<PAGE>
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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) of Rule 14a-12
UST Private Equity Investors Fund, 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):
[_] No fee required.
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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<PAGE>
[LOGO OF EXCELSIOR FUNDS]
UST PRIVATE EQUITY INVESTORS FUND, INC.
114 West 47th Street
New York, New York 10036-1532
Dear Shareholder:
You are cordially invited to attend the Annual Meeting (the "Meeting") of
Shareholders of UST Private Equity Investors Fund, Inc. (the "Company") to be
held on Tuesday, July 18, 2000 at 10:00 a.m., New York time, at the offices of
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036.
On January 12, 2000, The Charles Schwab Corporation and U.S. Trust
Corporation, the parent corporation of United States Trust Company of New York
and U.S. Trust Company, entered into a definitive merger agreement. Following
the merger, U.S. Trust Corporation will be a wholly-owned subsidiary of The
Charles Schwab Corporation. The merger is anticipated to close by June 2000,
but is subject to a number of conditions, including shareholder approvals. The
merger may be considered an assignment under the Investment Company Act of
1940 of the existing investment advisory agreement by and among the Company,
United States Trust Company of New York and U.S. Trust Company, which would
result in termination of such agreement. Consequently, the Board of Directors
of the Company has called the Meeting to approve a new investment advisory
agreement and other items.
During the preparation of this proxy statement, the Company and the Board of
Directors were advised that the composition of the Board of Directors has not
met one of the regulatory requirements of the Investment Company Act from the
Company's inception. The composition of the Board now satisfies this
requirement. At the Meeting you will also be asked to ratify and approve the
investment advisory fee payments made to the investment adviser during the
period that the composition of the Board did not meet the regulatory
requirement, as well as the Board of Directors' determinations with respect
thereto.
At the Meeting, shareholders of the Company will be asked to vote on the
following matters: (1) election of four directors, (2) approval or disapproval
of a new investment advisory agreement among the Company, United States Trust
Company of New York and U.S. Trust Company, (3) approval and ratification or
disapproval and rejection of the payments previously made to the investment
adviser pursuant to the investment advisory agreement and of the Board of
Directors' determinations with respect thereto and (4) ratification or
rejection of the selection of Ernst & Young LLP as the Company's independent
accountants for the fiscal year ending October 31, 2000.
Whether or not you plan to attend the Meeting, your vote is needed. Whether
or not you plan to attend the Meeting, please complete, sign and return the
enclosed proxy card promptly. A postage-paid envelope is enclosed for this
purpose.
We look forward to seeing you at the Meeting or receiving your proxy so your
shares may be voted at the Meeting.
Sincerely yours,
/s/ David I. Fann
David I. Fann
President and Chief Executive
Officer
Shareholders Are Urged to Sign and Return the Enclosed Proxy
Card in the Enclosed Envelope.
<PAGE>
[LOGO OF EXCELSIOR FUNDS]
UST PRIVATE EQUITY INVESTORS FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 25, 2000
To the Shareholders of UST Private Equity Investors Fund, Inc.:
The Annual Meeting of Shareholders (the "Meeting") of UST Private Equity
Investors Fund, Inc. (the "Company") will be held on Tuesday, July 18, 2000 at
10:00 a.m., New York time, at the offices of United States Trust Company of
New York, 114 West 47th Street, New York, New York 10036.
The Meeting will be held for the following purposes:
(1) to elect each of Mr. Bernstein, Mr. Hover, Mr. Murphy and Mr. Imbimbo
as directors of the Company;
(2) to approve or disapprove a new investment advisory agreement among the
Company, United States Trust Company of New York and U.S. Trust
Company;
(3) to approve and ratify or disapprove and reject the payments previously
made to United States Trust Company of New York and U.S. Trust Company
pursuant to the investment advisory agreement and the Board of
Directors' determinations with respect thereto;
(4) to ratify or reject the selection of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending October 31, 2000;
and
(5) the transaction of such other business as may properly come before the
Meeting or any adjournments thereof.
The proposals referred to above are discussed in the Proxy Statement
attached to this Notice. Each shareholder is invited to attend the Meeting in
person. Shareholders of record at the close of business on April 24, 2000 have
the right to vote at the Meeting. Whether or not you plan to attend the
Meeting, we urge you to fill in, sign and promptly return the enclosed Proxy
in order that the Meeting can be held and a maximum number of shares may be
voted.
By Order of the Board of Directors
of UST Private Equity Investors
Fund, Inc.
Ronald A. Schwartz
Secretary
WE NEED YOUR PROXY VOTE IMMEDIATELY
You may think your vote is not important, but it is vital. By law, the
Annual Meeting of Shareholders of the Company scheduled for July 18, 2000 will
have to be adjourned without conducting any business if less than a majority
of the shares eligible to vote are represented at the Meeting. In that event,
the Company would continue to solicit votes in an attempt to achieve a quorum.
Clearly, your vote could be critical in allowing the Company to hold the
Meeting as scheduled, so please return your proxy immediately.
<PAGE>
UST PRIVATE EQUITY INVESTORS FUND, INC.
114 West 47th Street
New York, New York 10036
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board of Directors" or the "Board") of
UST Private Equity Investors Fund, Inc. (the "Company"). The Annual Meeting of
Shareholders will be held at the offices of United States Trust Company of New
York, 114 West 47th Street, New York, New York 10036 on Tuesday, July 18, 2000
at 10:00 a.m., New York time (the "Meeting"). This Proxy Statement and the
accompanying Proxy are first being mailed to shareholders on or about May 25,
2000.
It is expected that the solicitation of proxies will be primarily by mail.
The Company's officers, investment advisers and administrator may assist in
the solicitation of proxies by telephone, telegraph, facsimile, personal
interview or the Internet. If the Company records proxy votes by telephone or
the Internet, it will use procedures to authenticate shareholders' identities,
to allow shareholders to authorize the voting of their shares in accordance
with their instructions, and to confirm that their instructions have been
properly recorded. United States Trust Company of New York will bear the proxy
solicitation costs and all costs in connection with the Meeting. Any
shareholder giving a proxy may revoke it at any time before it is exercised by
submitting to the Company a written notice of revocation or a subsequently
executed proxy or by attending the Meeting and electing to vote in person.
Proxies given by telephone or the Internet may be revoked at any time before
they are voted in the same manner as proxies given by mail.
The following summarizes the proposals to be voted on at the Meeting.
Proposals
1. To elect each of Mr. Bernstein, Mr. Hover, Mr. Murphy and Mr. Imbimbo as
directors of the Company.
2. To approve or disapprove a new investment advisory agreement among the
Company, United States Trust Company of New York and U.S. Trust Company.
3. To approve and ratify or disapprove and reject the payments previously
made to United States Trust Company of New York and U.S. Trust Company
pursuant to the investment advisory agreement and the Board of
Directors' determinations with respect thereto.
4. To ratify or reject the selection of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending October 31, 2000.
A Proxy is enclosed with respect to the shares you own in the Company. If
the Proxy is executed and returned properly, the shares represented by it will
be voted at the Meeting in accordance with your instructions. Each share is
entitled to one vote.
Shareholders are requested to complete the enclosed Proxy and return it in
the enclosed envelope. No postage is required if mailed in the United States.
The Company will furnish, without charge, copies of the Company's annual
report to shareholders dated January 31, 2000 to any shareholder upon request.
The Company's annual report to shareholders may be obtained from the Company
by writing to the Company at 114 West 47th Street, New York, New York 10036 or
by calling (800) 446-1012 (from overseas, call (617) 557-8280).
The Company's Board of Directors Unanimously Recommends a
Vote in Favor of Each Proposal Described in This Proxy Statement.
Dated: May 25, 2000
- 1 -
<PAGE>
INTRODUCTION
The Company has been organized as a Maryland corporation to engage in the
business of a closed-end management investment company that has elected to be
treated as a business development company under the Investment Company Act of
1940, as amended (the "1940 Act"). This Meeting constitutes an annual meeting
of shareholders that has been called to consider proposals relating to the
matters discussed below.
Proposed Approval of New Advisory Agreement as a Result of the Merger of the
Charles Schwab Corporation and U.S. Trust Corporation
On January 12, 2000, The Charles Schwab Corporation ("Schwab") and U.S.
Trust Corporation entered into a definitive agreement to merge (the "Merger").
Through its principal subsidiary, Charles Schwab & Co., Inc., Schwab is the
nation's fourth largest financial services firm and the nation's largest
electronic brokerage firm, in each case, as measured by customer assets. At
December 31, 1999, Schwab served 6.6 million active accounts with $725 billion
in customer assets through 340 branch offices, four regional customer
telephone service centers and automated telephonic and online channels.
Approximately 30% of Schwab's customer assets and approximately 13% of its
customer accounts are managed by 5,800 independent, fee-based investment
advisors served by Schwab's institutional investor segment. After the Merger,
U.S. Trust Corporation will be a wholly-owned subsidiary of Schwab. The Merger
is anticipated to close by June 2000; however, it is subject to a number of
conditions, including shareholder approvals.
Charles R. Schwab is the founder, Chairman and Co-Chief Executive Officer
and a director and significant shareholder of Schwab. As a result of his
positions and share ownership, Mr. Schwab may be deemed a controlling person
of Schwab and its subsidiaries for purposes of the Securities Exchange Act of
1934, as amended (the "Securities Exchange Act"), and the proxy rules
promulgated thereunder.
United States Trust Company of New York ("U.S. Trust NY") and U.S. Trust
Company ("U.S. Trust Co." and referred to herein together with U.S. Trust NY
as "U.S. Trust" or the "Investment Adviser"), subsidiaries of U.S. Trust
Corporation, intend to continue to serve as the co-investment advisers to the
Company after the Merger. U.S. Trust has advised the Company that it does not
have any plans to materially alter the investment advisory services provided
to the Company as a result of the Merger or to make any change in the key
personnel responsible for overseeing the investment activities of the Company.
The Merger, however, represents a change in ownership of the parent
corporation of U.S. Trust and, as such, may have the effect under the 1940 Act
of terminating the existing Management Agreement, dated December 9, 1994, as
amended and restated December 27, 1999, among the Company and U.S. Trust (the
"Existing Agreement") at the date of the consummation of the Merger.
As a consequence of the Merger, and in order to provide continuity of
investment advisory services, the Board of Directors has proposed for the
approval of the shareholders a new advisory agreement with U.S. Trust to take
effect upon the consummation of the Merger (the "New Agreement"). Except as
described in proposal two below, the terms of the New Agreement are
substantially the same as those of the Existing Agreement. In addition, the
advisory fee rates provided for in the Existing Agreement will remain the same
in the New Agreement.
Proposed Approval and Ratification of the Payments Previously Made to the
Investment Adviser Pursuant to the Investment Advisory Agreement and of the
Board of Directors' Determinations Relating Thereto
Since your initial investment in the Company through the date hereof, U.S.
Trust has been engaged as the investment adviser to the Company pursuant to an
investment advisory agreement as such investment advisory agreement was in
effect on December 9, 1994 and each subsequent renewal, amendment and
restatement thereof. In accordance with the terms of the investment advisory
agreement, U.S. Trust provides valuable services to the Company which include
identifying, selecting and managing investments for the Company. As
compensation for
- 2 -
<PAGE>
these services, the investment advisory agreement provides that U.S. Trust
receives an asset-based management fee and has the right to earn an incentive
fee based on appreciation, if any, in the Company's investment portfolio. The
terms of the investment advisory agreement, including the scope of U.S.
