<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant X
---
Filed by a Party other than the Registrant
---
Check the appropriate box:
_____ Preliminary Proxy Statement
_____ Confidential, for Use of the Commission Only
(as permitted by Rule 14A-6(e)(2)
X Definitive Proxy Statement
_____
_____ Definitive Additional Materials
_____ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MACC PRIVATE EQUITIES INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-----------------------------------------
(Name of Person(s) Filing Proxy Statement if other than
the Registrant)
Payment of Filing Fee (Check the appropriate box)
_____ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
_____ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
_____ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies: ____
_________________________
2) Aggregate number of securities to which transaction applies: _______
_________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_________________________
4) Proposed maximum aggregate value of transaction:
_________________________
5) Total fee paid: __________________
_________________________
X Fee paid previously with preliminary materials
_____
_____ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: _____________________
2) Form, Schedule or Registration Statement No.:
_____________________________________________
3) Filing Party: _______________________________
4) Date Filed: _________________________________
<PAGE> 2
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M A C C
=======
Private Equities Inc.
101 SECOND STREET, S.E., SUITE 800
CEDAR RAPIDS, IOWA 52401
January 14, 1998
To the Shareholders of MACC Private Equities Inc:
The Annual Meeting of Shareholders of our Corporation will be held on
Tuesday, February 24, 1998, at 10:00 a.m. at the Five Seasons Hotel, 350
First Avenue N.E., in Cedar Rapids, Iowa.
A Notice of the meeting, a Proxy and Proxy Statement containing information
about matters to be acted upon are enclosed. In addition, the MACC Private
Equities Inc. Annual Report for the Fiscal Year ended September 30, 1997, is
enclosed and provides information regarding the financial results of the
Corporation for the year. Holders of Common Stock are entitled to vote at the
Annual Meeting on the basis of one vote for each share held. IF YOU ATTEND THE
ANNUAL MEETING IN FEBRUARY, YOU RETAIN THE RIGHT TO VOTE IN PERSON EVEN THOUGH
YOU PREVIOUSLY MAILED THE ENCLOSED PROXY.
It is important that your shares be represented at the meeting whether or
not you are personally in attendance, and I urge you to review carefully the
Proxy Statement and sign, date and return the enclosed Proxy at your earliest
convenience. I look forward to meeting you and, together with our Directors
and Officers, reporting our activities and discussing the Corporation's
business and its prospects. I hope you will be present.
Very truly yours,
/s/ Paul M. Bass, Jr.
------------------------------
Paul M. Bass, Jr.
Chairman of the Board
<PAGE> 3
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M A C C
=======
Private Equities Inc.
101 SECOND STREET, S.E., SUITE 800
CEDAR RAPIDS, IOWA 52401
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1998
To the Shareholders of MACC Private Equities Inc:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of MACC
Private Equities Inc., a Delaware corporation (the "Corporation"), will be held
on Tuesday, February 24, 1998, at 10:00 a.m., central time, at the Five Seasons
Hotel, 250 First Avenue N.E., in Cedar Rapids, Iowa, for the following
purposes:
1. To elect two directors to serve until the 2001 Annual Meeting of
Shareholders or until their respective successors shall be elected and
qualified;
2. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors;
3. To approve for a one-year period the policy and practice of the
Corporation of issuing up to 300,000 shares of Common Stock of the Corporation
at not less than 90% of net asset value per share;
4. To approve certain proposed amendments to the Investment Advisory
Agreements of the Corporation and MorAmerica Capital; and
5. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Only holders of Common Stock of the Corporation of record at the close of
business on December 31, 1997, will be entitled to notice of, and to vote at,
the meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ David R. Schroder
-----------------------------------
David R. Schroder, Secretary
YOUR OFFICERS AND DIRECTORS DESIRE THAT ALL SHAREHOLDERS BE PRESENT OR
REPRESENTED AT THE ANNUAL MEETING. EVEN IF YOU PLAN TO ATTEND IN PERSON,
PLEASE DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE AT YOUR EARLIEST CONVENIENCE SO THAT YOUR SHARES MAY BE VOTED. IF YOU
DO ATTEND THE MEETING IN FEBRUARY, YOU RETAIN THE RIGHT TO VOTE EVEN THOUGH YOU
MAILED THE ENCLOSED PROXY. THE PROXY MUST BE SIGNED BY EACH REGISTERED HOLDER
EXACTLY AS THE STOCK IS REGISTERED.
<PAGE> 4
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M A C C
=======
Private Equities Inc.
101 SECOND STREET, S.E., SUITE 800
CEDAR RAPIDS, IOWA 52401
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of MACC Private Equities Inc., a Delaware corporation
(the "Corporation"), of proxies to be voted at the Annual Meeting of
Shareholders to be held on Tuesday, February 24, 1998, or any adjournment
thereof. The date on which this Proxy Statement and the enclosed form of proxy
are first being sent or given to shareholders of the Corporation is on or about
January 14, 1998.
PURPOSES OF THE MEETING
The Annual Meeting of the Shareholders is to be held for the purposes of
(1) electing two persons to serve as Directors of the Corporation until the
2001 Annual Meeting of Shareholders, or until their respective successors shall
be elected and qualified (see ELECTION OF DIRECTORS); (2) ratifying the
appointment by the Board of Directors of KPMG Peat Marwick LLP as independent
auditors (see RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS); (3)
approving for a one-year period the policy and practice of the Corporation of
issuing up to 300,000 shares of Common Stock of the Corporation at not less
than 90% of net asset value per share (see ISSUANCE OF COMMON STOCK BELOW NET
ASSET VALUE); (4) approving certain proposed amendments to the Investment
Advisory Agreements of the Corporation and MorAmerica Capital (see APPROVAL OF
PROPOSED AMENDMENTS TO INVESTMENT ADVISORY AGREEMENTS); and (5) transacting
such other business as may properly come before the meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED UNDER ELECTION OF DIRECTORS,
FOR THE RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT
AUDITORS, FOR THE APPROVAL FOR A ONE-YEAR PERIOD OF THE POLICY AND PRACTICE OF
THE CORPORATION OF ISSUING UP TO 300,000 SHARES OF COMMON STOCK OF THE
CORPORATION AT NOT LESS THAN 90% OF NET ASSET VALUE PER SHARE, AND FOR THE
APPROVAL OF THE PROPOSED AMENDMENTS TO THE INVESTMENT ADVISORY AGREEMENTS OF
THE CORPORATION AND MORAMERICA CAPITAL.
<PAGE> 5
VOTING AT THE MEETING
The record date for holders of Common Stock entitled to notice of, and to
vote at, the Annual Meeting of Shareholders is the close of business on
December 31, 1997, at which time the Corporation had outstanding and entitled
to vote at the meeting 1,039,615 shares of Common Stock.
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock outstanding and entitled to vote at the Annual Meeting
is necessary to constitute a quorum. Abstentions and shares held by brokers,
banks, other institutions and nominees that are voted on any matter at the
Annual Meeting are included in determining the presence of a quorum for the
transaction of business at the commencement of the Annual Meeting and on those
matters for which the broker, nominee or fiduciary has authority to vote. In
deciding all questions, a shareholder shall be entitled to one vote, in person
or by proxy, for each share of Common Stock held in the shareholder's name at
the close of business on the record date.
To be elected a Director, each nominee must receive the favorable vote of
the holders of a majority of the shares of Common Stock entitled to vote and
represented at the Annual Meeting. In order to ratify the appointment of KPMG
Peat Marwick LLP as independent auditors for the Corporation for the year
ending September 30, 1998, the ratification proposal must receive the favorable
vote of a majority of the shares of Common Stock entitled to vote and
represented at the Annual Meeting.
In order to approve for a one-year period the policy and practice of the
Corporation of issuing up to 300,000 shares of Common Stock at not less than
90% net asset value per share, the proposal must receive the favorable vote of:
(1) a majority of the outstanding shares of Common Stock entitled to vote at
the meeting; and (2) a majority of the outstanding shares of Common Stock
entitled to vote at the meeting which are not held by affiliated persons of the
Corporation. With respect to this proposal, Section 2(a)(42) of the Investment
Company Act of 1940 defines "a majority of the outstanding shares" as: (1) 67%
or more of the voting securities present at such meeting if the holders of more
than 50% of the outstanding voting securities of such company are present or
represented by proxy; or (2) 50% of the outstanding voting securities of such
company, whichever is the less.
In order to approve the proposed amendments to the Investment Advisory
Agreements of the Corporation and MorAmerica Capital, the proposal must receive
the favorable vote of a majority of the outstanding shares of Common Stock
entitled to vote at the meeting. With respect to this proposal, Section
2(a)(42) of the Investment Company Act of 1940 defines "a majority of the
outstanding shares" as: (1) 67% or more of the voting securities present at
such meeting if the holders of more than 50% of the outstanding voting
securities of such company are present or represented by proxy; or (2) 50% of
the outstanding voting securities of such company, whichever is the less.
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<PAGE> 6
Each proxy delivered to the Corporation, unless the shareholder otherwise
specifies therein, will be voted FOR the election as Directors of the persons
named under ELECTION OF DIRECTORS, FOR the ratification of the appointment by
the Board of Directors of KPMG Peat Marwick LLP as independent auditors, FOR
the approval for a one-year period of the policy and practice of the
Corporation of issuing up to 300,000 shares of Common Stock of the Corporation
at not less than 90% of net asset value per share, and FOR the approval of the
proposed amendments to the Investment Advisory Agreements of the Corporation
and MorAmerica Capital. In each case where the shareholder has appropriately
specified how the proxy is to be voted, it will be voted in accordance with
this specification. As to any other matter or business which may be brought
before the meeting, a vote may be cast pursuant to the accompanying proxy in
accordance with the judgment of the person or persons voting the same, but
neither management nor the Board of Directors of the Corporation knows of any
such other matter or business. Any shareholder has the power to revoke his
proxy at any time insofar as it is then not exercised by giving notice of such
revocation, either personally or in writing, to the Secretary of the
Corporation or by the execution and delivery to the Corporation of a new proxy
dated subsequent to the original proxy.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On May 13, 1996, the Corporation entered into an Agreement (the
"Agreement") with Zions Bancorporation ("Zions"). Prior to that date, Zions
had acquired approximately 4.9% of the issued and outstanding shares of the
Corporation's Common Stock through open-market purchases. Pursuant to the
Agreement, Zions purchased 20,000 newly issued shares of the Corporation's
Common Stock for a price equal to then-current net asset value per share of
$17.70, and may further increase its ownership of shares of the Corporation's
Common Stock up to, but not in excess of, 25% of the issued and outstanding
shares. Also pursuant to the Agreement, Zions transferred all of such shares
to its wholly-owned subsidiary, Zions First National Bank (the "Bank"), and the
Corporation agreed to use its reasonable best efforts to cause a nominee of
Zions to be elected to the Corporation's Board of Directors commencing with the
1997 Annual Meeting of Shareholders. Zions named Todd J. Stevens as its
nominee, and on October 8, 1996, the Board of Directors resolved to increase
the size of the Corporation's Board of Directors from seven to eight, and
nominated Todd J. Stevens for election as Director at the meeting. On February
25, 1997, the shareholders of the Corporation elected Todd J. Stevens as a
Director of the Corporation for a three-year term ending at the Annual Meeting
of Shareholders to be held in February, 2000.
Based upon Amendment No. 7 to Schedule 13D filed by Zions and the Bank, as
of September 30, 1997, the Bank beneficially owned 192,388 shares of the Common
Stock, representing approximately 18.51% of the issued and outstanding shares
of Common Stock, which were purchased for a total price of $1,851,678. The
funds used to acquire the shares were derived from working capital.
As of November 28, 1997, there were 1,039,615 shares issued and
outstanding. The following table sets forth certain information as of November
28, 1997, with respect to the Common Stock ownership of: (i) those persons or
groups (as that term is used in Section 13(d)(3) of the Securities and Exchange
Act of 1934) who beneficially own more than 5% of the Common Stock, (ii) each
Director and nominee for Director of the Corporation, and (iii) all Officers
and Directors of the Corporation, nine in number, as a group.
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<PAGE> 7
<TABLE>
<CAPTION>
NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF CLASS OF VOTING
OWNER BENEFICIAL OWNERSHIP COMMON STOCK
<S> <C> <C>
Zions First National Bank(1) 192,388 Shares 18.51%
Paul M. Bass 12,078 Shares 1.16%
Robert A. Comey(2) 22,110 Shares 2.13%
Michael W. Dunn 5,926 Shares 0.57%
Henry T. Madden 5,153 Shares 0.50%
James L. Miller 1,210 Shares 0.12%
David R. Schroder(2) 27,530 Shares 2.65%
Todd J. Stevens(3) -- --
John D. Wolfe 1,025 Shares 0.10%
All Officers and 79,417 Shares 7.64%
Directors as a Group
</TABLE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Corporation's Board of Directors is divided into three classes.
Directors are elected to serve three-year terms. Two Directors are proposed to
be elected at the 1998 Annual Meeting of Shareholders to serve until the 2001
Annual Meeting of Shareholders or until their respective successors shall be
elected and qualified. The persons named in the accompanying form of proxy
intend to vote such proxy for the election of the nominees named below as
Directors of the Corporation to serve until the 2001 Annual Meeting of
Shareholders or until their respective successors shall be elected and
qualified, unless otherwise properly indicated on such proxy. If any nominee
shall become unavailable for any reason, the persons named in the accompanying
form of proxy are expected to consult with the Board of Directors of the
Corporation in voting the shares represented by them at the Annual Meeting.
The Board of Directors has no reason to doubt the
(1) information with respect to Zions First National Bank (the "Bank") is
provided as of September 30, 1997. As stated in its Amendment No. 7 to
Schedule 13D, dated September 30, 1997, Zions Bancorporation ("Zions") may be
deemed to share the power to vote or to direct the vote and to dispose or to
direct the disposition of all of the 192,388 shares of the Corporation's
Common Stock held by the Bank, due to Zions' ownership of the Bank.
