state of maturity at which disposition can
be considered. In light of the foregoing, it is unlikely that any significant
distribution of the proceeds from the disposition of private equity investments
will be made until the later years of the Company's term.
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<PAGE> 14
The Company's private equity investments will consist primarily of
securities that are subject to restrictions on sale by the Company because they
were acquired from the issuer in "private placement" transactions or because the
Company is deemed to be an affiliate of the issuer. Generally, the Company
cannot sell these securities publicly without the expense and time required to
register the securities under the Securities Act or sell the securities under
Rule 144 or other rules under the Securities Act which permit only limited sales
under specified conditions. When restricted securities are sold to the public,
the Company may be deemed an "underwriter" or possibly a controlling person
under the Securities Act and be subject to liability as such under the
Securities Act.
In addition, contractual or practical limitations may inhibit the
Company's ability to sell, distribute or liquidate its investments in Portfolio
Companies because the issuers are privately held, because the Company owns a
relatively large percentage of the issuer's outstanding securities, or because
joint venture associates, other investors, financial institutions, or management
are relying on the Company's continued investment. Sales may also be limited by
financial market conditions, which may be unfavorable for sales of securities of
particular issuers or issuers in particular markets. The above limitations on
liquidity of the Company's portfolio investments could prevent a successful sale
and result in the delay of any sale or reduction in the amount of proceeds that
might otherwise be realized. Although the Company will reflect these
restrictive factors in the valuation of its investments, no assurance can be
given that the estimated values will represent the return that might ultimately
be realized by the Company from the investment. See "Valuation of Portfolio
Securities."
NEED FOR FOLLOW-ON INVESTMENTS
Following its initial investments in Portfolio Companies, the Company
anticipates that it may be called upon to provide additional funds to Portfolio
Companies or have the opportunity to increase investments in successful
operations. Although the Company may borrow to make follow-on investments,
there is no assurance that the Company will make follow-on investments or that
the Company will have sufficient funds to make such investments. Any decision
by the Company not to make follow-on investments or its inability to make them
may have a substantial impact on Portfolio Companies in need of such an
investment or may result in a missed opportunity for the Company to increase its
participation in a successful operation.
COMPETITION FOR INVESTMENTS
The Company expects to encounter competition from other entities having
similar investment objectives which may include others that may be affiliated
with the Managing Investment Adviser, including Fund I. Historically, the
primary competition for venture capital, buyout, and other private equity
investments has been from venture capital, buyout and private equity
partnerships and corporations, private equity affiliates of large industrial and
financial companies, small business investment companies, and wealthy
individuals. The Company will frequently be a co-investor with other
professional venture capital, private equity or leveraged buyout groups
including several in which the Company may be an investor. These relationships
with other groups should expand the Company's access to investment
opportunities.
In addition, it is possible that there may be circumstances under which
an additional investment would be considered an affiliated transaction,
requiring prior Commission approval. The receipt of an exemptive order from the
Commission could be time consuming and costly and there can be no assurance that
such approval would be obtained. Moreover, inasmuch as the Company intends to
elect to be taxed as a "regulated investment company" under subchapter M of the
Code, the ability to make additional investments could be restricted by the
diversification requirements of subchapter M. See "Federal Income Tax Matters."
BORROWING
In general, the Company does not intend to borrow funds for investment
purposes. However, the Company may borrow funds to facilitate the making of
follow-on investments, to maintain its pass-through tax status as a regulated
investment company under subchapter M of the Code or to pay contingencies and
expenses. The Company will not borrow to pay the management fee payable to the
Managing Investment Adviser. The Company is permitted under the Investment
Company Act to borrow funds if, immediately after the borrowing, it will have an
asset coverage (as defined in the Investment Company Act) of at least 200%. The
amount and nature of any borrowings will depend upon a number of factors over
which neither the Board of Directors nor the Managing Investment Adviser has
control, including general economic conditions, conditions in the financial
markets and the impact of the financing on the tax treatment of the
stockholders. Subject to the foregoing, the Company may borrow funds in an
amount up to 25% of the value of its assets for operating purposes. See
"Investment Objective and Policies--Borrowing."
Although the Company does not intend to borrow funds to increase the
size of its investment portfolio, the use of leverage even on a short-term basis
could have the effect of magnifying increases or decreases in the Company's net
asset value. The Company
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also expects that, as a condition to lending, lenders may place restrictions on
the Company, which may include reserve requirements or operating restrictions,
and may limit the ability of the Management Investment Adviser to control
investments or their refinancing and the ability of the Company to make
distributions to stockholders. There can be no assurance that debt financing
will be available on terms that the Managing Investment Adviser considers to be
acceptable and in the best interests of the Company. If borrowing is
unavailable, the Company may be required to make an untimely disposition of an
investment or lose its pass-through tax status at some point in the future.
Failure by the Company to distribute a sufficient portion of its net investment
income and net realized capital gains could result in a loss of its
pass-through tax status and/or subject the Company to a 4% excise tax. See
"Federal Income Tax Matters."
LACK OF DIVERSIFICATION
Although the Company intends to elect to be taxed under subchapter M of
the Code and will therefore be required to meet certain diversification
requirements thereunder, the Company intends to operate as a non-diversified
investment company within the meaning of the Investment Company Act and,
therefore, the Company's investments may not be substantially diversified. In
any event, the Company will not be able to achieve the same level of
diversification as much larger entities engaged in similar activities. The
Company's assets may be subject to greater risk of loss than if they were more
widely diversified, inasmuch as the failure of one or more of a limited number
of investments could have a greater adverse effect on the Company than the
failure of one of a large number of investments. See "Investment Objective and
Policies."
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Company is to seek long-term capital
appreciation by making private equity investments in companies and certain
privately offered funds which the Managing Investment Adviser believes offer
significant long-term growth. Current income will not be a significant factor
in the selection of investments. As a BDC, the Company will invest at least 70%
of its assets ("qualifying assets") in certain specified investments including
securities of companies that qualify as "eligible portfolio companies" under the
Investment Company Act. The Company may maintain up to 30% of its assets in
non-qualifying assets; however, the Company intends to retain maximum
flexibility in connection with its investments and, therefore, does not have a
policy as to the minimum percentage of its assets that will be so invested.
Pending investment, for operating purposes and for temporary or emergency
purposes, the Company will invest in Short-Term Investments. The Company
expects to maintain approximately 10% of its assets in Short-Term Investments in
order to pay for operating expenses and to meet contingencies. An investment in
the Company will provide investors with the opportunity to invest in Portfolio
Companies and Private Funds on the same terms as experienced institutional
investors. See "The Company" and "Regulation."
DIRECT EQUITY INVESTMENTS
The Company will seek to achieve its investment objective by investing
at least 70% of its assets in Later-Stage Venture Capital Companies and
Middle-Market Companies. Later-Stage Venture Capital Companies and
Middle-Market Companies are companies in which the equity is closely held by
company founders, management and/or a limited number of institutional investors.
Later-Stage Venture Capital Companies are typically privately held companies
with attractive growth prospects and with products and services being sold or
about to be sold into the market. Middle-Market Companies generally are
privately held companies with annual revenues of $10 million to $250 million.
The Company may also commit to invest funds in a Portfolio Company beyond its
initial investment or guarantee the obligations of a Portfolio Company. The
Company will attempt to reduce the risks inherent in private equity investing by
investing in a diversified portfolio of companies involved in different
industries and different stages of development, through the utilization of
professional management provided by the Managing Investment Adviser in the
selection of private equity investments and through the active monitoring of
such investments.
Investments in Middle-Market Companies will be made in businesses which
the Managing Investment Adviser believes constitute attractive value or offer
growth opportunities. Some of these investments may be made in buyout
transactions in which a change of control may take place and may be financed on
a leveraged basis with debt provided by third parties. The financing and
investment structure of each of these investments will differ depending upon the
growth prospects and the capital needs of the individual businesses. Because of
the degree of debt financing that may be involved in these transactions, risks
apart from those relating to the Company's operations might be incurred.
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The Managing Investment Adviser will evaluate the ability of
prospective investments to produce long-term capital appreciation based upon
criteria that may be modified from time to time. The criteria that will
initially be used by the Managing Investment Adviser in determining whether to
make an investment include:
(i) The presence or availability of competent management;
(ii) The existence of a substantial market for the
products of a company characterized by favorable
growth potential, or a substantial market position in
a stable industry;
(iii) The existence of a history of profitable operations
or a reasonable expectation that operations can be
conducted at a level of profitability acceptable in
relation to the proposed investment; and
(iv) The willingness of a company to permit the Company
and its co-investors, if any, to take a substantial
position in the company and have representation on
its board of directors, so as to enable the Company
to influence the selection of management and basic
policies of the company.
Although the Company is a non-diversified company as defined in the
Investment Company Act, it does not expect to invest more than 10% of its total
assets in any one Portfolio Company or Private Fund. While the Managing
Investment Adviser will retain flexibility to invest in all types of
industries, it currently intends to make investments in companies engaged in
products and services in areas consistent with the general investment
philosophy used by U.S. Trust in its investment management advisory business.
U.S. Trust follows a long-term investment philosophy based on identifying
opportunities with sustainable fundamental values and uses three specific
portfolio strategies to guide investment decision-making.
U.S. Trust's first strategy is the "problem/opportunity strategy"
which seeks to identify industries and companies with the capabilities to
provide solutions to or benefit from complex problems such as the changing
demographics and aging of the U.S. population or the need to enhance industrial
productivity. U.S. Trust's second strategy is a "transaction value" comparison
of a company's real underlying asset value with similar assets changing
ownership in market transactions. Differences between a company's real asset
value and the price of its shares often are corrected over time by
restructuring of the assets or by market recognition of their value. U.S.
Trust's third strategy involves the identification of "early life cycle"
companies whose products are in an earlier stage of development or that seek to
exploit new markets.
The three portfolio strategies discussed above are applied together
with several "longer-term investment themes" to help identify specific
investment opportunities. U.S. Trust believes that the longer-term themes
described below represent strong and inexorable trends and that the
beneficiaries of these trends will be rewarded in the long-term.
- World Energy Needs - companies benefiting from the
availability and delivery of comparatively environmentally
clean, secure hydrocarbon and other energy sources.
- Productivity Enhancers - companies benefiting from their roles
as innovators, developers, and/or suppliers of goods and
services which enhance service and manufacturing productivity
or companies that are most effective at obtaining and applying
productivity enhancements.
- Quality of Life and the Environment - companies concerned with
the quality characteristics, environmental conditions, safety
and security of lives and lifestyles of individuals, families
and companies.
- Changing World Forces - companies benefiting from the
demographics of aging in developed countries and youth in
emerging countries.
- Communication and Entertainment - companies benefiting from
the technological and international transformation of the
communications and entertainment industries, particularly the
convergence of information, communication and entertainment.
- Business and Industrial Restructuring - companies benefiting
from their restructuring or redeployment of assets and
operations in order to become more competitive or profitable.
- Global Competitors - companies benefiting from their position
as effective and strong competitors on a global basis.
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PRIVATE FUNDS
Subject to the limitations of the Investment Company Act, the Company
may invest up to 30% of its total assets in securities of Private Funds and
Private Placements. Such Private Fund investments will generally be made in
venture capital, buyout, and private equity funds managed by third parties.
The Company does not expect to invest more than 10% of its total assets in any
one Private Fund. Such Private Funds, which will not be affiliated with the
_____________________________________
Managing Investment Adviser, will have investment objectives compatible with
___________________________
those of the Company and will involve risks similar to those involved in an
investment in the Company. The Managing Investment Adviser will not have a
role in the management of such funds. Management of private funds typically
charges a management fee and an incentive fee based upon gains. These fees are
in addition to the fees payable to the Managing Investment Adviser.
INVESTMENT PRACTICES
BORROWING. The Company may from time to time borrow funds for
operating purposes in an amount up to 25% of the value of its assets to
facilitate the making of follow-on investments, to maintain its pass-through
tax status or to pay contingencies and expenses. The Company is permitted
under the Investment Company Act to borrow funds in an amount not to exceed
one-half of its available capital (an asset coverage ratio of 200%). This may
be done either through the issuance of debt securities or by obtaining loans
from commercial banks or other sources. If the Company borrows funds through
the issuance of a "senior security representing indebtedness" (as deemed in the
Investment Company Act), distributions to stockholders or the repurchase of
shares is prohibited unless the Company's asset coverage ratio is 200% at the
time of the distribution or repurchase. In general, the Company does not
intend to borrow for investment purposes other than to facilitate the making of
follow-on investments and will not borrow to pay the management fee payable to
the Managing Investment Adviser. See "Regulation."
The Company also expects that, as a condition to lending, lenders to
the Company may place restrictions on the Company, which may include reserve
requirements or operating restrictions, and may limit the ability of the
Managing Investment Adviser to control investments or their refinancing and the
ability of the Company to make distributions to stockholders. There can be no
assurance that the Company will borrow when considered desirable. The Company
may not be able to arrange debt financing on terms acceptable to the Managing
Investment Adviser and the Board of Directors, or the Managing Investment
Adviser and the Board of Directors may believe borrowings are not in the
Company's best interest. If the Company were unable to obtain debt financing,
the Company might be required to sell a portfolio investment at an inopportune
time, or to forego the purchase of an attractive potential or follow-on
investment, due to a short-term liquidity problem. In either case, the value
of the Company's investment portfolio, and of the Shares, could be adversely
affected. See "Risk Factors--Borrowing."
OTHER INVESTMENT POLICIES. The Company will not sell securities
short or on margin, write puts or calls or purchase or sell commodities or
commodity contracts. The Company will not underwrite the issuance of
securities of other companies. Where necessary, the Company may make follow-on
investments in Portfolio Companies to protect its original investment and may
continue to invest in restricted securities of such Portfolio Companies.
The Company will not lend its assets to any person or individual,
except through the purchase of bonds or other debt obligations customarily sold
to institutional investors. However, the Company may, subject to limitations
of the Investment Company Act, lend portfolio securities if collateral values
are continuously maintained at no less than 100% by "marking to market" daily.
The collateral received will consist of cash, U.S. short-term government
securities, bank letters of credit or such other collateral as may be permitted
under the Company's investment objective and policies and by regulatory
agencies and approved by the Board of Directors of the Company. While a loan
of portfolio securities is outstanding, the Company will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in receiving additional
collateral or in recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially.
The Company will not invest in real estate or oil, gas or other mineral
leases, either directly or indirectly (including limited partnership interests
of entities which invest in real property or interests in oil, gas or minerals).
The Company's objective and its policies (other than its status as a
BDC) are not deemed to be fundamental policies and all may be changed at any
time and from time to time without stockholder approval.
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TERMS OF THE OFFERING AND PURCHASE OF SHARES
The Company is offering up to 150,000 Shares of Common Stock at a
price per Share of $1,000. The minimum investment is $25,000, or 25 shares.
The Company has the right to waive the minimum, at its discretion. If a
minimum of 100,000 Shares or $100,000,000 has not been subscribed for by the
Termination Date, the offering will terminate and all proceeds from the
offering will be refunded to investors with any interest earned thereon and
without any deductions. See "Risk Factors--Minimum Proceeds; Funding and
Portfolio Balance." Each subscriber will be required to complete, execute and
deliver to the Selling Agent an executed copy of the Subscription Agreement
which must be accompanied by a check payable to the order of "United States
Trust Company of New York -- Escrow Agent" in the amount of $1,000 for each
Share the subscriber desires to purchase. There are no sales charges or other
commissions payable in connection with the purchase of the Shares.
Funds paid by subscribers will be deposited in an interest-bearing
bank escrow account with U.S. Trust pending each closing. In the event the
Company rejects a subscriber's Subscription Agreement or a subscriber elects to
withdraw his subscription prior to a closing date, U.S. Trust will promptly
deliver to such subscriber all funds received; any interest earned on such
funds will be returned within five business days of the next closing after such
rejection or withdrawal.
It is expected that a first closing will be held and that certificates
representing the Shares will be delivered on or about the fifth business day
after receipt by U.S. Trust of subscription funds representing 100,000 Shares
or $100,000,000. The Company may continue to offer the remaining unsold Shares
and accept subscriptions for such Shares from time to time at subsequent
closings until the earlier of the Termination Date or the date all Shares are
sold. Within five days after each closing, U.S. Trust will mail to each
subscriber checks in the respective amounts of interest earned. If the minimum
of 100,000 Shares is sold, any charges or expenses will be paid by the Managing
Investment Adviser.
The Investment Company Act limits the ability of the Company to sell
the Shares at a price representing proceeds to the Company that is less than
the then net asset value per Share. Shares in the Company will be sold at a
price of $1,000 per Share. The price will be adjusted if at any closing during
the offering made hereby, the market value of a Share, based upon the Company's
net asset value, does not equal $1,000 per Share due to a change in the value
of the Company's investments. This Prospectus will be supplemented to reflect
any such change in the price.
INVESTOR SUITABILITY STANDARDS
Shares will be sold only to prospective investors who represent to the
Selling Agent that they (i) have a net worth (exclusive of homes, home
furnishings and automobiles) of $250,000 or (ii) have a net worth (exclusive of
homes, home furnishings and automobiles) of $60,000 and expect to have during
each of the current and the next three tax years income from any source of
$60,000 or more. In addition, Shares will not be sold to a trust account
unless such trust account has total assets in excess of $500,000. Residents of
certain states are required to represent that they meet the investor
suitability standards established by such state.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered
hereby will be approximately $150,000,000 if all Shares are sold and before
deducting organizational and initial offering expenses in the amount of
approximately $222,000.
No portion of the net proceeds of the offering has been allocated to
any particular investment. However, the proceeds will be utilized in a manner
consistent with the Investment Company Act. The proceeds will be used to
invest in Portfolio Companies and Private Funds, and for working capital and
general corporate purposes. Pending investment, for operating purposes and for
temporary or emergency purposes, such proceeds will be invested, in compliance
with the Investment Company Act, in Short-Term Investments. The Company
expects to maintain approximately 10% of its assets in Short-Term Investments
in order to pay for operating expenses and to meet contingencies. Short-Term
Investments will qualify for determining whether the Company has 70% of its
total assets invested in eligible portfolio securities. See "Regulation."
It is anticipated that there will be a significant period of time (up
to four years) before the Company becomes fully invested. A delay is common
for BDCs because of the competition for investments in entities that meet the
requirements for "qualifying assets". Further, investments in Portfolio
Companies may typically take from four to seven years from the date of initial
investment to reach a state of maturity at which disposition can be considered.
In light of the foregoing, it is unlikely that any significant distribution of
the proceeds from the disposition of Portfolio Companies will be made until the
later years of the existence of the Company. See "Risk Factors."
MANAGEMENT
MANAGING INVESTMENT ADVISER; COMPENSATION
United States Trust Company of New York will serve as the Managing
Investment Adviser of the Company pursuant to an investment management
agreement with the Company (the "Management Agreement"). The Managing
Investment Adviser has managed Fund I, a registered BDC, since September 1994.
The following list includes all the private companies and private
funds in which Fund I has invested as of March 15, 1997. The list is intended
to illustrate the types of investments with which the Managing Investment
Adviser has had investment experience.
Portfolio Companies
___________________
- AbTox Corp., Mundelein, Illinois
AbTox manufacturers low temperature, gas plasma
sterilizers used by hospitals and medical device
manufacturers. The company believes that gas plasma
sterilization is more effective for applications
involving complex surgical tools used in minimally
invasive surgeries than traditional methods.
- Cardiopulmonary Corporation, Milford, CT
Cardiopulmonary Corporation has developed a unique,
software-driven life support ventilator which
automatically adapts to patients' changing breathing
patterns. This FDA approved product is designed to
lead to better clinical outcomes and faster weaning
cycles resulting in higher quality care and lower
treatment costs.
- CommSite International Inc., Vienna, VA
CommSite International Inc. ("CommSite") is a
wireless communications antennae site location and
site management company. CommSite has contracts with
several of the major wireless providers to assist in
the build-out of paging, personal communications
services and other wireless networks.
- Corsair Communications, Palo Alto, CA.
Corsair Communications, Inc. ("Corsair") is a
provider of equipment and services to combat cellular
telephone fraud and to improve cellular networks.