Trust's services to the Company and the compensation payable to U.S. Trust
thereunder, were fully described to shareholders in the Company's initial
prospectus. The Company and U.S. Trust have each operated at all times as
described in the prospectus in all material respects. Recently, it was brought
to the Board's attention that one of the directors who was previously
determined to be a "disinterested director" was an interested person of the
Company and U.S. Trust. Thus, although the 1940 Act required that a majority
of the Board of Directors be directors who are not interested persons of the
Company or U.S. Trust, at the time of the investment advisory agreement's
initial approval and of each annual renewal, a majority of directors were not
such non-interested persons. We refer to such non-interested directors as
"disinterested directors."
As further explained below in proposal three, the Board promptly acted to
resolve uncertainty regarding the foregoing matters. The Board named two
disinterested directors as an independent committee of the Board which, after
a thorough review of relevant matters, and with the advice of separate outside
counsel, determined that it was in the Company's best interest that the
disinterested directors and the full Board ratify and approve the investment
advisory agreement and all payments made thereunder. The Board considered the
independent committee's recommendation and, by unanimous vote, the
disinterested directors and the full Board so approved and ratified the
investment advisory agreement and all payments made thereunder, as recommended
by the independent committee. In addition, based on the independent
committee's determination that: the terms of the investment advisory agreement
were fair and reasonable when made; U.S. Trust has performed in a manner
consistent with the description provided in the prospectus; payments to U.S.
Trust were fair and reasonable; and there was no evidence of overreaching by
any party; the disinterested directors and the full Board, by unanimous vote,
determined to honor and not seek modification of the investment advisory
agreement or reimbursement of payments previously made to U.S. Trust pursuant
to the investment advisory agreement.
The election of directors and the ratification or rejection of Ernst & Young
LLP as the Company's independent accountants for the year ending October 31,
2000 are also on the agenda for the Meeting.
- 3 -
<PAGE>
PROPOSAL 1: ELECTION OF DIRECTORS
The first proposal to be considered at the Meeting is the election of the
directors of the Company.
Section 15(f) of the 1940 Act provides in effect that when a change in
control of an investment adviser to an investment company occurs, the
investment adviser or any of its affiliated persons may receive any amount or
benefit in connection therewith as long as two conditions are satisfied. One
such condition relates to the investment company's board of directors. Section
15(f) provides, in pertinent part, that for a period of three years after the
change in control at least 75% of the members of the investment company's
board of directors may not be "interested persons" (as defined in the 1940
Act) of the investment adviser or its predecessor. Three out of four of the
existing directors are not interested persons of U.S. Trust and will not be
interested persons after the Merger.
At the Meeting, shareholders will be asked to consider the election of four
nominees who will constitute the entire Board of Directors of the Company.
Each director so elected will hold office until his successor is elected and
qualified, or until his term as a director is terminated as provided in the
Company's by-laws. The persons named as proxies in the accompanying Proxy have
been designated by the Board and intend to vote for the nominees named below,
unless otherwise directed. Mr. Bernstein, Mr. Hover, Mr. Imbimbo and Mr.
Murphy are incumbent directors. Mr. Bernstein and Mr. Murphy were appointed as
directors of the Company on December 1, 1994. Mr. Hover was appointed as a
director on December 9, 1998 by the then current directors in order to fill a
vacancy on the Board of Directors. Mr. Imbimbo is a new director. He was
appointed as a director on April 6, 2000 by the then current directors in
order to fill a vacancy on the Board of Directors. The nominees have consented
to serve as directors.
All shares represented by valid Proxies will be voted in the election of
directors for each nominee named below unless authority to vote for all
nominees or a particular nominee is withheld. The four nominees who receive
the highest number of votes cast at the Meeting will be elected as directors.
Cumulative voting is not permitted. Should any nominee withdraw from the
election or otherwise be unable to serve, the named proxies will vote for the
election of such substitute nominee as the Board of Directors may recommend
unless a decision is made to reduce the number of directors. For more
information, see "Voting Information--Quorum." The following table sets forth
certain information about each of the nominees:
<TABLE>
<CAPTION>
Director Principal Occupation During
Name Age Since Past 5 Years and Other Affiliations
- ---- --- -------- -----------------------------------
<S> <C> <C> <C>
John C. Hover, II* 56 December 9, 1998 Mr. Hover retired as Executive Vice
President of the United States Trust
Company of New York in 1998 after 22 years
of service. He was responsible for the
Personal Asset Management and Private
Banking Group, and served as Chairman of
U.S. Trust International. Prior to joining
United States Trust Company of New York he
was a commercial banker with Chemical Bank.
Mr. Hover is a trustee of the University of
Pennsylvania, and is Chairman of the Board
of Overseers of the University's Museum of
Archaeology and Anthropology. He is a
director and Vice President of the Penn
Club of New York. Mr. Hover serves as a
director of Excelsior Private Equity Fund
II, Inc.
Gene M. Bernstein 52 December 1, 1994 Mr. Bernstein has been Chairman of
Northville Industries Corp., a third-
generation privately held petroleum
marketing, distribution, trading, storage
and distribution company since 1994. He was
President of the company from 1989 to 1999
and
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Director Principal Occupation During
Name Age Since Past 5 Years and Other Affiliations
- ---- --- -------- -----------------------------------
<S> <C> <C> <C>
Executive Vice President from 1982 to 1989.
Mr. Bernstein has been a trustee of Alfred
University since 1986, and Chairman of the
Board of Trustees since 1996. Mr. Bernstein
serves as a director of Excelsior Private
Equity Fund II, Inc.
Stephen V. Murphy 54 December 1, 1994 Since 1991, Mr. Murphy has been President
of S.V. Murphy & Co., Inc., an investment
banking firm which specializes in mergers
and acquisitions, divestitures and
strategic and capital-related advisory
services for financial and other
institutions. From 1988 until 1990, he was
Managing Director of Merrill Lynch Capital
Markets in charge of the Financial
Institutions Mergers and Acquisitions
Department. Prior to 1988, Mr. Murphy was
Managing Director of The First Boston
Corporation where he headed up its
Investment Banking Department's Commercial
Bank Group. Mr. Murphy serves as a director
of Excelsior Private Equity Fund II, Inc.
Victor F. Imbimbo, Jr. 47 April 6, 2000 Mr. Imbimbo was the founder of Bedrock
Communications, Inc., a consulting company
addressing the merger of traditional and
digital communications solutions, in 1996.
He was also the founder of the Hadley
Group, a promotional marketing company, in
1985, which he ran until 1996. Mr. Imbimbo
has also been nominated as a director of
Excelsior Private Equity Fund II, Inc.
</TABLE>
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* This director is considered to be an "interested person" of the Company as
defined in the 1940 Act.
In the fiscal year of the Company ended October 31, 1999, the directors met
four times. Each of Messrs. Bernstein, Hover and Murphy attended all of the
meetings of the Board.
The Company does not have a compensation or nominating committee. The
Company has a standing audit committee that convened once during the fiscal
year ended October 31, 1999. The Board of Directors has not adopted a written
charter for the audit committee. Messrs. Murphy and Bernstein were the only
members of the audit committee prior to April 6, 2000. The audit committee has
reviewed and discussed the audited financial statements with management and
the matters required to be discussed by SAS 61 (Codification of Statements on
Auditing Standards) with the independent auditors. The audit committee has
received written disclosures and a letter from the independent accountants and
has discussed with the independent accountants the independent accountants'
independence. Based on the foregoing, the audit committee recommended to the
Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended October 31,
1999. Effective April 6, 2000, Mr. Imbimbo became the third member of the
audit committee.
Each director receives an annual fee of $9,000, and a meeting fee of $1,500
for each meeting attended and is reimbursed for expenses incurred for
attending meetings. The Company does not have a stock option plan, other long-
term incentive plan, retirement plan or other retirement benefits. No person
who is an officer, director or employee of U.S. Trust or of any parent or
subsidiary thereof, who serves as an officer, director or employee of the
Company receives any compensation from the Company.
- 5 -
<PAGE>
The following chart provides certain information about the fees received by
the directors in the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
Aggregate Pension or Total Compensation
Compensation Retirement Benefits from the Company
Name of from the Accrued as Part and Fund Complex*
Person/Position Company of Fund Expenses Paid to Directors
--------------- ------------ ------------------- ------------------
<S> <C> <C> <C>
John C. Hover, II** $15,000 None $30,000
Director
Gene M. Bernstein*** $15,000 None $30,000
Director
Stephen V. Murphy $15,000 None $30,000
Director
</TABLE>
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* The "Fund Complex" consists of Excelsior Private Equity Fund II, Inc. and
UST Private Equity Investors Fund, Inc. Each individual serves as a
director for both such investment companies.
** Mr. Hover is an interested person of the Company.
*** Mr. Bernstein was an interested person of the Company during the fiscal
year ended October 31, 1999. He is no longer an interested person of the
Company.
The Company's Board of Directors Unanimously Recommends That Shareholders
Vote "FOR" Each of the Foregoing Nominees for Director.
- 6 -
<PAGE>
PROPOSAL 2: APPROVAL OF NEW INVESTMENT
ADVISORY AGREEMENT
At the Meeting, shareholders are also being asked to vote on the approval of
the New Agreement. The principal terms of the New Agreement are summarized
below and a copy of the New Agreement is attached to this Proxy Statement as
Appendix A. The description of the New Agreement that follows is qualified in
its entirety by reference to Appendix A.
As required by the 1940 Act, the Existing Agreement provides for automatic
termination upon "assignment." Consummation of the Merger between U.S. Trust
Corporation and Schwab may be deemed to be an assignment under the 1940 Act of
the Existing Agreement, resulting in the termination of the Existing Agreement
in accordance with its terms. In anticipation of the consummation of the
Merger, and to provide continuity in investment advisory services, the Board
of Directors, including a majority of the directors who are not "interested
persons" of U.S. Trust as defined in the 1940 Act, at a meeting held on April
12, 2000 approved and directed that there be submitted to the shareholders of
the Company for approval a new investment advisory agreement among the Company
and U.S. Trust.
If the Merger is not completed but the proposed New Agreement is approved by
the shareholders, the Company and U.S. Trust will operate under the New
Agreement. If the Merger is not completed, the New Agreement would become
effective upon termination of the definitive merger agreement. In the event
the proposed New Agreement is not approved by shareholders, the Board will
promptly consider alternatives to ensure continuing investment management
services for the Company. If the New Agreement is not approved and the Merger
is not completed, the Company will continue to operate under the Existing
Agreement.
Section 15(f) of the 1940 Act
Section 15(f) of the 1940 Act provides in effect that when a change in
control of an investment adviser occurs, the investment adviser or any of its
affiliated persons may receive any amount or benefit in connection therewith
as long as two conditions are satisfied. One such condition is that, no
"unfair burden" may be imposed on the business development company as a result
of the transaction relating to the change of control, or any express or
implied terms, conditions or understandings applicable thereto. The other
condition, as explained in proposal one, requires that, during the three-year
period immediately following consummation of the transaction, at least 75% of
the business development company's board of directors must not be "interested
persons" of the investment adviser within the meaning of the 1940 Act.
With respect to the first condition mentioned in the preceding paragraph,
the term "unfair burden" as defined in the 1940 Act includes any arrangement
during the two-year period after the change in control whereby the investment
adviser (or predecessor or successor adviser), or any interested person of any
such adviser, receives or is entitled to receive any compensation, directly or
indirectly, from the business development company or its security holders
(other than fees for bona fide investment advisory or other services) or from
any person in connection with the purchase or sale of securities or other
property to, from or on behalf of the business development company (other than
fees for bona fide principal underwriting services). The Company is not aware
of any such compensation arrangements.
