Schedule 14A
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 ss.240.14a-12
____
MACC PRIVATE EQUITIES INC.
(Name of Registrant as Specified In Its Charter)
---------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than
the Registrant)
Payment of Filing Fee (Check the appropriate box)
X 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: .
2) Aggregate number of securities to which transaction applies: .
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
.
4) Proposed maximum aggregate value of transaction: .
5) Total fee paid: .
____ Fee paid previously with preliminary materials
____
Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: .
2) Form, Schedule or Registration Statement No.: .
---------------------
3) Filing Party: .
----------------------------------------
4) Date Filed: .
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101 Second Street SE, Suite 800
Cedar Rapids, Iowa 52401
June 17, 2005
To the Shareholders of MACC Private Equities Inc:
The Annual Meeting of Shareholders of our Corporation will be held on July
19, 2005, at 10:00 a.m. Mountain Standard Time at the Little America Hotel, 500
South Main Street, Salt Lake City, Utah 84101.
A Notice of the meeting, a Proxy and Proxy Statement containing information
about matters to be acted upon are enclosed. In addition, the MACC Private
Equities Inc. Annual Report for the Fiscal Year ended September 30, 2004, is
enclosed and provides information regarding the financial results of the
Corporation for the year. Holders of Common Stock are entitled to vote at the
Annual Meeting on the basis of one vote for each share held. If you attend the
Annual Meeting in July, you retain the right to vote in person even though you
previously mailed the enclosed Proxy.
It is important that your shares be represented at the meeting whether or
not you are personally in attendance, and I urge you to review carefully the
Proxy Statement and sign, date and return the enclosed Proxy at your earliest
convenience. I look forward to meeting you and, together with our Directors and
Officers, reporting our activities and discussing the Corporation's business and
its prospects. I hope you will be present.
Very truly yours,
/s/ Geoffrey T. Woolley
Geoffrey T. Woolley
Chairman of the Board
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101 Second Street SE, Suite 800
Cedar Rapids, Iowa 52401
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 19, 2005
To the Shareholders of MACC Private Equities Inc:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of MACC
Private Equities Inc., a Delaware corporation (the "Corporation"), will be held
on July 19, 2005, at 10:00 a.m. Mountain Standard Time at the Little America
Hotel, 500 South Main Street, Salt Lake City, Utah 84101, for the following
purposes:
1. To elect seven directors to serve terms consistent with the
classification contemplated below or until their respective successors shall be
elected and qualified;
2. To approve an amendment to the Corporation's Amended and Restated Bylaws
to provide for the classification of the Corporation's Board of Directors;
3. To approve an Investment Advisory Agreement (the
"InvestAmerica/MorAmerica Agreement") between the Corporation's wholly-owned
subsidiary, MorAmerica Capital Corporation ("MorAmerica") and InvestAmerica
Investment Advisors, Inc. ("InvestAmerica");
4. To approve an Investment Advisory Agreement (the "InvestAmerica/MACC
Agreement") between the Corporation and InvestAmerica;
5. To authorize the Corporation to issue rights to acquire any authorized
shares of Common Stock of the Corporation;
6. To ratify the appointment of KPMG LLP as independent auditors; and
7. To transact such other business as may properly come before the meeting
and any adjournment thereof.
Only holders of Common Stock of the Corporation of record at the close of
business on May 31, 2005, will be entitled to notice of, and to vote at, the
meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ David R. Schroder
David R. Schroder, Secretary
Your Officers and Directors desire that all shareholders be present or
represented at the Annual Meeting. Even if you plan to attend in person, please
date, sign and return the enclosed proxy in the enclosed postage-prepaid
envelope at your earliest convenience so that your shares may be voted. If you
do attend the meeting in July, you retain the right to vote even though you
mailed the enclosed proxy. The proxy must be signed by each registered holder
exactly as the stock is registered.
2
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101 Second Street SE, Suite 800
Cedar Rapids, Iowa 52401
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 19, 2005
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of MACC Private Equities Inc., a Delaware corporation
(the "Corporation"), of proxies to be voted at the Annual Meeting of
Shareholders to be held on July 19, 2005, or any adjournment thereof (the "2005
Annual Meeting"). The date on which this Proxy Statement and the enclosed form
of proxy are first being sent or given to shareholders of the Corporation is on
or about June 17, 2005.
PURPOSES OF THE MEETING
The 2005 Annual Meeting is to be held for the purposes of:
(1) electing seven persons to serve as Directors of the Corporation for
terms consistent with the Classification (defined below), or until their
respective successors shall be elected and qualified;
(2) approving an amendment to the Corporation's Amended and Restated Bylaws
to provide for the classification of the Corporation's Board of Directors (the
"Classification");
(3) approving the Investment Advisory Agreement (the
"InvestAmerica/MorAmerica Agreement") between MorAmerica Capital Corporation
("MorAmerica") and InvestAmerica Investment Advisors, Inc. ("InvestAmerica");
(4) approving the Investment Advisory Agreement (the "InvestAmerica/MACC
Agreement") between the Corporation and InvestAmerica;
(5) authorizing the Corporation to issue rights to acquire any authorized
shares of Common Stock of the Corporation;
(6) ratifying the appointment by the Board of Directors of KPMG LLP as
independent auditors; and
(7) transacting such other business as may properly come before the meeting
or any adjournment thereof.
1
The Board of Directors unanimously recommends that the shareholders vote
FOR the election as Directors of the persons named under ELECTION OF DIRECTORS,
FOR the amendment to the Corporation's Amended and Restated Bylaws to provide
for the classification of the Corporation's Board of Directors, FOR the approval
of the InvestAmerica/MorAmerica Agreement, FOR the approval of the
InvestAmerica/MACC Agreement, FOR the authorization to issue rights to acquire
any authorized shares of Common Stock of the Corporation, and FOR the
ratification of the appointment of KPMG LLP as independent auditors.
RECENT DEVELOPMENTS--BACKGROUND FOR PROPOSALS 3 & 4
At the Corporation's 2004 Annual Shareholders Meeting held on February 24,
2004, the shareholders of the Corporation approved investment advisory
agreements for the Corporation and MorAmerica with Atlas Management Partners,
LLC ("Atlas") and InvestAmerica Investment Advisors, Inc. ("InvestAmerica"), as
subadvisor. The agreements approved at the 2004 Annual Shareholders Meeting were
(1) the Investment Advisory Agreement between the Corporation and Atlas (the
"Atlas/MACC Agreement"), (2) the Investment Advisory Agreement between
MorAmerica and Atlas (the "Atlas/MorAmerica Agreement"), and (3) the Investment
Advisory Support Services Agreement between the Corporation, MorAmerica, Atlas
and InvestAmerica (the "Subadvisory Agreement"). These agreements are
collectively referred to as the "Atlas Agreements." Following the shareholder
approval, the Atlas Agreements were effective on March 1, 2004 (the "Effective
Date").
InvestAmerica had served as the investment adviser to the Corporation and
MorAmerica (together, the "Company") since 1995. Along with Atlas's appointment,
InvestAmerica remained as subadviser to the Company to continue to manage
MorAmerica's existing portfolio. Under this arrangement, Atlas provided
investment advisory services to the Company in connection with portfolio
investments made by the Company after the Effective Date. InvestAmerica
continued to manage the Company's portfolio investments made before the
Effective Date, including exits, preparation of valuations, providing all
accounting services for the Company, and other portfolio corporate management
matters. Additionally, from the Effective Date until April, 2005, Mr. David
Schroder served as Chief Financial Officer of the Corporation, and Mr. Robert A.
Comey served as Chief Financial Officer of MorAmerica.
Presently, substantially all of the Corporation's assets are held by
MorAmerica Capital Corporation ("MorAmerica"), the Corporation's wholly-owned
subsidiary. As a Small Business Investment Company ("SBIC") licensed by the U.S.
Small Business Administration (the "SBA"), MorAmerica is subject to oversight by
the SBA. The regulations promulgated by the SBA ("SBA Regulations") give SBA the
authority to approve or disapprove MorAmerica's investment advisor. Approval of
the Atlas Agreements was formally requested from the SBA on January 29, 2004.
On December 22, 2004, the SBA notified the Company that such approval would
not be granted. The SBA based its decision on its conclusions that: Atlas'
investment experience was primarily in early stage, equity investments (rather
than later stage, lower tech mezzanine investments of the type made by the
Company); none of the four funds detailed to SBA by Atlas as part of its
management team's investment track record placed in the upper half of peer group
performance and these funds had experienced limited positive investment exits to
date; and two principals of Atlas had not been involved in the track record
funds for a sufficient time to demonstrate a proven track record.
2
Following the SBA's decision and in accord with the SBA's directives, Atlas
and the Boards of Directors of both the Corporation and MorAmerica determined
that it would be in the best interests of the Company for Atlas to resign as the
Company's investment adviser, effective April 29, 2005. On April 30, 2005, the
Corporation and MorAmerica entered into Interim Investment Advisory Agreements
with InvestAmerica (the "Interim Agreements"). Pursuant to Rule 15a-4 adopted
under the Investment Company Act of 1940 (the "Investment Company Act"),
InvestAmerica has served as the Company's investment adviser on a temporary
basis without shareholder approval since April 30, 2005. The Interim Agreements
do not increase the fees payable to InvestAmerica from the fees payable to Atlas
under the prior advisory agreements, and the terms of the Interim Agreements do
not exceed one hundred fifty days. The Boards of Directors of the Company,
including a majority of the Company's directors who are not interested persons
of the Company, approved the Interim Agreements on April 29, 2005.
The Interim Agreements require the Company to pay InvestAmerica a level of
fees lower than that paid to Atlas under the Atlas Agreements. The new
investment advisory agreements recommended by the Boards of Directors of the
Company under PROPOSALS 3 & 4 have the same lower fees as the fees
payable to InvestAmerica under the Interim Agreements.
The Boards of Directors of the Company at their meeting held on April 29,
2005, approved the termination of the Atlas Agreements and the terms of the
Interim Agreements, and recommended that the Company's shareholders approve: (1)
the Investment Advisory Agreement between MorAmerica and InvestAmerica under
PROPOSAL 3 (the "InvestAmerica/MorAmerica Agreement") and (2) the Investment
Advisory Agreement between the Corporation and InvestAmerica under PROPOSAL 4
(the "InvestAmerica/MACC Agreement". The InvestAmerica/MorAmerica Agreement and
the InvestAmerica/MACC Agreement are referred to together as the "InvestAmerica
Agreements." Additionally at the April 29, 2005 meeting of the Boards of
Directors of the Company, the Boards appointed the following persons to serve as
officers of both the Corporation and of MorAmerica, all of whom are affiliated
with InvestAmerica: David R. Schroder was appointed President and Secretary,
Robert A. Comey was appointed Executive Vice President, Chief Financial Officer,
Chief Compliance Officer, Treasurer and Assistant Secretary, Kevin F. Mullane
was appointed Senior Vice President, Michael H. Reynoldson was appointed Vice
President, and Marilyn M. Benge was appointed Assistant Secretary.
VOTING AT THE MEETING
The record date for holders of Common Stock entitled to notice of, and to
vote at, the 2005 Annual Meeting is the close of business on May 31, 2005 (the
"Record Date"). As of the Record Date, the Corporation had outstanding and
entitled to vote at the 2005 Annual Meeting 2,329,255 shares of Common Stock.
3
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock outstanding and entitled to vote at the 2005 Annual
Meeting is necessary to constitute a quorum. Abstentions and shares held by
brokers, banks, other institutions and nominees that are voted on any matter at
the 2005 Annual Meeting are included in determining the presence of a quorum for
the transaction of business at the commencement of the 2005 Annual Meeting and
on those matters for which the broker, nominee or fiduciary has authority to
vote. In deciding all questions, a shareholder shall be entitled to one vote, in
person or by proxy, for each share of Common Stock held in the shareholder's
name at the close of business on the record date.
To be elected a Director, each nominee under PROPOSAL 1 must receive the
favorable vote of the holders of a plurality of the shares of Common Stock
entitled to vote and represented at the 2005 Annual Meeting.
In order to approve the Classification under PROPOSAL 2, to authorize the
Corporation to issue rights to acquire any authorized shares of Common Stock of
the Corporation under PROPOSAL 5, and to ratify the appointment of KPMG LLP as
independent auditors for the Corporation for the fiscal year ending September
30, 2005 under PROPOSAL 6, these proposals must receive the favorable vote of a
majority of the outstanding shares of Common Stock entitled to vote at the 2005
Annual Meeting.
In order to approve the InvestAmerica Agreements under PROPOSAL 3 and
PROPOSAL 4, such proposals must receive the favorable vote of a majority of the
outstanding shares of Common Stock entitled to vote at the 2005 Annual Meeting.
For purposes of these proposals, Section 2(a)(42) of the Investment Company Act,
defines "a majority of the outstanding shares" as (1) 67% or more of the voting
securities present at such meeting if the holders of more than 50% of the
outstanding voting securities of such company are present or represented by
proxy; or (2) 50% of the outstanding voting securities of such company,
whichever is less.
Each proxy delivered to the Corporation, unless the shareholder otherwise
specifies therein, will be voted:
>> FOR the election as Directors of the persons named under ELECTION OF
DIRECTORS--NOMINEES--TO THEIR RESPECTIVE TERMS,
>> FOR the amendment to the Corporation's Amended and Restated Bylaws
under CLASSIFICATION,
>> FOR the approval of the InvestAmerica/MorAmerica Agreement described
under APPROVAL OF INVESTAMERICA/MORAMERICA AGREEMENT,
>> FOR the approval of the InvestAmerica/MACC Agreement described under
APPROVAL OF INVESTAMERICA/MACC AGREEMENT,
4
>> FOR the authorization to issue rights to acquire any authorized shares
of Common Stock of the Corporation, and
>> FOR the ratification of the appointment by the Board of Directors of
KPMG LLP as independent auditors.
In each case where the shareholder has appropriately specified how the
proxy is to be voted, it will be voted in accordance with this specification. As
to any other matter or business which may be brought before the meeting, a vote
may be cast pursuant to the accompanying proxy in accordance with the judgment
of the person or persons voting the same, but neither the Corporation's
management nor the Board of Directors knows of any such other matter or
business. Any shareholder has the power to revoke his proxy at any time insofar
as it is then not exercised by giving notice of such revocation, either
personally at the meeting or in writing, to the Secretary of the Corporation or
by the execution and delivery to the Corporation of a new proxy dated subsequent
to the original proxy.
PROPOSAL 1
ELECTION OF DIRECTORS
The Corporation's Board of Directors formerly served one-year terms. As
contemplated in PROPOSAL 2, upon shareholder approval, the Corporation's Bylaws
will be revised to initiate the classified board structure by providing that the
initial term of each newly-elected Class I Director will be one year, the
initial term of each newly-elected Class II Director will be two years, and the
initial term of each newly-elected Class III Director will be three years.
Thereafter, each Director will serve three-year terms upon their election.
Accordingly, all Class I Director nominees will be elected at the 2005 Annual
Meeting to serve until the 2006 Annual Meeting of shareholders or until their
respective successors shall be elected and qualified, all Class II Director
nominees will be elected at the 2005 Annual Meeting to serve until the 2007
Annual Meeting of shareholders or until their respective successors shall be
elected and qualified, and all Class III Director nominees will be elected at
the 2005 Annual Meeting to serve until the 2008 Annual Meeting of shareholders
or until their respective successors shall be elected and qualified. If PROPOSAL
2, Classification, does not pass, each person elected to the Board will serve
for a one-year term which will expire at the 2006 Annual Meeting.
The persons named in the accompanying form of proxy intend to vote such
proxy for the election of the nominees named below as Directors of the
Corporation to serve until the applicable Annual Meeting of shareholders or
until their respective successors shall be elected and qualified, unless
otherwise properly indicated on such proxy. If any nominee shall become
unavailable for any reason, the persons named in the accompanying form of proxy
are expected to consult with the Board of Directors in voting the shares
represented by them at the 2005 Annual Meeting. The Board of Directors has no
reason to doubt the availability of any of the nominees and no reason to believe
that any of the nominees will be unable or unwilling to serve the entire term
for which election is sought.
Although the Corporation's Amended and Restated Bylaws provide for nine
directors, seven nominees are proposed to be elected as directors at the 2005
Annual Meeting. Mr. Kent
5
Madsen resigned from the Board on May 24, 2005 and Mr. Robison resigned on April
14, 2005. The Corporate Governance/Nominating Committee of the Corporation's
Board of Directors determined, in light of these resignations, that selecting
appropriate candidates through the normal procedures of the Corporation's
Governance/Nominating Committee in time for the 2005 Annual Meeting is not
practical. Under the Corporation's Amended and Restated Bylaws, the
Corporation's Board of Directors has the authority to fill the two vacancies if
suitable candidates are identified prior to the 2006 Annual Shareholders
Meeting.
Proxies may not be voted for more than the seven Director nominees set
forth below. To be elected a Director, each nominee must receive the favorable
vote of the holders of a plurality of the shares of Common Stock entitled to
vote and represented at the 2005 Annual Meeting. The names of the nominees,
along with certain information concerning them, are set forth below.
In the chart below, "Interested Directors" indicate those persons who are
"interested persons," as that term is defined in Section 2(a)(19) of the
Investment Company Act, of the Corporation, as affiliated persons of the
Corporation. In contrast, "Independent Directors" are not "interested persons."
Unless otherwise indicated, the address for all director nominees is 101
Second Street SE, Suite 800, Cedar Rapids, Iowa 52401.
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Class I Nominees--One-year term ending in 2006
----------------------------------------------------------------------------------------------------------------------
Interested Directors
---------------- ------------- ------------ ------------------------------------------------ -------------------------
Name, Address Position(s) Term of Principal Occupation(s) During Past 5 Years Other Directorships
and Age Held with Office and Held by Director or
the Length of Director Nominee
Corporation Time Served
---------------- ------------- ------------ ------------------------------------------------ -------------------------
+ Benjamin Director Since Mr. Jiaravanon has served as President of • MorAmerica
Jiaravanon, 34 February, Strategic Planning Group of Charoen Pokphand Capital Corporation:
2004 Indonesia, an agribusiness conglomerate with Director
sales in excess of $1.5 billion, since 2002.
From 1996 to 2002, Mr. Jiaravanon was an
Associate in the Direct Investments Group at
Merrill Lynch. He was responsible for helping
manage Merrill Lynch's capital in a portfolio
of companies across Asia including China,
Malaysia, Indonesia, Korea, and Singapore.