Corsair's technology, radio frequency fingerprinting,
is used to differentiate legitimate cellular calls
from counterfeit calls made on "cloned phones." To
date, the
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company has successfully deployed its products in New
York, Philadelphia, Los Angeles, Boston and in
several other domestic and international markets.
- Pro-Communications, Inc., Princeton, NJ
Pro Communications, Inc. is the largest provider of
telemessaging services to small and medium-sized
businesses in the United States. The company's
strategy is to consolidate the telemessaging industry
while seeking to provide add-on services to drive
revenue growth.
- Quicklogic Corporation, Sunnyvale, CA
QuickLogic Corporation is an emerging leader in the
rapidly growing market for programmable
semiconductors. The company positions its products
as a means for their customers to bring products to
market faster and more economically.
- Rental Services Corporation, Scottsdale, AZ
Rental Service Corporation is a heavy equipment
rental company serving the business to business
market in the Southeast. Rental Services
Corporation's strategy is to exploit the outsourcing
trend and to consolidate the fragmented equipment
rental industry. Rental Service Corporation had an
initial public offering in September 1996 (ticker:
RSVC).
- Best Friends Pet Resorts and Salons, Norwalk, CT
Best Friends is the largest provider of boarding and
grooming services for dogs and cats in the US. The
company's strategy is to provide superior service
through a network of clean and conveniently located
facilities.
Private Funds
_____________
- Brentwood Associates Buyout Fund II, LP
Brentwood Associates Buyout Fund II, LP ("Brentwood")
specializes in consolidation buyouts of businesses
operating within fragmented industries. Typically,
the partners of Brentwood identify industries with
consolidation characteristics and develop a strategy
for implementation. Brentwood then recruits managers
to execute the strategy.
- Bruckmann, Rosser, Sherrill & Co., LP
Bruckmann, Rosser, Sherrill & Co., LP ("BRS") is a
spin-off of the principals of Citicorp Venture
Capital, Ltd. where they had been responsible for the
successful buyouts of J&L Specialty Steel, Reliance
Electric, Steak & Ale, and Bennigan's Restaurants,
among others. BRS's strategy is to buy companies in
a traditional management buyout framework using
financial leverage.
- Lawrence, Smith & Horey III, LP
Lawrence, Smith & Horey III, LP is a later-stage
venture capital firm focused on investing in
companies on the East Coast. The firm's expertise
lies in new media, technology and services. The
firm's principals were responsible for successful
venture capital investments in Federal Express,
Oxford Healthplans and Autotote.
- Morgenthaler Venture Partners IV, LP
Morgenthaler Venture Partners IV, LP invests in
information technology and healthcare companies at
various stages of development as well as buyouts of
basic businesses. The firm's principals were
responsible for successful venture capital
investments in Apple Computer, Synopsys, Atria
Software, Premysis Software and CardioThoracic.
- Sevin Rosen V, LP
Sevin Rosen V, LP ("Sevin Rosen") is a firm which
provided early-stage financing to companies such as
Lotus, Compaq Computer, Silicon Graphics, Cypress
Semiconductor, Electronic Arts, and Cyrix. Sevin
Rosen is focused on investing in early-stage
companies in the communications, healthcare, and
computer software and hardware sectors.
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<PAGE> 21
- Vanguard Ventures V, LP
Vanguard Ventures V, LP ("Vanguard") is a seed and
early-stage venture capital firm targeting technology
companies in the Silicon Valley and healthcare
companies in California and Texas. Vanguard also
incubates previously successful entrepreneurs who are
developing new ventures. Some of their successful
investments include Ciena, Advanced Fibre
Communications and Network Application.
Under the supervision of the Company's Board of Directors, the
Managing Investment Adviser is responsible for finding, evaluating,
structuring, and monitoring the Company's investments in Portfolio Companies,
Private Funds and Short-Term Investments and performing the management and
administrative services necessary for the operation of the Company. In
addition, the investment professionals in charge of the day-to-day management
of the Company have extensive experience in venture capital and alternative
investment strategies. See "Directors, Officers and Investment Professionals"
below. The Managing Investment Adviser will also make available personnel and
services to Portfolio Companies requiring managerial assistance.
U.S. Trust provides investment management, trust and banking services
to individuals, corporations and institutions. U.S. Trust is a member bank of
the Federal Reserve System and the Federal Deposit Insurance Corporation and is
one of the twelve members of the New York Clearing House Association. On
December 31, 1996, U.S. Trust's Asset Management Group had approximately $53
billion in assets under management. The principal business address of the
Managing Investment Adviser is 114 West 47th Street, New York, New York
10036-1532.
In return for its services and the expenses which the Managing
Investment Adviser assumes under the Management Agreement, the Company will pay
the Managing Investment Adviser, on a quarterly basis, a management fee equal
to (a) 1.5 % per annum of the net assets of the Company, determined as of the
end of each calendar quarter, that are invested or committed to be invested in
Portfolio Companies or Private Funds and (b) 0.5 % of the net assets of the
Company, determined as of the end of each calendar quarter, that are invested
in Short-Term Investments and are not committed to Portfolio Companies or
Private Funds. The management fee is payable in arrears on the last day of
each calendar quarter. See "The Company" and "Regulation."
In addition to the management fee, the Company has agreed to pay the
Managing Investment Adviser an incentive fee in an amount equal to 20% of the
realized capital gains (net of realized capital losses and unrealized net
capital depreciation) on Direct Investments, less the aggregate amount of
incentive fee payments in prior years. No incentive fee will be paid to the
Managing Investment Adviser with respect to the Company's investments in
Private Funds. If the amount of the incentive fee in any year is a negative
number, or cumulative net realized capital gains less net unrealized capital
depreciation at the end of any year is less than such amount calculated at the
end of the previous year, the Managing Investment Adviser will be required to
repay to the Company all or a portion of the incentive fee previously paid.
THE MANAGEMENT AGREEMENT
The Management Agreement provides that the Managing Investment Adviser
shall identify, evaluate, structure, monitor and dispose of the Company's
investments and provide, or arrange for suitable third parties to provide, any
and all management and administrative services reasonably necessary for the
operation of the Company and the conduct of its business. Such management and
administrative services include, without limitation, providing the Company with
office space, equipment, facilities and supplies and clerical services; keeping
and maintaining the books and records of the Company, administering
stockholders' accounts and handling communications and correspondence with
stockholders, preparing accounting, management and other reports; and providing
such other managerial and administrative services as may be reasonably
requested by the Company.
Under the Management Agreement, the Company is obligated to bear all
costs and expenses directly allocable and identifiable to the Company or its
business or investments, including, but not limited to, fees of the directors;
fees of the Managing Investment Adviser; expenses of registering the Shares
under federal and state securities laws; interest; taxes; fees and expenses of
the Company's legal counsel and independent accountants; fees and expenses of
the transfer agent; expenses of printing and mailing Share certificates,
stockholder reports, notices to stockholders and proxy statements; reports to
regulatory bodies; brokerage and other expenses in connection with the
execution, recording and settlement of portfolio security transactions;
expenses in connection with the acquisition and disposition of portfolio
securities or the registration of privately issued portfolio securities; costs
of third party evaluations or appraisals of the Company (or its assets) or its
actual investments; expenses of membership in investment company associations;
expenses of fidelity bonding and other insurance premiums; expenses of
stockholders' meetings; Commission and state blue sky registration fees; fees
payable to the National Association of Securities Dealers, Inc. (the "NASD"),
if any, in connection with this offering; and the Company's other business and
operating expenses.
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<PAGE> 22
The Management Agreement provides for indemnification by the Company
of the Managing Investment Adviser from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses) not
resulting from bad faith, negligence, misconduct or any breach of fiduciary
duty owed to the Company by the Managing Investment Adviser. The Management
Agreement provides that indemnification shall be made only following: (i) a
final decision on the merits by a court or other body before whom the
proceeding was brought that the Managing Investment Adviser was not liable by
reason of bad faith, negligence, misconduct or any breach of fiduciary duty
owed to the Company or (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Managing Investment
Adviser was not liable by reason of bad faith, negligence, misconduct or any
breach of fiduciary duty owed to the Company by (a) the vote of a majority of a
quorum of the disinterested Directors of the Company who are not parties to the
proceeding or (b) independent legal counsel in a written opinion.
Indemnification is limited by Sections 17(h) and (i) of the Investment Company
Act.
The Management Agreement provides that it shall continue in effect for
two years and that, after the initial period of effectiveness, it will continue
in effect for successive annual periods, provided that such continuance is
specifically approved at least annually by the vote of a majority of the Board
of Directors of the Company who are not parties to the Management Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such continuance, and either: (i) the vote of a
majority of the outstanding Shares of the Company; or (ii) the vote of a
majority of the full Board of Directors of the Company. The Management
Agreement also provides that it may be terminated at any time, without the
payment of any penalty, either by: (i) the Company, by action of the Board of
Directors or by vote of a majority of the outstanding Shares of the Company, on
60 days' written notice to the Managing Investment Adviser; or (ii) the
Managing Investment Adviser, on 90 days' written notice to the Company. The
Management Agreement will terminate immediately in the event of its
"assignment" (as defined in the Investment Company Act).
INVESTMENT OPERATIONS
The Managing Investment Adviser will initiate, screen and monitor the
private equity investments of the Company. The Managing Investment Adviser
anticipates that it may take up to four years for the Company to become fully
invested. The Managing Investment Adviser will invest at least 70% of the
Company's assets in Later-Stage Venture Capital and Middle-Market Companies and
up to 30% of such assets in Private Funds.
Private equity investments will typically be structured in negotiated,
private transactions directly with the issuer. The Company's investments will
generally consist of non-publicly traded equity and equity-like securities
subject to certain regulatory and other restrictions. In connection with most
Company investments, the Managing Investment Adviser will work with the
Portfolio Company to develop and implement the Portfolio Company's long-term
strategy and to enhance its value.
The Investment Committee of the Managing Investment Adviser, which
consists of senior investment professionals of U.S. Trust, will make the final
investment decisions regarding any investment proposal made by the Managing
Investment Adviser.
Deal Origination. Investment proposals may come to the attention of
the Managing Investment Adviser from many sources including unsolicited
proposals from the public, personal contacts of the Managing Investment Adviser
or its affiliates, other venture capitalists and private equity investors and
referrals from investment banks, commercial banks, lawyers, accountants and
other members of the financial community, including U.S. Trust personnel. The
Managing Investment Adviser believes that investment opportunities may also come
from several venture capital and private equity funds of which it or any of its
affiliates may be an investor. Under certain circumstances, such opportunities
may require prior exemptive relief from the Commission. See "Risk
Factors--Transactions with Affiliates; Potential Conflicts of Interest" and
"Regulation."
Evaluation of Investment Opportunities. Prior to committing funds to
an investment opportunity, a disciplined investment process is undertaken which
includes a legal, financial, tax, industry, and company due diligence
investigation by the Managing Investment Adviser to assess the prospects and
risks of the potential investment. The experience and expertise of the
officers of the Managing Investment Adviser will be essential in evaluating
products, markets, industry trends, financial requirements, competition and the
management team associated with a prospective investment. The Managing
Investment Adviser expects to be able to discuss the merits of particular
investment opportunities with the U.S. Trust Investment Research Division and
may seek its assistance in due diligence and the evaluation of investment
opportunities. Each investment opportunity will need to be approved by the
Investment Committee of the Managing Investment Adviser.
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<PAGE> 23
Structuring of Investments. The terms and conditions of the
investments acquired will result from negotiations directly with the Portfolio
Company or an affiliate thereof. The Managing Investment Adviser will be
responsible for conducting such negotiations on behalf of the Company and will
seek to structure the terms of the investment to provide for the capital needs
and success of the issuer and at the same time to maximize the Company's
opportunity for long-term capital appreciation. An important factor in
successful private equity investing is proper structuring of the transaction in
terms of such matters as price, type of security, restrictions on use of funds,
commitments or rights to provide additional financing, control and involvement
in the issuer's business and liquidity.
Management Assistance and Monitoring of Investments. Successful
business development investing requires active monitoring and participation and
influence on major business decisions. Representatives of the Managing
Investment Adviser and/or its affiliates will frequently serve as members of
the board of directors or advisory boards of Portfolio Companies or will have
visitation rights to those companies. Board representation, as well as a close
working relationship with the operating management, should enable the Company
to exercise influence and provide management assistance with respect to such
matters as capital structure, budgets, profit goals, diversification strategy,
financing requirements, management additions or replacements and developing a
public market for the securities of the Portfolio Companies. The close
tracking of internal financial statements and progress reports, as well as an
active working relationship with management, form the basis of effective
portfolio monitoring and risk management.
Liquidation of Investments. In order to realize the investment
objective of capital appreciation, private equity investments must be
liquidated. The method and timing of the liquidation of investments are
critical elements to maximizing portfolio return. The Company expects to
liquidate its investments through a variety of transactions, including mergers,
negotiated sales of Portfolio Companies, sales in registered public offerings,
sales in the public markets of registered securities and recapitalizations. In
structuring the investments, the Managing Investment Adviser will endeavor to
reach such understanding with the Portfolio Company or its affiliates as may be
appropriate as to the method and timing of liquidation of the Company's
investments and will usually seek to obtain registration rights at the expense
of the issuer and reporting compliance for eligible companies under Rule 144
under the Securities Act. Timing of divestiture or liquidation depends on the
performance of the Portfolio Company, the ability of the Portfolio Company to
refinance its outstanding securities and other financial market opportunities.
See "Risk Factors--Liquidity of Private Equity Investments." The Company will
bear the costs of liquidating investments to the extent that such expenses are
not paid by the issuer.
DIRECTORS, OFFICERS AND INVESTMENT PROFESSIONALS
The following are descriptions of the members of the Board of
Directors and the officers of the Company as well as of key employees of the
Managing Investment Adviser, including the members of its Investment Committee,
key investment professionals, and research professionals active in the
management of the Company. Unless otherwise noted, the business address of
each individual listed below is 114 West 47th Street, New York, New York,
10036.
Directors and Officers of the Company
* Edith A. Cassidy, Chairman of the Board and Director. Ms. Cassidy is
a Managing Director of U.S. Trust and oversees its Investment Research
Division. Prior to joining U.S. Trust in 1989, Ms. Cassidy was
employed by Piper, Jaffray and Hopwood as an Investment Executive, and
by the IBM Corporation. Ms. Cassidy serves on the Board of
Westmoreland Davis Foundation. She holds a BA degree from Goucher
College. Ms. Cassidy serves as Chairman and a director of Fund I.
Gene M. Bernstein, Director. Mr. Bernstein has been the President of
BIG Venture Inc., a privately held golf equipment marketing firm since
March 1994. From 1990 until 1994, he was the President of Northville
Industries Corp., a privately held corporation engaged in petroleum,
marketing, distribution and trading. Mr. Bernstein was Executive Vice
President of Northville Industries Corp. from 1982 to 1989. He is a
director of Oxford Resources Corp., a public corporation. Mr.
Bernstein holds a BA degree in English Literature from Alfred
University, an MA degree in English Literature from the University of
Wisconsin and a Ph.D. in English Literature from the University of
Massachusetts. Mr. Bernstein serves as a director of Fund I.
Stephen V. Murphy, Director. Since 1991, Mr. Murphy has been
President of S.V. Murphy & Co., Inc., an investment banking firm which
specializes in mergers and acquisitions, divestitures and strategic
and
______________________
*Indicates an "interested person" of the Company within the meaning of the
Investment Company Act.
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<PAGE> 24
capital-related advisory services for financial institutions. From
1988 until 1990, he was Managing Director of Merrill Lynch Capital
Markets in charge of the Financial Institutions Mergers and
Acquisitions Department. Prior to 1988, Mr. Murphy was Managing
Director of The First Boston Corporation where he headed up its
Investment Banking Department's Commercial Bank Group. He is a
director of Oxford Resources Corp., a public corporation. Mr. Murphy
holds a BSBA degree from Georgetown University and an MBA degree from
Columbia University. Mr. Murphy serves as a director of Fund I.
David I. Fann, President, Chief Executive Officer. As Division
Manager of the Alternative Investments Division of U.S. Trust, Mr.
Fann is responsible for private equity investing, hedge funds, and
real estate investing for U.S. Trust. Mr. Fann will have day-to-day
management responsibility of the Company for the Managing Investment
Adviser. Prior to joining U.S. Trust in April of 1994, Mr. Fann
served in various capacities for Citibank from 1986 through 1994,
including, as a Vice President of Citibank and its small business
investment company subsidiary, Citicorp Venture Capital Ltd. from 1991
until 1994. While at Citicorp Venture Capital Ltd., Mr. Fann invested
in buyout and venture capital transactions and venture capital funds
and served on the Board of Directors of several of its portfolio
companies. Mr. Fann holds a BAS degree in industrial engineering and
economics from Stanford University. Mr. Fann is on the Board of the
Sommerset Exchange Fund (a closed-end investment company) and AbTox,
Inc.
Douglas A. Lindgren, Chief Investment Officer. Mr. Lindgren is a
Senior Vice President of U.S. Trust. Prior to joining U.S. Trust in
April 1995, Mr. Lindgren served in various capacities for Inco Venture
Capital Management, Inc. ("IVCM") from January 1988 through March
1995, including the positions of President and Managing Principal from
January 1993 through March 1995. While at IVCM, Mr. Lindgren invested
in venture capital and buyout transactions and served on the Board of
Directors of several of its portfolio companies. Before joining IVCM,
Mr. Lindgren was employed by Salomon Brothers Inc and Smith Barney,
Harris Upham & Co., Inc. He is an Adjunct Professor of Finance at
Columbia University's Graduate School of Business, where he teaches
courses on venture capital. Mr. Lindgren holds MBA and BA degrees
from Columbia University. Mr. Lindgren serves on the Board of
CommSite International Inc. and Pro Communications Inc.
Ronald A. Schwartz, Corporate Secretary. Mr. Schwartz is Vice
President and Assistant General Counsel of U.S. Trust. Prior to
joining U.S. Trust in 1991, Mr. Schwartz was associated with the firm
of Walter, Conston, Alexander & Green from 1985 through 1990, with a
focus on securities law as well as mergers and acquisitions. Mr.
Schwartz received a BA and an MA degree from the University of
California at Berkeley, and a JD from Boalt Hall, University of
California.
Brian F. Schmidt, Chief Financial Officer. Mr. Schmidt is the
Division Manager of Mutual Funds with the Pooled Investments Division
of U.S. Trust. He is responsible for the operation and administration
of the Excelsior Family of Funds and the U.S. Trust Common Trust
Funds. Mr. Schmidt joined U.S. Trust in 1991 from Prudential
Insurance Company of America, where he was Director of Accounting.
Prior to that he was a senior accounting manager at Dreyfus
Corporation. Mr. Schmidt has 16 years of experience in financial
services, concentrating in mutual funds. He received his BS degree
from Marist College. He is on the accountant's and treasurer's
committee of the Investment Company Institute and is a member of the
International Association of Financial Planning.
Frank D. Bruno, Treasurer. Mr. Bruno is a Vice President in the
Mutual Funds Administration Department in the Pooled Investments
Division of U.S. Trust. Prior to joining U.S. Trust, he worked for
the Dreyfus Corporation and Price Waterhouse. Mr. Bruno received his
BS degree from The Pennsylvania State University.
Investment Committee of the Managing Investment Adviser
Frederick B. Taylor, Chairman of the Investment Committee. As Vice
Chairman and Chief Investment Officer of U.S. Trust, Mr. Taylor
oversees all of the investment management business of U.S. Trust, is
responsible for developing and implementing U.S. Trust investment
policy and presently serves as Chairman of the U.S. Trust Portfolio
Policy Committee. Mr. Taylor received his BA degree with distinction
from Wesleyan University and his MBA degree from the Wharton School of
the University of Pennsylvania. He is a member of the New York
Society of Security Analysts and the Association for Investment
Management and Research.
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Paul K. Napoli, Co-Chairman of the Investment Committee. Mr. Napoli
is Executive Vice President and Division Manager of the Personal
Investment Division of U.S. Trust. He also has responsibility for the
broker-dealer operations and the New York region subsidiaries of U.S.
