Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission File No. 0-25935
THE RIDGEWOOD POWER GROWTH FUND
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3495594
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
c/o Ridgewood Power Corporation, 947 Linwood Avenue, Ridgewood, New Jersey
07450
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (201) 447-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Investor Shares of Beneficial Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
There is no market for the Shares. The aggregate capital contributions made
for the Registrant's voting Shares held by non-affiliates of the Registrant at
March 30, 2001 was $65,810,670.
Exhibit Index is located on page 34.
PART I
Item 1. Business.
Forward-looking statement advisory
This Annual Report on Form 10-K, as with some other statements made by
the Fund from time to time, has forward-looking statements. These statements
discuss business trends and other matters relating to the Fund's future results
and the business climate. In order to make these statements, the Fund has had to
make assumptions as to the future. It has also had to make estimates in some
cases about events that have already happened, and to rely on data that may be
found to be inaccurate at a later time. Because these forward-looking statements
are based on assumptions, estimates and changeable data, and because any attempt
to predict the future is subject to other errors, what happens to the Fund in
the future may be materially different from the Fund's statements here.
The Fund therefore warns readers of this document that they should not rely
on these forward-looking statements without considering all of the things that
could make them inaccurate. This Registration Statement discusses many (but not
all) of the risks and uncertainties that might affect these forward-looking
statements.
Some of these are changes in political and economic conditions, federal or
state regulatory structures, government taxation, spending and budgetary
policies, government mandates, demand for electricity and thermal energy, the
ability of customers to pay for energy received, supplies and prices of fuels,
operational status of plant, mechanical breakdowns, availability of labor and
the willingness of electric utilities to perform existing power purchase
agreements in good faith. Some of these cautionary factors that readers should
consider are described below at Item 1(c)(5) - Trends in the Electric Utility
and Independent Power Industries.
By making these statements now, the Fund is not making any commitment to
revise these forward-looking statements to reflect events that happen after the
date of this document or to reflect unanticipated future events.
(a) General Development of Business.
The Registrant is The Ridgewood Power Growth Fund (the "Fund"), which was
organized as a Delaware business trust in January 1998 to participate in the
development, construction and operation of independent power generating
facilities and capital facilities ("Independent Power Projects" or "Projects").
Ridgewood Energy Holding Corporation ("Ridgewood Holding"), a Delaware
corporation, is the Corporate Trustee of the Fund.
The Fund has sold whole and fractional shares of beneficial interest in the
Fund ("Investor Shares") at $100,000 per Investor Share. The Fund's offering
began on February 9, 1998 and was discontinued in April 2000.The offering has
raised approximately $65,800,000. Net of offering fees, commissions and
expenses, the offering had provided as of that date approximately $54,600,000
for investments in the development and acquisition of Projects and operating
expenses. The Fund has 1,182 record holders of Investor Shares (the
"Investors").
The Fund has two Managing Shareholders: Ridgewood Power LLC, a New Jersey
limited liability company ("Ridgewood Power") and Ridgewood Power VI LLC ("Power
VI Co"), which is also a New Jersey limited liability company. Power VI Co has
assigned and delegated all of its rights and responsibilities to Ridgewood Power
and is essentially a shell company. The Managing Shareholders have direct and
exclusive discretion in the management and control of the affairs of the Fund.
Both Ridgewood Power and Power VI Co are controlled by Robert E. Swanson, who is
the manager of each. The officers of Power VI Co are also the same as those of
Ridgewood Power and Power VI Co currently does not conduct any business. It is
anticipated that Ridgewood Power will take all actions necessary to manage the
Fund, without any participation by Power VI Co. A further discussion of
Ridgewood Power and Power VI Co is found at Item 5(b) - Directors and Executive
Officers - Managing Shareholders. In the remainder of this Registration
Statement, when a reference is made to the "Managing Shareholder," it is to
Ridgewood Power so long as it acts as Managing Shareholder and to Power VI Co if
Power VI Co is activated to serve as a Managing Shareholder. The two Managing
Shareholders and the Investors are collectively referred to as the
"Shareholders."
The Fund currently has three Independent Panel Members. Approval of a
majority of the Independent Panel Members is required for approval of
transactions between the Fund and other investment programs sponsored by the
managing shareholders. The Independent Panel Members do not exercise general
oversight of the managing shareholders or of the Fund and are not directors of
the Fund. The Independent Panel Members do not have any management or
administrative powers over the Fund or its property.
The Fund has a Corporate Trustee, Ridgewood Energy Holding Corporation. The
Corporate Trustee acts on the instructions of the Managing Shareholders and is
not authorized to take independent discretionary action on behalf of the Fund.
See Item 5 - Directors and Executive Officers of the Registrant below for a
further description of the management of the Fund.
The Managing Shareholders are controlled by Robert E. Swanson, who is
currently their sole manager and chief executive officer. For information about
the merger of the prior Managing Shareholder, Ridgewood Power Corporation, into
Ridgewood Power LLC, see Item 10(b) - Directors and Executive Officers of the
Registrant - Managing Shareholders.
Robert E. Swanson and certain Swanson family trusts own 100% of the
equity of the following entities:
o Ridgewood Securities Corporation - Placement Agent ("Ridgewood Securities");
o Ridgewood Power Management, LLC - Operates the Projects owned by the Fund and
six other trusts ("RPM");
o Ridgewood Power LLC - Managing Shareholder of seven trusts ("Ridgewood
Power");
o Ridgewood Energy Holding Corporation - Corporate Trustee for all six trusts;
and
o Ridgewood Capital Management LLC - A marketing affiliate and manager of six
venture capital funds ("Ridgewood Capital").
Mr. Swanson has sole voting and investment power over the Swanson family
trusts and is the sole manager, chief executive officer of the above entities.
In addition, the Fund is affiliated with the following trusts organized
by the Ridgewood Power:
o Ridgewood Electric Power Trust I ("Power I");
o Ridgewood Electric Power Trust II ("Power II");
o Ridgewood Electric Power Trust III ("Power III");
o Ridgewood Electric Power Trust VI ("Power IV");
o Ridgewood Electric Power Trust V ("Power V" or "Trust V"); and
o Ridgewood/Egypt Fund ("Egypt Fund").
(b) Financial Information about Industry Segments.
The Fund has been organized to operate in only one industry segment:
independent power generation and related capital, infrastructure and venture
projects.
(c) Narrative Description of Business.
(1) General Description.
The Fund has invested in Projects that provide long-term cash flows. Its
investments are structured for federal income tax purposes as "direct
participation" investments, so that income, gains, losses, deductions and
credits flow through to each Investor's personal tax return, and are subject to
tax only once. Investors will generally have limited liability for the Fund's
obligations and those of the Projects.
The Fund has invested in a portfolio of energy and infrastructure Projects
located in the United States, the United Kingdom and Egypt, including small
hydroelectric projects in California and the eastern U.S., an equity investment
in ZapWorld.Com, a manufacturer of electric bicycles, landfill gas electric
generating Projects located in England and Scotland and water desalination and
electric generating Projects located at resorts in Egypt. The Fund will not
invest in nuclear power facilities.
(2) The Fund's Investments.
(i) United Kingdom Landfill Projects
The Fund and Power V have organized Ridgewood U.K. Limited, an English
limited company ("Ridgewood U.K.") as a joint venture to acquire (through
subsidiaries) certain operating landfill gas generating projects located in
England and Scotland (the "U.K. Projects").
To date, Ridgewood U.K. has acquired 10 U.K. Projects housing a total
installed capacity of approximately 20 megawatts. Ridgewood U.K. also holds an
option to acquire up to an additional 21 developmental projects (representing
approximately 22 megawatts) to the extent that such additional projects are
approved by Ridgewood U.K. and successfully completed. The total equity provided
by Ridgewood U.K. to acquire the U.K. Projects is approximately $19 million, of
which $16 million was furnished by Trust V and $3 million was funded by the
Fund. The remaining portion of the purchase price for the U.K. Projects
(approximately $9.5 million) was furnished under a 14-year credit facility
provided to Ridgewood U.K. subsidiaries by The Bank of Scotland. Ridgewood Power
estimates that seven additional projects requiring approximately $5 million in
additional equity will become available to Ridgewood U.K. through the end of
2001.
Each of the Fund and Power V share an undivided interest in all of the
U.K. Projects in proportion to the amounts of capital contributed by each of
Trust V and the Fund for the acquisition of such projects.
The following is a list of the U.K. Projects owned by Ridgewood U.K. as at
December 31, 2000:
Installed Capacity
Project Name Location (Megawatts)
- ------------------------ ------------------- -----
Chelson Meadow ......... Devon, England 2.85
Chelson Meadow II ...... Devon, England 0.95
United Mines ........... Cornwall, England 2.85
Whiney Hill ............ Lancashire, England 3.10
Belhouse ............... Essex, England 2.85
Summerston ............. Glasgow, Scotland 2.85
-----
Total Installed Capacity 15.45
Since January 1, 2001, Ridgewood U.K. has acquired an additional four
projects:
Installed Capacity
Project Name Location (Megawatts)
- ------------------------ ----------------------- ----
Queens York ............ Lancashire, England 1.64
Beighton ............... Sheffield, England 0.95
Cotesbach .............. Leicestershire, England 1.22
Skelbrooke ............. Yorkshire, England 0.95
----
Total Installed Capacity 4.76
Operations and maintenance services for all the U.K. Projects are
provided by Ridgewood CLP Management Limited, an English limited company owned
by the Trust and by The Growth Fund ("Ridgewood Management"). Ridgewood
Management has subcontracted such responsibilities to CLP Services Limited
("CLPS"), an English limited company which is affiliated with the development
company which developed the projects and sold them to Ridgewood U.K. Under such
subcontract, CLPS provides all operational and maintenance services for a fixed
amount (approximately 1.2(cent) per kilowatt hour produced) plus an additional
amount of approximately $112,000 per year for record keeping and administrative
services performed for Ridgewood U.K. and the various subsidiaries which hold
title to the projects. Such subcontract may be terminated by Ridgewood U.K. if
the projects fail to meet certain agreed upon performance standards (generally,
90% of projected cumulative project output).
The Fund and Power V began investigating Egyptian opportunities in late
1998. The two Trusts organized Ridgewood Near East Holdings, LLC, a New Jersey
limited liability company ("Holdings") as a holding company for their Egyptian
investments and to date have contributed approximately $28,250,000 to Holdings.
The Fund and Trust V own equity in Holdings in proportion to the capital they
have contributed. Holdings in turn owns all of the equity in the Egyptian
operating subsidiaries, including Ridgewood Egypt For Infrastructure LTD
("REI"). Donald Stewart, who is not an employee of Ridgewood Egypt acts as its
consultant. Mr. Stewart is reimbursed for his expenses but does not draw a
salary. Instead, upon successful completion of a development Project, he
receives a commission equal to 4% of the Project's cost. Since late 1998, the
Fund and Power V have investigated and developed projects to supply electricity
and potable water to the tourist industry on the Red Sea in Egypt. These
projects consist of electric generating plants supplying either a single hotel
or a series of hotels connected by a distribution network, reverse osmosis
seawater desalination plants supplying either a single hotel or a series of
hotels by a pipeline and combinations of the above.