Description of the Existing and New Agreements
The Existing Agreement was last approved by the sole shareholder of the
Company on December 9, 1994 in connection with the initial organization of the
Company, was amended October 30, 1995, and was amended and restated on
December 27, 1999 to reflect U.S. Trust Company's status as a co-investment
adviser to the Company. In the Existing Agreement, subject to Board oversight,
U.S. Trust is responsible for identifying, evaluating, structuring, monitoring
and disposing of the Company's investments. U.S. Trust is also responsible for
performing, or arranging for suitable third parties to provide, the management
and administrative services necessary for the operation of the Company.
- 7 -
<PAGE>
Terms and conditions. As previously noted, the terms and conditions of the
New Agreement are substantially the same as those of the Existing Agreement,
except that:
. the New Agreement will be dated as of the date of the Merger or, as the
case may be, as of the date of termination of the definitive merger
agreement;
. the New Agreement provides that U.S. Trust may provide advisory services
through its own employees or the employees of an affiliated company as
long as such employees function as part of an organized group of
persons, the use of such employees does not result in a change of actual
control or management of the Investment Adviser under the 1940 Act and
the use of such employees has been approved by the Board; and
. the New Agreement provides that an affiliate may assume the obligations
of U.S. Trust under the New Agreement so long as:
. the affiliate is qualified to act as an investment adviser to the
Company under applicable law;
. the assumption will not result in a change of actual control or
management of U.S. Trust under the 1940 Act; and
. the assumption of U.S. Trust's obligations has been approved by the
Board.
Unless a difference is specifically discussed above, the terms of the New
Agreement are substantially the same as those in the Existing Agreement and
there are no other material differences. The advisory fee rates provided for
in the Existing Agreement will remain the same in the New Agreement.
Description of the Proposed Advisory Agreement
The Existing Agreement and New Agreement provide that, subject to the
general supervision of the Board of Directors, U.S. Trust will, among other
things: (1) prepare and evaluate any pertinent research, statistical,
financial and economic data and other information necessary or appropriate for
the performance of its duties under such agreements; (2) identify, evaluate,
structure, monitor and dispose of the Company's investments in portfolio
companies, private funds and short-term investments; (3) render managerial
assistance to entities in which the Company has invested or is proposing to
invest; (4) determine whether and how to exercise warrants, voting rights or
other rights with respect to the Company's portfolio securities; (5) provide
valuations with respect to the securities held by the Company (if so requested
by the Board); (6) render regular reports to the Company's officers and Board
concerning the investment performance of the Company, the discharge by U.S.
Trust of its responsibilities and any other subject that the Company's
officers or Board reasonably may request; and (7) assist the Company's
officers in connection with the operation of the Company and perform any
further acts that may be necessary to effectuate the purposes of such
agreements.
The Existing Agreement and New Agreement provide that U.S. Trust will
furnish at its own expense all office space, office facilities, supplies,
equipment and personnel necessary or appropriate to the performance of its
duties thereunder. U.S. Trust will also pay the salaries and fees of all
personnel of the Company or U.S. Trust performing services related to U.S.
Trust's duties under the Existing Agreement and New Agreement.
The Existing Agreement and New Agreement provide that U.S. Trust may place
orders for portfolio securities either directly with the issuer of the
securities or with any broker or dealer selected by U.S. Trust. In placing
orders with brokers and/or dealers under the agreements, U.S. Trust is
obligated, subject to the considerations set forth below, to use its best
efforts to obtain the best net price and most favorable execution of orders
after taking into account all factors it deems relevant, including the breadth
of the market in the security, the price of the security, the financial
condition and execution capability of the broker and/or dealer and the
reasonableness of the commission, if any, both for the specific transaction
and on a continuing basis. Consistent with this obligation, U.S. Trust may, to
the extent permitted by law, purchase and sell portfolio securities from and
to brokers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act) to or for the benefit of the
Company and/or other accounts over which U.S. Trust exercises investment
discretion. U.S. Trust is authorized under the agreements to pay or cause the
Company to pay a broker who provides such brokerage and research services a
commission for effecting a securities
- 8 -
<PAGE>
transaction which is in excess of the amount of the commission another broker
would have charged for effecting that transaction if U.S. Trust determines in
good faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by the broker viewed in terms of
either that particular transaction or the overall responsibilities of U.S.
Trust with respect to the accounts as to which it exercises investment
discretion.
Under the Existing Agreement and New Agreement, U.S. Trust may execute
transactions through itself and its affiliates on a securities exchange
provided that the commissions paid by the Company are "reasonable and fair"
compared to commissions received by other brokers having comparable execution
capability, and provided that the transactions are effected pursuant to
procedures established by the Board of Directors. In each case, an affiliated
broker may transmit, clear and settle transactions for the Company that are
executed on a securities exchange provided that the affiliated broker arranges
for unaffiliated brokers to execute the transactions. Such commissions may not
exceed the usual and customary broker's commission.
In addition, the Board of Directors, in its discretion, may instruct U.S.
Trust to effect all or a portion of its securities transactions with one or
more brokers and/or dealers selected by the Board of Directors if the Board of
Directors determines that the use of such brokers and/or dealers is in the
best interest of the Company.
Under the Existing Agreement and New Agreement, when U.S. Trust deems the
purchase or sale of a security to be in the best interest of the Company as
well as other customers, U.S. Trust may, to the extent permitted by applicable
law, aggregate the securities to be so sold or purchased in order to obtain
the best execution or lowest brokerage commissions. Under the Existing
Agreement and New Agreement, U.S. Trust may also purchase or sell a particular
security for one or more customers in different amounts. Allocation of the
securities purchased or sold in either manner, as well as the expenses
incurred in the transactions, will be made by U.S. Trust in a manner that it
believes is equitable and consistent with applicable law and regulations and
with its fiduciary obligations to the Company and to such other customers.
The Existing Agreement and New Agreement require U.S. Trust to give the
Company the benefit of its best judgment and efforts in rendering services to
the Company. The Existing Agreement and the New Agreement provide that each of
U.S. Trust NY and U.S. Trust Co. are jointly, but not severally, liable to the
Company for a loss to the Company resulting from bad faith, negligence,
misconduct or any breach of fiduciary duty owed to the Company on the part of
either such co-investment adviser. Under the Existing Agreement and New
Agreement, U.S. Trust will not be liable to the Company or to any shareholder
of the Company for any act or omission in the course of, or connected with,
rendering services under such agreement or for any losses that may be
sustained in the purchase, holding or sale of any security. The Company will
indemnify U.S. Trust against all losses, claims, damages, liabilities or
expenses that were not the result of U.S. Trust's bad faith, negligence,
misconduct or a breach of fiduciary duty owed to the Company. Indemnification
shall be made only following a final decision on the merits before a court or
other body before whom a proceeding was brought or a reasonable determination
by the directors who are not "interested persons" of the Company (as defined
in the 1940 Act) or parties to the proceeding or independent counsel to the
Company that U.S. Trust was not liable by reason of bad faith, negligence,
misconduct, or breach of fiduciary duty owed to the Company. U.S. Trust is
entitled to advancement of expenses incurred in seeking indemnification to the
fullest extent permissible under Maryland General Corporation Law (i) upon
providing to the Company a written affirmation of its good faith belief that
it meets the requisite standard for indemnification and an undertaking to
repay the advance if it is ultimately determined that the standard was not met
and (ii) it provides security acceptable to the Company for such undertaking,
or the Company is insured against any losses by reason of the advance, or the
disinterested non-party directors or independent counsel shall have determined
that there is reason to believe that U.S. Trust will ultimately be entitled to
indemnification.
No provision of either agreement shall be construed to protect any director
or officer of the Company or U.S. Trust from liability in violation of Section
17(i) of the 1940 Act, which prohibits protection from liability in the event
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
one's duties or obligations under a contract.
- 9 -
<PAGE>
Effective date of New Agreement. If approved by a majority of the
outstanding shares (as defined below) of the Company and the Merger is
completed, the New Agreement will become effective at the time of the
consummation of the Merger. If the New Agreement is approved by a majority of
the outstanding shares, but the Merger is not completed, the New Agreement
will be dated as of the date of termination of the definitive merger
agreement. In each case, the New Agreement will continue in effect for two
years from the date of effectiveness unless terminated sooner. Thereafter, the
New Agreement will continue in effect for successive annual periods unless
terminated, provided that such continuance is specifically approved at least
annually by the vote of a majority of those directors who are not parties to
the New Agreement or "interested persons" (as defined in the 1940 Act) of any
such party, and either: (i) the vote of a majority of the outstanding shares
of the Company or (ii) the vote of a majority of the full Board of Directors.
Termination. The Existing Agreement and New Agreement provide that they may
be terminated at any time, without the payment of any penalty, either by: (i)
the Company, by vote of a majority of the Board of Directors who are not
parties to such agreement or interested persons of any such party or by the
vote of a majority of the outstanding shares of the Company, on 60 days'
written notice to U.S. Trust; or (ii) U.S. Trust, on 90 days' written notice
to the Company. The Existing Agreement and New Agreement provide that they
will terminate immediately in the event of an "assignment" (as defined in the
1940 Act).
Fees. For the services provided and the expenses assumed pursuant to the
Existing Agreement and New Agreement, U.S. Trust is entitled to a fee, payable
quarterly, at the following rates: (i) 1.5% per annum of the net assets of the
Company, determined as of the end of each fiscal quarter, that are invested or
committed to be invested in portfolio companies or private funds and (ii) 0.5%
of the net assets of the Company, determined as of the end of each fiscal
quarter, that are invested in short term investments and are not committed to
portfolio companies or private funds. Private funds are other venture capital,
buyout and private equity funds managed by persons other than U.S. Trust and
that typically are not registered as investment companies.
In addition to the management fee, pursuant to the Existing Agreement and
New Agreement, the Company has agreed to pay U.S. Trust an incentive fee in an
amount equal to 10% of the realized capital gains (net of realized capital
losses and unrealized net capital depreciation), less the aggregate amount of
incentive fee payments in prior years. If the amount of the incentive fee in
any year is a negative number (for example, if realized capital losses and
unrealized capital depreciation on the date of determination exceed realized
capital gains), or if cumulative net realized capital gains less net
unrealized capital depreciation at the end of any year is less than such
amount calculated at the end of the previous year, U.S. Trust will be required
to repay to the Company all or a portion of the incentive fee previously paid.
For the fiscal year ended October 31, 1999, the Company paid U.S. Trust
management fees in the amount of $321,323 and U.S. Trust waived fees in the
amount of $146,907 and no incentive fee was paid.
There will be no change in the contractual advisory fee rates payable by the
Company as a result of approval of the New Agreement. The New Agreement, like
the Existing Agreement, entitles U.S. Trust to receive management fees, paid
quarterly, and incentive fees at the rates described above. U.S. Trust may
from time to time voluntarily waive all or a portion of the advisory fee
payable by the Company, which waiver may be terminated at any time.