Trust and is Chairman of U.S. Trust International Corporation. He is
also a member of the board of directors of U.S. Trust of New Jersey,
Campbell Copperthwait and U.S. Trust of Connecticut. Mr. Napoli
received his BA degree from Boston College and his MBA degree from
Columbia University. He is a Chartered Financial Analyst, a Certified
Trust and Financial Adviser and a member of the New York Society of
Security Analysts and the Association for Investment Management and
Research.
Edith A. Cassidy, see "Directors and Officers of the Company."
John J. Apruzzese, Managing Director and Senior Portfolio Manager of
U.S. Trust. Previously, Mr. Apruzzese was a staff member of the Labor
and Human Resources Committee of the United States Senate where he
worked on federal budget matters. Mr. Apruzzese received his BA
degree from Bucknell University and his MBA degree from New York
University. Mr. Apruzzese is a Chartered Financial Analyst and a
member of the New York Society of Security Analysts.
Richard L. Bayles, Managing Director and Senior Portfolio Manager of
U.S. Trust, currently manages the Excelsior Income and Growth Fund and
the U.S. Trust Stock Fund for Trusts. Mr. Bayles received his BA from
Dartmouth College.
Harvey A. Seline is a Managing Director and Senior Portfolio Manager
of U.S. Trust. Prior to joining U.S. Trust, Mr. Seline was a Trust
Investment Officer at The National Bank of Tulsa and a Trust Analyst
at First City National Bank in Houston. Mr. Seline received a BA
degree from the University of Colorado, and an MBA degree from
Columbia University. Mr. Seline is a Chartered Financial Analyst, a
member of the New York Society of Security Analysts, and a member of
the Association for Investment Management and Research.
David A. Tillson, Managing Director and Senior Portfolio Manager of
U.S. Trust, currently manages the Excelsior Equity Fund. Prior to
joining U.S. Trust, he was founder and President of TDA Capital
Management Company. Previously, he held positions of First Vice
President at W.P. Carey & Co. Inc. and Second Vice President at
General Reinsurance Corp. Mr. Tillson received an AB degree from
Brown University and an MBA degree from New York University. Mr.
Tillson is a Chartered Financial Analyst, a member of the New York
Society of Security Analysts and a member of the Association for
Investment Management and Research.
David J. Williams, Managing Director and Senior Portfolio Manager of
U.S. Trust, manages the Excelsior Business and Industrial
Restructuring Fund. Previously, Mr. Williams was Senior Vice
President of Horizon Trust Company. He was also a portfolio manager
of T. Rowe Price Associates. Mr. Williams received a BA degree from
Yale University and his MBA degree from Harvard University. He is a
Chartered Financial Analyst.
William V. Ferdinand, Managing Director and Senior Investment Officer
of U.S. Trust Company of Connecticut. Mr. Ferdinand joined U.S.
Trust from The Penn Mutual Life Insurance Company where he served as
Executive Vice President and Chief Investment Officer as well as
President and Chief Executive Officer of its investment management
subsidiaries. He also founded the Penn Janney Fund, Inc., a mezzanine
venture capital fund and served as Chairman and CEO. Mr. Ferdinand is
a CFA and received his BS degree from the University of Pennsylvania
Wharton School of Business and his MBA degree from New York
University. Mr. Ferdinand is a member of the New York Society of
Security Analysts and the Association for Investment Management and
Research.
Jay B. Springer, Managing Director of U.S. Trust. Mr. Springer has
been a portfolio manager since he joined U.S. Trust in 1983 and has
managed the Excelsior Early Life Cycle Fund since 1986. Mr. Springer
graduated magna cum laude from Boston University and received his MBA
from New York University in 1983. Mr. Springer serves on the Board of
Directors of Bank Fiduciary Funds and is a committee member of the New
York State Bankers Association.
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Leigh Weiss, Senior Vice President of U.S. Trust and Manager of
Institutional Equity and Balanced Portfolios. Mr. Weiss has been with
U.S. Trust since September 1993. Prior to joining U.S. Trust, he
worked for Goldman, Sachs & Co., where he had been since 1981. Mr.
Weiss received his BS degree in economics from the Wharton School of
the University of Pennsylvania and he earned his MBA from the
University of Chicago
U. S. Trust Investment Research Division
William G. Becker, Vice President of U.S. Trust, covers the changing
world demographics theme with emphasis on the automobile and consumer
sectors. Prior to joining U.S. Trust in 1979, Mr. Becker was a
security analyst for Dean Witter Reynolds, First Manhattan, Dominick &
Dominick and Eastman Dillon-Union Securities. He is a member of the
Financial Analysts Federation and the New York Society of Security
Analysts. He is also a member of the New York Automobile Analysts,
the Retailing and Merchandising Analysts Societies and the New York
Consumer Analysts Group of New York. Mr. Becker received a BS degree
from Rutgers University and received an MS degree from Boston
University.
Jimmy Chang, Vice President of U.S. Trust, covers the productivity
enhancers theme with emphasis on technology. Mr. Chang joined U.S.
Trust in 1994 from IBM, where he was an account manager for four
years, marketing to selected international banks. Prior to that, he
was an IBM Systems Engineer. Mr. Chang received his Bachelor of
Engineering degree from Cooper Union in 1985, graduating summa cum
laude. He received his MBA degree in finance and international
business from New York University in 1992.
Joan Ellis, Vice President of U.S. Trust, focuses on the business and
industrial restructuring theme with emphasis on financial services.
Prior to joining U.S. Trust in 1984, she worked for the Peabody Museum
of Salem. Ms. Ellis received her BA degree from Pomona College and
received her MBA degree from New York University. Ms. Ellis is a
Chartered Financial Analyst.
Ronald A. Fisher, Vice President of U.S. Trust, covers the
productivity enhancers, quality of life and environment, global
competitors, and communications and entertainment investment themes
with special focus on capital goods, water treatment, and
entertainment software. Mr. Fisher co-manages the Excelsior
Productivity Enhancers Fund. Prior to joining U.S. Trust in 1994, Mr.
Fisher worked for Nippon Credit Bank, Citicorp., and Chemical Bank.
Mr. Fisher received his BA degree from Tufts University, and his MBA
degree from The Wharton School at the University of Pennsylvania.
John F. Gordon Jr., Vice President of U.S. Trust, focuses on the
business and industrial restructuring theme with emphasis on
paper/forest products. Prior to joining U.S. Trust in 1967, Mr.
Gordon worked for Morgan Stanley & Co. Mr. Gordon received his BA
degree from Amherst College and was awarded his MBA degree from the
University of Michigan.
Robert C. Hodgson, Vice President of U.S. Trust, focuses on the
changing world demographics and global competitors investment themes
with particular emphasis on health care. Prior to joining U.S. Trust
in 1995, Mr. Hodgson worked as a pharmaceutical analyst for Cowen &
Co., Oppenheimer & Co. and Shearson Lehman, and as a financial and
strategic planning analyst for American Optical Corp. and Pfizer.
From 1991 through 1994, he was a runner-up in the Institutional
Investor Survey of pharmaceutical analysts and ranked in the top four
in the Greenwich Survey. Mr. Hodgson received his BS and MBA degrees
from the University of North Carolina.
Michael E. Hoover, Senior Vice President of U.S. Trust, focuses on
communications and entertainment and long-term supply of energy
themes. Mr. Hoover manages the Excelsior Communications and
Entertainment Fund and the Excelsior Long Term Supply of Energy Fund.
Prior to joining U.S. Trust in 1989, Mr. Hoover worked for Gruntal &
Company, and Manufacturers Hanover. Mr. Hoover received a BA degree
from Dartmouth College.
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CUSTODIAN AND TRANSFER AGENT
The Chase Manhattan Bank ("Chase") will serve as the Company's
custodian in accordance with the provisions of the Investment Company Act and
the rules and regulations thereunder. As such, Chase will be responsible for
holding the Company's cash and portfolio securities. Chase will also serve as
the transfer agent for the Company's shares. For its custodian and transfer
agency services, Chase will receive customary fees from the Company.
EXPENSES OF THE COMPANY
The Company will pay all of its expenses, including fees of the
directors; fees of the Managing Investment Adviser; expenses of registering the
Shares under federal and state securities laws; interest; taxes; fees and
expenses of the Company's legal counsel and independent accountants; fees and
expenses of the transfer agent; expenses of printing and mailing Share
certificates, stockholder reports, notices to stockholders and proxy statements;
reports to regulatory bodies; brokerage and other expenses in connection with
the execution, recording and settlement of portfolio security transactions;
expenses in connection with the acquisition and disposition of portfolio
securities or the registration of privately issued portfolio securities; costs
of third party evaluations or appraisals of the Company (or its assets) or its
actual investments; expenses of membership in investment company associations;
expenses of fidelity bonding and other insurance premiums; expenses of
stockholders' meetings; Commission and state blue sky registration fees; fees
payable to the NASD, if any, in connection with this offering; and the Company's
other business and operating expenses.
On the basis of the anticipated size of the Company immediately
following the offering described in this Prospectus, it is estimated that the
Company's annual operating expenses will be approximately $250,000
(approximately 0.25% of the proceeds of the offering). While the foregoing
estimates have been made in good faith on the basis of information as to
currently available prices, including estimates furnished by the Company's
agents, there can be no assurance that actual annual operating expenses will not
be substantially greater than such estimates as a result of increases in the
cost of transfer agency and professional and similar services that cannot be
predicted and are beyond the control of the Company.
Organizational expenses of approximately $15,000 which have been paid
by U.S. Trust will be reimbursed by the Company and will be amortized over five
years. Offering expenses, estimated at $207,000, will be charged against the
proceeds of the offering. Of the offering expenses, approximately $120,000 has
been incurred by U.S. Trust and will be reimbursed by the Company.
CONTROL PERSONS
As of the effective date of this Prospectus, all of the outstanding
Shares are owned by Douglas A. Lindgren. Mr. Lindgren's business address is 114
West 47th Street, New York, New York 10036.
BANK REGULATORY MATTERS
Based on advice of its counsel, it is the position of U.S. Trust that
the investment advisory and selling agent activities to be performed by U.S.
Trust and its affiliates, and the appointment of employees of the Managing
Investment Adviser and its affiliates as officers and Directors of the Company,
are consistent with the requirements of the Glass-Steagall Act. In addition,
counsel has advised that this combination of individually permissible activities
is consistent with the Glass-Steagall Act and federal or state legal and
regulatory precedent. There is presently no controlling precedent regarding the
performance of a combination of investment advisory and selling agent activities
by banks of the sort contemplated to be performed by U.S. Trust and its
affiliates and described herein, but applicable federal regulatory precedents
allow commercial banks to organize, sponsor and manage closed-end investment
companies consistent with the Glass-Steagall Act. State laws on this issue may
differ from the interpretations of relevant federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. Future changes in either federal statutes or regulations relating to the
permissible activities of banks, as well as future judicial or administrative
decisions and interpretations of present and future statutes and regulations,
could prevent U.S. Trust or its affiliates from continuing to perform all or
part of their investment management or selling agent activities. If U.S. Trust
or its affiliates were prohibited from so acting, stockholders would be
permitted to remain stockholders of the Company and alternative means for
continuing such services would be sought. In such event, changes in the
operation of the Company might occur and a stockholder serviced by U.S. Trust or
its affiliates might no longer be able to avail himself of any services then
being provided. The Directors of the Company do not expect that stockholders of
the Company would suffer any adverse financial consequences as a result of these
occurrences.
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<PAGE> 28
POTENTIAL CONFLICTS OF INTEREST
The Managing Investment Adviser and its affiliates may be subject to
various conflicts of interest in connection with their relationships and
transactions with the Company. The contractual and other arrangements between
the Company and the Managing Investment Adviser and its affiliates have not
been established by arms-length negotiations. Such conflicts of interest may
include:
Transactions with the Company and Portfolio Companies. The Managing
Investment Adviser and its affiliates may perform various services for the
Company and its Portfolio Companies. Such services may include making loans to
the Company or to Portfolio Companies, maintaining deposits of funds of the
Company or Portfolio Companies, serving as directors or officers of Portfolio
Companies and providing services in connection with mergers and acquisitions,
leasing real estate and insurance and economic forecasting. In consideration
for such services, such persons may receive various fees, commissions and
reimbursements to the extent permitted under applicable law. Depending upon
the Managing Investment Adviser's or its affiliates' influence and control with
respect to Portfolio Companies, the selection of such persons to perform such
services for Portfolio Companies may not be a disinterested decision and the
terms and conditions for the performance of such services, and the amounts and
terms of such compensation, may not be determined in arms-length negotiations.
The selection of the Managing Investment Adviser or any of its affiliates to
perform services for a Portfolio Company must be approved by a majority of the
disinterested Directors of the Company and the independent and disinterested
directors of the Portfolio Company. The interest rate and financing charges
that such persons may charge the Company or its Portfolio Companies on funds
made available to it or them will not exceed those that would be charged by
unrelated lending institutions on comparable loans for the same purpose.
The Investment Company Act and the Federal Reserve Act contain
restrictions as to certain transactions among the Company and the Managing
Investment Adviser or its affiliates. See "Regulation." Generally,
transactions involving the Company and the Managing Investment Adviser or
certain of its affiliates must receive the prior approval of a majority of the
Company's disinterested Directors having no financial interest in the proposed
transaction and/or the Commission and may be subject to certain percentage
limitations, safety-and-soundness and other requirements. There can be no
assurance that prior approval of the Commission can be obtained.
The Managing Investment Adviser expects to provide services to other
investors, including Fund I and other investment partnerships and other
business development companies organized by it or its affiliates. The Company
will have no contractual or other right to such services prior to any of such
other investors. The Managing Investment Adviser intends to file on behalf of
itself and the Company an application for an exemptive order from the
Commission with respect to proposed joint investments by the Company and U.S.
Trust or certain of its affiliates in Portfolio Companies. If an exemptive
order is not granted, no joint investments with U.S. Trust or its affiliates
may be permitted. While the Commission has granted exemptive relief in
substantially similar circumstances in the past, no assurance can be given that
an exemptive order will be granted. If the Company and U.S. Trust or its
affiliates co-invest in a Portfolio Company, certain conflicts may arise. See
"--Joint Investments in Portfolio Companies and Other Securities" and
"Regulation."
Conflicts as to Investment Opportunities. The Managing Investment
Adviser and its affiliates intend to make investments for their own account and
may be in competition with the Company for such investments. In addition,
affiliates of the Managing Investment Adviser may serve as adviser or managing
general partner of other private or public limited partnerships or other
investment vehicles which will have investment objectives identical with or
similar to those of the Company. While the Managing Investment Adviser is
obligated to use its best efforts to provide the Company with continuing and
suitable investment opportunities consistent with its investment objective and
policies, the Managing Investment Adviser is not required to present to the
Company any particular opportunity that falls within the investment objective
and policies of the Company, except as set forth in the procedures adopted by
the Company's Board of Directors, including a majority of the disinterested
Directors. Such procedures provide that the Managing Investment Adviser must
endeavor to offer to the Company on an equal basis investment opportunities
that would be suitable for both the Company and other similar private equity
funds for which the Managing Investment Adviser provides discretionary
investment advisory services. In addition, if the Company rejects an
investment opportunity for any reason, the Managing Investment Adviser or its
affiliates would be permitted to accept it. Within 60 days after the end of
each fiscal year of the Company, the Managing Investment Adviser will furnish
the Board of Directors of the Company with information on a confidential basis
as to any investments made by the Managing Investment Adviser or its affiliates
for their own accounts during the prior year of the types eligible for
investment by the Company. The Managing Investment Adviser and its affiliates
will endeavor to resolve conflicts with respect to investment opportunities in
a manner deemed equitable to all and consistent with their fiduciary duties to
the Company.
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<PAGE> 29
Joint Investments in Portfolio Companies and Other Securities. The
Managing Investment Adviser and its affiliates and employees may participate
with the Company as co-investors in Portfolio Companies and other securities
and may make loans to, or other investments in, Portfolio Companies. Such
participation will be required to be on a basis which, in the judgment of the
Board of Directors, is not more advantageous to such other persons than the
basis upon which the Company participates in such joint investments, and will
require the prior approval of the Board of Directors, including a majority of
the disinterested Directors. Without prior approval by the Board of Directors
and/or the Commission, the Company will not make joint investments in the
securities of any entity if the Managing Investment Adviser or any of its
affiliates have previously acquired a security issued by such entity, provided
that this prohibition does not apply to follow-on investments. In most such
instances, prior approval of the Commission of such joint investments will be
required. There can be no assurance that such approval will be obtained. See
"Regulation."
Timing of Disposition of Investments. The Managing Investment Adviser
receives certain amounts measured by the realized capital gains (net of
realized capital losses and unrealized net capital depreciation) of the Company
as set forth under "Management." The interests of the Managing Investment
Adviser may conflict with the interests of the stockholders with respect to the
timing of the disposition of Company investments. The acts of the Managing
Investment Adviser are subject to supervision by the Board of Directors.
Allocation of Management Time and Services. The Company will not have
independent management or employees and will rely upon the Managing Investment
Adviser and its affiliates for management and administration of the Company and
its assets. The Managing Investment Adviser believes that it and its
affiliates have or can attract sufficient personnel to discharge all of their
responsibilities to the Company. Conflicts of interest may arise in allocating
management time, services or functions between the Company and other entities
(including Fund I) for which the Managing Investment Adviser and its affiliates
may provide similar services. The officers and directors of the Managing
Investment Adviser and its affiliates will devote such time to the affairs of
the Company as they, in their sole discretion, determine to be necessary for
the conduct of the business of the Company. The Company's Board of Directors
will supervise the activities of the Managing Investment Adviser.
Other Relationships with Portfolio Companies. The Managing Investment
Adviser and its affiliates may have other relationships on an on-going basis
with Portfolio Companies in which the company has invested. Such relationships
could influence the Managing Investment Adviser or its affiliates to take
actions, or forbear from taking actions, which an independent investment
adviser might not take or forbear from taking. The Managing Investment Adviser
and its affiliates will not enter into any other relationship with a Portfolio
Company unless such relationship has been approved by a majority of the
disinterested Directors of the Company and by the independent directors of the
Portfolio Company who also have no interest in the relationship.
Lack of Separate Representation. The Board of Directors of the
Company and the Managing Investment Adviser are represented by the same legal
counsel. Separate counsel will be retained by the Board of Directors for the
Company in connection with any conflicts of interest or any other dispute
arising between the Company and the Managing Investment Adviser or any of its
affiliates.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to policies established by the Board of Directors, the
Managing Investment Adviser will arrange for the execution of the Company's
portfolio transactions and the allocation of brokerage. In executing portfolio
transactions, the Managing Investment Adviser will seek to obtain the most
favorable execution of portfolio transactions, that is the best combination of
net price and prompt reliable execution. In the Managing Investment Adviser's
opinion, it is not possible to determine in advance that any particular broker
will actually be able to effect the most favorable execution because, in the
context of a constantly changing market, order execution involves judgments as
to the price, volume, trend and breadth of the market, possibility of a block
transaction, and the broker's activity in the security as well as its general
record for prompt, competent and reliable service in all aspects of order
processing, execution and settlement as well as anticipated commission rates.
A portion of the securities in which the Company will invest may be
traded in the over-the-counter markets, and the Company intends to deal
directly with the dealers who make markets in the securities involved, except
in those circumstances where better prices and execution are otherwise
available. Under the Investment Company Act, persons affiliated with the
Company are prohibited from dealing with the Company as principal in the
purchase and sale of securities. Transactions in the over-the-counter markets
usually involve transactions with dealers acting as principal for their own
account. The Company will not deal with affiliated persons as principal;
however, affiliated persons of the Company may serve as its broker in
over-the-counter markets and other transactions conducted on an agency basis in
accordance with the Investment Company Act, except that if an affiliated person
is a
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<PAGE> 30
market maker in the securities of a company then the affiliated person will not
serve as the Company's broker in the purchase of such securities.