As of January 31, 2001, the Fund and Power V together had 15 water plants
constructed or under development, with a total capacity of 12,530 cubic meters
per day of potable water production (one cubic meter equals 264.2 U.S. gallons)
and 6 electric generation plants constructed or under development with a total
capacity of 23,400 kilowatts. When all of the Egyptian Projects contemplated are
fully completed, which is estimated to be April 30, 2001, the total investment
in these projects will be approximately $27,265,000.
REI has identified additional projects, which it considers to provide attractive
returns and long-term growth potential. These projects include:
1) The acquisition of a water desalination plant with a 26 mile long pipeline
serving approximately 50% of the area of Sharm El Sheikh, an internationally
known resort area at the southern tip of the Sinai peninsula.
2) The construction of a 528,000 gallons per day water desalination plant in
Hurghada, which will serve small hotels and commercial businesses.
3) The construction of a 528,000 gallons per day water desalination plant and 5
mile long pipeline to serve a multi-hotel, tourist development south of
Hurghada.
4) Expansion of existing water and electric facilities as existing hotels are
expanded and new hotels constructed.
The Fund and Power V do not have any additional funds for investments.
Accordingly, the Managing Shareholder has organized the Ridgewood/ Egypt Fund,
which is currently offering securities. The funds raised from Ridgewood/Egypt's
offering will be used to fund these additional Projects.
REI currently provides several services in Egypt:
o Construction of electric generation and/or water desalination plants for
individual hotels.
o Construction of electric generation and/or water desalination plants coupled
with electric distribution and/or water pipelines in new developing areas to
serve multiple hotels.
o Purchase of existing electric generation and/or water desalination plants
operating at existing hotels.
o Long-term operation of these electricity and water facilities.
REI produces electric power with diesel engine driven generators only. Although
Egypt is a producer of natural gas, the isolated tourist areas where the
Egyptian Projects are located do not have natural gas available in required
quantities. Diesel fuel is readily available throughout Egypt and is supplied at
a fixed price through government agencies. Diesel engine driven generators are a
well-proven technology over eighty years old. There are many qualified suppliers
throughout the world.
All of REI's water desalination plants employ reverse osmosis equipment ("R/O").
This is a process where seawater or brackish water (water with less salt than
seawater but which is not drinkable or palatable) is pumped at high pressure
(1,000 pounds per square inch) through thin, porous membranes. The pressurized
water passes through but the salt and other large molecules remain behind and
thus are separated from the purified water. This process has been in existence
for over thirty years and is widely used throughout the world. There are many
suppliers of the R/O equipment and the membranes. The Company primarily
purchases R/O equipment from a U.S. company named Waterlink, because it believes
Waterlink offers the best combination of price, service and quality. However the
Company is not dependent on Waterlink and can build plants using other
manufacturers' equipment.
REI's operating expenses, which are charged against the projects' cash flow,
include, development and administrative, operation and maintenance activities
for all of its Egyptian Projects. Electric generation costs that are dependent
on production volume include diesel fuel, consumables, and a maintenance reserve
for preventative maintenance and major repairs. At the current time, over 80% of
those costs are fuel costs. At current fuel costs, which include delivery, are
fixed by the Egyptian government and are uniform throughout the country, the
fuel used to generate one kilowatt-hour of electricity costs approximately 3.2
U.S. cents at current exchange rates. These estimates are based on averages and
will vary based on location, maintenance needs, personnel costs and training,
and other factors. All of REI's electricity sales contracts provide for a 100%
cost pass-through as the price of diesel fuel changes.
The average cost to produce one cubic meter (264.3 gallons) of
desalinated water from seawater, at current prices and exchange rates, is
approximately $ .0024 per gallon.
Where REI supplies the electricity to the customer, REI provides the
electricity for the R/O equipment and includes that electricity cost in the
amount billed for water. Otherwise, the customer has the responsibility for
providing electric power and bears the risk of electricity price changes.
Operating costs for processing brackish water are similar except for
the amount of electricity used, which can be as low as 30% of the amount used to
process seawater. Capital costs for brackish water processing tend to be
significantly lower because less capable equipment can be used. A R/O water
desalination plant is automated and does not require a full time operator in
attendance. Prompt response to problems is important, however, if the customer
is not to be left without water. REI employs a central team of water specialists
who visit each R/O plant periodically to perform routine maintenance and who
respond to any problems.
REI's projects generally sell their electricity and drinking water output under
written, long-term contracts governed by Egyptian law. The community water
projects sell water to a number of hotels or commercial and residential
customers. In those cases, REI sells at a fixed, published price, which it may
change based on market conditions. There is no formal regulatory authority that
reviews those prices or which has authority to set them.
(iii) ZAP World.Com, Inc.
The Fund invested $2,050,000 in Ridgewood ZAP, LLC in March 1999 as a holding
company for its investments in ZAP World.COM, Inc. ("ZAP"). ZAP is headquartered
in Sebastopol, California, north of San Francisco. ZAP designs, assembles,
manufactures and distributes electric bicycle power kits, electric bicycles and
tricycles, electric scooters, and other electric transportation vehicles. ZAP's
common stock is quoted on the OTC Bulletin Board under the symbol "ZAPP".
ZAP manufactures an electric motor system that is sold as a kit to be installed
by the customer on their own bicycle. The system was designed to assist the
rider during more difficult riding situations, rather than as a replacement for
pedaling. ZAP also installs the motor system on specially designed bicycles that
the Company has manufactured under contract. The completed bicycles, with motor,
are then sold to the customer. Additionally, ZAP produces an electric scooter,
known as the ZAPPY(TM), which is manufactured by the Company, using parts
manufactured by various subcontractors. ZAP also is an U.S. distributor of the
Electricycle(TM) scooter that is imported from China and is a distributor of an
electric motorcycle.
Further information on ZAP is contained in its Annual Report on Form 10-KSB
and Quarterly Reports on Form 10-QSB, filed with the Securities and Exchange
Commission.
On March 30, 1999, Ridgewood ZAP, LLC purchased 678,808 shares of ZAP's
common stock for a total purchase price of $2,050,000 ($3.02 per share) in a
private placement.
As part of the transaction, Ridgewood ZAP, LLC was granted a warrant to
purchase additional shares of Common Stock of ZAP, which was exercised in June
1999 after the Fund contributed to Ridgewood ZAP, LCC the $2,000,000 necessary
to do so. The total exercise price under the warrant was $2,000,000 and the
exercise price per share was 85% of the average daily closing price of the
Common Stock over the 20 day period prior to the date of exercise, but not more
than $4.50 per share and not less than $3.50 per share. Ridgewood ZAP, LLC
acquired 571,249 shares of ZAP Common Stock on exercise.
Ridgewood ZAP, LLC and ZAP entered into four agreements as of March 30,
1999: a Stock and Warrant Purchase Agreement, a Common Stock Purchase Warrant, a
letter agreement regarding exercise of the warrant and an Investor's Rights
Agreement. The Stock and Warrant Purchase Agreement provided for the purchase of
the Common Stock and the issuance of the warrant and contained conventional
representations and warranties by the parties. The warrant and the letter
agreement contained the warrant provisions described above.
The Investor's Rights Agreement grants Ridgewood ZAP, LLC the following
rights: two demand registrations (provided that each registration is for at
least $7.5 million of Common Stock), piggyback registration rights and S-3 shelf
registration rights. ZAP has the right to prohibit demand registrations within
specified periods of its own registrations and to delay or limit any
registration under certain conditions. The Investor's Rights Agreement also
requires ZAP to provide Ridgewood ZAP, LLC with quarterly and annual financial
information, an annual financial plan, audit information and public
announcements. Ridgewood ZAP, LLC is also granted first refusal rights similar
to preemptive rights (except for stock issuances in connection with mergers or
acquisitions, loan or lease transactions, employee benefit plans, stock splits
or dividends, or registered public offerings of $7.5 million or more). The first
refusal rights expire on the earliest of a registered public offering of $7.5
million or more, an acquisition of ZAP or March 30, 2003.
The Investor's Rights Agreement generally terminates at such time as
Ridgewood ZAP, LLC owns less than 5% of ZAP's Common Stock. Ridgewood ZAP, LLC's
rights also relate to Common Stock that it may transfer to its affiliates.
ZAP's two largest shareholders have agreed with Ridgewood ZAP that as long
as Ridgewood ZAP, LLC owns at least 5% of ZAP's voting stock, the shareholders
will vote their shares in favor of up to two directors nominated by Ridgewood
ZAP, LLC. Ridgewood ZAP, LLC has nominated two directors, Robert E. Swanson and
Douglas Wilson (who are officers of the Fund and Ridgewood Power, see Item 5(b)
Directors and Executive Officers of the Registrant - Managing Shareholders),
both of whom have been elected to ZAP's Board of Directors.
Two of the Fund's other three investments, the U.K. Landfill Gas Projects and
the Hydroelectric Projects, have long-term, formula price contracts for their
output. While purchasing Projects with long-term contracts might reduce the
anticipated volatility of the Fund's earnings, it means that there is not much
potential for earnings growth beyond the rate of inflation. The Fund therefore
made a relatively small investment in ZAPWORLD.COM. Although this investment is
highly risky, if it is successful, it would have the potential for significant
capital appreciation. This addresses the Fund's primary objective, noted above,
for providing capital appreciation.
The investment in ZAP Power Systems has a significantly different
risk-return profile from those of independent electric power plants or similar
investments. ZAP's products are purchased primarily by consumers and are thus
subject to fluctuations in demand caused by publicity, fads, consumer tastes,
general economic conditions and other factors. Customer relationships tend to be
single sale transactions through retail franchisees and distributors rather than
repeated long term sales under contracts or sales through a power exchange. For
these reasons and others ZAP's revenues are expected to be much more volatile
than those of independent power plants or similar investments purchased by the
Fund. Further, as the maker of a consumer product ZAP is subject to liabilities
to consumers for defectively designed or produced products. Thus, the Fund's
investment in ZAP may be more risky than its other planned investments and there
may be a higher risk of a total loss. Conversely, the Fund believes that the ZAP
investment has a higher long-term potential payoff.
Mr. Swanson has purchased a franchise to distribute ZAP's products in the
eastern portion of Long Island, New York. See Item 12 -- Certain Relationships
and Related Transactions for additional information.
(iv) Synergics, Inc. Acquisition
Beginning in late 1999, the Managing Shareholder of the Trust, began
negotiations to buy nine existing hydroelectric generating plants from
Synergics, Inc. ("Synergics"). In the course of negotiations and due diligence,
the Managing Shareholder learned that one of Synergics' lenders had declared a
payment default against Synergics and that the lender had agreed to discharge
the debt at a substantial discount from the face amount if payment were made by
the end of April 2000. In order to preserve the benefit of the lender's offer
and to allow completion of the acquisition on favorable terms, Trust V and the
Fund, through a joint venture, acquired the debt from the lender on April 28,
2000 for a payment of $17 million to the lender. The debt remains in default,
but the joint venture is not exercising its remedies against Synergics or the
Synergics subsidiaries pending the proposed acquisition described below.
