[Federal Register Volume 63, Number 198 (Wednesday, October 14, 1998)]
[Notices]
[Pages 55158-55160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27416]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 23478; 812-11148]
MACC Private Equities Inc., et al.; Notice of Application
October 6, 1998.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under sections 6(c0 and
57(i) of the Investment Company Act of 1940 (the ``Act''), and under
rule 17d-1 under the Act permitting certain joint transactions
otherwise prohibited by section 57(a)(4) of the Act.
-----------------------------------------------------------------------
SUMMARY OF APPLICATION: Applicants request an order to permit certain
business development companies to co-invest with certain affiliates in
portfolio companies.
APPLICANTS: MACC Private Equities, Inc. (``Private equities''),
MorAmerica Capital Corporation (``MorAmerica Capital''), and
InvestAmerica Investment Advisors, Inc. (``InvestAmerica'').
FILING DATES: The application was filed on May 21, 1998, and amended on
[[Page 55159]]
September 21, 1998. Applicants have agreed to file an amendment during
the notice period, the substance of which is reflected in this notice.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on November 2, 1998, and should be accompanied by proof of service
on 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 reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549. Applicants, Suite 310, 101 Second
Street SE, Cedar Rapids, Iowa 52401.
FOR FURTHER INFORMATION CONTACT:
Kathleen L. Knisely, Staff Attorney, at (202) 942-0517, or George J.
Zornada, 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 at the
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549. (tel. 202-942-8090).
Applicants' Representations
1. Private Equities and MorAmerica, incorporated under the laws of
the States of Delaware and Iowa, respectively, are closed-end
investment companies that each have elected to be regulated as a
business development company (a ``BDC'') under the Act. MorAmerica, a
wholly-owned subsidiary of Private Equities, is licensed to operate as
a small business investment company under the Small Business Investment
Act of 1958. Both Private Equities and MorAmerica have the investment
objective of long-term capital appreciation through venture capital
investments in small, lesser-known companies (``Portfolio
Companies'').\1\
---------------------------------------------------------------------------
\1\ Private Equities and MorAmerica received an order to operate
essentially as one company. See MACC Private Equities Inc.,
Investment Company Act Release Nos. 20831 (Jan. 12, 1995) (notice)
and 20887 (Feb. 7, 1995) (order).
---------------------------------------------------------------------------
2. InvestAmerica is an investment adviser registered under the
Investment Advisers Act of 1940. InvestAmerica serves as investment
adviser to both Private Equities and MorAmerica Capital.
3. As of January 15, 1998, Zions Bancorporation (``Zions''), a
bank-holding company, and Zions First National Bank (``Bank''), a
wholly-owned subsidiary of Zions, owned approximately 21.44% of the
issued and outstanding shares of Private Equities. On February 24,
1998, a majority of the board of directors (``Board'') of Private
Equities, including a majority of the Board who are not ``interested
persons'' of Private Equities, agreed to permit Zions and/or the Bank
to increase their collective ownership of Private Equities common stock
up to 35% of Private Equities' issued and outstanding shares.
4. Applicants request an order under section 57(i) of the Act and
under rule 17d-1 under the Act to permit Private Equities and/or
MorAmerica (the ``Investing Company''), Zions, and/or direct or
indirect wholly-owned subsidiaries of Zions (``Zions Subsidiaries,''
and together with Zions, ``Zions Affiliates'') to co-invest in
Portfolio Companies.
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
from participating in a joint transaction with a BDC in contravention
of rules as prescribed by the Commission. Under section 57(b)(2), any
person directly or indirectly controlling, controlled by, or under
common control with, a BDC is subject to section 57(a)(4) of the Act.
Under section 2(a)(9) of the Act, a control relationship is presumed to
exist if a person, either directly or through one or more controlled
companies, is the beneficial owner of more than 25% of a company's
outstanding voting securities.
