[Federal Register Volume 60, Number 218 (Monday, November 13, 1995)]
[Notices]
[Pages 57035-57037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27884]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21472; 812-9558]
Ridgewood Electric Power Trust III et al.; Notice of Application
November 3, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: Ridgewood Electric Power Trust III (``Power III''),
Ridgewood Electric Power Trust IV (``Power IV'') (Collectively, the
``Funds''), and Ridgewood Power Corporation.
RELEVANT ACT SECTIONS: Order requested under rule 17d-1 in accordance
with sections 17(d) and 57(a)(4).
SUMMARY OF APPLICATION: Applicants request an order permitting Power
III and Power IV, which are affiliated with each other, to co-invest in
the same portfolio securities.
FILING DATE: The application was filed on April 6, 1995 and amended on
November 2, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 28,
1995, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reasons for the request, and the issues contested. Persons who with to
be notified of a hearing may request such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, 947 Linwood Avenue, Ridgewood, New Jersey 07450.
FOR FURTHER INFORMATION CONTACT:
Marilyn Mann, Special Counsel, at (202) 942-0582, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Funds are Delaware business trusts that have each elected to
be regulated as a business development company (a ``BDC'') under the
Act. They are designed to provide investors with the ability to
participate primarily in investments in unregulated entities that own
electric power plants or other facilities used in the generation,
transmission, or distribution of electrical energy and related products
and services (the ``Portfolio Companies'').
2. The investment objectives of each BDC are to (i) generate
current cash flow for distribution to investors from the operation of
the Portfolio Companies, and (ii) provide the opportunity for capital
appreciation through the subsequent sale of the BDC's investments.
Applicants request an order permitting the Funds to invest jointly in
Portfolio Companies.
3. Power III raised approximately $40 million in an offering that
was exempt from registration under the Securities Act of 1933 (the
``1933 Act'') pursuant to Regulation D thereunder. In order to
[[Page 57036]]
qualify as a BDC, Power III registered the offering on Form 10 under
the Securities Exchange Act of 1934 (the ``1934 Act''). Power III's
1934 Act registration became effective on April 16, 1994. The offering
terminated on June 30, 1995.
4. Power IV expects to raise funds from only accredited investors
pursuant to an offering which is exempt from registration under the
1933 Act pursuant to Regulation D thereunder. In order to qualify as a
BDC, on January 23, 1995 Power IV filed a registration statement for
its proposed offering on Form 10 under the 1934 Act. The Form 10
registration became effective and the Power IV offering commenced on
March 31, 1995. It is expected that the proceeds of Power IV's offering
of securities will result in assets for Power IV in the range of 30 to
40 million dollars.
5. Power III and Power IV each have a management structure
consisting of a three member Board of Trustees. Ridgewood Power
Corporation (``PRC''), a Delaware corporation, services as one member
of the Board of Trustees and as Managing Shareholder of Power III and
Power IV. RPC also has an equity interest in each of the Funds. The
Funds each have two individual trustees (the ``Independent Trustees''),
who are not ``affiliated persons'' of RPC or otherwise ``interested
persons'' of Power III and Power IV. Neither of the Independent
Trustees of Power III serves as an Independent Trustee of Power IV.
6. Pursuant to each Fund's Declaration of Trust, the Board of
Trustees provides overall guidance and supervision with respect to the
operations of the Fund, and performs all duties that the Act imposes on
the boards of directors of business development companies. The Managing
Shareholder is charged with certain responsibilities pursuant to each
Fund's Declaration, including authority to determine and manage the
Fund's independent power investments, subject to the supervision of the
Board of Trustees.
7. Before a co-investment transaction will be effected, the
Managing Shareholder will make a written investment presentation
respecting the proposed co-investment transaction to the Board of
Trustees of each Fund based on such considerations and circumstances as
the Managing Shareholder may deem appropriate, including the
consistency of the proposed co-investment transaction with the
investment objectives and policies of each Fund. Each Fund will make
its own decision and have the right to decide not to share a particular
investment with another.
8. There will be no consideration paid to the Managing Shareholder
(or its controlling persons) directly or indirectly, including without
limitation any type of brokerage commission, in connection with a co-
investment transaction. The Managing Shareholder will continue to
receive, however, its normal compensation arrangements with respect to
a Fund and will participate indirectly in a transaction through its
existing equity interest in a Fund.