The joint venture intends to acquire the Synergics hydroelectric generation
business by forgiving the $17 million of outstanding debt and paying an
additional $1 million to the shareholders of Synergics and paying up to an
additional $1.7 million of Synergics' tax liabilities that might be incurred as
a result of the sale of its assets. The structuring and closing of the
acquisition is to be determined after a review of certain financial, contractual
and tax considerations. Until the acquisition closes, Synergics has agreed to
retain all working capital for the account of the joint venture and to allow the
joint venture to approve all operational decisions and expenditures. Synergics
is cooperating closely with the joint venture in making operational decisions.
However, although the joint venture currently intends to acquire the Synergics
hydroelectric generation business as promptly as possible, neither the joint
venture nor the Fund and Power V are obligated to acquire Synergics or any of
its assets. Wayne L. Rogers, the president of Synergics, agreed to vote the
stock of Synergics, Inc. beneficially owned by him (approximately 69% of the
voting stock) in favor of a merger or other corporate reorganization as
specified by the Fund and Power V that materially complies with the provisions
outlined above.
Although the joint venture now owns $17 million of the senior debt of Synergics,
there is approximately $11.725 million of debt owed to Fleet Bank, N.A. Trust V
and the Fund are in discussions with Fleet Bank concerning the assumption of the
Fleet debt in connection with the acquisition.
Trust V supplied $5 million of the capital used by the joint venture to acquire
the debt and the Fund supplied the remaining $12 million. Any additional capital
needed for the acquisition will be supplied to the joint venture by the Fund.
Trust V and the Fund will own the joint venture in proportion to the capital
each supplies and neither will have preferred rights over the other.
(v) Mediterranean Fiber Optic Project
In September 1999, Trust V and the Fund organized Ridgewood MedFiber
LLC and each of them contributed $1.5 million to the joint venture on equal
terms. Ridgewood MedFiber then invested the $3 million in a 25% equity interest
in Global Fiber Group, a newly organized developer ("GFG"), which was exploring
a proposal to construct a 3,600 kilometer (2,200 mile) long underwater fiber
optic cable among Spain, Southern France and Italy via the Mediterranean Sea.
In February 2000 the original management, which had been unable to obtain
additional equity financing for the Project, agreed to withdraw from the
venture. Ridgewood MedFiber was unable to find other equity investors for the
venture and the venture ceased activity in the second quarter of 2000.
Accordingly, the Fund wrote off its entire investment in the Project effective
March 31, 2000.
(3) Project Operation.
The major costs of a Project while in operation will be debt service (if
applicable), fuel, taxes, maintenance and operating labor. The ability to reduce
operating interruptions and to have a Project's capacity available at times of
peak demand are critical to the profitability of a Project.
Accordingly, skilled management is a major factor in the Fund's business.
The technology involved in conventional power plant construction and operations
as well as electric and heat energy transfers and sales is widely known
throughout the world. There are usually a variety of vendors seeking to supply
the necessary equipment for any Project. So far as the Fund is aware, there are
no limitations or restrictions on the availability of any of the components
which would be necessary to complete construction and commence operations of any
Project. Generally, working capital requirements are not a significant item in
the independent power industry. The cost of maintaining adequate supplies of
fuel is usually the most significant factor in determining working capital
needs. In order to commence operations, most Projects require a variety of
permits, including zoning and environmental permits. Inability to obtain such
permits will likely mean that a Project will not be able to commence operations,
and even if obtained, such permits must usually be kept in force in order for
the Project to continue its operations.
Compliance with environmental laws is also a material factor in the independent
power industry. The Fund believes that capital expenditures for and other costs
of environmental protection have not materially disadvantaged its activities
relative to other competitors and will not do so in the future.
Although the capital costs and other expenses of environmental protection may
constitute a significant portion of the costs of a Project, the Fund believes
that those costs as imposed by current laws and regulations have been and will
continue to be largely incorporated into the prices of its investments and that
it accordingly has adjusted its investment program so as to minimize material
adverse effects. If future environmental standards require that a Project spend
increased amounts for compliance, such increased expenditures could have an
adverse effect on the Fund to the extent it is a holder of such Project's equity
securities.
(4) Trends in the Independent Power and Other Industries
(i) Foreign Opportunities
The electricity markets in the United Kingdom were fully deregulated several
years before deregulation began in the U.S. Accordingly, the Fund, through
Ridgewood U.K., is investing in a niche area, landfill gas power plants. The
Prior Programs already own interests in two large landfill gas power plants in
Rhode Island and California and the technology and business are familiar to
Ridgewood Power. Further, because of the ecological benefits of landfill gas
power plants, the U.K. government has required utilities to enter into 15 year
Power Contracts at premium prices, through the Non-Fossil Fuels Purchasing
Agency. The U.K. Landfill Projects enjoy a status similar to qualifying
facilities in the U.S. with long-term Power Contracts. They enjoy a guaranteed
price and market for their output and are not subject to price fluctuations for
their fuel. The major business risks and considerations are keeping operating
costs at a minimum through good design, preventative maintenance and attention
to fuel quality, governmental policy changes and exchange rate fluctuations
affecting the pound-denominated revenues from the Projects. Thus the Trust
believes that these investments in a stable Western European country with a
guaranteed market for the output have the potential for long-term, stable
income. Because Ridgewood U.K. is not providing any capital for development and
buys Projects only after they receive bank financing, most development risk is
avoided. Ridgewood Power is investigating hedging and other strategies to reduce
exchange rate risk when revenues from the U.K. Landfill Gas Projects become
large enough to make these strategies practical.
The Egyptian Projects are substantially riskier. These projects are being
developed at remote resort hotel sites on the Red Sea, which are distant from
other electric and water sources. REI is developing the Projects itself using
local engineering personnel and contractors.
Environmental, construction, legal, and labor requirements are often unclear and
can change unpredictably at any time. REI may find it difficult to enforce
contracts and other legal obligations against local suppliers or customers. REI
has not engaged in substantial development work either in the U.S. or outside
the U.S. and has little experience in developing foreign Projects. There are no
backup facilities to provide electricity or water if the Projects fail or are
unusable for any period of time. Specifications for Projects have changed
suddenly and unpredictably and in some cases it has been necessary for REI to
construct additional infrastructure. Cultural, language and political
differences between Egypt and the U.S. may impair communication with personnel,
cause errors and possibly cause hostile action against the Projects by
employees, residents or governmental agencies. There have been occasional
terrorist incidents in Egypt directed against Western tourists and tourist
facilities. Further such incidents might deter tourism and make the host hotel
resorts unprofitable or might even be directed against the Egyptian Projects or
their personnel.
The Projects burn light fuel oil in diesel engines, which is brought in by
tanker truck. Supply interruptions, oil spills or fires are possible. Although
the Projects are exposed to world oil price variations, this risk is mitigated
because the Power Contracts contain price adjustments tied to fuel oil prices
that should substantially transfer the risk to the customers.
The customers of most of the Egyptian Projects are single hotels
governmentally-sponsored associations of resort hotels under 10-year long-term
Power Contracts with each Project. Each Project provides electricity or water or
both to the entire association and bills the hotels or association for the
aggregate amount. The association in turn bills its member hotels for their
consumption and their share of common consumption for services such as street
lighting, residential services for hotel employees, and services such as
security. The associations may not have substantial assets and thus may depend
on prompt payment by their members in order to meet their obligations to the
Project. Their ability to enforce payment obligations may be limited, and
although the Project has the ability to shut off water or power to a defaulting
association member, it may be practically difficult to do so over resistance by
a major employer. It is possible that the associations would fail to bill
members appropriately, that disputes between the associations and members for
other reasons might result in a failure to pay the associations, or that the
associations for political, economic or other reasons would fail to meet their
obligations to the Project. It is also possible that adverse events in the
tourist industry, such as labor disputes, airline problems, shortages of
personnel, changes in customer taste, environmental problems, overbuilding and
international political or cultural developments could depress tourist trade to
the point that the hotels or associations would be unable to pay. Other risks
include currency conversion and repatriation risks, exchange rate fluctuations,
taxation disputes, international hostilities, arbitrary governmental action,
religious tensions, anti-foreign sentiments and legal changes.
Because of these risks and difficulties, it has been difficult to raise
capital for these Projects and there is a great local demand for similar
Projects. The prices for the electricity and water provided by the Projects
reflect these risks and others. The Managing Shareholders believe that these
risks are acceptable, because the Trust has been organized with the intention to
have a somewhat diversified portfolio of investments and because the Trust will
be investing in lower-risk, lower-return foreign and U.S. power Projects as
well.
(5) Competition
The U.K. Landfill Projects sell their output to a government agency and are not
subject to competition.
Currently, the Egyptian Projects are located in remote coastal areas that are
not linked to the national electric power network and thus are not subject to
substantial competition for providing electricity. The water Projects do not
face substantial competition except from trucked-in water. This also means that
there is no substantial backup for the Projects if they cannot operate for any
reason. It is possible that in future years the national network may extend to
some or all of the Project sites, in which case there might be competition.
There are a large number of participants in the independent power industry.
Several large corporations specialize in developing, building and operating
independent power plants. Equipment manufacturers, including many of the largest
corporations in the world, provide equipment and planning services and provide
capital through finance affiliates. Many regulated utilities are preparing for a
competitive market, and a significant number of them already have organized
subsidiaries or affiliates to participate in unregulated activities such as
planning, development, construction and operating services or in owning exempt
wholesale generators or up to 50% of independent power plants. In addition,
there are many smaller firms whose businesses are conducted primarily on a
regional or local basis. Many of these companies focus on limited segments of
the cogeneration and independent power industry and do not provide a wide range
of products and services. There is significant competition among non-utility
producers, subsidiaries of utilities and utilities themselves in developing and
operating energy-producing projects and in marketing the power produced by such
projects.
The Fund is unable to accurately estimate the number of competitors but
believes that there are many competitors at all levels and in all sectors of the
industry. Many of those competitors, especially affiliates of utilities and
equipment manufacturers, may be far better capitalized than the Fund.
(6) Regulatory Matters.
The Fund's Projects located in the United States are subject to energy and
environmental laws and regulations at the federal, state and local levels in
connection with development, ownership and operation. Federal laws and
regulations developed by administrative agencies govern transactions with
utility companies, the types of fuel which may be utilized by a Project, the
type of energy which may be produced by a Project and the ownership of a
Project. State utility regulatory commissions must approve the rates and, in
some instances, other terms and conditions on which public utilities purchase
electric power from Projects. Under certain circumstances where specific
exemptions are otherwise unavailable, state utility regulatory commissions may
have broad jurisdiction over Projects. Projects are also subject to federal,
state and local laws and administrative regulations which govern the emissions
and other substances produced by a Project and the geographical location,
zoning, land use and operation of a Project.
Applicable federal environmental laws typically have state and local enforcement
and implementation provisions. These environmental laws and regulations
generally require that a wide variety of permits and other approvals be obtained
before the commencement of construction or operation of an energy-producing
facility and that the facility then operate in compliance with such permits and
approvals.
(i) Energy Regulation.
(A) PURPA. The Synergics Projects, which sell electric energy, are subject to
certain energy regulation including the Public Utilities Regulatory Policies Act
("PURPA"), which provides incentives for the development of cogeneration
facilities and small power production facilities meeting certain criteria
("Qualifying Facilities").