Evaluation by the Board of Directors of the Company. The New Agreement was
unanimously approved by the Board of Directors and by those members of the
Board of Directors who were not "interested persons" (as that term is defined
in the 1940 Act) of any party to the New Agreement, at a meeting held on April
12, 2000. The Board considered the Merger, that the New Agreement is
substantially the same as the Existing Agreement (except as noted above) and
that the contractual advisory fee rate payable under the New Agreement would
be identical to the contractual advisory fee rate payable under the Existing
Agreement. The Board considered that U.S. Trust does not have any plans to
materially alter the investment advisory services provided to the Company as a
result of the Merger or to make any change in the key personnel responsible
for overseeing the investment activities of the Company. The Board also
considered the benefits that U.S. Trust may derive from the Merger and the New
Agreement. Based on its evaluation, the Board of Directors concluded that
approval of the New Agreement would be in the best interests of the Company
and its shareholders. With respect
- 10 -
<PAGE>
to the provisions of the New Agreement regarding use of employees and
affiliates of U.S. Trust, the Board considered that this provision would allow
U.S. Trust to use the best talent within its organization to operate the
Company.
Interim Investment Advisory Agreement. The 1940 Act permits an investment
adviser to act as investment adviser to a business development company
pursuant to an interim investment advisory agreement for a period not greater
than 150 days in the event that the previous investment advisory agreement is
terminated due to its assignment resulting from a change of control of the
investment adviser, so long as certain conditions are met. If the shareholders
of the Company have not approved the New Agreement prior to the Merger, the
Company may enter into an interim management agreement with U.S. Trust (the
"Interim Agreement").
The Interim Agreement must be approved in person by a majority of the Board
that are not "interested persons" of the Company (as defined in the 1940 Act)
prior to the Merger after determination by them that the scope and quality of
services to be provided thereunder will be at least equivalent to the Existing
Agreement. The Interim Agreement would in all material respects be similar to
the Existing Agreement except that it would provide for termination by the
Board or the shareholders on 10-days' written notice. In addition,
compensation payable to U.S. Trust thereunder would be held in an interest
bearing escrow account until the New Agreement is approved. If, however, the
New Agreement is not approved, U.S. Trust would only be compensated the lesser
of cost incurred in performance of its services for the interim period or the
amount in escrow, in each case, plus interest earned thereon.
Information about the Investment Adviser. U.S. Trust NY, which has its
principal offices at 114 West 47th Street, New York, New York 10036, is a New
York state-chartered bank and trust company and as a member bank of the
Federal Reserve System. U.S. Trust Co., which has its principal offices at 225
High Ridge Road, Stamford, Connecticut 06905, is an FDIC insured Connecticut
state bank and trust company. U.S. Trust NY and U.S. Trust Co. serve as co-
investment advisers to the Company under the Existing Agreement, and each is a
wholly-owned subsidiary of U.S. Trust Corporation, a registered bank holding
company, which has its principal offices at 114 West 47th Street, New York,
New York 10036. The Investment Adviser provides wealth management, fiduciary
and banking services to individuals, corporations and institutions, both
nationally and internationally, including investment management and
consulting, trust and estate services, financial and estate planning,
corporate trust and agency services, custodial services and personal and
corporate banking. On December 31, 1999 the Asset Management Groups of the
Investment Adviser had approximately $51.2 billion in aggregate assets under
management.
The principal executive officers and directors of each of U.S. Trust N.Y.
and U.S. Trust Co. and their principal occupations as of December 31, 1999 are
set forth in Annex I and Annex II, respectively, each attached hereto.
U.S. Trust also currently serves as investment adviser to Excelsior Private
Equity Fund II, Inc. The approximate net assets (as of October 31, 1999), the
annual advisory fees rate paid to the Investment Adviser and fees waived by
the Investment Adviser for the most recently ended fiscal year are as follows:
<TABLE>
<CAPTION>
Advisory Fees
Approximate Waived for the
Name of Business Net Assets as of Advisory fiscal year ended
Development Company October, 31, 1999 Fees Rate October 31, 1999
------------------- ----------------- --------- -----------------
<C> <C> <S> <C>
Excelsior Private Equity $245,106,914 1.5% of the net assets $0
Fund II, Inc. of the company invested
or committed to be
invested in portfolio
companies or private
funds and 0.5% of the
net assets of the
company invested in
short-term investments,
plus an incentive fee in
an amount equal to 20%
of the realized capital
gains (net of realized
capital losses and
unrealized net capital
depreciation) on
investments other than
investments in private
funds.*
</TABLE>
- 11 -
<PAGE>
- --------
* If the amount of the incentive fee in any year is a negative number, or
cumulative net realized gains less net unrealized capital deprecation at the
end of any year is less than such amount calculated at the end of the
previous year, the Investment Adviser will be required to repay the company
all or a portion of the incentive fee previously paid.
Payments to affiliated brokers. For the fiscal year ended October 31, 1999,
the Company made no payments to affiliated brokers.
The approval of the New Agreement requires the affirmative vote of the
holders of a "majority of the outstanding shares" of the Company (as defined
by the 1940 Act), which means the lesser of (a) the holders of 67% or more of
the shares of the Company present at the Meeting if the holders of more than
50% of the outstanding shares of the Company are present in person or by proxy
or (b) more than 50% of the outstanding shares of the Company. This voting
requirement is referred to herein as a "majority of the outstanding shares."
For more information, see "Voting Information--Quorum."
The Company's Board of Directors Unanimously Recommends That Shareholders
Vote "FOR" the New Investment Advisory Agreement
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<PAGE>
PROPOSAL 3: APPROVAL AND RATIFICATION OR DISAPPROVAL AND
REJECTION OF THE PAYMENTS PREVIOUSLY MADE TO U.S. TRUST AND OF
THE BOARD OF DIRECTORS' DETERMINATIONS WITH RESPECT THERETO
This proposal seeks your approval and ratification of the payments
previously made to U.S. Trust pursuant to the investment advisory agreement
and of the Board of Directors' determinations with respect thereto discussed
below. The Board unanimously recommends that you vote in favor of this
proposal. This proposal relates only to the investment advisory agreement and
all payments previously made to U.S. Trust thereunder and to the Board of
Directors' determinations with respect thereto.
Background. The 1940 Act requires that at least a majority of a business
development company's directors be disinterested directors. Under the 1940
Act, a person that is a securityholder of the investment adviser to a business
development company, or any parent company of the investment adviser, is an
interested person of the business development company and the investment
adviser. Mr. Bernstein and his wife owned approximately 5,000 common shares
(as adjusted for a two-for-one stock split in 1997) of U.S. Trust Corporation,
the corporate parent of U.S. Trust, since his initial election as a director
of the Company. Thus, Mr. Bernstein was an interested person of the Company
and U.S. Trust as defined in the 1940 Act through April 3, 2000, when Mr.
Bernstein and his wife sold or gifted to charity all the U.S. Trust
Corporation common shares that they then owned. During this period, the
regulatory requirement that a majority of the Board consist of disinterested
directors was not satisfied. Mr. Bernstein has fully disclosed his share
ownership to the Company when requested to do so, including at the time of his
initial election as a director. Both Mr. Bernstein and the Company believed
that he was a disinterested director. The Company and Mr. Bernstein were only
advised that Mr. Bernstein was an interested person of the Company and U.S.
Trust following a legal review conducted in connection with the preparation of
this proxy statement. Mr. Bernstein and his wife then promptly sold or gifted
to charity all their U.S. Trust Corporation common shares.
The 1940 Act requires that certain matters be approved by a majority of the
disinterested directors, including investment advisory agreements and payments
made to investment advisers thereunder. These matters have been reviewed,
approved and ratified, as the case may be, in the ordinary course of the
Company's operations by Mr. Bernstein and Mr. Murphy. Mr. Murphy has in fact
at all times been a disinterested director and has approved of all of the
matters required to be approved or ratified by a majority of the disinterested
directors. Nevertheless, because the Board has not consisted of a majority of
disinterested directors as required by the 1940 Act, the validity of these
approvals and ratifications is uncertain. This proposal relates only to the
investment advisory agreement and all payments previously made to U.S. Trust
thereunder and the Board of Directors' determinations with respect thereto.
The 1940 Act requires that the initial approval and each renewal of the
investment advisory agreement be approved by a majority of directors who were
not parties to the investment advisory agreement or interested persons of any
party. The 1940 Act also provides that a contract that is made in, or whose
performance involves a, violation of the 1940 Act is unenforceable by either
party, unless a court finds that under the circumstances enforcement would
produce a more equitable result than non-enforcement and would not be
inconsistent with the purposes of the 1940 Act. To the extent that such a
contract has already been performed, a court may not deny rescission at the
insistence of any party unless the court finds that under the circumstances
the denial of rescission would produce a more equitable result than would
rescission and would not be inconsistent with the purposes of the 1940 Act.
However, it should be noted that these provisions shall not preclude recovery
against any person for unjust enrichment.
Actions of the Board. Upon learning of these matters, the Board promptly
took the following actions. Mr. Bernstein and his wife immediately sold or
gifted away all their U.S. Trust Corporation common shares, thereby making Mr.
Bernstein a disinterested director. At a meeting of the Board held on April 6,
2000, Messrs. Murphy and Hover confirmed Mr. Bernstein's current status as a
disinterested director as of the date of the final disposition of the shares
and approved of his continued service as a member of the Board. Messrs. Murphy
and
- 13 -
<PAGE>
Bernstein then selected an additional disinterested director, Mr. Imbimbo, to
fill a vacancy on the Board, and the full Board appointed Mr. Imbimbo to fill
the vacancy. With the advice of separate outside counsel to the disinterested
directors, the Board then formed an independent committee consisting of
Messrs. Murphy and Imbimbo, neither of whom has been at any time during their
service as a director an interested person of the Company or U.S. Trust. With
the advice of separate outside counsel to the disinterested directors, the
independent committee determined to review all prior actions of the Board that
required approval by the disinterested directors in order to present a course
of action to the full Board as soon as practicable. The independent committee
requested, and was provided, all material that it found relevant to the
foregoing, including the minutes and resolutions of the meetings of the Board
of Directors since the inception of the Company, related supporting material
and information concerning the fees paid to U.S. Trust, a comparison of such
fees to the fees paid by other business development companies with investment
objectives and policies similar to those of the Company and other information
bearing on the quality of advisory services provided to the Company.
Independent committee's review. During the period from April 6, 2000 to
April 12, 2000, the independent committee reviewed each prior action of the
Board that required approval by a majority of the disinterested directors. The
independent committee also had extensive discussions with Mr. Bernstein
concerning the actions that required approval by a majority of the disinterested
directors. The independent committee focused its review on any potential harm to
the shareholders by, among other things, any improper benefits to any party. The
independent committee met again on April 12, 2000 in consultation with separate
outside counsel for the disinterested directors.
Determinations of the independent committee. After review and discussion,
the independent committee determined that the terms of the investment advisory
agreement were fair and reasonable to the Company when made, at all times U.S.
Trust has performed its obligations to the Company in a manner consistent with
the description provided in the prospectus in all material respects, and that
the payments made to U.S. Trust were fair and reasonable. It also determined
that there was no evidence of overreaching by any party. The independent
committee reported these findings to the full Board and recommended that the
disinterested directors and the full Board ratify and approve in all respects
the initial approval and all renewals of, and all payments made in accordance
with, the investment advisory agreement. For the fiscal year ended October 31,
1996, and for each subsequent fiscal year ended October 31, 1998, the Company
paid U.S. Trust the following management fees: $350,156 for 1996, $588,909 for
1997, and $549,137 for 1998. No incentive fees were paid for those fiscal
years. For the fiscal year ended October 31, 1999, the Company paid U.S. Trust
management fees in the amount of $321,323 and U.S. Trust waived fees in the
amount of $146,907 and no incentive fee was paid. The independent committee
also recommended that the disinterested directors and the full Board ratify
and approve in all respects all of the prior actions of the Board that
required the action of a majority of the disinterested directors. These
included the approval of independent public accountants; codes of ethics;
fidelity bonds; joint liability insurance policies; the ratification of
payments to affiliated brokers; and the approval and periodic re-approval of
certain procedures governing transactions between the Company and affiliated
persons.
