[Federal Register Volume 59, Number 201 (Wednesday, October 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25885]


[[Page Unknown]]

[Federal Register: October 19, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel No. 20617; 812-8978]

 

Corporate Renaissance Group, Inc., et al.; Notice of Application

October 13, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for order of exemption under the 
Investment Company Act of 1940 (the ``Act'').

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APPLICANTS: Corporate Renaissance Group, Inc. (the ``Company'') and 
M.D. Sass Investors Services, Inc. (the ``Investment Adviser'').

RELEVANT ACT SECTIONS: Order requested under sections 6(c) and 57(i) 
and rule 17d-1 thereunder permitting certain joint transactions 
otherwise prohibited by section 57(a)(4).

SUMMARY OF APPLICATION: Applicants request an order to permit the 
Company to co-invest with certain private investment companies either 
advised by the Investment Adviser or by certain affiliates of the 
Investment Adviser.

FILING DATE: The application was filed on May 6, 1994 and amended on 
September 6, 1994.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on November 7, 
1994, and should be accompanied by proof of service on applicants, in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, D.C. 20549. 
Applicant, 1185 Avenue of the Americas, 18th Floor, New York, New York 
10036.

FOR FURTHER INFORMATION CONTACT:
Fran Pollack-Matz, Senior Attorney, at (202) 942-0570 or Robert A. 
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. The Company, a Delaware corporation, is a newly formed non-
diversified closed-end management company that has elected to operate 
as a business development company under the Act. The Company has filed 
a registration statement on Form N-2 (File No. 33-50424) with respect 
to an initial public offering of its common stock. The registration 
statement has not yet been declared effective by the SEC. The Company's 
primary investment objective will be to achieve long-term capital 
appreciation through controlling (25% or greater) investments in 
``eligible portfolio companies'' (as defined in the Act). The Company 
will invest in portfolio companies with viable existing businesses 
generating substantial revenues in established markets, but that have 
recently completed, are in the process of undergoing, or are likely to 
undergo, a financial restructuring pursuant to bankruptcy or 
reorganization proceedings or on a negotiated basis outside of 
bankruptcy or reorganization proceedings.
    2. The Investment Adviser is a registered investment adviser under 
the Investment Advisers Act of 1940 (the ``Advisers Act''). The Company 
has retained the Investment Adviser as the Company's investment adviser 
to identify, negotiate, manage and liquidate investments for the 
Company.
    3. Martin D. Sass and Hugh R. Lamle, who are officers and directors 
of the Company, are principal stockholders, officers and directors of 
the Investment Adviser. James B. Rubin, an officer and director of the 
Company and Martin E. Winter, an officer of the Company, are also 
officers of the Investment Adviser. In addition, Messrs. Sass and Lamle 
are principal stockholders, officers, and directors of two other 
investment advisers registered under the Advisers Act, M.D. Sass 
Associates, Inc. (``Associates'') and M.D. Sass Management, Inc. 
(``Management''). Messrs. Rubin and Winter are also officers of 
Associates and Management. The Investment Adviser, Associates and 
Management control other entities engaged in investing primarily in 
financially distressed companies (the ``M.D. Sass Funds'').
    4. None of the M.D. Sass Funds has made or presently proposes to 
make a public offering of its securities. Each of the M.D. Sass Funds: 
(a) Is exempt from registration under the Act pursuant to section 
3(c)(1) because its outstanding securities are beneficially owned by 
less than 100 persons; or (b) is not subject to registration under 
section 7(d) because it is not organized or otherwise created under the 
laws of the United States or any state and has not made use of the 
mails or any means or instrumentality of interstate commerce in 
connection with any public offering of its securities. The M.D. Sass 
Funds and those entities not subject to the registration requirements 
of the Act that may be subsequently created or otherwise organized by 
the Investment Adviser or affiliates of the Investment Adviser are 
referred to as the ``M.D. Sass Affiliates.'' The Company proposes to 
co-invest with the M.D. Sass Affiliates in order to acquire a 
diversified portfolio of investments and to compete effectively for 
such investments with larger entities.

Applicants' Legal Analysis

    1. Section 17(d) and rule 17d-1 thereunder provide, among other 
things, that it shall be unlawful for an affiliate person of an 
investment company, or an affiliated of such person, acting as 
principal, to participate in any joint enterprise or other joint 
arrangement in which any such investment company is a participant, 
unless the SEC has issued an order approving the joint enterprise or 
arrangement. Section 57(a)(4) applies the same prohibitions to 
affiliated persons of a business development company. Section 57(i) 
applies the rules adopted under section 17(d) to business development 
companies.
    2. Applicants submit that the substantive ongoing obligations 
imposed on the independent directors of the Company provide significant 
protection to investors against possible conflicts of interest in co-
investments by the applicants and the M.D. Sass Affiliates. Applicants 
also believe that the proposed conditions applicable to the operations 
of the Company governing the terms on which co-investments may be made 
and the disposition of investments held by any affiliate that co-
invests with the Company (including the conditions set forth herein) 
are consistent with the policies underlying the Act and rule 17d-1 
thereunder.