Qualifying Facilities under PURPA are generally exempt from the provisions of
federal and state utility regulation. In order to be a Qualifying Facility, a
cogeneration facility must (i) produce not only electricity but also a certain
quantity of heat energy (such as steam or hot water) which is used for a purpose
other than power generation, (ii) meet certain energy efficiency standards when
natural gas or oil is used as a fuel source and (iii) not be controlled or more
than 50% owned by an electric utility or electric utility holding company. Other
types of Independent Power Projects, known as "small power production
facilities," can be Qualifying Facilities if they meet regulations respecting
maximum size (in certain cases), primary energy source and utility ownership.
(B) The 1992 Energy Act. The Comprehensive Energy Policy Act of 1992 (the "1992
Energy Act") empowered FERC to require electric utilities to make available
their transmission facilities to and wheel power for Independent Power Projects
under certain conditions and created an exemption for electric utilities,
electric utility holding companies and other independent power producers from
certain restrictions imposed by the Holding Company Act. Although the Trust
believes that the exemptive provisions of the 1992 Energy Act will not
materially and adversely affect its business plan, the act may result in
increased competition in the sale of electricity. (C) The Federal Power Act. The
FPA grants FERC exclusive rate-making jurisdiction over wholesale sales of
electricity in interstate commerce. The FPA provides FERC with ongoing as well
as initial jurisdiction, enabling FERC to revoke or modify previously approved
rates. Such rates may be based on a cost-of-service approach or determined
through competitive bidding or negotiation. While Qualifying Facilities under
PURPA are exempt from the rate-making and certain other provisions of the FPA,
non-Qualifying Facilities are subject to the FPA and to FERC rate-making
jurisdiction.
The FPA also provides that any hydroelectric facility that is located
on a navigable stream or that affects public lands or water from a government
dam may not be constructed or be operated without a license from FERC. Certain
facilities that were operating before 1935 are exempt, if the waterway is
non-navigable, or "grandfathered" and do not require licenses so long as the
facilities are not modernized or otherwise materially altered. Licenses are
granted for 30 to 50 year terms.
(D) State Regulation. State public utility regulatory commissions have broad
jurisdiction over Independent Power Projects which are not Qualifying Facilities
under PURPA, and which are considered public utilities in many states. In states
where the wholesale or retail electricity market remains regulated, Projects
that are not Qualifying Facilities may be subject to state requirements to
obtain certificates of public convenience and necessity to construct a facility
and could have their organizational, accounting, financial and other corporate
matters regulated on an ongoing basis. Although FERC generally has exclusive
jurisdiction over the rates charged by a non- Qualifying Facility to its
wholesale customers, state public utility regulatory commissions have the
practical ability to influence the establishment of such rates by asserting
jurisdiction over the purchasing utility's ability to pass through the resulting
cost of purchased power to its retail customers. In addition, states may assert
jurisdiction over the siting and construction of non-Qualifying Facilities and,
among other things, issuance of securities, related party transactions and sale
and transfer of assets. The actual scope of jurisdiction over non-Qualifying
Facilities by state public utility regulatory commissions varies from state to
state.
(ii) Environmental Regulation.
The construction and operation of Independent Power Projects and the
exploitation of natural resource properties are subject to extensive federal,
state and local laws and regulations adopted for the protection of human health
and the environment and to regulate land use. The laws and regulations
applicable to the Trust and Projects in which it invests primarily involve the
discharge of emissions into the water and air and the disposal of waste, but can
also include wetlands preservation and noise regulation. These laws and
regulations in many cases require a lengthy and complex process of renewing
licenses, permits and approvals from federal, state and local agencies.
Obtaining necessary approvals regarding the discharge of emissions into the air
is critical to the development of a Project and can be time-consuming and
difficult. Each Project requires technology and facilities which comply with
federal, state and local requirements, which sometimes result in extensive
negotiations with regulatory agencies.
Meeting the requirements of each jurisdiction with authority over a Project may
require extensive modifications to existing Projects.
Title V of the Clean Air Act Amendments added a new permitting requirement for
existing sources that requires all significant sources of air pollution to
submit new applications to state agencies. Title V implementation by the states
generally does not impose significant additional restrictions on the Trust's
Projects, other than requirements to continually monitor certain emissions and
document compliance. The permitting process is voluminous and protracted and the
costs of fees for Title V applications, of testing and of engineering firms to
prepare the necessary documentation have increased. The Fund believes that all
of its facilities, which require Title V compliance, are or will be in
compliance with such requirements.
The Fund's Projects must comply with many federal and state laws and
regulations governing wastewater and storm water discharges from the Projects.
These are generally enforced by states under "NPDES" permits for point sources
of discharges and by storm water permits. Under the Clean Water Act, NPDES
permits must be renewed every five years and permit limits can be reduced at
that time or under re-opener clauses at any time. The Projects have not had
material difficulty in complying with their permits or obtaining renewals. The
Projects use closed-loop engine cooling systems which do not require large
discharges of coolant except for periodic flushing to local sewer systems under
permit and do not make other material discharges.
The Fund's Projects are subject to the reporting requirements of the
Emergency Planning and Community Right-to-Know Act that require the Projects to
prepare toxic release inventory release forms. These forms list all toxic
substances on site that are used in excess of threshold levels so as to allow
governmental agencies and the public to learn about the presence of those
substances and to assess potential hazards and hazard responses. The Trust does
not anticipate that this requirement will result in any material adverse effect
on it.
The Managing Shareholders expect that environmental and land use regulations may
become more stringent. The Fund and the Managing Shareholders have developed a
certain expertise and experience in obtaining necessary licenses, permits and
approvals, but will nonetheless rely upon qualified environmental consultants
and environmental counsel retained by it to assist in evaluating the status of
Projects regarding such matters.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales. In 2000, all revenues were generated by the Egyptian Projects. Earnings
form the trust's investments in GFG, Synergics and ZAPWORLD.com are included in
other income (expense) in the statement of operations. All plant and equipment
included on the December 31, 2000 balance sheet are located in Egypt.
Historical results of the Egyptian Projects may not be indicative of those
for future periods because additional Egyptian Projects may be acquired or come
into service in 2001.
Projects or investments located in one country do not have material
customers from any other country.
(e) Employees.
The Fund has no employees. The persons described below at Item 5 -Directors and
Executive Officers of the Registrant serve as executive officers of the Fund and
have the duties and powers usually applicable to similar officers of a Delaware
corporation in carrying out the Fund business. REI has approximately 12
employees located in Egypt.
Item 2. Properties.
Pursuant to the Management Agreement between the Fund and the Managing
Shareholders (described at Item 10(c)), Ridgewood Power provides the Fund with
office space at the Managing Shareholders' principal offices at The Ridgewood
Commons, 947 Linwood Avenue, Ridgewood, New Jersey 07450.
The following table shows the material properties (relating to Projects)
owned or leased by the Fund's subsidiaries at march 30, 2001.
Approximate
Square
Ownership Ground Approximate Footage of Description
Interests Lease Acreage Project of
Projects Location in Land Expiration of Land (Actual Project
or Projected)
U.K. England and Leased or 2014- less than n/a Landfill gas
Landfill Scotland licensed 2015 10 acres fueled gene-
ration plants
Egyptian Leased by n/a less than n/a Electric gen-
Site in Egypt 10 acres erating or
Joint venture* water desali-
nation facil-
ties
*Joint venture owned by the Fund and Power V.
The Fund believes that these properties are currently adequate for current
operations at those sites.
Item 3. Legal Proceedings.
There are no material legal proceedings involving the Fund.
Item 4. Submission of Matters to a Vote of Security Holders.
The Fund has not submitted any matters to a vote of its security holders
during the fourth quarter of 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Fund sold 658.1067 Investor Shares of beneficial interest in the Fund in its
private placement offering, which concluded in April 2000. There is currently no
established public trading market for the Investor Shares. As of the date of
this Annual Report on Form 10-K, all such Investor Shares have been issued and
are outstanding. There are no outstanding options or warrants to purchase, or
securities convertible into, Investor Shares.
Investor Shares are restricted as to transferability under the Declaration, as
well as under federal and state laws regulating securities. See Item 11(d) -
Description of Registrant's Securities to be Registered - Restrictions on
Transfer of Investor Shares. The Investor Shares have not been and are not
expected to be registered under the Securities Act of 1933, as amended (the
"1933 Act"), or under any other similar law of any state (except for certain
registrations that do not permit free resale) in reliance upon what the Fund
believes to be exemptions from the registration requirements contained therein.
Because the Investor Shares have not been registered, they are "restricted
securities" as defined in Rule 144 under the 1933 Act. As of the date of this
Registration Statement, no Investor Shares are sellable under Rule 144 because
the requirements of Rule 144(c) have not been met.
The Managing Shareholders are considering the possibility of a combination of
the Fund and six other investment programs sponsored by the Managing Shareholder
into a publicly traded entity. This would require the approval of the Investors
in the Fund and the other programs after proxy solicitations complying with
requirements of the Securities and Exchange Commission, compliance with the
"rollup" rules of the Securities and Exchange Commission and other regulations,
and a change in the federal income tax status of the combined entity from a
partnership (which is not subject to tax) to a corporation. The process of
considering and effecting a combination, if the decision is made to do so, will
be very lengthy. There is no assurance that the managing shareholders will
recommend a combination, that the Investors of the Fund or other programs will
approve it, that economic conditions or the business results of the participants
will be favorable for a combination, that the combination will be effected or
that the economic results of a combination, if effected, will be favorable to
the Investors of the Trust or other programs.
(b) Holders
As of the date of this Annual Report on Form 10-K, there are 1182 record
holders of Investor Shares.
(c) Dividends
The Fund made distributions as follows in 2000 and 1999:
Year ended December 31,
2000 1999
Total distributions
to Investors ...... $3,465,001 $ 924,760
Distributions per
Investor Share .... 5,265 1,642
Distributions to
Managing
Shareholders ...... 35,000 9,341
In January 2001, the Fund ceased making distributions as part of their
preparations for a possible Liquidity Event. The Fund was financially capable of
making some distributions but Ridgewood Power concluded that it would be more
beneficial to Investors for the Fund to conserve capital in the highly volatile
business climate and to have additional capital to finance a potentially
expensive process. This does not mean that a Liquidity Event will necessarily
occur or that distributions will necessarily resume if a Liquidity Event does
not happen.
If distributions do resume, the Fund's policy is to make them on a
quarterly basis. The Fund's ability to make future distributions to Investors
and their timing will depend on the net cash flow of the Fund and retention of
reasonable reserves as determined by the Fund to cover its anticipated expenses.
Occasionally, distributions may include funds derived from the release of
cash from operating or debt service reserves. Further, the Declaration of Trust
authorizes distributions to be made from cash flows rather than income, or from
cash reserves in some instances. For purposes of generally accepted accounting
principles, amounts of distributions in excess of accounting income may be
considered to be capital in nature. Investors should be aware that the Fund is
organized to return net cash flow rather than accounting income to Investors.
Item 6. Selected Financial Data.