The Managing Investment Adviser has no obligation to deal with any
broker or group of brokers in the execution of transactions. With respect to
certain securities, the Company's portfolio transactions may be effected
through affiliates of the Managing Investment Adviser, provided it is
consistent with the policy of obtaining the most favorable execution. The
Company's Board of Directors has adopted procedures to ensure compliance with
applicable regulations relating to trading of portfolio securities.
In allocating brokerage among other brokers who are believed to be
capable of providing equally favorable execution, the Company may also take into
consideration the fact that a particular broker may, in addition to execution
capability, provide other services to the Company such as research and
statistical information.
Portfolio Turnover
Because the investments of the Company generally require relatively
long periods of time to reach maturity, it is expected that the Company's
portfolio turnover will be low. Any short-term securities in which the Company
invests will have a high rate of turnover.
Portfolio turnover will generally involve some expense to the Company,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. The portfolio
turnover rate will be computed by dividing the lesser of the amount of the
securities purchased or securities sold during the year by the average monthly
value of securities owned during the year (excluding securities whose maturities
at acquisition were one year or less).
REGULATION
The Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"), generally prohibits investment advisers from entering into
investment advisory contracts with an investment company that provides for
compensation to the investment adviser on the basis of a share of capital gains
upon or capital appreciation of the funds or any portion of the funds of the
investment company. In 1980, Congress enacted the Small Business Investment
Incentive Act of 1980 which added provisions to the Investment Advisers Act
which permit the payment of compensation based on capital gains in an
investment advisory contract between an investment adviser and a BDC.
In addition, the Small Business Investment Incentive Act of 1980
modified the provisions of the Investment Company Act that are applicable to
BDCs. The BDC is considered to be a closed-end, non-diversified investment
company as those terms are defined in the Investment Company Act. The
following is a brief description of the Investment Company Act, as modified by
the Small Business Investment Incentive Act of 1980, and is qualified in its
entirety by reference to the full text of the Investment Company Act and the
rules thereunder.
Generally, to be eligible to elect BDC status, a company must engage
in the business of furnishing capital and offering significant managerial
assistance to companies that do not have ready access to capital through
conventional financial channels. A BDC must be operated for the purpose of
making investments in securities of the types required by the Investment
Company Act, which types include certain present and former "eligible portfolio
companies" and certain bankrupt or insolvent companies. A BDC need not invest
in all of the possible types of securities approved for investment by BDCs.
Business Development Companies must also make available significant managerial
assistance to portfolio companies. An eligible portfolio company generally is
a United States company that is not an investment company (except for
wholly-owned Small Business Investment Companies licensed by the Small Business
Administration) and that (i) does not have a class of securities registered on
a national securities exchange or included in the Federal Reserve Board's
over-the-counter margin list, (ii) is actively controlled by the BDC either
alone or as part of a group acting together and an affiliate of the BDC is a
member of the portfolio company's board of directors, or (iii) meets such other
criteria as may be established by the Commission. Control, under the
Investment Company Act, is presumed to exist where the BDC owns 25% of the
outstanding voting securities of the investee.
The Investment Company Act prohibits the Company from investing in
certain types of companies, such as brokerage firms, insurance companies,
investment banking firms, and investment companies. Moreover, the Investment
Company Act limits the type of assets that the Company may acquire to
"qualifying assets" and certain assets necessary for its operations (such as
office furniture,
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equipment, and facilities) unless, at the time of the acquisition, at least 70%
of the value of the Company's assets consists of qualifying assets. Qualifying
assets include: (i) securities of companies that were eligible portfolio
companies at the time the Company acquired their securities; (ii) securities of
bankrupt or insolvent companies that are not otherwise eligible portfolio
companies; (iii) securities acquired as follow-on investments in companies that
were eligible at the time of the Company's initial acquisition of their
securities but are no longer eligible, provided that the Company has maintained
a substantial portion of its initial investment in those companies; (iv)
securities received in exchange for or distributed on or with respect to any of
the foregoing; and (v) cash items, government securities, and high-quality,
short-term debt. The Investment Company Act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can
be purchased in order for the securities to be considered qualifying assets.
In addition, certain provisions of the federal banking laws, including the Bank
Holding Company Act of 1956, as amended, would prohibit or restrict investments
by the Company in securities of commercial banking organizations.
The Company is permitted by the Investment Company Act, under
specified conditions, to issue multiple classes of senior debt and a single
class of stock senior to the Shares if its asset coverage, as defined in the
Investment Company Act, is at least 200% after the issuance of the debt or the
Company stock. In addition, provision must be made to prohibit any
distribution to stockholders or the repurchase of any shares unless the asset
coverage ratio is at least 200% at the time of the distribution or repurchase.
After this offering, the Company may sell its securities at a price
that is below the prevailing net asset value per share only upon the approval
by the holders of a majority of its voting securities, including a majority of
the voting securities held by nonaffiliated persons, at its last annual
meeting. In addition, the Company may repurchase its shares subject to the
restrictions of the Certificate of Incorporation of the Company and the
Investment Company Act.
Under the Investment Company Act as amended by the Small Business
Investment Incentive Act of 1980, certain of the transactions involving the
Company and its affiliates (as well as affiliates of those affiliates) that
would previously have been prohibited without the prior approval of the
Commission require the prior approval of a majority of the Company's
disinterested Directors having no financial interest in the transactions.
Transactions involving certain closely affiliated persons of the Company,
including its Directors, officers and employees, still require the prior
approval of the Commission. In general, (i) any person who owns, controls, or
holds with power to vote, more than 5% of the outstanding Shares, (ii) any
director, executive officer, or general partner of that person, and (iii) any
person who directly or indirectly controls, is controlled by, or is under
common control with, that person, must obtain the prior approval of a majority
of the disinterested Directors and, in some situations, the prior approval of
the Commission, before engaging in certain transactions involving the Company
or any company controlled by the Company. The Investment Company Act and
applicable rules thereunder generally do not restrict transactions between the
Company and its Portfolio Companies. In accordance with the Investment Company
Act, a majority of the Directors are not interested persons of the Company as
defined in the Investment Company Act. See "Management."
The Investment Company Act prohibits an investment company, such as
the Company, from knowingly participating in a joint transaction with an
affiliate of, any director or investment adviser to the investment company.
Accordingly, the Company may not, without exemptive relief from the Commission,
participate in a joint transaction with Fund I or companies or funds which may
be affiliates of the Company or the Managing Investment Adviser, or any other
entity managed by the persons who are the principals of the Managing Investment
Adviser (collectively, "Company Affiliates"). The Company and the Managing
Investment Adviser intend to submit an application to the Commission to permit
such co-investment. The Managing Investment Adviser believes that it will be
advantageous for the Company to co-invest with Fund I where such investment is
consistent with the investment objectives, investment positions, investment
policies, investment strategies, investment restrictions, regulatory
requirements and other pertinent factors applicable to the Company. The
Managing Investment Adviser believes that co-investment by the Company and any
Company Affiliates will afford the Company the ability to achieve greater
diversification and, together with any Company Affiliates, the opportunity to
exercise greater influence on the Portfolio Companies in which the Company and
any Company Affiliates invest together. Accordingly, the application will
seek an exemptive order permitting the Company and any Company Affiliates to
invest together in the same Portfolio Companies where such is consistent with
investment objectives, investment positions, investment policies, investment
strategies, investment restrictions, regulatory requirements and other
pertinent factors applicable to the Company. Although the Managing Investment
Adviser intends to select investments for the Company and for Company
Affiliates separately, considering in each case only the investment objectives,
investment positions, available funds and other pertinent factors of the
particular investment company or fund, it is expected that if the application
for exemptive relief is granted, the Company and any Company Affiliates may
frequently invest in the same Portfolio Companies, with each of the Company and
any Company Affiliates taking a position in the Portfolio Company. If the
exemptive relief is granted, it is expected that the Company and any Company
Affiliates will invest together in proportion to their respective amounts of
capital available for investment where such is consistent with their respective
investment objectives, investment positions, investment policies, investment
strategies, investment restrictions,
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<PAGE> 32
regulatory requirements and other pertinent factors. There is no assurance,
however, that any such joint investments will in fact be in proportion to their
respective amounts of capital available for investment. It is expected that
exemptive relief permitting co-investment will be granted only upon the
conditions, among others, that before a co-investment transaction is effected,
the Managing Investment Adviser will make a written investment presentation
regarding the proposed co-investment to the independent directors of the
Company and the independent directors of the Company will review the Managing
Investment Adviser's recommendation. It is expected that prior to committing
to a co-investment, a "required majority" as defined in Section 57(o) of the
Investment Company Act) of the independent directors of the Company will
conclude that (i) the terms of the proposed transaction are reasonable and fair
to the Company and its stockholders and do not involve overreaching of the
Company and its stockholders on the part of any person concerned; (ii) the
transaction is consistent with the interests of the stockholders of the Company
and is consistent with the investment objectives and policies of the Company;
and (iii) the investment by the Company Affiliate co-investor would not
disadvantage the Company in making its investment, maintaining its investment
position, or disposing of such investment and that participation by the Company
would not be on a basis different from or less advantageous than that of the
Company Affiliate co-investor. There is no assurance that the application for
exemptive relief will be granted by the Commission. Accordingly, there is no
assurance that the Company will be permitted to co-invest with any Company
Affiliates.
VALUATION OF PORTFOLIO SECURITIES
Under the supervision of and in accordance with procedures adopted by
the Board of Directors, the Managing Investment Adviser will value the
securities in the Company's portfolio quarterly and at such other time as, in
the Board's view, circumstances warrant. In the event of a sale by the Company
of its Shares, the Managing Investment Adviser must determine the net asset
value (the "NAV") of a Share as of a date within 48 hours before such sale
(excluding Sundays and holidays) to comply with the requirement of the
Investment Company Act that shares not be sold below NAV without stockholder
approval.
In order to determine the NAV per Share, (i) the value of the assets
of the Company, including its portfolio securities, will be determined by the
Managing Investment Adviser under the supervision of the Board Directors; (ii)
the Company's liabilities will be subtracted therefrom; and (iii) the
difference will be divided by the number of outstanding Shares of the Company.
The value for restricted stock investments for which no public market
exists cannot be precisely determined. Generally, such investments will be
valued on a "going concern" basis without giving effect to any disposition
costs. There is a range of values that is reasonable for such investments at
any particular time. In the early stages of development, venture capital
investments will typically be valued based upon their original cost to the
Company (the "cost method"). The cost method will be utilized until
significant developments affecting the Portfolio Company provide a basis for
use of an appraisal valuation (the "appraisal method") by the Managing
Investment Adviser. The appraisal method will be based upon such factors
affecting the Portfolio Company as earnings, net worth, the market prices for
similar securities of comparable companies and an assessment of the Portfolio
Company's future prospects. In the case of unsuccessful operations, the
appraisal may be based upon liquidation value. Valuations based on the
appraisal method are necessarily subjective. The Company will also use third
party transactions (actual or proposed) in the Portfolio Company's securities
as a basis of valuation (the "private market method"). The private market
method will only be used with respect to actual transactions or actual firm
offers by sophisticated, independent investors. Securities with legal,
contractual or practical restrictions on transfer may be valued at a discount
(typically ranging from 10% to 40%) from their value determined by the
foregoing methods to reflect the effect of such restrictions.
The values for the types of investments referred to in the preceding
paragraph will be estimated regularly by the Managing Investment Adviser and,
in any event, not less frequently than quarterly. However, there can be no
assurance that such value will represent the return that might ultimately be
realized by the Company from the investments.
The Company anticipates that it may invest in securities for which a
public market exists but which are "restricted securities" for purposes of the
Securities Act. In evaluating such securities, the Managing Investment Adviser
will take into consideration various factors, including the price at which the
securities in question were acquired relative to the market price for
unrestricted shares of the same securities at the time of such acquisition,
modified as appropriate to reflect the nature of the market in which the
securities are traded, if any, the amount of the public float, the existence
and terms of any securities registration rights, the proportion of the
Portfolio Company's securities held by the Company, changes in the financial
condition and prospects of such Portfolio Company and other factors which may
affect their fair value, all in accordance with the Investment Company Act.
Restricted securities for which an established trading market exists will
typically be valued at a discount of 10% to 40% from the public market price
with the amount of the discount decreasing as the restriction period decreases.
If no such market exists, the asset will be valued at cost unless
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<PAGE> 33
management has good reason to use a different valuation method (such as
sustained private sales of a Portfolio Company's securities at prices higher
than the value initially used by management).
The Company's investments in Private Funds will be valued based upon
the Company's pro-rata share of the value of the assets of a Private Fund as
determined by such Private Fund in accordance with its by-laws, constitutional
or other documents governing such valuation, on the valuation date. If such
valuation with respect to investments in Private Funds is not available by
reason of timing or other event on the valuation date, the Managing Investment
Adviser will determine such value based on the Managing Investment Adviser's
judgment of fair value on the appropriate date, less applicable charges, if any.
The value of unrestricted securities owned by the Company and traded on
a securities exchange or quoted on NASDAQ or the NASDAQ National Market System
will be determined based upon the last sale price for such securities on the
measuring date.
FEDERAL INCOME TAX MATTERS
The following discussion is a general summary of certain of the United
States federal income tax laws relating to the Company and investors in the
Shares. The discussion herein is based on the Code, regulations, published
rulings and procedures and court decisions as of the date hereof. The tax law,
as well as any interpretation thereof, is subject to change prospectively, as
well as retroactively. This discussion does not purport to deal with all of the
United States federal income tax consequences applicable to the Company or to
all categories of investors, some of which may be subject to special rules. In
addition, it does not cover any state, local, foreign or other taxes to which
the Company or the investors may be subject or any proposed changes in the law.
TAXATION AS A REGULATED INVESTMENT COMPANY
Qualification. The Company intends to qualify for the special income
tax treatment as a regulated investment company for federal income tax purposes.
Under subchapter M of the Code, the Company must, among other things, (a) derive
at least 90% of its gross income from dividends, interest, payments with respect
to loans of securities and gains from the sale or other disposition of
securities or certain other related income; (b) generally derive less than 30%
of its gross income from gains from the sale or other disposition of stock,
securities, options or foreign currency held for less than three months; (c)
diversify its holdings so that at the end of each fiscal quarter or generally
within 30 days thereafter, (i) at least 50% of the value of the Company's assets
is represented by cash, cash items (including receivables), United States
government securities, securities of other regulated investment companies, and
other securities that, with respect to any one issuer, do not represent more
than 5% of the value of the Company's assets nor more than 10% of the voting
securities of such issuer, and (ii) not more than 25% of the value of the
Company's assets is invested in the securities (other than United States
government securities or the securities of other regulated investment companies)
of any one issuer, or in two or more issuers which the Fund controls and which
are engaged in the same or similar trade or business; and (d) file an election
to be treated as a regulated investment company.
Taxation of Regulated Investment Companies. If the Company qualifies
as a regulated investment company and distributes to its stockholders at least
90% of its net investment income, the Company will not be subject to federal
income tax on the net investment income so distributed. The Company, however,
would be subject to the regular corporate income tax (currently at rates up to
35%) on any undistributed net investment income. A regulated investment
company's net investment income is generally its taxable income (without any
dividend received deduction), excluding its net capital gain (which is the
excess of its net long-term capital gain over its net short-term capital loss).
In addition, a regulated investment company is taxable on its
undistributed net capital gain, currently at rates up to 35%. To qualify as a
capital gain dividend which reduces the amount of net capital gain on which the
Company pays tax, it must designate the distribution as a capital gain dividend
in a written notice to the stockholders not later than 60 days after the end of
its tax year. Such amount, however, cannot exceed the Company's net capital
gain for the year.
A regulated investment company is also subject to a nondeductible 4%
excise tax on the amount by which the income it distributes in any calendar year
is less than the required distribution amount. The required distribution for a
calendar year is equal to the sum of (a) 98% of the Company's ordinary income
for such calendar year, (b) 98% of the excess of the Company's capital gains
over its capital losses for the one-year period ending on October 31 (December
31 if the Company makes a special election) and (c) 100% of the undistributed
ordinary income and gains from prior years. For purposes of the excise tax, any
net investment income or
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<PAGE> 34
capital gain retained by the Company will be treated as having been distributed
if the Company pays income tax on such income during the calendar year in which
the excise tax is being imposed.
Distributions. Distributions to stockholders attributable to the
Company's net investment income will be taxable as ordinary dividend income.
Capital gain dividends are taxable as long-term capital gains regardless of how
long the Shares have been held. In addition, the Company may designate all or
a portion of its undistributed net capital gain as a deemed distribution to its
stockholders. In such case, the stockholders are also taxed on the deemed
distribution as long-term capital gain, but are entitled to a tax credit equal
to the tax required to be paid by the Company on such amount and the basis in
their Shares will be increased by 65% of the deemed distribution to the
stockholder (i.e., the after-tax net capital gain retained by the regulated
investment company with respect to the stockholder). Stockholders must be
notified of any such deemed distribution within 60 days after the end of the
fiscal year.
Under current law, the maximum federal income tax rate imposed on
individuals with respect to ordinary income and net short-term capital gain is
39.6% whereas the maximum rate on net capital gains is limited to 28%. In the
case of a corporate taxpayer, long-term capital gains are taxed at the same
rates as ordinary income and short-term capital gains. Corporate stockholders
are generally eligible for the 70% dividends received deduction with respect to
the ordinary income dividends paid by the Company to the extent such amount is
properly designated by the Company and does not exceed the dividends received
by the Company from domestic corporations.
Distributions by the Company are generally taxable to the stockholders
at the time the distribution is received. Any distribution declared by the
Company in October, November or December, made payable to stockholders of
record in such a month and paid in the following January, are deemed to have
been paid by the Company and received by the stockholders on December 31 of the
year declared.
If, for any calendar year, the Company's total distributions exceed
net investment income and net realized capital gains, the excess will generally
be treated as a tax-free return of capital (up to the amount of the
stockholder's tax basis in his Shares and then as gain from the sale of the
Shares). The amount treated as a tax-free return of capital will reduce the
stockholder's adjusted basis on his Shares, thereby increasing the potential
gain or reducing the potential loss on the sale of the Shares.
Stockholders will be sent a Form 1099 each year detailing the tax
status of the distributions from the Company.
OTHER RULES APPLICABLE TO STOCKHOLDERS OF REGULATED INVESTMENT COMPANIES
Sale of Shares. In general, if Shares are sold, the seller will
recognize a gain or loss equal to the difference between the amount realized on
the sale and the seller's adjusted basis in the Shares. Any loss realized on a
sale of Shares will be disallowed to the extent the seller has acquired (or
entered into a contract to acquire) substantially identical stock within a
period beginning 30 days before the disposition of the Shares and ending 30
days after the disposition. In such case, the basis of the Shares acquired
will be adjusted to reflect the disallowed loss.
Any gain or loss realized upon a sale of Shares by a stockholder who
is not a dealer in securities will generally be treated as capital gain or
loss. The gain or loss will be long-term capital gain or loss if the Shares
were held for more than one year. In addition, if the Shares sold were not
held for more than six months, any loss on the sale will be treated as
long-term capital loss to the extent of any capital gain dividend from a
regulated investment company received by the stockholder with respect to such
Shares.
Tax Exempt Investors. Stockholders who are exempt from tax under the
Code should not be required to include distributions from the Company in
"unrelated business taxable income" except to the extent that dividends or
capital gains would be taxable to such stockholders under subchapter F of the
Code (e.g., as debt financed income). If the Company designates all or a
portion of its undistributed net capital gain as a deemed distribution to its
stockholders, a tax-exempt shareholder should be entitled to claim a refund for
taxes paid on their behalf by filing Form 843 or an appropriate income tax
return.
BACKUP WITHHOLDING
The Company may be required to withhold federal income tax at the rate
of 31% on dividends and on the proceeds of any redemption or other disposition
of Shares paid to a stockholder if the stockholder fails to provide the Company
his taxpayer identification number or a certificate that he is exempt from
backup withholding, or the Internal Revenue Service notifies the
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<PAGE> 35
Company that the stockholder is subject to backup withholding. The stockholder
is entitled to a credit against his federal income tax for the amount of any
backup withholding.