(2) As principals, officers and directors of InvestAmerica Investment
Advisors, Inc. (the "Investment Advisor"), the investment advisor for the
Corporation and MorAmerica Capital, Messrs. Schroder and Comey are
"interested persons" of the Corporation, as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940.
(3) To the extent that Zions or the Bank may be deemed to be in control of
the Corporation as a result of beneficial ownership of the Corporation's
Common Stock, Mr. Stevens, as Manager of the Bank's Venture Capital
Department and Managing Director of Wasatch Venture Fund, a majority-owned
subsidiary of the Bank, may be an "interested person" of the Corporation, as
that term is defined in Section 2(a)(19) of the Investment Company Act of
1940.
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<PAGE> 8
availability of any of the nominees and no reason to believe that any of the
nominees will be unable or unwilling to serve the entire term for which
election is sought.
To be elected a Director, each nominee must receive the favorable vote of
the holders of a majority of the shares of Common Stock entitled to vote and
represented at the Annual Meeting. The names of the nominees, along with
certain information concerning them, are set forth below. None of the nominees
are or may be deemed to be "interested persons," as that term is defined in
Section 2(a)(19) of the Investment Company Act of 1940, of the Corporation.
NOMINEES
MICHAEL W. DUNN
Mr. Dunn, age 48, has been a Director of the Corporation and MorAmerica
Capital since 1994. Mr. Dunn has also been C.E.O. since 1980 and President
since 1983 of Farmers & Merchants Savings Bank of Manchester, Iowa. Mr. Dunn
is also presently a member of the boards of directors of Security Savings Bank
of Eagle Grove, Iowa, and F&M Shares Corp. and Dunn Shares, Inc., both bank
holding companies.
JAMES L. MILLER
Mr. Miller, age 56, has been a Director of the Corporation and MorAmerica
Capital since 1994. Mr. Miller was employed by Armstrong's, Inc. department
stores from 1967 until 1992. His capacities included serving as a member of
the Board of Directors and Executive Committee and as Vice President and C.F.O.
Mr. Miller is currently doing business as Miller Mortgage, a residential
mortgage loan origination service.
OTHER DIRECTORS
The names of the other Directors of the Corporation, whose terms of office
extend beyond the 1998 Shareholders Meeting, along with certain information
concerning them, are set forth below. Those Directors of the Corporation who
are or may be deemed to be "interested persons," as that term is defined in
Section 2(a)(19) of the Investment Company Act of 1940, of the Corporation, as
principals, officers and directors of the Investment Advisor, are indicated by
an asterisk. Those Directors who are or may be deemed to be "interested
persons," as that term is defined in Section 2(a)(19) of the Investment Company
Act of 1940, of the Corporation, as affiliated persons of the Corporation, are
indicated by a double asterisk.
PAUL M. BASS, JR.
Mr. Bass, age 62, has been Chairman of the Boards of Directors of the
Corporation and MorAmerica Capital since 1994. From 1988 to present, Mr. Bass
has also served as Vice Chairman of First Southwest Company, a regional
investment banking firm. Mr. Bass is also presently a Director of California
Federal Bank F.S.B. (also Chairman of the Audit Committee), Keystone
Consolidated Industries (also Chairman of the Audit Committee), Source
Services, Inc. (also a member of the Compensation and Executive Committees),
Jayhawk Acceptance Corporation and Chairman of the Board of Richman Gordman
1/2 Price Stores, Inc. (also Chairman of the Executive Committee). Mr. Bass
holds a B.B.A. in finance from Southern Methodist University.
5
<PAGE> 9
DAVID R. SCHRODER*
Mr. Schroder, age 54, has been President, Secretary and a Director of the
Corporation since 1994, and a Director of MorAmerica Capital since 1989. Since
1985, Mr. Schroder has been a principal of InvestAmerica Venture Group, Inc.
("Venture Group") and is presently President and a Director. From 1985 to
1994, Venture Group provided management and investment services to MorAmerica
Capital. Venture Group presently provides management and investment services
to a private investment partnership, the Iowa Venture Capital Fund, L.P. Mr.
Schroder is also President, Secretary and a Director of InvestAmerica N.D.
Management, Inc., which provides management and investment services to North
Dakota Small Business Investment Company ("NDSBIC"), A North Dakota Limited
Partnership. Mr. Schroder is also President, Secretary and a Director of
InvestAmerica N.D., L.L.C., the general partner of NDSBIC. Mr. Schroder is
President and a Director of the investment advisor to the Corporation and to
MorAmerica Capital, InvestAmerica Investment Advisors, Inc. (the "Investment
Advisor"). As a representative of the Investment Advisor and Venture Group,
Mr. Schroder also serves on the boards of directors of several of the
Corporation's portfolio companies, including Centrum Industries, Inc. Mr.
Schroder received a B.S.F.S. from Georgetown University and an M.B.A. from the
University of Wisconsin.
ROBERT A. COMEY*
Mr. Comey, age 51, has served as Vice President, Treasurer and a Director
of the Corporation since 1994, and as a Director of MorAmerica Capital since
1989. Mr. Comey was named Executive Vice President of the Company in 1995.
Since 1986, Mr. Comey has been a principal of Venture Group and is presently
Executive Vice President, Treasurer and a Director. From 1985 to 1994, Venture
Group provided management and investment services to MorAmerica Capital.
Venture Group presently provides management and investment services to a
private investment partnership, the Iowa Venture Capital Fund, L.P. Mr. Comey
is also Executive Vice President, Treasurer and a Director of InvestAmerica
N.D. Management, Inc., which provides management and investment services to
NDSBIC. Mr. Comey is also Executive Vice President, Treasurer, and a Director
of InvestAmerica N.D., L.L.C., the general partner of NDSBIC. Mr. Comey is a
Director, Executive Vice President, Treasurer, and Assistant Secretary of the
Investment Advisor. As a representative of the Investment Advisor and Venture
Group, Mr. Comey also serves on the boards of directors of several of the
Corporation's portfolio companies. Mr. Comey received an A.B. in Economics
from Brown University and an M.B.A. from Fordham University.
TODD J. STEVENS**
Mr. Stevens, age 38, has been a Director of the Corporation and MorAmerica
Capital since 1997. Since 1993, Mr. Stevens has been the Manager of the Utah
Office of Wasatch Venture Fund, a $15,000,000 early stage venture capital fund
and majority-owned subsidiary of Zions First National Bank (the "Bank"). Mr.
Stevens is also a Manager of the Bank's Venture Capital Department. Mr.
Stevens is also currently a director of Sandbox Entertainment Corporation.
From 1991 through 1993, Mr. Stevens was a Managing Director of Stevens Wood,
Inc., a financial and managerial consulting firm which assisted in raising
equity and debt private placements. Mr. Stevens was also Development Manager,
Assistant Treasurer, and Treasurer for Bonneville Pacific Corporation from
1987-1991, where his functions included negotiating, closing and administering
corporate credit facilities. From 1985 through 1987, Mr. Stevens performed
financial analysis for development, acquisition and sale of retail, commercial
and hotel properties for Homart Development
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<PAGE> 10
Company. Mr. Stevens received his B.S. in Accounting and Management from
University of Utah in 1983, and his M.B.A. in 1985 from Harvard Graduate School
of Business Administration.
HENRY T. MADDEN
Mr. Madden, age 68, has been a Director of the Corporation and MorAmerica
Capital since 1994. Mr. Madden is a consultant to development stage companies.
Since 1995, Mr. Madden has been an independent trustee of Berthel Growth and
Income Trust I, and since 1997, Mr. Madden has served as an independent member
of the Management Board of Berthel SBIC, LLC, a wholly-owned subsidiary of
Berthel Growth & Income Trust I. In 1986, Mr. Madden organized the Institute
for Entrepreneurial Management in the University of Iowa College of Business
Administration. As Director of the Institute, Mr. Madden advises potential and
new entrepreneurs and teaches courses on entrepreneurship in the M.B.A.
program.
JOHN D. WOLFE
Mr. Wolfe, age 71, has been a Director of the Corporation since 1994 and a
Director of MorAmerica Capital since 1989. Mr. Wolfe is retired from a career
in mortgage lending and retail banking. Mr. Wolfe had been employed for many
years by the Morris Plan companies prior to the 1985 bankruptcy of MorAmerica
Financial Corporation and Morris Plan Liquidation Company (the "Debtors"), and
was President of the Morris Plan Company of Iowa. Following the 1988
reorganization of the Debtors, Mr. Wolfe served as voting trustee for the
MorAmerica Financial Corporation stock and President of both Debtors.
Following several years of retirement, Mr. Wolfe returned from retirement to
serve as voting trustee and President and Director of the Debtors during the
Debtors' 1993 bankruptcy case.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation has established an Audit
Committee, a Nominating Committee and an Investment Committee to assist the
Board in carrying out its duties.
The Audit Committee makes recommendations to the Board of Directors
regarding the engagement of the independent auditors for audit and non-audit
services; evaluates the independence of the auditors; and reviews with the
independent auditors the fee, scope and timing of audit and non-audit services.
The Audit Committee also is charged with monitoring the Corporation's Policy
Against Insider Trading and Prohibited Transactions and its Code of Conduct.
The present members of the Corporation's Audit Committee include Michael W.
Dunn, James L. Miller, Todd J. Stevens and John D. Wolfe.
The Nominating Committee recommends to the Board of Directors nominations
for Director of the Corporation. The Nominating Committee presently has no
established procedures for considering shareholders' recommendations for
Director nominees, but shareholders may propose nominees for Director by
following the procedures set forth in the section of this Proxy Statement
entitled "SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING." The Nominating
Committee presently consists of John D. Wolfe and Henry T. Madden.
The Investment Committee assists the full Board of Directors with
oversight of the Corporation's investment portfolio and evaluates any proposed
revisions to the Corporation's investment policy. The Investment Committee
also assures compliance with the Corporation's policy regarding investments
made
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<PAGE> 11
in participation with other funds managed by the Investment Advisor.
Henry T. Madden, James L. Miller, and David R. Schroder and Robert A. Comey (as
alternate members with a single vote on any issue) are presently members of the
Investment Committee.
During the Fiscal Year of the Corporation ended September 30, 1997, 11
meetings of the Board of Directors were held. In addition, four meetings of
the Audit Committee, one meeting of the Nominating Committee and eight meetings
of the Investment Committee were held. Each of the Directors attended all of
the meetings of the Board of Directors and all of the meetings held by the
committees of the Board on which that Director served, except that Mr. Bass
attended eight meetings of the Board of Directors, and Mr. Miller attended
three meetings of the Audit Committee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Pursuant to the investment advisory agreements of the Corporation and
MorAmerica Capital with the Investment Advisor, Directors of the Corporation
and of MorAmerica Capital who are also officers or directors of the Investment
Advisor receive no compensation for serving on the Boards of Directors of the
Corporation and of MorAmerica Capital. All other Directors of the Corporation,
other than the Chairman of the Board, receive $8,000 per year plus $400 per
Board of Directors meeting attended and $250 per committee meeting attended,
all as total compensation for serving on the Boards of Directors of both the
Corporation and MorAmerica Capital. The Corporation's Chairman of the Board
receives $2,000 per month plus $400 per Board of Directors meeting attended and
$250 per committee meeting attended, all as total compensation for serving as
the Chairman of the Board of Directors of the Corporation and MorAmerica
Capital. In addition, the Corporation reimburses all reasonable expenses of
the Directors and the Chairman of the Board in attending Board of Directors and
committee meetings. Directors' meetings are normally held on a quarterly
basis, with additional meetings held as needed on an interim basis.
SUMMARY COMPENSATION TABLE
The following table sets forth certain details of compensation paid to
Directors during Fiscal Year 1997, which includes compensation for serving on
the Boards of Directors of the Corporation, MorAmerica Capital and other wholly
owned subsidiaries of the Corporation. For purposes of the following table,
the Fund Complex (as that term is defined in Item 22(a)(1)(v) of Reg. Section
240.14a-101) consists solely of the Corporation and MorAmerica Capital. The
Corporation presently maintains no pension or retirement plans for its
Directors.
<TABLE>
<CAPTION>
Name and Aggregate Compensation
Position From Corporation and Fund Complex (1)
---------- -------------------------------------
<S> <C>
Paul M. Bass, Jr., $ 27,200
Chairman of the Board
David R. Schroder, -0-
Director, President and
Secretary
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
Name and Aggregate Compensation
Position From Corporation and Fund Complex (1)
---------- --------------------------------------
<S> <C>
Robert A. Comey, -0-
Director, Executive
Vice President and
Treasurer
Henry T. Madden, 14,400
Director
John D. Wolfe, 13,400 (2)
Director
Michael W. Dunn, 13,400
Director
James L. Miller, 13,150
Director
Todd J. Stevens, 8,078
Director
</TABLE>
(1) Consists only of directors' fees and does not include reimbursed
expenses. The Corporation presently maintains no pension or retirement plans
for its Directors.
(2) Of the $13,400 earned by Mr. Wolfe in Fiscal Year 1997, $11,400 was paid
by the Corporation during Fiscal Year 1997. The remaining $2,000 was deferred
at the election of Mr. Wolfe and will be paid without interest during Fiscal
Year 1998.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the value of $100 invested on
March 31, 1995 (the last day of the first month in which shares of the Common
Stock began public trading) in shares of the Common Stock (based on the closing
market bid price for shares of the Common Stock and assuming reinvestment of
all dividends) with the cumulative total return of $100 invested on the same
date in the NASDAQ Stock Market Total Return Index (U.S. companies) and the
NASDAQ Financial Stocks Total Return Index.
[Remainder of this page intentionally left blank.]
9
<PAGE> 13
MACC PRIVATE EQUITIES INC.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ TOTAL MACC PRIVATE
(FISCAL YEAR COVERED) RETURN EQUITIES, INC. NASDAQ FINANCIAL
- -------------------- ------------ ------------- ----------------
<S> <C> <C> <C>
3/31/95 100 100 100
6/30/95 114.38 129.89 108.30
9/29/95 128.16 147.25 123.42
12/29/95 129.72 137.36 132.42
3/29/96 135.77 174.73 137.74
6/28/96 146.86 222.20 140.97
9/30/96 152.08 189.67 152.81
12/31/96 159.55 204.84 169.75
3/31/97 150.91 230.77 177.09
6/30/97 178.57 219.78 206.23
9/30/97 208.76 211.54 240.64
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS
The Corporation has no employees and does not pay any compensation to any
of its officers. All of the Corporation's officers and staff are employed by
the Investment Advisor, which pays all of their cash compensation.