On April 12, 2000, by unanimous vote, the disinterested directors and the
full Board approved and ratified all matters recommended to be ratified and
approved by the independent committee.
Determinations of the Board with respect to investment advisory payments to
U.S. Trust and the investment advisory agreement. The Board, including a
majority of the directors that are not parties to the investment advisory
agreement or interested persons in any such party, acting pursuant to the
recommendation of the independent committee, has ratified and approved the
payments made to U.S. Trust under the investment advisory agreement and
determined to honor and not seek modification of the investment advisory
agreement or reimbursement of payments previously made to U.S. Trust. The
Board has also determined that it is in the best interests of the Company to
submit these matters to the shareholders for approval and ratification.
Subsequent actions and effect of approval. The Board of Directors has set
the approval requirement for this proposal as the affirmative vote of the
holders of a majority of the outstanding shares of the Company (as defined by
the 1940 Act), which means the lesser of (a) the holders of 67% or more of the
shares of the Company
- 14 -
<PAGE>
present at the Meeting if the holders of more than 50% of the outstanding
shares of the Company are present in person or by proxy or (b) more than 50%
of the outstanding shares of the Company. For more information, see "Voting
Information--Quorum." In the event that shareholders do not approve this
proposal, the Board will consider what further action, if any, should be
taken. In making such determination, the Board will take into account all
relevant information, including but not limited to the proportion of
shareholders that voted for the proposal, the proportion of shareholders that
voted against the proposal, courses of action that may be legally available to
the Company, the Board's evaluation of the likelihood of success of such
courses of action, their costs and potential benefits to the Company and the
other forseeable effects on the Company and its business and reputation. In
this regard, U.S. Trust has informed the Company that it believes the Company
would be unjustly enriched were U.S. Trust required to repay any amount of the
fees previously paid to U.S. Trust. Based on its review of the services
rendered by U.S. Trust and a comparison of the fees paid by the Company to
U.S. Trust to the fees paid by other business development companies with
similar investment objectives and policies, the Board believes that the
Company would be unlikely to prevail on an attempt to require the repayment of
or otherwise to recoup the fees previously paid to U.S. Trust. The Company
notes that approval by shareholders of this proposal three may not serve to
eliminate any regulatory violation of federal or state law that may have
previously occurred, and does not preclude the Securities and Exchange
Commission or any state regulatory authority from taking any action in
connection therewith.
The Company's Board of Directors Unanimously Recommends That Shareholders
Vote "FOR" the Approval and Ratification of the Payments Previously Made to
U.S. Trust Pursuant to the Investment Advisory Agreement and of the Board of
Directors' Determination to Honor and Not Seek Modification of the Investment
Advisory Agreement or Reimbursement of Payments Previously Made to U.S. Trust.
- 15 -
<PAGE>
PROPOSAL 4: RATIFICATION OF INDEPENDENT ACCOUNTANTS
At the Meeting, shareholders of the Company are also being asked to vote
upon the ratification or rejection of the selection of Ernst & Young LLP
("Ernst & Young") as independent accountants for the Company's fiscal year
ending October 31, 2000.
The Board, including all of the directors who are not "interested persons"
of the Company (as defined in the 1940 Act), selected Ernst & Young as the
Company's independent accountants at a meeting held on November 30, 1999 and
ratified such selection on April 12, 2000. Ernst & Young has stated that it
has no material direct or indirect financial interest in the Company. Ernst &
Young, with offices at 200 Clarendon Street, Boston, Massachusetts 02116 has
served as the Company's independent accountants since the date of inception of
the Company.
A representative of Ernst & Young is expected to be available by telephone
at the Meeting should any matter arise requiring consultation with the
accountants, and Ernst & Young will be given the opportunity to make a
statement if it chooses.
In order for proposal four to be adopted by the Company, it must be approved
by a majority of the votes cast at the Meeting. For more information, see
"Voting Information -- Quorum." Unless instructed otherwise, the persons named
as proxies in the accompanying Proxy will vote for the ratification of the
selection of Ernst & Young.
The Company's Board of Directors Unanimously Recommends That
Shareholders Vote "FOR" The Ratification of the Selection of
Ernst & Young as Independent Accountants of the Company.
- 16 -
<PAGE>
VOTING INFORMATION
Record Date. Only shareholders of record at the close of business on April
24, 2000 will be entitled to vote at the Meeting. On that date, the number of
outstanding shares of the Company was 40,463. All shares of the Company will
vote in the aggregate.
You should send your proxy in by one of the following methods:
1. Complete, sign and return the enclosed Proxy promptly in the postage-
paid envelope.
2. Call 1-800-690-6903. Enter the 12-digit control number on the enclosed
Proxy and follow the telephone instructions.
3. Use the Internet at www.proxyvote.com. Enter the 12-digit control number
on the enclosed Proxy and follow the instructions on the website.
In accordance with Section 2-507 of the Maryland General Corporation Law,
shareholders may authorize the persons named as proxies to vote their shares
by telephone, telegram or other electronic means, including the Internet.
Quorum. A quorum is constituted with respect to the Company by the presence
in person or by proxy of the holders of more than 50% of the outstanding
shares entitled to vote. For purposes of determining the presence of a quorum,
abstentions and broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares on a particular
matter with respect to which the brokers or nominees do not have discretionary
power), will be treated as shares that are present at the Meeting but which
have not been voted. Abstentions and broker "non-votes" will have the effect
of a vote against proposals two and three, but will have no effect on the
election of directors or proposal four.
In the event that a quorum is not present at the Meeting (or at any
adjournment thereof) or in the event that a quorum is present at the Meeting
but sufficient votes to approve any of the proposals are not received, the
persons named as proxies, or their substitutes, may propose and vote for one
or more adjournments of the Meeting to permit the further solicitation of
proxies. Any such adjournment will require the affirmative vote of a majority
of those shares that are represented at the Meeting in person or by proxy. If
a quorum is not present, all proxies will be voted in favor of adjournment.
However, if a quorum is present at the Meeting but it appears that one or more
proposals may not receive shareholder approval, the persons named as proxies
may propose an adjournment of the Meeting.
For an adjournment to occur, sufficient votes to adjourn must be voted in
favor of adjournment. The persons named as proxies will vote the following
shares IN FAVOR of adjournment:
. all shares for which they are entitled to vote in favor of (i.e., "FOR")
any of the proposals that will be considered at the adjournment meeting;
and
. abstentions.
The persons named as proxies will vote the following shares AGAINST
adjournment:
. all shares for which they must vote "AGAINST" all proposals that will be
considered at an adjourned meeting.
A shareholder vote may be taken with respect to the Company on any (but not
all) of the proposals prior to any such adjournment as to which sufficient
votes have been received for approval.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of May 24, 2000, certain beneficial owners, the directors, the chief
executive officer and the directors and executive officers as a group held of
record the following shares. Except as set forth below, to the Company's
knowledge and based solely on a review of Forms 13D and 13G filed with the
Securities and Exchange Commission (or the lack of such filings, as the case
may be), no other person beneficially owned more than 5% of the Company's
shares.
<TABLE>
<CAPTION>
Amount and
Title of Name and Address of Beneficial Nature of Beneficial
Class Owner(/1/) Ownership (#) Percent of Class(%)
-------- --------------------------------------- -------------------- -------------------
<S> <C> <C> <C>
Common Shares United States Trust Company of New York 18,559 shares(/2/) 45.87
John C. Hover, II 15 shares *
Gene M. Bernstein 200 shares(/3/) *
Stephen V. Murphy 50 shares *
David I. Fann 21 shares *
Directors and executive officers
as a group (12 persons) 311 shares *
</TABLE>
- --------
* Less than one percent.
(1)The address for all is c/o United States Trust Company of New York, 114
West 47th Street, New York, NY 10036-1532.
(2) United States Trust Company of New York has sole or shared voting and/or
investment power over all of such shares, which are beneficially owned by
its clients. United States Trust Company of New York disclaims beneficial
ownership of all the foregoing shares.
(3)Includes 60 shares beneficially owned by Mr. Bernstein's wife, for which
shares Mr. Bernstein disclaims beneficial ownership.
- 18 -
<PAGE>
ADDITIONAL INFORMATION
Officers. Officers of the Company are elected by the directors and hold
office until they resign, are removed or are otherwise disqualified to serve.
The following table sets forth certain information about the Company's
officers:
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Age the Company Other Affiliations
- ---------------- --- ------------- -----------------------
<S> <C> <C> <C>
David I. Fann 36 President and Managing Director of United States
United States Trust Chief Executive Officer Trust Company of New York. Mr. Fann
Company of New York serves as President and Chief
114 West 47th Street Executive Officer of Excelsior Private
New York, NY 10036 Equity Investors Fund II, Inc. He is
focused on direct investments in
healthcare, consumer services and
e-commerce. Prior to joining United
States Trust Company of New York in
April of 1994, Mr. Fann served in
various capacities for Citibank from
1986 through 1994, including, as a
Vice President of Citibank and its
small business investment company
subsidiary, Citicorp Venture Capital
Ltd. from 1991 until 1994. While at
Citicorp Venture Capital Ltd., Mr.
Fann invested in buyout and venture
capital transactions and venture
capital funds and served on the Board
of Directors of several of its
portfolio companies. Mr. Fann holds a
B.A.S. degree in industrial
engineering and economics from
Stanford University. Mr. Fann serves
on the United States Trust Company of
New York Portfolio Policy Committee,
Strategy Review Committee, and the
Special Fiduciary Committee. Mr. Fann
is on the Board of Curon Stuart
Medical, Inc., SurVivaLink Corp. and
Protogene Laboratories, Inc.
Douglas A. Lindgren 38 Executive Managing Director of United States
United States Trust Vice President Trust Company of New York. Mr.
Company of New York Lindgren is Chief Investment Officer
114 West 47th Street of UST Private Equity Investors Fund,
New York, NY 10036 Inc. He is focused on direct
investments in information technology,
Internet services, and communications.
Prior to joining United States Trust
Company of New York in April 1995, Mr.
Lindgren served in various capacities
for Inco Venture Capital Management
("IVCM") from January 1988 through
March of 1995, including President and
Managing Principal from January 1993
through March of 1995. While at IVCM,
Mr. Lindgren invested in venture
capital and buyout transactions and
served on the board of directors of
several of its portfolio companies.
Before joining IVCM,
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Age the Company Other Affiliations
- ---------------- --- ------------- -----------------------
<S> <C> <C> <C>
Mr. Lindgren was employed by Salomon
Brothers Inc and Smith Barney, Harris
Upham & Co., Inc. He is an Adjunct
Professor of Finance at Columbia
University's Graduate School of
Business, where he has taught courses
on venture capital since 1993. Mr.
Lindgren holds a M.B.A. and B.A. from
Columbia University. He serves on the
United States Trust Company of New
York Portfolio Policy Committee.
Mr. Lindgren is on the Board of
Powersmart Inc., MarketFirst Software,
Inc., Managemark, Inc., Constellar
Corporation, ReleaseNow.com, Inc.,
LifeMinders.com, Inc., Zeus Wireless,
Inc. and firstsource.
Ronald A. Schwartz 51 Secretary Mr. Schwartz is Vice President and
United States Trust Assistant General Counsel of United
Company of New York States Trust Company of New York.