9. Prior to engaging in a co-investing transaction, a required
majority (as that term is defined in section 57(o) of the Act)
(``Required Majority'') of the trustees of each Fund shall each
conclude, as to their respective Fund, that as presented to them by the
Managing Shareholder, the terms of the proposed co-investment
transaction are reasonable and fair and do not involve overreaching of
their Fund or its Shareholders on the part of any person concerned.
10. Neither the Managing Shareholder nor its controlling persons
will participate directly or indirectly in a co-investment transaction
effected by a Fund pursuant to the order. For this purpose, the term
``participate'' shall not include either the Managing Shareholders'
existing equity interest in a Fund or their normal compensation
arrangements with the Fund.
Applicants' Legal Analysis
1. Section 17(d) of the Act and rule 17d-1 thereunder provide,
among other things, that it shall be unlawful for an affiliated person
of an investment company, acting as principal, to participate in, or
effect any transaction in connection with, any joint enterprise or
other joint arrangement in which any such investment company is a
participant unless an application regarding such joint enterprise or
arrangement has been filed with an exemptive order issued by the SEC.
Section 57(a)(4) of the Act applies the same prohibitions to the
persons specified in section 57(b), including any person under common
control with a BDC. Because the Funds are under common control, they
are prohibited under section 57(a)(4), absent an exemptive order, from
engaging in co-investment transactions. Section 57(i) makes rule 17d-1
applicable to transactions prohibited by section 57(a)(4). In reviewing
applications filed under rule 17d-1, the SEC considers whether the
participation of such investment company (or BDC) or controlled company
in such joint enterprise or joint arrangement is consistent with the
provisions, policies, and purposes of the Act and the extend to which
such participation is on a basis different from or less advantageous
than that of other participants.
2. Applicants propose, subject to SEC approval, to allow Power III
and Power IV to invest jointly in Portfolio Companies in transactions
that are otherwise prohibited by section 57(a)(4) or rule 17d-1 under
the Act (``co-investment transactions'').\1\ The Funds have the same
investment objectives, and applicants believe that the ability to
participate in co-investment transactions, in the manner described
below, would be advantageous for each of the Funds. Applicants believe
there are a significant number of potential investments that may be
possible investments for both of the Funds. Moreover, a Fund's ability
to participate in co-investment transactions would enlarge the scope of
each Fund's investment opportunities. Finally, the aggregate capital
resulting from the pooling of the Funds' available resources should
cause co-investment transactions to be affected at better prices and on
more favorable terms if only one Fund had been able to participate in
any given transaction.
\1\ The Funds intend to seek shareholder approval of proposals
to withdraw their elections to be regulated as BDC's. If shareholder
approval is obtained, the Funds intend to conduct business
thereafter as operating companies. Accordingly, applicants request
that the SEC's order apply to those joint transactions with respect
to which a binding contract has been entered into by March 31, 1996.
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3. Additionally, under the terms of the proposed procedures to be
followed in effecting co-investment transactions, the terms of the co-
investment transactions will not be less advantageous to one Fund than
they are to the other Fund. To the contrary the terms and conditions of
each co-investment transaction will be identical for both Funds since
each Fund will be offered the opportunity to participate in the co-
investment transactions on a pro rata basis. The decision to
participate would, moreover, be based on the written investment
presentation of the Managing Shareholder. If the Independent Trustees
determined not to participate in a proposed co-investment transaction,
they could decline to do so on behalf of their Fund. By the same token,
the Independent Trustees could determine to participate more or less
fully in a proposed co-investment transaction than their Fund's pro
rata share would have authorized, and the Independent Trustees have the
same flexibility as the final sale, exchange, or
[[Page 57037]]
other disposition of a co-investment transaction.
4. For these reasons, applicants believe that the requested
exemption for such co-investment transactions meets the standards for
granting exemptive relief under sections 17(d) and 57(a)(4) and rule
17d-1.
Applicant's Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. (a) To the extent that a Fund is considering new investments,
the Managing Shareholder will review investment opportunities on its
behalf, including investments being considered on behalf of the other
Fund. The Managing Shareholder will determine whether a particular
investment is eligible for investment by either Fund.
