Document ID: SEC-2011-0213-0001
Agency: sec
Document Type: Notice
Title: Applications: Riverside Casualty, Inc.
Posted Date: 2011-02-15T05:00Z

[Federal Register Volume 76, Number 31 (Tuesday, February 15, 2011)]
[Notices]
[Pages 8788-8791]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3272]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29576; File No. 813-00361]

Riverside Casualty, Inc.; Notice of Application

February 8, 2011.
AGENCY: Securities and Exchange Commission (``Commission'').

[[Page 8789]]

ACTION: Notice of application for an order under sections 6(b) and 6(e) 
of the Investment Company Act of 1940 (the ``Act'') granting an 
exemption from all provisions of the Act, except section 9, and 
sections 36 through 53, and the rules and regulations under the Act 
(other than rule 38a-1). With respect to sections 17 and 30 of the Act, 
and the rules and regulations thereunder, the exemption is limited as 
set forth in the application.

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SUMMARY OF APPLICATION: Applicant, a single purpose holding company, 
requests an order to exempt it and its affiliates from certain 
provisions of the Act. Applicant will be an ``employees' securities 
company'' within the meaning of section 2(a)(13) of the Act.

APPLICANT: Riverside Casualty, Inc. (``RCI'').

FILING DATES: The application was filed on March 9, 2006, and amended 
on September 21, 2010, and February 4, 2011.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on March 7, 2011 and should be accompanied by proof of service on 
applicant, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicant, Riverside Casualty, 
Inc., 111 Riverside Avenue, Jacksonville, FL 32202.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Janet M. Grossnickle, Assistant Director, at (202) 
551-6821 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicant's Representations

    1. The Haskell Company (``THC''), a Delaware corporation, is a 
design-build company that provides architectural, engineering, 
construction, real estate and facility management services. All of the 
outstanding shares of THC's common stock are owned by The Haskell 
Company Employee Stock Ownership Trust (``THC ESOP''); Preston H. 
Haskell III, Chairman and current employee of THC; and Eligible 
Employees and Eligible Family Members, both as defined below. THC 
purchased insurance policies from insurance subsidiaries of American 
Contractors Insurance Group, Ltd. (``Captive''). Captive is an 
insurance company exempt from the provisions of the Act under section 
3(c)(3) or 3(c)(6) of the Act.
    2. RCI, a Florida corporation, was formed by THC solely to acquire 
and hold an equity interest in Captive in order to take advantage of 
favorable federal income tax treatment of the insurance premiums paid 
to Captive and the retroactive rate reductions received from the 
insurance subsidiaries of Captive. RCI will be an ``employees 
securities company'' within the meaning of section 2(a)(13) of the Act. 
RCI's shareholders will have no opportunity for profit or loss from 
their RCI shares. In March 2006, shareholders of THC common stock 
became the initial shareholders of RCI through a share-for-share-
dividend from THC whereby holders of THC common stock received shares 
of RCI common stock. The initial grant of RCI's common stock to 
Eligible Persons (defined below) was not registered under the 
Securities Act of 1933, as amended (``Securities Act'') as the Eligible 
Persons did not invest their own funds and did not have discretion over 
whether or not they received RCI common stock. After the initial grant, 
RCI common stock will only be offered through purchases of equity 
packages under the Amended and Restated The Haskell Company Employee 
Equity Plan, as amended (the ``Plan'') to Eligible Employees in one or 
more transactions pursuant to rule 701 of the Securities Act.\1\ 
Applicant contemplates that at all times the ownership of RCI common 
stock will be as nearly identical as possible to that of THC common 
stock, excepting the THC ESOP.
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    \1\ Applicant is not asking for and the Commission is not making 
any determination with respect to, the Applicant's ability to rely 
on the no-sale doctrine or rule 701 of the Securities Act.
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    3. ``Eligible Persons'' consist of: (a) Preston H. Haskel III, 
Chairman and current employee of THC, and THC administrative employees 
and permanent craft employees who are currently and actively employed 
by THC and who are not part-time workers or full-time workers hired 
temporarily to work at any of THC's jobsites (``Eligible Employees''); 
and (b) a spouse, child, spouse of a child, brother, sister, parent or 
grandchild of Mr. Haskell, or of any individual who is an Eligible 
Employee (``Eligible Family Member''). Participants in the Plan \2\ 
will be informed that: (a) RCI common stock will be sold in a 
transaction at the par value of $0.001 per share exempt from 
registration under rule 701 of the Securities Act; (b) the protections 
afforded by the Securities Act, other than the anti-fraud provisions 
will not be applicable; (c) RCI will be exempt from most of the 
provisions of the Act; and (d) resale or hypothecation of shares of RCI 
common stock are highly restricted under the Securities Act and the 
articles of incorporation and bylaws of RCI and the Plan. Shares of RCI 
common stock will be offered and sold at their par value ($0.001 per 
share), and will be automatically redeemed at the same price upon 
redemption. No sales load (front end or upon redemption) will be 
charged to a Participant in the Plan.
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    \2\ ``Participants'' means those Eligible Persons who have 
acquired RCI common stock.
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    4. Applicant states that RCI's activities will be limited to owning 
an equity interest in Captive, meeting capital assessments requested by 
Captive and receiving distributions from Captive with respect to RCI's 
equity interest. Applicant anticipates that RCI will fund any 
assessments from Captive with loans and advances from THC. In the event 
Captive makes a distribution to RCI, RCI will use such distribution for 
repayment of the total loans and advances from THC to RCI. THC paid all 
of RCI's start up costs and has agreed to pay RCI's ongoing 
administrative costs.
    5. RCI will be managed by the Board of Directors of RCI (``RCI 
Board''). Each member of the RCI Board will be a member of the Board of 
Directors and/or an officer of THC. RCI holds its annual meeting once a 
year at which time the shareholders are provided with an annual report 
of RCI and audited financial statements presented on a combined basis 
with THC's financial statements. Except for advances from THC, RCI will 
not borrow money, guarantee or secure the obligations of any third 
party by any person, or extend credit to any person or third party 
including for purposes of purchasing shares of RCI common stock.
    6. RCI common stock will be non-transferable. Pursuant to the Plan,