SECTION 16(a) REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended, officers and directors of the Corporation and persons beneficially
owning 10% or more of the Corporation's Common Stock (collectively, "reporting
persons") must file reports on Forms 3, 4 and 5 regarding changes in their
holdings of the Corporation's equity securities with the Securities and
Exchange Commission. Based solely upon a review of copies of these reports
sent to the Secretary of the Corporation and/or written representations from
reporting persons that no Form 5 was required to be filed with respect to
Fiscal Year 1997, the Corporation believes that all Forms 3, 4, and 5 required
to be filed by all reporting persons have been properly and timely filed with
the Securities and Exchange Commission, except no Form 4 was filed by Zions
First National Bank (the "Bank") with respect to four transactions during
October, 1996, three transactions during November, 1996, and four transactions
during December, 1996 (however, these 11 transactions were reported on a Form 5
which indicated incorrectly that the Corporation's Fiscal Year 1996 ended on
December 31, 1996); no Form 4 was filed by the Bank with respect to two
transactions during February, 1997; three transactions by the Bank during
April, 1997, were reported late on Form 4; two transactions by the Bank during
June, 1997, were reported late on Form 4; no Form 4 was filed by the Bank with
respect to one transaction during September, 1997; and the Bank's Form 5 with
respect to the Corporation's Fiscal Year ended September 30, 1997 was filed
late.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED UNDER "ELECTION OF
DIRECTORS--NOMINEES."
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<PAGE> 14
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
As recommended by the Audit Committee of the Corporation's Board of
Directors, on December 16, 1997, a majority of those members of the Board of
Directors of the Corporation who are not "interested persons" of the
Corporation (as defined in Section 2(a)(19) of the Investment Company Act of
1940) voted in favor of the appointment of KPMG Peat Marwick LLP to serve as
the Corporation's independent auditors for the Fiscal Year ending September 30,
1998.
The appointment of KPMG Peat Marwick LLP as independent auditors is
subject to ratification by the shareholders. If the shareholders ratify the
selection of KPMG Peat Marwick LLP as the Corporation's auditors, they will
also serve as independent auditors for all subsidiaries of the Corporation. A
representative of KPMG Peat Marwick LLP is expected to be present at the Annual
Meeting with an opportunity to make a statement, and will be available to
respond to appropriate questions.
In order to ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Corporation for the year ending September 30, 1998, the
proposal must receive the favorable vote of a majority of the shares entitled
to vote and represented at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS FOR
THE CORPORATION FOR THE YEAR ENDING SEPTEMBER 30, 1998.
PROPOSAL 3
ISSUANCE OF COMMON STOCK
BELOW NET ASSET VALUE
INTRODUCTION
To date, the Corporation has relied upon several sources of capital to
fund its investment activities and other cash requirements. These include the
Corporation's treasury bills, cash and cash equivalents ("Liquid Assets"), sale
of portfolio securities, and the small business investment company ("SBIC")
capital program operated by the Small Business Administration (the "SBA"). The
Corporation plans to borrow up to $2,000,000 through the SBIC capital program
to fund its investment requirements during the Fiscal Year which began on
October 1, 1997.
The Corporation, as of September 30, 1997, had Liquid Assets of
$5,442,479, total assets of $25,925,422 and total liabilities of $10,615,580.
The Corporation has set an investment level objective of $7,000,000 for Fiscal
Year 1998 and is planning to invest at least $7,000,000 per year in future
years. The Corporation's portfolio investments generally have a five to seven
year maturity and a significant percentage of the Corporation's current
portfolio consists of investments which are not expected to mature for several
years. Therefore the Corporation may require additional sources of capital to
meet its investment objectives over the next few years. Increasing the size of
the Corporation is important as this will permit investment in larger
transactions, which may increase the Corporation's competitiveness with respect
to quality investment opportunities. Further, a larger number of investments
may be possible, adding greater breadth to the
11
<PAGE> 15
Corporation's investment portfolio. In addition to the debt available
through the SBIC capital program, the Corporation may attempt to raise capital
using the sale of stock
Moreover, the members of the Board of Directors of the Corporation believe
that continued reliance on SBA-guaranteed debt as a primary source of capital
may not be in the best interests of the Corporation and its shareholders
because of the risks and costs inherent in debt financing. The lenders of
these borrowed funds have fixed dollar claims against the Corporation's assets
superior to the claims of the Corporation's shareholders. Any increase in the
value of the Corporation's investments would cause its net asset value to
increase more than it would had the borrowings not been incurred. Conversely,
decreases in the value of the Corporation's investments below their value at
the time of acquisition would cause the Corporation's net asset value to
decrease more sharply than it would had the funds not been borrowed and
invested. Similarly, any increase in the Company's rate of income in excess of
interest payable on the borrowed funds would cause its net investment income to
increase more than it would without the leverage, while any decrease in the
rate of income would cause net investment income to decline more sharply than
it would had the funds not been borrowed and invested. For these reasons,
leverage is generally considered to add both potential risks and advantages to
the Corporation's future performance.
Accordingly, the Corporation's Board of Directors is continuing to
evaluate alternative sources of capital. One such source would be the issuance
of some or all of the authorized but unissued shares of the Corporation's
common stock. Such shares could be issued to provide funding for the
Corporation's investing activities and other cash requirements, and/or such
shares could be issued in connection with acquisitions of other venture capital
funds and/or the investment portfolios of such funds. To the extent that the
Corporation determines that the incurrence of additional debt capital is not in
the best interests of the Corporation and its shareholders, or that obtaining
additional equity capital is in the best interests of the Corporation and its
shareholders, the Corporation may require the requested flexibility.
One of the principal benefits of being a public company, which helps to
offset the costs associated with public company status, is the ability to
access public equity markets to fund capital needs. The Corporation's Board of
Directors believes that the Corporation is unlikely to be able to raise public
equity funds without shareholder approval of Proposal 3, which would give the
Board of Directors the ability to sell up to 300,000 shares of the
Corporation's common stock at not less than 90% of net asset value per share.
While it appears feasible to fund a portion of its growth capital needs with
additional debt financing though the SBIC capital program, the Corporation
needs the ability to raise additional public equity to reach and balance its
full growth potential. In order to maximize shareholder value, the
Corporation's Board of Directors strongly recommends the approval of the sale
of up to 300,000 shares of the Corporation's common stock at not less than 90%
of net asset value per share.
DESCRIPTION OF PROPOSAL AND
REQUIRED VOTE
Approval of this proposal would authorize the issuance of up to 300,000
shares of the 2,960,385 presently authorized but unissued shares of Common
Stock of the Corporation at not less than 90% of the net asset value per share
at the time of issuance. The Corporation presently has 1,039,615 shares issued
and outstanding. Accordingly, if the Corporation were to issue 300,000 of the
presently authorized but unissued shares of Common Stock, the number of shares
issued and outstanding would increase by approximately 29%.
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<PAGE> 16
Since the Corporation's Common Stock began trading in March, 1995, it has
consistently traded at a discount from net asset value per share. Shares of
closed-end mutual funds similar to the Corporation have a tendency to trade
frequently at a discount from net asset value per share. The Corporation is
presently evaluating different strategies to attempt to decrease the amount of
this discount; however, there can be no assurances that any course of action
taken by the Corporation with respect thereto would have the intended result.
Accordingly, if the Corporation were to issue additional shares of Common Stock
to provide additional equity capital at any time during the next year, such
shares would be sold at a price less than net asset value per share if the
then-prevailing market price for the Common Stock were less than net asset
value per share; however, the Corporation would not sell at a share price below
90% of net asset value.
The Corporation has elected treatment as a business development company
("BDC") under the Investment Company Act of 1940, as amended (the "Act").
Pursuant to Section 63 of the Act, a BDC may not issue shares of common stock
at less than net asset value per share unless such issuance has been
approved by the holders of a majority of the BDC's outstanding voting
securities and by a majority of such holders who are not affiliated persons of
the BDC. In addition, a majority of the directors of the BDC who are not
interested persons of the BDC must first determine that any such issuance would
be in the best interests of the Corporation and its shareholders, and in
consultation with the underwriter, that the offering price would be not less
than a price which closely approximates market price.
Accordingly, this proposal, if approved, would give the Corporation the
ability, for the twelve months ending February 24, 1999, to issue up to 300,000
shares of Common Stock at not less than 90% of net asset value per share if a
majority of the members of the Corporation's Board of Directors who are not
interested persons of the Corporation first determine that such issuance would
be in the best interests of the Corporation and its shareholders. As an
example, if this proposal were approved by the shareholders, and on a
particular date within 12 months after the date of the Annual Meeting, the net
asset value per share of the Corporation's Common Stock were $15, and the
market price per share of the Common Stock were $13.50, then the Board of
Directors would have the authority, without further action of the shareholders,
to sell up to 300,000 shares of the Corporation's Common Stock at a price
which closely approximates $13.50 per share, upon the determination of the
required majority of the Board of Directors that such issuance was in the best
interests of the Corporation and its shareholders. Under this example, if the
Corporation sold all 300,000 shares at $13.50, the net asset value per share
following the offering would be $14.66, giving effect solely to the new
issuance and excluding the offering costs, if any, and the effects of
operations, a dilution of $.34 per share.
In order to be approved by the Shareholders, this proposal must receive
the favorable vote of: (1) a majority of the outstanding shares of Common Stock
entitled to vote at the meeting; and (2) a majority of the outstanding shares
of Common Stock entitled to vote at the meeting which are not held by
affiliated persons of the Corporation. With respect to this proposal, Section
2(a)(42) of the Investment Company Act of 1940 defines "a majority of the
outstanding shares" as: (1) 67% or more of the voting securities present at
such meeting if the holders of more than 50% of the outstanding voting
securities of such company are present or represented by proxy; or (2) 50% of
the outstanding voting securities of such company, whichever is the less.
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<PAGE> 17
PURPOSES AND EFFECT OF OBTAINING
ADDITIONAL EQUITY CAPITAL
As indicated above, the federal securities laws applicable to BDCs require
those members of a BDC's board of directors who are not interested persons of
the BDC to determine that the issuance of shares of the BDC's common stock for
a price less than net asset value per share is in the best interests of the
Corporation and its shareholders.
As a general matter, and without reference to any proposed transaction,
the members of the Board of Directors of the Corporation who are not interested
persons of the Corporation believe that continued reliance on SBA-guaranteed
debt as a principal source of capital may not be in the best interests of the
Corporation and its shareholders because of the risks and costs inherent in
debt financing, for the reasons set forth above. In addition, the SBA capital
programs are subject to federal funding, and therefore the availability of
capital through these programs is difficult to predict over the long term.
Even assuming the availability of federal funding, the Corporation's
qualification for these programs at any particular time is not always certain.
Additional equity capital increases the potential amount of leverage (debt
financing) available through the SBIC capital program and has the effect of
reducing the risk associated with relying solely on debt financing.
Also as a general matter, and without reference to any proposed
transaction, the members of the Board of Directors of the Corporation who are
not interested persons of the Corporation believe that increasing the asset
base of the Corporation through the issuance of additional shares of Common
Stock may be in the best interests of the Corporation and its shareholders for
several reasons. First, the Corporation may be able to achieve greater breadth
in its investment portfolio by increasing the total number and amount of
portfolio investments. Second, any increase in the Corporation's asset base
may tend to decrease the Corporation's operating expenses as a percentage of
its total assets. Third, under SBA rules, additional contributed capital will
support an increase in MorAmerica Capital's maximum single investment size and
thus may permit MorAmerica Capital to make larger portfolio investments as
called for in its growth plans, sooner than otherwise possible. With a larger
maximum single investment size, more portfolio investment opportunities may be
available to MorAmerica Capital. By making larger investments, the Corporation
and MorAmerica Capital may be more competitive in their investment prospecting
when the Corporation and MorAmerica Capital is one of several co-investors.
This increase in the amount of equity also increases the amount of debt
financing available to the Corporation through the SBIC capital program.
Moreover, issuing additional shares of Common Stock as a means of accessing
additional capital may permit the Corporation to realize the benefit of its
publicly traded status.
In the absence of shareholder approval of this proposal, the Corporation
may not have the flexibility to raise additional equity capital through the
issuance of additional shares of Common Stock. The Corporation's Board of
Directors strongly believes that this capital raising flexibility is important
to increasing the size and value of the Corporation. If shareholders approve
this proposal, the Corporation's Board of Directors will have the authority for
a one-year period without seeking further approval of the shareholders to issue
up to 300,000 shares of the Corporation's Common Stock for not less than 90% of
net asset value per share; however, the Corporation will not engage in any such
issuance unless the required majority of the Corporation's disinterested
Directors first determines, based upon the perceived merits of the specific
transaction, that such issuance is in the best interests of the Corporation and
its shareholders and that the offering price closely approximates market price.
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<PAGE> 18
PURPOSES AND EFFECT OF
ISSUANCE OF SHARES
To the extent that any additional shares of Common Stock would be issued
by the Corporation, the offering of such shares by the Corporation and/or by
the holders of such newly issued shares may be registered by the Corporation
with the Securities and Exchange Commission. Alternatively, any such shares
may be privately placed, with restrictions on transferability, in which case,
registration with the Securities and Exchange Commission may not be required.
Before voting on this proposal or giving proxies with regard to this
matter, shareholders should consider the potentially dilutive effect of the
issuance of shares of the Corporation's Common Stock at less than net asset
value per share on net asset value per outstanding share of Common Stock.
Shareholders should also consider that holders of the Corporation's Common
Stock have no subscription, preferential or preemptive rights to additional
shares of the Common Stock, and thus any future issuance of shares may tend to
dilute shareholders' holdings of the Common Stock as a percentage of shares
outstanding.