FOREIGN INVESTORS
The United States tax treatment applicable to investors that are not
United States persons (a "non-United States holder") depends upon the
particular circumstances of the non-United States holder. A "United States
person" is a citizen or resident of the United States, a corporation or
partnership created or organized in the United States or under the laws of the
United States or of any State, or an estate or trust whose income is includible
in gross income for United States federal income tax purposes regardless of its
source.
In general, a non-United States holder who is not engaged in a United
States trade or business is subject to a 30% (or reduced treaty rate, if
applicable) United States withholding tax on dividends. Capital gains of a
non-United States holder generally are not subject to the United States
withholding tax unless (i) the gain is effectively connected with the conduct
of a United States trade or business or (ii) the non-United States holder is an
individual and is present in the United States for at least 183 days and has a
"tax home" in the United States or such gain is attributable to an office or
fixed place of business in the United States.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT WITH HIS, HER OR ITS TAX
COUNSEL CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
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<PAGE> 36
ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a substitute
for careful planning with a professional. Employee benefit plans subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
section 4975 of the Code considering purchasing the Shares should consult with
their own counsel regarding the application of ERISA and the Code to their
purchase of the Shares.
FIDUCIARY CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively, "Plans") are subject to
various fiduciary and prohibited transaction requirements under ERISA and the
Code. Before investing in the Shares, a Plan fiduciary should ensure that such
investment is in accordance with ERISA's general fiduciary standards. In
making such a determination, a Plan fiduciary should be sure that the
investment is in accordance with the governing instruments and the overall
policies of the Plan, and that the investment will comply with the
diversification and prudence requirements of ERISA. Plan fiduciaries should
also consider the tax aspects of an investment in the Shares discussed in
"Federal Income Tax Matters." In addition, provisions of ERISA and the Code
prohibit transactions involving the assets of a Plan and persons who have
specified relationships with a plan ("Parties in Interest" under ERISA and
"Disqualified Persons" under the Code, collectively referred to herein as
"Parties in Interest"), unless an exemption is available for such transaction.
The consequences of such prohibited transactions include the imposition of
excise taxes, possible disqualification of IRAs, and other liabilities. A Plan
fiduciary should be sure that an investment in the Shares will not constitute
or give rise to a direct or indirect non-exempt prohibited transaction. A Plan
fiduciary should also consider prohibitions in ERISA relating to improper
delegation of control over or responsibility for "plan assets."
PLAN ASSETS CONSIDERATIONS
In certain circumstances where a Plan holds an interest in an entity,
the assets of the entity are deemed to be "plan assets" of such Plan for
purposes of the fiduciary and prohibited transactions provisions of ERISA and
the Code. In addition, under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is a Plan fiduciary. Plan assets are not defined in ERISA or the Code,
but the United States Department of Labor has issued a regulation (the
"Regulation"), that outlines the circumstances under which a Plan's interest in
an entity will result in the assets of the entity being deemed to constitute
plan assets.
The Regulation contains a number of exceptions to the treatment of an
entity's assets as plan assets of its Plan investors. One such exception
applies where the securities acquired by the Plan constitute publicly-offered
securities. A "publicly-offered security" is defined under the Regulation as a
security that is (i) freely transferable, (ii) part of a class of securities
that is widely-held, and (iii) either (a) part of a class of securities that is
registered under section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") or (b) sold to a Plan as part of an offering of
securities to the public pursuant to an effective registration statement under
the Securities Act, and the class of securities of which such security is a
part is registered under the Exchange Act within 120 days (or such longer
period allowed by the Commission) after the end of the fiscal year of the
issuer during which the offering of such securities to the public occurred.
Whether a security is considered "freely transferable" depends on the facts and
circumstances of each case. Generally, if the security is part of an offering
in which the minimum investment is $10,000 or less, any restriction on or
prohibition against transfer or assignment of such security for the purposes of
preventing a termination or reclassification of the entity for federal or state
tax purposes will not of itself prevent the security from being considered
freely transferable. Although the minimum investment permitted in the Shares
is $25,000, the Company has imposed no restrictions on transfer or assignment
of the Shares, other than the limitations set forth under "Investor Suitability
Standards." A class of securities is considered "widely-held" if immediately
after the initial offering it is owned by 100 or more investors independent of
the issuer and of one another.
It is anticipated by the Company that the Shares will meet the
criteria of the publicly-offered securities exception under the Regulation.
Accordingly, the Company believes that if a Plan purchases the Shares, the
Company's assets should not be deemed to be "plan assets."
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<PAGE> 37
DESCRIPTION OF SHARES
GENERAL
The Company is authorized to issue 200,000 Shares, par value $0.01 per
share. As of the date of this Prospectus, 1 Share is outstanding.
Any additional offering will be subject to the requirements of the
Investment Company Act that such Shares may not be issued at a price below the
then current net asset value, except in connection with an offering to existing
stockholders or with the consent of the holders of a majority of the Company's
outstanding voting securities (as defined in the Investment Company Act). See
"Regulation."
SHARES OF COMMON STOCK
Holders of Shares are entitled to one vote per Share on all matters
submitted for action by the stockholders. There is no provision for cumulative
voting rights with respect to the election of Directors. Accordingly, the
holders of more than 50% of the Shares can, if they choose to do so, elect all
of the Directors. In such event, the holders of the remaining Shares will not
be able to elect any Directors. Holders of Shares are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, holders of Shares are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Shares. Holders of the Shares, as such, have no
conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Shares. All Shares offered hereby,
when issued for the consideration set forth in this Prospectus, will be
fully-paid and non-assessable.
DURATION
The duration of the Company will be ten years from the final closing
of the sale of the Shares offered hereby. However, the Managing Investment
Adviser has the right, in its sole discretion, to extend the term for up to two
additional two-year periods, after which the approval of investors who
represent 66 2/3% of the Company's outstanding Shares may determine to extend
the term of the Company.
SELLING ARRANGEMENTS
The Selling Agent has entered into a Selling Agent Agreement with the
Company pursuant to which the Selling Agent has agreed to act as selling agent
for the Shares. This agreement is an agency agreement only and places the
Selling Agent under no obligation to use its best efforts to sell the Shares or
otherwise solicit or promote transactions in such Shares. Shares are available
only to clients of U.S. Trust and its affiliates who meet the Company's
investor suitability standards. The Selling Agent will not at any time
purchase any Shares for its own account and its sole function is to promote the
sale of the Company's Shares. Both the Selling Agent and the Managing
Investment Adviser are subsidiaries of U.S. Trust Corporation. The address of
the Selling Agent is 114 West 47th Street, New York, New York 10036-1532.
Pursuant to the Selling Agent Agreement, the Selling Agent may enter
into agreements with one or more sub-selling agents to arrange for the sale of
the Shares in certain states. The Selling Agent agrees under the Selling Agent
Agreement that it shall remain fully responsible for the performance of all its
duties under the Selling Agent Agreement and that it shall supervise the
activities of each such sub-selling agent.
The Company has agreed to indemnify the Selling Agent against certain
civil liabilities, including liabilities under the federal securities laws.
However, such indemnification is subject to the provisions of Section 17(i) of
the Investment Company Act which provides, in part, that no agreement shall
contain a provision which protects or purports to protect any person against
any liability to such company or its security holders to which it would
otherwise be subject due to such person's misfeasance, bad faith, or gross
negligence in the performance of its duties or reckless disregard of its
obligations and duties under such agreement.
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<PAGE> 38
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by O'Sullivan Graev & Karabell, LLP, New York, New York.
EXPERTS
The Statement of Assets and Liabilities of the Company included in this
Prospectus has been audited by Ernst & Young, LLP, independent certified
public accountants, as stated in their report included herein, and is included
herein in reliance upon such report given on their authority as experts in
auditing and accounting. Ernst & Young, LLP is located at 787 Seventh Avenue,
New York, New York 10019.
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<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
Shareholder and Board of Directors
Excelsior Private Equity Fund II, Inc.
We have audited the accompanying statement of assets and liabilities of
Excelsior Private Equity Fund II, Inc. as of March 20, 1997. This statement of
assets and liabilities is the responsibility of the Company's management. Our
responsibility is to express an opinion on this statement of assets and
liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of assets and
liabilities is free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the statement of
assets and liabilities. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement of assets and liabilities presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Excelsior
Private Equity Fund II, Inc. at March 20, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
New York, New York
March 20, 1997
A-1
<PAGE> 40
EXCELSIOR PRIVATE EQUITY FUND II, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 20, 1997
<TABLE>
<S> <C>
ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000
Deferred organizational and initial offering expenses . . . . . . . . . . . . 222,000
---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . $223,000
LIABILITIES:
Accrued organizational expenses and initial offering costs . . . . . . . . . . 222,000
--------
Net Assets consist of:
Common Stock, $0.01 par value; authorized 200,000 shares;
issued and outstanding 1 share . . . . . . . . . . . . . . . . . . . . . . $ 1,000
=========
Net Asset Value Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000
=========
</TABLE>
- ------------------
Notes:
(1) The Company was incorporated in the State of Maryland on March 20, 1997 and
has had no operations to date other than matters relating to its
organization and registration under the Securities Act of 1933, as amended,
as a diversified, closed-end management investment company that will elect
to be regulated as a business development company under the Investment
Company Act of 1940, as amended, and the sale and issuance of 1 share of
its Common Stock to Douglas A. Lindgren.
(2) Costs incurred by the Company in connection with its organization,
estimated at $15,000, will be amortized on a straight-line basis over a
five-year period beginning at the commencement of operations of the
Company. Costs incurred by the Company in connection with the initial
registration of the Shares, estimated at $207,000 will be charged against
the proceeds of the offering. Approximately $120,000 of these costs have
been incurred by U.S. Trust and will be reimbursed to it.
A-2
<PAGE> 41
EXHIBIT A
SPECIMEN ONLY - NOT FOR PURCHASES
EXCELSIOR PRIVATE EQUITY FUND II, INC.
SUBSCRIPTION AGREEMENT
Excelsior Private Equity
Fund II, Inc.
114 West 47th Street
New York, New York 10036
Ladies and Gentlemen:
The undersigned, by signing this Subscription Agreement, and subject to
the terms and conditions hereof and the provisions of the Prospectus of
Excelsior Private Equity Fund II, Inc. (the "Company") (the "Prospectus"),
hereby subscribes for shares of common stock (the "Shares") of the Company in
the aggregate investment amount set forth on the reverse side hereof (the
undersigned's "Investment Amount"), and herewith encloses payment in an amount
equal to such Investment Amount. The undersigned understands that such funds
will be held by United States Trust Company of New York as Escrow Agent, and
will be returned promptly, together with any interest earned thereon, to the
undersigned, in the event that at least 100,000 Shares are not subscribed for
and the payments therefor are not made by July 31, 1997 or such other subsequent
date not later than December 31, 1997 as the Managing Investment Adviser and the
Company may determine.
1. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right, in its sole discretion, to accept or reject this
subscription, in whole or in part. Subscriptions need not be accepted in the
order received, and Shares may be allocated in the event of oversubscription.
2. Right to Refund. The undersigned shall have the right to receive
a refund of their investment for a period of five business days from the date
payment for the investment is submitted by the undersigned. Such request may be
made in any fashion but, if made other than in an originally signed and written
communication, must be confirmed with such a communication within 15 business
days after the date payment is submitted.
3. Representations and Warranties of the Undersigned. The
undersigned hereby represents and warrants to the Company and UST Financial
Services Corp., and each officer, director, controlling person, and agent of the
Company and UST Financial Services Corp., that:
(a) the undersigned meets the investor suitability standards set forth
in the Prospectus under "Investor Suitability Standards."
(b) if an investment in the Company is being made by a corporation,
partnership, trust, or estate, he/she has all right and authority,
in his/her capacity as an officer, general partner, trustee,
executor, or other representative of such corporation,
partnership, trust, or estate, as the case may be, to make such
decision to invest in the Shares and to execute and deliver this
Subscription Agreement on behalf of such corporation, partnership,
trust, or estate, as the case may be, and this Subscription
Agreement is a valid and binding agreement of such corporation,
partnership, trust, or estate, enforceable in accordance with its
terms;
(c) the undersigned has reached the age of majority in higher state of
residence;
(d) the undersigned hereby acknowledges that the undersigned has
received and carefully reviewed the Prospectus, as amended and/or
supplemented; and
A-3
<PAGE> 42
(e) if the undersigned is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), in making this
investment he/she is aware of and has taken into consideration the
prudence, diversification, and other fiduciary requirements of
ERISA and has concluded that this investment is in compliance with
such requirements.
4. Indemnification. The undersigned hereby agrees to indemnify and
hold harmless the Company and UST Financial Services Corp., each officer,
director, controlling person, and agent of the Company and UST Financial
Services Corp., from and against any and all loss, claim, damage, liability, or
expense, and any action in respect thereof, joint or several, to which any such
person may become subject, due to or arising out of the falsity or inaccuracy of
any representation, warranty or any other information provided herein, together
with all reasonable costs and expenses (including attorneys' fees) incurred by
any such person in connection with any action, suit, proceeding, demand,
assessment, or judgment incident to any of the matters so indemnified against.
5. Survival. All representations and warranties contained in this
Subscription Agreement and the indemnification provisions contained in Section 4
hereof shall survive (i) the acceptance of the subscription, (i) changes in the
transactions, documents, and instruments described in the Prospectus that are
not material, and (iii) the death or disability of the undersigned.
6. Governing Law. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Under penalties of perjury, the undersigned certifies that the information
provided on the reverse of this form is true, correct and complete.
A-4
<PAGE> 43
<TABLE>
<S> <C>
EXCELSIOR PRIVATE EQUITY FUND II, INC.
SUBSCRIPTION AGREEMENT
Purchase Price of $1,000 per Share: minimum
INVESTMENT AMOUNT: subscription is $25,000 (25 Shares)
$ Shares
Make check payable to U.S. Trust of New York, Escrow Agent for EXCELSIOR PRIVATE EQUITY FUND II, INC., 114 West 47th
Street, NY, NY 10036. Checks should be delivered to the Selling Agent together with this Subscription Agreement.
- ----------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL ACCOUNTS: Complete sections 1, 4, 5 and sign below CUSTODIAL ACCOUNTS: Complete sections 2, 3, 4, 5 and sign below
- ---------------------------------------------------------------------------------------------------------------------------------
MANNER IN WHICH TITLE IS TO BE HELD (CHECK ONE)
- ----------------------------------------------------------------------------------------------------------------------------------
(1) INDIVIDUAL ACCOUNTS (2) CUSTODIAL ACCOUNTS
[ ] E. Tenants in common
[ ] A. Individual Owner (all parties must sign) [ ] I. IRA [ ] L. Trust (date est _____)
[ ] B. Joint tenants with [ ] F. Tenants by the [ ] J. Keogh Plan [ ] M. Pension
right of survivorship entirety (both parties [ ] K. Uniform Gifts to [ ] N. Profit Sharing
must sign) Minors Act
[ ] C. Community property
(both parties must sign) [ ] G. Corporate owner
[ ] D. Separate property [ ] H. Partnership owner State of _________________
CUSTODIAN(S) OR TRUSTEE(S) MUST SIGN
(3) TRUSTEE OR Name of Custodian (Trustee) Account #
CUSTODIAN ---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Street or P.O. Box
---------------------------------------------------------------------------------------------------------------
City State Zip Phone
( )
---------------------------------------------------------------------------------------------------------------
Trustee or Custodian Tax ID Number
---------------------------------------------------------------------------------------------------------------
(4) INVESTOR(S) Investor Name Co-Investor Name
---------------------------------------------------------------------------------------------------------------
Street or P.O. Box
---------------------------------------------------------------------------------------------------------------
City State Zip Phone
( )
---------------------------------------------------------------------------------------------------------------
Legal State of Residency (if different from above) U.S. Citizen
[ ] Yes [ ] No
---------------------------------------------------------------------------------------------------------------
Social Security or Tax ID Number for IRS Reporting
---------------------------------------------------------------------------------------------------------------
(5) DISTRIBUTION Name of Custodian (Trustee) Account #
ADDRESS
- IF
DIFFERENT ---------------------------------------------------------------------------------------------------------------
FROM Street or P.O. Box
ADDRESS ABOVE
(Distributions ---------------------------------------------------------------------------------------------------------------
for Custodial City State Zip Phone
Accounts Will ( )
be Sent to The ---------------------------------------------------------------------------------------------------------------
Custodian) Trustee or Custodian Tax ID Number
</TABLE>
I certify, under penalties of perjury, that: (1) the tax identification number
shown on this application is correct and (2) I am NOT currently under IRS
notification that part of my dividend and interest income is to be withheld as
a result of my failure to report all dividend and interest income on my income
tax return - i.e. backup withholding.
(Strike the word "NOT" above if you received IRS notification.)
SIGNATURE(S): Please read the reverse before signing; names must be signed
exactly as registered above; each investor is required to sign his/her/its own
Subscription Agreement unless signed by a trustee or custodian.
Investor's Signature _________________________ Date ___________________________
Co-Investor's Signature ______________________ Date ___________________________
Trustee or Custodian's Signature _____________ Date ___________________________
THE SELLING AGENT MUST SIGN BELOW TO COMPLETE THE ORDER
I had reasonable grounds to believe, on the basis of information obtained from
the subscriber concerning his/her age, investment objectives, other
investments, financial situation and needs, and any other information known by
me, including said subscriber's recognizable capacity to understand the
important aspects and risks of the investment, that (i) the subscriber is or
will be in a financial position appropriate to enable him/her to realize to a
significant extent the benefits described in the Prospectus; (ii) the
subscriber has a fair market net worth sufficient to sustain the risks inherent
in and investment in the Company, including loss of investment and lack of
liquidity; and (iii) the Company is otherwise suitable for the subscriber. I
further certify that I have informed the subscriber of all pertinent facts
relating to the liquidity and marketability of the Shares during the term of
the Company. I also warrant that I am exempt from licensing or duly licensed,
as appropriate, and may lawfully sell the Shares in the state designated as the
subscriber's residence.
Name Address
- ------------------------------------------------------------------------------
City State Zip Phone
- ------------------------------------------------------------------------------
[Licensed Firm Name] [Firm's Headquarters Mailing Address]
- ------------------------------------------------------------------------------
[City] State Zip Phone
- ------------------------------------------------------------------------------
Signature
- ------------------------------------------------------------------------------
A-5
<PAGE> 44
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE SELLING AGENT. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT ANY
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
_________________
TABLE OF CONTENTS PAGE
----
Fee Table . . . . . . . . . . . . . . . . . . . . . . . . . 2
Available Information . . . . . . . . . . . . . . . . . . . 2
Reports To Stockholders . . . . . . . . . . . . . . . . . . 3
Investor Suitability Standards . . . . . . . . . . . . . . 4
Prospectus Summary . . . . . . . . . . . . . . . . . . . . 5
The Company . . . . . . . . . . . . . . . . . . . . . . . . 8
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . 9
Investment Objective And Policies . . . . . . . . . . . . . 13
Terms Of The Offering And Purchase Of Shares . . . . . . . 16
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 17
Management . . . . . . . . . . . . . . . . . . . . . . . . 17
Brokerage Allocation And Other Practices . . . . . . . . . 27
Regulation . . . . . . . . . . . . . . . . . . . . . . . . 28
Valuation Of Portfolio Securities . . . . . . . . . . . . . 30
Federal Income Tax Matters . . . . . . . . . . . . . . . . 31
ERISA Considerations . . . . . . . . . . . . . . . . . . . 34
Description Of Shares . . . . . . . . . . . . . . . . . . . 35
Selling Arrangements . . . . . . . . . . . . . . . . . . . 35
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . 36
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Report of Independent Auditors . . . . . . . . . . . . . . A-1
Statement of Assets And Liabilities . . . . . . . . . . . . A-2
Exhibit A - Subscription Agreement . . . . . . . . . . . . A-3
_________________
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
EXCELSIOR PRIVATE
EQUITY FUND II, INC.
150,000 SHARES
OF
COMMON STOCK
__________
PROSPECTUS
__________
, 1997
<PAGE> 45
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
I. Financial Statements
(a) Report of Independent Auditors.
(b) Statement of Assets and Liabilities of the Company, as of March 20,
1997.