[[Page 8790]]

transfers, distributions or withdrawals of RCI common stock are not 
permitted. Redemptions of RCI common stock held by Eligible Employees 
participating in the Plan will be at par value and will be conducted as 
part of the redemption of a holder's equity package, which will occur 
at termination of employment with THC. If a holder of RCI common stock 
ceases to be an Eligible Person, such holder's shares will be 
automatically redeemed for an amount in cash equal to the par value of 
the shares redeemed.

Applicant's Legal Analysis

    1. Section 6(b) of the Act provides, in part, that the Commission 
will exempt employees' securities companies from the provisions of the 
Act to the extent that the exemption is consistent with the protection 
of investors. Section 6(b) provides that the Commission will consider, 
in determining the provisions of the Act from which the company should 
be exempt, the company's form of organization and capital structure, 
the persons owning and controlling its securities, the price of the 
company's securities and the amount of any sales load, how the 
company's funds are invested, and the relationship between the company 
and the issuers of the securities in which it invests. Section 2(a)(13) 
defines an employees' securities company, in relevant part, as any 
investment company all of whose securities (other than short-term 
paper) are beneficially owned (a) by current or former employees, or 
persons on retainer, of one or more affiliated employers, (b) by 
immediate family members of such persons, or (c) by such employer or 
employers together with any of the persons in (a) or (b).
    2. Section 7 of the Act generally prohibits investment companies 
that are not registered under section 8 of the Act from selling or 
redeeming their securities. Section 6(e) of the Act provides that, in 
connection with any order exempting an investment company from any 
provision of section 7, certain provisions of the Act, as specified by 
the Commission, will be applicable to the company and other persons 
dealing with the company as though the company were registered under 
the Act. Applicant requests an order under sections 6(b) and 6(e) of 
the Act exempting applicant from all provisions of the Act, except 
section 9 and sections 36 through 53 of the Act, and the rules and 
regulations under the Act (other than rule 38a-1). With respect to 
sections 17 and 30 of the Act, and the rules and regulations 
thereunder, the exemption is limited as set forth in the application.
    3. Section 17(a) generally prohibits any affiliated person of a 
registered investment company, or any affiliated person of an 
affiliated person, acting as principal, from knowingly selling or 
purchasing any security or other property to or from the company. Since 
some of the shareholders who hold RCI common stock and THC common stock 
could be deemed to be controlling shareholders of both companies, THC 
may be deemed to be under common control with RCI and thus, an 
affiliated person of RCI pursuant to section 2(a)(3)(C) of the Act. 
Applicant requests an exemption from section 17(a) to permit: (a) THC 
to issue loans to RCI which could be viewed as a purchase, by RCI, of 
securities issued by THC that are not part of a general offering to the 
holders of a class of THC's securities; \3\ and (b) RCI to repay THC's 
loans through any distributions that Captive may make to its 
shareholders.
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    \3\ THC will make loans to RCI to fund RCI's purchase of 
Captive's equity securities and any subsequent capital assessment 
that Captive may require.
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    4. Applicant states that an exemption from section 17(a) is 
consistent with the protection of investors and is necessary to promote 