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
As of and for
the Period from
Commencement of
Share Offering
(February 9, 1998)
through Year ended December 31,
December 31, 1998 1999 2000
Interest income .. $ 494,002 $ 1,447,920 $ 2,601,646
Total revenue .... - - - -- $ 2,180,231
Net income (loss) (851,745) (980,540) $ (1,904,198)
Net assets
(shareholders'
equity) ........ 24,354,681 45,657,426 $46,091,190
Total assets ..... 25,733,430 45,881,708 $53,174,689
Per Share of Trust
Interest:
Revenues ........ - - - - - - 3,313
Net income (loss) (2,869) (1,741) (2,893)
Net asset value . 82,035 81,074 70,186
Distributions to
Investors ........ 0 1,642(F1) 5,265
(F1) Approximate. Distributions varied based on number of shares and payment of
Early Investor Incentive.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
The following discussion and analysis should be read in conjunction with the
Fund's financial statements and the notes thereto presented below. Dollar
amounts in this discussion are generally rounded to the nearest $1,000.
The Fund uses the equity method of accounting for its investments in
ZapWorld.com and the Mediterranean Fiber Optic Project/GFG. The Fund's
investment in the Synergics Hydro projects is in the form of a note receivable
and, accordingly, the Fund's earnings are in the form of interest income.
The Fund and Trust V also purchased a note receivable from Synergics, Inc.
("Synergics") for approximately $17 million. The joint venture intends to
acquire nine hydroelectric dams owned by Synergics by forgiving the $17 million
of outstanding debt and paying an additional $1 million to the shareholders of
Synergics and paying up to an additional $1.7 million of Synergics' tax
liabilities that might be incurred as a result of the sale of its assets.
Through December 31, 1999, the Fund used the equity method of accounting for its
investment in the Egypt Projects. Beginning in the first quarter of 2000, the
Fund made additional investments and acquired majority ownership of the Egypt
Projects. As a result, effective January 1, 2000, the Fund has consolidated the
financial position and results of operations. All the Fund's consolidated
revenue and cost of sales relate to the Egypt Projects.
Outlook
ZapWorld.com, a publicly-traded California based corporation, sells a wide range
of electric scooters, bicycles and vehicles. The Fund owns approximately 21% of
the common stock of ZapWorld.com.
In Egypt, the Fund and Trust V have constructed or are developing 15 water
desalinization plants and 6 electric generation plants. When development is
complete, which is expected to occur in the second quarter of 2001, the total
capacity of the water and power plants is expected to be approximately 3,300,000
U.S. gallons per day and 23.4 megawatts, respectively. Each plant has a contract
with a hotel or group of hotels for the sale of the water or electricity
produced from the plant. These contracts generally have terms of five to thirty
years.
The Fund and Trust V also purchased a 25% interest in GFG. GFG expected to be
the co-developer of a large Mediterranean fiber optic project which was
scheduled to close in the second quarter of 2000. The Fund and Trust V expected
to fund approximately $18 million of this Mediterranean Fiber Optic project when
it closed. In the first quarter of 2000, the Fund determined that GFG would
probably not be able to develop the Mediterranean Fiber Optic Project or any
other project. Accordingly, the Fund wrote down its investment in the project to
zero in the first quarter of 2000. GFG subsequently ceased operations.
Trust V, through a subsidiary, purchased six landfill gas fired plants in the
United Kingdom which have contracts to sell the electricity to a quasi
autonomous non-governmental organization at an inflation adjusted price for 15
years. In 2001, the Fund has provided additional funds to the subsidiary to
acquire additional plants and expects to provide additional funds as more plants
are developed. To the extent that the Fund provides funds, it will receive an
undivided interest in the entire package of plants.
Results of Operations The year ended December 31, 2000 compared to the year
ended December 31, 1999.
In 2000, the Fund had a net loss of $1,909,0000 as compared to a net loss of
$981,000 in 1999. The 2000 net loss includes $1,448,000 of charges relating to
the writedown of GFG. Excluding the writedown, the 2000 results would have
reflected a loss of $461,000. The 2000 and 1999 results include the following
results from projects:
Project 2000 1999
- ------------------------------------------------------------------
ZapWorld.com ....... (2) (1,342,000) (640,000)
Egypt Projects (1) 12,000 (198,000)
Mediterranean Fiber
Optic Project (2) (50,000) (49,000)
Synergics Projects (3) 883,000 --
(1) Earnings, net of minority interest, in 2000. Equity interest in loss of the
project in 1999.
(2) Equity interest in loss of the project.
(3) Interest income
The Fund recorded a loss of $1,342,000 from ZapWorld in 2000 compared to a loss
of $640,000 in 1999. The increase in the loss was due to increased operating
expenses relating to ZapWorld.com's expansion in 2000 compared to 1999.
The Fund recorded $12,000 of net income related to the Egypt projects compared
to $198,000 of losses in 1999. In 1999, all projects in Egypt were in the
development stage whereas in 2000, the majority of these projects were in
operation.
The Fund recorded losses of $50,000 and $49,000 in 2000 and 1999, respectively,
related to its investment in GFG. GFG was not able to develop the planned
Mediterranean Fiber Optic Project and subsequently ceased operations.
The Fund recorded interest income from the note related to the Synergics
Projects of $883,000. The Fund acquired the note in April 2000.
Interest income at the Fund level increased to $1,718,000 from $1,448,000 in
1999 as a result of the higher average cash balances on hand during the year.
The Fund commenced charging a management fee upon the closing of the Fund
offering in April 2000. The management fee for 2000 was $1,097,000. The
investment fee charged on initial contributions decreased from $561,000 in 1999
to $200,000 in 2000 due to the closing of the fund offering in April 2000. Other
Trust-level expenses in 2000 were comparable to 1999.
The year ended December 31, 1999 compared to the period from February 9, 1998 to
December 31, 1998
Interest income increased from $494,000 during 1998 to $1,448,000 as a result of
the Fund's higher average cash balances. In 1999, the Fund recorded a $640,000
loss from its investment in ZapWorld.com. In 1999, the Fund also recorded
$198,000 of losses in 1999 related to its 50% interest in the Egypt projects
that are under development. These projects begun operation in the first half of
2000. In 1999, The Fund also recorded a loss of $49,000 in 1999 related to its
investment in Mediterranean Fiber Optic Project / GFG. The Fund and Power V own
a 25% interest in GFG which expected to be the co-developer of a large
Mediterranean fiber optic project that was scheduled to close in the second
quarter of 2000.
In 1999, the Fund had expenses of $1,542,000 compared to $1,346,000 in 1998. The
increase is primarily a result of an increase of $160,000 in due diligence costs
on potential projects that were ultimately rejected.
Liquidity and Capital Resources
In 2000 and 1999, the Fund's operating activities used cash of $2,934,000 and
$1,626,000, respectively. The increase use was primarily a result of the
management fee which commenced in April 2000.
In 1999, the Fund used $10,181,000 in its investing activities, primarily caused
by the investments in ZapWorld.com, the Egypt Projects and the Mediterranean
Fiber Optic Project/GFG. In 2000, the Fund used $23,688,000 in its investing
activities, primarily caused by the investments in the Egypt Projects and the
purchase of the Synergics note.
In 2000 and 1999, cash from financing activities was $6,218,000 and $22,283,000,
respectively. The decrease was primarily due to the closing of the fund offering
in April 2000.
During 2001, the Fund anticipates making additional investments in the Egypt
Projects and the United Kingdom Landfill Gas Projects.
Other than investments of available cash in Projects, obligations of the Fund
are generally limited to payment of Project operating expenses, payment of a
management fee to the Managing Shareholders, payments for certain accounting and
legal services and distributions to shareholders.
The Fund anticipates that, during 2001, its cash flow from operations and
unexpended offering proceeds will be adequate to fund its obligations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Fund's investments in financial instruments are short-term investments of
working capital or excess cash. Those short-term investments are limited by its
Declaration of Trust to investments in United States government and agency
securities or to obligations of banks having at least $5 billion in assets.
Because the Fund invests only in short-term instruments for cash management, its
exposure to interest rate changes is low. The Fund has limited exposure to trade
accounts receivable and believes that their carrying amounts approximate fair
value.
The Fund's consolidated Egyptian Projects investments in financial instruments
are short term pound denominated obligations of large banks and trade accounts
receivable and payable.
The Fund's primary market risk exposure is limited interest rate risk caused by
fluctuations in short-term interest rates. The Fund's primary market risk
exposure related to its consolidated Egyptian Projects is to fluctuations in the
foreign currency exchange rates. The Fund does not anticipate any changes in its
primary market risk exposure or how it intends to manage it. The Fund does not
trade in market risk sensitive instruments.
Quantitative Information About Market Risk
This table provides information about the Fund's financial instruments that are
defined by the Securities and Exchange Commission as market risk sensitive
instruments. These include only short-term U.S. government and agency securities
and bank obligations. The table includes principal cash balances and related
weighted average interest rates by contractual maturity dates.
December 31, 2000
Expected Maturity Date
2001
(U.S. $)
Bank Deposits and Certificates of Deposit $14,436,000
Average interest rate 5.6%
(U.S. $)
Bank Deposits denominated in Egyptian Pounds $893,000
Average interest rate 5.6%
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Report of Independent Accountants ............................. F-2
Consoldiated Balance Sheets at December 31, 2000 and 1999 ............. F-3
Consolidated Statement of Operations for Years Ended
December 31, 2000 and 1999 and Period from February 9, 1998
through December 31, 1998 ............................................F-4
Consolidated Statement of Changes in Shareholders' Equity
and Consolidated Statement of Comprehensive Loss for Years
Ended December 31, 2000 and 1999 and Period from February 9,
1998 through December 31, 1998........................................F-5
Consolidated Statement of Cash Flows for Years Ended December
31, 2000 and 1999 and Period from February 9, 1998 through
December 31, 1998 .....................................................F-6
Notes to Consolidated Financial Statements .................... F-7 to F-11
Financial Statements for Zapworld.com
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
The financial statements are presented in accordance with generally accepted
accounting principles for operating companies, using consolidation and equity
method accounting principles. This differs from the basis used by three prior
independent power programs sponsored by the Managing Shareholder, which present
the Fund's investments in Projects on the estimated fair value method rather
than the consolidation and equity accounting method.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Neither the Fund nor the Managing Shareholders have had an independent
accountant resign or decline to continue providing services since their
respective inceptions and neither has dismissed an independent accountant during
that period. During that period of time no new independent accountant has been
engaged by the Fund or the Managing Shareholders, and the Managing Shareholder's
current accountants, PricewaterhouseCoopers LLP, have been engaged by the Fund.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholders of the Fund, Ridgewood Power and Power VI Co have
direct and exclusive discretion in management and control of the affairs of the
Fund. The Independent Panel Members only review certain transactions between the
Fund and other investment programs sponsored by Ridgewood Power or affiliates of
Ridgewood Power. A managing shareholder will be entitled to resign as Managing
Shareholder of the Fund only (i) with cause (which cause does not include the
fact or determination that continued service would be unprofitable to the
managing shareholder) or (ii) without cause with the consent of a majority in
interest of the Investors. It may be removed from its capacity as Managing
Shareholder as provided in the Declaration.
The purpose for having two Managing Shareholders, Ridgewood Power and Power
VI Co, was to have continuity of management. When the Fund was organized,
Ridgewood Power was considering that it might cause the five Prior Programs
(Power I through Power V) to combine into a publicly traded business. That
process might require Ridgewood Power to be a part of the combination, and
management fees paid by the Fund to the Managing Shareholder might pass to the
combined five Prior Programs in a way that might benefit the shareholders of the
five Prior Programs while leaving fewer resources for the managers of the Fund.