114 West 47th Prior to joining U.S. Trust NY in
Street 1991, Mr. Schwartz was associated with
New York, NY the firm of Walter, Conston, Alexander
& Green from 1985 through 1990, with a
focus on securities law as well as
mergers and acquisitions. Mr. Schwartz
received a BA and an MA degree from
the University of California at
Berkeley, and a JD from Boalt Hall,
University of California.
Brian F. Schmidt 41 Chief Financial Officer, Senior Vice President at U.S. Trust
U.S. Trust Company Chief Accounting Officer, Company. Mr. Schmidt is the Chief
225 High Ridge Road Treasurer Financial Officer of Excelsior Private
Stamford, CT 06905 Equity Fund II, Inc. He is the
Division Manager for the Mutual Funds
Administration Department. He is
responsible for the operation and
administration of the Excelsior Family
of Funds and the U.S. Trust Common
Trust Funds. Mr. Schmidt joined U.S.
Trust in 1991 from Prudential
Insurance Company of America, where he
was Director of Accounting. Prior to
that he was a senior accounting
manager at Dreyfus Corporation. Mr.
Schmidt has 16 years of experience in
financial services, concentrating in
mutual funds. He received his BS
degree from Marist College. He is on
the accountant's and treasurer's
committee of the Investment Company
Institute.
</TABLE>
- 20 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Age the Company Other Affiliations
- ---------------- --- ------------- -----------------------
<S> <C> <C> <C>
Frank D. Bruno 40 Assistant Treasurer Mr. Bruno is a Vice President in the
U.S. Trust Company Mutual Funds Administration
225 High Ridge Road Department. Prior to joining U.S.
Stamford, CT 06905 Trust NY, he worked for the Dreyfus
Corporation and Price Waterhouse. Mr.
Bruno received his BS degree from
Pennsylvania State University.
Francis J. Hearn, Jr. 35 Assistant Secretary Mr. Hearn is Vice President and
United States Trust Assistant General Counsel of United
Company of New York States Trust Company of New York.
114 West 47th Street Prior to joining U.S. Trust NY in
New York, NY 10036 1995, Mr. Hearn was associated with
Townley & Updike from 1989 through
1990. Mr. Hearn received a BA from
Colgate University and a JD from the
Catholic University of America.
Lee A. Gardella 32 Vice President Vice President of the Company and Vice
United States Trust President of United States Trust
Company of New York Company of New York; joined United
114 West 47th Street States Trust Company of New York in
New York, NY 10036 September 1997. He is focused on
direct investments in information
technology companies and on fund
investments. Mr. Gardella currently
has monitoring responsibilities for
several portfolio companies including
Captura Software, Inc. and Logic
Vision, Inc. From July 1994 to
September 1997, Mr. Gardella held
several positions with The Edison
Venture Fund, an expansion stage
venture capital firm in Lawrenceville,
NJ. In addition, Mr. Gardella has
worked at Wilshire Associates and
National Steel Corporation. Mr.
Gardella has served as a Director of
the Greater Philadelphia Venture
Group. He received an MBA from the
University of Notre Dame and BSBA in
Finance from Shippensburg University.
Mr. Gardella is a Chartered Financial
Analyst.
</TABLE>
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Position with During Past 5 Years and
Name and Address Age the Company Other Affiliations
- ---------------- --- ------------- -----------------------
<S> <C> <C> <C>
James F. Rorer 30 Vice President Vice President of the Company and
United States Trust United States Trust Company of New
Company of New York York, Mr. Rorer is focused on direct
114 West 47th investments in healthcare, consumer
Street services, and e-commerce. Prior to
New York, NY 10036 joining US Trust of New York in May
1999, he worked at Bain & Company
("Bain"), a leading global strategic
consulting firm, from 1996 until April
1999. He was a consultant in the
Private Equity Practice which provides
strategic due diligence services to
large leveraged buyout firms. In
addition, Mr. Rorer also spent time in
Bain's standard consulting pactice,
working with companies on a variety of
strategic issues in a number of
different industries including
automotive, electric power,
telecommunications, consumer products
and financial services. Mr. Rorer was
an investment banking analyst at CS
First Boston from 1992 to 1994, where
he worked on mergers and acquisitions
and financing for banks and consumer
finance companies. Mr. Rorer graduated
from Duke University, Phi Beta Kappa,
with a degree in economics and
mathematics. He holds an MBA from
Harvard Business School.
James F. Dorment 26 Chief Administrative Chief Administrative Officer of the
United States Trust Officer Company and Assistant Vice President
Company of New York of United States Trust Company of New
114 West 47th York has been with the Private Equity
Street Division of United States Trust
New York, NY 10036 Company of New York since December
1997. Mr. Dorment is involved in all
areas of investment analysis and
decision-making. From August 1995
through November 1997, he worked in
the wealth management division of U.S.
Trust. Mr. Dorment graduated from
Bates College with a Bachelor of Arts
degree in economics. He is a Chartered
Financial Analyst and a member of the
New York Society of Security Analysts
and the Association for Investment
Management and Research.
</TABLE>
All officers of the Company are employees and/or officers of the Investment
Adviser.
Administrator. Chase Global Funds Services Company, which is located at 73
Tremont Street, Boston, MA 02108, is the administrator for the Company. The
Company paid Chase Global Funds Services Company $58,000 in fees for the
fiscal year ended October 31, 1999.
- 22 -
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Company's directors and executive
officers and any person holding more than 10% of the Company's shares are
required to report their ownership of shares and any changes in the ownership
of the Company's shares to the Company and the Securities and Exchange
Commission. These filings have all been satisfied by the Company's executive
officers and directors although the Company notes that each of Messrs. Fann,
Lindgren, Bernstein, Murphy and Schmidt filed untimely initial statements of
beneficial ownership on Form 3 reporting their status as directors or
executives officers, as the case may be, and, where applicable, their
ownership of securities of the Company. The Company notes that the reports of
Messrs. Lindgren and Murphy of one transaction each on separate Form 5s and
the reports of Messrs. Fann, and Bernstein of two transactions each on
separate Form 5s should have been reported on separate Form 4s. In all cases,
the securities purchased have not subsequently been sold or otherwise disposed
of.
OTHER MATTERS
Shareholder proposals intended for inclusion in the Company's proxy
statement in connection with the Company's 2001 annual meeting of shareholders
pursuant to Rule 14a-8 under the Securities Exchange Act must be received by
the Company at the Company's principal executive offices by January 26, 2001.
In order for proposals made outside of Rule 14a-8 under the Securities
Exchange Act to be considered "timely" within the meaning of Rule 14a-4(c)
under the Securities Exchange Act, such proposals must be received by the
Company at the Company's principal executive offices not later than April 11,
2001. Any shareholder who wishes to submit a proposal for consideration at a
meeting of shareholders should send such proposal to the Company at 114 West
47th Street, New York, New York 10036.
No business other than the matters described above is expected to come
before the Meeting, but should any other matter requiring a vote of
shareholders arise, including any question as to an adjournment of the
Meeting, the persons named in the enclosed Proxy will vote thereon according
to their best judgment in the interests of the Company.
- 23 -
<PAGE>
Annex I
<TABLE>
<CAPTION>
Position with United
States
Trust Company of New York Name; Address Principal Occupation Type of Business
- ------------------------- ------------- -------------------- ----------------
<S> <C> <C> <C>
Director Eleanor Baum Dean of School of Engineering Academic
4 Arleigh Road at The Cooper Union for the
Great Neck, NY 11021 Advancement of Science & Art
Director Samuel C. Butler Partner in Cravath, Swaine & Law Firm
Cravath, Swaine Moore
& Moore
Worldwide Plaza
825 Eighth Avenue
Director Peter O. Crisp Retired Chairman of Venrock, Venture Capital
103 Horseshoe Road Inc.
Mill Neck, NY 11765
Director Antonia M. Grumbach Partner in Patterson,Belknap, Law Firm
Patterson, Belknap, Webb & Webb & Tyler, LLP
Tyler, LLP
1133 Avenue of the Americas
New York, NY 10036
Director, Chairman H. Marshall Schwarz Chairman of the Board and Asset Management,
of the Board and United States Trust Company Chief Executive Officer of Investment and
Chief Executive of New York U.S. Trust Corporation and Fiduciary Services
Officer 114 West 47th Street United States Trust Company
New York, NY 10036 of New York
Director Philippe de Montebello Director of the Metropolitan Art Museum
The Metropolitan Museum Museum of Art
of Art
1000 Fifth Avenue
New York, NY 10028
Director Robert E. Denham Partner in Manger, Tolls & Law Firm
Manger, Tolls & Olson LLP Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, CA 90071
Director John H. Stookey Chairman of Suburban Propane Petrochemicals
Suburban Propane Pts. Pts. and Propane
P.O. Box 455
Sheffield, MA 01257
Director Robert N. Wilson Vice Chairman of the Board of Health Care
Johnson & Johnson Johnson & Johnson Products
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Director Peter L. Malkin Chairman of Wien & Malkin Law Firm
Wien & Malkin LLP LLP
Lincoln Building
60 East 42nd Street
New York, NY 10165
</TABLE>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Position with United States
Trust Company of New York Name; Address Principal Occupation Type of Business
- --------------------------- ------------- --------------------- ----------------
<S> <C> <C> <C>
Director David A. Olsen Retired Chairman of Johnson & Risk & Insurance
1120 Park Avenue Higgins Services
New York, NY 10128
Director Carl H. Pforzheimer, II Managing Partner Broker-Dealer
Carl H. Pforzheimer & Co. Investment Adviser
650 Madison Avenue
New York, NY 10022
Director Ruth A. Wooden President and Chief Executive Not-for- Profit
60 Gramercy Park North Officer National Parenting
Apt. 2m Association
New York, NY 10016
Director Philip L. Smith Corporate Director and Trustee Consumer Goods
P.O. Box 386
Ponte Verde Beach, FL 32004
Executive Vice Paul K. Napoli Executive Vice President of Asset Management,
President United States Trust Company U.S. Trust Corporation and Investment and
of New York United States Trust Company Private Banking
114 West 47th Street of New York
New York, NY 10036
Director and Vice Maribeth S. Rahe Vice Chairman of U.S. Trust Asset Management,
Chairman United States Trust Company Corporation and United States Investment and
of New York Trust Company of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director, Vice Chairman Frederick B. Taylor Vice Chairman and Chief Asset Management,
and Chief Investment United States Trust Company Investment Officer of U.S. Investment and
Officer of New York Trust Corporation and United Fiduciary Services
114 West 47th Street States Trust Company
New York, NY 10036 of New York
Director, President, Jeffrey S. Maurer President and Chief Operating Asset Management,
and Chief Operating United States Trust Company Officer of U.S. Trust Investment and
Officer of New York Corporation and United States Fiduciary Services
114 West 47th Street Trust Company of New York
New York, NY 10036
Executive Vice John L. Kirby Executive Vice President and Asset Management,
President and Chief United States Trust Company Chief Financial Officer of U.S. Investment and
Financial Officer of New York Trust Corporation and United Fiduciary Services
114 West 47th Street States Trust Company
New York, NY 10036 of New York
Executive Vice Kenneth G. Walsh Executive Vice President of Asset Management,
President United States Trust Company U.S. Trust Corporation and Investment and
of New York United States Trust Company Fiduciary Services
114 West 47th Street of New York
New York, NY 10036
Executive Vice John M. Deignan Executive Vice President of Private Banking
President United States Trust Company U.S. Trust Corporation and Investment and
of New York United States Trust Company Fiduciary Services
114 West 47th Street of New York
New York, NY 10036
</TABLE>
- 25 -
<PAGE>
Annex II
<TABLE>
<CAPTION>
Position with U.S.