2. Exhibits
1.1 Form of Selling Agent Agreement between the Company and UST Financial
Services Corp.*
3.1 Articles of Incorporation.
3.2 By-Laws of the Company.
4.1 Specimen Stock Certificate.*
4.2 Form of Subscription Agreement for investment in shares of the
Company.
5.1 Opinion and consent of O'Sullivan Graev & Karabell, LLP.*
10.1 Form of Transfer Agency and Custodian Agreement between the Company
and The Chase Manhattan Bank.*
10.2 Form of Management Agreement between the Company and United States
Trust Company of New York.*
10.3 Form of Escrow Agreement among the Company, UST Financial Services
Corp. and United States Trust Company of New York.*
23.1 Consent of Ernst & Young, LLP, independent auditors.
- --------------------
* To be filed by amendment.
C-1
<PAGE> 46
Item 25. MARKETING ARRANGEMENTS
See the Form of Selling Agent Agreement filed as Exhibit 1.1, as well
as the Company's Prospectus under the caption "Selling Arrangements."
Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, payable by the
Company in connection with the issuance and distribution of the securities
covered by this Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission Fees . . . $ 45,454.55
Blue Sky fees and expenses . . . . . . . . . 40,000.00
Printing . . . . . . . . . . . . . . . . . . 15,000.00
Legal fees and expenses . . . . . . . . . . . 100,000.00
Independent auditors' fees and expenses . . . 5,000.00
Miscellaneous . . . . . . . . . . . . . . . . 16,545.59
-----------
Total . . . . . . . . . . . . . . . . $222,000.14
===========
</TABLE>
Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Upon conclusion of the public offering of the Company's shares of
common stock, it is anticipated that no person will be controlled by or under
common control with the Company.
Item 28. NUMBER OF HOLDERS OF SECURITIES AS OF MARCH 20, 1997
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, par value $0.01 per share 1
Item 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
the state in which the Company is organized, empowers a corporation, subject to
certain limitations, to indemnify its directors, officers, employees and agents
against judgments, penalties, fines, settlements and reasonable expenses
actually and reasonably incurred by them in connection with any suit or
proceeding to which they are a party so long as they acted in good faith or
without active and deliberate dishonesty, and they received no actual improper
personal benefit in money or property or services, or, with respect to any
criminal proceeding, so long as they had no reasonable cause to believe their
conduct to have been unlawful.
Article XI of the Company's Articles of Incorporation filed as Exhibit
3.1 provides that the Company shall indemnify its directors and officers to the
fullest extent permitted by the Maryland General Corporation Law, including the
advancing of expenses, subject to any limitations imposed by the Securities Act
of 1933, as amended (the "Securities Act") and the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Company's board of
directors may make further provision for indemnification of directors, officers,
employees and agents to the fullest extent permitted by law.
Article VIII of the Company's By-Laws filed as Exhibit 3.2 provides
that the Company shall indemnify, defend and hold harmless its directors and
officers to the fullest extent permitted by law, including the advancing of
expenses, subject to any limitations imposed by law.
C-2
<PAGE> 47
Under Section 1.6 of the Selling Agent Agreement filed as Exhibit 1.1,
the selling agent agrees to indemnify the Company and its directors, officers,
and controlling persons against certain liabilities including liabilities under
the Securities Act arising out of actions or omissions of the Selling Agent.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company, pursuant to the foregoing provisions or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless, in the opinion of its
counsel, the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Item 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
United States Trust Company of New York ("U.S. Trust") is a
full-service state-chartered bank located in New York, New York. Set forth
below are the names and principal businesses of the directors and certain
senior executive officers of U.S. Trust including those who are engaged in any
other business, profession, vocation, or employment of a substantial nature.
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL TYPE OF
U.S. TRUST NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Director Samuel C. Butler Partner in Cravath, Swaine Law Firm
Cravath, Swaine & Moore & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Director Peter O. Crisp Chairman of Venrock, Inc. Venture Capital
Room 5600
30 Rockefeller Plaza
New York, NY 10112
Director Antonia M. Grumbach Partner in Patterson, Law Firm
Patterson, Belknap, Webb & Tyler Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
Director, Chairman of the H. Marshall Schwarz Chairman of the Board & Investment Management
Board and Chief Executive United States Trust Company Chief Executive Officer of
Officer of New York U.S. Trust Corporation and
114 West 47th Street United States Trust Company
New York, NY 10036 of New York
Director Philippe de Montebello Director of the Metropolitan Art Museum
Metropolitan Museum of Art Museum of Art
1000 Fifth Avenue
New York, NY 10029-0198
Director Paul W. Douglas Retired Chairman of the Coal Mining,
250 Park Avenue Board of The Pittston Transportation and
Room 1900 Company Security Services
New York, NY 10177
</TABLE>
C-3
<PAGE> 48
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL TYPE OF
U.S. TRUST NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Director Frederic C. Hamilton Chairman of the Board of Investments and
The Hamilton Companies The Hamilton Companies Venture Capital
1560 Broadway
Suite 2000
Denver, CO 80202
Director John Hoyt Stookey Chairman of Suburban Petrochemicals and
c/o Landmark Volunteers Propane Pts. Propane
749A Main Street
Route 7, Box 455
Sheffield, MA 01257
Director Robert N. Wilson Vice Chairman of the Board Health Care Products
Johnson & Johnson of Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Director Peter L. Malkin Chairman of Wien & Malkin Law Firm
Wien & Malkin LLP LLP
Lincoln Building
60 East 42nd Street
New York, NY 10165
Director Richard F. Tucker Retired Vice Chairman of the Petroleum and
11 Over Rock Lane Board of Mobil Corporation Chemicals
Westport, CT 06880
Director Carroll L. Wainwright, Jr. Consulting Partner in Law Firm
Milbank, Tweed, Hadley & McCloy Milbank, Tweed, Hadley &
One Chase Manhattan Plaza McCloy
New York, NY 10005
Director, Vice Chairman and Frederick B. Taylor Vice Chairman of the Board Investment Management
Chief Investment Officer United States Trust Company and Chief Investment
of New York Officer of U.S. Trust
114 West 47th Street Corporation and United
New York, NY 10036 States Trust Company
of New York
Director, President and Chief Jeffrey S. Maurer President and Chief Operating Investment Management
Operating Officer United States Trust Company Officer of U.S. Trust
of New York Corporation and United States
114 West 47th Street Trust Company of New York
New York, NY 10036
Director Philip L. Smith Corporate Director and
P.O. Box 562 Trustee
Newburg, NH 03255
Director Eleanor Baum Dean of Engineering at The
4 Arleigh Road Cooper Union for the Education
Great Neck, NY 11021 Advancement of Science &
Art
</TABLE>
C-4
<PAGE> 49
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL TYPE OF
U.S. TRUST NAME OCCUPATION BUSINESS
---------- ---- ---------- --------
<S> <C> <C> <C>
Director Ruth A. Wooden President & Chief Executive Not-For-Profit Public
261 Madison Avenue Officer of The Advertising Service Advertising
1lth Floor Council, Inc.
New York, NY 10016
Director David A. Olsen Chairman of the Board and
Johnson & Higgins Chief Executive Officer of Insurance Broker/
125 Broad Street Johnson & Higgins Benefit Consulting
New York, NY 10004
</TABLE>
Item 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Company will be maintained at the
office of United States Trust Company of New York, 114 West 47th Street, New
York, New York 10036.
Item 32. MANAGEMENT SERVICES
Except as described in the Prospectus under the caption "Management,"
the Company is not a party to any management service related contract.
Item 33. UNDERTAKINGS
The Company undertakes to suspend the offering of its shares of Common
Stock until it amends its Prospectus if (1) subsequent to the effective date of
its Registration Statement, the net asset value declines more than 10 percent
from its net asset value as of the effective date of the Registration Statement
or (2) the net asset value increases to an amount greater than its net proceeds
as stated in the Prospectus.
The Company additionally undertakes, pursuant to Rule 415 under the
Securities Act, as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b)To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(c)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
C-5
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 24th day of March, 1997.
EXCELSIOR PRIVATE EQUITY
FUND II, INC.
By:/s/ David I. Fann
------------------------------------
David I. Fann, President and
Chief Executive Officer
Each person whose signature appears below hereby appoints David I. Fann
his or her true and lawful attorney-in-fact, with full power of such
attorney-in-fact to sign on his or her behalf, individually and in each capacity
stated below, any and all amendments (including post-effective amendments) to
this Registration Statement and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Edith A. Cassidy Chairman of the Board and Director March 24, 1997
- ------------------------------------
Edith A. Cassidy
/s/ Gene M. Bernstein
- ------------------------------------
Gene M. Bernstein Director March 24, 1997
/s/ Stephen V. Murphy
- ------------------------------------
Stephen V. Murphy Director March 24, 1997
/s/ David I. Fann President and Chief Executive March 24, 1997
- ------------------------------------ Officer (principal executive
David I. Fann officer)
/s/ Brian Schmidt Chief Financial Officer (principal
- ------------------------------------ financial and accounting officer) March 24, 1997
Brian Schmidt
</TABLE>
C-6
<PAGE> 51
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [x]
Amendment No. [ ]
EXCELSIOR PRIVATE EQUITY FUND II, INC.
(Exact Name of Registrant as Specified in Charter)
===============================================================================
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT INDEX
Page
Exhibit No. Exhibit Number
----------- ------- ------
<S> <C> <C>
1.1 Form of Selling Agent Agreement between the Company and UST Financial Services Corp.*
3.1 Articles of Incorporation
3.2 By-Laws of the Company
4.1 Specimen Stock Certificate*
4.2 Form of Subscription Agreement for investment in shares of the Company
5.1 Opinion and consent of O'Sullivan Graev & Karabell, LLP*
10.1 Form of Transfer Agency and Custodian Agreement between the Company and The Chase
Manhattan Bank*
10.2 Form of Management Agreement between the Company and United States Trust Company of New
York*
10.3 Form of Escrow Agreement among the Company, UST Financial Services Corp. and United
States Trust Company of New York*
23.1 Consent of Ernst & Young, LLP, independent auditors
</TABLE>
- ------------------
* To be filed by amendment
<PAGE> 1
- --------------------------------------------------------------------------------
STATE OF MARYLAND
515683
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street, Baltimore, Maryland 21201
MARCH 20, 1997
THIS IS TO ADVISE YOU THAT THE ARTICLES OF INCORPORATION FOR
EXCELSIOR PRIVATE EQUITY FUND II, INC. WERE RECEIVED AND APPROVED
FOR RECORD ON MARCH 20, 1997 AT 10:11 AM.
FEE PAID: 105.00
[SEAL, STATE OF MARYLAND] JOSEPH V. STEWART
AT5-081 CHARTER SPECIALIST
- --------------------------------------------------------------------------------
<PAGE> 2
ARTICLES OF INCORPORATION
OF
EXCELSIOR PRIVATE EQUITY FUND II, INC.
(a Maryland Corporation)
ARTICLE I
INCORPORATOR
The undersigned, David I. Fann, whose address is 114 West 47th Street,
New York, New York 10036-1532, being a natural person of the age of eighteen
(18) years or more, hereby forms a corporation (hereinafter referred to as the
("Company") under the General Corporation Law of the State of Maryland, as
amended (the ("General Corporation Law") authorizing the formation of
corporations.
ARTICLE II
NAME
The name of the Company is Excelsior Private Equity Fund II, Inc.
ARTICLE III
DURATION
The period of duration of the Company shall be ten years from the
final closing of the sale of shares of Common Stock (as herein defined) in the
Company's initial offering, except that the Managing Investment Adviser of the
Company (as defined in the Company's Registration Statement, as amended) shall
have the right, in its sole discretion, to extend the term of the Company for
up to two additional two-year periods after which approval of stockholders (the
"Stockholders") of the Company represent 66 2/3% of the Company's outstanding
shares may extend the term of the Company.
ARTICLE IV
PURPOSES AND POWERS
The purpose for which the Company is formed is to act as a closed-end
management investment company, electing status as a business development
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and to exercise and generally enjoy all of the powers, rights
and
<PAGE> 3
privileges granted to, or conferred upon, corporations by the General
Corporation Law and any other laws of Maryland, including, without limitation,
the following:
(1) To purchase, hold, invest and reinvest in, sell, exchange,
transfer, mortgage, and otherwise acquire and dispose of securities of every
kind, character and description.
(2) To exercise all rights, powers and privileges with reference to or
incident to ownership, use and enjoyment of any of such securities, including,
but without limitation, the right, power and privilege to own, vote, hold,
purchase, sell, negotiate, assign, exchange, transfer, mortgage, pledge or
otherwise deal with, dispose of, use, exercise or enjoy any rights, title,
interest, powers or privileges under or with reference to any of such
securities; and to do any and all acts and things for the preservation,
protection, improvement and enhancement in value of any such securities,
including, without limitation, making available significant managerial
assistance to the issuers of any such securities.
(3) To purchase or otherwise acquire, own, hold, sell, exchange,
assign, transfer, mortgage, pledge or otherwise dispose of, property of all
kinds.
(4) To buy, sell, mortgage, encumber, hold, own, exchange, rent or
otherwise acquire and dispose of, and to develop, improve, manage, subdivide,
and generally to deal and trade in real property, improved and unimproved, and
wheresoever situated, and to build, erect, construct, alter and maintain
buildings, structures, and other improvements on real property.
(5) To borrow or raise moneys for any of the purposes of the Company,
and to mortgage or pledge the whole or any part of the property and franchises
of the Company, real, personal, and mixed, tangible or intangible, wheresoever
situated.
(6) To enter into, make and perform contracts and undertakings of
every kind for any lawful purpose, without limit as to amount.
(7) To issue, purchase, sell and transfer, hold, trade and deal in,
to the extent permitted under the General Corporation Law and applicable
securities laws, capital stock, bonds, debentures and other securities of the
Company, from time to time, to such extent as the board of directors of the
Company (the "Board" or "Directors," each individually, a "Director") shall,
consistent with the provisions of these Articles of Incorporation, determine;
and to repurchase, reacquire and redeem, to the extent permitted under the
General Corporation Law and applicable securities laws, the shares of its own
capital stock, bonds, debentures and other securities.
-2-
<PAGE> 4
The foregoing clauses shall each be construed as purposes, objects and
powers, and it is hereby expressly provided that the foregoing enumeration of
specific purposes, objects and powers shall not be held to limit or restrict in
any manner the powers of the Company, and that they are in furtherance of, and
in addition to, and not in limitation of, the general powers conferred upon the
Company by the General Corporation Law or otherwise: nor shall the enumeration
of one thing be deemed to exclude another, although it be of like nature, not
expressed.
ARTICLE V
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the place at which the principal office of
the Company in the State of Maryland is located is c/o CT Corporation System,
32 South Street, Baltimore, Maryland 21202.
The name and post office address of the Company's resident agent in
the State of Maryland is CT Corporation System, 32 South Street, Baltimore,
Maryland 21202.
ARTICLE VI
CAPITAL STOCK
Section 1. The total number of shares of capital stock the Company
has authority to issue is 200,000 shares, with a par value of $0.01 per share,
designated as "Common Stock," such shares of Common Stock having an aggregate
par value of $2,000.
Section 2. Unless otherwise provided in these Articles of
Incorporation, the Board shall have the power to issue shares of capital stock
of the Company from time to time for such consideration and in such form as may
be fixed from time to time pursuant to the direction of the Board.
Section 3. Unless otherwise expressly provided in these Articles of
Incorporation or in any Articles Supplementary, the holder of each share of
capital stock of the Company shall be entitled to one vote for each full share,
and a fractional vote for each fractional share of capital stock then
outstanding in his or her name in the books of the Company. Holders of shares
of capital stock of the Company shall not be entitled to cumulative voting in
the election of Directors or on any other matter unless otherwise expressly
provided in any Articles Supplementary creating any new class of capital stock.
-3-
<PAGE> 5
Section 4. The presence in person or by proxy of the holders of
record of the majority of all shares of capital stock of the Company issued and
outstanding and entitled to vote thereat shall constitute a quorum for the
transaction of any business at all meetings of the Stockholders, except as
otherwise provided by the Investment Company Act, the General Corporation Law
and other applicable laws of Maryland or in these Articles of Incorporation.
Section 5. Except as otherwise provided in these Articles of
Incorporation or in the By-Laws, or as required by the Investment Company Act,
any action taken by the Stockholders of the Company shall be valid and
effective if taken or authorized by the affirmative vote of the holders of a
majority of the aggregate number of shares of capital stock of the Company
outstanding and entitled to vote thereon.
Section 6. No holder of shares of capital stock of the Company
shall, as such holder, have any preemptive right to purchase or subscribe for
any part of any new or additional issue of stock of any class, or of rights or
options to purchase any stock, or of securities convertible into, or carrying
rights or options to purchase, stock of any class, whether now or hereafter
authorized or whether issued for money, for a consideration other than money or
by way of a dividend or otherwise, and all such rights are hereby waived by
each holder of capital stock and of any other class of stock or securities of
the Company that may hereafter be created.
Section 7. All persons who shall acquire capital stock in the
Company shall acquire the same subject to the provisions of these Articles of
Incorporation.
ARTICLE VII
BOARD OF DIRECTORS
The number of Directors of the Company shall be fixed from time to
time in the manner provided in the By-Laws; however, no decrease in the number
of Directors shall have the effect of shortening the term of any incumbent
Director. The number constituting the initial Board is three, and the name of
the persons who are to serve as Directors until the first annual meeting of
Stockholders, or until their successors are elected and qualify, are Edith A.
Cassidy, Gene M. Bernstein and Stephen V. Murphy.
-4-
<PAGE> 6
ARTICLE VIII
MANAGEMENT OF THE AFFAIRS OF THE COMPANY
Section 1. All corporate powers and authority of the Company (except
as at the time otherwise provided by statute, by these Articles of
Incorporation or by the ByLaws) shall be vested in and exercised by the Board.
Section 2. The Board shall have the power to fix an initial offering
price for the shares of Common Stock, which shall yield to the Company not less
than the par value thereof, at which price the shares of the Common Stock of
the Company shall be offered for sale, and to determine from time to time
thereafter the offering price which shall yield to the Company not less than
the par value thereof from sales of the shares of its capital stock; provided,
however, that sales by the Company of its shares of capital stock for less than
net asset value (as defined in the Investment Company Act) shall be in
accordance with the applicable requirements of the Investment Company Act.
Section 3. The Board may from time to time declare and pay dividends
or distributions, in stock or in cash, on the Company's capital stock;
provided, such dividends or distributions on shares of stock shall be paid only
out of earnings, surplus, or other lawfully available assets.
Section 4. The Board shall have the power in its discretion to
distribute to the Stockholders of the Company in any fiscal year as dividends,
including dividends designated in whole or in part as capital gains
distributions, amounts sufficient, in the opinion of the Board, to enable the
Company to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, or any successor or comparable statute
thereof, and regulations promulgated thereunder (collectively, the "Code"), and
to avoid liability of the Company for federal income tax in respect of that
year and to make other appropriate adjustments in connection therewith.
Section 5. The Board shall have the power, in its discretion, to
make such elections as to the tax status of the Company as may be permitted or
required under the Code as presently in effect or as amended, without the vote
of Stockholders of the Company.
Section 6. The Board shall have the power from time to time to
determine whether and to what extent, and at what times and places and under
what conditions the accounts and books of the Company or any of them shall be
open to the inspection of Stockholders, and no Stockholder shall have any right
to inspect
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any account, book or document of the Company except to the extent required by
statute or permitted by the Company's By-Laws.
Section 7. To the extent permitted under applicable law, the Company
may purchase shares of its capital stock upon such terms and conditions and for
such consideration as the Board shall deem advisable.
Section 8. The net asset value of the property and assets of the
Company shall be determined in accordance with the Investment Company Act and
with generally accepted accounting principles, and at such times as the Board
may direct, by deducting from the total market or appraised value of all of the
property and assets of the Company, all debts, obligations and liabilities of
the Company (including, but without limitation of the generality of any of the
foregoing, any or all debts, obligations, liabilities or claims of any and
every kind and nature, whether fixed, accrued, or unmatured, and any reserves
or charges, determined in accordance with generally accepted accounting
principles, for any or all thereof, whether for taxes, including estimated
taxes, or unrealized book profits, expenses, contingencies or otherwise).
