[Federal Register Volume 63, Number 231 (Wednesday, December 2, 1998)]
[Notices]
[Pages 66615-66617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32042]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23573; 812-11006]
Technology Funding Venture Capital Fund VI, LLC, et al.; Notice
of Application
November 25, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for an order under section 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.
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SUMMARY OF APPLICATION: Applicants request an order to permit a
business development company (``BDC'') to co-invest with certain
affiliates in portfolio companies. The order would supersede several
prior orders.\1\
\1\ Technology Funding Partners III, L.P., et al., Investment
Company Act Release Nos. 17523 (June 6, 1990) (notice) and 17571
(July 5, 1990) (order); Technology Funding Partners III, L.P., et
al., Investment Company Act Release Nos. 17581 (July 11, 1990)
(notice) and 17654 (Aug. 7, 1990) (order); Technology Funding
Partners III, L.P., et al., Investment Company Act Release Nos.
17600 (July 18, 1990) (notice) and 17685 (Aug. 17, 1990) (order);
and Technology Funding Medical Partners I, L.P., et al., Investment
Company Act Release Nos. 19615 (Aug. 6, 1993) (notice) and 19672
(Sept. 1, 1993).
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APPLICANTS: Technology Funding Venture Capital Fund VI, LLC (the
``Company''), Technology Funding Medical Partners I, L.P. (``TFMP I''),
Technology Funding Venture Partners V, An Aggressive Growth Fund, L.P.
(``TFP V''), Technology Funding Venture Partners IV, An Aggressive
Growth Fund, L.P. (``TFP IV''), Technology Funding Partners III, L.P.
(``TFP III''); Technology Funding Inc. (``TFI'') and Technology Funding
Ltd. (``TFL'') (TFI and TFL together are the ``Investment Managers'').
Applicants also request that the relief apply to any BDCs currently or
in the future advised by the Investment Managers or by entities
controlling, controlled by, or under common control with the Investment
Managers (``Future Funds'').\2\
\2\ All existing BDCs that currently intend to rely on the order
have been named as applicants, and any other existing or future
entities that subsequently rely on the order will comply with the
terms and conditions in the application.
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FILING DATES: The application was filed on February 13, 1998, and
amended on October 13, 1998 and on November 23, 1998.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief 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 December
17, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC
20549. Applicants, 2000 Alameda de las Pulgas, San Mateo, CA 94403.
For Further Information Contact: Lisa McCrea, Attorney Adviser, at
(202) 942-0562, or Mary Kay Frech, Branch Chief, at (202) 942-0564
(Office of Investment Company Regulation, Division of Investment
Management).
Supplementary Information: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch, 450 5th Street N.W., Washington, DC
20549 (tel. 202-942-8090).
Applicants' Representations
1. Each of the Company, TFMP I, TFP V, TFP IV, and TFP III
(collectively, the ``Funds'') is organized as either a limited
liability company or a limited partnership and has elected to be
regulated as a BDC under the Act. TFI and TFL are both registered as
investment advisers under the Investment Advisers Act of 1940, and
serve as investment advisers to the Funds. TFI and TFL also serve as
managing general partners (``Managing General Partners'') of the Funds.
TFI is a wholly-owned subsidiary of TFL. Each Fund's investment
objectives are long-term capital appreciation from venture capital
investment in emerging growth companies, and preservation of investor
capital through risk management and active involvement with such
companies.
2. Each Fund is governed by a board of directors or general
partners (``Directors'' or ``General Partners''). At least a majority
of the Directors or General Partners of each Fund are natural persons
who are not interested persons of the Fund within the meaning of
section 2(a)(19) of the Act (``Independent Directors'' and
``Independent General Partners''). No Independent Director or
Independent General Partner of a Fund will serve as an Independent
Director or Independent General Partner of any other Fund at the same
time.
3. Applicants request relief to permit the Funds and any Future
Funds (collectively, the ``Co-Investing Funds'') to co-invest in
portfolio companies. Applicants state that the Co-Investing Funds will
have substantially similar investment objectives.
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in a joint transaction with the BDC in
contravention of such rules as the SEC may prescribe. Section 57(i) of
the act provides, in part, that, until the SEC prescribes rules under
section 57(a)(4), the SEC's rules under section 17(d) of the Act
applicable to closed-end investment companies shall be deemed to apply
to transactions subject to section 57(d). Because the SEC has not
adopted any rules under section 57(a)(4), rule 17d-1 applies.