the purpose of RCI. Applicant states that the Participants in RCI will 
be fully informed of the extent of RCI's dealings with THC. 
Additionally, the community of interest between the Participants and 
THC will serve to address the concerns under the Act.
    5. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person of a registered investment company, or any 
affiliated person of such person, acting as principal, from 
participating in any joint arrangement with the company unless 
authorized by the Commission. Applicant requests relief to permit THC 
to participate in or effect any transaction in connection with, any 
joint enterprise or other joint arrangement or profit sharing plan in 
which RCI is a participant. Applicant submits that the joint 
arrangement between THC and RCI, which was designed to create and 
maintain a structure that enables THC and its affiliated shareholders 
to take advantage of favorable federal income tax treatment of the 
transaction whereby THC may deduct insurance premiums paid to Captive 
when paid and recognize income for federal income tax purposes when and 
if it receives retroactive rate reductions from the insurance 
subsidiaries, may be deemed a joint transaction for purposes of section 
17(d) and rule 17d-1 under the Act.
    6. Applicant asserts that compliance with section 17(d) would cause 
RCI to forego investment in the Captive simply because RCI is part of 
such joint arrangement with affiliated persons. Applicant asserts that 
the flexibility to structure joint transactions or joint arrangements 
will not involve abuses of the type section 17(d) and rule 17d-1 were 
designed to prevent.
    7. Section 17(f) of the Act designates the entities that may act as 
investment company custodians, and rule 17f-2 under the Act imposes 
certain requirements when the custodian is a registered management 
investment company. Applicant requests an exemption from section 17(f) 
and rule 17f-2 to permit the following exceptions from the requirements 
of rule 17f-2: (a) Compliance with paragraph (b) of the rule may be 
achieved through safekeeping in the locked files of THC; (b) for 
purposes of paragraph (d) of the rule, (i) employees of THC will be 
deemed to be employees of RCI, and (ii) officers of THC will be deemed 
to be officers of RCI, and (c) instead of the verification procedure 
under paragraph (f) of the rule, verification will be effected 
quarterly by two senior level employees of THC. RCI's only investment 
will be its investment in the Captive and will either not be evidenced 
by negotiable certificates which could be misappropriated or will be 
represented by a certificate or certificates registered in RCI's name. 
Applicant asserts that the evidence of RCI's investment in the Captive 
is most suitably kept in the files of THC, where it can be referred to 
as necessary.
    8. Section 17(g) of the Act and rule 17g-1 under the Act generally 
require the bonding of officers and employees of a registered 
investment company who have access to its securities or funds. Rule 
17g-1 requires that a majority of directors who are not interested 
persons take certain actions and give certain approvals relating to 
fidelity bonding. Applicant requests exemptive relief to permit the 
directors of RCI, who may be deemed interested persons, to take actions 
and make determinations set forth in the rule. Applicant states that, 
because all of the directors of RCI will likely be affiliated persons, 
RCI could not comply with rule 17g-1 without the requested relief. 
Applicant also states that RCI will comply with all other requirements 
of rule 17g-1, except requirements relating to the provision of notices 
to the board of directors, the filing of copies of fidelity bonds and 
related information with the Commission, that RCI have a majority of 
other disinterested directors, that those disinterested directors 
select and