2. Section 57(i) of the Act provides that, until the Commission
prescribes rules under section 57(a)(4), the Commission's rules under
sections 17(a) and (17)(d) of the Act applicable to closed-end
investment companies shall be deemed to apply to sections 57(a) and
57(d) of the Act. Because the Commission has not adopted any rules
under section 57(a)(4), rule 17d-1 applies.
3. rule 17d-1 under the Act generally prohibits affiliated persons
of an investment company from entering into joint transactions with the
company without prior Commission authorization. In passing upon
applications under rule 17d-1(b), the Commission will consider whether
the participation by the BDC in such joint transaction in consistent
with the provisions, policies, and purposes of the Act and the extent
to which such participation is on a basis different from or less
advantageous than that of other participants.
4. Applicants state that when Zions and the Bank increase their
collective ownership of Private Equities above 25% of the issued and
outstanding shares, they will be presumed to control Private Equities.
Applicants also state that because Zions directly or indirectly owns
all, or substantially all, of the issued and outstanding shares of each
of the Zions Subsidiaries, Private Equities and the Zions Subsidiaries
may be deemed to be under common control. As a result, the Zions
Affiliates may be prohibited from entering into joint transactions with
applicants absent an exemptive order.
5. Applicants anticipate that the Zions Affiliates may have access
to a broad range of attractive co-investment opportunities which are
consistent with applicants' investment objectives and which may allow
investment in a broader geographic area.\2\ Applicants state that
Private Equities and MorAmerica both have investment committees (each
an ``Investment Committee'') which will review the proposed co-
investments with the Zions Affiliates. None of the voting members of
the Investment Committees are interested persons or applicants, nor
will they have any direct or indirect financial interest in any matter
than before the Investment Committees. The voting members consist of
five outside directors of MorAmerica and Private Equities. The non-
voting members are two directors who are affiliates of InvestAmerica
and a nominee of Zions. Applicants submit that granting the requested
relief is consistent with the provisions, policies, and purposes of the
Act and that the co-investments will be on a basis no different from or
less advantageous than that of the other participants.
---------------------------------------------------------------------------
\2\ To the extent permitted by rule 17d-1(d)(3) under the Act, a
Zions Affiliate may make loans or extend credit to companies in
which Private Equities or MorAmerica Capital invest. Under no
circumstances will an investment by Private Equities or MorAmerica
Capital in a Portfolio Company be used to repay a loan to a Zions
Affiliate.
---------------------------------------------------------------------------
Applicants' Conditions.
Applicants agree that the requested order shall be subject to the
following conditions:
1. (a) To the extends that Private Equities and MorAmerica Capital
are considering new investments,
[[Page 55160]]
InvestAmerica will review investment opportunities on their behalf,
including investments which are being considered by the Zions
Affiliates. InvestAmerica will determine whether an investment being
considered by one or more of the Zions affiliates and which is offered
to Private Equities and MorAmerica Capital for investment (a ``Zions
Affiliates Investment'') is eligible for investment by Private Equities
and MorAmerica Capital.
(b) If InvestAmerica deems a Zions Affiliates Investment eligible
for investment by the Investing Company (a ``co-investment
opportunity''), InvestAmerica will determine what it considers to be an
appropriate amount that the Investing Company should invest. Where the
aggregate amount recommended for the Investing Company and that sought
by the Zions Affiliates exceeds the amount of the co-investment
opportunity, the amount invested by the investing Company shall be
based on the ratio of the net assets of the Investing Company to the
aggregate net assets of the Investing Company and the Zions Affiliate
seeking to make the investment.
(c) Following the making of the determinations referred to in (a)
and (b) above, InvestAmerica will distribute written information
concerning all co-investment opportunities to the Investing Company's
Investment Committee. The information will include the amount the Zions
Affiliate proposes to invest.