Mr. Jiaravanon received his Bachelor of
Science degree in industrial management from
Carnegie Mellon University.
---------------- ------------- ------------ ------------------------------------------------ -------------------------
+ To the extent that Bridgewater International Group, LLC ("Bridgewater") may be deemed to be in control of the
Corporation as a result of its beneficial ownership of the Corporation's Common Stock, Mr. Jiaravanon, as the sole
manager of Bridgewater, may be an "interested person" of the Corporation, as that term is defined in Section 2(a)(19)
of the Investment Company Act.
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6
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Independent Directors
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Name, Address Position(s) Term of Principal Occupation(s) During Past 5 Other Directorships
Held with Office and Years Held by Director or Director
the Length of
and age Corporation Time Served Nominee
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Gordon J. Director Since 2000 Since June of 2000, Mr. Roth has been • MorAmerica Capital
Roth, 51 Chief Financial Officer and Executive Vice Corporation: Director
President of Roth Capital Partners, LLC,
an independent investment banking firm
specializing in small-cap companies,
located in Newport Beach, California.
For approximately ten years prior to
joining Roth Capital Partners, LLC, Mr.
Roth was Chairman of Roth & Company, P.C.,
a public accounting firm located in Des
Moines, Iowa. Prior to that, Mr. Roth was
a partner at Deloite & Touche, a public
accounting firm, in Des Moines.
----------------------------------------------------------------------------------------------------------------------
Class II Nominees--Two-year term ending in 2007
----------------------------------------------------------------------------------------------------------------------
Independent Directors
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Name, Address Position(s) Term of Principal Occupation(s) During Past 5 Other Directorships
and Age Held with Office and Years Held by Director or
the Length of Director Nominee
Corporation Time Served
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Paul M. Bass, Director Since 1994 Mr. Bass was Chairman of the Boards of • Keystone Consolidated
Jr., 70 Directors of the Corporation and of Industries: Director
MorAmerica from 1994 to April, 2004. Mr. (Member of the Audit
Bass has served as Vice Chairman of First Committee)
Southwest Company, a regional investment • Compx International Inc:
banking firm, from 1988 to the present. Director (Chairman of the
Mr. Bass specializes in corporate Management Development
finance, investment management and public and Compensation Committee,
finance. Mr. Bass holds a B.B.A. in Member of the Audit
finance from Southern Methodist Committee)
University.
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Jasja Director Since Ms. Kotterman joined Avon Products as • MorAmerica Capital
Kotterman, 35 February, Director of Business Development in Corporation: Director
2004 February, 2004. Prior to joining Avon,
she was Vice President, Strategic
Planning and Business Development for
Primedia Inc., a diversified media
company, from 2003-2004, and Managing
Director of Primedia International, the
international development group for
Primedia, from 2000-2003. Prior to
joining Primedia, Ms. Kotterman was
Director, Finance and Business
Development, at Smartcasual.com, an
internet start-up company, from
1999-2000. Prior to this, Ms. Kotterman
was an associate with Merrill Lynch's
Investment Banking
7
Division from 1998 to 1999, working on
corporate finance and M&A transactions for
Latin American clients. Ms. Kotterman
started her business career at Bain &
Company, a strategy-consulting firm,
joining its London office, and subsequently
moving to its Spanish office in Madrid. Ms.
Kotterman holds an M.B.A. from the Wharton
School and an M.A. in International Studies
from the University of Pennsylvania. Ms.
Kotterman is a graduate of Cambridge
University in England, where she received
an M.A. in Genetics and an M.Phil. in
International Development.
----------------------------------------------------------------------------------------------------------------------
Class III Nominees--Three-year term ending in 2008
----------------------------------------------------------------------------------------------------------------------
Interested Directors
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Name, Address Position(s) Term of Principal Occupation(s) During Past 5 Other Directorships
and Age Held with Office and Years Held by Director or
the Length of Director Nominee
Corporation Time Served
---------------- ------------- ------------ ------------------------------------------- ------------------------------
+Goeffrey T. Director Director Mr. Woolley is currently Executive • MorAmerica Capital
Woolley, 46 and since Chairman of European Venture Partners, a Corporation: Chairman of the
Chairman of 2003, company he founded in 1997 to introduce • Dominion Ventures, Inc.:
the Board elected "venture leasing," an asset-backed debt Founding Partner
Chairman instrument with equity participation to • Polaris Ventures: advisor
April, the European and Israeli markets. He holds on Board
2004 an M.B.A. from the University of Utah and • Euclid SR Partners:
a B.S. in Business Management with a Minor advisor on Board
in Economics from Brigham Young • Von Braun & Schrieber
University. Private Equity: advisor on
Board
---------------- ------------- ------------ ------------------------------------------- ------------------------------
+ Mr. Woolley, as a former director of Atlas Management Partners, LLC, the Company's former investment adviser, may be
an "interested person" of the Corporation, as that term is defined in Section 2(a)(19) of the Investment Company Act.
----------------------------------------------------------------------------------------------------------------------
Independent Directors
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Name, Address Position(s) Term of Principal Occupation(s) During Past 5 Other Directorships
and Age Held with Office and Years Held by Director or
the Length of Director Nominee
Corporation Time Served
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Michael W. Director Since 1994 Mr. Dunn has also been a Director of • Security Savings Bank of
Dunn, 55 MorAmerica since 1994. Mr. Dunn has been Eagle Grove, Iowa: Vice
C.E.O. since 1980 and President and • MorAmerica: Director
President and Director Director since 1983 • Dunn Investment Co. (bank
of Farmers & Merchants Savings Bank of holding company):
Manchester, Iowa. President and C.E.O.
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Martin Walton, Director Since Mr. Walton has served as President of TD • MorAmerica Capital
41 February, Options LLC in Chicago, Illinois, one of Corporation: Director
---------------- ------------- ------------ ------------------------------------------- ------------------------------
8
---------------- ------------- ------------ ------------------------------------------- ------------------------------
2004 the largest equity options market makers,
and Global Head of Equity Derivatives for
TD Securities, the Investment Bank arm of
the Toronto-Dominion Bank since 2000. From
1995 to 2000, he managed a $240 million
hedge fund and later a $600 million fund
of hedge funds until joining TD Securities
in 2000. Mr. Walton began his career in
capital markets, trading for Canadian
Imperial Bank of Commerce
(London and Toronto) later becoming VP,
Derivatives Trading, at Bank of America in
London. Mr. Walton graduated with a B.A.
degree (Honours) from Brasenose College,
Oxford University in 1985.
---------------- ------------- ------------ ------------------------------------------- ------------------------------
Corporation Stock Ownership of Director Nominees
The following table represents, as of March 31, 2005, the dollar range
value of equity securities beneficially owned (as that term is defined in Rule
16a-1(a)(2) of the Exchange Act) by each nominee for Director of the Corporation
pursuant to this PROPOSAL 1. In the table, "Interested Directors" indicate those
persons who are "interested persons," as that term is defined in Section
2(a)(19) of the Investment Company Act, of the Corporation, as affiliated
persons of the Corporation. In contrast, "Independent Directors" are not
"interested persons."
NAME OF INDEPENDENT DIRECTOR DOLLAR RANGE AGGREGATE DOLLAR RANGE+
NOMINEE OF EQUITY SECURITIES OF EQUITY SECURITIES IN ALL FUNDS IN
IN THE CORPORATION CORPORATION COMPLEX
Paul M. Bass, Jr. $50,001 - $100,000 $50,001 - $100,000
Michael W. Dunn $50,001 - $100,000 $50,001 - $100,000
Gordon J. Roth $1 - $10,000 $1 - $10,000
Martin C. Walton None None
Jasja Kotterman $1 - $10,000 $1 - $10,000
DOLLAR RANGE AGGREGATE DOLLAR RANGE+
NAME OF INTERESTED DIRECTOR OF EQUITY SECURITIES OF EQUITY SECURITIES IN ALL FUNDS IN
NOMINEE IN THE CORPORATION CORPORATION COMPLEX
Geoffrey T. Woolley++ $10,001 - $50,000 $10,001 - $50,000
9
Benjamin Jiaravanon Over $100,000 Over $100,000
------------------------------------
+ There are no other funds in the Corporation's complex.
++ Mr. Woolley is a party to a line of credit agreement with the Corporation.
Under this agreement, amounts loaned by Mr. Woolley to the Corporation may be
converted, at his option, into shares of Common Stock of the Corporation. The
amount reported here does not include any shares of Common Stock which may be so
acquired.
Director Nominee Interests in Affiliates of the Corporation
As reported in Schedule 13D filed by Atlas Management Partners, LLC
("Atlas") and others on May 3, 2005, pursuant to an agreement dated April 28,
2005 between Atlas, Bridgewater International Group, LLC, Kent I. Madsen, Robert
A. Madsen, Todd J. Stevens, Nick Efstratis, Tim Bridgewater, and Geoffrey T.
Woolley, Bridgewater International Group, LLC has purchased from Mr. Kent Madsen
(the Company's former director, President and Secretary), Mr. Robert Madsen, Mr.
Stevens (a former director of the Company), Mr. Efstratis (the former Vice
President and Chief Compliance Officer of the Company), and Mr. Woolley (a
director of the Company), all of such persons' interests in Atlas, the Company's
former investment adviser.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION AS DIRECTORS OF THE PERSONS NAMED UNDER "ELECTION OF
DIRECTORS--NOMINEES--TO THEIR RESPECTIVE TERMS."
PROPOSAL 2
CLASSIFICATION
Under the Corporation's Amended and Restated Bylaws (the "Bylaws"), the
Corporation's current Directors were elected to serve for one-year terms at the
2004 Annual Meeting. The Board of Directors has since determined that it would
be in the Corporation's best interests to classify the Board of Directors such
that three of the nine Directors are elected every year to serve three-year
terms.
The Board is proposing the Classification to enhance the continuity of the
Corporation's Board leadership. As only one-third of the Board of Directors is
elected each year under the Classification, two-thirds of the Board will always
(absent events such as resignations) remain on the Board. Classification will
also permit the Board and its Corporate Governance/Nominating Committee to
effectively evaluate individual Board members as terms expire, rather than
evaluating the entire Board membership each year. The Investment Company Act
requires at least a majority of the Board to be independent, and the
Classification will allow the Corporate Governance/Nominating Committee greater
ability to recruit and retain new directors who are
10
independent. Additionally, the Classification can serve to deter hostile
takeovers or proxy contests respecting the composition of the Board of Directors.
Some observers feel that board classification decreases directors'
accountability to the shareholders because the directors do not stand for
re-election every year. Further, some argue that classification leads to an
entrenched board which can hinder management changes. One effect then of the
Classification is to make it harder for the Corporation's shareholders to change
a majority of the Corporation's directors, even when the only reason for such a
change would be the performance of the present directors.
One effect of this PROPOSAL 2 would be to make it more difficult for the
Corporation to accomplish certain transactions requiring a change of control and
would hinder the ability of principal stockholders to assume control of the
Corporation. This effect would make it more difficult to change the
Corporation's management, and could deter transactions which otherwise may
maximize shareholder value. Further, the effects of the Classification will not
only affect the Corporation immediately upon election of the directors under
PROPOSAL 1, but will continue to affect the Corporation on a going-forward basis
as the Classification will apply to all future Board elections, and will not be
triggered by any particular event, such as a hostile takeover.
The Corporation's shareholders may now change the majority of directors in
one annual meeting under the Bylaws' current director election system. Under the
Classification, the Corporation's shareholders would need two annual meetings to
effect such a change.
The Board has not recommended the Classification in any effort to counter a
plan by any person to accumulate the Corporation's stock or to obtain control of
the Corporation via merger, tender offer, solicitation in opposition to
management or otherwise. Similarly, the Board has not recommended the
Classification as part of any plan to adopt a series of amendments to the Bylaws
to thwart hostile takeover efforts, although there is one existing provision of
the Bylaws which can be viewed as an anti-takeover measure: the establishment of
a maximum of nine directors. The Board does not anticipate proposing other
anti-takeover measures in the future. All of the Directors approved the
Classification proposal at the Board's April 29, 2005 meeting. The NASDAQ stock
exchange rules do not provide NASDAQ the right to de-list a stock which adopts a
classified board structure.
Under the Delaware General Corporation Law, the Classification requires an
amendment to the Bylaws. Thus, upon approval by the shareholders of PROPOSAL 2,
the Bylaws shall be amended through adoption of the Second Amended and Restated
Bylaws, to provide that Section 1 of Article II of the Bylaws shall be replaced
in its entirety with the following:
Section 1. Number and Term of Office. The number of directors of the
Corporation to constitute the Board of Directors shall be nine (9). Each
director shall hold office until such director's successor has been elected
and has qualified, or until such director's death, retirement,
disqualification, resignation or removal. The Board of Directors shall be
and is divided into three (3) classes,
11
designated Class I, Class II and Class III. Class I directors shall consist
of three (3) directors who shall hold office until the annual meeting of
the stockholders in 2006. Class II directors shall consist of three (3)
directors who shall hold office until the annual meeting of stockholders in
2007. Class III directors shall consist of three (3) directors who shall
hold office until the annual meeting of stockholders in 2008. Upon
expiration of the terms of the office of directors as classified above,
their successors shall be elected for the term of three (3) years each.
Each director shall hold office until the annual meeting of the
stockholders for the year in which his or her term expires and until his or
her successor shall be elected and qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
The nominees for the three classes of Directors are as provided in PROPOSAL
1. Pursuant to Section 2 of Article II of the Bylaws, if a Director's office
becomes vacant, a majority of the remaining Directors, although less than a
quorum, may elect a successor to serve for the remainder of the vacant
directorship's term. Thus, if PROPOSAL 2 is approved at the 2005 Annual Meeting,
a majority of the remaining Directors, even if less than a quorum, could elect a
successor to serve for the entire remaining term--up to three years--before the
shareholders would re-elect a successor.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE AMENDMENT TO THE BYLAWS UNDER "CLASSIFICATION."
PROPOSAL 3
APPROVAL OF INVESTAMERICA/MORAMERICA AGREEMENT
Prior Atlas/MorAmerica Investment Advisory Agreement
MorAmerica was previously a party to the Investment Advisory Agreement
between MorAmerica and Atlas Management Partners, LLC ("Atlas") dated March 1,
2004 (the "Atlas/MorAmerica Agreement"). The Atlas/MorAmerica Agreement was
approved by the Corporation's shareholders at the 2004 Annual Shareholders
Meeting. As discussed above, as required by the SBA, MorAmerica's Board of
Directors, on April 29, 2005, approved the termination of Atlas as MorAmerica's
investment adviser and approved the terms of the Interim Investment Advisory
Agreement between MorAmerica and InvestAmerica, dated April 30, 2005 (the
"Interim MorAmerica Agreement").
Under the Atlas/MorAmerica Agreement, the advisory responsibilities of
Atlas and InvestAmerica were divided with respect to MorAmerica's assets. Atlas
managed all portfolio investments made by MorAmerica after the effective date of
the Atlas/MorAmerica Agreement, March 1, 2004 (the "Effective Date"), and
InvestAmerica managed all portfolio investments of MorAmerica made prior to the
Effective Date. For purposes of comparing the Atlas/MorAmerica Agreement and the
InvestAmerica/MorAmerica Agreement, the following are the remaining key
provisions of the Atlas/MorAmerica Agreement:
12
(1) Management Responsibilities: Atlas managed all assets of MorAmerica
after the Effective Date and, in conjunction with InvestAmerica pursuant to
the Subadvisory Agreement, generally provided all facilities, personnel,
and other means necessary for MorAmerica to operate. Except to the extent
of acquisitions or dispositions of portfolio securities that, in accordance
with MorAmerica's co-investment guidelines require specific board approval,
Atlas made decisions regarding all new and follow-on investments, asset
dispositions and other investment decisions.
(2) Operating Expenses: Atlas generally was responsible for expenses
relating to staff salaries, office space and supplies, and MorAmerica was
generally responsible for auditing fees, all legal expenses and other
expenses associated with being a public company, fees to the Directors, and
any and all expenses associated with property of a portfolio company taken
or received by MorAmerica or on its behalf as a result of its investment in
any portfolio company.
(3) Advisory Fees: MorAmerica paid Atlas a management fee equal to 2.5% of
the Capital Under Management (as defined in the Atlas/MorAmerica Agreement)
on an annual basis, but in no event more than 2.5% per annum of the Assets
Under Management or 7.5% of Regulatory Capital (as defined in the
Atlas/MorAmerica Agreement). However, during fiscal 2003 and a portion of
fiscal 2004, InvestAmerica, as MorAmerica's investment advisor prior to
Atlas, agreed to a voluntary, temporary reduction in management fees from
January 1, 2003 through February 29, 2004. This temporary agreement changed
the management fee to be $68,750 per month not to exceed the calculation
specified in the Atlas/MorAmerica Agreement. This voluntary, temporary
reduction in management fees was terminated on February 29, 2004. In
addition, the Atlas/MorAmerica Agreement provided that MorAmerica would pay
Atlas an incentive fee in an amount equal to 20.0% of the net capital
gains, before taxes, on investments. Net capital gains, as defined in the
Atlas/MorAmerica Agreement, were calculated as gross realized gains, minus
the sum of capital losses, less any unrealized depreciation, including
reversals of previously recorded unrealized depreciation, recorded during
the year, and net investment losses, if any. Capital losses and realized
capital gains were not cumulative under the incentive fee computation.
Payments for incentive fees resulting from noncash gains were deferred
until the assets were sold.
Total management fees (net of management fees waived) amounted to $955,508
for the year ended September 30, 2004. Incentive fees were an expense in
determining net realized gain (loss) on investments in the consolidated
statement of operations. Incentive fees of $493,050 were earned for the
year ended September 30, 2004. Total incentive fees paid amounted to
$497,517 in fiscal 2004. Approximately $18,353 of incentive fees related to
noncash gains from prior years is being deferred as described above. The
incentive fees were paid to InvestAmerica in connection with the
termination of its prior agreement effective February 28, 2004.
13
The amount of the incentive fee was limited in any period by applicable SBA
Regulations with respect to the fee paid by MorAmerica, although the amount
which may not be paid in one period may be an incentive fee payable, or may
be in escrow payable, and disbursed in later periods. In addition, the
amount of the incentive fee and all incentive compensation, in any Fiscal
Year, may not exceed the limit prescribed by Section 205(b)(3)(A) of the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). This
section provides that the total incentive fee will not exceed 20% of the
realized capital gains upon the funds computed net of all realized capital
losses and unrealized capital depreciation.