The issuance of the additional shares of Common Stock or the advance of
additional debt financing will have an effect on the gross amount of management
fees paid by the Corporation to the Investment Advisor. The Corporation's and
MorAmerica Capital's Investment Advisory Agreements with the Investment Advisor
provide for a management fee payable to the Investment Advisor as compensation
for managing the investment portfolios of the Corporation and MorAmerica
Capital. With regard to the Corporation, the management fee is computed as a
percentage of assets under management. The increase in the Corporation's asset
base resulting from any such issuance would increase assets under management,
and would cause a corresponding increase in the gross amount of management fees
paid to the Investment Advisor, but would not increase or decrease the
management fee as a percentage of assets under management. However, by
increasing the size of the Corporation's asset base and number of shares
outstanding, the Corporation may be able to reduce its fixed expenses both as a
percentage of total assets and on a per share basis. In addition, by obtaining
a mix of additional equity and debt capital, rather than incurring only
additional debt, to fund future capital requirements, the Corporation may
reduce its overall cost of capital by limiting the interest expense associated
with debt financing.
The requested authority would permit the issuance of up to 300,000 shares
at not less than 90% of net asset value. The Board of Directors of the
Corporation believes that at this level, the dilution in net asset value per
share may be significantly outweighed by the benefits to the Corporation and
its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE PROPOSAL APPROVING FOR A ONE-YEAR PERIOD THE POLICY AND PRACTICE OF THE
CORPORATION OF ISSUING UP TO 300,000 SHARES OF COMMON STOCK OF THE CORPORATION
AT NOT LESS THAN 90% OF NET ASSET VALUE PER SHARE.
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<PAGE> 19
PROPOSAL 4
APPROVAL OF PROPOSED AMENDMENTS
TO INVESTMENT ADVISORY AGREEMENTS
INTRODUCTION
The Corporation is currently party to the MACC Private Equities Inc.
Investment Advisory Agreement (the "Current Corporation Investment Advisory
Agreement") with InvestAmerica Investment Advisors, Inc. (the "Investment
Advisor") dated as of October 1, 1994, as amended by First Amendment to MACC
Private Equities Inc. Investment Advisory Agreement dated as of August 1, 1996
(extending the Current Corporation Investment Advisory Agreement for an
additional one-year term ended September 30, 1997), and Second Amendment to
MACC Private Equities Inc. Investment Advisory Agreement dated as of August 1,
1997 (extending the Current Corporation Investment Advisory Agreement for an
additional one-year term ending September 30, 1998).
MorAmerica Capital is currently party to the MorAmerica Capital Investment
Advisory Agreement (the "Current MorAmerica Capital Investment Advisory
Agreement") with the Investment Advisor dated as of October 1, 1994, as amended
by First Amendment to MorAmerica Capital Investment Advisory Agreement dated as
of August 1, 1996 (extending the Current MorAmerica Capital Investment
Advisory Agreement for an additional one-year term ended September 30, 1997),
and Second Amendment to MorAmerica Capital Investment Advisory Agreement, dated
as of August 1, 1997 (extending the Current MorAmerica Capital Investment
Advisory Agreement for an additional one-year term ending September 30, 1998)
(the Current Corporation Investment Advisory Agreement and the Current
MorAmerica Capital Investment Advisory Agreement together, the "Current
Investment Advisory Agreements").
The Current Investment Advisory Agreements were approved by the
shareholders of the Corporation in connection with the approval of the Plan of
Reorganization under Chapter 11 of the United States Bankruptcy Code of
MorAmerica Financial Corporation and Morris Plan Liquidation Company, the
Corporation's predecessors in interest, on December 28, 1993. No person serves
as an investment advisor to the Corporation or MorAmerica Capital, other than
the Investment Advisor pursuant to the Current Investment Advisory Agreements.
In addition, other than pursuant to the Current Investment Advisory Agreements,
the Corporation or MorAmerica Capital did not pay any fees to the Investment
Advisor, its affiliated persons or affiliated persons of such persons during
Fiscal Year 1997.
On December 16, 1997, a majority of the members of the Boards of Directors
of the Corporation and MorAmerica Capital, including a majority of the members
who are not interested persons of the Corporation and MorAmerica Capital,
respectively, approved certain proposed amendments to the Current Investment
Advisory Agreements, as set forth in APPENDIX A -- PROPOSED CORPORATION
INVESTMENT ADVISORY AGREEMENT, and APPENDIX B -- PROPOSED MORAMERICA CAPITAL
INVESTMENT ADVISORY AGREEMENT (the Proposed Corporation Investment Advisory
Agreement and the Proposed MorAmerica Capital Investment Advisory Agreement
together, the "Proposed Investment Advisory Agreements"), subject to the
approval of the shareholders of the Corporation at the 1998 Annual Meeting. On
July 15, 1997, the Boards of Directors of the Corporation and MorAmerica
Capital further resolved to extend the Current Investment Advisory Agreements
for additional one-year terms through September 30, 1998, in the event that the
Proposed Investment Advisory Agreements are not approved by the shareholders of
the Corporation at the 1998 Annual Meeting.
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<PAGE> 20
CURRENT INVESTMENT
ADVISORY AGREEMENTS
The Current Investment Advisory Agreements provide that the Investment
Advisor shall manage all assets of the Corporation and MorAmerica Capital and
generally shall provide all facilities, personnel, and other means necessary
for the Corporation and MorAmerica to operate. Except to the extent of
acquisitions or dispositions of portfolio securities that, in accordance with
the Corporation's and MorAmerica Capital's co-investment guidelines require
specific board approval, the Investment Advisor shall make all new and
follow-on investments and all asset dispositions and other investment decisions
in the Investment Advisor's discretion.
Under the Current Investment Advisory Agreements, the Investment Advisor
generally is responsible for expenses relating to staff salaries, office space
and supplies, and the Corporation and MorAmerica Capital are generally
responsible for auditing fees, all legal expenses and other expenses associated
with being a public company, fees to the directors of the Corporation and
MorAmerica Capital, and any and all expenses associated with property of a
portfolio company taken or received by the Corporation or MorAmerica Capital
or on its behalf as a result of its investment in any portfolio company.
The Current Investment Advisory Agreements provide that the Investment
Advisor shall receive a management fee and an incentive fee. With respect to
the Corporation, the management fee is paid monthly in arrears and is equal to
2.5% per annum of Assets Under Management (as that term is defined in the
Current Investment Advisory Agreements), which means the total value of the
respective company's assets. With respect to MorAmerica Capital, the
management fee is paid monthly in arrears and is equal to 2.5% per annum of
Capital Under Management (as that term is defined in the Current MorAmerica
Capital Investment Advisory Agreement), which includes fiscal year-end private
capital (as defined in the Small Business Administration ("SBA") regulations)
and fiscal year-end SBA leverage, but which excludes unrealized capital gains
and losses and undistributed realized earnings. Under the current MorAmerica
Capital Investment Advisory Agreement, the management fee includes an
additional $6,000 per month through January 31, 1995, which then decreases to
$5,000 per month from February 1, 1995, through September 30, 1998. The
definition of Capital Under Management under the Current MorAmerica Capital
Investment Advisory Agreement is proposed to be amended, as set forth in
"PROPOSED INVESTMENT ADVISORY AGREEMENTS."
In addition, the Investment Advisor is entitled to an incentive fee under
the Current Investment Advisory Agreements. Under each of the Current
Investment Advisory Agreements, the amount of the incentive fee is 13.4% of the
net capital gains, before taxes, on portfolio investments and from the
disposition of other assets or property managed by the Investment Adviser. Net
capital gains are computed only on capital gains realized from the sale of
portfolio securities or other property. The computation of net capital gains
under the Current Investment Advisory Agreements is proposed to be amended, as
set forth in "PROPOSED INVESTMENT ADVISORY AGREEMENTS."
The amount of the incentive fee is limited in any period by applicable SBA
regulations with respect to the fee paid by MorAmerica Capital although the
amount which may not be paid in one period, may be an incentive fee payable or
may be in escrow payable and disbursed in later periods. In addition, the
amount of the incentive fee and all incentive compensation, in any Fiscal Year,
may not exceed the limit prescribed by Section 205(b)(3)(A) of the Investment
Advisors Act of 1940, as amended (the "Advisors Act"). This section
17
<PAGE> 21
provides that the total incentive fee will not exceed 20% of the realized
capital gains upon the funds computed net of all realized capital losses and
unrealized capital depreciation.
In Fiscal Year 1997, the Corporation on an unconsolidated basis paid the
Investment Advisor management fees equal to $94,591, and MorAmerica Capital
paid the Investment Advisor management fees equal to $589,993. No incentive
fees were paid during fiscal year 1997 by the Corporation or MorAmerica
Capital. Other than as set forth above, the Corporation and MorAmerica Capital
paid no other compensation to the Investment Advisor during Fiscal Year 1997.
PROPOSED INVESTMENT ADVISORY AGREEMENTS
In approving the Proposed Investment Advisory Agreements, the Boards of
Directors of the Corporation and MorAmerica Capital sought to improve three
areas of the contract. These areas are:
1. To make clear in the agreements that the net change in
unrealized depreciation is either added to or deducted from realized
gains for purposes of determining the amount of incentive fees, if
any, for the period.
2. To define when an incentive fee is earned and paid in the case where a
realized gain is not cash.
3. To add undistributed realized earnings to the definition of
Capital Under Management in the Current MorAmerica Capital Investment
Advisory Agreement to allow for growth or decline in the management
fee as relevant assets grow or decline.
The following discussion of the material differences between the Current
Investment Advisory Agreements and the Proposed Investment Advisory Agreements
is qualified in its entirety by the terms of the proposed Investment Advisory
Agreements as set forth in Appendix A - Proposed Corporation Investment
Advisory Agreement and Appendix B - Proposed MorAmerica Capital Investment
Advisory Agreement. In the Appendices, language proposed to be added appears
in brackets in the Proposed Investment Advisory Agreements.
The first change in the existing agreement is to make clear that the net
change in unrealized depreciation over the period is either added to or
deducted from realized gains in determining net capital gains for the period.
Unrealized depreciation, which is treated as a loss under the agreements, is
adjusted for (i) additional depreciation and (ii) reversals in depreciation
when the valuation is increased but remains below cost, in determining the net
change in unrealized depreciation for the period. This method of calculating
the unrealized depreciation is consistent in the existing contracts and the
proposed contracts. The additional language in the capital loss definitions is
to make clear in the contract that depreciation may be adjusted up and down
over a period in determining the depreciation for that period.
The Boards of Directors to date have interpreted the treatment of
reversals of unrealized depreciation under the Current Investment Advisory
Agreements consistently with the treatment of reversals of unrealized
depreciation as set forth in the Proposed Investment Advisory Agreements.
Accordingly, no change would have occurred in the amount of incentive fees
paid by the Corporation or MorAmerica Capital to the Investment Advisor during
Fiscal Year 1997 had the Proposed Investment Advisory Agreements been in
effect during that time.
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<PAGE> 22
Another situation sought to be adjusted under the Current Investment
Advisory Agreements concerns the treatment of non-cash realized capital gains
recorded by the Corporation or MorAmerica Capital and the effect of such
non-cash realized capital gains on the computation of the incentive fee payable
to the Investment Advisor for the applicable period. The realization of such
non-cash realized capital gains would occur, for example, when portfolio
securities are surrendered for securities or other property (other than cash)
having a fair value on the date of exchange in excess of fair value of the
surrendered portfolio securities. The Current Investment Advisory Agreements
clearly provide that only realized gains for cash give rise to the payment of
an incentive fee. However, under the Current Investment Advisory Agreements,
it is only when cash is received that the amount of the realized capital gain
for purposes of computing the incentive fee should be calculated. The Board of
Directors have taken this opportunity to clarify this issue. Under the
Proposed Investment Advisory Agreements, the gain is realized and the incentive
fee is earned and accounted for in the period that the realized investment gain
is placed on the books of the Corporation. However, the cash payment of the
incentive fee is made only upon receipt of the cash. This change will result
in consistent treatment of incentive fees for non-cash gains under the
contracts and for financial statement purposes.
Through the normal operation of the Current Investment Advisory
Agreements, as preserved in the Proposed Investment Advisory Agreements, when
non-cash assets received are sold for cash, to the extent that the Corporation
or MorAmerica Capital receives less cash than the original amount of non-cash
gain recognized, the incentive fee will be reduced accordingly, and therefore
13.4% of the difference will be subtracted from the amount of the incentive fee
payable.
The Boards of Directors of the Corporation and MorAmerica Capital,
including those members who are not interested persons of the Corporation and
MorAmerica Capital, believe that the treatment of non-cash capital gains under
the Proposed Investment Advisory Agreements will match more closely financial
statement presentation of realized capital gains, while preserving the policy
behind Section 205(b)(3)(A) of the Advisers Act and the provisions regarding
the incentive fee under the Current Investment Advisory Agreements. Payment of
these incentive fees under the Current and Proposed Investment Advisory
Agreements is only made when cash is received. No change would have occurred
in the amount of incentive fees paid by the Corporation and MorAmerica Capital
to the Investment Advisor during Fiscal Year 1997 had the Proposed Investment
Advisory Agreements been in effect during that time.
The final material change in the Proposed MorAmerica Capital Investment
Advisory Agreement as compared to the Current MorAmerica Capital Investment
Advisory Agreement concerns the definition of Capital Under Management for
purposes of calculating the management fee. Under the Current MorAmerica
Capital Investment Advisory Agreement, Capital Under Management includes only
MorAmerica Capital's fiscal year-end: (i) "private capital" as defined under
applicable SBA regulations, which exclude unrealized capital gains and losses;
and (ii) SBA leverage. Under the Proposed MorAmerica Capital Investment
Advisory Agreement, the definition of Capital Under Management would be
expanded also to include MorAmerica Capital's fiscal year-end Undistributed
Realized Earnings.
Because the definition of Capital Under Management includes only Private
Capital as defined by SBA regulations and SBA leverage, the Current MorAmerica
Capital Investment Advisory Agreement does not automatically allow for growth
in the Capital Under Management for realized gains which are being reinvested
in new investments.