(d) Information regarding InvestAmerica's preliminary
determinations will be reviewed by the Investing Company's Investment
Committee. The Investing Company will co-invest with a Zions Affiliate
only if a required majority (as defined in section 57(o) of the Act)
(``Required Majority'') of the Investing Company's Investment Committee
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 Private Equities
and do not involve overreaching of the Investing Company or it
shareholders on the part of any persons concerned;
(ii) The transaction is consistent with the interests of the
shareholders of Private Equities and is consistent with the Investing
Company's investment objectives and policies as recited in filings made
by the Investing Company under the Securities Act of 1933, as amended,
its registration statement and reports filed under the Securities
Exchange Act of 1934, as amended, and its reports to shareholders;
(ii) The investment by the Zions Affiliates would not disadvantage
the Investing Company, and that participation by the Investing Company
would not be on a basis different from or less advantageous than that
of the Zions Affiliates; and
(iv) The proposed investment by the Investing Company will not
benefit the Zions Affiliates or any affiliated entity thereof, other
than the Zions Affiliates making the co-investment, except to the
extent permitted pursuant to sections 17(e) and 57(k) of the Act.
(e) The Investing Company has the right to decline to participate
in the co-investment opportunity or purchase less than its full
allocation.
2. The Investing Company will not make an investment for its
portfolio if any Zions Affiliate, or a person controlling, controlled
by, or under common control with the Zions Affiliates: (a) is an
existing investor in such issuer, with the exception of a follow-on
investment that complies with condition 5 below; or (b) has made a loan
or extended credit to the issuer, except as permitted by rule 17d-
1(d)(3) under the Act.
3. For any purchase of securities by the Investing Company and
Zions Affiliate is a joint participant, the terms, conditions, price,
class of securities, settlement date, and registration rights shall be
the same of or the Investing Company and the Zions Affiliate.
4. If a Zions Affiliate elects to sell, exchange, or otherwise
dispose of an interest in a security that is also held by the Investing
Company, such Zions Affiliate will notify the Investing Company of the
proposed disposition at the earliest practical time and the Investing
Company will be given the opportunity to participate in the disposition
on a proportionate basis, at the same price and on the same terms and
conditions as those applicable to the Zions Affiliates. InvestAmerica
will formulate a recommendation as to participation by the Investing
Company in a follow-on co-investment, and provide the recommendation to
the Investing Company in such a disposition, and provide a written
recommendation to the Investing Company's Investment Committee. The
Investing Company will participate in the disposition to the extent
that a Required Majority of its Investment Committee determines that it
is in the Investing Company's best interest. Each of the Investing
Company and Zions Affiliate will bear its own expenses associated with
any such disposition of a portfolio security.
5. If a Zions Affiliate desires to make a ``follow-on'' co-
investment (i.e., an additional investment in the same entity) in a
portfolio company whose securities are held by the Investing Company or
to exercise warrants or other rights to purchase securities of the
issuer, such Zions Affiliate will notify the Investing Company of the
proposed transaction at the earliest practical time. InvestAmerica will
formulate a recommendation as to the proposed participation by the
Investing Company's Investment Committee along with notice of the total
amount of the follow-on co-investment. The Investing Company's
Investment Committee will make its own determination with respect to
follow-on co-investment. The relative amount of investment in a follow-
on co-investment opportunity by the Investing Company and each Zions
Affiliate will be based upon the amount of the Investing Company's and
the Zions Affiliate's initial investments. The Investing Company will
participate in the follow-on co-investment to the extent that a
Required Majority of its Investment Committee determines that it is in
the Investing Company's best interest. The acquisition of follow-on co-
investments as permitted by this condition will be subject to the other
conditions in the application.
6. The voting member of the Investing Company's Investment
Committee will review quarterly all information concerning co-
investment opportunities during the preceding quarter to determine
whether the conditions in the application were complied with.
7. The Investing Company will maintain the records required by
section 57(f)(3) of the Act as if each of the investments under these
conditions were approved by the Investing Company's Investment
Committee under section 57(f).
8. No voting member of the Investing Companies' Investment
Committees will be a director or general partner of a Zions Affiliate
with which the Investing Company co-invests.
For the Commission, by Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27416 Filed 10-13-98; 8:45 am]
BILLING CODE 8010-01-M