(4) Termination and Other Matters: The Atlas/MorAmerica Agreement could be
terminated by either party upon sixty days written notice.
Under PROPOSAL 3, InvestAmerica will continue its investment advisory
services to MorAmerica pursuant to the Investment Advisory Agreement between
InvestAmerica and MorAmerica attached hereto as Appendix A (the
"InvestAmerica/MorAmerica Agreement"), and the Interim MorAmerica Agreement will
be terminated.
InvestAmerica/MorAmerica Agreement
As described above under "RECENT DEVELOPMENTS - BACKGROUND OF PROPOSALS 3 &
4" the Board of Directors of MorAmerica Capital, in response to the SBA's
decisions, has recently approved the reinstatement of InvestAmerica as the sole
investment adviser to MorAmerica.
Pursuant to the Board's actions on April 29, 2005, the Atlas Agreements
were terminated and MorAmerica and InvestAmerica entered into the Interim
MorAmerica Agreement pursuant to Rule 15a-4 of the Investment Company Act. Upon
shareholder approval at the 2005 Annual Meeting, the Interim MorAmerica
Agreement will be terminated. The Corporation proposes that MorAmerica enter
into the InvestAmerica/MorAmerica Agreement with InvestAmerica, whose address is
101 Second Street S.E., Suite 800, Cedar Rapids IA 52401. The
InvestAmerica/MorAmerica Agreement was approved on April 29, 2005 by the vote of
a majority of the members of the Board of Directors of MorAmerica who are not
parties to the transaction or "interested persons" within the meaning of Section
2(a)(19) of the Investment Company Act, cast in person at a meeting called for
the purpose of voting on such approval, subject to the approval of the
shareholders of the Corporation at the 2005 Annual Meeting. Because MorAmerica
is licensed as a small business investment company ("SBIC"), applicable SBA
Regulations require the approval of the SBA of the InvestAmerica/MorAmerica
Agreement, which approval has been granted by the SBA.
Under the InvestAmerica/MorAmerica Agreement, InvestAmerica will manage all
portfolio company investments made by MorAmerica. The following are the
remaining key provisions of the InvestAmerica/MorAmerica Agreement, which are
substantially the same as the provisions of the Interim MorAmerica Agreement
(excepting those provisions relating to the
14
term, as discussed above in "RECENT DEVELOPMENTS - BACKGROUND OF PROPOSALS
3 & 4"):
(1) Management Responsibilities: InvestAmerica will manage all assets of
MorAmerica and generally provide all facilities, personnel, and other means
necessary for MorAmerica to operate. Except to the extent of acquisitions
or dispositions of portfolio securities that, in accordance with
MorAmerica's co-investment guidelines require specific board approval,
InvestAmerica will make all new and follow-on investments and all asset
dispositions and other investment decisions in InvestAmerica's discretion.
(2) Operating Expenses: InvestAmerica generally will be responsible for
expenses relating to staff salaries, office space and supplies, and
MorAmerica will generally responsible for auditing fees, all legal expenses
and other expenses associated with being a public company, fees to the
Directors, and any and all expenses associated with property of a portfolio
company taken or received by MorAmerica or on its behalf as a result of its
investment in any portfolio company.
(3) Advisory Fees: MorAmerica will pay InvestAmerica, monthly in arrears, a
management fee equal to the lesser of 1.5% per annum of the (i) Combined
Capital (as defined under the SBA Regulations) or (ii) Assets Under
Management (as defined in the InvestAmerica/MorAmerica Agreement. These
fees are not based upon any of the Corporation's assets managed by
InvestAmerica under the InvestAmerica/MACC Agreement. In addition, the
InvestAmerica/MorAmerica Agreement provides that MorAmerica will pay
InvestAmerica an incentive fee in an amount equal to 13.4% of the net
capital gains, before taxes. Net capital gains, as defined in the
InvestAmerica/MorAmerica Agreement, are calculated as gross realized gains,
minus the sum of capital losses, less any unrealized depreciation,
including reversals of previously recorded unrealized depreciation,
recorded during the year, and net investment losses, if any. Capital losses
and realized capital gains are not cumulative under the incentive fee
computation. Payments for incentive fees resulting from noncash gains are
deferred until the assets are sold.
The amount of the incentive fee is limited in any period by applicable SBA
Regulations with respect to the fee paid by MorAmerica, although the amount
which may not be paid in one period may be an incentive fee payable, or may
be in escrow payable, and disbursed in later periods. In addition, the
amount of the incentive fee and all incentive compensation, in any Fiscal
Year, may not exceed the limit prescribed by Section 205(b)(3)(A) of the
Advisers Act. This section provides that the total incentive fees will not
exceed 20% of the realized capital gains upon the assets of MorAmerica over
a specified period, computed net of all realized capital losses and
unrealized capital depreciation. Under Section 5.2(a)(ii) of the
InvestAmerica/MorAmerica Agreement, the specified period is one year.
15
Finally, pursuant to the SBA's direction, MorAmerica may not pay, and
InvestAmerica may not receive, any incentive fee payments unless and until:
(i) all of MorAmerica's indebtedness to the SBA, including principal,
interest and/or fees, is repaid, and (ii) all funds are paid into the
escrow relating to the arbitration settlement reached by MorAmerica and
other parties (and most recently discussed in the press release issued by
the Company on January 7, 2005) for purposes of securing MorAmerica's (and
that of certain other parties to such arbitration) obligations to the SBA
in light of such settlement. Any incentive fees earned but not paid to
InvestAmerica due to the foregoing will be accrued.
(4) Term, Termination and Other Matters: The InvestAmerica/MorAmerica
Agreement has a term of two years, unless sooner terminated as described
below. After the initial two-year term, the InvestAmerica/MorAmerica
Agreement will continue in effect so long as such continuance is
specifically approved at least annually by the Board of Directors of
MorAmerica, including a majority of its Directors who are not interested
persons of InvestAmerica, or by the vote of the holders of a majority, as
defined in the Investment Company Act, of the outstanding shares of
MorAmerica. The InvestAmerica/MorAmerica Agreement may be terminated by the
Corporation or MorAmerica at any time, without payment of any penalty, on
60 days' written notice to InvestAmerica if the decision to terminate has
been made by the Board of Directors of MorAmerica or by the vote of a
majority, as defined in the Investment Company Act, of the holders of a
majority of the outstanding shares of the Corporation or MorAmerica.
InvestAmerica may also terminate the InvestAmerica/MorAmerica Agreement on
60 days' written notice to MorAmerica provided that another investment
advisory agreement with a suitable investment adviser has been approved by
the vote of the holders of a majority, as defined in the Investment Company
Act, of the outstanding shares of the Corporation and by the Board of
Directors of MorAmerica, including a majority of Directors who are not
parties to such agreement or interested persons of any such party.
The terms of the InvestAmerica/MorAmerica Agreement differ from the
Atlas/MorAmerica Agreement. Instead of a management fee equal to 2.5% of the
Capital Under Management (as defined in the Atlas/MorAmerica Agreement) on an
annual basis, but not more than 2.5% per annum of the Assets Under Management or
7.5% of Regulatory Capital (as defined in the Atlas/MorAmerica Agreement),
MorAmerica will pay InvestAmerica a management fee equal to the lesser of 1.5%
per annum of the (i) Combined Capital (as defined under the SBA Regulations) or
(ii) Assets Under Management (as defined in the InvestAmerica/MorAmerica
Agreement). Under SBA Regulations, Capital Under Management means MorAmerica's
(i) private capital at fiscal year end (paid-in capital and paid-in surplus,
excluding unrealized capital gains and losses), plus (ii) fiscal year end SBA
leverage (long-term debentures borrowed through SBA's debenture program); plus
(iii) fiscal year end undistributed realized earnings. Assets Under Management
is the total value of MorAmerica's assets managed by InvestAmerica. The effect
of this provision is to pay InvestAmerica a management fee based on the lower of
these measures, one based on SBA requirements and one based on Advisers Act
requirements. During MorAmerica's fiscal year ended September 30, 2004, for each
month the
16
calculation based on Assets Under Management resulted in a slightly lower fee
than the Capital Under Management calculation.
The incentive fee payable to InvestAmerica would be 13.4%, as opposed to
20% paid to Atlas under the Atlas/MorAmerica Agreement, of the Net Capital Gains
(as defined in the InvestAmerica/MorAmerica Agreement), before taxes, on
portfolio investments and from the disposition of other assets or property
managed by InvestAmerica. As noted above, management and incentive fees of
$1,453,025 were paid in fiscal year 2004, under a previous agreement with
InvestAmerica and the Atlas/MorAmerica Agreement. If the Atlas/MorAmerica
Agreement had been in effect for the full year 2004 (and without giving effect
to the voluntary management fee reduction of InvestAmerica as the prior advisor
and the incentive fee payment to InvestAmerica in connection with termination of
the prior agreement), Atlas would have earned $1,042,600.53 in management fees
and no incentive fee for fiscal year 2004. Under the terms of the
InvestAmerica/MorAmerica Agreement, if that agreement had been in effect for the
full year 2004 (and without giving effect to the prior voluntary management fee
reduction of InvestAmerica as the prior advisor and the incentive fee payment in
connection with termination of the prior agreement), Atlas would have earned
$625,560.33 in management fees in fiscal year 2004, or 60% of the fees paid to
Atlas under the terms of the Atlas/MorAmerica Agreement. Additionally, the SBA
has directed that the incentive fees, although they may be earned by
InvestAmerica, may not be paid to InvestAmerica until those obligations owed by
MorAmerica to the SBA are satisfied in full. The proposed
InvestAmerica/MorAmerica Agreement is attached hereto as Appendix A.
Material Factors Considered by the Boards of Directors of the Corporation
and MorAmerica in Selecting InvestAmerica and Approving the InvestAmerica
Agreements, and Fees Payable under the InvestAmerica Agreements.
The decision by the Boards of Directors of MorAmerica and the Corporation
(the "Boards") to retain InvestAmerica as the primary investment advisor to
MorAmerica and the Corporation was primarily motivated by several factors, some
of which were not within the control of the Boards. From 1995 through 2004,
MorAmerica pursued a strategy of increasing shareholder value through increasing
the amount of MorAmerica's funds available for investment with the proceeds from
the issuance of SBA-guaranteed debentures, with the intention of reinvesting the
proceeds from those portfolio investments as the investments were liquidated.
MorAmerica's strategy of using leverage to fund its growth magnified the effects
of losses within the MorAmerica portfolio realized over the past few years,
resulting in considerable declines in the Corporation's net asset value, and
recently, MorAmerica's capital impairment exceeding the levels permitted under
applicable SBA Regulations.
In December 2004, the SBA's determination not to approve Atlas as
investment advisor to MorAmerica required MorAmerica to terminate its investment
advisory relationship with Atlas. The SBA also required that InvestAmerica, as
the previously approved investment advisor, should be promptly reinstated as the
sole investment advisor of MorAmerica. At about the same time, MorAmerica
settled an arbitration claim which required the SBA's approval. As
17
a condition to its approval, the SBA required MorAmerica (as well as several
other SBICs that were parties to the arbitration and settlement) to indemnify
the SBA against any losses the SBA may incur, up to $7.5 million, relating to
the outstanding SBA-guaranteed debentures issued by the SBICs. The occurrence of
these events caused MorAmerica's Board to consider the financial terms for the
re-appointment of InvestAmerica as successor investment advisor within the
larger context of the long-term strategy of MorAmerica. Additionally, because
the Corporation's assets are minimal and most of its assets are in MorAmerica,
MorAmerica's Board's decisions respecting InvestAmerica are equally applicable
to the Corporation's Board's decision to retain InvestAmerica.
Although the Boards intend to continue to consider other long-term
strategies to maximize shareholder value, the Boards determined that
MorAmerica's immediate plan to preserve its value for the benefit of the
Corporation and its stockholders should be to reduce the two largest components
of its operating expenses: interest on SBA-guaranteed debentures and management
fees. In furtherance of these goals, MorAmerica would need to:
o limit the amount of new and follow-on investments MorAmerica makes for
the foreseeable future;
o use available cash to reduce its borrowings and to fund an escrow to
pay (if necessary) MorAmerica's contingent obligation to the SBA under
the settlement agreement described above;
o negotiate an investment advisory agreement that provides for lower
monthly management fees and lower incentive fees than MorAmerica had
been paying to Atlas; and
o negotiate an investment advisory agreement that effectively
subordinates MorAmerica's obligation to pay incentive fees to the
investment advisor until MorAmerica has fully repaid all of its
outstanding SBA-guaranteed debentures and fully funded the escrow.
The Boards determined that InvestAmerica was best suited to serve as
investment advisor to MorAmerica and to the Corporation during its
implementation of this strategy based on several factors. First, InvestAmerica
was more familiar with the Company's existing investment portfolio than any
other firm because InvestAmerica has been investment advisor (or a subadvisor)
to the Company since 1995. Second, InvestAmerica agreed to financial terms
consistent with MorAmerica's strategy, which the Boards believe are considerably
less favorable to the investment advisor than customary market terms for this
type of service. Third, SBA approved InvestAmerica's reinstatement as investment
advisor to MorAmerica, both because of MorAmerica's prior experience as
MorAmerica's historic manager and the reduced and subordinated fee structure.
Under the regulations of the Securities and Exchange Commission (the
"SEC"), the Corporation is required to disclose whether the Boards, in selecting
InvestAmerica as the
18
investment advisor to MorAmerica and to the Corporation, and in approving the
advisory fees payable under the InvestAmerica/MorAmerica Agreement and the
InvestAmerica/MACC Agreement and the other terms of the new agreements:
o compared the services to be provided by InvestAmerica to the services
available from other advisors;
o evaluated the performance of InvestAmerica on a comparative basis;
o accounted for the costs to InvestAmerica to provide the services
contemplated;
o accounted for the profits to be realized by InvestAmerica in its
service as adviser;
o evaluated the effects, if any, of the economies of scale which could
be achieved if MorAmerica or the Corporation achieved a certain rate
of growth;
o compared the fees payable to InvestAmerica to the fees InvestAmerica
charges other types of funds (if any); and
o accounted for any benefits InvestAmerica could receive through its
service as adviser, such as brokerage-related soft-dollar
arrangements.
The basis for the Boards' selection of InvestAmerica and in approving the
advisory fees and other terms under the InvestAmerica/MorAmerica Agreement and
the InvestAmerica/MACC Agreement were as set forth above. Accordingly, to the
extent that any of the factors required to be disclosed under the SEC
regulations involve additional or different considerations, they did not form
the basis of the Boards' decisions.
Information Regarding InvestAmerica:
The following sets forth the name and principal occupation of the principal
executive officers and each director of InvestAmerica:
Mr. Robert Comey, the Chief Financial Officer, Executive Vice President,
Treasurer, Assistant Secretary and Chief Compliance Officer of both the
Corporation and MorAmerica, is the Executive Vice President, Treasurer,
Assistant Secretary and a Director of InvestAmerica. Mr. Kevin Mullane, Senior
Vice President of both the Corporation and MorAmerica, is the Senior Vice
President, Assistant Secretary and a Director of InvestAmerica. Mr. David
Schroder, President and Secretary of both the Corporation and MorAmerica, is the
President, Secretary and a Director of InvestAmerica. Mr. Michael Reynoldson,
Vice President of both the Corporation and MorAmerica, is the Vice President of
InvestAmerica. The address for Messrs. Comey, Mullane, Schroder and Reynoldson
is 101 Second Street S.E., Suite 800, Cedar Rapids IA 52401. Each of Messrs.
Schroder, Comey and Mullane own 10% or more of InvestAmerica's stock.
19
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE INVESTAMERICA/MORAMERICA AGREEMENT.
PROPOSAL 4
APPROVAL OF INVESTAMERICA/MACC AGREEMENT
Prior Atlas/MACC Investment Advisory Agreement
The Corporation was previously a party to the Investment Advisory Agreement
between the Corporation and Atlas Management Partners, LLC ("Atlas") dated March
1, 2004 (the "Atlas/MACC Agreement"). The Atlas/MACC Agreement was approved by
the Corporation's shareholders at the 2004 Annual Shareholders Meeting. As
discussed above, at the direction of the SBA, the Corporation's Board of
Directors, on April 29, 2005, approved the resignation of Atlas as the
Corporation's investment adviser and approved the terms of the Interim
Investment Advisory Agreement between the Corporation and InvestAmerica, dated
April 30, 2005 (the "Interim MACC Agreement").
Under the Atlas/MACC Agreement, the advisory responsibilities of Atlas and
InvestAmerica were divided with respect to the Corporation's assets. Atlas
managed all portfolio company investments made by the Corporation after the
effective date of the Atlas/ MACC Agreement, March 1, 2004 (the "Effective
Date"), and InvestAmerica managed all portfolio company investments of the
Corporation made prior to the Effective Date. The following are the remaining
key provisions of the Atlas/MACC Agreement:
(1) Management Responsibilities: Atlas managed all assets of the
Corporation after the Effective Date and, in conjunction with InvestAmerica
pursuant to the Subadvisory Agreement, generally provided all facilities,
personnel, and other means necessary for the Corporation to operate. Except
to the extent of acquisitions or dispositions of portfolio securities that,
in accordance with the Corporation's co-investment guidelines require
specific board approval, Atlas made decisions regarding all new and
follow-on investments, asset dispositions and other investment decisions.
(2) Operating Expenses: Atlas generally was responsible for expenses
relating to staff salaries, office space and supplies, and the Corporation
was generally responsible for auditing fees, all legal expenses and other
expenses associated with being a public company, fees to the Directors, and
any and all expenses associated with property of a portfolio company taken
or received by the Corporation or on its behalf as a result of its
investment in any portfolio company.
(3) Advisory Fees: The Corporation paid Atlas a management fee equal to
2.5% of the Assets Under Management (as defined in the Atlas/MACC
Agreement) on an annual basis. In addition, the Atlas/MACC Agreement provided
that the Corporation would pay Atlas an incentive fee
20
in an amount equal to 20.0% of the net capital gains, before taxes, on
investments. Net capital gains, as defined in the Atlas/MACC Agreement,
were calculated as gross realized gains, minus the sum of capital losses,
less any unrealized depreciation, including reversals of previously
recorded unrealized depreciation, recorded during the year, and net
investment losses. Capital losses and realized capital gains were not
cumulative under the incentive fee computation. Payments for incentive fees
resulting from noncash gains were deferred until the assets were sold.
