[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