Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - RIDGEWOOD POWER GROWTH FUND /NJ | y80988e8vk.htm |
| EX-2.2 - EX-2.2 - RIDGEWOOD POWER GROWTH FUND /NJ | y80988exv2w2.htm |
| EX-2.1 - EX-2.1 - RIDGEWOOD POWER GROWTH FUND /NJ | y80988exv2w1.htm |
| EX-2.3 - EX-2.3 - RIDGEWOOD POWER GROWTH FUND /NJ | y80988exv2w3.htm |
Exhibit 99.1
|
Ridgewood Renewable Power |
Robert
E. Swanson
Chairman
Chairman
December 21,
2009
| TO: | Shareholders
of: Ridgewood Power Trust V The Ridgewood Power Growth Fund Ridgewood/Egypt Fund |
| RE: | Sale of the Ridgewood Egypt Business |
I am pleased to
announce that we have entered into a series of agreements,
subject to shareholder approval, to sell the Ridgewood Egypt
water business for $13 million. The Ridgewood Egypt
business is owned 14.1% by Power Trust V,
68.1% by Growth Fund and 17.8% by the
Ridgewood/Egypt Fund. The Egypt water business is the sole
remaining operating asset of these funds.
As you may recall,
in mid-2008 we entered into an agreement to sell these assets to
Horus Private Equity Fund III (“Horus”), a fund
managed by the major Egyptian investment bank
EFG-Hermes.
During the final steps of that transaction, in September 2008,
the global economy went into steep decline, and on
November 13, 2008, Randy Holmes, our CEO, sent a letter to
you indicating that Horus exercised its right under that 2008
purchase agreement to not proceed with the planned transaction.
The staff at Ridgewood Renewable Power was disappointed, but not
surprised. The economic decline starting to manifest itself with
Lehman Brothers, AIG, Merrill Lynch, and so forth, also caused
problems with our closing on the waste wood plants in Maine
(that closed December 2008), and the sale of our hydro electric
assets (that closed in November 2009).
Since November 2008,
we continued to seek out alternative ways to monetize the
Funds’ investment in the Egypt water business. The economic
climate has had a definite impact on our attempts to sell the
Egypt business and on the operations of the business itself.
Companies worldwide are having extreme difficulties negotiating
liquidity events, at any price. Tourism in Egypt has slowed and
we cannot predict if, or when, it will resume its previous
levels. In light of these factors, we implemented a cash
conservation policy for the Egypt business, significantly
reducing capital expenditures and reducing overhead expenses
where practical.
Partly because of
our previous capital expansion and partly because of the cost
reductions implemented by our local manager, Mr. Zaki
Girges, the Egypt business is holding its own. Because we had
previously installed more water desalinization capacity,
revenues through September 30, 2009 were $9.7 million,
about 3% higher than the same period last year. The business
remains profitable due to good management. However, due to its
need to retain cash for needed capital expenditures, absent a
liquidity event, we still do not see the likelihood of any
significant cash distributions to the Funds from the Egypt
operations for the foreseeable future.
Despite our ongoing
efforts to find a purchaser for the Egypt business, we found
only minimal interest. A combination of market uncertainty and
capital constraints has had a significant chilling effect on
sale transactions. While EFG-Hermes rejected prior attempts to
renegotiate the 2008 proposed sale, we once again approached
EFG-Hermes and succeeded in negotiating a new series of
agreements that will result in our selling the Egypt business
for a gross amount of $13 million. Earlier in the year, we
thought we might be able to finalize a transaction at a higher
price from a different source, but with a large part of the sale
proceeds being conditional on future earnings. However, the
other side backed out. So, while we had hoped that we would be
able to negotiate a price higher than $13 million, given
the difficulty in negotiating transactions since the 2008
economic meltdown, we were unable to. We consider a price of
$13 million in today’s market to be fair from a
financial point of view. We considered the option of not selling
now and instead “sitting tight” and waiting to
possibly negotiate a better deal in the future. We chose not to
follow that path, partly because it is difficult to predict when
sufficient economic recovery will occur and if such a recovery
would result in a better price for the Egypt business. In the
meantime, the Egypt business would remain subject to numerous
risks, including political and competitive risks, as well as
further currency devaluation.
One of the major
holdups we experienced last fall in closing the 2008 transaction
was the difficulty in timely obtaining approval of the sale from
the Egyptian General Authority for Investment and Free Zones
(“GAFI”), an Egyptian regulatory approval needed to
complete the sale of an equity interest in an Egyptian business.