Total management fees amounted to $2,892 for the year ended September 30,
2004, and there were no incentive fees paid in fiscal year 2004.
The amount of the incentive fee and all incentive compensation, in any
Fiscal Year, may not exceed the limit prescribed by Section 205(b)(3)(A) of
the Advisers Act. This section provides that the total incentive fee will
not exceed 20% of the realized capital gains upon the funds computed net of
all realized capital losses and unrealized capital depreciation.
(4) Termination and Other Matters: The Atlas/MACC Agreement could be
terminated by either party upon sixty days written notice.
Under PROPOSAL 4, InvestAmerica will continue its investment advisory
services to the Corporation pursuant to the Investment Advisory Agreement
between InvestAmerica and the Corporation attached hereto as Appendix B (the
"InvestAmerica/MACC Agreement"), and the Interim MACC Agreement will be
terminated.
InvestAmerica/MACC Agreement
As described above under "RECENT DEVELOPMENTS - BACKGROUND OF PROPOSALS 3 &
4" the Board of Directors of the Corporation, in response to the SBA's
decisions, have recently approved the reinstatement of InvestAmerica as the
investment adviser to the Corporation.
Pursuant to the Board's actions on April 29, 2005, the Atlas Agreements
were terminated and the Corporation and InvestAmerica entered into the Interim
MACC Agreement pursuant to Rule 15a-4 of the Investment Company Act. Upon
shareholder approval at the 2005 Annual Meeting, the Interim MACC Agreement will
be terminated. The Corporation's Board of Directors proposes that the
Corporation enter into the InvestAmerica/MACC Agreement with InvestAmerica,
whose address is 101 Second Street S.E., Suite 800, Cedar Rapids IA 52401. The
InvestAmerica/MACC Agreement was approved on April 29, 2005 by the vote of a
majority of the members of the Board of Directors of the Corporation who are not
parties to the transaction or "interested persons" within the meaning of Section
2(a)(19) of the Investment Company Act, cast in person at a meeting called for
the purpose of voting on such approval, subject to the approval of the
shareholders of the Corporation at the 2005 Annual Meeting.
Under the InvestAmerica/MACC Agreement, InvestAmerica will manage all
portfolio company investments made by the Corporation. The following are the
remaining key provisions
21
of the InvestAmerica/MACC Agreement, which are identical to the provisions of
the Interim MACC Agreement (excepting those provisions relating to the term, as
discussed above in "RECENT DEVELOPMENTS - BACKGROUND OF PROPOSALS 3 & 4"):
(1) Management Responsibilities: InvestAmerica will manage all assets of
the Corporation and generally provide all facilities, personnel, and other
means necessary for the Corporation to operate. Except to the extent of
acquisitions or dispositions of portfolio securities that, in accordance
with the Corporation's co-investment guidelines require specific board
approval, InvestAmerica will make all new and follow-on investments and all
asset dispositions and other investment decisions in InvestAmerica's
discretion.
(2) Operating Expenses: InvestAmerica generally will be responsible for
expenses relating to staff salaries, office space and supplies, and the
Corporation will generally responsible for auditing fees, all legal
expenses and other expenses associated with being a public company, fees to
the Directors, and any and all expenses associated with property of a
portfolio company taken or received by the Corporation or on its behalf as
a result of its investment in any portfolio company.
(3) Advisory Fees: The Corporation will pay InvestAmerica a management fee
equal to 1.5% per annum of the Assets Under Management (as defined in the
InvestAmerica/MACC Agreement). These fees are not based upon any of
MorAmerica's assets managed by InvestAmerica under the
InvestAmerica/MorAmerica Agreement. In addition, the InvestAmerica/MACC
Agreement provides that the Corporation will pay InvestAmerica an incentive
fee in an amount equal to 13.4% of the net capital gains, before taxes, on
investments. Net capital gains, as defined in the InvestAmerica/MACC
Agreement, are calculated as gross realized gains, minus the sum of capital
losses, less any unrealized depreciation, including reversals of previously
recorded unrealized depreciation, recorded during the year, and net
investment losses. Capital losses and realized capital gains are not
cumulative under the incentive fee computation. Payments for incentive fees
resulting from noncash gains are deferred until the assets are sold.
The amount of the incentive fee and all incentive compensation, in any
Fiscal Year, may not exceed the limit prescribed by Section 205(b)(3)(A) of
the Advisers Act. This section provides that the total fees will not exceed
20% of the realized capital gains upon the assets of the Corporation over a
specified period, computed net of all realized capital losses and
unrealized capital depreciation. Under Section 5.2(a)(ii) of the
InvestAmerica/MACC Agreement, the specified period is one year.
(4) Term, Termination and Other Matters: The InvestAmerica/MACC Agreement
has a term of two years, unless sooner terminated as described below. After
the initial two-year term, the InvestAmerica/MACC Agreement will continue
in effect so long as such continuance is specifically approved at least
annually by the Board of Directors of the Corporation, including a majority
of its Directors who are not interested persons of InvestAmerica, or by the
vote of the holders of a majority, as defined in the Investment
22
Company Act, of the outstanding shares of the Corporation. The
InvestAmerica/MACC Agreement may be terminated by the Corporation at any
time, without payment of any penalty, on 60 days' written notice to
InvestAmerica if the decision to terminate has been made by the Board of
Directors of the Corporation or by the vote of a majority, as defined in
the Investment Company Act, of the holders of a majority of the outstanding
shares of the Corporation.
InvestAmerica may also terminate the InvestAmerica/MACC Agreement on 60
days' written notice to the Corporation provided that another investment
advisory agreement with a suitable investment adviser has been approved by
the vote of the holders of a majority, as defined in the Investment Company
Act, of the outstanding shares of the Corporation and by the Board of
Directors of the Corporation, including a majority of Directors who are not
parties to such agreement or interested persons of any such party.
The terms of the InvestAmerica/MACC Agreement are different from the
Atlas/MACC Agreement. The Corporation will pay InvestAmerica a management fee
equal to 1.5% (as compared with 2.5% payable under the Atlas/MACC Agreement) of
the Assets Under Management (as defined in the InvestAmerica/MACC Agreement).
The incentive fee payable to InvestAmerica would be 13.4%, as compared to the
20.0% paid to Atlas under the Atlas/MACC Agreement, of the Net Capital Gains (as
defined in the InvestAmerica/MACC Agreement), before taxes, on portfolio
investments and from the disposition of other assets or property managed by
InvestAmerica. As noted above, management and incentive fees of $2,892 were paid
in fiscal year 2004. Under the terms of the InvestAmerica/MACC Agreement, Atlas
would have earned $1,735.30 in management fees in fiscal year 2004, or 60% of
what Atlas was paid pursuant to the Atlas/MACC Agreement in fiscal year 2004.
The proposed InvestAmerica/MACC Agreement is attached hereto as Appendix
B.
Please see discussion of the Board's selection of InvestAmerica and
approval of advisory fees payable under the InvestAmerica/MACC Agreement under
PROPOSAL 3--APPROVAL OF INVESTAMERICA/MORAMERICA AGREEMENT.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE INVESTAMERICA/MACC AGREEMENT.
PROPOSAL 5
AUTHORITY FOR RIGHTS OFFERING
Introduction
The Corporation's Board of Directors is evaluating means to raise
additional equity capital for the Corporation. The Corporation's shareholders
approved a rights offering at the 2004 Annual Shareholders Meeting and the
Corporation subsequently filed the required registration statement to effect a
rights offering, but the Corporation's Board determined not to pursue that
rights offering in fiscal year 2005 in light of the litigation and regulatory
issues
23
facing the Company in the last year, as previously disclosed. Going forward, the
Corporation's Board may decide, with shareholder approval of this
PROPOSAL 5, to again pursue a rights offering as described below.
Rights Offering
The Corporation has elected treatment as a business development company
("BDC") under the Investment Company Act. As such, the Corporation is permitted
to issue shares of its Common Stock in connection with a rights offering under
Section 18(d) of the Investment Company Act. In a rights offering, each
shareholder receives the right to purchase a specified number of additional
shares of the Corporation's Common Stock, pro-rata, based on the number of
shares held as of a specified record date. Also, rights offerings may be
non-transferable (in which case the rights may only be exercised by existing
holders) or transferable (in which case rights not exercised by existing holders
may be separately transferred).
Under rules of the NASDAQ Stock Market, Inc. ("NASDAQ"), shareholder
approval is required for rights offerings that are deemed to be other than
"public offerings" and which involve the sale of more than 20% of the
outstanding shares at a price less than the greater of net asset value or market
value. Thus, if shareholders approve this PROPOSAL 5, the Corporation will be
authorized to conduct one or more rights offerings for which shareholder
approval is required under NASDAQ rules.
However, no shareholder approval is required under NASDAQ rules with
respect to rights that are either (i) deemed to be public offerings or (ii)
involve the sale of less than 20% of the outstanding shares of the Corporation's
Common Stock. Thus, if the shareholders do not approve this PROPOSAL 5, the
Corporation may nonetheless effect a rights offering, so long as such rights
offering does not require shareholder approval under NASDAQ rules.
Shareholders should consider that if they do not exercise their rights
under a rights offering, at the completion of any such rights offering they will
own a smaller proportional interest in the Corporation than they would if they
had exercised. In addition, because the subscription price per share of Common
Stock will be less than the net asset value per share, shareholders will
experience an immediate dilution, which could be significant, of the aggregate
net asset value of their shares.
For example, based upon figures as of the end of the Corporation's second
fiscal quarter ended March 31, 2005, assuming that one right is issued for each
three outstanding shares, all rights are exercised at an estimated subscription
price of $2.42 per share (or 95% of the price of the Corporation's stock at the
close of business), expenses of the offering are $75,000 and the Corporation's
net asset value otherwise remained constant, the Corporation's net asset value
per share of $4.82 would be reduced by approximately $ .62 per share (or 12.9%)
to $4.20 per share. This dilution may disproportionately affect those
shareholders who do not exercise their rights in full.
The Corporation cannot state precisely the extent of any such dilution at
this time because the Board of Directors has not considered any specific
transactions
24
and does not know what the net asset value per share will be, what the
subscription price will be or what proportion of any rights will be exercised at
the time any rights offerings are effected in the future.
Shares of the Corporation's stock have historically traded at a substantial
discount to net asset value. At March 31, 2005, the end of the second quarter of
Fiscal Year 2005, the closing market bid price per share of the Corporation's
Common Stock was $2.55, or 52.91% of the net asset value per share at that date
of $4.82. Accordingly, it is likely that in order to induce existing
shareholders or others to exercise rights to purchase shares, the exercise price
of the rights must be less than net asset value and/or market value. In
addition, given the number of shares outstanding and market capitalization of
the Corporation, in order to raise a material amount of money, issuing a
substantial number of rights may be appropriate.
Accordingly, the Board of Directors requests approval of the shareholders
to conduct one or more rights offerings for which shareholder approval is
required under NASDAQ rules, on such terms and conditions as may be determined
by the Board of Directors, for up to the total number of outstanding but
unissued shares.
At this date, 2,329,255 shares are issued and outstanding, and 10,000,000
shares are currently authorized. If the shareholders approve this PROPOSAL 5,
the Board of Directors will be authorized to conduct rights offerings for up to
a maximum of 7,670,745 shares based on the number of currently authorized and
unissued shares.
Any transaction will be undertaken only with the approval of the Board of
Directors on the basis that any such transaction is in the best interest of the
Corporation and its shareholders. Further, because the terms of any such
offering are not known at this time, the terms of such an offering, and the
securities issued thereunder, such as the price, voting rights and maturity
dates would be determined by the Corporation's Board of Directors.
If the Corporation issues additional securities as contemplated in this
PROPOSAL 5, those securities would be listed on the NASDAQ.
Information Incorporated by Reference from Periodic Reports
With respect to PROPOSAL 5, the Corporation's financial statements and
related financial information required by Item 13(a) of Schedule 14A are
incorporated hereby by this reference to (i) the Corporation's Annual Report to
Shareholders for its fiscal year ended September 30, 2004, included as exhibit
13 to the Corporation's report on Form 10-K/A filed with the Commission on June
16, 2005, and (ii) the Corporation's report on Form 10-Q for its second fiscal
quarter ended March 31, 2005 (the "Reports"). The Reports accompany this proxy
statement, but are not deemed a part of the proxy soliciting material, except to
the extent that portions thereof have been incorporated herein pursuant to the
preceding sentence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
AUTHORIZING THE CORPORATION TO ISSUE
25
RIGHTS TO ACQUIRE ANY AUTHORIZED SHARES OF COMMON STOCK OF THE CORPORATION.
PROPOSAL 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
As recommended by the Audit Committee of the Corporation's Board of
Directors, on December 10, 2004, a majority of those members of the Board of
Directors of the Corporation who are not "interested persons" of the Corporation
(as defined in Section 2(a)(19) of the Investment Company Act) voted in favor of
the appointment of KPMG LLP to serve as the Corporation's independent auditors
for the fiscal year ending September 30, 2005.
The appointment of KPMG LLP as independent auditors is subject to
ratification by the shareholders. If the shareholders ratify the selection of
KPMG LLP as the Corporation's auditors, they will also serve as independent
auditors for all subsidiaries of the Corporation. A representative of KPMG LLP
is expected to be present at the 2005 Annual Meeting with an opportunity to make
a statement, and will be available to respond to appropriate questions.
In order to ratify the appointment of KPMG LLP as independent auditors for
the Corporation for the fiscal year ending September 30, 2005, the proposal must
receive the favorable vote of a majority of the shares entitled to vote and
represented at the 2005 Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF KPMG LLP AS THE INDEPENDENT AUDITORS FOR THE CORPORATION FOR THE
FISCAL YEAR ENDING SEPTEMBER 30, 2005.
OTHER BUSINESS
The Board of Directors knows of no other business to be presented for
action at the 2005 Annual Meeting. If any matters do come before the 2005 Annual
Meeting on which action can properly be taken, it is intended that the proxies
shall vote in accordance with the judgment of the person or persons exercising
the authority conferred by the proxy at the 2005 Annual Meeting.
26
ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
As of March 31, 2005, there were 2,329,255 shares issued and outstanding.
The following table sets forth certain information as of May 5, 2005, with
respect to the Common Stock ownership of: (i) those persons or groups (as that
term is used in Section 13(d)(3) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act") who beneficially own more than 5% of the Common
Stock, (ii) each Director and nominee for Director of the Corporation, and (iii)
all Officers and Directors of the Corporation, eleven in number, as a group.
Unless otherwise provided, the address of those in the following table is 101
Second Street S.E., Suite 800, Cedar Rapids IA 52401.
Name and Address of Beneficial Amount and Nature Percent of Class of Voting
Owner Of Beneficial Ownership Common Stock
------------------------------ ----------------------- -------------------------
Atlas Management Partners, LLC(1)
One South Main Street, Suite 1660, Salt Lake
City, Utah 84133 804, 689 Shares 34.55%
Bridgewater International Group, LLC(1)
10500 South 1300 West, South Jordan, Utah 804,689 Shares 34.55%
84095
Timothy A. Bridgewater(2) 809,689 34.76%
10500 South 1300 West
South Jordan, Utah 84095
15,948 Shares 0.68%
Geoffrey T. Woolley
37,000 Shares 1.59%
Paul M. Bass, Jr.
28,984 Shares 1.24%
Michael W. Dunn
Benjamin Jiaravanon(3) 804,689 Shares 34.55%
Ancol Barat, J1 Ancol VIII, No.1
Jakarta 14430 Indonesia
0.17%
Gordon J. Roth 3,951 Shares
77,416 Shares 3.32%
David R. Schroder(4)
11,264 Shares 0.48%
Kevin F. Mullane(4)
27
0 Shares 0.00%
Martin C. Walton
1,000 Shares .04%
Jasja Kotterman
57,019 Shares 2.4%
Robert A. Comey(4)
0 Shares 0.00%
Michael Reynoldson
All Officers and Directors as a Group 1,037,271 Shares 44.53%
------------------------------------
(1) Information with respect to Atlas and Bridgewater International Group,
LLC ("Bridgewater") is based upon Amendment No. 4 to Schedule 13D, dated May 18,
2005, filed by Atlas, Bridgewater and others with the SEC in which Atlas and
Bridgewater disclosed that, pursuant to that Mutual Release and Waiver of Claims
and Termination of Shareholder and Voting Agreements dated April 28, 2005 (the
"Termination Agreement"), Atlas has the power to vote or to direct the vote and
shared power to dispose or to direct the disposition of approximately 804,689
shares of the Corporation's Common Stock previously acquired by Bridgewater
under a Shareholder and Voting Agreement entered into between Atlas and
Bridgewater, and that because Bridgewater, pursuant to the Termination
Agreement, is now the sole member of Atlas, that Bridgewater effectively
controls any rights Atlas may have to vote the Corporation's Common Stock owned
by Bridgewater.
(2) Information with respect to Mr. Jiaravanon is based upon Amendment No.
4 to Schedule 13D, dated May 18, 2005, filed by Atlas, Bridgewater and others
with the SEC, and on Form 3 filed by Mr. Jiaravanon on March 9, 2004 with the
SEC. As the sole manager of Bridgewater, which is the sole member of Atlas, Mr.
Jiaravanon has shared control over the voting power of Atlas on the 804,689
shares of the Corporation's Common Stock owned by Bridgewater for which Atlas
has the right to vote. To the extent that Bridgewater may be deemed to be in
control of the Corporation as a result of beneficial ownership of the
Corporation's Common Stock, Mr. Jiaravanon, as the sole manager of Bridgewater,
may be an "interested person" of the Corporation, as that term is defined in
Section 2(a)(19) of the Investment Company Act.
(3) Information with respect to Mr. Bridgewater is based upon Amendment No.
4 to Schedule 13D, dated May 18, 2005, filed by Atlas, Bridgewater International
Group, LLC and others with the SEC, and on Form 3 filed by Mr. Bridgewater on
February 24, 2004 with the SEC. As the voting manager of Atlas, which has voting
power on the 804,689 shares of the Corporation's Common Stock owned by
Bridgewater International Group, LLC, Mr. Bridgewater has shared control over
such Shares owned by Bridgewater International Group, LLC, and may be deemed to
be part of a "group" as that term is used in Section 13(d)(3) of the Exchange
Act, together with Mr. Jiaravanon. To the extent that Bridgewater International
Group, LLC may be deemed to be in control of the Corporation as a result of
beneficial ownership of the Corporation's Common Stock, Mr. Bridgewater, as the
voting manager of Atlas, may be an "interested person" of the Corporation, as
that term is defined in Section 2(a)(19) of the Investment Company Act.