19
<PAGE> 23
A majority of the Board of Directors of MorAmerica Capital, including a
majority of those members who are not interested persons of MorAmerica Capital,
have determined that funds comparable in size and investment objectives to
MorAmerica Capital pay their investment advisors a management fee based upon
Assets Under Management, which does, in effect, include undistributed net
realized earnings and increases or decreases as the asset size of the
investment funds changes. The formula for calculating the management fee
provided for in the Current MorAmerica Capital Investment Advisory Agreement
does not presently include a mechanism for automatically adjusting the
management fee for increases in Capital Under Management as a result of
realized gains, since such gains are presently excluded from the management fee
calculation.
Accordingly, the Board of Directors has determined that the management fee
provided in the Current MorAmerica Capital Investment Advisory Agreement may be
below market rate as the fund grows and that it is in the best interest of
MorAmerica Capital for the computation of the management fee to be amended so
as to enable the fee to grow automatically with the size of the fund and more
closely approximate market rates of compensation.
The Board of Directors of MorAmerica Capital determined to address this
matter by amending the definition of Capital Under Management in the Current
MorAmerica Capital Investment Advisory Agreement to more closely parallel the
concept of Assets Under Management by including Undistributed Realized Earnings
which will adjust the management fee for changes in realized earnings that will
eventually be invested in new investments and will increase the assets of the
Corporation. The Board of Directors further believes that absent the approval
of this amendment to the definition of Capital Under Management as set forth in
the Proposed MorAmerica Capital Investment Advisory Agreement, as the total
investment portfolio of MorAmerica Capital increases, the Investment Advisor
may be unable to hire and retain qualified personnel to manage the investment
portfolio which could adversely affect the ability of the Corporation and
MorAmerica Capital to achieve their investment objectives. In recognition of
this adjustment, the additional fixed monthly fee of $5,000 per month presently
required to be paid through September 30, 1998, would be terminated on the
effective date of the Proposed MorAmerica Capital Investment Advisory
Agreement.
As noted above, the proposed change to the Capital Under Management
definition generally will affect the amount of management fees payable to the
Investment Advisor in a given period. For example, on a consolidated basis
during Fiscal Year 1997, the Corporation paid the Investment Advisor management
fees of $684,584. If the Proposed MorAmerica Capital Investment Advisory
Agreement had been in effect during Fiscal Year 1997, the amount of the
management fees paid by the Corporation on a consolidated basis would have
increased by $98,577, representing an increase of 14.4%. No incentive fees
were paid to the Investment Advisor in Fiscal Year 1997.
The Proposed MorAmerica Capital Investment Advisory Agreement is subject
to approval by the Small Business Administration ("SBA"). As of the date of
this Proxy Statement, the Proposed MorAmerica Capital Investment Advisory
Agreement has been submitted to the SBA for its approval.
FEE TABLE
The purpose of this table is to assist shareholders in understanding the
various expenses, including management fees, as a percentage of net asset value
as of September 30, 1997, that they will bear directly or indirectly should
shareholders approve the Proposed Investment Advisory Agreements. The table
reflects
20
<PAGE> 24
expenses incurred by the Corporation on a consolidated basis during Fiscal
Year 1997, restated as if the Proposed Investment Advisory Agreements had been
in effect, and as if MorAmerica Capital had outstanding an additional
$2,000,000 in SBIC leverage (which is anticipated to be incurred during Fiscal
Year 1998), throughout all of Fiscal Year 1997. Of the various expenses listed
in the table, the only expense which would be changed by shareholder approval
of the Proposed Investment Advisory Agreements is the amount of management fees
which would have been paid by the Corporation on a consolidated basis. Giving
effect solely to the Proposed Investment Advisory Agreements, and excluding the
effect of the additional $2,000,000 in SBIC leverage, the management fee would
have increased from 4.45% to 5.09% of net asset value per share. Actual
expenses for future years may be greater or lesser than those shown.
[Remainder of page intentionally left blank.]
21
<PAGE> 25
Annual expenses (as a percentage of net asset value per outstanding share
of the Corporation's Common Stock as of September 30, 1997, of $14.79).
<TABLE>
<S> <C>
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . . 5.42%(1)
Interest Payments on Borrowed Funds . . . . . . . . . . . . . . . 6.65%(2)
Other Expenses:
Public Company Administrative Expenses . . . . . 0.75%
Audit, Legal . . . . . . . . . . . . . . . . . . 1.32%
Expenses on Assets Acquired,
Directors Fees, Miscellaneous,
Advertising . . . . . . . . . . . . . . . . . . 1.02%
Total Other . . . . . . . 3.09%
Total Annual Expenses . . . . . . 15.15%
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Example (3) 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000
investment assuming a 5%
annual return (4): $ 144 $ 389 $ 587 $ 931
- -------------------------------------------------------------------------------
</TABLE>
(1) Giving effect solely to the Proposed Investment Advisory Agreements and
excluding the effect of the additional $2,000,000 in SBIC leverage, the
Corporation on a consolidated basis would have paid during Fiscal Year 1997
management fees equal to $783,161, or 5.09% of net asset value per outstanding
share of the Corporation's Common Stock as of September 30, 1997. Actual
management fees paid by the Corporation on a consolidated basis during Fiscal
Year 1997 were $684,584, or 4.45% of net asset value per outstanding share of
the Corporation's Common Stock as of September 30, 1997. The management fee
does not include the incentive fees provided for in the Current and Proposed
Investment Advisory Agreements, and no incentive fees were paid by the
Corporation or MorAmerica Capital during Fiscal Year 1997. Except for the
expenses noted in the table, the Investment Advisor provides staff, office
space and other operational support to the Corporation and MorAmerica Capital.
(2) Interest payments on borrowed funds consist entirely of annual interest
payments on SBIC leverage borrowings by MorAmerica Capital during Fiscal Year
1997, plus 6.55 % interest on an additional $2,000,000 in SBIC leverage
anticipated to be incurred during Fiscal Year 1998, assuming that this
additional $2,000,000 had been outstanding for the entire year. As of December
17, 1997, MorAmerica Capital had issued $1,000,000 of the anticipated
$2,000,000 in additional SBIC leverage. MorAmerica Capital may arrange
additional leverage borrowing in the future.
(3) THE EXAMPLE IS BASED ON ESTIMATES OF FUTURE EXPENSES BUT SHOULD IN NO
WAY BE CONSIDERED REPRESENTATIVE OF FUTURE ACTUAL EXPENSES. FUTURE ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The expenses are
cumulative totals for the periods shown.
(4) Although all of the SBIC leverage will mature within the ten-year period
shown in the example, for purposes of the example, it is assumed that maturing
SBIC leverage will be refinanced with additional SBIC leverage bearing interest
at the same rate. There can be no assurances, however, that the Corporation
will maintain a consistent level of SBIC leverage over the next ten years, or
that the Corporation will be able to refinance maturing SBIC leverage at
existing interest rates.
22
<PAGE> 26
THE INVESTMENT ADVISOR AND
ITS AFFILIATES
Other than the persons named in the following table, no officer or
director of the Corporation or of MorAmerica Capital owns securities of, or has
any other material direct or indirect interest in, the Investment Advisor. The
following table sets forth the names, addresses and principal occupations of
each officer and director of the Investment Advisor, including their positions
held with the Corporation and MorAmerica Capital:
<TABLE>
<CAPTION>
Positions with the
Name and Address Investment Advisor Principal Occupation
- ---------------- ------------------ --------------------
<S> <C> <C>
David R. Schroder Director, President and Director, President
101 Second Street, SE Secretary and Secretary of
Suite 800 the Investment
Cedar Rapids, Iowa 52401 Advisor, of the
Corporation, of
MorAmerica Capital,
of InvestAmerica
Venture Group,
Inc., of
InvestAmerica N.D.
Management, Inc.,
and of InvestAmerica
N.D., L.L.C.
Robert A. Comey Director, Executive Vice Director, Executive
101 Second Street, SE President and Treasurer Vice President, and
Suite 800 Treasurer of the
Cedar Rapids, Iowa 52401 Investment Advisor,
of the Corporation,
of MorAmerica
Capital, of
InvestAmerica
Venture Group,
Inc., of
InvestAmerica N.D.
Management, Inc. and
of InvestAmerica N.D.,
L.L.C.
Kevin F. Mullane Director and Director and Vice
Suite 2724 - Commerce Tower Vice President President of the
911 Main Street Investment Advisor,
Kansas City, Missouri 64105 of InvestAmerica
Venture Group,
Inc., of
InvestAmerica N.D.
Management, Inc.,
and of
InvestAmerica N.D.,
L.L.C.; Vice
President of the
Corporation and of
MorAmerica Capital
</TABLE>
To the best of the knowledge and belief of the Corporation and MorAmerica
Capital, no financial condition of the Investment Advisor is reasonably likely
to impair the financial ability of the Investment Advisor to fulfill its
commitment to the Corporation or to MorAmerica Capital under either the Current
Investment Advisory Agreements or the Proposed Investment Advisory Agreements.
The Investment Advisor provides investment advisory services only to the
Corporation and MorAmerica Capital. However, affiliates of the Investment
Advisor act as investment advisor to two other
23
<PAGE> 27
funds having similar investment objectives to the Corporation and MorAmerica
Capital, the Iowa Venture Capital Fund, L.P. (the "Iowa Fund"), and North
Dakota Small Business Investment Company, A North Dakota Limited Partnership
("NDSBIC"). These affiliates are InvestAmerica Venture Group, Inc. and
InvestAmerica N.D., L.L.C., respectively. The following table sets forth, as of
September 30, 1997, the size of the Iowa Fund and NDSBIC, the rates of
compensation paid by such funds, and the extent to which the investment advisor
to such funds has waived, reduced or otherwise agreed to reduce its
compensation under any applicable contract.
<TABLE>
<CAPTION>
Reductions of
Name of Fund Size of Fund Rate of Compensation Compensation
- ------------ ------------ -------------------- -------------
<S> <C> <C> <C>
The Iowa Venture Assets:$3,000,000 About 2.5% of None
Capital Fund, L.P. remaining assets*
NDSBIC Assets:$5,000,000 2.5% of assets None
+$125,000 +plus
carried interest of
20%
</TABLE>
- ------------------
*The Iowa Fund, a private investment partnership, is in its planned liquidation
phase. The partners have presently extended the fund beyond its anticipated
10-year life to facilitate orderly liquidation of investments. The advisory
fee for this period is no longer set by contract, but by annual agreement of
the parties. The rate reflected was the effective rate paid for the prior
fiscal year of this fund.
During Fiscal Year 1997, the Corporation and MorAmerica Capital paid no
brokerage commissions to any broker: (i) that is an affiliated person of the
Corporation or MorAmerica Capital; (ii) that is an affiliated person of such
person; or (iii) an affiliated person of which is an affiliated person of the
Corporation or MorAmerica Capital, the Investment Advisor, or any principal
underwriter or administrator for the Corporation or MorAmerica Capital.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE PROPOSAL APPROVING THE PROPOSED AMENDMENTS TO THE INVESTMENT ADVISORY
AGREEMENTS OF THE CORPORATION AND MORAMERICA CAPITAL.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented for
action at the Meeting. If any matters do come before the Meeting on which
action can properly be taken, it is intended that the proxies shall vote in
accordance with the judgment of the person or persons exercising the authority
conferred by the proxy at the Meeting.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission, any shareholder
proposal to be considered by the Corporation for inclusion in the proxy
material for the February, 1999 Annual Meeting of Shareholders must be received
by the Secretary of the Corporation, 101 Second Street, S.E., Suite 800, Cedar
Rapids, Iowa 52401, no later than September 16, 1998. The submission of a
proposal does not guarantee its inclusion in the proxy statement or
presentation at the annual meeting unless certain securities laws requirements
are met.
24
<PAGE> 28
In addition, under the Corporation's Bylaws, shareholders desiring to
nominate persons for election as Directors or to propose other business for
consideration at an annual meeting must generally notify the Secretary of the
Corporation in writing not less than 60 days, nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting. Shareholders'
notices must contain the specific information set forth in the Corporation's
Bylaws. A copy of the Corporation's Bylaws will be furnished to shareholders
without charge upon written request to the Secretary of the Corporation.
EXPENSES OF SOLICITATION OF PROXIES
In addition to the use of the mails, proxies may be solicited by personal
interview and telephone by directors, officers and other employees of the
Corporation, who will not receive additional compensation for such services.
The Corporation has employed ChaseMellon Shareholder Services to aid in the
solicitation of proxies at an estimated fee of $3,500 plus $4.50 per
shareholder solicited. The Corporation will also request brokerage houses,
nominees, custodians and fiduciaries to forward soliciting materials to the
beneficial owners of stock held of record by them and will reimburse such
persons for forwarding materials. The cost of soliciting proxies will be borne
by the Corporation.
ANNUAL REPORT
The Annual Report to Shareholders covering the Fiscal Year ended September
30, 1997, accompanies this proxy statement, but is not deemed a part of the
proxy soliciting material.
A COPY OF THE FISCAL YEAR 1997 FORM 10-K REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION, EXCLUDING EXHIBITS, WILL BE MAILED TO SHAREHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO DAVID R. SCHRODER, SECRETARY, MACC PRIVATE
EQUITIES INC., 101 SECOND STREET, S.E., SUITE 800, CEDAR RAPIDS, IOWA 52401.
SUCH REQUESTS MUST SET FORTH A GOOD FAITH REPRESENTATION THAT THE REQUESTING
PARTY WAS EITHER A HOLDER OF RECORD OR A BENEFICIAL OWNER OF COMMON STOCK OF
THE CORPORATION ON DECEMBER 31, 1997. EXHIBITS TO THE FORM 10-K WILL BE MAILED
UPON SIMILAR REQUEST AND PAYMENT OF SPECIFIED FEES.
PLEASE DATE, SIGN AND RETURN THE PROXY AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED ENVELOPE. No postage is required for mailing in the United States. A
prompt return of your proxy will be appreciated as it will save the expense of
further mailings and telephone solicitations.