Therefore, when it organized the Fund, Ridgewood Power created Power VI Co's
predecessor as a stand-in entity that could replace Ridgewood Power.
Ridgewood Power now expects (although no assurance can be given) that the Fund
would also join any combination of the five Prior Programs. Accordingly, it
currently seems unlikely that it will be necessary to activate Power VI Co as a
Managing Shareholder, if a combination were to occur. Accordingly, Power VI Co
is being maintained as a shell company and all of its rights and duties have
been assigned to Ridgewood Power.
(b) Managing Shareholders.
Ridgewood Power Corporation was incorporated in February 1991 as a Delaware
corporation for the primary purpose of acting as a managing shareholder of
business trusts and as a managing general partner of limited partnerships which
are organized to participate in the development, construction and ownership of
Independent Power Projects. It organized the Fund and acted as managing
shareholder until April 1999. On or about April 21, 1999 it was merged into the
current Managing Shareholder, Ridgewood Power LLC. Ridgewood Power LLC was
organized in early April 1999 and has no business other than acting as the
successor to Ridgewood Power Corporation.
At the same time, Ridgewood Power VI Corporation, which was the other
Managing Shareholder, was merged into Ridgewood Power VI LLC, a New Jersey
limited liability company designated as Power VI Co in this Annual Report. Power
VI Co was also newly organized and has no business other than being the
successor to the dormant Ridgewood Power VI Corporation.
Robert E. Swanson has been the President, sole director and sole stockholder of
Ridgewood Power Corporation since its inception in February 1991 and is now the
controlling member, sole manager and President of the Managing Shareholders. All
of the equity in the Managing Shareholders is owned by Mr. Swanson or by family
trusts. Mr. Swanson has the power on behalf of those trusts to vote or dispose
of the membership equity interests owned by them.
Ridgewood Power has also organized Power I, Power II Power III, Power IV Power
V, and the Egypt Fund as Delaware business trusts to participate in the
independent power industry. Ridgewood Power LLC is now also their Managing
Shareholder. The business objectives of these trusts are similar to those of the
Fund.
A number of other companies are affiliates of Mr. Swanson and Ridgewood
Power. Each of these also was organized as a corporation that was wholly-owned
by Mr. Swanson. In April 1999, most of them were merged into limited liability
companies with similar names and Mr. Swanson became the sole manager and
controlling owner of each limited liability company. For convenience, the
remainder of this Memorandum will discuss each limited liability company and its
corporate predecessor as a single entity.
The Managing Shareholders are affiliates of Ridgewood Energy
Corporation("Ridgewood Energy"), which has organized and operated 48 limited
partnership funds and one business trust over the last 17 years (of which 25
have terminated) and which had total capital contributions in excess of $190
million. The programs operated by Ridgewood Energy have invested in oil and
natural gas drilling and completion and other related activities. Other
affiliates of the Managing Shareholders include Ridgewood Securities Corporation
("Ridgewood Securities"), an NASD member which has been the placement agent for
the private placement offerings of the six trusts sponsored by the Managing
Shareholders and the funds sponsored by Ridgewood Energy; Ridgewood Capital
Management LLC ("Ridgewood Capital"), which assists in offerings made by the
Managing Shareholders and which is the sponsor of six privately offered venture
capital funds (the Ridgewood Capital Venture Partners, Ridgewood Capital Venture
Partners II and Ridgewood Capital Venture Funds III programs), and RPM. Each of
these companies is controlled by Robert E. Swanson, who is their sole director
or manager.
Set forth below is certain information concerning Mr. Swanson and other
executive officers of the Managing Shareholders.
Robert E. Swanson, age 54, has also served as President of the Fund since its
inception in 1991 and as President of RPM, the Fund, Power I, Power II, Power
III, Power IV, Power V, and Egypt Fund since their respective inceptions. Mr.
Swanson has been President and registered principal of Ridgewood Securities and
became the Chairman of the Board of Ridgewood Capital on its organization in
1998. He also is Chairman of the Board of the Ridgewood Capital Venture Partners
I and II venture capital funds. In addition, he has been President and sole
stockholder of Ridgewood Energy since its inception in October 1982. Prior to
forming Ridgewood Energy in 1982, Mr. Swanson was a tax partner at the former
New York and Los Angeles law firm of Fulop & Hardee and an officer in the Trust
and Investment Division of Morgan Guaranty Trust Company. His specialty is in
personal tax and financial planning, including income, estate and gift tax. Mr.
Swanson is a member of the New York State and New Jersey bars, the Association
of the Bar of the City of New York and the New York State Bar Association. He is
a graduate of Amherst College and Fordham University Law School.
Robert L. Gold, age 42, has served as Executive Vice President of the Managing
Shareholder, RPM, the Power I, Power II, Power III, Power IV, Power V, the Fund
and Egypt Fund since their respective inceptions, with primary responsibility
for marketing and acquisitions. He has been President of Ridgewood Capital since
its organization in 1998. As such, he is President of the Ridgewood Capital
Venture Partners I and II funds. He has served as Vice President and General
Counsel of Ridgewood Securities Corporation since he joined the firm in December
1987. Mr. Gold has also served as Executive Vice President of Ridgewood Energy
since October 1990. He served as Vice President of Ridgewood Energy from
December 1987 through September 1990. For the two years prior to joining
Ridgewood Energy and Ridgewood Securities Corporation, Mr. Gold was a corporate
attorney in the law firm of Cleary, Gottlieb, Steen & Hamilton in New York City
where his experience included mortgage finance, mergers and acquisitions, public
offerings, tender offers, and other business legal matters. Mr. Gold is a member
of the New York State bar. He is a graduate of Colgate University and New York
University School of Law.
Martin V. Quinn, age 53, has been the Executive Vice President and Chief
Operating Officer of Ridgewood Power since April 2000. Before that, he had
assumed the duties of Chief Financial Officer of Ridgewood Power in November
1996 under a consulting arrangement. In April 1997, he became a Senior Vice
President and Chief Financial Officer of Ridgewood Power and the Fund.
Mr. Quinn has over 30 years of experience in financial management and
corporate mergers and acquisitions, gained with major, publicly-traded companies
and an international accounting firm. He formerly served as Vice President of
Finance and Chief Financial Officer of NORSTAR Energy, an energy services
company, from February 1994 until June 1996. From 1991 to March 1993, Mr. Quinn
was employed by Brown-Forman Corporation, a diversified consumer products
company and distiller, where he was Vice President-Corporate Development. From
1981 to 1991, Mr. Quinn held various officer-level positions with NERCO, Inc., a
mining and natural resource company, including Vice President- Controller and
Chief Accounting Officer for his last six years and Vice President-Corporate
Development. Mr. Quinn's professional qualifications include his certified
public accountant qualification in New York State, membership in the American
Institute of Certified Public Accountants, six years of experience with the
international accounting firm of PricewaterhouseCoopers, LLP, and a Bachelor of
Science degree in Accounting and Finance from the University of Scranton (1969).
Daniel V. Gulino, age 40, has been Senior Vice President and General Counsel of
the Managing Shareholder since August 2000. He began his legal career as an
associate for Pitney, Hardin, Kipp & Szuch, a large New Jersey law firm, where
his experience included corporate acquisitions and transactions. Prior to
joining Ridgewood, Mr. Gulino was in-house counsel for several large electric
utilities, including GPU, Inc., Constellation Power Source, and PPL Resources,
Inc., where he specialized in non-utility generation projects, independent power
and power marketing transactions. Mr. Gulino also has experience with the
electric and natural gas purchasing of industrial organizations, having worked
as in-house counsel for Alumax, Inc. (now part of Alcoa) where he was
responsible for, among other things, Alumax's electric and natural gas
purchasing program. Mr. Gulino is a member of the New Jersey State Bar and
Pennsylvania State Bar. He is a graduate of Fairleigh Dickinson University and
Rutgers University School of Law - Newark.
Christopher I. Naunton, 36, has been the Vice President and Chief Financial
Officer of the Managing Shareholder since April 2000. From February 1998 to
April 2000, he was Vice President of Finance of an affiliate of the Managing
Shareholder. Prior to that time, he was a senior manager at the predecessor
accounting firm of PricewaterhouseCoopers LLP. Mr. Naunton's professional
qualifications include his certified public accountant qualification in
Pennsylvania, membership in the American Institute of Certified Public
Accountants and a Bachelor of Science degree in Business Administration from
Bucknell University (1986).
Mary Lou Olin, age 48, has served as Vice President of the Managing Shareholder,
RPM, Ridgewood Capital, the Fund, Power I, Power II, Power III, Power IV and
Power V since their respective inceptions. She has also served as Vice President
of Ridgewood Energy since October 1984, when she joined the firm. Her primary
areas of responsibility are investor relations, communications and
administration. Prior to her employment at Ridgewood Energy, Ms. Olin was a
Regional Administrator at McGraw-Hill Training Systems where she was employed
for two years. Prior to that, she was employed by RCA Corporation. Ms. Olin has
a Bachelor of Arts degree from Queens College.
(c) Management Agreement.
The Fund has entered into a Management Agreement with the Managing
Shareholders detailing how the Managing Shareholders will render management,
administrative and investment advisory services to the Fund under the terms of
the Declaration. Specifically, the Managing Shareholders will perform (or
arrange for the performance of) the management and administrative services
required for the operation of the Fund. Among other services, they will
administer the accounts and handle relations with the Investors, provide the
Fund with office space, equipment and facilities and other services necessary
for its operation and conduct the Fund's relations with custodians,
depositories, accountants, attorneys, brokers and dealers, corporate
fiduciaries, insurers, banks and others, as required. The Managing Shareholders
will also be responsible for making investment and divestment decisions (except
that Ridgewood Program Transactions require the approval of the Independent
Panel Members as described below).
The managing shareholders will be obligated to pay the compensation of the
personnel and all administrative and service expenses necessary to perform the
foregoing obligations. The Fund will pay all other expenses of the Fund,
including transaction expenses, valuation costs, expenses of preparing and
printing periodic reports for Investors and the Commission, postage for Fund
mailings, Commission fees, interest, taxes, legal, accounting and consulting
fees, litigation expenses, expenses of operating Projects and costs incurred by
the Managing Shareholders in so doing and other expenses properly payable by the
Fund. The Fund will reimburse the Managing Shareholders for all such Fund and
other expenses paid by it.
As compensation for the Managing Shareholders' performance under the
Management Agreement, the Fund is obligated to pay Power VI Co an annual
management fee, beginning on the Termination Date of the offering of Investor
Shares as described below at Item 7 -- Certain Relationships and Related
Transactions.
The responsibilities of the Managing Shareholders and the fees and
reimbursements of expenses it is entitled to are set out in the Declaration.
Each Investor consented to the terms and conditions of the Declaration by
subscribing to acquire Investor Shares in the Fund.
The Fund has relied and will continue to rely on the Managing Shareholders
and engineering, legal, investment banking and other professional consultants
(as needed) and to monitor and report to the Fund concerning the operations of
Projects in which it invests, to review proposals for additional development or
financing, and to represent the Fund's interests. The Fund will rely on such
persons to review proposals to sell its interests in Projects in the future.
(d) Executive Officers of the Fund.