(4) As principals, officers and directors of InvestAmerica Investment
Advisors, Inc. ("InvestAmerica"), the investment advisor for the Corporation and
MorAmerica, Messrs. Schroder, Mullane and Comey are "interested persons" of the
Corporation, as that term is defined in Section 2(a)(19) of the Investment
Company Act.
28
Advisory Board
At its meeting on December 22, 2003, the Boards of Directors of the
Corporation and MorAmerica Capital voted to create an Advisory Board to
MorAmerica Capital. It was decided that the Advisory Board would include members
who are recruited from time to time for specific advice they may provide to
MorAmerica Capital. The compensation for service as an Advisory Board member was
initially set at $10,000 per annum. Initially, two former members of the Boards
of Directors of the Corporation and MorAmerica Capital, Henry T. Madden and John
Wolfe, were appointed to the MorAmerica Capital Advisory Board commencing at the
end of the 2004 Annual Meeting of Shareholders. Pursuant to a written agreement,
Mr. Madden and Mr. Wolfe have provided consulting services as advisory directors
for a two-year term based on their prior experience as members of the Board of
Directors with respect to the current investment portfolio. Certain information
concerning Mr. Madden and Mr. Wolfe is set forth below.
HENRY T. MADDEN
Mr. Madden, age 75, was a Director of the Corporation and MorAmerica
Capital from 1994 to 2004. Mr. Madden is a consultant to development stage
companies. Since 1995, Mr. Madden has been an independent trustee of Berthel
Growth and Income Trust I, and since 1997, Mr. Madden has served as an
independent member of the Management Board of Berthel SBIC, LLC, a wholly-owned
subsidiary of Berthel Growth & Income Trust I. In 1986, Mr. Madden organized the
Institute for Entrepreneurial Management in the University of Iowa College of
Business Administration. As Director of the Institute, Mr. Madden advised
potential and new entrepreneurs and taught courses on entrepreneurship in the
M.B.A. program. He retired in December, 2000.
JOHN D. WOLFE
Mr. Wolfe, age 79, was a Director of the Corporation from 1994 to 2004 and
a Director of MorAmerica Capital from 1989 to 2004. Mr. Wolfe is retired from a
career in mortgage lending and retail banking. Mr. Wolfe had been employed for
many years by the Morris Plan companies prior to the 1985 bankruptcy of
MorAmerica Financial Corporation and Morris Plan Liquidation Company (the
"Debtors"), and was President of the Morris Plan Company of Iowa. Following the
1988 reorganization of the Debtors, Mr. Wolfe served as voting trustee for the
MorAmerica Financial Corporation stock and President of both Debtors. Following
several years of retirement, Mr. Wolfe returned from retirement to serve as
voting trustee and President and Director of the Debtors during the Debtors'
1993 bankruptcy case.
Meetings and Committees of the Board of Directors
An Audit Committee, a Corporate Governance/Nominating Committee, the
Investment Committee and the Valuation Committee operated during Fiscal Year
2004 to assist the Board of Directors in carrying out its duties. During Fiscal
Year 2004, nine meetings of the Board of Directors were held. In addition, six
meetings of the Audit Committee, two meetings of the Nominating Committee, one
meeting of the Investment Committee and one meeting of the Valuation Committee
were held. Each of the Directors who are nominated for election at the
29
2005 Annual Meeting attended at least 75% of the aggregate meetings of the Board
of Directors and the meetings held by the committees of the Board of Directors
on which that Director served during his tenure.
Audit Committee
The Audit Committee makes recommendations to the Board of Directors
regarding the engagement of the independent auditors for audit and non-audit
services; evaluates the independence of the auditors and reviews with the
independent auditors the fee, scope and timing of audit and non-audit services.
The Audit Committee also is charged with monitoring the Corporation's Policy
Against Insider Trading and Prohibited Transactions and its Code of Conduct. The
Audit Committee has adopted a written charter, which was previously provided
with the Corporation's Proxy Statement for the 2004 Annual Meeting.
The Audit Committee presently consists of Michael W. Dunn (Chair), Paul M.
Bass and Gordon J. Roth. Each member of the Audit Committee is independent under
NASDAQ listing standards.
Corporate Governance/Nominating Committee
The Corporate Governance/Nominating Committee was appointed by the Board of
Directors to identify and recommend approval of all Director nominees to be
voted on at the Annual Shareholders' Meetings, to recommend corporate governance
guidelines for the Corporation, to lead the Board of Directors in its annual
review of the Board's performance, and to recommend to the Board of Directors
nominees for each committee of the Board. On December 22, 2003, the Board of
Directors approved the Corporate Governance/Nominating Committee Charter, which
was previously provided with the Corporation's Proxy Statement for the 2004
Annual Meeting.
The Corporate Governance/Nominating Committee may seek input from other
Directors or senior management in identifying candidates. Shareholders may
propose nominees for Director by following the procedures set forth in the
section of this Proxy Statement entitled "SHAREHOLDER PROPOSALS FOR 2006 ANNUAL
MEETING."
The qualifications used in evaluating Director candidates include but are
not limited to: independence, time commitments, attendance, business judgment,
management, accounting, finance, industry and technology knowledge, as well as,
personal and professional ethics, integrity and values. In addition, as set
forth in its Charter, the Corporate Governance/Nominating Committee believes
that having directors with relevant experience in business and industry,
government, finance and other areas is beneficial to the Board of Directors as a
whole. The Corporate Governance/Nominating Committee further reviews the
qualifications of any candidate in the context of the current composition of the
Board of Directors and the needs of the Corporation. The same identifying and
evaluating procedures apply to all candidates for director nomination.
30
The Corporate Governance/Nominating Committee has approved all of the
nominees for Director identified above. Given that six of the seven continuing
Board members have served for less than two years, the Corporate
Governance/Nominating Committee determined to re-nominate all continuing
members. Under the new classification system which will be implemented if
approved by the Shareholders, the Corporate Governance/Nominating Committee will
evaluate the three Directors whose terms expire each year to determine if
re-nomination is appropriate given all of the factors noted above.
The Corporate Governance/Nominating Committee also oversees the formulation
of, and recommends for adoption to the Board of Directors, a set of corporate
governance guidelines. The Corporate Governance/Nominating Committee also
periodically reviews and reassesses the corporate governance guidelines of the
Corporation and recommends appropriate changes to the Board of Directors for
approval. The Corporate Governance/Nominating Committee also reviews and
approves annually the Corporation's compensation program for service on the
Board of Directors or any of its committees.
The Corporate Governance/Nominating Committee presently consists of Paul M.
Bass, Jr. (Chair), and Jasja Kotterman. All members of the Corporate
Governance/Nominating Committee are independent under NASDAQ listing standards.
Investment Committee
The Investment Committee assists the full Board of Directors with oversight
of the Corporation's investment portfolio and evaluates any proposed revisions
to the Corporation's investment policy. The Investment Committee also assures
compliance with the Corporation's policies regarding investments made in
participation with other funds managed by InvestAmerica, with entities
controlling, controlled by or under common control with Atlas, and with other
affiliates. The voting members of the Investment Committee presently include
Paul M. Bass, Jr., Michael W. Dunn, Gordon J. Roth, Jasja Kotterman, and Martin
Walton. All voting members are independent under NASDAQ listing standards. The
nonvoting ex officio members are Benjamin Jiaravanon and Geoffrey T. Woolley.
Valuation Committee
Since the end of Fiscal Year 2003, the Board of Directors has appointed a
Valuation Committee to assist the Board of Directors with its quarterly
portfolio valuation. The Valuation Committee meets with the portfolio managers
to review the portfolio managers' proposed valuations of all investments. The
Valuation Committee then recommends proposed valuations to the full Board, and
selects investments for review by the full Board which have had material
developments or are otherwise determined appropriate for individual review. The
full Board of Directors then reviews the report of the Valuation Committee as
well as all portfolio investments recommend for review at the meeting. The full
Board of Directors also receives the complete valuation report and
recommendations on all investments and may ask questions or for detailed review
of any investment. The Board of Directors then approves the valuation of all
portfolio investments, with any changes approved at the meeting. Current members
of the Valuation Committee are Jasja Kotterman and Martin Walton.
31
Audit Committee Report
The Audit Committee of the Board of Directors of the Corporation (the
"Audit Committee") is composed of three directors and operates under a written
charter originally adopted by the Board of Directors and annually updated by the
Audit Committee. The current charter of the Audit Committee was attached to the
Proxy Statement for the 2004 Annual Shareholders Meeting. The current members of
the Audit Committee are Michael W. Dunn (Chair), Paul M. Bass and Gordon J.
Roth. Under the terms of the charter and the listing standards of The NASDAQ
Stock Market, Inc., all of the Audit Committee members are considered to be
independent.
Management is responsible for the Corporation's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Corporation's consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report thereon. The Audit Committee's responsibility is to monitor and oversee
these processes.
In this regard, the Audit Committee has reviewed and discussed the audited
financial statements for Fiscal Year 2004 with management and discussed other
matters related to the audit with the independent auditors. Management
represented to the Audit Committee that the Corporation's consolidated financial
statements were prepared in accordance with accounting principles generally
accepted in the United States of America. The Audit Committee met with the
independent auditors, with and without management present, and discussed with
the independent auditors matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). The independent
auditors also provided to the Audit Committee the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the Audit Committee discussed with the
independent auditors the firm's independence.
The Corporation paid KPMG LLP ("KPMG"), the Corporation's independent
auditors for fiscal year 2004, the following amounts during fiscal year 2004:
Audit Fees (including quarterly reviews,
security counts, and audit of Form 468): $ 58,250
Audit-related services $ 11,175
Financial Information Systems Design
and Implementation: $ -0-
Non-Audit Fees:
Preparation of federal and state
income tax returns $ 23,750
Other tax research, consultation,
correspondence and
advice $ 1,150
32
The Audit Committee has considered whether KPMG has maintained its
independence during Fiscal Year 2004.
Based upon the Audit Committee's discussions with management and the
independent auditors, and the Audit Committee's review of representations of
management and the report of the independent auditors to the Audit Committee,
the Audit Committee recommended that the Corporation's Board of Directors
include the audited consolidated financial statements in the Corporation's
Annual Report on Form 10-K/A for the year ended September 30, 2004, filed with
the Securities and Exchange Commission.
AUDIT COMMITTEE:
Michael W. Dunn, Chair
Paul M. Bass
Gordon J. Roth
Independent Auditor Fees and Services
The following table presents fees paid for professional services rendered
by KPMG for the Fiscal Year 2004 and the fiscal year ending September 30, 2003
("Fiscal Year 2003"):
Fee Category Fiscal Year 2004 Fees Fiscal Year 2003 Fees
---------------------------------------- ---------------------------- ----------------------------
$58,250 $54,500
Audit Fees
$11,175 4,800
Audit-Related Fees
$24,900 $50,850
Tax Fees
-0- -0-
All Other Fees
---------------------------- ----------------------------
$94,325 $110,150
Total Fees
Audit Fees were for professional services rendered for the audit of the
Corporation's consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by KPMG in connection with statutory and regulatory
filings or engagements and include quarterly reviews, security counts and audit
of SBA Form 468.
33
Audit-Related Fees were for assurance and related services that are
reasonably related to the performance of the audit or review of the
Corporation's consolidated financial statements and are not reported under
"Audit Fees." These services include accounting consultations in connection with
acquisitions, consultations concerning financial accounting and reporting
standards.
Tax Fees were for professional services for federal, state and
international tax compliance, tax advice and tax planning and include
preparation of federal and state income tax returns, and other tax research,
consultation, correspondence and advice.
All Other Fees are for services other than the services reported above.
The Corporation did not pay any fees for such other services in Fiscal Year 2004
or Fiscal Year 2003.
The Audit Committee has concluded the provision of the non-audit
services listed above is compatible with maintaining the independence of KPMG.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors
The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to the Audit Committee regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Audit Committee may also
pre-approve particular services on a case-by-case basis.
Compensation of Directors and Executive Officers
Compensation of Directors
Pursuant to the Board of Directors Resolution dated February 24, 2004,
Directors of the Corporation and of MorAmerica Capital who are also officers or
directors of any investment advisor of either the Corporation or of MorAmerica
Capital Corporation receive no compensation for serving on the Boards of
Directors of the Corporation and of MorAmerica Capital, except that this policy
does not apply to the Chairman of the Board. The Chairman of the Board receives
an annual retainer of $21,600, and all other outside Directors receive an annual
retainer of $7,200. The Chairman of the Board and all other outside Directors
also receive $1,000 for each Board of Directors meeting attended (whether such
attendance is in person or by telephone) if the meeting is scheduled as an
in-person meeting and $250 for each Board of Directors meeting attended by
telephone if the meeting is scheduled to be held by teleconference. In addition,
the Chairman of the Board and all other Directors receive $250 for each
committee meeting attended (whether such attendance is in person or by
telephone) if the
34
committee meeting is scheduled as an in-person meeting and $100 for each
committee meeting attended by telephone if the meeting is scheduled to be held
by teleconference The Directors do not receive separate compensation for serving
on the Board of Directors of MorAmerica Capital. The Corporation also reimburses
all reasonable expenses of the Directors and the Chairman of the Board in
attending Board of Directors and committee meetings. Directors' meetings are
normally held on a quarterly basis, with additional meetings held as needed on
an interim basis.
Summary Compensation Table
The following table sets forth certain details of compensation paid to
Directors during Fiscal Year 2004, which includes compensation for serving on
the Boards of Directors of the Corporation and MorAmerica Capital (the only
wholly owned subsidiary of the Corporation). For purposes of the following
table, the Fund Complex (as that term is defined in Item 22(a)(1)(v) of Reg.
ss.240.14a-101) consists solely of the Corporation and MorAmerica Capital. The
Corporation presently maintains no pension or retirement plans for its
Directors.
Aggregate Compensation
Name and Position From Corporation and Fund Complex(1)
Geoffrey T. Woolley $13,100(3)
Chairman of the Board(2)
Paul M. Bass, Jr., Director(4) $20,900
David R. Schroder, -0-
President and Secretary
Kent I. Madsen(5) $3,900
Benjamin Jiaravanon, Director $600
Jasja De Smedt Kotterman, Director $7,400
Shane V. Robison(6) $6,200
Martin Walton, Director $7,300
Michael W. Dunn, Director $15,650
Gordon J. Roth $14,150
Todd J. Stevens(7) $2,800
Henry T. Madden(8) $14,083.33
35
John D. Wolfe(9) $13,533.33
------------------------------------
(1) Consists only of directors' fees and does not include reimbursed
expenses. The Corporation presently maintains no pension or retirement plans for
its Directors.
(2) Mr. Woolley was elected Chairman of the Board on April 30, 2004.
(3) $10,800 of this amount was deferred pursuant to the MACC
Private Equities Inc. Directors' Deferred Fee Plan effective April 1,
2004.
(4) Mr. Bass served as Chairman of the Board through April 30, 2004.
(5) Mr. Madsen resigned from the Board of Directors on May 24, 2005.
(6) Mr. Robison is not standing for re-election at the 2005 Annual
Meeting.
(7) Mr. Stevens resigned from the Board of Directors on October 7,
2003.
(8) Mr. Madden's term as Director expired in February, 2004.
(9) Mr. Wolfe's term as Director expired in February, 2004.
Compensation of Executive Officers
The Corporation has no employees and does not pay any compensation to
any of its officers. All of the Corporation's officers and staff are employed by
InvestAmerica Investment Advisors, Inc., which pays all of their cash
compensation.
Executive Officers of the Corporation
Unless otherwise indicated, the address for all officers is 101 Second
Street S.E., Suite 800, Cedar Rapids IA 52401.
------------------ -------------- ------------ -------------------------------- --------------------------------------
Name, Address Position(s) Term of Principal Occupation(s) During Other Positions Held by Officer
and Age Held with Office and Past 5 Years
the Length of
Corporation Time Served
------------------ -------------- ------------ -------------------------------- --------------------------------------
David R. President Since Prior to his current position, •InvestAmerica: President,
Schroder, 62 and Secretary April, 2005 Mr. Schroder served as Chief Secretary and Director
Compliance Officer and •InvestAmerica Venture Group, Inc.
Treasurer from March, 2004 ("Venture") +: President, Secretary
through April, 2005, and and a Director.
served as President, Secretary Venture presently provides
and a Director of the management and investment services
Corporation from 1994 through to a private investment partnership,
2004. Mr. Schroder received a the Iowa Venture Capital Fund, L.P.
B.S.F.S. from Georgetown •InvestAmerica N.D. Management,
University and an M.B.A. from Inc. ("InvestAmerica ND") +:
the University of Wisconsin. President, Secretary and Director.
InvestAmerica ND provides management
and investment services
------------------ -------------- ------------ -------------------------------- --------------------------------------
36
------------------ -------------- ------------ -------------------------------- --------------------------------------
to NDSBIC, L.P. +, an SBIC.
•InvestAmerica ND, L.L.C. +:
President, Secretary and Director.
InvestAmerica ND, L.L.C. is the
general partner of NDSBIC, L.P.
•InvestAmerica L&C Management, Inc.
("InvestAmerica L&C") +: Director,
President and Secretary.
InvestAmerica L&C provides
management and investment services
to Lewis & Clark Private Equities,
L.P. ("Lewis") +, an SBIC.
•InvestAmerica L&C, LLC+: President
and Secretary.
InvestAmerica L&C, LLC is the
general partner of Lewis.
•InvestAmerica NW Management, Inc.
("NW") +: Director, President and
Secretary.
NW provides management and
investment services to
InvestNorthwest, L.P. ("NWLP") +, a
private venture capital fund.
•InvestAmerica NW, LLC+: President
and Secretary.
•InvestAmerica NW, LLC, is the
general partner of NWLP.
As a representative of the
InvestAmerica and affiliates, Mr.
Schroder also serves
on the boards of directors of several of the
Corporation's portfolio companies
and the portfolio companies of other
managed funds.
------------------ -------------- ------------ -------------------------------- --------------------------------------
Robert A. Comey, Executive Since Prior to his current position, •InvestAmerica: Executive Vice
59 Vice April, 2005 Mr. Comey served as Executive President, Treasurer, Assistant
President, Vice President, Treasurer and Secretary and a Director.