Trust Company Name; Address Principal Occupation Type of Business
------------------ ------------- -------------------- ----------------
<S> <C> <C> <C>
Director Tucker H. Warner Co-Founder, Consulting Firm
The Nutmeg Financial Partner & Director
Group, LLC
1157 Highland Avenue
West Cheshire, CT 06903
Director Thomas C. Clark Managing Director, Asset Management,
United States Trust Company United States Trust Investment and
of New York Company of New York Fiduciary Services
11 West 54th Street
New York, NY 10019
Director, Chairman Maribeth S. Rahe Vice Chairman, Asset Management,
of Board United States Trust U.S. Trust Corporation and Investment and
Company of New York United States Trust Company Fiduciary Services
114 West 47th Street of New York
New York, NY 10036
Director Frederick B. Taylor Vice Chairman, Asset Management,
United States Trust and Chief Investment Officer Investment and
Company of New York of U.S. Trust Corporation and Fiduciary Services
114 West 47th Street United States Trust Company
New York, NY 10036 of New York
Director Robert C. Bodine Chairman Asset Management
U.S. Trust Company Investment and
100 West Lancaster Avenue Fiduciary Services
Suite 200
Wayne, PA 19087
Director Howard E.N. Wilson Chairman Asset Management
U.S. Trust Company Investment and
100 West Lancaster Avenue Fiduciary Services
Suite 200
Wayne, PA 19087
Director Kenneth G. Walsh Executive Vice President, Asset Management,
United States Trust Company United States Trust Company Investment and
of New York of New York Fiduciary Services
114 West 47th Street
New York, NY 10036
Director, Managing William V. Ferdinand Managing Director and Asset Management,
Director & Chief U.S. Trust Company Chief Investment Officer Fiduciary Services
Investment Officer, 225 High Ridge Road and Private Banking
CT Offices Stamford, CT 06905
</TABLE>
- 26 -
<PAGE>
<TABLE>
<CAPTION>
Position with U.S.
Trust Company Name; Address Principal Occupation Type of Business
------------------ ------------- -------------------- ----------------
<S> <C> <C> <C>
Director, President & W. Michael Funck President and Asset Management,
Chief Executive Officer, U.S. Trust Company Chief Executive Officer Fiduciary Services
CT Offices 225 High Ridge Road and Private Banking
Stamford, CT 06905
</TABLE>
- 27 -
<PAGE>
APPENDIX A
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT, dated as of , 2000 by and among UST Private
Equity Investors Fund, Inc., a Maryland corporation (the "Company"), United
States Trust Company of New York, a New York State chartered bank and trust
company ("U.S. Trust NY") and U.S. Trust Company, a Connecticut State
chartered bank and trust company ("U.S. Trust Co." and together with U.S.
Trust NY, "U.S. Trust" or the "Managing Investment Adviser").
WITNESSETH
WHEREAS, the Company has been organized as a Maryland corporation to engage
in the business of a closed-end management investment company registered under
the Securities Act of 1933, as amended, and has elected to be regulated as a
business development company under the Investment Company Act of 1940, as
amended; and
WHEREAS, the Company seeks to retain U.S. Trust to provide certain
investment advisory and administrative services; and
WHEREAS, U.S. Trust is willing to furnish such investment advisory and
administrative services to the Company on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises herein
contained and other good and valuable consideration, the Company and U.S.
Trust hereby agree as follows:
Definitions. As used in this Agreement, the following terms have the
meanings set forth below:
a) "Board of Directors" means the board of directors of the Company;
b) "Company" means UST Private Equity Investors Fund, Inc.;
c) "Director" means any member of the Board of Directors;
d) "Disabling Conduct" means, on the part of the Managing Investment
Adviser, any bad faith, negligence, misconduct or any breach of fiduciary duty
owed to the Company;
e) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
f) "Investment Company Act" means the Investment Company Act of 1940, as
amended;
g) "Managing Investment Adviser" means U.S. Trust NY and U.S. Trust Co.;
h) "Portfolio Companies" means Later-Stage Venture Capital Companies and
Middle-Market Companies, each as defined in the Registration Statement;
i) "Private Funds" has the meaning set forth in the Registration Statement;
j) "Registration Statement" means the Registration Statement of the Company
which is effective under the Securities Act;
k) "Securities Act" means the Securities Act of 1933, as amended;
l) "Short-Term Investments" has the meaning set forth in the Registration
Statement;
m) "U.S. Trust" means U.S. Trust NY and U.S. Trust Co.;
n) "U.S. Trust Co." means U.S. Trust Company; and
o) "U.S. Trust NY" means United States Trust Company of New York.
1. Appointment. The Company hereby appoints U.S. Trust to act as the
managing investment adviser and administrator to the Company for the period
and on the terms set forth in this Agreement. U.S. Trust accepts
A-1
<PAGE>
such appointment and agrees to be responsible for finding, evaluating,
structuring, and monitoring the Company's investments in Portfolio Companies,
Private Funds and Short-Term Investments and performing the management and
administrative services necessary for the operation of the Company for the
compensation provided by this Agreement. The Managing Investment Adviser may,
in its discretion, provide such services through its own employees or the
employees of one or more affiliated companies that are qualified to act as
investment adviser to the Company under applicable law and are under the
common control of U.S. Trust Corporation provided (i) that all persons, when
providing services hereunder, are functioning as part of an organized group of
persons, (ii) the use of an affiliate's employees does not result in a change
of actual control or management of the investment advisor, and (iii) the use
of an affiliate's employees has been approved by the Board of Directors of the
Company.
2. Duties of the Managing Investment Adviser. Subject to the direction and
control of the Board of Directors, the Managing Investment Adviser shall:
a) prepare (or otherwise obtain) and evaluate on both a macroeconomic and
microeconomic level any pertinent research; statistical, financial and
economic data; and other information necessary or appropriate for the
performance of its duties under this Agreement;
b) identify, evaluate, structure, monitor and dispose of the Company's
investments in Portfolio Companies, Private Funds and Short-Term Investments;
c) make available and, if requested by entities in which the Company has
invested or is proposing to invest, render managerial assistance to and
exercise management rights in, such entities;
d) determine the securities to be purchased by the Company, and continuously
monitor such securities and the issuers thereof to determine whether and when
to sell, exchange or take any other action concerning such securities
including the making of follow-on investments in Portfolio Companies when
appropriate;
e) determine whether and how to exercise warrants, voting rights or other
rights with respect to the Company's portfolio securities;
f) select broker-dealers to carry out the Company's securities transactions,
including broker-dealers who are affiliated with the Managing Investment
Adviser or the Company;
g) provide valuations with respect to the securities held by the Company as
provided in the Registration Statement;
h) provide, at its expense, office space, equipment, facilities and supplies
and clerical services necessary for the operation of the Company;
i) keep and maintain the books and records of the Company;
j) administer stockholders' accounts and handle communications and
correspondence with stockholders;
k) prepare accounting, management and other reports;
l) conduct relations with custodians, depositories, transfer agents,
accountants, attorneys, any selling agent, any escrow agent, insurers, banks
and such other persons in any such other capacity deemed necessary or
desirable for the operation of the Company;
m) render regular reports to the Company's officers and the Board of
Directors concerning the investment performance of the Company, the Managing
Investment Adviser's discharge of its responsibilities under this Agreement
and any other subject as the Company's officers or the Board of Directors
reasonably may request; and
A-2
<PAGE>
n) assist the Company's officers in connection with the operation of the
Company and perform any further acts that may be necessary to effectuate the
purposes of this Agreement or that may be requested by the Company.
3. Supervision and Compliance. The activities of the Managing Investment
Adviser shall be subject at all times to the direction and control of the
Board of Directors and shall comply with: (a) the Articles of Incorporation of
the Company and the By-Laws of the Company, as such documents are amended from
time to time; (b) the Registration Statement, including the investment
objective and policies set forth therein; (c) the applicable provisions of the
Investment Company Act and the applicable regulations thereunder; (d) the
Internal Revenue Code of 1986, as amended, and the regulations thereunder
applicable to regulated investment companies; (e) any other applicable laws or
regulations; and (f) such other limitations as the Board of Directors may
adopt.
4. Delegation. In performing its duties under this Agreement and assuming
the obligations set forth herein, the Managing Investment Adviser may, at its
own expense, employ certain of its affiliates of other entities; provided that
the Managing Investment Adviser understands and agrees that it shall remain
fully responsible for the performance of all the duties set forth in this
Agreement and that it shall supervise the activities of each such affiliate or
other entity. Any agreement between the Managing Investment Adviser and an
affiliate or other such entity shall be subject to the renewal, termination
and amendment provisions applicable to this Agreement.
5. Purchase and Sale of Securities. The Managing Investment Adviser shall,
at its own expense, place orders for the purchase, sale or loan of securities
by the Company either directly with the issuer or with any broker and/or
dealer who deals in such securities.
a) In placing orders with brokers and/or dealers, the Managing Investment
Adviser shall use its best efforts to obtain the best net price and the most
favorable execution of its orders, after taking into account all factors it
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the
broker and/or dealer and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. Consistent with this
obligation, the Managing Investment Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Exchange Act) to or for the benefit of the Company and/or other accounts over
which the Managing Investment Adviser exercises investment discretion. The
Managing Investment Adviser is authorized to pay a broker who provides such
brokerage and research services a commission for effecting a securities
transaction which is in excess of the amount of commission another broker
would have charged for effecting that transaction, if the Managing Investment
Adviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Managing Investment
Adviser with respect to the accounts as to which it exercises investment
discretion.
b) The Managing Investment Adviser may execute transactions through itself
and its affiliates on a securities exchange provided that the commissions paid
by the Company are "reasonable and fair" compared to commissions received by
other brokers having comparable execution capability and provided that the
transactions are effected pursuant to procedures established by the Board of
Directors. An affiliated broker may transmit, clear and settle transactions
for the Company that are executed on a securities exchange provided that the
affiliated broker arranges for unaffiliated brokers to execute the
transactions.
c) Notwithstanding the foregoing, the Board of Directors periodically shall
review the commissions paid by the Company and determine whether those
commissions were reasonable in relation to the brokerage and research services
received. In addition, the Board of Directors, in its discretion, may instruct
the Managing Investment Adviser to effect all or a portion of its securities
transactions with one or more brokers and/or dealers
A-3
<PAGE>
selected by the Board of Directors, if it determines that the use of such
brokers and/or dealers is in the best interest of the Company.
d) When the Managing Investment Adviser deems the purchase or sale of a
security to be in the best interest of the Company as well as other customers,
the Managing Investment Adviser, to the extent permitted by applicable law,
may aggregate the securities to be so sold or purchased in order to obtain the
best execution or lower brokerage commissions. The Managing Investment Adviser
also may purchase or sell a particular security for one or more customers in
different amounts. Allocation of the securities purchased or sold in either
manner, as well as the expenses incurred in the transactions, will be made by
the Managing Investment Adviser in a manner that is equitable and consistent
with applicable law and regulations, any guidelines adopted by the Board of
Directors and with its fiduciary obligations to the Company and to such other
customers.