EFG-Hermes, with the cooperation of Mr. Girges, has agreed
to a new structure that shifts this risk of Egyptian government
approval from the Ridgewood Funds to the buyers. In short, a
special purpose entity, managed by an EFG fund and owned by
Horus and an additional EFG fund, will be loaning the Egypt
business $13 million, secured by the shares and assets of
the business; the Egypt business will then distribute this
$13 million upward to the Ridgewood Funds. A key benefit of
this transaction is that the Funds will not be providing any
representations
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or
warranties regarding the Egypt business or guarantees of
repayment of this loan, which means we receive the cash free and
clear. In fact, the $13 million was deposited into an
escrow account on December 15, 2009, and will be released as
soon as the sale is approved by the applicable Ridgewood Funds
and the escrow agent is notified. It took a lot of negotiating
to eliminate the risk of GAFI approval and have the purchaser
put all of the money in escrow, pending approval of the sale by
Ridgewood Fund Shareholders.
For EFG to enter
into this transaction, it is requiring that Mr. Girges (and
an Egyptian company owned by Mr. Girges and his family)
acquire ownership of the shares of the Egypt business and to
pledge those shares as security for repayment of the loan.
Additionally, EFG is requiring that Mr. Girges personally
guarantee repayment of the loan by signing post-dated checks for
the ENTIRE amount of the loan. In the US, it is illegal and
fraudulent to write a post-dated check that does not clear when
presented to a bank. In Egypt, it is the same. So, while this
new loan is outstanding, Mr. Girges is taking considerable
personal risk. Additionally, Mr. Girges has agreed to waive
bonus and termination payments from the Egypt business,
estimated to exceed $1 million, which would otherwise be
due to him when Ridgewood sells its interests in the Egypt
business. Lastly, Mr. Girges is indemnifying the Ridgewood
Funds against various potential claims against us. In order for
Mr. Girges to take these significant risks and to forego
his bonus and termination payments, he is requiring that the
Ridgewood Funds transfer to him and his company all their
interests in the Egypt business, after the Ridgewood Funds
receive the $13 million. (Technically, Mr. Girges and
his company will purchase the interests in the Egypt business
for $1.)
Why is
Mr. Girges doing this? While he will have many challenges
in running the business, including raising additional funds to
pay for targeted capital expansion, overall, he believes that,
over the long-term, he will be able to withdraw cash from the
business. In the meantime, he will be working with EFG to try to
convert this new loan to equity for a portion of the purchased
equity interest.
Why would WE do
this?
Because
we believe a transaction that brings in $13 million is a
fair transaction and is the most expedient way to achieve value
for the Funds. As part of selling the Egypt business to
Mr. Girges and his company, the Funds are making no
representations or warranties either to him, his company, or the
lender. We are selling the business on an
“as-is/where-is” basis. This will allow Ridgewood to
take the money and walk away without providing any assurances
that normally go along with this kind of sale. Additionally, the
sale is not conditioned on
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receiving
approval from GAFI. Mr. Girges and his company are taking
the risk whether GAFI will approve the transaction and any
future transfers of equity. If GAFI doesn’t give these
approvals, that will not be the Funds’ problem. As
mentioned before, we could wait and continue to look for a
transaction at a higher price; however, this
wait-
and-see
strategy carries significant ongoing risks, especially in a weak
global economy as the recent Dubai debt crunch reminds us. Plus,
a different deal might not result in a higher price and could
also impose ongoing contingent liabilities on the Funds in the
form of representations and warranties or require burdensome
GAFI approval before the transaction could close.
In order for the
sale of the Egypt business to be finalized, holders of a
majority of shares of the Growth Fund and the Egypt Fund must
approve the
sale.
Since Trust V is in a shareholder-approved liquidation,
approval by Trust V shareholders is not required.
We are also filing a
“Form 8-K”
with the United States Securities and Exchange Commission
(“SEC”), which summarizes the material terms of the
sale and includes copies of the agreements. We are now in the
final stages of preparing Consent Solicitations for the Growth
Fund and Egypt Fund. Since the Growth Fund is an SEC reporting
company, we must file a preliminary copy of the Growth
Fund Consent Solicitation with the SEC for their review. We
expect to make this filing very shortly. As soon as the SEC
review is complete, which could take about two months, we will
be sending Consent Solicitations to shareholders of the Growth
Fund and the Egypt Fund. We will also send transaction
information to the shareholders of Trust V. IF YOU HAVE
INVESTMENTS IN BOTH THE GROWTH FUND AND THE EGYPT FUND, YOU
WILL RECEIVE SEPARATE CONSENT SOLICITATIONS FOR EACH INVESTMENT.
It is important that you complete and return EACH consent card,
as the shareholders of EACH of the Egypt and Growth Funds must
approve the transaction in order for us to proceed to closing.
The Consent Solicitation will provide specific fund and unit
level information regarding the sale and other information
useful to you when making your consent decision. The sale
cannot be completed unless it receives majority approval from
both Growth Fund AND Egypt Fund shareholders.