Chief a Director of the Corporation •InvestAmerica L&C: Executive Vice
Financial from 1994 through 2004, was a President.
Officer, Director of MorAmerica from •InvestAmerica L&C, LLC: Executive
Chief 1989 through 2004, was Vice President.
Compliance Executive Vice President and •InvestAmerica ND: Director,
Officer, Assistant Secretary of Executive Vice President and
Treasurer MorAmerica from 1994 through Treasurer.
and 2004, was Treasurer of •InvestAmerica ND, LLC: Director,
Assistant MorAmerica from 1994 through Executive Vice President and
Secretary April, 2005, and was Chief Treasurer.
Financial Officer of •NW: Executive Vice President.
MorAmerica from 2004 until •InvestAmerica NW, LLC:
April, 2005. Mr. Comey Executive Vice President.
received an A.B. in Economics •Venture: Director, Executive Vice
from Brown University and an President and Treasurer.
M.B.A. from Fordham University. As a representative of InvestAmerica
and affiliates, Mr. Comey also
serves
------------------ -------------- ------------ -------------------------------- --------------------------------------
37
------------------ -------------- ------------ -------------------------------- --------------------------------------
on the boards of directors of
several of MorAmerica's portfolio
companies and the portfolio
companies of other managed funds.
------------------ -------------- ------------ -------------------------------- --------------------------------------
Kevin F. Senior Vice Since Prior to his current position, •InvestAmerica: Senior Vice
Mullane, 49 President April, 2005 Mr. Mullane served as Vice President, Assistant Secretary and a
President of the Corporation Director.
from 1994 through 1999, served •InvestAmerica L&C: Director and
as Vice President of Senior Vice President.
MorAmerica from 1994 through •InvestAmerica L&C, LLC: Senior
1998, served as Senior Vice Vice President.
President of the Corporation •InvestAmerica ND: Director and
from 2000 through 2004, and Senior Vice President.
served as Senior Vice •InvestAmerica ND, LLC: Director
President of MorAmerica from and Senior Vice President.
1999 through 2004. Mr. •NW: Director and Senior Vice
Mullane received an M.B.A. and President.
an M.S. in Business •InvestAmerica NW, LLC: Senior
Administration, Emphasis in Vice President.
Accounting, from Rockhurst •Venture: Director, Senior Vice
Jesuit University. President.
As a representative of InvestAmerica
and affiliates, Mr. Mullane also
serves on the boards of directors of
several of MorAmerica's portfolio
companies and the portfolio companies
of other managed funds.
------------------ -------------- ------------ -------------------------------- --------------------------------------
Michael H. Vice Since Prior to his current position, •InvestAmerica: Vice President.
Reynoldson, 40 President April, 2005 Mr. Reynoldson served as Vice •InvestAmerica L&C, LLC: Vice
President of the Corporation President.
from 2002 through 2004, and •InvestAmerica NW, LLC: Vice
has been the Vice President of President.
MorAmerica since 2002. Mr. •NW: Vice President.
Reynoldson received an M.B.A. •InvestAmerica L&C: Vice
from the University of Iowa President.
and a B.A. in Business As a representative of InvestAmerica
Administration from Washington and affiliates, Mr. Reynoldson also
State University. serves on the boards of directors of
several of MorAmerica's portfolio
companies and the portfolio companies
of other managed funds.
------------------ -------------- ------------ -------------------------------- --------------------------------------
+ These entities are under common control with InvestAmerica.
----------------------------------------------------------------------------------------------------------------------
Investment Advisor & Certain Business Relationships
MorAmerica. MorAmerica Capital Corporation ("MorAmerica") is a wholly-owned
subsidiary of the Corporation. The current members of the Board of Directors and
the nominees for fiscal year 2005 of the Board of Directors of MorAmerica are
the same individuals as are nominated for directors of the Corporation's Board
of Directors. Mr. Geoffrey Woolley is Chairman of the Board of both the
Corporation and of MorAmerica.
38
InvestAmerica. The Corporation and InvestAmerica are parties to that
Interim Investment Advisory Agreement dated April 30, 2005, and MorAmerica and
InvestAmerica are parties to that Interim Investment Advisory Agreement dated
April 30, 2005 (the "Interim Agreements"). As discussed in PROPOSALS 3 & 4, the
Boards of Directors of the Corporation and MorAmerica have recommended that the
shareholders approve the proposed termination of the Interim Agreements at the
2005 Annual Meeting and the effectiveness of the InvestAmerica/MorAmerica
Agreement and the InvestAmerica/MACC Agreement. Mr. David Schroder, President
and Secretary of the Corporation and of MorAmerica, is a shareholder of,
Director, President and Secretary of InvestAmerica. Mr. Kevin Mullane, Senior
Vice President of the Corporation and of MorAmerica, is a shareholder of, and
the Senior Vice President and Assistant Secretary of InvestAmerica. Mr. Robert
A. Comey, Executive Vice President, Chief Financial Officer, Chief Compliance
Officer, Treasurer and Assistant Secretary of the Corporation and of MorAmerica,
is the Executive Vice President, Treasurer and Assistant Secretary of
InvestAmerica. Mr. Michael H. Reynoldson, Vice President of the Corporation and
of MorAmerica, is the Vice President of InvestAmerica. Ms. Marilyn Benge,
Assistant Secretary of the Corporation and of MorAmerica, is an employee of
InvestAmerica.
Performance Graph
The following graph compares the semi-annual percentage change in
cumulative stockholder return on the Common Stock of the Corporation since
September 30, 1998, with the cumulative total return over the same period of (i)
the NASDAQ Stock Market Total Return Index (U.S. Companies), and (ii) the
Corporation's present peer group selected in good faith by the Corporation
composed of the following nine business development companies or other funds
known by the Corporation to have similar investment objectives to the
Corporation: Allied Capital Corporation (ALD), American Capital Strategies, Ltd.
(ACAS), Brantley Capital Corporation (BBDC), Capital Southwest Corp (CSWC),
Equus II Inc. (EQS), Harris & Harris Group, Inc. (TINY), Rand Capital Corp
(RAND), Waterside Capital Corporation (WSCC) and Winfield Capital Corp (WCAP)
(the "Peer Group").
In the graph, the comparison assumes $100 was invested on October 1, 1999,
in shares of the Corporation's Common Stock and in each of the indices. The
comparison is based upon the closing market bid price for shares of the
Corporation's Common Stock, and assumes the reinvestment of all dividends, if
any. The returns of each of the companies in the Peer Group are weighted
according to the respective company's stock market capitalization at the
beginning of each period for which a return is indicated.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG MACC PRIVATE EQUITIES INC., NASDAQ MARKET INDEX
AND PEER GROUP INDEX
39
|
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, officers and directors of
the Corporation and persons beneficially owning 10% or more of the Corporation's
Common Stock (collectively, "reporting persons") must file reports on Forms 3, 4
and 5 regarding changes in their holdings of the Corporation's equity securities
with the Securities and Exchange Commission. Based solely upon a review of
copies of these reports sent to the Secretary of the Corporation and/or written
representations from reporting persons that no Form 5 was required to be filed
with respect to Fiscal Year 2004, the Corporation believes that all Forms 3, 4,
and 5 required to be filed by all reporting persons have been properly and
timely filed with the Securities and Exchange Commission, except that Mr. Walton
was to have filed a Form 3 by March 5, 2004, and that form was filed with the
SEC on April 29, 2004.
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission, any shareholder
proposal to be considered by the Corporation for inclusion in the proxy material
for the February, 2006 Annual Meeting of shareholders must be received by the
Secretary of the Corporation, 101 Second Street S.E., Suite 800, Cedar Rapids IA
52401, within a reasonable time before the Corporation begins to print and mail
its proxy materials. The submission of a proposal does not guarantee its
inclusion in the proxy statement or presentation at the annual meeting unless
certain securities laws requirements are met.
40
In addition, under the Corporation's Amended and Restated Bylaws, due to
the delay in holding the 2005 Annual Meeting, shareholders desiring to nominate
persons for election as Directors or to propose other business for consideration
at an annual meeting must notify the Secretary of the Corporation in writing
within a reasonable time prior to the date on which the Corporation first mailed
its proxy materials for the annual meeting at which such proposal is to be made.
Accordingly, shareholders desiring to submit a proposal for consideration at the
2006 Annual Meeting of shareholders must give written notice of the proposal to
the Secretary of the Corporation not earlier than October 30, 2005.
Shareholder-nominated candidates for Director are considered by the Corporate
Governance/Nominating Committee in the same manner as all other Director
candidates. The Corporation's proxies will have discretionary authority to vote
with respect to any shareholder proposal that may be presented at an annual
meeting which does not comply with these notice requirements. Shareholders'
notices must contain the specific information set forth in the Corporation's
Bylaws. A copy of the Corporation's Amended and Restated Bylaws will be
furnished to shareholders without charge upon written request to the Secretary
of the Corporation.
SHAREHOLDER COMMUNICATION
Any shareholder wishing to communicate with any of the Corporation's
Directors regarding matters related to the Corporation may provide
correspondence to the Director in care of Secretary, MACC Private Equities Inc.,
101 Second Street S.E., Suite 800, Cedar Rapids IA 52401. The Chairman of the
Corporate Governance/Nominating Committee will review and determine the
appropriate response to questions from shareholders, including whether to
forward communications to individual Directors. The independent members of the
Board of Directors review and approve the shareholder's communication process
periodically to ensure effective communication with the shareholders.
The Corporation strongly encourages its Directors to attend all annual
meetings, and all Directors attended the Corporation's 2005 Annual Meeting of
shareholders.
EXPENSES OF SOLICITATION OF PROXIES
In addition to the use of the mails, proxies may be solicited by personal
interview and telephone by directors, officers and other employees of the
Corporation, who will not receive additional compensation for such services. The
Corporation has employed Mellon Investor Services, LLC to aid in the
solicitation of proxies at an estimated fee of $6,000. The Corporation will also
request brokerage houses, nominees, custodians and fiduciaries to forward
soliciting materials to the beneficial owners of stock held of record by them
and will reimburse such persons for forwarding materials. The cost of soliciting
proxies will be borne by the Corporation.
PERIODIC REPORTS
The Corporation's financial statements and related financial information
required by Item 13(a) of Schedule 14A are incorporated herein by this reference
to: (i) the Corporation's Annual Report to Shareholders for its fiscal year
ended September 30, 2004, included as exhibit 13 to the
41
Corporation's report on Form 10-K/A filed with the Commission on June 16, 2005,
and (ii) the Corporation's report on Form 10-Q for its second fiscal quarter
ended March 31, 2005 (the "Reports"). The Reports accompany this proxy
statement, but are not deemed a part of the proxy soliciting material, except
to the extent that portions thereof have been incorporated herein pursuant to
the preceding sentence.
Copies of the Fiscal Year 2004 Form 10-K/A report and of the second quarter
2005 Form 10-Q report to the Securities and Exchange Commission, excluding
exhibits, will be mailed to shareholders without charge upon written request to
Secretary, MACC Private Equities Inc., 101 Second Street S.E., Suite 800, Cedar
Rapids IA 52401, or by calling (319) 363-8249. Such requests must set forth a
good faith representation that the requesting party was either a holder of
record or a beneficial owner of Common Stock of the Corporation on March 31,
2005. Exhibits to the Form 10-K/A and the Form 10-Q will be mailed upon similar
request and payment of specified fees.
Please date, sign and return the proxy at your earliest convenience in the
enclosed envelope. No postage is required for mailing in the United States. A
prompt return of your proxy will be appreciated as it will save the expense of
further mailings and telephone solicitations.
By Order of the Board of Directors
/s/ David R. Schroder
David R. Schroder,
Secretary
Cedar Rapids, Iowa
June 17, 2005
42
Please
Mark Here
for Address |_|
Change or
Comments
SEE REVERSE SIDE
FOR WITHHOLD Authority
all nominees for all nominees
1. To elect two Class I Directors to serve |_| |_|
until the 2006 Annual Meeting of
Shareholders or until their respective
successors shall be elected and
qualified; to elect two Class II
Directors to serve until the 2007
Annual Meeting of Shareholders or until
their respective successors shall be
elected and qualified; and to elect
three Class III Directors to serve
until the 2008 Annual Meeting of
Shareholders or until their respective
successors shall be elected and
qualified;
NOMINEES:
Class I Director Nominees:
01 Benjamin Jiaravanon; 02 Gordon J. Roth
Class II Director Nominees:
03 Paul M. Bass; 04 Jasja Kotterman;
Class III Director Nominees:
05 Geoffrey T. Woolley; 06 Michael W. Dunn; 07 Martin Walton
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. To approve amending the Corporation's |_| |_| |_|
Amended and Restated Bylaws to classify
the Board of Directors such that three
directors will be elected each year to
serve three-year terms;
FOR AGAINST ABSTAIN
3. To approve the Investment Advisory |_| |_| |_|
Agreement between the Corporation's
wholly-owned subsidiary, MorAmerica
Capital Corporation, and InvestAmerica
Investment Advisors, Inc.;
FOR AGAINST ABSTAIN
4. To approve the Investment Advisory |_| |_| |_|
Agreement between the Corporation and
InvestAmerica Investment Advisors,
Inc.;
FOR AGAINST ABSTAIN
5. To authorize the Corporation to issues |_| |_| |_|
rights to acquire any authorized shares
of Common Stock of the Corporation;
FOR AGAINST ABSTAIN
6. To ratify the appointment of KPMG LLP |_| |_| |_|
as independent auditors; and
7. To transact such other business as may properly come before the meeting
and any adjournment thereof.
PLEASE SIGN, DATE AND RETURN THIS PROXY USING THE ENCLOSED ENVELOPE.
Signature _______________________ Signature _______________________ Date _______
Please sign your name exactly as it appears hereon. If signing for estates,
trusts, corporations or partnerships, title or capacity should be stated. If
shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
MACC Private Equities Inc.
Proxy Solicited on Behalf of the Board of Directors
for Annual Meeting of Shareholders
July 19, 2005
The undersigned hereby appoints Geoffrey T. Woolley, David R. Schroder and
Robert A. Comey and each of them, with full power of substitution, and hereby
authorizes them to represent the undersigned and to vote all of the shares of
Common Stock of MACC PRIVATE EQUITIES INC. (the "Corporation") held of record by
the undersigned on May 31, 2005, at the Annual Meeting of Shareholders of the
Corporation to be held on July 19, 2005, and any adjournment(s) thereof.
The proxy when properly executed will be voted as directed by the
undersigned shareholder. If directors are not indicated, the proxy will be voted
to elect the nominees described in item 1 and for the proposals described in
items 2 through 6. The proxies, in their discretion, are further authorized to
vote (a) on matters which the Board of Directors did not know would be presented
at the Annual Meeting within the time period specified in the Corporation's
Amended and Restated Bylaws; and (b) on other matters which may properly come
before the Annual Meeting and any adjournments or postponements thereof.
(continued, and to be signed on reverse side)
________________________________________________________________________________
Address Change/Comments (Mark the corresponding box on the reverse side)
________________________________________________________________________________
________________________________________________________________________________
--------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
APPENDIX A
INVESTMENT ADVISORY AGREEMENT
MORAMERICA CAPITAL CORPORATION,
An Iowa Corporation
This INVESTMENT ADVISORY AGREEMENT dated as of July _____, 2005 (the
"Agreement") by MorAmerica Capital Corporation, a corporation organized under
the laws of the State of Iowa ("MACC"), and InvestAmerica Investment Advisors,
Inc., a corporation organized under the laws of the State of Delaware
("InvestAmerica").
WHEREAS, MACC is licensed as a small business investment company ("SBIC")
under the Small Business Investment Act of 1958, as amended, and operates as a
business development company under the Investment Company Act of 1940, as
amended (the "ICA");
WHEREAS, InvestAmerica is qualified to provide investment advisory services
to MACC, and is registered as an investment advisor under the Investment
Advisers Act of 1940, as amended.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Definitions.
1.1 "Affiliate" shall have the meaning given under Rule 144 of the
Securities Act of 1933, as amended.
1.2 "Assets Under Management" shall mean the total value of MACC assets
Managed by InvestAmerica under this Agreement.
1.3 "InvestAmerica" shall mean InvestAmerica Investment Advisors, Inc., a
Delaware corporation.
1.4 "Capital Losses" are those which are placed, consistent with generally
accepted accounting principles, on the books of MACC and which occur when:
(a) An actual or realized loss is sustained owing to Portfolio
Company or investment events including, but not limited to, liquidation, sale or
bankruptcy;
(b) The Board of Directors of MACC determines that a loss or depreciation
in value from the value on the date of this Agreement should be taken by MACC in
accordance with generally accepted accounting principles and SBA accounting
regulations and is shown on its books as a part of the periodic valuation of the
Portfolio Companies by the Board of Directors; or
1
(c) Capital Losses are adjusted for reverses of depreciation when the Board
of Directors determines that a value should be adjusted upward and the
investment value remains at or below original cost.
For purposes of this definition, in any case where the Board of Directors
of MACC writes down the value of any investment in MACC's portfolio (in
accordance with the standards set forth in subsection 1.3(b) above), (i) such
reduction in value shall result in a new cost basis for such investment and (ii)
the most recent cost basis of such investment shall thereafter be used in the
determination of any Realized Capital Gains or Capital Losses in MACC's
portfolio (i.e., there shall be no double-counting of losses when a security
(whose value has declined in a prior period) is ultimately sold at a price below
its historical cost).
1.5 "Capital Under Management" shall mean MACC's (i) fiscal year end
Private Capital as defined in the SBA regulations as of the date hereof (which
regulations define Private Capital to exclude unrealized capital gains and
losses) ("Private Capital"); plus (ii) fiscal year end SBA leverage as defined
by SBA regulations as of the date hereof, including participating securities as
defined in Section 303(g) of the Small Business Investment Act of 1958, as
amended; plus (iii) fiscal year end Undistributed Realized Earnings.
1.6 "Combined Capital" shall mean MACC's Combined Capital as defined in SBA
regulations as of the date hereof.
1.7 "ICA" has the meaning set forth in the first recital hereof.
1.8 "MACC" shall mean MorAmerica Capital Corporation, an Iowa corporation
that is a wholly owned subsidiary of the Company.
1.9 "Net Capital Gains" shall mean Realized Capital Gains minus the sum of
(i) Capital Losses determined in accordance with generally accepted accounting
principles; and (ii) net investment losses, if any, as reported on Line 32 of
SBA Form 468.