Pursuant to the Declaration, the Managing Shareholders have appointed officers
of the Fund to act on behalf of the Fund and sign documents on behalf of the
Fund as authorized by the Managing Shareholders. Mr. Swanson has been named the
President of the Fund and the other executive officers of the Fund are identical
to those of the Managing Shareholders.
The officers have the duties and powers usually applicable to similar
officers of a Delaware business corporation in carrying out Fund business.
Officers act under the supervision and control of the Managing Shareholders,
which is entitled to remove any officer at any time. Unless otherwise specified
by the Managing Shareholders, the President of the Fund has full power to act on
behalf of the Fund. The managing shareholders expect that most actions taken in
the name of the Fund will be taken by Mr. Swanson and the other principal
officers in their capacities as officers of the Fund under the direction of the
Managing Shareholders rather than as officers of the Managing Shareholders.
(e) The Independent Panel Members.
The Declaration provides for an Independent Review Panel (the "Panel"), with
responsibility for independently reviewing and approving material transactions
("Ridgewood Program Transactions") between the Fund and any other investment
programs sponsored by the managing shareholders or its affiliates ("Ridgewood
Programs").
All Ridgewood Program Transactions (which include material transactions
between the Fund or entities in which the Fund invests, on the one hand, and
other Ridgewood Programs or entities in which they invest or have control, on
the other), must be approved by a majority of the Panel Members (if there are
only two Panel Members, both must approve) or by a Majority of the Investors. In
reviewing and approving a Ridgewood Program Transaction, the Panel Members are
be guided by the provisions of Delaware law regarding the responsibilities of
directors of a business corporation who pass upon a transaction with an
affiliated corporation. In so doing, the Panel Members are subject to duties of
loyalty to the Fund and its Investors and care in reviewing the transaction, and
are obligated to consider the entire fairness of the transaction to the Fund.
There is no requirement, however, that the Fund participate in the transaction
on identical terms with the other Ridgewood Programs. The Declaration specifies,
in addition, that the Panel Members will be entitled to the benefits of the
"business judgment rule" of Delaware law, which exonerates directors for their
negligence or mistaken decisions in the absence of bad faith or clear conflicts
of interest.
The Independent Review Panel provisions were included in the Declaration in
recognition that the Fund's investment program anticipates significant
co-investment by the Fund in Projects in which other Ridgewood Programs will
invest. The Managing Shareholders concluded that given the potential conflicts
of interest and the additional complexities and responsibilities that
characterize co-investment decisions, the Fund should create a mechanism for
independent review and approval of co-investments.
The Managing Shareholders have designated the initial Panel of three Panel
Members. A majority of the incumbent Panel Members must consent for the Panel to
take action. A majority of the Managing Shareholders and the incumbent Panel
Members, acting together, may authorize an increase to no more than eight Panel
Members (or a decrease to not fewer than two) and may fill vacancies on the
Panel within 180 days. If there is no incumbent Panel Member, however, vacancies
must be filled by the Managing Shareholders with the approval of a Majority of
the Investors. A Panel Member may not be an Affiliate of the Fund and may not be
an investment advisor or underwriter for the Fund, a person beneficially owning
five percent or more of the Investor Shares, an entity in which the Fund
beneficially owns five percent or more of the outstanding equity securities, an
agent or employee of the Fund or its subsidiaries, a member of the immediate
family of any individual described above, or a person who served at any time
after the beginning of the second-to-last full calendar year as legal counsel to
the Fund or the managing shareholder, or a partner, principal or employee of
that legal counsel.
The Panel is not required to review other transactions that might involve the
managing shareholders or their Affiliates and the Fund, such as the Management
Agreement or temporary advances of funds by the managing shareholder to the
Fund. The managing shareholders, in its sole discretion, may refer such other
transactions to the Panel for advice, and the Panel, in its sole discretion, may
elect to review and report to the managing shareholder on the referred
transaction, or to decline to review it. Neither the managing shareholders nor
the Panel Members shall incur liability to the Fund or any Shareholder by their
decisions to refer or not to refer, or to review or not to review, any
transaction that is not a Ridgewood Program Transaction.
The Panel Members are not trustees of the Fund, have no general fiduciary
responsibility for the Fund's investments or operations, and have no continuing
oversight responsibilities for the Fund. The Panel meets only on the call of the
managing shareholders.
Panel Members may resign and may be removed either for cause by action of at
least two-thirds of the remaining Panel Members or for any reason by action of
the holders of at least two-thirds of the Investor Shares.
Compensation of the Panel Members is set in the Declaration at $5,000 per
year, plus out-of-pocket expenses incurred. If the Managing Shareholders certify
in the Fund's records that there is no reasonable probability that the Fund will
engage in further Ridgewood Program Transactions, the Panel will be suspended
and will take no further action. During that period, the Panel Members'
compensation will cease. A suspended Panel may be reinstated by the Managing
Shareholders at any time.
John C. Belknap, age 54, has been chief financial officer of three national
retail chains and their parent companies. Currently, he is a managing director
of Manticore Partners, LLC, a venture advisory and development firm. From July
1997 to August 1999, he was Executive Vice President and Chief Financial Officer
of Richfood Holdings, Inc., a Virginia-based food distributor and retailer. From
December 1995 to June 1997 Mr. Belknap was Executive Vice President and Chief
Financial Officer of OfficeMax, Inc., a national chain of office supply stores.
From February 1994 to February 1995, Mr. Belknap was Executive Vice President
and Chief Financial Officer of Zal Corporation, a 1large and national jewelry
retail chain. From January 1990 to January 1994 and from February 1995 to
December 1995, Mr. Belknap was an independent financial consultant. From January
1989 through May 1993 he also served as a director of and consultant to Finlay
Enterprises, Inc., an operator of leased fine jewelry departments in major
department stores nationwide. Prior to 1989, Mr. Belknap served as Chief
Financial Officer of Seligman & Latz, Kay Corporation and its subsidiary, Kay
Jewelers, Inc.
From 1979 to 1985, Mr. Belknap served as Chief Financial Officer of Kay
Corporation, the parent of Kay Jewelers, Inc. ("KJI"), a national chain of
jewelry stores and leased jewelry departments in major department stores. He
served as Chief Financial Officer of KJI from 1974 to 1979. Mr. Belknap was a
senior auditor at Arthur Young & Company (now Ernst & Young), a national
accounting firm. Mr. Belknap earned BA and MBA degrees from Cornell University.
Dr. Richard D. Propper, age 50, graduated from McGill University in 1969
and received his medical degree from Stanford University in 1972. He completed
his internship and residency in Pediatrics in 1974, and then attended Harvard
University for post doctoral training in hematology/oncology. Upon the
completion of such training, he joined the staff of the Harvard Medical School
where he served as an assistant professor until 1983. In 1983, Dr. Propper left
academic medicine to found Montgomery Medical Ventures, one of the largest
medical technology venture capital firms in the United States. He served as
managing general partner of Montgomery Medical Ventures until 1993.
Dr. Propper is currently a consultant to a variety of companies for medical
matters, including international opportunities in medicine. In June 1996 Dr.
Propper agreed to an order of the Commission that required him to make filings
under Sections 13(d) and (g) and 16 of the 1934 Act and that imposed a civil
penalty of $15,000. In entering into that agreement, Dr. Propper did not admit
or deny any of the alleged failures to file recited in that order. Dr. Propper
is also an acquisition consultant for Ridgewood Capital Venture Partners, LLC
and Ridgewood Institutional Venture Partners, LLC, the first two venture capital
funds sponsored by Ridgewood Capital. He receives a fixed consulting fee from
those funds and contingent compensation from Ridgewood Capital.
Seymour (Si) Robin, age 73, has been the Executive Vice President and CEO of
Sensor Systems, Inc., an antenna manufacturing company located in Chatsworth,
California. He has held this position since 1972. From 1949 to 1953, he owned
and operated United Manufacturing Company, which specialized in aircraft and
missile antennas. From 1953 to 1957, he managed Bendix Antenna Division, which
specialized in aircraft and space antennas and avionics. In 1957, he started SRA
Antenna Company as a manufacturer and technical consultant to worldwide
manufacturers or commercial and military aircraft and space vehicles. He
remained at SRA Antenna Company until 1971, at which time he became Executive
Vice President and CEO of Sensor Systems, Inc.
Mr. Robin holds degrees in mechanical and electrical engineering from
Montreal Technical Institute and U.C.L.A. He is an FAA-certified pilot
(multi-engine, instrument, land and sea ratings) since 1966. He has received the
AMC Airline Voltaire Award for the Most Outstanding Contribution to Airline
Avionics in the Past 50 Years. He also owns significant interests in commercial
and residential real estate in the southwest U.S. Mr. Robin was elected as an
Independent Trustee by the two other Independent Trustees and Mr. Swanson in
January 2000.
(f) Corporate Trustee
The Corporate Trustee of the Fund is Ridgewood Holding. Legal title to Fund
property is now and in the future will be in the name of the Fund, if possible,
or Ridgewood Holding as trustee. Ridgewood Holding is also a trustee of Power I,
Power II, Power III, Power IV, Power V and of an oil and gas business trust
sponsored by Ridgewood Energy and is expected to be a trustee of other similar
entities that may be organized by Ridgewood Power and Ridgewood Energy. The
President, sole director and sole stockholder of Ridgewood Holding is Robert E.
Swanson; its other executive officers are identical to those of the Managing
Shareholder. The principal office of Ridgewood Holding is at 1105 North Market
Street, Suite 1300, Wilmington, Delaware 19899.
(i) RPM.
RPM is controlled by Robert E. Swanson and owned by him and his family
trusts. For U.S. Projects for which the Fund decides to take operating
responsibility itself, the Fund will cause the Fund's subsidiary that owns the
Project to enter into an "Operation Agreement" under which RPM, under the
supervision of the Managing Shareholders, will provide the management,
purchasing, engineering, planning and administrative services for the Project.
RPM will charge the Fund at its cost for these services and for the Fund's
allocable amount of certain overhead items. RPM shares space and facilities with
the Managing Shareholder and its affiliates. To the extent that common expenses
can be reasonably allocated to RPM, the managing shareholders may, but are not
required to, charge RPM at cost for the allocated amounts and such allocated
amounts will be borne by the Fund and other programs. Common expenses that are
not so allocated will be borne by the Managing Shareholders.
Initially, the Managing Shareholders do not anticipate charging RPM for the full
amount of rent, utility supplies and office expenses allocable to RPM. As a
result, both initially and on an ongoing basis the Managing Shareholders believe
that RPM's charges for its services to the Fund are likely to be materially less
than its economic costs and the costs of engaging comparable third persons as
managers. RPM will not receive any compensation in excess of its costs.
Allocations of costs will be made either on the basis of identifiable
direct costs, time records or in proportion to each program's investments in
Projects managed by RPM; and allocations will be made in a manner consistent
with generally accepted accounting principles.
RPM will not provide any services related to the administration of the Fund,
such as investment, accounting, tax, investor communication or regulatory
services, nor will it participate in identifying, acquiring or disposing of
Projects. RPM will not have the power to act in the Fund's name or to bind the
Fund, which will be exercised by the Managing Shareholder or the Fund's
officers.