6. Expenses.
a) The Managing Investment Adviser shall furnish, at its own expense, all
office space, office facilities, equipment and personnel necessary or
appropriate to the performance of its duties under this Agreement. The
Managing Investment Adviser also shall pay the salaries and fees of all
personnel of the Company or the Managing Investment Adviser performing
services related to the Managing Investment Adviser's duties under this
Agreement.
b) It is understood that the Company will pay all of its expenses and
liabilities, including fees of the Directors; fees of the Managing Investment
Adviser; expenses of registering the Company's shares under federal and state
securities laws; interest; taxes; fees and expenses of the Company's legal
counsel and independent accountants; fees and expenses of the Transfer Agent;
expenses of printing and mailing share certificates, stockholder reports,
notices to stockholders and proxy statements; reports to regulatory bodies;
brokerage and other expenses in connection with the execution, recording and
settlement of portfolio security transactions; expenses in connection with the
acquisition and disposition of portfolio securities of the registration of
privately issued portfolio securities; costs of third party evaluations or
appraisals of the Company (or its assets) or its actual investments; expenses
of membership in investment company associations; expenses of fidelity bonding
and other insurance premiums; expenses of stockholders' meetings; Securities
and Exchange Commission and state blue sky registration fees; fees payable to
the National Association of Securities Dealers, Inc., if any, in connection
with the offering of the Company's shares; and the Company's other business
and operating expenses.
7. Compensation of the Managing Investment Adviser. In consideration of the
services to be rendered by the Managing Investment Adviser under this
Agreement, the Company shall pay the Managing Investment Adviser:
a) quarterly and payable in arrears on the last day of each fiscal quarter,
a management fee equal to 1.5% per annum of the net assets of the Company,
determined as of the end of each fiscal quarter, that are invested or
committed to be invested in Portfolio Companies or Private Funds, and equal to
0.5% of the net assets of the Company, determined as of the end of each fiscal
quarter, that are invested in Short-Term Investments and are not committed to
Portfolio Companies or Private Funds; and
b) an incentive fee in an amount equal to 10% of the realized capital gains
(net of realized capital losses and unrealized net capital depreciation) less
the aggregate amount of incentive fee payments in prior years. If the amount
of the incentive fee in any year is a negative number, or cumulative net
realized capital gains less net unrealized capital depreciation at the end of
any year is less than such amount calculated at the end of the previous year,
the Managing Investment Adviser agrees to repay to the Company all or a
portion of the incentive fee previously paid.
8. Services to Others. The services of the Managing Investment Adviser to
the Company are not to be deemed exclusive and the Managing Investment Adviser
is free to render services to others and to engage in
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other activities; provided, however, that those services and activities do not
adversely affect the Managing Investment Adviser's ability to perform its
obligations under this Agreement.
9. Books, Records, and Information. The Managing Investment Adviser shall
provide the Company with all records concerning the Managing Investment
Adviser's activities that the Company is required by law to maintain. Any
records required to be maintained and preserved pursuant to the provisions of
Rule 31a-1 and Rule 31a-2 under the Investment Company Act which are prepared
or maintained by the Managing Investment Adviser on behalf of the Company are
the property of the Company and will be surrendered promptly to the Company on
request. The Company also shall comply with all reasonable requests for
information by the Company's officers or Board of Directors, including
information required for the Company's filings with the Securities and
Exchange Commission and state securities commissions.
10. Limitations on Liability.
a) The Managing Investment Adviser hereby is notified expressly of the
limitation of directors' liability as set forth in the Articles of
Incorporation and the Bylaws of the Company and agrees that any obligation of
the Company arising in connection with this Agreement shall be limited in all
cases to the Company and its assets, and the Managing Investment Adviser shall
not seek satisfaction of any such obligation from any Director of the Company.
b) The Managing Investment Adviser shall give the Company the benefit of its
best judgment and efforts in rendering services under this Agreement. In the
absence of Disabling Conduct, the Managing Investment Adviser shall not be
liable to the Company or to any shareholder for any act or omission in the
course of, or connected with, rendering services under this Agreement or for
any losses that may be sustained in the purchase, holding or sale of any
security. U.S. Trust NY and U.S. Trust Co. shall be jointly, but not
severally, liable for a loss resulting from Disabling Conduct of either
Managing Investment Adviser.
11. Indemnification. The Company will indemnify the Managing Investment
Adviser against, and hold it harmless from, any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) not resulting from Disabling Conduct by the Managing Investment
Adviser. Indemnification shall be made only following: (i) a final decision on
the merits by a court or other body before whom the proceeding was brought
that the Managing Investment Adviser was not liable by reason of Disabling
Conduct or (ii) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the Managing Investment Adviser was not
liable by reason of Disabling Conduct by (a) the vote of a majority of a
quorum of Directors of the Company who are neither "interested persons" of the
Company nor parties to the proceeding ("disinterested non-party Directors") or
(b) independent legal counsel in a written opinion. The Managing Investment
Adviser shall be entitled to advances from the Company for payment of the
reasonable expenses incurred by it in connection with the matter as to which
it is seeking indemnification in the manner and to the fullest extent
permissible under the Maryland General Corporation Law. The Managing
Investment Adviser shall provide to the Company a written affirmation of its
good faith belief that the standard of conduct necessary for indemnification
by the Company has been met and a written undertaking to repay any such
advance if it should ultimately be determined that the standard of conduct has
not been met. In addition, at least one of the following additional conditions
shall be met: (a) the Managing Investment Adviser shall provide security in
form and amount acceptable to the Company for its undertaking; (b) the Company
is insured against losses arising by reason of the advance; or (c) a majority
of a quorum of disinterested non-party Directors, or independent legal
counsel, in a written opinion, shall have determined, based on a review of
facts readily available to the Company at the time the advance is proposed to
be made, that there is reason to believe that the Managing Investment Adviser
will ultimately be found to be entitled to indemnification.
No provision of this Agreement shall be construed to protect any Director or
officer of the Company or the Managing Investment Adviser from liability in
violation of Section 17(i) of the Investment Company Act.
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12. Effective Date; Termination; Amendments.
a) This Agreement shall be effective as of the date first above written and,
unless terminated sooner as provided herein, shall continue until the second
anniversary of the execution of this Agreement. Thereafter, unless terminated
sooner as provided herein, this Agreement shall continue in effect for
successive annual periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Board of Directors
of the Company who are not parties to this Agreement or interested persons of
any such party, cast in person at a meeting called for the purpose of voting
on such continuance, and either: (i) the vote of a majority of the outstanding
voting securities of the Company; or (ii) the vote of a majority of the full
Board of Directors.
b) This Agreement may be terminated at any time, without the payment of any
penalty, either by: (i) the Company, by the vote of a majority of the Board of
Directors who are not parties to this Agreement or interested persons of any
such party or by vote of a majority of the outstanding voting securities of
the Company, on 60 days' written notice to the Managing Investment Adviser; or
(ii) the Managing Investment Adviser, on 90 days' written notice to the
Company. This Agreement shall terminate immediately in the event of its
assignment.
c) An affiliate of the Investment Adviser may assume the Investment
Adviser's obligations under this Agreement provided that (i) the affiliate is
qualified to act as an investment adviser to the Company under applicable law;
(ii) the assumption will not result in a change of actual control or
management of the Investment Adviser and (iii) the assumption of the
Investment Adviser's obligations by the affiliate is approved by the Board of
Directors of the Company.
d) This Agreement may be amended only if such amendment is approved, to the
extent required by the Investment Company Act, by the vote of a majority of
the outstanding voting securities of the Company and by vote of a majority of
the Board of Directors who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose
of voting on such amendment.
e) As used in this Agreement, the terms "specifically approved at least
annually," "majority of the outstanding voting securities," "interested
persons" and "assignment" shall have the same meanings as such terms have in
the Investment Company Act and the regulations thereunder.
13. Notices. All notices and other communications hereunder shall be in
writing or by confirm in telegraph, cable, telex, or facsimile sending device.
Notices shall be addressed (a) if to U.S. Trust, at U.S. Trust's address, 114
W. 47th Street, New York, New York 10036; or (b) if to the Company, at the
address of the Company, Attn: David I. Fann.
14. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York without giving effect to the choice of law
provisions thereof, to the extent that such laws are consistent with the
provisions of the Investment Company Act and the regulations thereunder.
15. Miscellaneous. The captions in this Agreement are included for the
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Should any
part of this Agreement be held or made invalid by a court decision, statute,
regulation, or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
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IN WITNESS WHEREOF, the Company and the Managing Investment Adviser have
caused this Agreement to be executed and delivered in their names and on their
behalf by the undersigned, duly authorized officers, all as of the day and
year first above written.
UST PRIVATE EQUITY INVESTORS
FUND, INC.
By: _________________________________
Name:
Title: President
UNITED STATES TRUST COMPANY OF
NEW YORK
By: _________________________________
Name:
Title:
U.S. TRUST COMPANY
By: _________________________________
Name:
Title:
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<S> <C>
[LOGO OF EXCELSIOR FUNDS] THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF UST PRIVATE EQUITY INVESTORS FUND, INC.
UST PRIVATE EQUITY INVESTORS FUND,INC. (THE "COMPANY")
73 TREMONT STREET
BOSTON, MA 02108 This proxy is solicited by the Board of the Company for use at an annual
meeting of shareholders to be held on July 18, 2000, at 10:00 a.m. (New York time)
at the offices of United States Trust Company of New York, 114 West 47th Street,
New York, New York 10036
The undersigned hereby appoints Frank D. Bruno, Brian F. Schmidt and Ronald A.
Schwartz, and each of them, with full power of substitution, as proxies of the
undersigned to vote at the above-stated annual meeting, and at all adjournments or
postponements thereof, all shares representing interests in the Company held of
record by the undersigned on April 24, 2000, the record date for the meeting, upon
the following matters and upon any other matter that may come before the meeting,
in their discretion.
Every properly signed proxy will be voted in the manner specified thereon and,
in the absence of specification, will be treated as GRANTING authority to vote FOR
each nominee for director in Proposal 1, FOR Proposal 2, FOR Proposal 3 and FOR
Proposal 4.
The proxies are authorized in their discretion to vote on any other business
which may properly come before the Meeting and any adjournments thereof.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney or executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please sign
in full corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
To vote by Telephone
1) Read the Proxy Statement and have the Proxy
card below at hand.
2) Call 1-800-890-8903
3) Enter the 12-digit control number set forth on
the Proxy card and follow the simple instructions.
To vote by Internet
1) Read the Proxy Statement and have the Proxy
card below at hand.
2) Go the Web site/www.proxyvote.com.
3) Enter the 12-digit control number set forth
on the Proxy card and follow the simple
instructions.
PLEASE SIGN AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE. NO POSTAGE IS REQUIRED.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: EXCUST KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY
UST PRIVATE EQUITY INVESTORS FUND, INC.
Vote on Directors For Withhold For All To withhold authority to vote, mark "For All
All All Except Except" and write the nominee's number on
1. 01) John C. Hover, II [ ] [ ] [ ] the line below.
02) Gene M. Bernstein __________________________________________
03) Stephen V. Murphy
04) Victor F. Imbimbo, Jr.
Vote on Proposals For Against Abstain
2. Proposal to approve a new Investment Advisory Agreement among the Company, [ ] [ ] [ ]
United States Trust Company of New York and U.S. Trust Company.
3. Proposal to approve and ratify or disapprove and reject the payments previously [ ] [ ] [ ]
made to United States Trust Company of New York and U.S. Trust Company pursuant
to the investment advisory agreement and the Board of Directors' determinations
with respect thereto.
4. Proposal to ratify the selection of Ernst & Young, LLP as independent [ ] [ ] [ ]
accountants for the Company's fiscal year ending October 31, 2000.
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Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
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