Section 9. In addition to the powers and authorities granted herein
and by statute expressly conferred upon it, the Board is authorized to exercise
all powers and do all acts that may be exercised or done by the Company
pursuant to the provisions of the laws of the State of Maryland, these Articles
of Incorporation and the By-Laws of the Company.
ARTICLE IX
DETERMINATIONS AS TO ACCOUNTING MATTERS
Any determination made in good faith, so far as accounting matters are
involved, in accordance with generally accepted accounting principles by or
pursuant to the authority or the direction of the Board, as to (i) the amount
of assets, obligations or liabilities of the Company, (ii) the amount of net
income of the Company from dividends and interest for any period or amounts at
any time legally available for the payment of dividends, (iii) the amount of
any reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
such reserves or charges shall have been created, shall have been paid or
discharged or is then or thereafter required to be paid or discharged), (iv)
the price of any security owned by the Company or (v) any other matters
relating to the issuance, sale, redemption or other acquisition or disposition
of securities or shares of capital stock of the Company, shall be
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final and conclusive, and shall be binding upon the Company and all holders of
its capital stock, past, present and future, and shares of the capital stock of
the Company are issued and sold on the condition and understanding, evidenced
by the purchase of shares of capital stock or acceptance of share certificates,
that any and all such determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation shall be effective to (a) require
a waiver of compliance with any provision of the Securities Act of 1933, as
amended (the "Securities Act"), the Investment Company Act or of any valid
rule, regulation or order of the Securities and Exchange Commission thereunder
or (b) protect or purport to protect any Director or officer of the Company
against any liability to the Company or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
ARTICLE X
BY-LAWS
The initial By-Laws of the Company shall be adopted by the Board. The
power to alter, amend or repeal the By-Laws of the Company or adopt new By-Laws
is vested in the Board, subject to repeal or change by action of the
Stockholders of the Company.
ARTICLE XI
LIMITATIONS ON LIABILITY; INDEMNIFICATION
Section 1. To the fullest extent that limitations on the liability
of directors and officers are permitted by the General Corporation Law, no
Director or officer of the Company shall have any liability to the Company or
the Stockholders for damages. This limitation on liability applies to events
occurring at the time a person serves as a Director or officer of the Company
whether or not such person is a Director or officer at the time of any
proceeding in which liability is asserted.
Section 2. Any person who was or is a party or is threatened to be
made a party in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is a current or former Director or officer of the
Company or is or was serving while a Director or officer of the Company at the
request of the Company as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Company
against judgments,
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penalties, fines, excise taxes, settlements and reasonable expenses (including
attorneys' fees) actually incurred by such person in connection with such
action, suit or proceeding to the fullest extent permissible under the General
Corporation Law, the Securities Act and the Investment Company Act, as such
statutes are now or hereafter in force. In addition, the Company shall also
advance expenses to its currently acting and its former Directors and officers
to the fullest extent that indemnification of Directors and officers is
permitted by the General Corporation Law, the Securities Act and the Investment
Company Act. The Board may by By-Law, resolution or agreement make further
provision for indemnification of Directors, officers, employees and agents to
the fullest extent permitted by the General Corporation Law.
Section 3. No provision of this Article XI shall be effective to
protect or purport to protect any Director or officer of the Company against
any liability to the Company or its Stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4. References to the General Corporation Law in this Article
XI are to that law as from time to time amended. No amendment to these
Articles of Incorporation shall affect any right of any person under this
Article XI based on any event, omission or proceeding prior to the amendment.
ARTICLE XII
AMENDMENTS
From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed (including any amendment that
changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), and other provisions that may, under the laws
of the State of Maryland and applicable securities laws at the time in force,
be lawfully contained in articles of incorporation may be added or inserted
upon the vote of a majority of the shares of capital stock of the Company
outstanding and entitled to vote thereon. All rights at any time conferred
upon the Stockholders of the Company by these Articles of Incorporation are
subject to the provisions of this Article XII.
The term "Articles of Incorporation" as used herein and in the By-Laws
of the Company shall be deemed to mean these Articles of Incorporation as from
time to time amended, restated or supplemented.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
18th day of March, 1997. I have signed these articles and acknowledge same to
be my act.
/s/ DAVID I. FANN
--------------------------
David I. Fann
Sole Incorporator
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EXCELSIOR PRIVATE EQUITY II, INC.
(a Maryland corporation)
BY-LAWS
These by-laws ("By-Laws") are made as of the 20th day of March, 1997
and adopted pursuant to Article X of the Articles of Incorporation establishing
Excelsior Private Equity Fund II, Inc. (the "Company") dated March 20, 1997, as
from time to time amended, restated or supplemented (hereinafter called the
"Articles"). All words and terms capitalized in these By-Laws shall have the
meaning or meanings set forth for such words or terms in the Articles unless
otherwise noted.
ARTICLE I
OFFICES
The principal office of the Company shall be in Baltimore, State of
Maryland.
The principal executive office of the Company shall be at 114 West
47th Street, New York, New York 10036-1532.
The Company may have such other offices in such places as the Board of
Directors (the "Board" or "Directors," each individually, a "Director") may
from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1. Special Meetings. Special meetings of the Stockholders,
unless otherwise provided by law or by the Articles, may be called for any
purpose or purposes by a majority of the Board or the President, and, upon
satisfaction of statutory requirements, shall be called on the written request
of the Stockholders of at least 25% of the outstanding capital stock of the
Company entitled to vote at such meeting.
2.2. Annual Meeting. An annual meeting of the Stockholders (the
"Stockholders") of the Company shall be held on such date and at such hour as
may from time to time be designated by the Board and stated in the notice of
such meeting; provided, however, that the Company shall not be required to hold
an annual meeting of its Stockholders in any year unless the Investment Company
Act of 1940, as amended (the "Investment Company Act") or other applicable law
requires an election of Directors by the Stockholders or an annual meeting is
otherwise required by law.
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2.3. Place of Meetings. Any annual or special meeting of the
Stockholders shall be held at such place within the United States as the Board
may from time to time determine.
2.4. Notice of Meetings; Waiver of Notices. Written notice of the
place, date and time of the holding of each annual and special meeting of the
Stockholders and the purpose or purposes of each special meeting shall be given
personally or by mail, not less than 10 nor more than 90 days before the date
of such meeting, to each Stockholder entitled to notice of the meeting. Notice
by mail shall be deemed to be duly given when deposited in the United States
mail or similar means addressed to the Stockholder at the Stockholder's address
as it appears on the records of the Company, with postage or any fees thereon
prepaid.
Notice of any meeting of Stockholders shall be deemed waived by any
Stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. When a meeting is adjourned to another
time and place, unless after the adjournment the Board shall fix a new record
date for any adjourned meeting or the adjournment is for more than 30 days,
notice of such adjourned meeting need not be given if the time and place to
which the meeting shall be adjourned is announced at the meeting at which the
adjournment is taken.
2.5. Quorum and Adjournment. At all meetings of the Stockholders,
the holders of a majority of all shares of stock of the Company entitled to
vote at the meeting present in person or by proxy shall constitute a quorum for
the transaction of any business, except as otherwise provided by statute or by
the Articles or these By-Laws. A meeting of Stockholders convened on the date
for which it was called may be adjourned as permitted under the laws of the
State of Maryland. If a quorum shall not be present or represented at such
meeting of Stockholders, a majority of the Stockholders entitled to vote
thereat present in person or represented by proxy, shall have power to adjourn
the meeting. At any adjourned session of a meeting at which a quorum shall be
present or represented, any business may be transacted that might have been
transacted at the meeting as originally noticed. The absence from any meeting
of holders of the number of shares of stock of the Company in excess of a
majority thereof which may be required by the laws of the State of Maryland,
the Investment Company Act or any other applicable statute, the Articles, or
these By-Laws, for action on any given matter shall not prevent action at such
meeting on any other matter or matters which may properly come before the
meeting if there shall be present thereat in person or by proxy, holders of the
number of shares of stock of the Company required for action in respect of such
other matter or matters.
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2.6. Organization. At each meeting of the Stockholders, the
Chairman of the Board (if one has been designated by the Board pursuant to
Section 5.1 of Article V hereof), or in his absence or inability to act, the
President, shall act as chairman of the meeting. The Secretary, or in the
Secretary's absence or inability to act, any person appointed by the chairman
of the meeting, shall act as secretary of the meeting and keep the minutes
thereof.
2.7. Order of Business. The order of business at all meetings of
the Stockholders shall be as determined by the chairman of the meeting.
2.8. Voting. Except as otherwise provided by statute or the
Articles, each holder of record of shares of stock of the Company having voting
power shall be entitled at each meeting of the Stockholders to one vote for
every share of such stock standing in the name of such Stockholder on the
record of Stockholders of the Company as of the record date determined pursuant
to Article X hereof.
Each Stockholder entitled to vote at any meeting of Stockholders may
authorize another person or persons to act for him by a proxy signed by such
Stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the Stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. A proxy
purporting to be executed by or on behalf of a Stockholder shall be deemed
valid unless challenged on or prior to its exercise. Except as otherwise
provided by applicable law, the Articles or these By-Laws, any corporate action
to be taken by vote of the Stockholders shall be authorized by a majority of
the total votes cast at a meeting of Stockholders by the Stockholders present
in person or represented by proxy and entitled to vote on such action.
2.9. Inspectors of Election. In advance of any meeting of the
Stockholders, the Directors may appoint inspectors of election to act at the
meeting or any adjournment thereof (the "Inspectors of Election"). If
Inspectors of Election are not so appointed, the chairman, if any, of any
meeting of the Stockholders may, and on the request of any Stockholder or his
or her proxy shall, appoint Inspectors of Election of the meeting. The number
of Inspectors of Election shall be either one or more. If appointed at the
meeting on the request of one or more Stockholders or proxies, a majority of
votes cast shall determine whether one or more Inspectors of Election are to be
appointed, but failure to allow such determination by the Stockholders shall
not affect the validity of the appointment of Inspectors of Election. In case
any person appointed as Inspector of Election fails to appear or fails or
refuses to act, the vacancy may be
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filled by appointment made by the Directors in advance of the convening of the
meeting or at the meeting by the person acting as chairman. Inspectors, before
entering upon the discharge of their duties, shall take and sign an oath to
execute faithfully the duties of inspector at such meeting with strict
impartiality and according to the best of their ability. The Inspectors of
Election shall determine the number of outstanding shares owned by
Stockholders, the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies,
shall receive votes, ballots or consents, shall hear and determine all
challenges and questions in any way arising in connection with the right to
vote, shall count and tabulate all votes or consents, determine the results,
and do such other acts as may be proper to conduct the election or vote with
fairness to all Stockholders. If there are three or more Inspectors of
Election, the decision, act or certificate of a majority is effective in all
respects as the decision, act or certificate of all. On request of the
chairman, if any, of the meeting, or of any Stockholder or his or her proxy,
the Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them. No Director or candidate for office of Director shall act
as inspector of an election of Directors. Inspectors of Election need not be
Stockholders.
2.10. Records of Meetings of Stockholders. At each meeting of the
Stockholders there shall be open for inspection the minutes of the last
previous meeting of Stockholders and a list of the Stockholders, certified to
be true and correct by the Secretary or other proper agent of the Company, as
of the record date of the meeting. Such list of Stockholders shall contain the
name of each Stockholder in alphabetical order, the Stockholder's address and
shares owned by such Stockholder. Stockholders shall have the right to inspect
books and records of the Company during normal business hours for any purpose
not harmful to the Company.
2.11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by law or the Articles, any action required to be taken at
any annual or special meeting of Stockholders, or any action which may be taken
at any annual or special meeting of such Stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of Stockholders meetings: (i) a unanimous written consent
which sets forth the action and is signed by each Stockholder entitled to vote
on the matter and (ii) a written waiver of any right to dissent signed by each
Stockholder entitled to notice of the meeting but not entitled to vote thereat.
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ARTICLE III
BOARD OF DIRECTORS
3.1. Management of the Company. The property, business and affairs
of the Company shall be managed under the direction of its Board, and all of
the powers of the Company may be exercised by or under authority of the Board
except as conferred upon or reserved to the Stockholders by law, by the
Articles or by these By-Laws.
3.2. Number of Directors and Tenure. The number of Directors of
the Company shall, until further action is taken by the Board, be three. By
vote of a majority of the entire Board, the number of Directors fixed by the
Articles or by these By-Laws may be increased or decreased from time to time up
to a maximum of 12, but shall never be less than two. Each Director shall hold
office until his successor is duly elected and qualifies.
3.3. Vacancies. Except as otherwise required by the Investment
Company Act, any vacancy occurring in the Board for any cause other than by
reason of an increase in the number of Directors may be filled by a majority of
the remaining members of the Board, although such majority is less than a
quorum. Any vacancy occurring by reason of an increase in the number of
Directors may be filled by an action of a majority of the entire Board. A
Director elected by the Board to fill a vacancy shall be elected to hold office
until the next annual meeting of Stockholders or until a successor is elected
and qualifies.
At any annual meeting of Stockholders, Stockholders shall be entitled
to elect Directors to fill any vacancies in the Board that have arisen since
the preceding annual meeting of Stockholders (whether or not any such vacancy
has been filled by election of a new Director by the Board) and amy Director so
elected by the Stockholders shall hold office until his successor shall be
elected and shall qualify.
3.4. Removal. A Director may be removed only for cause, and not
without cause, and only by action of the Stockholders taken by the holders of
at least 75% of the shares of capital stock then entitled to vote for such
Director in an election of Directors.
3.5. Compensation of Directors. Directors may receive compensation
for services to the Company in their capacities as Directors or otherwise in
such manner and in such amounts as may be fixed from time to time by the Board.
3.6. Power to Issue and Sell Stock. The Board may from time to
time authorize by resolution the issuance and sale
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of any of the Company's authorized shares to such persons as the Board shall
deem advisable.
3.7. Power to Declare Dividends. The Board, from time to time as
it may deem advisable, may declare and the Company may pay dividends, in cash,
property, or shares of the Company available for dividends out of any source
available for dividends, to the Stockholders according to their respective
rights and interests.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
4.1. Place of Meetings. Meetings of the Board, regular or special,
may be held at any place in or out of the State of Maryland as the Board may
from time to time determine or as shall be specified in the notice of such
meeting.
4.2. Annual Meeting. The first meeting of each newly elected Board
shall be held as soon as practicable after the meeting of Stockholders at which
the Directors were elected or, in the absence of such annual Stockholders'
meeting, at such time and place as the Board may provide. No notice of such
meeting shall be necessary if held immediately after the adjournment, and at
the site, of the meeting of Stockholders.
4.3. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as shall from time to time be determined
by the Board.
4.4. Special Meetings. Special meetings of the Directors shall be
held upon the call of the Chairman, if any, the President, the Secretary, or
any two Directors, at such time, on such day and at such place, as shall be
designated in the notice of the meeting.
4.5. Notice. Notice of every special meeting shall be given by
mail (which term shall include overnight mail) or by electronic transmission
(which term shall include without limitation by telephone, cablegram or
telefacsimile) or delivered personally, to each Director at his or her business
address as set forth in the records of the Company. Such notice shall be
delivered not later than two days preceding the meeting. Notice of a meeting
of Directors may be waived before or after any meeting by signed written
waiver. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board need be stated in the notice or waiver of notice of such
meeting, and no notice need be given of action proposed to be taken by written
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consent. The attendance of a Director at a meeting shall constitute a waiver
of notice of such meeting.
4.6. Chairman; Records. The Directors shall elect a Chairman of
the Board from among their number, pursuant to the provisions of Article V of
these By-Laws. Such Chairman of the Board shall act as chairman at all
meetings of the Directors; in his or her absence the President shall act as
chairman; and, in the absence of both of them, the Directors present shall
elect one of their number to act as temporary chairman. The results of all
actions taken at a meeting of the Directors, or by written consent of the
Directors, shall be recorded by the Secretary.
4.7. Committees. The Board may appoint from among its members an
Executive Committee and other committees composed of two or more Directors, and
may delegate to such committees any or all of the powers of the Board in the
management of the business and affairs of the Company except the power to
declare dividends or distributions on stock, to issue stock, to recommend to
stockholders any action that requires stockholders' approval, to fill a vacancy
on the Board, to amend these By-Laws or to approve any merger or share exchange
which does not require stockholder approval. In the absence of any member of
any such committee, the members thereof present at any meeting, whether or not
they constitute a quorum, may appoint a member of the Board to act in the place
of such absent member. Committees shall keep minutes of their proceedings and
shall report the same to the Board at the meeting next succeeding, and any
action by a committee shall be subject to revisions and alteration by the
Board, provided that no rights of third persons shall be affected by any such
revision or alteration.
4.8. Quorum. At all meetings of the Board, a majority of the
entire Board shall constitute a quorum for the transaction of business and the
action of a majority of the Directors present at any meeting at which a quorum
is present shall be the action of the Board unless the concurrence of a greater
proportion is required for such action by statute, the Articles or these
By-Laws. If a quorum shall not be present at any meeting of Directors, the
Directors present thereat may by a majority vote adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
4.9. Consent of Directors on Lieu of Meeting. Any action required
or permitted to be taken at any meeting of the Board or of any committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the Board
or committee designated from time to time by the Directors. Any two or more of
the offices may be held by the same person,
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provided, however, that no one person may serve as both President and Vice
President, if any, and provided further, that any person who holds more than
one office in the Company may not act in more than one capacity to execute,
acknowledge or verify any instrument required by law to be executed,
acknowledged or verified by more that one officer. The Directors may designate
a Vice President, if any, as an Executive Vice President and may designate the
order in which any other Vice Presidents may act. No officer of the Company
need be a Director. The Board may determine what, if any, compensation shall
be paid to officers of the Company.
4.10. Election and Tenure. At the organizational meeting, the
Directors shall elect the Chairman, President, Secretary, Treasurer and such
other officers as the Directors shall deem necessary or appropriate in order to
carry out the business of the Company. The Chairman of the Board and such
officers shall hold office until resignation or removal in accordance with
Section 5.3 and until their successors have been duly elected and qualified.
The Directors may fill any vacancy in or add any additional officers at any
time.
4.11. Removal of Officers; Resignation. Any officer may be removed
at any time, with or without cause, by action of a majority of the Directors
whenever in the judgment of the Board the best interests of the Company will be
served thereby. This provision shall not prevent the making of a contract of
employment for a definite term with any officer and shall have no effect upon
any cause of action which any officer may have as a result of removal in breach
of a contract of employment. Any officer may resign at any time by notice in
writing signed by such officer and delivered or mailed to the President or
Secretary, and such resignation shall take effect immediately, or at a later
date according to the terms of such notice in writing.
4.12. Bonds and Surety. Any officer may be required by the
Directors to be bonded for the faithful performance of his or her duties in
such amount and with such sureties as the Directors may determine.
4.13. Chairman of the Board. The Chairman of the Board shall, if
present, preside at meetings of the Stockholders and, if present, meetings of
the Directors of the Company. The Chairman may sign and execute in the name of
the Company deeds, mortgages, bonds, contracts or other instruments. The
Chairman shall, when requested, counsel with and advise the other officers of
the Company and shall perform such other duties as he may agree with the
President or as the Board may from time to time determine.
4.14. President and Vice-Presidents. The President shall be the
chief executive officer of the Company and, subject
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to the control of the Directors, shall have general supervision, direction and
control of the business of the Company and of its employees and shall exercise
such general powers of management as are usually vested in the office of
president of a corporation. In the absence of the Chairman of the Board, the
President shall preside at all meetings of the Stockholders and at all meetings
of the Directors. The President shall be, ex officio, a member of all standing
committees. Subject to direction of the Directors, the President shall have
the power, in the name and on behalf of the Company, to execute any and all
loan documents, contracts, agreements, deeds, mortgages, and other instruments
in writing, and to employ and discharge employees and agents of the Company.