1.10 "Other Venture Capital Funds" has the meaning set forth in subsection
3.2(b).
1.11 "Portfolio Company" or "Portfolio Companies" shall mean any entity in
which MACC may make an investment and with respect to which InvestAmerica will
be providing services pursuant hereto, which investments may include ownership
of capital stock, loans, receivables due from a Portfolio Company or other
debtor on the sale of assets acquired in liquidation and assets acquired in
liquidation of any Portfolio Company.
1.12 "Private Capital" has the meaning set forth in the definition of
Capital Under Management in Section 1.5 above.
1.13 "Realized Capital Gains" shall mean capital gains after deducting the
cost and expenses necessary to achieve the gain (e.g., broker's fees). For
purposes of this Agreement:
2
(a) Capital gains are Realized Capital Gains upon the cash sale of the
capital stock or assets of a Portfolio Company or any other asset or item of
property managed by InvestAmerica pursuant to the terms hereof or any Realized
Capital Gain has occurred in accordance with GAAP which is not cash as described
in Subsection 1.12(b) below; and
(b) Realized Capital Gains other than cash gains shall be recorded and
calculated in the period the gain is realized; however, in determining payment
of any incentive fee, the payment shall be made when the cash is received. The
amount of the fee earned on gains other than cash shall be recorded as incentive
fees payable on the financial statements of MACC.
1.14 "SBA" shall mean the United States Small Business Administration or
any successor thereto, which has regulatory authority over SBICs.
1.15 "SBIC" has the meaning set forth in the first recital hereof.
1.16 "SEC" shall mean the United States Securities and Exchange Commission.
1.17 "The Company" shall mean MACC Private Equities Inc. and "the
Companies" shall mean MACC Private Equities Inc. and MACC.
Section 2. Investment Advisory Engagement. MACC hereby engages
InvestAmerica as its investment advisor.
2.1 As such, InvestAmerica will:
(a) Manage, render advice with respect to, and make decisions regarding the
acquisition and disposition of securities in accordance with applicable law and
MACC's investment policies as set forth in writing by the Board of Directors, to
include (without limitation) the search and marketing for investment leads,
screening and research of investment opportunities, maintenance and expansion of
a co-investor network, review of appropriate investment legal documentation,
presentations of investments to MACC's Board of Directors (when and as
required), closing of investments, monitoring and management of investments and
exits, preparation of valuations, management of relationships with the SEC,
shareholders, the SBA and its auditors and outside auditors, and the provision
of other services appropriate to the management of an SBIC operating as a
business development company;
(b) Make available and, if requested by Portfolio Companies or entities in
which MACC is proposing to invest, render managerial assistance to, and exercise
management rights in, such Portfolio Companies and entities as appropriate to
maximize return for MACC and to comply with regulations;
(c) Maintain office space and facilities to the extent required by
InvestAmerica to provide adequate management services to MACC;
(d) Maintain the books of account and other records and files for MACC, but
not to include auditing services; and
3
(e) Report to MACC's Board of Directors, or to any committee or officers
acting pursuant to the authority of the Board, at such reasonable times and in
such reasonable detail as the Board deems appropriate in order to enable MACC to
determine that investment policies are being observed and implemented and that
the obligations of InvestAmerica hereunder are being fulfilled. Any investment
program undertaken by InvestAmerica pursuant hereto and any other activities
undertaken by InvestAmerica on behalf of MACC shall at all times be subject to
applicable law and any directives of MACC's Board of Directors or any duly
constituted committee or officer acting pursuant to the authority of MACC's
Board of Directors.
2.2 InvestAmerica will be responsible for the following expenses: its staff
salaries and fringe benefits, office space, office equipment and furniture,
communications, travel, meals and entertainment, conventions, seminars, office
supplies, dues and subscriptions, hiring fees, moving expenses, repair and
maintenance, employment taxes, in-house accounting expenses, expenses related to
developing, investigating and monitoring investments, business development,
insurance premiums and fees (including premiums for the fidelity bond, if any,
maintained by InvestAmerica pursuant to ICA Section 17 but excluding premiums
for directors and officers insurance) and minor miscellaneous expenses.
InvestAmerica will pay for its own account all expenses incurred in
rendering the services to be rendered hereunder. Without limiting the generality
of the foregoing, InvestAmerica will pay the salaries and other employee
benefits of the persons in its organization whom it may engage to render such
services, including without limitation, persons in its organization who may from
time to time act as officers of MACC.
2.3 In connection with the services provided, InvestAmerica will not be
responsible for the following expenses which shall be the sole responsibility of
MACC and will be paid promptly by MACC: auditing fees; all legal expenses; legal
fees normally paid by Portfolio Companies; National Association of Small
Business Investment Companies and other appropriate trade association fees;
brochures, advertising, marketing and publicity costs; interest on SBA or other
debt; fees to MACC directors and board fees; any fees owed or paid to MACC, its
Affiliates or fund managers; any and all expenses associated with property of a
Portfolio Company taken or received by MACC or on its behalf as a result of its
investment in any Portfolio company; all reorganization and registration
expenses of MACC; the fees and disbursements of MACC's counsel, accountants,
custodian, transfer agent and registrar; fees and expenses incurred in producing
and effecting filings with federal and state securities administrators; costs of
periodic reports to and other communications with the Company's shareholders;
fees and expenses of members of MACC's Board of Directors who are not directors,
officers, employees or Affiliates of InvestAmerica or of any entity which is an
Affiliate of InvestAmerica; premiums for directors and officers insurance
maintained by MACC; and all transaction costs incident to the acquisition,
management, protection and disposition of securities by MACC; and any other
expenses incurred by or on behalf of MACC that are not expressly payable by
InvestAmerica under Section 2.2 above.
4
2.4 Neither InvestAmerica nor MACC will enter into any subadvisory
agreements without SBA approval, which agreements shall also be subject to
approval requirements of the ICA.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of InvestAmerica to MACC are not exclusive.
InvestAmerica and its Affiliates may, in their discretion, manage other venture
capital funds and render the same or similar services to any other person or
persons who may be making the same or similar investments. The parties
acknowledge that InvestAmerica may offer the same investment opportunities as
may be offered to MACC to other persons for whom InvestAmerica is providing
services. Neither InvestAmerica nor any of its Affiliates shall in any manner be
liable to MACC or its Affiliates by reason of the activities of InvestAmerica or
its Affiliates on behalf of other persons and funds as described in this
paragraph.
3.2 For the benefit of MACC's investment activities, InvestAmerica and its
Affiliates intend to maintain various future co-investment relationships
involving the Company which may result in MACC being accorded the opportunity in
the future to review and to invest in certain investments found by other venture
capital funds managed by InvestAmerica and its Affiliates, including NDSBIC,
L.P., Lewis and Clark Private Equities, LP, and Invest Northwest, LP
(collectively, the "Other Venture Capital Funds").
For purposes of this Section 3.2, where the Companies have an opportunity
to co-invest with the Other Venture Capital Funds, investment opportunities
shall be offered to the Companies and the Other Venture Capital Funds, as the
case may be, (a) in the same proportion as its Private Capital bears to the
total Private Capital of the Companies and the Other Venture Capital Funds with
which MACC proposes to co-invest, in the aggregate, or (b) in such other manner
as is otherwise agreed upon by the Companies and the Other Venture Capital
Funds. Notwithstanding anything to the contrary contained in this Section 3.2,
the terms of any exemptive order applicable to co-investments between the Other
Venture Capital Funds and the Companies will control as to the terms of
co-investments among MACC and the Other Capital Venture Funds.
3.3 InvestAmerica will cause to be offered to MACC opportunities to acquire
or dispose of securities as provided in the co-investment guidelines summarized
in the section of the Company's SEC Registration Statement entitled "Investment
Objectives and Policies - Co-Investment Guidelines." Except to the extent of
acquisitions and dispositions that, in accordance with such co-investment
guidelines, require the specific approval of MACC's Board of Directors,
InvestAmerica is authorized to effect acquisitions and dispositions of
securities for MACC's account in InvestAmerica's discretion. Where such approval
is required, InvestAmerica is authorized to effect acquisitions and dispositions
for MACC's account upon and to the extent of such approval. MACC will put
InvestAmerica in funds whenever InvestAmerica requires funds for an acquisition
of securities in accordance with the foregoing, and MACC will cause to be
delivered in accordance with InvestAmerica's instructions any securities
disposed of in accordance with the foregoing.
5
3.4 Should InvestAmerica or any of its Affiliates agree to perform or
undertake any investment management services described in paragraph 3.1 for any
funds or persons in addition to Other Venture Capital Funds, InvestAmerica will
notify MACC, in writing, not later than the commencement of such agreement or
the initial provision of such services.
3.5 Any such investment management services and all co-investments shall at
all times be provided in strict accordance with rules and regulations under the
ICA, any exemptive order thereunder applicable to the Company and the rules and
regulations of the SBA.
Section 4. Services to Portfolio Companies.
4.1 It is acknowledged that as a part of the services to be provided by
InvestAmerica hereunder, certain of its employees, representatives and agents
will act as members of the board of directors of individual Portfolio Companies,
will vote the shares of the capital stock of Portfolio Companies, and make other
decisions which may effect the near-term and the long-term direction of a
Portfolio Company. Unless otherwise restricted hereafter by MACC in writing, in
regard to such actions and decisions MACC hereby appoints InvestAmerica (and
such officers, Directors, employees, representatives and agents is it shall
designate) as its proxy, as a result of which InvestAmerica shall have the
authority, in its performance of this Agreement, to make decisions and to take,
without specific authority from the Board of Directors of MACC, as to all
matters which are not hereby restricted.
4.2 All fees, including director's fees that may be paid by or for the
account of an entity in which MACC has invested or in which MACC is proposing to
invest in connection with an investment transaction in which MACC participates
or provides managerial assistance, will be treated as commitment fees or
management fees and will be received by MACC, pro rata to its participation in
such transaction. InvestAmerica will be allowed to be reimbursed by Portfolio
Companies for all direct expenses associated with due diligence and management
of portfolio investments or investment opportunities (travel, meals, lodging,
etc.).
4.3 The sole and exclusive compensation to InvestAmerica for its services
to be rendered hereunder will be in the form of a management fee and a separate
incentive fee as provided in Section 5. Should any officer, director, employee
or Affiliate of InvestAmerica serve as a member of the Board of Directors of
MACC, such officer, director, employee or Affiliate of InvestAmerica shall not
receive compensation as a member of the Board of Directors of MACC.
Section 5. Management and Incentive Fees.
5.1 During the term of this Agreement, MACC will pay InvestAmerica monthly
in arrears a management fee equal to the lesser of 1.5% per annum of the (i)
Combined Capital, or (ii) Assets Under Management.
5.2 During the term of this Agreement, MACC shall pay to InvestAmerica an
incentive fee determined as specified in this Section 5.2.
(a) The incentive fee shall be calculated as follows:
6
(i) The amount of the fee shall be 13.4% of the Net Capital Gains,
before taxes, resulting from the disposition of investments in MACC's Portfolio
Companies or resulting from the disposition of other assets or property of MACC
managed by InvestAmerica pursuant to the terms hereof.
(ii) Net Capital Gains, before taxes, shall be calculated annually at
the end of each fiscal year for the purpose of determining the earned incentive
fee, unless this Agreement is terminated prior to the completion of any fiscal
year, then such calculation shall be made at the end of such shorter period. A
preliminary calculation shall be made on the last business day of each of the
three fiscal quarters preceding the end of each fiscal year for the purpose of
determining the incentive fee payable under Section 5.2(c)(i) below. Capital
Losses and Realized Capital Gains shall not be cumulative (i.e., no Capital
Losses nor Realized Capital Gains are carried forward for purposes of
calculating the incentive fee for any subsequent fiscal year).
(b) Upon termination of this Agreement, but subject to the other
limitations of this Section 5.2, all earned but unpaid incentive fees shall be
immediately due and payable; provided, however, that incentive fees earned with
respect to non-cash Realized Capital Gains shall not be due and owing to
InvestAmerica until the cash is received by MACC. MACC and InvestAmerica are
parties to an Interim Investment Advisory Agreement dated as of May 1, 2005,
which has been replaced by this Agreement. For purposes of incentive fee
calculations, incentive fees shall be calculated under this Agreement taking
into account the period beginning with May 1, 2005.
(c) Subject to other limitations of this Section 5.2, payment of incentive
fees shall be made as follows:
(i) To the extent payable, the incentive fee shall be paid, in cash,
in arrears by the last business day of each fiscal quarter in the fiscal year.
The incentive fee shall be retroactively adjusted as soon as practicable
following completion of valuations at the end of each fiscal year in which this
Agreement is in effect to reflect the actual incentive fee due and owing to
InvestAmerica, and if such adjustment reveals that InvestAmerica has received
more incentive fee income than it is entitled to hereunder, InvestAmerica shall
promptly reimburse MACC for the amount of such excess.
(ii) In the event InvestAmerica earns any incentive fees, the payment
of which would cause MACC's Private Capital to be 25% or more impaired, the
portion of such fees which causes the impairment shall be paid by MACC into a
trust or escrow account established by MACC for the benefit of InvestAmerica.
Fees from such account shall be released to InvestAmerica at such time as, and
to the extent that, MACC's Private Capital is no longer so impaired.
(d) The SBA, MACC and certain others SBICs are parties to an SBA Agreement
dated as of December 23, 2004 (the "SBA Agreement"). From the effective date of
this Agreement, no incentive fee can be paid until (i) all SBA leverage is paid
in full (including interest, fees and principal), and (ii) the escrow fund
contemplated by the SBA Agreement is
7
fully funded, the SBA Agreement is terminated or the SBA approves such payment
in writing. In addition, MACC and InvestAmerica shall enter into a subordination
agreement with SBA to give further effect to the subordination of the incentive
fees to SBA under this Section 5.2(d).
(e) Earned incentive fees the payment of which is deferred pursuant to this
Section 5.2 shall be accrued and shall be paid when permitted by this Section
5.2.
(f) The provisions of this Section 5.2 shall survive termination of this
Agreement.
5.3 Notwithstanding the foregoing, (i) the management fee contemplated by
this Section will not exceed the maximum permitted management fee allowed by SBA
rules and regulations and (ii) MACC shall not make any incentive fee payment
contemplated by Section 5.2 that is in violation of the rules and regulations of
the SBA regarding Retained Earnings Available for Distribution; provided that
such payment will be made by MACC to InvestAmerica at such time as MACC has
sufficient Retained Earnings Available for Distribution to make such payment.
Section 6. Liability and Indemnification of InvestAmerica.
6.1 Article X of the Amended and Restated Bylaws of MACC as in effect on
the date hereof (the "Bylaws") is hereby incorporated by reference in and made a
part of this Agreement and is hereby referred to for a description of MACC's
indemnification obligations in favor of InvestAmerica and its officers,
directors, shareholders, employees, agents and Affiliates (collectively, the
"Indemnified Parties"). MACC confirms that in performing services hereunder
InvestAmerica will be an agent of MACC for the purpose of the indemnification
provisions of the Bylaws of MACC subject, however, to the same limitations as
though InvestAmerica were a director or officer of MACC. MACC grants the rights
to indemnification contained in Article X of the Bylaws to the other Indemnified
Parties and such Indemnified Parties shall be entitled to the same benefits of
Article X as if they were a director or officer of MACC. The provisions of this
Section 6.1 shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of InvestAmerica and are also officers
or directors of MACC as well as other InvestAmerica officers performing duties
within the scope of this Agreement on behalf of MACC will be covered by any
directors and officers insurance policy maintained by MACC.
Section 7. Shareholder Approval; Term.
MACC represents that this Agreement has been approved by MACC's Board of
Directors. This Agreement shall continue in effect for two (2) years from the
date hereof, provided, however, that this Agreement shall not take effect until
the date the shareholders of the Company and the Company as the sole shareholder
of MACC shall have approved this Agreement in the manner set forth in Section
15(a) of the ICA. After such initial two year period, this Agreement shall
continue in effect so long as such continuance is specifically approved at least
annually by MACC's Board of Directors, including a majority of its members who
are not
8
interested persons of InvestAmerica, or by vote of the holders of a majority, as
defined in the ICA, of MACC's outstanding voting securities. The foregoing
notwithstanding, this Agreement may be terminated by MACC at any time, without
payment of any penalty, on sixty (60) days' written notice to InvestAmerica if
the decision to terminate has been made by the Board of Directors or by vote of
the holders of a majority, as defined in the ICA, of MACC's outstanding voting
securities or the holders of a majority, as defined in the ICA, of the Company's
outstanding voting securities.
InvestAmerica may also terminate this Agreement on sixty (60) days' written
notice to MACC and the Company; provided, however, that InvestAmerica may not so
terminate this Agreement unless another investment advisory agreement has been
approved by the vote of a majority, as defined in the ICA, of MACC's outstanding
shares and by the Board of Directors, including a majority of members who are
not parties to such agreement or interested persons of any such party. Upon
receipt of any such notice from InvestAmerica, MACC will in good faith use its
best efforts to cause an advisory agreement to be entered into by MACC with a
suitable investment adviser.
Section 8. Assignment.
This Agreement may not be assigned by any party without the written consent
of the other and any assignment, as defined in the ICA, by InvestAmerica shall
automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing executed by
all parties and with the prior approval of the SBA.
Section 10. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware.
[Signature page follows]
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
MACC:
MORAMERICA CAPITAL CORPORATION
By:
------------------------------------------
David R. Schroder
President and Secretary
INVESTAMERICA:
INVESTAMERICA INVESTMENT
ADVISORS, INC.
a Delaware corporation
By:
-----------------------------------------
Robert A. Comey
Executive Vice President
10
APPENDIX B
INVESTMENT ADVISORY AGREEMENT
MACC PRIVATE EQUITIES INC.
A Delaware Corporation
This INVESTMENT ADVISORY AGREEMENT dated as of July ___, 2005 (the
"Agreement") by MACC Private Equities Inc., a company organized under the laws
of the State of Delaware ("the Company"), and InvestAmerica Investment Advisors,
Inc., a corporation organized under the laws of the State of Delaware
("InvestAmerica").
WHEREAS, the Company is a closed-end investment company that may be
operated and regulated as a business development company ("Business Development
Company") as defined in the Investment Company Act of 1940, as amended (the
"ICA");
WHEREAS, the Company is presently receiving investment advisory services
from InvestAmerica pursuant to that Interim Investment Advisory Agreement dated
April 30, 2005 (the "Interim Agreement");
WHEREAS, the Company desires to terminate the Interim Agreement and enter
into this Agreement with InvestAmerica;
WHEREAS, InvestAmerica, is qualified to provide investment advisory
services to the Company and is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Definitions.