By Order of the Board of Directors
/s/ David R. Schroder
---------------------
David R. Schroder,
Secretary
Cedar Rapids, Iowa
January 14, 1998
25
<PAGE> 29
APPENDIX A
PROPOSED CORPORATION INVESTMENT ADVISORY AGREEMENT
A-1
<PAGE> 30
MACC PRIVATE EQUITIES INC.
INVESTMENT ADVISORY AGREEMENT
This INVESTMENT ADVISORY AGREEMENT dated as of [March 1, 1998] (the
"Agreement") by MACC Private Equities Inc., a company organized under the laws
of the State of Delaware ("the Company"), and InvestAmerica Investment Advisors,
Inc., a corporation organized under the laws of the State of Delaware
("InvestAmerica").
WHEREAS, the Company is a closed-end investment company that may be
operated and regulated as a business development company ("Business Development
Company") as defined in the Investment Company Act of 1940, as amended (the
"ICA");
WHEREAS, the Company is in need of certain investment advisory services in
order to carry on its business;
WHEREAS, InvestAmerica is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Definitions.
1.1 "Affiliate" shall have the meaning given under Rule 144 of the
Securities Act of 1933, as amended.
1.2 "Assets Under Management" shall mean the total value of the Company's
assets managed by InvestAmerica under this Agreement averaged over the prior one
year period.
1.3 "Capital Losses" are those which are placed, consistent with generally
accepted accounting principles, on the books of the Company and which occur
when:
(a) An actual or realized loss is sustained owing to Portfolio Company
or investment events including, but not limited to, liquidation, sale or
bankruptcy;
(b) The Board of Directors of the Company determines that a loss or
depreciation in value from the value on the date of this Agreement should
be taken by the Company in accordance with generally accepted accounting
principles and SBA accounting regulations and is shown on its books as a
part of the periodic valuation of the Portfolio Companies by the Board of
Directors ("Unrealized Depreciation")[; or
(c) Capital Losses are adjusted for reverses of depreciation when the
Board of Directors determines that a value should be adjusted upward and
the investment value remains at or below original cost.]
For purposes of this definition, in any case where the Board of Directors
of the Company writes down the value of any investment in the Company's
portfolio (in accordance with the standards set forth in subsection 1.2(b)
above), (i) such reduction in value shall result in a new cost basis for such
investment and (ii) the most recent cost basis for such investment shall
thereafter be used in the determination of any Realized Capital Gains or Capital
Losses in the Company's portfolio (i.e., there shall be no double-counting of
losses when a security (whose value has declined in a prior period) is
ultimately sold at a price below its historical cost.)
1.4 "The Company" shall mean MACC Private Equities Inc.
1.5 "ICA" has the meaning set forth in the first recital hereof.
1.6 "Iowa Fund" has the meaning set forth in Section 3.2 below.
1.7 "MACC" shall mean MorAmerica Capital Corporation.
1.8 "Net Capital Gains" shall mean Realized Capital Gains net of Capital
Losses determined in accordance with generally accepted accounting principles.
A-2
<PAGE> 31
1.9 "Other Venture Capital Funds" has the meaning set forth in subsection
3.3(c).
1.10 "Portfolio Company" or "Portfolio Companies" shall mean any entity in
which a the Company may make an investment and with respect to which
InvestAmerica will be providing services pursuant hereto, which investments may
include ownership of capital stock, loans, receivables due from a Portfolio
Company or other debtor on sale of assets acquired in liquidation and assets
acquired in liquidation of any Portfolio Company.
1.11 "Realized Capital Gains" shall mean capital gains after deducting the
cost and expenses necessary to achieve the gain (e.g., broker's fees). For
purposes of this Agreement, capital gains are Realized Capital Gains upon the
cash sale of the capital stock [or assets] of a Portfolio Company or any other
asset or item of property managed by InvestAmerica pursuant to the terms hereof
[or any Realized Capital Gain has occurred in accordance with GAAP which is not
cash as described in the following sentence. Realized Capital Gains other than
cash gains, shall be recorded and calculated in the period the gain is realized;
however in determining payment of any incentive fee, the payment shall be made
when the cash is received. The amount of the fee earned on gains other than cash
shall be recorded as incentive fees payable on the financial statements of the
Company.]
1.12 "SBA" shall mean the United States Small Business Administration.
1.13 "SEC" shall mean the United States Securities and Exchange Commission.
Section 2. Investment Advisory Engagement. The Company hereby engages
InvestAmerica as its investment advisor.
2.1 As such, InvestAmerica will:
(a) Manage, render advice with respect to, and make decisions
regarding the acquisition and disposition of securities in accordance with
applicable law and the Company's investment policies as set forth in
writing by the Board of Directors, to include (without limitation) the
search and marketing for investment leads, screening and research of
investment opportunities, maintenance and expansion of a co-investor
network, review of appropriate investment legal documentation,
presentations of investments to the Company's Board of Directors (when and
as required) closing of investments, monitoring and management of
investments and exits, preparation of valuations, management of
relationships with the SEC, shareholders, outside auditors and the
provision of other services appropriate to the management of a business
development company;
(b) Make available and, if requested by Portfolio Companies or
entities in which the Company is proposing to invest, render managerial
assistance to, and exercise management rights in, such Portfolio Companies
and entities as appropriate to maximize return for the Company and to
comply with regulations;
(c) Maintain office space and facilities to the extent required by
InvestAmerica to provide adequate management services to the Company;
(d) Maintain the books of account and other records and files for the
Company but not to include auditing services; and
(e) Report to the Company's Board of Directors, or to any committee or
officers acting pursuant to the authority of the Board, at such reasonable
times and in such reasonable detail as the Board deems appropriate in order
to enable the Company to determine that investment policies are being
observed and implemented and that InvestAmerica's obligations hereunder are
being fulfilled. Any investment program undertaken by InvestAmerica
pursuant hereto and any other activities undertaken by InvestAmerica on
behalf of the Company shall at all times be subject to applicable law and
any directives of the Company's Board of Directors or any duly constituted
committee or officer acting pursuant to the authority of the Company's
Board of Directors.
2.2 InvestAmerica will be responsible for the following expenses: its staff
salaries and fringes, office space, office equipment and furniture,
communications, travel, meals and entertainment, conventions,
A-3
<PAGE> 32
seminars, office supplies, dues and subscriptions, hiring fees, moving expenses,
repair and maintenance, employment taxes, in-house accounting expenses and minor
miscellaneous expenses.
InvestAmerica will pay for its own account all expenses incurred in
rendering the services to be rendered hereunder. Without limiting the generality
of the foregoing, InvestAmerica will pay the salaries and other employee
benefits of the persons in its organization whom it may engage to render such
services, including without limitation, persons in its organization who may from
time to time act as officers of the Company.
Notwithstanding the foregoing, InvestAmerica will earn incentive
compensation on a quarterly basis, which shall not be deemed part of
compensation or other employee benefits for the purpose of this paragraph.
2.3 In connection with the services provided, InvestAmerica will not be
responsible for the following expenses which shall be the sole responsibility of
the Company and will be paid promptly by the Company: auditing fees; all legal
expenses; legal fees normally paid by Portfolio Companies; National Association
of Small Business Investment Companies and other appropriate trade association
fees; brochures, advertising, marketing and publicity costs; interest on SBA or
other debt; fees to the Company and its directors and Board fees; any fees owed
or paid to the Company its Affiliates or fund managers; any and all expenses
associated with property of a Portfolio Company taken or received by the Company
or on its behalf as a result of its investment in any Portfolio Company; all
reorganization and registration expenses of the Company; the fees and
disbursements of the Company's counsel, accountants, custodian, transfer agent
and registrar; fees and expenses incurred in producing and effecting filings
with federal and state securities administrators; costs of periodic reports to
and other. Communications with the Company's shareholders; fees and expenses of
members of the Company's Boards of Directors who are not InvestAmerica's
directors, officers or employees or of any entity which is an Affiliate of
InvestAmerica; premiums for the fidelity bond, if any, maintained by
InvestAmerica pursuant to ICA Section 17; premiums for directors and officers
insurance maintained by the Company; and all transaction costs incident to the
acquisition, management and protection of and disposition of securities by the
Company.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of InvestAmerica to the Company are not exclusive.
InvestAmerica and its Affiliates, may in their discretion, manage other venture
capital funds and render the same or similar services to any other person or
persons who may be making the same or similar investments. The parties
acknowledge that InvestAmerica may offer the same investment opportunities as
may be offered to the Company to other persons for whom InvestAmerica is
providing services. Neither InvestAmerica nor any of its Affiliates shall in any
manner be liable to the Company or its Affiliates by reason of the activities of
InvestAmerica or its Affiliates on behalf of other persons and funds as
described in this paragraph and any conflict of interest arising therefrom is
hereby expressly waived.
3.2 InvestAmerica Venture Group, Inc. ("Venture Group") has managed MACC in
the past. Venture Group is also currently the General Partner of InvestAmerica
Venture Group L.P. which in turn is the General Partner of the Iowa Venture
Capital Fund L.P. (the "Iowa Fund"). Because of these relationships, Venture
Group manages the affairs of the Iowa Fund.
3.3 For the benefit of the Company's investment activities, InvestAmerica
and its Affiliates intend to maintain various future co-investment relationships
involving the Company which will include the following co-investments
opportunities for as long as InvestAmerica is an investment adviser to the
Company:
(a) The Company will continue to review and to invest in its current
coinvestments with the Iowa Fund.
(b) The Company will be accorded the opportunity to invest in all
investment opportunities found by the Iowa Fund or any future successor or
continuation fund of the Iowa Fund.
(c) In the future, the Company will be accorded the opportunity to
review and to invest in all investments found by other venture capital
funds managed by InvestAmerica and its Affiliates (collectively, the "Other
Venture Capital Funds").
A-4
<PAGE> 33
For purposes of this Section 3.3, where the Company has an opportunity to
coinvest with the Iowa Fund or Other Venture Capital Funds, investment
opportunities shall be offered to the Company and the Iowa Fund or the Other
Venture Capital Funds, as the case may be, (a) in the same proportion as its
private capital (as defined in the SBA regulations) bears to the total private
capital of the Company and the Iowa Fund or the Other Venture Capital Funds, as
the case maybe, in the aggregate or (b) in such other manner as is otherwise
agreed upon by the Company and the Iowa Fund or the Other Venture Capital Funds,
as the case may be. Notwithstanding this Section 3.3, the terms of any
applicable exemptive order obtained by the Company will control as to the terms
of co-investments with the Iowa Fund and the Other Capital Venture Funds.
3.4 InvestAmerica will cause to be offered to the Company opportunities to
acquire or dispose of securities as provided in the co-investment guidelines
summarized in the section of the Company's SEC Registration Statement entitled
"Investment Objectives and Policies -- Co-Investment Guidelines." Except to the
extent of acquisitions and dispositions that, in accordance with such
co-investment guidelines, require the specific approval of the Company's Board
of Directors, InvestAmerica is authorized to effect acquisitions and
dispositions of securities for the Company's account in InvestAmerica's
discretion. Where such approval is required, InvestAmerica is authorized to
effect acquisitions and dispositions for the Company's account upon and to the
extent of such approval. The Company will put InvestAmerica in funds whenever
InvestAmerica requires funds for an acquisition of securities in accordance with
the foregoing, and the Company will cause to be delivered in accordance with
InvestAmerica's instructions any. securities disposed of in accordance with the
foregoing.
3.5 Should InvestAmerica or any of its Affiliates agree to perform or
undertake any investment management services described in Section 3.1 for any
funds or persons in addition to the Iowa Fund, InvestAmerica will notify the
Company, in writing, not later than the commencement of such agreement or the
initial provision of such services.
3.6 Any such investment management services and all co-investments shall at
all times be provided in strict accordance with rules and regulations under the
ICA, any exemptive order obtained thereunder and the rules and regulations of
the SBA.
Section 4. Services to Portfolio Companies.
4.1 It is acknowledged that as a part of the services to be provided by
InvestAmerica hereunder, certain of its employees, representatives and agents
will act as members of the board of directors of individual Portfolio Companies,
will vote the shares of the capital stock of Portfolio Companies, and make other
decisions which may effect the near-and the long-term direction of a Portfolio
Company. Unless otherwise restricted hereafter by the Company in writing, in
regard to such actions and decisions the Company hereby appoints InvestAmerica
(and such officers, Directors, employees, representatives and agents is it shall
designate) as its proxy, as a result of which InvestAmerica shall have the
authority, in its performance of this Agreement, to make decisions and to take
such actions, without specific authority from the Board of Directors of the
Company, as to all matters which are not hereby restricted.
4.2 All fees, including Director's fees that may be paid by or for the
account of an entity in which the Company has invested or in which the Company
is proposing to invest in connection with an investment transaction in which the
Company participates or provides managerial assistance, will be treated as
commitment fees or management fees and will be received by the Company, pro rata
to its participation in such transaction. InvestAmerica will be allowed to be
reimbursed by Portfolio Companies for all direct expenses associated with due
diligence and management of portfolio investments or investment opportunities
(travel, meals, lodging, etc.).
4.3 InvestAmerica's sole and exclusive compensation for its services to be
rendered hereunder will be in the form of a management fee and a separate
incentive fee as provided in Section 5. Should any officer or director of
InvestAmerica serve as a member of the Board of Directors of the Company, such
officer or director of InvestAmerica shall not receive compensation as a member
of the Board of Directors of the Company.
A-5
<PAGE> 34
Section 5. Management and Incentive Fees.
5.1 Subject to the limitations set forth in Section 5.3 below, during the
term of this Agreement, the Company will pay InvestAmerica monthly in arrears a
management fee equal to 2.5% per annum of the Assets Under Management. The
Management fee shall be calculated on a non-consolidated basis, excluding MACC.
5.2 Subject to the limitations set forth in Section 5.3 below, during the
term of this Agreement the Company shall pay to InvestAmerica an incentive fee
determined as specified in this Section 5.2. The incentive fee shall be
calculated on a nonconsolidated basis, excluding MACC.
(a) The incentive fee shall be calculated as follows:
(i) The amount of the fee shall be 13.4% of the Net Capital Gains,
before taxes, resulting from the disposition of investments in the
Company's Portfolio Companies or resulting from the disposition of other
assets or property of the Company managed by InvestAmerica pursuant to
the terms hereof.