Unless otherwise directed by the Directors, the President shall have full
authority and power, on behalf of all of the Directors, to attend and to act
and to vote, on behalf of the Company at any meetings of business organizations
in which the Company holds an interest, or to confer such powers upon any other
persons, by executing any proxies duly authorizing such persons. The President
shall have such further authorities and duties as the Directors shall from time
to time determine. In the absence or disability of the President, the Vice
Presidents in order of their rank or the Vice President, if any, designated by
the Directors, shall perform all of the duties of the President, and when so
acting shall have all the powers of and be subject to all of the restrictions
upon the President. Subject to the direction of the Chairman, the President
and the Treasurer, any Vice President shall have the power in the name and on
behalf of the Company to execute any and all loan documents, contracts,
agreements, deeds, mortgages and other instruments in writing, and, in
addition, shall have such other duties and powers as shall be designated from
time to time by the Directors, the Chairman, or the President.
4.15. Secretary. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Stockholders, Directors and any
committees of Directors, provided that, in the absence or disability of the
Secretary, the Directors may appoint any other person to keep the minutes of a
meeting and record votes. The Secretary shall attest the signature or
signatures of the officer or officers executing any instrument on behalf of the
Company. The Secretary shall also perform any other duties commonly incident
to such office in a Maryland corporation, and shall have such other authorities
and duties as the Directors shall from time to time determine.
4.16. Treasurer. Except as otherwise directed by the Directors, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Company, and
shall have and exercise under the supervision of the Directors and of the
Chairman and the President all powers and duties normally incident to his
office. He may endorse for deposit or collection all notes, checks and other
instruments payable to the Company or
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to its order. He or she shall deposit all funds of the Company as may be
ordered by the Directors, the Chairman or the President. He shall keep
accurate account of the books of the Company's transactions which shall be the
property of the Company and which, together with all other property of the
Company in his possession, shall be subject at all times to the inspection and
control of the Directors. Unless the Directors shall otherwise determine, the
Treasurer shall be the principal accounting officer of the Company and shall
also be the principal financial officer of the Company. He or she shall have
such other duties and authorities as the Directors shall from time to time
determine. Notwithstanding anything to the contrary herein contained, the
Directors may authorize any adviser or administrator to maintain bank accounts
and deposit and disburse funds on behalf of the Company.
4.17. Other Officers and Duties. The Directors may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Company.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each
officer:, employee and agent of the Company shall have such other duties and
authority as may be conferred upon him by the Directors or delegated to him by
the President.
ARTICLE V
CUSTODY OF SECURITIES
5.1. Employment of Custodian. The Company shall have the option to
act as a self-custodian in accordance with the provisions set forth in Section
17(f) of the Investment Company Act and Rule 17f-2 thereunder or place, and at
all times maintain, in the custody of a custodian (including any sub-custodian
for the custodian) all funds, securities and similar investments owned by the
Company. The custodian, if any, (and any sub-custodian) shall be an
institution conforming to the requirements of Section 17(f) of the Investment
Company Act and the rules of the United States Securities and Exchange
Commission (the "Commission") thereunder. The custodian, if any, shall be
appointed from time to time by the Board which shall fix its remuneration.
5.2. Appointment and Duties. The Board may at any time employ a
custodian or custodians with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained
in these By-Laws:
(1) to hold the securities owned by the Company and deliver
the same upon written order;
10
<PAGE> 11
(2) to receive and receipt for any moneys due to the Company
and deposit the same in its own banking affiliate or elsewhere as the
Directors may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Directors, to keep the books and
accounts of the Company and furnish clerical and accounting services;
and
(5) if authorized to do so by the Directors, to compute the
net income and net assets of the Company;
all upon such basis of compensation as may be agreed upon between the Directors
and the custodian. The Directors may also authorize the custodian to employ one
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved b~ the
Director.
5.3. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Directors may direct
the custodian to deposit all or any part of the securities owned by the Company
in a system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, as amended, any such
other person or entity with which the Directors may authorize deposit in
accordance with the Investment Company Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities. All such deposits shall be
subject to withdrawal only upon the order of the Company.
5.4. Termination of Custodian Agreement. Upon termination of the
custodian agreement, if any, or inability of the custodian to continue to
serve, the Board shall promptly appoint a successor custodian, but in the event
that no successor custodian can be found who has the required qualifications
and is willing to serve, the Board shall call as promptly as possible a special
meeting of the Stockholders to determine whether the Company shall function
without a custodian or shall be liquidated. If so directed by vote of the
holders of a majority of the outstanding shares of capital stock entitled to
vote of the Company, the custodian shall deliver and pay over all property of
the Company held by it as specified in such vote.
11
<PAGE> 12
ARTICLE VI
CAPITAL STOCK
6.1. Issuance of Certificates. Each holder of stock of the Company
shall be entitled to have a certificate or certificates, in such form as shall
be approved by the Board representing the number of shares of stock of the
Company owned by such Stockholder. The certificates representing shares of
stock shall be signed by or in the name of the Company by the President and by
the Secretary or the Treasurer and sealed with the seal of the Company. Any or
all of the signatures or the seal on the certificate may be by facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate shall be issued,
it may be issued by the Company with the same effect as if such officer,
transfer agent or registrar were still in office at the date of issue.
The Board may make such additional rules and regulations, not
inconsistent with these By-Laws, as it may deem expedient concerning the issue,
transfer and registration of certificates for shares of stock of the Company.
It may appoint, or authorize any officer or officers to appoint, one or more
transfer agents or one or more transfer clerks and one or more registrars and
may require all certificates for shares of stock to bear the signature or
signatures of any of them.
6.2. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Company shall immediately
notify the Company of any loss, destruction or mutilation of such certificate,
and the Company may issue a new certificate of stock in the place of any
Certificate theretofore issued by it which the owner thereof shall allege to
have been lost or destroyed or which shall have been mutilated, and the Board
may, in its discretion, require such owner or such owner's legal
representatives to give to the company a bond in such sum, limited or
unlimited, and in such form and with such surety or guaranty, to indemnify the
Company against any claim that may be made against it on account of the alleged
loss or destruction of any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.
6.3. Stock Ledger; Transfer of Capital Stock. The Company shall
maintain at the offices of its transfer agent an original stock ledger
containing the names and addresses of all Stockholders and the number of shares
held by each Stockholder. Such stock ledger may be in written form or any
other form
12
<PAGE> 13
capable of being converted into written form within a reasonable time for
visual inspection.
The Company shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares entitled to
receive dividends and to vote as such owner, and shall not be bound to
recognize any legal, equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have received express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Transfers of shares of the Company shall be made on the stock records
of the Company only by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary or with the transfer agent or transfer clerk, and on surrender of the
certificate or certificates, if issued, for such shares properly endorsed or
accompanied by a duly executed stock transfer power and the payment of all
taxes thereon.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
7.1. Indemnification of Officers, Directors, Employees and Agents.
The Company shall indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (each, a
"Proceeding"), by reason of the fact that he is or was a Director, officer,
employee or agent of the Company or is or was serving at the request of the
Company as a director, officer, employee, agent, partner or trustee of another
corporation, partnership, joint venture, trust or other enterprise, against all
judgments, penalties, fines and settlements and against all reasonable
expenses, including attorneys' fees, actually incurred by him in connection
with such Proceeding to the fullest extent permitted by law, provided that:
(a) such person acted in good faith and (i) in the case of
conduct in such person's official capacity with the Company, in a
manner he reasonably believed to be in the best interests of the
Company and (ii) in all other cases, in a manner he reasonably
believed not opposed to the best interests of the Company;
(b) with respect to any criminal proceeding, such person had
no reasonable cause to believe his conduct was unlawful;
13
<PAGE> 14
(c) unless ordered or permitted by a court, indemnification
shall be made only as authorized in the specific case upon (i) a
determination that indemnification of such person is proper in the
circumstances because he has met the applicable standard of conduct
set forth in subparagraphs (a) and (b) above, and (ii) such other
authorizations and determinations as may be required by law to be
made, by (A) the Board of the Company by the vote of a majority of a
quorum consisting of Directors who are neither "interested persons" of
the Company as defined in the Investment Company Act nor parties to
such Proceeding or if such quorum cannot be obtained, by a majority
vote of a committee of the Board consisting solely of two or more such
Directors who are duly designated to act in the matter by a majority
vote of the full Board, or (B) independent legal counsel in a written
opinion, which counsel shall be selected in accordance with such
procedures as may be required by law; provided, however, that such
counsel shall make only such determinations and authorizations as are
permitted by law to be made by independent counsel, or (C) the
Stockholders of the Company acting in accordance with the Articles and
the By-Laws of the Company and applicable law;
(d) in the case of a Proceeding by or in the right of the
Company to procure a judgment in its favor, no indemnification shall
be made except for the payment of expenses reasonably incurred by such
person in connection therewith; provided, however, that if such person
shall have been adjudged to be liable for negligence or misconduct in
the performance of his duties to the Company, no indemnification shall
be made with respect to the expense incurred by such person in
connection with such Proceeding unless, and only to the extent that,
the court in which such Proceeding is brought, or a court of equity in
the county or other local jurisdiction in which the Company has its
principal office, shall determine upon application that, despite
adjudication of liability but in view of all the circumstances of the
case, he is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper; and
(e) no indemnification or other protection shall be made or
given to any Director or officer of the Company against any liability
to the Company or to its Stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his
office.
Expenses (including attorneys' fees) incurred in defending a
Proceeding will be paid by the Company in advance of
14
<PAGE> 15
the final disposition thereof to the fullest extent permitted by law.
The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall create a
rebuttable presumption that such person has not met the applicable standard of
conduct set forth in subparagraphs (a) and (b) above.
7.2. Insurance of Officers, Directors, Employees and Agents. The
Company may purchase and maintain insurance on behalf of any person who is or
was a Director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee, partner,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in or arising out of his position, whether or not the Company would have the
power to indemnify him against such liability.
ARTICLE VIII
SEAL
The corporate seal shall have inscribed thereon the name of the
Company, the year of its organization and the words "Corporate Seal" and
"Maryland". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced.
ARTICLE IX
RECORD DATE
The Board may fix in advance a date as the record date for the purpose
of determining Stockholders entitled to notice of, or to vote at, any meeting
of Stockholders, or Stockholders entitled to receive payment of any dividend or
distribution or the allotment of any rights, or in order to make a
determination of Stockholders for any other purpose. Such date in any case
shall be not more than 90 days, and in case of a meeting of Stockholders not
less than 10 days, prior to the date on which the particular action requiring
such determination of Stockholders is to be taken.
15
<PAGE> 16
ARTICLE X
RECORD DATE
10.1. Depositories. In accordance with Article VI of these By-Laws,
,the funds of the Company shall be deposited in such depositories as the
Directors shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser
or administrator), as the Directors may from time to time authorize.
10.2. Signature. All contracts and other instruments shall be
executed on behalf of the Company by such officer, officers, agent or agents,
as provided in these By-Laws or as the Directors may from time to time by
resolution or authorization provide.
10.3. Fiscal Year. The fiscal year of the Company shall end on
December 31 of each year, subject, however, to change from time to time by the
Board.
ARTICLE XI
AMENDMENT OF BY-LAWS
11.1. Amendment and Repeal of By-Laws. In accordance with Article X
of the Articles, the Directors shall have the power to alter, amend or repeal
these By-Laws or adopt new by-laws at any time. The Directors shall in no
event adopt by-laws which are in conflict with the Articles, the General Laws
of the State of Maryland, the Investment Company Act or other applicable
federal securities laws.
16
<PAGE> 1
SPECIMEN ONLY - NOT FOR PURCHASES
EXCELSIOR PRIVATE EQUITY FUND II, INC.
SUBSCRIPTION AGREEMENT
Excelsior Private Equity
Fund II, Inc.
114 West 47th Street
New York, New York 10036
Ladies and Gentlemen:
The undersigned, by signing this Subscription Agreement, and subject to
the terms and conditions hereof and the provisions of the Prospectus of
Excelsior Private Equity Fund II, Inc. (the "Company") (the "Prospectus"),
hereby subscribes for shares of common stock (the "Shares") of the Company in
the aggregate investment amount set forth on the reverse side hereof (the
undersigned's "Investment Amount"), and herewith encloses payment in an amount
equal to such Investment Amount. The undersigned understands that such funds
will be held by United States Trust Company of New York as Escrow Agent, and
will be returned promptly, together with any interest earned thereon, to the
undersigned, in the event that at least 100,000 Shares are not subscribed for
and the payments therefor are not made by July 31, 1997 or such other subsequent
date not later than December 31, 1997 as the Managing Investment Adviser and the
Company may determine.
1. Acceptance of Subscription. It is understood and agreed that the
Company shall have the right, in its sole discretion, to accept or reject this
subscription, in whole or in part. Subscriptions need not be accepted in the
order received, and Shares may be allocated in the event of oversubscription.
2. Right to Refund. The undersigned shall have the right to receive a
refund of their investment for a period of five business days from the date
payment for the investment is submitted by the undersigned. Such request may
be made in any fashion but, if made other than in an originally signed and
written communication, must be confirmed with such a communication within 15
business days after the date payment is submitted.
3. Representation and Warranties of the Undersigned. The undersigned
hereby represents and warrants to the Company and UST Financial Services Corp.,
and each officer, director, controlling person, and agent of the Company and
UST Financial Services Corp., that:
(a) the undersigned meets the investor suitability standards
set forth in the Prospectus under "Investor Suitability
Standards;"
(b) if an investment in the Company is being made by a
corporation, partnership, trust, or estate, he/she has
all right and authority, in his/her capacity as an
officer, general partner, trustee, executor, or other
representative of such corporation, partnership, trust,
or estate, as the case may be, to make such decision to
invest in the Shares and to execute and deliver this
Subscription Agreement on behalf of such corporation,
partnership, trust, or estate, as the case may be, and
this Subscription Agreement is a valid and binding
agreement of such corporation, partnership, trust, or
estate, enforceable in accordance with its terms;
(c) the undersigned has reached the age of majority in
higher state of residence;
(d) the undersigned hereby acknowledges that the undersigned
has received and carefully reviewed the Prospectus, as
amended and/or supplemented; and
<PAGE> 2
(d) if the undersigned is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), in
making this investment he/she is aware of and has taken
into consideration the prudence, diversification, and
other fiduciary requirements of ERISA and has concluded
that this investment is in compliance with such
requirements.
4. Indemnification. The undersigned hereby agrees to indemnify and
hold harmless the Company and UST Financial Services Corp., each officer,
director, controlling person, and agent of the Company and UST Financial
Services Corp., from and against any and all loss, claim, damage, liability, or
expense, and any action in respect thereof, joint or several, to which any such
person may become subject, due to or arising out of the falsity or inaccuracy of
any representation, warranty or any other information provided herein, together
with all reasonable costs and expenses (including attorneys' fees) incurred by
any such person in connection with any action, suit, proceeding, demand,
assessment, or judgment incident to any of the matters so indemnified against.
5. Survival. All representations and warranties contained in this
Subscription Agreement and the indemnification provisions contained in Section
4 hereof shall survive (i) the acceptance of the subscription, (ii) changes in
the transactions, documents, and instruments described in the Prospectus that
are not material, and (iii) the death or disability of the undersigned.
6. Governing Law. This Subscription Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Under penalties of perjury, the undersigned certifies that the information
provided on the reverse of this form is true, correct and complete.
<PAGE> 3
EXCELSIOR PRIVATE EQUITY FUND II, INC.
SUBSCRIPTION AGREEMENT
<TABLE>
<S> <C>
-----------------------
INVESTMENT AMOUNT: Purchase Price of $1.000 per Share: minimum subscription
$ Shares is $25,000 (25 Shares)
-----------------------
Make check payable to U.S. Trust of New York, Escrow Agent for EXCELSIOR PRIVATE EQUITY FUND II, INC., 114 West 47th Street, N.Y.
NY 10036. Checks should be delivered to the Selling Agent together with this Subscription Agreement.
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL ACCOUNTS: Complete sections 1, 4, 5 and sign below. CUSTODIAL ACCOUNTS: Complete sections 2, 3, 4, 5 and sign below.
- ------------------------------------------------------------------------------------------------------------------------------------
MANNER IN WHICH TITLE IS TO BE HELD (CHECK ONE)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) INDIVIDUAL ACCOUNTS (2) CUSTODIAL ACCOUNTS
[ ] A. Individual Owner [ ] E. Tenants in common (all [ ] I. IRA [ ] L. Trust (date est.____)
[ ] B. Joint tenants with parties must sign) [ ] J. Keogh Plan [ ] M. Pension
right of [ ] F. Tenants by the entirety [ ] K. Uniform Gifts to Minors [ ] N. Profit Sharing
survivorship (both parties must sign) Act
[ ] C. Community property [ ] G. Corporate owner
(both parties [ ] H. Partnership owner State of ___________________
must sign)
[ ] D. Separate property
CUSTODIAN(S) OR TRUSTEE(S) MUST SIGN
- ------------------------------------------------------------------------------------------------------------------------------------
(3) TRUSTEE OR Name of Custodian (Trustee) Account #
CUSTODIAN
------------------------------------------------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------------------------------------------------------
City State Zip Phone
( )
------------------------------------------------------------------------------------------------------------
Trustee or Custodian Tax ID Number
------------------------------------------------------------------------------------------------------------
(4) INVESTOR(S) Investor Name Co-Investor Name
------------------------------------------------------------------------------------------------------------
Street or P.O. Box
------------------------------------------------------------------------------------------------------------
City State Zip Phone
( )
------------------------------------------------------------------------------------------------------------
Legal State of Residency (if different from above) U.S. Citizen
[ ] Yes [ ] No
------------------------------------------------------------------------------------------------------------
Social Security or Tax ID Number for IRS Reporting
------------------------------------------------------------------------------------------------------------
(5) DISTRIBUTION Name of Custodian (Trustee) Account #
ADDRESS IF
DIFFERENT FROM ------------------------------------------------------------------------------------------------------------
ADDRESS ABOVE Street or P.O. Box
(Distributions for
Custodial Accounts ------------------------------------------------------------------------------------------------------------
Will be Sent to The City State Zip Phone
Custodian) ( )
------------------------------------------------------------------------------------------------------------
Trustee or Custodian Tax ID Number
------------------------------------------------------------------------------------------------------------
I certify, under penalties of perjury, that (1) the tax identification number shown on this application is correct and (2) I am NOT
currently under IRS notification that part of my dividend and interest income is to be withheld as a result of my failure to report
all dividend and interest income on my income tax return - i.e. backup withholding.
(Strike the word "NOT" above if you received IRS notification.)
SIGNATURE(S): Please read the reverse before signing; names must be signed exactly as registered above; each investor is required
to sign his/her/us own Subscription Agreement unless signed by a trustee or custodian.
Investor's Signature Date
---------------------------------------------------------------------------------------------------------------
Co-Investor's Signature Date
------------------------------------------------------------------------------------------------------------
Trustee or Custodian's Signature Date
---------------------------------------------------------------------------------------------------
THE SELLING AGENT MUST SIGN BELOW TO COMPLETE THE ORDER
I had reasonable grounds to believe, on the basis of information obtained from the subscriber concerning his/her age, investment
objectives, other investments, financial situations and needs, and any other information known by me, including said subscriber's
recognizable capacity to understand the important aspects and risks of the investment, that (i) the subscriber is or will be in a
financial position appropriate to enable him/her to realize to a significant extent the benefits described in the Prospectus;
(ii) the subscriber has a fair market net worth sufficient to sustain the risks inherent in and investment in the Company,
including loss of investment and lack of liquidity; and (iii) the Company is otherwise suitable for the subscriber. I further
certify that I have informed the subscriber of all pertinent facts relating to the liquidity and marketability of the Shares during
the term of the Company. I also warrant that I am exempt from licensing or duly licensed, as appropriate, and may lawfully sell the
Shares in the state designated as the subscriber's residence.
Name Address
---------------------------------------------------------------------------------------------------------------
City State Zip Phone
---------------------------------------------------------------------------------------------------------------
[Licensed Firm Name] (Firm's Headquarters Mailing Address)
---------------------------------------------------------------------------------------------------------------
[City] State Zip Phone
---------------------------------------------------------------------------------------------------------------
Signature
---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 20, 1997, in this Registration Statement of
Excelsior Private Equity Fund II, Inc.
/S/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
New York, New York
March 20, 1997