(b) If the Managing Shareholder deems an investment eligible for
investment by either Fund, the Managing Shareholder will determine what
it considers to be an appropriate amount that the Fund should invest in
the particular investment. Where the aggregate amount recommended for
the Funds is greater than the amount available for investment, the
amount available for purchase by a Fund shall be determined on a pro
rata basis by dividing the net assets of the Fund by the sum of the net
assets of both Funds.
(c) Following the making of the determinations referred to in (a)
and (b), the Managing Shareholder will distribute written information
concerning the proposed co-investment transaction to the Independent
Trustees of each Fund.
(d) The Independent Trustees of each Fund will review the
information regarding the Managing Shareholder's preliminary
determination. A Fund will only engage in a co-investment transaction
if a Required Majority of the trustees of the Fund conclude, prior to
the acquisition of the investment, that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the shareholders of the Fund and do
not involve overreaching of the Fund or such shareholders on the part
of any person concerned;
(ii) The transaction is consistent with the interests of the share
holders of the Fund and is consistent with the Fund's investment
objectives and policies as recited in its registration statement and
reports filed under the Securities Exchange Act of 1934, and its
reports to shareholders; and
(iii) The investment by the other Fund would not disadvantage the
Fund and that participation by the Fund would not be on a basis
different from or less advantageous than that of the other Fund.
(e) Each Fund has the right to decline to participate in a
particular co-investment transaction or may purchase less than its full
allocation.
2. Neither Fund will make an investment for its portfolio if a Fund
or the Managing Shareholder or a person controlling, controlled by, or
under common control with the Managing Shareholder is an existing
investor in such issuer.
3. All co-investment transactions will consist of the same class of
securities, including the same registration rights (if any) and other
rights related thereto, at the same unit consideration, and on the same
terms and conditions, and the settlement dates will be the same.
4. If a Fund elects to sell, exchange, or otherwise dispose of an
interest in a particular security that is also held by the other Fund,
the Managing Shareholder will notify the other Fund of the proposed
disposition at the earliest practical time and such Fund will be given
the opportunity to participate in such disposition on a proportionate
basis, at the same price and on the same terms and conditions. The
Managing Shareholder will formulate a recommendation as to
participation by such Fund in such a disposition, and provide a written
recommendation to the Independent Trustees of such Fund. A Fund will
participate in any such disposition if a Required Majority of its
trustees determines that it is in the best interest of the investing
Fund. Each Fund will bear its own expenses associated with any such
disposition of a portfolio security.
5. If a Fund desires to make a ``follow-on'' investment (i.e., an
additional investment in the same entity) in a particular issuer whose
securities are held by the other Fund or to exercise rights to purchase
securities of such an issuer, the Managing Shareholder will notify the
other Fund of the proposed transaction at the earliest practical time.
The Managing Shareholder will formulate a recommendation as to the
proposed participation by each Fund in a follow-on investment, and
provide the recommendation to the Fund's Independent Trustees along
with notice of the total amount of the follow-on investment. Each
Fund's Independent Trustees will make their own determination with
respect to follow-on investments. To the extent that the amount of a
follow-on investment available to a Fund is not based on the amount of
its initial investment, the relative amount of investment by each Fund
will be based on a ratio derived by comparing the remaining funds
available for investment by each Fund with the total amount of the
follow-on investment. A Fund will participate in such investment to the
extent that a Required Majority of its trustees determine that it is in
the Fund's best interest. The acquisition of follow-on investments as
permitted by this condition will be subject to the other conditions set
forth in the application.
6. The Independent Trustees of the Funds will be provided quarterly
for review all information concerning transactions made by the Funds so
that they may determine whether all co-investment transactions made
during the preceding quarter, including co-investment opportunities
that were declined, complied with these conditions.
7. Each Fund will maintain the records required by section 57(f)(3)
of the Act as if each of the co-investment transactions permitted under
these conditions were approved by the Fund's Independent Trustees under
section 57(f).
8. The Funds will not have common Independent Trustees.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27884 Filed 11-9-95; 8:45 am]
BILLING CODE 8010-01-M