(ii) Net Capital Gains, before taxes, shall be calculated annually
at the end of each fiscal year for the purpose of determining the earned
incentive fee, unless this Agreement is terminated prior to the
completion of any fiscal year, then such calculation shall be made at
the end of such shorter period. A preliminary calculation shall be made
on the last business day of each of the three fiscal quarters preceding
the end of each fiscal year for the purpose of determining the incentive
fee payable under Section 5.21(c)(i) below. Capital Losses and Realized
Capital Gains shall not be cumulative (i.e., no Capital Losses nor
Realized Capital Gains are carried forward into any subsequent fiscal
year).
(iii) Notwithstanding anything herein to the contrary, the
incentive fee shall not be computed on any assets received by the Company
from the Company's predecessors by merger, MorAmerica Financial Corporation
and Morris Plan Liquidation Company, and such assets shall not be included
in any calculation of Net Capital Gains.
(b) Upon termination of this Agreement, all earned but unpaid
incentive fees shall be immediately due and payable.
(c) Payment of incentive fees shall be made as follows:
(i) To the extent payable, incentive fees shall be paid, in cash,
in arrears on the last business day of each fiscal quarter in the fiscal
year.
(ii) The incentive fee shall be retroactively adjusted as soon as
practicable following completion of the valuations at the end of each
fiscal year in which this Agreement is in effect to reflect the actual
incentive fee due and owing to InvestAmerica, and if such adjustment
reveals that InvestAmerica has received more incentive fee income than it
is entitled to hereunder, InvestAmerica shall promptly reimburse the
Company for the amount of the excess.
Section 6. Liability and Indemnification of InvestAmerica.
6.1 Neither InvestAmerica, nor any of its officers, directors,
shareholders, employees, agents or Affiliates, whether past, present or future
(collectively, the "Indemnified Parties"), shall be liable to the Company, or
any of its Affiliates for any error in judgment or mistake of law made by the
Indemnified Parties in connection with any investment made by or for the
Company, provided such error or mistake was made in good faith and was not made
in bad faith or as a result of gross negligence or willful misconduct of the
Indemnified Parties. The Company confirms that in performing services hereunder
InvestAmerica will be an agent of the Company for the purpose of the
indemnification provisions of the Bylaws of the Company subject, however, to the
same limitations as though InvestAmerica were a director or officer of the
Company. InvestAmerica shall not be liable to the Company, its shareholders or
its creditors, except for violations of law or for conduct which would preclude
InvestAmerica from being indemnified under such provisions. The provisions of
this Section 6.1 shall be applicable to any act or omission or occurrence
arising under the Management Agreement between the Company and InvestAmerica's
Affiliate, InvestAmerica Venture Group, Inc., dated as of May 13, 1985 and
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all amendments and renewals thereto. In the addition, the provisions of this
Section 6.1 shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of InvestAmerica and are also officers
or directors of the Company as well as other InvestAmerica officers performing
duties within the scope of this Agreement on behalf of the Companies will be
covered by any directors and officers insurance policy maintained by the
Company.
Section 7. Shareholder Approval; Term.
The Company represents that this Agreement has been approved by the
Company's Board of Directors. This Agreement shall continue in effect for two
years from the date hereof[; provided, however, that this Agreement shall not
take effect if as of the date hereof, the shareholders of the Company shall not
have approved this Agreement in the manner set forth in Section 15(a) of the
ICA.] Thereafter, this Agreement shall continue in effect so long as such
continuance is specifically approved at least annually by Board of Directors,
including a majority of its members who are not interested persons of
InvestAmerica, or by vote of the holders of a majority, as defined in the ICA,
of the Company's outstanding voting securities. The foregoing notwithstanding,
this Agreement may be terminated by the Company at any time, without payment of
any penalty, on 60 days' written notice to InvestAmerica if the decision to
terminate has been made by the Board of Directors or by vote of the holders of a
majority, as defined in the ICA, of the Company's outstanding voting securities.
InvestAmerica may also terminate this Agreement on 60 days' written notice to
the Company; provided, however, that InvestAmerica may not so terminate this
Agreement unless another investment advisory agreement has been approved by the
vote of a majority, as defined in the ICA, of the Company's outstanding shares
and by the Board of Directors, including a majority of members who are not
parties to such agreement or interested persons of any such party. Upon receipt
of any such notice from InvestAmerica, the Company will in good faith use its
best efforts to cause an advisory agreement to be entered into by the Company
with a suitable investment adviser.
Section 8. Assignment.
This Agreement may not be assigned by any party without the written consent
of the other and any assignment, as defined in the ICA, by InvestAmerica shall
automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing executed by
all parties.
Section 10. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Iowa.
[Section 11. Termination of Prior Agreement
If as of the date hereof, this Agreement shall have been approved by the
shareholders of the Company as set forth in Section 7 hereof, then as of the
date hereof, the MACC Private Equities Inc. Investment Advisory Agreement, dated
as of October 1, 1994, between the Company and InvestAmerica, as previously
amended, shall be terminated and shall be of no further force and effect.]
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<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement [to be
effective] as of the date first above written.
MACC PRIVATE EQUITIES INC.
By /s/ DAVID R. SCHRODER
----------------------------------
Title: President
INVESTAMERICA INVESTMENT
ADVISORS, INC.
By /s/ ROBERT A. COMEY
----------------------------------
Title: Executive Vice President
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<PAGE> 37
APPENDIX B
PROPOSED MORAMERICA CAPITAL INVESTMENT ADVISORY AGREEMENT
B-1
<PAGE> 38
MORAMERICA CAPITAL CORPORATION
INVESTMENT ADVISORY AGREEMENT
This INVESTMENT ADVISORY AGREEMENT dated as of [March 1, 1998] (the
"Agreement") by MorAmerica Capital Corporation, a corporation organized under
the laws of the State of Iowa ("MACC"), and InvestAmerica Investment Advisors,
Inc., a corporation organized under the laws of the State of Delaware
("InvestAmerica").
WHEREAS, MACC is licensed as a small business investment company ("SBIC")
under the Small Business Investment Act of 1958, as amended, and operates as a
business development company under the Investment Company Act of 1940, as
amended (the "ICA"); and
WHEREAS, MACC is in need of certain investment advisory services in order
to carry on its business;
WHEREAS, InvestAmerica is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Definitions.
1.1 "Affiliate" shall have the meaning given under Rule 144 of the
Securities Act of 1933, as amended.
1.2 "Assets Under Management" shall mean the total value of MACC's assets
Managed by Invest America under this Agreement.
1.3 "Capital Losses" are those which are placed, consistent with generally
accepted accounting principles, on the books of MACC and which occur when:
(a) An actual or realized loss is sustained owing to Portfolio Company
or investment events including, but not limited to, liquidation, sale or
bankruptcy;
(b) The Board of Directors of MACC determines that a loss or
depreciation in value from the value on the date of this Agreement should
be taken by MACC in accordance with generally accepted accounting
principles and SBA accounting regulations and is shown on its books as a
part of the periodic valuation of the Portfolio Companies by the Board of
Directors[; or
(c) Capital Losses are adjusted for reverses of depreciation when the
Board of Directors determines that a value should be adjusted upward and
the investment value remains at or below original cost.]
For purposes of this definition, in any case where the Board of Directors
of MACC writes down the value of any investment in MACC's portfolio (in
accordance with the standards set forth in subsection 1.2(b) above), (i) such
reduction in value shall result in a new cost basis for such investment and (ii)
the most recent cost basis of such investment shall thereafter be used in the
determination of any Realized Capital Gains or Capital Losses in MACC's
portfolio (i.e., there shall be no double-counting of losses when a security
(whose value has declined in a prior period) is ultimately sold at a price below
its historical cost).
1.4 "Capital Under Management" shall mean [MACCs] (i) fiscal year end
Private Capital as defined in the SBA regulations as of the date hereof (which
regulations define Private Capital to exclude unrealized capital gains and
losses) ("Private Capital")[; plus (ii)] fiscal year end SBA leverage as defined
by SBA regulations as of the date hereof, including participating securities as
defined in Section 303(g) of the Small Business Investment Act of 1958, as
amended[; plus (iii) fiscal year end Undistributed Realized Earnings.]
1.5 "ICA" has the meaning set forth in the first recital hereof.
1.6 "Iowa Fund" has the meaning set forth in Section 3.2 below.
1.7 "MACC" shall mean MorAmerica Capital Corporation.
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<PAGE> 39
1.8 "Net Capital Gains" shall mean Realized Capital Gains net of Capital
Losses determined in accordance with generally accepted accounting principles.
1.9 "Other Venture Capital Funds" has the meaning set forth in subsection
3.3(c).
1.10 "Portfolio Company" or "Portfolio Companies" shall mean any entity in
which MACC may make an investment and with respect to which InvestAmerica will
be providing services pursuant hereto, which investments may include ownership
of capital stock, loans, receivables due from a Portfolio Company or other
debtor on sale of assets acquired in liquidation and assets acquired in
liquidation of any Portfolio Company.
1.11 "Private Capital" has the meaning set forth in the definition of
Capital Under Management in Section 1.4 above.
1.12 "Realized Capital Gains" shall mean capital gains after deducting the
cost and expenses necessary to achieve the gain (e.g., broker's fees). For
purposes of this Agreement:
(a) Capital gains are Realized Capital Gains upon the cash sale of the
capital stock [or assets] of a Portfolio Company or any other asset or item
of property managed by InvestAmerica pursuant to the terms hereof [or any
Realized Capital Gain has occurred in accordance with GAAP which is not
cash as described in Subsection 1.12(c) below;]
(b) With regard to all assets owned by MACC prior to the mergers of
MorAmerica Financial Corporation and Morris Plan Liquidation Company into
the Company, the historical cost of such assets shall be the basis for
determining any Realized Capital Gains on the disposition thereof[; and
(c) Realized Capital Gains other than cash gains shall be recorded and
calculated in the period the gain is realized; however, in determining
payment of any incentive fee, the payment shall be made when the cash is
received. The amount of the fee earned on gains other than cash shall be
recorded as incentive fees payable on the financial statements of MACC.]
1.13 "SBA" shall mean the United States Small Business Administration, or
any successor thereto, which has regulatory authority over SBICs.
1.14 "SBIC" has the meaning set forth in the first recital hereof.
1.15 "SEC" shall mean the United States Securities and Exchange Commission.
1.16 "The Company" shall mean MACC Private Equities Inc. and "the
Companies" shall mean MACC Private Equities Inc. and MACC.
1.17 "Venture Group" has the meaning set forth in Section 3.2 below.
Section 2. Investment Advisory Engagement. MACC hereby engages
InvestAmerica as its investment advisor.
2.1 As such, InvestAmerica will:
(a) Manage, render advice with respect to, and make decisions
regarding the acquisition and disposition of securities in accordance with
applicable law and MACC's investment policies as set forth in writing by
the Board of Directors, to include (without limitation) the search and
marketing for investment leads, screening and research of investment
opportunities, maintenance and expansion of a co-investor network, review
of appropriate investment legal documentation, presentations of investments
to MACC's Board of Directors (when and as required), closing of
investments, monitoring and management of investments and exits,
preparation of valuations, management of relationships with the SEC,
shareholders, the SBA and its auditors and outside auditors and the
provision of other services appropriate to the management of an SBIC
operating as a business development company;
(b) Make available and, if requested by Portfolio Companies or
entities in which MACC is proposing to invest, render managerial assistance
to, and exercise management rights in, such Portfolio Companies and
entities as appropriate to maximize return for MACC and to comply with
regulations;
B-3
<PAGE> 40
(c) Maintain office space and facilities to the extent required by
InvestAmerica to provide adequate management services to MACC;
(d) Maintain the books of account and other records and files for MACC
but not to include auditing services; and
(e) Report to MACC's Board of Directors, or to any committee or
officers acting pursuant to the authority of the Board, at such reasonable
times and in such reasonable detail as the Board deems appropriate in order
to enable MACC to determine that investment policies are being observed and
implemented and that InvestAmerica's obligations hereunder are being
fulfilled. Any investment program undertaken by InvestAmerica pursuant
hereto and any other activities undertaken by InvestAmerica on behalf of
MACC shall at all times be subject to applicable law and any directives of
MACC's Board of Directors or any duly constituted committee or officer
acting pursuant to the authority of MACC's Board of Directors.
2.2 InvestAmerica will be responsible for the following expenses: its staff
salaries and fringes, office space, office equipment and furniture,
communications, travel, meals and entertainment, conventions, seminars, office
supplies, dues and subscriptions, hiring fees, moving expenses, repair and
maintenance, employment taxes, in-house accounting expenses and minor
miscellaneous expenses.
InvestAmerica will pay for its own account all expenses incurred in
rendering the services to be rendered hereunder. Without limiting the generality
of the foregoing, InvestAmerica will pay the salaries and other employee
benefits of the persons in its organization whom it may engage to render such
services, including without limitation, persons in its organization who may from
time to time act as officers of MACC.
Notwithstanding the foregoing, InvestAmerica will earn incentive
compensation on a quarterly basis, which shall not be deemed part of
compensation or other employee benefits for the purpose of this paragraph.
2.3 In connection with the services provided, InvestAmerica will not be
responsible for the following expenses which shall be the sole responsibility of
MACC and will be paid promptly by MACC: auditing fees; all legal expenses; legal
fees normally paid by Portfolio Companies; National Association of Small
Business Investment Companies and other appropriate trade association fees;
brochures, advertising, marketing and publicity costs; interest on SBA or other
debt; fees to MACC directors and board fees; any fees owed or paid to MACC, its
Affiliates or fund managers; any and all expenses associated with property of a
Portfolio Company taken or received by MACC or on its behalf as a result of its
investment in any Portfolio company; all reorganization and registration
expenses of MACC; the fees and disbursements of MACC's counsel, accountants,
custodian, transfer agent and registrar; fees and expenses incurred in producing
and effecting filings with federal and state securities administrators; costs of
periodic reports to and other communications with the Company's shareholders;
fees and expenses of members of MACC's Boards of Directors who are not
InvestAmerica's directors, officers or employees or of any entity which is an
Affiliate of InvestAmerica; premiums for the fidelity bond, if any, maintained
by InvestAmerica pursuant to ICA Section 17; premiums for directors and officers
insurance maintained by MACC; and all transaction costs incident to the
acquisition, management, protection and disposition of securities by MACC.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of InvestAmerica to MACC are not exclusive.