We anticipate that
the sale will occur prior to March 31, 2010, but we cannot
predict when the SEC will complete its review or whether a
sufficient number of shareholders will approve the sale. Our
objective is to close the sale as soon as possible. The sale
agreements will terminate if the transaction does not close by
April 9, 2010; however, we can extend that termination date
by 90 days upon paying $200,000 to the EFG entity.
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I cannot go into
more details about the sale of the Ridgewood Egypt business at
this time because I am not allowed to “pre-solicit”
approval of the transaction. Therefore, please do not call or
e-mail with
specific questions regarding the potential sale. You may go on
the SEC website (www.sec.gov) in order to see the recent
Form 8-K
that was filed by Trust V and Growth Fund, which includes
the purchase and sale agreement and other documents relating to
this transaction. You probably will not be hearing from us about
the sale of the Egypt business until we mail the Consent
Solicitations. Given the laws to which Trust V and Growth
Fund are subject as public companies, Ridgewood will not make
statements about the sale other than ones that we will file with
the SEC. In fact, this letter is also being filed with the SEC
on a
Form 8-K.
I once again
apologize for the fact that the Egypt business did not make a
profit, and instead, will result in a loss. The sale represents
a loss from the Funds’ initial investment, and a decrease
from the bid we negotiated prior to the 2008 recession. However,
in an historic context, given the devaluation of the Egyptian
pound, the dramatic setback of the business after 9/11, and the
extreme difficulty in closing any type of disposition or
financing in the current economic climate, Ridgewood Renewable
Power believes the $13 million price is a fair price as
compared to the alternative strategies of continuing to hold the
Egyptian business or pursuing other sale transactions or
financing strategies.
This letter is by no
means a substitute for a careful reading of the consent document
we will be distributing to shareholders of the Growth and Egypt
Funds. When you receive it, you should carefully read the
Consent Solicitation before completing and returning its
accompanying consent card indicating whether you consent or
don’t consent to the sale of the Ridgewood Egypt business.
Ridgewood
Renewable Power, as managing shareholder of Ridgewood Electric
Power Trust V, The Ridgewood Power Growth Fund and
Ridgewood/Egypt Fund (the “Funds”), has made
statements in this letter that constitute forward-looking
statements, as defined by the federal securities laws, including
the Private Securities Litigation Reform Act of 1995. These
statements are subject to risks and uncertainties.
Forward-looking statements include statements, other than
historical information, made regarding events, financial trends,
future operating results, financial position, cash flows and
other general
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information
concerning possible or assumed future results of operations of
the Funds. You are cautioned that such statements are only
predictions, forecasts or estimates of what may occur and are
not guarantees of future performance or of the occurrence of
events or other factors used to make such predictions, forecasts
or estimates. Actual results may differ materially from those
results expressed, implied or inferred from these
forward-looking statements and may be worse. Finally, such
statements reflect the Funds’ current views. The Funds
undertake no obligation to update the forward-looking statements
made herein to reflect events or circumstances that occur after
today or to reflect the occurrence of unanticipated events
except as required by law.
Additional
Information and Where to Find It
This
communication may be deemed solicitation material in respect of
the sale of the Funds’ Egypt business. Since the sale of
the Egypt business requires the approval of the shareholders of
The Ridgewood Power Growth Fund, the Growth Fund will file with
the Securities and Exchange Commission (the “SEC”) a
consent solicitation statement to be used by the Growth Fund to
solicit the approval of its shareholders for such transaction.
Growth Fund shareholders are urged to read the consent
solicitation statement regarding the transaction, if and when it
becomes available, and any other relevant documents filed by the
Growth Fund with the SEC, as well as any amendments or
supplements to the consent solicitation statement, because they
will contain important information. You can obtain free copies
of any such materials (including any consent solicitation
statement) filed by the Growth Fund with the SEC, as well as
other filings made by the Growth Fund or Trust V containing
information about the Growth Fund and Trust V,
respectively, at the SEC’s Internet Site
(http://www.sec.gov).
The Growth Fund will also provide copies of any such consent
solicitation statement and other information filed with the SEC
to any shareholder, at the actual cost of reproduction, upon
written request to Daniel Gulino, Senior Vice President and
General
Counsel, at 947
Linwood Avenue, Ridgewood, New Jersey 07450 or via telephone at
(201) 447-9000.
Participants in
Solicitation
The Funds and
Ridgewood Renewable Power, as managing shareholder of the Funds,
and their executive officers may be deemed, under SEC rules, to
be participants in the solicitation of consents from the
Funds’ shareholders with respect to the sale of the
Funds’ Egypt business. Information regarding the officers
of the Funds, including direct or indirect interests in the
transaction, by securities holdings or otherwise, will be set
forth in a definitive consent solicitation statement that will
be filed by the Growth Fund with the SEC in the event such a
transaction requiring shareholder approval were to
occur.
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