2. Rule 17d-1 under the Act generally prohibits affiliated persons
of a registered investment company from entering into a joint
transaction with the company unless the SEC has issued an order
permitting the transaction. In passing upon applications under rule
17d-1, the SEC will consider whether the participation by the BDC in
such joint transaction is 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.
3. Applicants state that, because the Co-Investing Funds may be
deemed to be under the common control of the Investment Managers, the
Co-Investing Funds may be prohibited by section 57(a)(4) of the Act and
rule 17d-1 from participating in the proposed co-investments without
exemptive relief.
4. Applicants state that each Co-Investing Fund will participate in
the proposed transactions on the same terms as any other Co-Investing
Fund. Applicants further state that the proposed conditions would
assure, among other things, oversight of the proposed transactions by
each Co-Investing Fund's Independent General Partners of Independent
Directors.
[[Page 66616]]
Applicants' Conditions
Applicants agree that the requested order will be subject to the
following conditions:
1. The Co-Investing Funds will not have common Independent General
Partners or Independent Directors. The Directors or General Partners of
each Co-Investing Fund will approve co-investment transactions in
advance. The Directors or General Partners of each Co-Investing Fund
will be provided with periodic information, compiled by the Investment
Mangers, listing all venture capital investments made by the other Co-
Investing Funds.
2(a) Before a co-investment transaction will be effected, the
Investment Managers will make an initial determination on behalf of
each Co-Investing Fund regarding investment suitability. Following this
determination, a written investment presentation respecting the
proposed co-investment transaction will be made to the Directors or
General Partners of each Co-Investing Fund, except that such
information need not be distributed to the Directors or General
Partners of any Co-Investing Fund that, at that time, does not have
funds available for investment. Such information will include the name
of each Co-Investing Fund that proposes to make the investment and the
amount of each proposed investment. The Investment Managers will
maintain at each Co-Investing Fund's office a copy of the written
records detailing the factors considered in any such preliminary
determination.
2(b) The information regarding the Investment Manager's preliminary
determinations will be reviewed by the Independent Directors or
Independent General Partners of each Co-Investing Fund. The Directors
or General Partners of each Co-Investing Fund, including a majority of
the Independent Directors or Independent General Partners, will make an
independent decision as to whether and how much to participate in an
investment based on what is appropriate under the circumstances. If a
majority of Independent Directors or Independent General Partners of
any Co-Investing Fund determine that the amount proposed to be invested
by the Co-Investing Fund is not sufficient to obtain an investment
position they consider appropriate under the circumstances, that Co-
Investing Fund will not participate in the joint investment. Similarly,
a Co-Investing Fund will not participate in a co-investment transaction
if a majority of its Independent Directors or Independent General
Partners determine that the amount proposed to be invested is an amount
in excess of that which is determined to be appropriate under the
circumstances. A Co-Investing Fund will only make a joint investment
with another Co-Investing Fund if a majority of the Independent
Directors or Independent General Partners of that Co-Investing Fund
conclude, after consideration of all information deemed relevant that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the investors in the Co-Investing Fund
(the ``Investors'') and do not involve overreaching of the Co-Investing
Fund on the part of any person concerned;
(ii) The transaction is consistent with the interests of the
Investors of the Co-Investing Fund and is consistent with the Co-
Investing Fund's investment objectives and policies as recited in
filings made by the Co-Investing Fund under the Securities Act of 1933,
its registration statement and reports filed under the Securities
Exchange Act of 1934 and its reports to Investors; and
(iii) The investment by one or more of the other Co-Investing Funds
would not disadvantage the Co-Investing Fund in the making of such
investment, maintaining its investment position or disposing of such
investment, and that participation by the Co-Investing Funds would not
be on a basis different from or less advantageous than that of another
Co-Investing Fund.
2(c) The Independent Directors or Independent General Partners
will, for purposes of reviewing each such recommendation of the
Investment Managers, request such additional information from the
Investment Managers as they deem necessary to the exercise of their
reasonable business judgment, and they will also employ such experts,
including lawyers and accounts, as they deem appropriate to the
reasonable exercise of this oversight function.
3. The Directors or General Partners of each Co-Investing Fund,
including a majority of the Independent Directors or Independent
General Partners, will make their own decision and have the right to
decide not to share a particular investment with another Co-Investing
Fund. There will be no consideration paid to the Investment Manager (or
affiliated persons of the Investment Managers) directly or indirectly,
including without limitation any type of brokerage commission, in
connection with a co-investment transaction. The Investment Managers
will continue, however, to receive their compensation and expense
reimbursement arrangements with respect to each Co-Investing Fund and
will participate indirectly in a co-investment transaction only through
their existing interests as an Investor in each Co-Investing Fund.