[[Page 8791]]

nominate any other disinterested director, and that legal counsel for 
those disinterested directors be independent legal counsel.
    9. Section 17(j) of the Act and paragraph (b) of rule 17j-1 under 
the Act make it unlawful for certain enumerated persons to engage in 
fraudulent or deceptive practices in connection with the purchase or 
sale of a security held or to be acquired by a registered investment 
company. Rule 17j-1 also requires that every registered investment 
company adopt a written code of ethics and that every access person of 
a registered investment company report personal securities 
transactions. Applicant requests an exemption from the provisions of 
rule 17j-1, except for the anti-fraud provisions of paragraph (b), 
because they are unnecessarily burdensome as applied to RCI.
    10. Applicant requests an exemption from the requirements in 
sections 30(a), 30(b), and 30(e) of the Act, and the rules under those 
sections, that registered investment companies prepare and file with 
the Commission and mail to their shareholders certain periodic reports 
and financial statements. Applicant contends that the forms prescribed 
by the Commission for periodic reports have little relevance to RCI and 
would entail administrative and legal costs that outweigh any benefit 
to the Participants in RCI. Applicant also requests an exemption from 
section 30(h) of the Act to the extent necessary to exempt THC, 
directors and any officer or other persons who may be deemed to be 
members of an advisory board of RCI from filing Forms 3, 4, and 5 under 
section 16(a) of the Securities Exchange Act of 1934 with respect to 
their ownership of RCI common stock. Applicant asserts that, because 
there will be no trading market and the transfers of RCI common stock 
will be severely restricted, these filings are unnecessary for the 
protection of investors and burdensome to those required to make them.
    11. Rule 38a-1 requires investment companies to adopt, implement 
and periodically review written policies reasonably designed to prevent 
violation of the federal securities laws and to appoint a chief 
compliance officer. Applicant requests an exemption from the 
requirements of rule 38a-1 on the basis that they are burdensome and 
unnecessary and such exemption would be consistent with the policies of 
the Act. Applicant asserts compliance with the rule would serve little 
purpose given the limited nature of RCI's operations and since the sole 
purpose of RCI is to create a structure to provide favorable tax 
treatment to THC.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    1. Transactions otherwise prohibited by section 17(a) or section 
17(d) and rule 17d-1 in which RCI is a party (the ``Section 17 
Transactions'') will be effected only if the RCI Board determines that:
    (a) The terms of the Section 17 Transaction, including the 
consideration to be paid or received, are fair and reasonable to the 
Participants of RCI and do not involve overreaching of RCI or its 
Participants on the part of any person concerned; and
    (b) The Section 17 Transactions are consistent with the interests 
of the Participants and with RCI's organizational and offering 
documents.
    2. RCI and RCI's Board will maintain and preserve, for the life of 
RCI and at least six years thereafter, all accounts, books, and other 
documents as constitute the record forming the basis for the audited 
financial statements that are to be provided to the Participants, and 
agree that all such records will be subject to examination by the 
Commission and its staff. RCI will preserve the accounts, books and 
other documents required to be maintained in an easily accessible place 
for the first two years.
    3. RCI's Board will send to each Participant who held RCI common 
stock at any time during the fiscal year then ended, RCI's audited 
financial statements, which audited financial statements may be 
presented on a combined basis with THC's financial statements.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3272 Filed 2-14-11; 8:45 am]
BILLING CODE 8011-01-P