The Operation Agreements will not have a fixed term and will be terminable
by RPM, by the Managing Shareholders or by vote of a majority in interest of
Investors, on 60 days' prior notice. The Operation Agreements may be amended by
agreement of the managing shareholders and RPM; however, no amendment that
materially increases the obligations of the Fund or that materially decreases
the obligations of RPM shall become effective until at least 45 days after
notice of the amendment, together with the text thereof, has been given to all
Investors.
The executive officers of RPM are Mr. Swanson (President), Mr. Gold (Executive
Vice President), Mr. Quinn (Executive Vice President and Chief Operating
Officer), Mr. Gulino (Senior Vice President and General Counsel), Mr. Naunton
(Vice President and Chief Financial Officer) and Ms. Olin (Vice President.
(j) Section 16(a) Beneficial Ownership Reporting Compliance
All individuals subject to the requirements of Section 16(a) have complied with
those reporting requirements during 2000.
Item 11. Executive Compensation.
The Fund reimburses RPM at cost for services provided by RPM's
employees and reimburses the Managing Shareholders at allocated cost for
services outside the scope of the Management Agreement; no such reimbursement
per employee exceeded $60,000 in 1999 or 2000. Information as to the fees
payable to the Managing Shareholder and certain affiliates is contained at Item
13 Certain Relationships and Related Transactions.
As compensation for services rendered to the Fund pursuant to the
Declaration, each Independent Panel Member is entitled to be paid by the Fund
the sum of $5,000 annually and to be reimbursed for all reasonable out-of-pocket
expenses relating to attendance at Board meetings or otherwise performing his
duties to the Fund. The Independent Panel Members and the Managing Shareholder
are entitled to review the compensation payable to the Independent Panel Members
annually and increase or decrease it as they see reasonable. The consent of a
majority of the Panel Members and the consent of the Managing Shareholders is
necessary for a change in compensation. The Fund is not entitled to pay the
Independent Panel Members compensation for consulting services rendered to the
Fund outside the scope of their duties to the Trust without similar approval.
Ridgewood Holding, the Corporate Trustee of the Fund, is not entitled to
compensation for serving in such capacity, but is entitled to be reimbursed for
Trust expenses incurred by it which are properly reimbursable under the
Declaration.
Donald C. Stewart, age 55, is a consultant to the Fund and not an employee of
the Managing Shareholders or any of its affiliates. However, he serves as
Ridgewood International Development, LLC's Managing Director and chief operating
officer. From 1994, he had served as an advisor and consultant to Ridgewood
Power and was the principal person involved in finding, reviewing and
negotiating acquisitions for the six Power Trusts. Mr. Stewart has 30 years of
expertise in the field of independent power generation, fuel procurement,
engineering and finance. Mr. Stewart spent the first ten years of his business
career as a certified public accountant with a major international firm. He has
been the Chairman of Vermont Gas Systems, a regulated public utility, Vice
Chairman of Consolidated Power Company, a developer of large scale cogeneration
projects and President of Hercules Engines, Inc., a manufacturer of industrial
engines and electrical generation equipment. Mr. Stewart has a Bachelor of
Science degree from Lehigh University.
Instead of salary, Mr. Stewart, and two other consultants to the Fund, Michael
Patten and Zach Girges, receive a development fee of 4% and 3%,respectively, of
the capital cost of each completed Egyptian Project at the time it goes into
operation (a "closing fee"), for a total development fee of 10% of Project
capital cost. Mr. Stewart, Mr. Patten and Mr. Girges are not required to
continue providing services to REI after a Project is completed, but they are
paid annual development fees of 4/10, 3/10 and 3/10 of one percent,
respectively, of the capital cost of each Project. The annual fees are not
deferred or modified based on the Projects' profits or losses.
Ridgewood Holding, the Corporate Trustee of the Fund, is not entitled to
compensation for serving in such capacity, but is entitled to be reimbursed for
Fund expenses incurred by it which are properly reimbursable under the
Declaration.
For information concerning the Fund's Key Employee Incentive Plan, see Item
11(j) of the Fund's Registration Statement on Form 10. No awards or
determinations of eligibility have been made under the Plan and Ridgewood Power
does not intend to make any.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Title Name of Amount and Nature of Percent of
of Class Beneficial Owner Beneficial Ownership- Class
Investor Shares Seymour Robin* 10 Shares, direct 1.6%
Robert E. Swanson 1 Share, through .2
Ridgewood Power
Total beneficialownership by
directors,executive officers
and Independent Panel Members* 11 Shares 1.7%
Management Share Robert E. Swanson 1 Share,through 100.0%
Ridgewood Power and
Power VI Co.
Listing of Mr. Robin, who is an Independent Panel Member, is not an admission
that he is a director or executive officer of the registrant.
Ridgewood Power purchased for cash one full Investor Share. By virtue of its
purchase of an Investor Share, Ridgewood Power is entitled to the same ratable
interest in the Fund as all other purchasers of Investor Shares. Except for Mr.
Robin, no other Panel Members or executive officers of the Fund acquired
Investor Shares in the Fund's offering. No person beneficially owns 5% or more
of the Investor Shares.
The managing shareholders were issued one Management Share in the Fund
representing the beneficial interests and management rights of the Managing
Shareholders in theirs capacity as the Managing Shareholders (excluding its
interest in the Fund attributable to Investor Shares it acquired in the
offering). The management rights of the managing shareholders are described in
further detail above at Item 1 - Business and below in Item 10. Directors and
Executive Officers of the Registrant. Its beneficial interest in cash
distributions of the Fund and its allocable share of the Fund's net profits and
net losses and other items attributable to the Management Share are described in
further detail below at Item 13 -- Certain Relationships and Related
Transactions.
Item 13. Certain Relationships and Related Transactions.
The Declaration provides that cash flow of the Fund, less reasonable reserves
which the Fund deems necessary to cover anticipated Fund expenses, is to be
distributed to the Shareholders from time to time as the Fund deems appropriate.
The allocation of distributions between the Investors and the managing
shareholders are described at Item 11(a) - Description of registrant's
Securities to be Registered - Distribution and Dissolution Rights.
The Fund made distributions in 1999 and 2000 to Power VI Co totaling $9,300 and
$35,000, respectively. The Fund paid fees to the Managing Shareholders and their
affiliates as follows:
Fee Paid to 1998 1999 2000
Investment fee Ridgewood Power $577,813 $560,650 $199,500
Placement agent fee Ridgewood
and sales commis- Securities
sions
Corporation $304,031 $188,842 $98,950
Management Fees Ridgewood --- --- $1,096,844
Power
Organizational, Ridgewood
distribution and Power
offering fee $1,775,798 $1,698,842 $442,790
Due
diligence Ridgewood
expenses(a) Power $868,208 $708,758 ---
(a) Includes reimbursement for fees and expenses of third parties.
The investment fee equaled 2% of the proceeds of the offering of Investor Shares
and was payable for the Managing Shareholders' services in investigating and
evaluating investment opportunities and effecting investment transactions. The
placement agent fee (1% of the offering proceeds) and sales commissions were
also paid from proceeds of the offering, as was the organizational, distribution
and offering fee (5% of offering proceeds) for legal, accounting, consulting,
filing, printing, distribution, selling, closing and organization costs of the
offering.
In addition to the foregoing, the Fund reimbursed the Managing Shareholders
and RPM at cost for expenses and fees of unaffiliated persons engaged by the
Managing Shareholders for Fund business and for certain expenses related to
management of Projects.
Mr. Swanson is a director of ZAP. In September 1999, he purchased a franchise to
distribute ZAP's products on eastern Long Island, New York and paid $10,000 to
ZAP for the franchise.
Other information in response to this item is reported in response to Item
12. Executive Compensation, which information is incorporated by reference into
this Item 13.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
See the Index to Financial Statements in Item 8 hereof.
(b) Reports on Form 8-K.
No Form 8-K was filed with the Commission by the Registrant during the
quarter ending December 31, 2000.
(c) Exhibits
3.A. Certificate of Trust of the Registrant. Incorporated by reference to the
same Exhibit in the Registrant's Registration Statement on Form 10.
3.B. Amendment No. 1 to Certificate of Trust. Incorporated by reference to the
same Exhibit in the Registrant's Registration Statement on Form 10.
3.C. Declaration of Trust of the Registrant. Incorporated by reference to the
same Exhibit in the Registrant's Registration Statement on Form 10.
10.A. Stock and Warrant Purchase Agreement for ZAP Power Systems, Inc.
Incorporated by reference to the same Exhibit in the Registrant's Registration
Statement on Form 10.
10.B. Warrant for Purchase of Common Stock of ZAP Power Systems, Inc.
Incorporated by reference to the same Exhibit in the Registrant's Registration
Statement on Form 10.
10.C Investors' Rights Agreement with ZAP Power Systems, Inc. Incorporated by
reference to the same Exhibit in the Registrant's Registration Statement on Form
10.
10.D. Milestone letter agreement with ZAP Power Systems, Inc. Incorporated by
reference to the same Exhibit in the Registrant's Registration Statement on Form
10.
10.E. Letter agreement re board representation with ZAP Power Systems, Inc.
Incorporated by reference to the same Exhibit in the Registrant's Registration
Statement on Form 10.
10.F. Management Agreement between the Fund and Managing Shareholders
Incorporated by reference to the same Exhibit in the Registrant's Registration
Statement on Form 10.
10.G. Key Employees' Incentive Plan. Incorporated by reference to the same
Exhibit in the Registrant's Registration Statement on Form 10.
10.H. Agreement of Merger between Ridgewood Power Corporation and Ridgewood
Power LLC. Incorporated by reference to the same Exhibit in the Registrant's
Registration Statement on Form 10.
10.I. Letter of Intent with Synergics, Inc. for acquisition of Hydroelectric
Projects
10.J. Operating Agreement between Ridgewood Egypt for Infrastructure Projects,
Ltd. and Ridgewood International Development LLC.
22. Subsidiaries of the Registrant
24. Powers of Attorney Page
27. Financial Data Schedule Page
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Signature Title Date
THE RIDGEWOOD POWER GROWTH FUND (Registrant)
By:/s/ Robert E. Swanson President and Chief March 30, 2001
Robert E. Swanson Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/ Robert E. Swanson President and Chief March 30, 2001
Robert E. Swanson Executive Officer
By:/s/ Martin V. Quinn Executive Vice President March 30, 2001
Martin V. Quinn and Chief Operating Officer
By:/s/ Christopher I. Naunton Vice President and
Christopher I. Naunton Chief Financial Officer March 30, 2001
RIDGEWOOD POWER LLC Managing Shareholder March 30, 2001
By:/s/ Robert E. Swanson President
Robert E. Swanson
/s/ Robert E. Swanson * Independent Panel Member March 30, 2001
John C.Belknap
/s/ Robert E. Swanson * Independent Panel Member March 30, 2001
Richard D.Propper
/s/ Robert E. Swanson * Independent Panel Member March 30, 2001
Seymour Robin
As attorney-in-fact for the Independent Panel Member
Signature by Independent Panel Members is not an admission that they serve as
directors of the Registrant.
The Ridgewood Power Growth Fund
Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Report of Independent Accountants
To the Shareholders and Trustees of
The Ridgewood Power Growth Fund:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, changes in
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of The Ridgewood Power Growth Fund (the "Fund") and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for the years ended December 31, 2000 and 1999, and the
period February 9, 1998 (commencement of share offering) through December 31,
1998, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the a