4. Each Co-Investing Fund will be entitled to consider purchasing a
portion of each co-investment transaction equal to the ratio of that
Co-Investing Fund's net assets to the total net assets of all Co-
Investing Funds that have determined to participate in the co-
investment transaction, provided that each Co-Investing Fund can
determine not to take its full allocation where a majority of the
Independent Directors or Independent General Partners and a majority of
the Directors or General Partners of the Co-Investing Fund determine
that to do so would not be in the best interests of the Co-Investing
Fund. When the aggregate amount sought by the Co-Investing Funds
exceeds the amount of the co-investment opportunity, the amount
invested by each Co-Investing Fund shall be based on the ratio of the
net assets of each Co-Investing Fund to the aggregate net assets of all
Co-Investing Funds seeking to make an investment. ``Follow-on''
investments, including the exercise of warrants or other rights to
purchase securities of the issuer, will be treated in the same manner
as the initial co-investment transaction.
5. 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, on the same
terms and conditions, and the approvals will be made in the same
period. If one Co-Investing Fund elects to sell, exchange or otherwise
dispose of an interest in a security that is also held by another Co-
Investing Fund, notice will be given to each other Co-Investing Fund at
the earliest practical time and each other Co-Investing Fund will be
given the opportunity to participate in such disposition at the same
time for the same unit consideration and in amounts proportional to its
respective holdings of such securities. The Investment Managers will
formulate a recommendation as to participation by such Co-Investing
Fund in such a disposition, and provide the recommendation to the
Independent Directors or Independent General Partners of such Co-
Investing Fund. Each Co-Investing Fund will participate in such
disposition if a majority of its Independent Directors or Independent
General Partners determine that such action is fair and reasonable to
the Co-Investing Fund, is in the best interests of the Co-Investing
Fund and does not involve overreaching of the Co-Investing Fund or its
Investors by any person
[[Page 66617]]
concerned. Each Co-Investing Fund will bear its own expenses associated
with the disposition of a portfolio security. The Independent Directors
or Independent General Partners of each Co-Investing Fund will record
in their records the Investment Managers' recommendation and their
decision as to whether to participate in such disposition, as well as
the basis for their decision that such action is fair and reasonable
to, and is in the best interest of, the Co-Investing Fund.
6. A decision by a Co-Investing Fund (i) not to participate in a
co-investment transaction, (ii) to take less or more than its full
allocation, or (iii) not to sell, exchange, or otherwise dispose of a
co-investing Funds electing to participate shall include a finding that
such decision is fair and reasonable to the Co-Investing Fund and not
the result of overreaching of the Co-Investing Fund or its Investors by
any person concerned. The Independent Directors or Independent General
Partners of a Co-Investing Fund will be provided quarterly for review
all information concerning co-investment transactions made by the Co-
Investing Funds, including co-investment transactions in which a Co-
Investing Fund has declined to participate, so that they may determine
whether all co-investment transactions made during the preceding
quarter, including those co-investment transactions that were declined,
complied with the conditions set forth above. In addition, the
Independent Directors or Independent General Partners of a Co-Investing
Fund will consider at least annually the continuing appropriateness of
the standards established for co-investment transactions by a Co-
Investing Fund, including whether use of the standards continues to be
in the best interests of the Co-Investing Fund and its Investors and
does not involve overreaching of the Co-Investing Fund or its Investors
on the part of any party concerned.
7. The Independent Directors or Independent General Partners of
each Co-Investing Fund will maintain the records required by section
57(f)(3) of the Act, and will comply with section 57(h) of the Act, and
each Co-Investing Fund will otherwise maintain all records required by
the Act. All records referred to or required under these conditions
will be available for inspection by the SEC, and will be preserved
permanently, the first two years in an easily-accessible place.
8. No Director of affiliated person of any Director or General
Partner (other than a BDC sponsored and managed by the Investment
Managers) will participate in a transaction with a Co-Investing Fund
unless a separate exemptive order with respect to such transaction has
been obtained. For this purpose, the term ``participate'' shall not
include either the Investment Managers' existing General Partner
interests in, or their normal compensation and expense reimbursement
arrangements with, each Co-Investing Fund.
9. No co-investment transactions will be made pursuant to the
requested order respecting portfolio companies in which any applicant
or affiliated person of any applicant has previously acquired an
interest, provided that this prohibition shall not be applicable to any
previously acquired interest, provided that this prohibition shall not
apply to any previous investment specifically permitted by an order of
the SEC.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32042 Filed 12-1-98; 8:45 am]
BILLING CODE 8010-01-M