1.1 "Affiliate" shall have the meaning given under Rule 144 of the
Securities Act of 1933, as amended.
1.2 "Assets Under Management" shall mean the total value of the Company's
assets managed by InvestAmerica under this Agreement averaged over the prior one
year period, or such shorter period in which such assets were managed by
InvestAmerica.
1.3 "Capital Losses" are those which are placed, consistent with generally
accepted accounting principles, on the books of the Company and which occur
when:
(a) An actual or realized loss is sustained owing to Portfolio Company
or investment events including, but not limited to, liquidation, sale or
bankruptcy;
1
(b) The Board of Directors of the Company determines that a loss or
depreciation in value from the value on the date of this Agreement should be
taken by the Company in accordance with generally accepted accounting principles
and SBA accounting regulations and is shown on its books as a part of the
periodic valuation of the Portfolio Companies by the Board of Directors
("Unrealized Depreciation"); or
(c) Capital Losses are adjusted for reverses of depreciation when the
Board of Directors determines that a value should be adjusted upward and the
investment value remains at or below original cost.
For purposes of this definition, in any case where the Board of Directors of the
Company writes down the value of any investment in the Company's portfolio (in
accordance with the standards set forth in subsection 1.3(b) above), (i) such
reduction in value shall result in a new cost basis for such investment and (ii)
the most recent cost basis for such investment shall thereafter be used in the
determination of any Realized Capital Gains or Capital Losses in the Company's
portfolio (i.e., there shall be no double-counting of losses when a security
(whose value has declined in a prior period) is ultimately sold at a price below
its historical cost.)
1.4 "The Company" shall mean MACC Private Equities Inc., a Delaware
corporation.
1.5 "ICA" has the meaning set forth in the first recital hereof.
1.6 "Net Capital Gains" shall mean Realized Capital Gains net of Capital
Losses determined in accordance with generally accepted accounting principles.
1.7 "Other Venture Capital Funds" has the meaning set forth in subsection
3.2.
1.8 "Portfolio Company" or "Portfolio Companies" shall mean any entity in
which the Company may make an investment and with respect to which InvestAmerica
will be providing services pursuant hereto, which investments may include
ownership of capital stock, loans, receivables due from a Portfolio Company or
other debtor on sale of assets acquired in liquidation and assets acquired in
liquidation of any Portfolio Company.
1.9 "Private Capital" shall have the meaning ascribed to that term in the
SBA regulations in effect as of the date hereof (which regulations define
Private Capital to exclude unrealized gains and losses).
1.10 "Realized Capital Gains" shall mean capital gains after deducting the
cost and expenses necessary to achieve the gain (e.g., broker's fees). For
purposes of this Agreement, capital gains are Realized Capital Gains upon the
cash sale of the capital stock or assets of a Portfolio Company or any other
asset or item of property managed by InvestAmerica pursuant to the terms hereof
or any Realized Capital Gain has occurred in accordance with GAAP which is not
cash as described in the following sentence. Realized Capital Gains other than
cash gains, shall be recorded and calculated in the period the gain is realized;
however in determining payment of any incentive fee, the payment shall be made
when the cash is received. The amount
2
of the fee earned on gains other than cash shall be recorded as incentive fees
payable on the financial statements of the Company.
1.11 "SBA" shall mean the United States Small Business Administration.
1.12 "SEC" shall mean the United States Securities and Exchange Commission.
Section 2. Investment Advisory Engagement. The Company hereby engages
InvestAmerica as its investment advisor.
2.1 As such, InvestAmerica will:
(a) Manage, render advice with respect to, and make decisions
regarding the acquisition and disposition of securities in accordance with
applicable law and the Company's investment policies as set forth in writing by
the Board of Directors, to include (without limitation) the search and marketing
for investment leads, screening and research of investment opportunities,
maintenance and expansion of a co-investor network, review of appropriate
investment legal documentation, presentations of investments to the Company's
Board of Directors (when and as required), closing of investments, monitoring
and management of investments and exits, preparation of valuations, management
of relationships with the SEC, shareholders, outside auditors, and the provision
of other services appropriate to the management of a Business and Development
Company;
(b) Make available and, if requested by Portfolio Companies or
entities in which the Company is proposing to invest, render managerial
assistance to, and exercise management rights in, such Portfolio Companies and
entities as appropriate to maximize return for the Company and to comply with
regulations;
(c) Maintain office space and facilities to the extent required by
InvestAmerica to provide adequate management services to the Company;
(d) Maintain the books of account and other records and files for the
Company, but not to include auditing services; and
(e) Report to the Company's Board of Directors, or to any committee or
officers acting pursuant to the authority of the Board, at such reasonable times
and in such reasonable detail as the Board deems appropriate in order to enable
the Company to determine that investment policies are being observed and
implemented and that the obligations of InvestAmerica hereunder are being
fulfilled. Any investment program undertaken by InvestAmerica pursuant hereto
and any other activities undertaken by InvestAmerica on behalf of the Company
shall at all times be subject to applicable law and any directives of the
Company's Board of Directors or any duly constituted committee or officer acting
pursuant to the authority of the Company's Board of Directors.
2.2 InvestAmerica will be responsible for the following expenses: its staff
salaries and fringes, office space, office equipment and furniture,
communications, travel, meals and
3
entertainment, conventions, seminars, office supplies, dues and subscriptions,
hiring fees, moving expenses, repair and maintenance, employment taxes, in-house
accounting expenses and minor miscellaneous expenses.
InvestAmerica will pay for its own account all expenses incurred in
rendering the services to be rendered hereunder. Without limiting the generality
of the foregoing, InvestAmerica will pay the salaries and other employee
benefits of the persons in its organization whom it may engage to render such
services, including without limitation, persons in its organization who may from
time to time act as officers of the Company.
Notwithstanding the foregoing, InvestAmerica will earn incentive
compensation on a quarterly basis, which shall not be deemed part of
compensation or other employee benefits for the purpose of this paragraph.
2.3 In connection with the services provided, InvestAmerica will not be
responsible for the following expenses which shall be the sole responsibility of
the Company and will be paid promptly by the Company: auditing fees; all legal
expenses; legal fees normally paid by Portfolio Companies; National Association
of Small Business Investment Companies and other appropriate trade association
fees; brochures, advertising, marketing and publicity costs; interest on SBA or
other debt; fees to the Company and its directors and Board fees; any fees owed
or paid to the Company, its Affiliates or fund managers; any and all expenses
associated with property of a Portfolio Company taken or received by the Company
or on its behalf as a result of its investment in any Portfolio Company; all
reorganization and registration expenses of the Company; the fees and
disbursements of the Company's counsel, accountants, custodian, transfer agent
and registrar; fees and expenses incurred in producing and effecting filings
with federal and state securities administrators; costs of periodic reports to,
and other communications with the Company's shareholders; fees and expenses of
members of the Company's Board of Directors who are not directors, officers,
employees or Affiliates of InvestAmerica or of any entity which is an Affiliate
of InvestAmerica; premiums for the fidelity bond, if any, maintained by
InvestAmerica pursuant to ICA Section 17; premiums for directors and officers
insurance maintained by the Company; all transaction costs incident to the
acquisition, management and protection of and disposition of securities by the
Company; and any other expenses incurred by or on behalf of the Company that are
not expressly payable by InvestAmerica under Section 2.2. above.
2.4 Subject to approval by the Board of Directors of the Company and in
accordance with the ICA, InvestAmerica may retain one or more subadvisors to
assist it in performance of its duties hereunder.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of InvestAmerica to the Company are not exclusive.
InvestAmerica and its Affiliates, may in their discretion, manage other venture
capital funds and render the same or similar services to any other person or
persons who may be making the same or similar investments. The parties
acknowledge that InvestAmerica may offer the same investment opportunities as
may be offered to the Company to other persons for whom
4
InvestAmerica is providing services. Neither InvestAmerica nor any of its
Affiliates shall in any manner be liable to the Company or its Affiliates by
reason of the activities of InvestAmerica or its Affiliates on behalf of other
persons and funds as described in this paragraph and any conflict of interest
arising therefrom is hereby expressly waived.
3.2 For the benefit of the Company's investment activities, InvestAmerica
and its Affiliates intend to maintain various future co-investment relationships
involving the Company which may result in the Company being accorded the
opportunity in the future to review and to invest in certain investments found
by other venture capital funds managed by InvestAmerica and its Affiliates,
including NDSBIC, L.P., Lewis and Clark Private Equities, LP, and Invest
Northwest, LP (collectively, the "Other Venture Capital Funds").
For purposes of this Section 3.2, where the Company has an opportunity to
co-invest with the Other Venture Capital Funds, investment opportunities shall
be offered to the Company and the Other Venture Capital Funds, as the case may
be, (a) in the same proportion as its Private Capital bears to the total Private
Capital of the Company and the Other Venture Capital Funds with which the
Company proposes to co-invest, in the aggregate, or (b) in such other manner as
is otherwise agreed upon by the Company and the Other Venture Capital Funds.
Notwithstanding anything to the contrary contained in this Section 3.2, the
terms of any exemptive order applicable to co-investments between the Other
Venture Capital Funds and the Company will control as to the terms of
co-investments among the Company and Other Capital Venture Funds.
3.3 InvestAmerica will cause to be offered to the Company opportunities to
acquire or dispose of securities as provided in the co-investment guidelines
summarized in the section of the Company's SEC Registration Statement entitled
"Investment Objectives and Policies -- Co-Investment Guidelines." Except to the
extent of acquisitions and dispositions that, in accordance with such
co-investment guidelines, require the specific approval of the Company's Board
of Directors, InvestAmerica is authorized to effect acquisitions and
dispositions of securities for the Company's account in InvestAmerica's
discretion. Where such approval is required, InvestAmerica is authorized to
effect acquisitions and dispositions for the Company's account upon and to the
extent of such approval. The Company will put InvestAmerica in funds whenever
InvestAmerica requires funds for an acquisition of securities in accordance with
the foregoing, and the Company will cause to be delivered in accordance with
InvestAmerica's instructions any securities disposed of in accordance with the
foregoing.
3.4 Should InvestAmerica or any of its Affiliates agree to perform or
undertake any investment management services described in Section 3.1 for any
funds or persons in addition to the Company, InvestAmerica will notify the
Company, in writing, not later than the commencement of such agreement or the
initial provision of such services.
3.5 Any such investment management services and all co-investments shall at
all times be provided in strict accordance with rules and regulations under the
ICA, any exemptive order thereunder applicable to the Company and the rules and
regulations of the SBA.
Section 4. Services to Portfolio Companies.
5
4.1 It is acknowledged that as a part of the services to be provided by
InvestAmerica hereunder, certain of its employees, representatives and agents
will act as members of the board of directors of individual Portfolio Companies,
will vote the shares of the capital stock of Portfolio Companies, and make other
decisions which may effect the near-and the long-term direction of a Portfolio
Company. Unless otherwise restricted hereafter by the Company in writing, in
regard to such actions and decisions the Company hereby appoints InvestAmerica
(and such officers, Directors, employees, representatives and agents is it shall
designate) as its proxy, as a result of which InvestAmerica shall have the
authority, in its performance of this Agreement, to make decisions and to take
such actions, without specific authority from the Board of Directors of the
Company, as to all matters which are not hereby restricted.
4.2 All fees, including Director's fees that may be paid by or for the
account of an entity in which the Company has invested or in which the Company
is proposing to invest in connection with an investment transaction in which the
Company participates or provides managerial assistance, will be treated as
commitment fees or management fees and will be received by the Company, pro rata
to its participation in such transaction. InvestAmerica will be allowed to be
reimbursed by Portfolio Companies for all direct expenses associated with due
diligence and management of portfolio investments or investment opportunities
(travel, meals, lodging, etc.).
4.3 The sole and exclusive compensation to InvestAmerica for its services
to be rendered hereunder will be in the form of a management fee and a separate
incentive fee as provided in Section 5. Should any officer, director, employee
or Affiliate of InvestAmerica serve as a member of the Board of Directors of the
Company, such officer, director, employee or Affiliate of InvestAmerica shall
not receive compensation as a member of the Board of Directors of the Company.
Section 5. Management and Incentive Fees.
5.1 During the term of this Agreement, the Company will pay InvestAmerica
monthly in arrears a management fee equal to 1.5% per annum of the Assets Under
Management. The Management fee shall be calculated on a non-consolidated basis,
excluding MorAmerica Capital Corporation.
5.2 During the term of this Agreement the Company shall pay to
InvestAmerica an incentive fee determined as specified in this Section 5.2. The
incentive fee shall be calculated on a nonconsolidated basis, excluding
MorAmerica Capital Corporation.
(a) The incentive fee shall be calculated as follows:
(i) The amount of the fee shall be 13.4% of the Net Capital
Gains, before taxes, resulting from the disposition of investments in the
Company's Portfolio Companies or resulting from the disposition of other assets
or property of the Company managed by InvestAmerica pursuant to the terms
hereof.
6
(ii) Net Capital Gains, before taxes, shall be calculated
annually at the end of each fiscal year for the purpose of determining the
earned incentive fee, unless this Agreement is terminated prior to the
completion of any fiscal year, then such calculation shall be made at the end of
such shorter period. A preliminary calculation shall be made on the last
business day of each of the three fiscal quarters preceding the end of each
fiscal year for the purpose of determining the incentive fee payable under
Section 5.2(c)(i) below. Capital Losses and Realized Capital Gains shall not be
cumulative (i.e., no Capital Losses nor Realized Capital Gains are carried
forward into any subsequent fiscal year).
(iii) Notwithstanding anything herein to the contrary, the
incentive fee shall not be computed on any assets received by the Company from
the Company's predecessors by merger, MorAmerica Financial Corporation and
Morris Plan Liquidation Company, and such assets shall not be included in any
calculation of Net Capital Gains.
(b) Upon termination of this Agreement all earned but unpaid incentive
fees shall be immediately due and payable; provided, however, that incentive
fees earned with respect to non-cash Realized Capital Gains shall not be due and
owing to InvestAmerica until the cash is received by the Company. The Company
and InvestAmerica are parties to the Interim Agreement, which has been replaced
by this Agreement. For purposes of inventive fee calculations, incentive fees
shall be calculated under this Agreement taking into account the period
beginning with April 30, 2005.
(c) Payment of incentive fees shall be made as follows:
(i) To the extent payable, incentive fees shall be paid, in cash,
in arrears on the last business day of each fiscal quarter in the fiscal year.
(ii) The incentive fee shall be retroactively adjusted as soon as
practicable following completion of the valuations at the end of each fiscal
year in which this Agreement is in effect to reflect the actual incentive fee
due and owing to InvestAmerica, and if such adjustment reveals that
InvestAmerica has received more incentive fee income than it is entitled to
hereunder, InvestAmerica shall promptly reimburse the Company for the amount of
the excess.
Section 6. Liability and Indemnification of InvestAmerica.
6.1 Neither InvestAmerica, nor any of its officers, directors,
shareholders, employees, agents or Affiliates, whether past, present or future
(collectively, the "Indemnified Parties"), shall be liable to the Company, or
any of its Affiliates for any error in judgment or mistake of law made by the
Indemnified Parties in connection with any investment made by or for the
Company, provided such error or mistake was made in good faith and was not made
in bad faith or as a result of gross negligence or willful misconduct of the
Indemnified Parties. The Company confirms that in performing services hereunder
InvestAmerica will be an agent of the Company for the purpose of the
indemnification provisions of the Bylaws of the Company subject, however, to the
same limitations as though InvestAmerica were a director or officer of the
Company. InvestAmerica shall not be liable to the Company, its shareholders or
its creditors,
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except for violations of law or for conduct which would preclude InvestAmerica
from being indemnified under such provisions. The provisions of this Section 6.1
shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of InvestAmerica and are also officers
or directors of the Company as well as other InvestAmerica officers performing
duties within the scope of this Agreement on behalf of the Company will be
covered by any directors and officers insurance policy maintained by the
Company.
Section 7. Shareholder Approval; Term.
The Company represents that this Agreement has been approved by the
Company's Board of Directors. This Agreement shall continue in effect for two
(2) years from the date hereof, unless sooner terminated as provided for herein;
provided, however, that this Agreement shall not take effect if as of the date
hereof, the shareholders of the Company shall not have approved this Agreement
in the manner set forth in Section 15(a) of the ICA. Thereafter, this Agreement
shall continue in effect so long as such continuance is specifically approved at
least annually by the Company's Board of Directors, including a majority of its
members who are not interested persons of InvestAmerica, or by vote of the
holders of a majority, as defined in the ICA, of the Company's outstanding
voting securities. The foregoing notwithstanding, this Agreement may be
terminated by the Company at any time, without payment of any penalty, on sixty
(60) days' written notice to InvestAmerica if the decision to terminate has been
made by the Board of Directors or by vote of the holders of a majority, as
defined in the ICA, of the Company's outstanding voting securities.
InvestAmerica may also terminate this Agreement on sixty (60) days' written
notice to the Company; provided, however, that InvestAmerica may not so
terminate this Agreement unless another investment advisory agreement has been
approved by the vote of a majority, as defined in the ICA, of the Company's
outstanding shares and by the Board of Directors, including a majority of
members who are not parties to such agreement or interested persons of any such
party. Upon receipt of any such notice from InvestAmerica, the Company will in
good faith use its best efforts to cause an advisory agreement to be entered
into by the Company with a suitable investment adviser.
Section 8. Assignment.
This Agreement may not be assigned by any party without the written consent
of the other and any assignment, as defined in the ICA, by InvestAmerica shall
automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing executed by
all parties.
Section 10. Governing Law.
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This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware.
Section 11. Termination of Prior Agreement.
Upon the approval of this Agreement by the shareholders of the Company
pursuant to Section 7, the Interim Agreement shall expire and shall thereupon be
of no further force and effect, effective at the close of business on June ___,
2005.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
THE COMPANY:
MACC PRIVATE EQUITIES, INC.
A Delaware corporation
By: ________________________________
David R. Schroder
President and Secretary
INVESTAMERICA:
INVESTAMERICA INVESTMENT ADVISORS, INC.
A Delaware corporation
By: _________________________________
Robert A. Comey
Executive Vice President and Secretary
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