Applicants' Conditions

    Applicants agree that the order shall be subject to the following 
conditions:
    1. Before a co-investment transaction is effected, the Investment 
Adviser must make an initial determination on behalf of the Company 
regarding investment suitability. Following this determination, the 
Investment Adviser will make a written investment presentation 
regarding the proposed co-investment to the independent directors of 
the Company. Such information will include the identity of each 
affiliate that proposes to co-invest with the Company (collectively, 
including the Company, the ``Co-Investors'').
    2. The independent directors of the Company will review the 
Investment Adviser's initial determination. In doing so, the 
independent directors will request such additional information from the 
Investment Adviser as they deem necessary to the exercise of their 
reasonable business judgment, and will employ such experts, including 
lawyers and accountants, as they deem appropriate. Prior to committing 
to a co-investment, a ``required majority'' (as defined in section 
57(o) of the Act) of the independent directors of the Company must 
conclude that:
    (a) The terms, of the transaction, including the consideration to 
be paid, are reasonable and fair to the stockholders and the Company 
and do not involve overreaching of the stockholders and the Company on 
the part of any person concerned;
    (b) The transaction is consistent with the interests of the 
stockholders of the Company and is consistent with the investment 
objective and policies of the Company as recited in its Registration 
Statement filed under the Securities Act of 1933 and subsequent reports 
filed under the Securities Exchange Act of 1934; and
    (c) The investment by one or more of the other Co-Investors would 
not disadvantage the Company in the making of such investment, 
maintaining its investment position, or disposing of such investment 
and that participation by the Company would not be on a basis different 
from or less advantageous than that of other Co-Investors.
    3. The other Co-Investors will be permitted to invest only to the 
extent that the total investment opportunity exceeds the amount that 
the Company determines to invest.
    4. Co-Investments in securities by the Company with any other Co-
Investor will consist of the same class of securities including the 
same registration rights (if any) and other rights related thereto, 
purchased at the same price on the same settlement date, and the 
approval of such transaction by the Company's independent directors 
will be made in the same time period.
    5. If any Co-Investor determines to make an additional investment 
in an issuer whose securities were purchased in a co-investment 
transaction (a ``Follow-On Investment''), notice of the proposed 
Follow-On Investment will be given to the Company at the earliest 
practical time. Follow-on investments will be reviewed, approved, 
allocated, and disposed of in the same manner as prescribed for initial 
co-investments under these conditions.
    6. No co-investment will be made in the securities of any entity if 
any Co-Investor has previously acquired a security issued by such 
entity provided that this prohibition shall not apply to Follow-On 
Investments.
    7. If any Co-Investor elects to sell, exchange, or otherwise 
dispose of any interest in a security purchased in a co-investment 
transaction, notice of the proposed disposition will be given to the 
Company at the earliest practical time. The Investment Adviser will 
provide a written recommendation to the independent directors of the 
Company concerning the proposed disposition. The Company will 
participate in the disposition at the same time as the other Co-
Investors, on a proportionate basis, and on the same terms and 
conditions: provided that a required majority of the independent 
directors may decide that the Company will not participate in the 
proposed disposition or will dispose of less than its proportionate 
interest if they determine that such action is in the best interest of 
the Company, is reasonable and fair to the stockholders and the 
Company, and does not involve overreaching of the stockholders and the 
Company on the part of any person concerned.
    8. The independent directors of the Company will be provided 
quarterly for review all information concerning co-investment 
transactions made by the Co-Investors, including co-investment 
transactions in which the Company has declined to participate, so that 
they may determine whether all co-investment transactions made during 
the preceding quarter, including those co-investment transactions that 
were declined, complied with the conditions set forth above. In 
addition, the independent directors of the Company will consider at 
least quarterly the continuing appropriateness of the standards 
established for co-investment transactions by the Company, including 
whether use of the standards continues to be in the best interest of 
the Company and its stockholders and does not involve overreaching of 
the Company and its stockholders on the part of any party concerned.
    9. The independent directors of the Company will maintain the 
records described in section 57(f)(3) of the Act as if each of the 
transactions permitted under these conditions were approved by the 
independent directors of the Company under section 57(f). In addition, 
the Company will maintain, at its office, written records detailing the 
factors considered in each of its determinations or recommendations 
referred to in these conditions. All records referred to or required 
under these conditions will be available for inspection by the 
Commission and will be preserved permanently, the first two years in an 
easily accessible place.
    10. No independent director of the Company shall participate in the 
consideration of any aspect of a co-investment transaction if he is 
affiliated with an M.D. Sass Affiliate that proposes to participate or 
has participated in the transaction.

    For the Commission, by the Division of Investment Management 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25885 Filed 10-18-94; 8:45 am]
BILLING CODE 8010-01-M