InvestAmerica and its Affiliates may, in their discretion, manage other venture
capital funds and render the same or similar services to any other person or
persons who may be making the same or similar investments. The parties
acknowledge that InvestAmerica may offer the same investment opportunities as
may be offered to MACC to other persons for whom InvestAmerica is providing
services. Neither InvestAmerica nor any of its Affiliates shall in any manner be
liable to MACC or its Affiliates by reason of the activities of InvestAmerica or
its Affiliates on behalf of other persons and funds as described in this
paragraph and any conflict of interest arising therefrom is hereby expressly
waived.
3.2 InvestAmerica Venture Group, Inc. ("Venture Group") has managed MACC in
the past. Venture Group is also currently the General Partner of InvestAmerica
Venture Group L.P. which in turn is the
B-4
<PAGE> 41
General Partner of the Iowa Venture Capital Fund L.P. (the "Iowa Fund"). Because
of these relationships, Venture Group manages the affairs of the Iowa Fund.
3.3 For the benefit of MACC's investment activities, InvestAmerica and its
Affiliates intend to maintain various future co-investment relationships
involving the Company which will include the following co-investments
opportunities for as long as InvestAmerica is an investment adviser to MACC:
(a) MACC will continue to review and to invest in its current
coinvestments with the Iowa Fund.
(b) MACC will be accorded the opportunity to invest in all investment
opportunities found by the Iowa Fund or any future successor or
continuation fund of the Iowa Fund.
(c) In the future, MACC will be accorded the opportunity to review and
to invest in all investments found by other venture capital funds managed
by InvestAmerica and its Affiliates (collectively, the "Other Venture
Capital Funds").
For purposes of this Section 3.3, where the Companies have an opportunity
to co-invest with the Iowa Fund or Other Venture Capital Funds, investment
opportunities shall be offered to the Companies and the Iowa Fund or the Other
Venture Capital Funds, as the case may be, (a) in the same proportion as its
Private Capital bears to the total Private Capital of the Companies and the Iowa
Fund or the Other Venture Capital Funds, as the case may be, in the aggregate,
or (b) in such other manner as is otherwise agreed upon by the Companies and the
Iowa Fund or the Other Venture Capital Funds, as the case may be.
Notwithstanding this Section 3.3, the terms of any applicable exemptive order
obtained by the Companies will control as to the terms of co-investments with
the Iowa Fund and the Other Capital Venture Funds.
3.4 InvestAmerica will cause to be offered to MACC opportunities to acquire
or dispose of securities as provided in the co-investment guidelines summarized
in the section of the Company's SEC Registration Statement entitled "Investment
Objectives and Policies -- Co-Investment Guidelines." Except to the extent of
acquisitions and dispositions that, in accordance with such co-investment
guidelines, require the specific approval of MACC's Board of Directors,
InvestAmerica is authorized to effect acquisitions and dispositions of
securities for MACC's account in InvestAmerica's discretion. Where such approval
is required, InvestAmerica is authorized to effect acquisitions and dispositions
for MACC's account upon and to the extent of such approval. MACC will put
InvestAmerica in funds whenever InvestAmerica requires funds for an acquisition
of securities in accordance with the foregoing, and MACC will cause to be
delivered in accordance with InvestAmerica's instructions any securities
disposed of in accordance with the foregoing.
3.5 Should InvestAmerica or any of its Affiliates agree to perform or
undertake any investment management services described in paragraph 3.1 for any
funds or persons in addition to the Iowa Fund, InvestAmerica will notify MACC,
in writing, not later than the commencement of such agreement or the initial
provision of such services.
3.6 Any such investment management services and all co-investments shall at
all times be provided in strict accordance with rules and regulations under the
ICA, any exemptive order obtained thereunder and the rules and regulations of
the SBA.
Section 4. Services to Portfolio Companies.
4.1 It is acknowledged that as a part of the services to be provided by
InvestAmerica hereunder, certain of its employees, representatives and agents
will act as members of the board of directors of individual Portfolio Companies,
will vote the shares of the capital stock of Portfolio Companies, and make other
decisions which may effect the near- and the long-term direction of a Portfolio
Company. Unless otherwise restricted hereafter by MACC in writing, in regard to
such actions and decisions MACC hereby appoints InvestAmerica (and such
officers, Directors, employees, representatives and agents is it shall
designate) as its proxy, as a result of which InvestAmerica shall have the
authority, in its performance of this Agreement, to make decisions and to take,
without specific authority from the Board of Directors of MACC, as to all
matters which are not hereby restricted.
B-5
<PAGE> 42
4.2 All fees, including director's fees that may be paid by or for the
account of an entity in which MACC has invested or in which MACC is proposing to
invest in connection with an investment transaction in which MACC participates
or provides managerial assistance, will be treated as commitment fees or
management fees and will be received by MACC, pro rata to its participation in
such transaction. InvestAmerica will be allowed to be reimbursed by Portfolio
Companies for all direct expenses associated with due diligence and management
of portfolio investments or investment opportunities (travel, meals, lodging,
etc.).
4.3 InvestAmerica's sole and exclusive compensation for its services to be
rendered hereunder will be in the form of a management fee and a separate
incentive fee as provided in Section 5. Should any officer or director of
InvestAmerica serve as a member of the Board of Directors of MACC, such officer
or director of InvestAmerica shall not receive compensation as a member of the
Board of Directors of MACC.
Section 5. Management and Incentive Fees.
5.1 Subject to the limitations set forth in Section 5.3 below, during the
term of this Agreement, MACC will pay InvestAmerica monthly in arrears a
management fee equal to 2.5% per annum of the Capital Under Management, but in
no event more than 2.5% per annum of the Assets Under Management.
5.2 Subject to the limitations set forth in Section 5.3 below, during the
term of this Agreement MACC shall pay to InvestAmerica an incentive fee
determined as specified in this Section 5.2.
(a) The incentive fee shall be calculated as follows:
(i) The amount of the fee shall be 13.4% of the Net Capital Gains,
before taxes, resulting from the disposition of investments in MACC's
Portfolio Companies or resulting from the disposition of other assets or
property of MACC managed by InvestAmerica pursuant to the terms hereof.
(ii) Net Capital Gains, before taxes, shall be calculated annually
at the end of each fiscal year for the purpose of determining the earned
incentive fee, unless this Agreement is terminated prior to the
completion of any fiscal year, then such calculation shall be made at
the end of such shorter period. A preliminary calculation shall be made
on the last business day of each of the three fiscal quarters preceding
the end of each fiscal year for the purpose of determining the incentive
fee payable under Section 5.2(c)(i) below. Capital Losses and Realized
Capital Gains shall not be cumulative (i.e., no Capital Losses nor
Realized Capital Gains are carried forward into any subsequent fiscal
year).
(iii) Notwithstanding anything herein to the contrary, the assets
on which the incentive fee shall be calculated shall include all assets
owned by MACC prior to the time of the mergers of MorAmerica Financial
Corporation and Morris Plan Liquidation Company into the Company.
(b) Upon termination of this Agreement, all earned but unpaid
incentive fees shall be immediately due and payable.
(c) Payment of incentive fees shall be made as follows:
(i) To the extent payable, the incentive fee shall be paid, in
cash, in arrears by the last business day of each fiscal quarter in the
fiscal year. The incentive fee shall be retroactively adjusted as soon
as practicable following completion of valuations at the end of each
fiscal year in which this Agreement is in effect to reflect the actual
incentive fee due and owing to InvestAmerica, and if such adjustment
reveals that InvestAmerica has received more incentive fee income than
it is entitled to hereunder, InvestAmerica shall promptly reimburse MACC
for the amount of such excess.
(ii) In the event MACC earns any incentive fees, the payment of
which would cause MACC's Private Capital to be 25% or more impaired, the
portion of such fees which causes the impairment shall be paid by MACC
into a trust or escrow account established by MACC for the benefit of
InvestAmerica. Fees from such account shall be released to InvestAmerica
at such time as, and to the extent that, MACC's Private Capital is no
longer so impaired.
B-6
<PAGE> 43
Section 6. Liability and Indemnification of InvestAmerica.
6.1 Neither InvestAmerica, nor any of its officers, directors,
shareholders, employees, agents or Affiliates, whether past, present or future
(collectively, the "Indemnified Parties"), shall be liable to MACC, or any of
MACC's Affiliates for any error in judgment or mistake of law made by the
Indemnified Parties in connection with any investment made by or for MACC,
provided such error or mistake was made in good faith and was not made in bad
faith or as a result of gross negligence or willful misconduct of the
Indemnified Parties. MACC confirms that in performing services hereunder
InvestAmerica will be an agent of MACC for the purpose of the indemnification
provisions of the Bylaws of MACC subject, however, to the same limitations as
though InvestAmerica were a director or officer of MACC. InvestAmerica shall not
be liable to MACC, its shareholders or its creditors, except for violations of
law or for conduct which would preclude InvestAmerica from being indemnified
under such provisions. The provisions of this Section 6.1 shall be applicable to
any act or omission or occurrence arising under the Management Agreement between
MACC and InvestAmerica's Affiliate, InvestAmerica Venture Group, Inc., dated as
of May 13, 1985 and all amendments and renewals thereto. In addition, the
provisions of this Section 6.1 shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of InvestAmerica and are also officers
or directors of MACC as well as other InvestAmerica officers performing duties
within the scope of this Agreement on behalf of MACC will be covered by any
directors and officers insurance policy maintained by MACC.
Section 7. Shareholder Approval; Term.
MACC represents that this Agreement has been approved by MACC's Board of
Directors. This Agreement shall continue in effect for two years from the date
hereof[; provided, however, that this Agreement shall not take effect if as of
the date hereof the shareholders of MACC Private Equities Inc. and the sole
shareholder of MACC shall not have approved this Agreement in the manner set
forth in Section 15(a) of the ICA.] Thereafter, this Agreement shall continue in
effect so long as such continuance is specifically approved at least annually by
MACC's Board of Directors, including a majority of its members who are not
interested persons of InvestAmerica, or by vote of the holders of a majority, as
defined in the ICA, of MACC's outstanding voting securities. The foregoing
notwithstanding, this Agreement may be terminated by MACC at any time, without
payment of any penalty, on 60 days' written notice to InvestAmerica if the
decision to terminate has been made by the Board of Directors or by vote of the
holders of a majority, as defined in the ICA, of MACC's outstanding voting
securities. InvestAmerica may also terminate this Agreement on 60 days' written
notice to MACC; provided, however, that InvestAmerica may not so terminate this
Agreement unless another investment advisory agreement has been approved by the
vote of a majority, as defined in the ICA, of MACC's outstanding shares and by
the Board of Directors, including a majority of members who are not parties to
such agreement or interested persons of any such party.
Section 8. Assignment.
This Agreement may not be assigned by any party without the written consent
of the other and any assignment, as defined in the ICA, by InvestAmerica shall
automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing executed by
all parties.
Section 10. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Iowa.
Section 11. Termination of Prior Agreement.
[If as of the date hereof, this] Agreement [shall have been approved by the
Shareholders of MACC Private Equities, Inc. and the sole shareholder of MACC, as
set forth in Section 7 hereof, then as of the date hereof, the MorAmerica
Capital Corporation Investment Advisory Agreement] dated as of [October 1, 1994,
between MACC and InvestAmerica, as previously amended, shall be] terminated and
shall be of no further force and effect.
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<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have executed this Agreement [to be
effective] as of the date first above written,
MORAMERICA CAPITAL CORPORATION
By /s/ DAVID R. SCHRODER
-----------------------------------
Title: President
INVESTAMERICA INVESTMENT
ADVISORS, INC.
By /s/ ROBERT A. COMEY
-----------------------------------
Title: Executive Vice President
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<PAGE> 45
MACC PRIVATE EQUITIES INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 24, 1998
The undersigned hereby appoints Paul M. Bass, Jr., David R. Schroder and
Robert A. Comey and each of them, with full power of substitution, and hereby
authorizes them to represent the undersigned and to vote all of the shares of
Common Stock in MACC PRIVATE EQUITIES INC. (the "Corporation") held of record
by the undersigned on December 31, 1997, at the Annual Meeting of Stockholders
of the Company to be held on February 24, 1998 and any adjournment(s) thereof.
This proxy when properly executed will be voted as directed by the undersigned
stockholder. If directions are not indicated, the proxy will be voted to elect
the nominees described in item 1 and for items 2, 3 and 4.
(continued, and to be signed on reverse side)
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
<TABLE>
<S><C>
Please mark
your votes as
indicated in [X]
this example
1. To elect two directors to serve 2. To ratify the appointment of
until the 2001 Annual Meeting of KPMG Peat Marwick LLP as independent
Shareholders or until their auditors;
respective successors shall
be elected and qualified;
FOR WITHHOLD NOMINEES: Michael W. Dunn, James L. Miller
all authority for
Nominees All Nominees (INSTRUCTION: To withhold authority to vote FOR AGAINST ABSTAIN
for any individual nominee, write that
[ ] [ ] nominee's name on the space provided below) [ ] [ ] [ ]
-------------------------------------------
3. To approve for a one-year 4. To approve certain proposed amendments to 5. To transact such other business
period the policy and practice the investment Advisory Agreements of the as may properly come before the
of the Corporation of issuing Corporation and MostAmerica Capital, and meeting and any adjournment thereof.
up to 300,000 shares of Common
Stock of the Corporation at not
less than 90% of net asset value
per share;
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
I PLAN TO
ATTEND
MEETING
[ ]
</TABLE>
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Signature Date
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Signature Date
Please sign your name exactly as it appears hereon. If signing for estates,
trusts, corporations or partnerships, title or capacity should be stated. If
shares are held jointly, each holder should sign.
Please sign, date and return this proxy using the enclosed envelope.
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