[Federal Register: February 5, 2004 (Volume 69, Number 24)]
[Notices]
[Page 5615-5618]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe04-148]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 26344; 812-13059]
PMC Capital, Inc., et al.; Notice of Application
January 30, 2004
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 57(c) of the Investment
Company Act of 1940 (the ``Act'') requesting an exemption from section
57(a)(2) of the Act.
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SUMMARY OF APPLICATION: Applicants request an order permitting PMC
Capital, Inc. (``PMC Capital''), a business development company
(``BDC''), to merge into PMC Commercial Trust (``PMC Commercial'').
APPLICANTS: PMC Capital and PMC Commercial.
FILING DATES: The application was filed on January 7, 2004 and amended
on January 29, 2004.
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 applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on February 24, 2004, and should be accompanied by proof of
service on the 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 Commission's Secretary.
ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC
20549-0609. Applicants, 18111 Preston Road, Suite 600, Dallas, TX
75252.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at
(202) 942-0582, or Mary Kay Frech, 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 may be obtained for a fee at the
Commission's Public Reference Branch, 450 5th Street, NW., Washington,
DC 20549-0102 (telephone (202) 942-8090).
Applicants' Representations
1. PMC Capital, a Florida corporation, is an internally managed
closed-end diversified management investment company that has elected
to be regulated as a BDC as defined in section 2(a)(48) of the Act. PMC
Capital makes loans principally through three subsidiaries, each of
which is licensed and regulated by the Small Business Administration
(the ``SBA'') and registered under the Act as a closed-end diversified
management investment company (collectively, the ``SBA Subsidiaries'').
The SBA Subsidiaries are Western Financial Capital Corporation
(``WFCC''), PMC Investment Corporation (``PMCIC''), and First Western
SBLC, Inc. (``FW'').\1\ WFCC and FW are wholly owned by PMC Capital.
Because the SBA owns nonvoting preferred stock of PMCIC, PMCIC is not
wholly owned by PMC Capital, although it is controlled by PMC Capital.
PMC Capital, directly or through the SBA Subsidiaries, makes loans
primarily to new and developing companies whose securities have no
established public market. PMC Capital's common stock trades on the
American Stock Exchange.
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\1\ WFCC is a Florida corporation that is licensed as a small
business investment company (``SBIC'') under the Small Business
Investment Act of 1958 (the ``SBIA'') and provides long-term loans
to borrowers whether or not they qualify as ``disadvantaged.'' PMCIC
is a Florida corporation that is licensed as a specialized small
business investment company (``SSBIC'') under the SBIA. PMCIC
provides long-term collateralized loans to eligible small businesses
owned by ``disadvantaged'' persons, as defined under SBA
regulations. FW is a Florida corporation that is licensed as a small
business lending company (``SBLC'') and originates variable-rate
loans that are partially guaranteed by the SBA under its section
7(a) loan guarantee program.
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2. In addition to its lending operations, PMC Capital earns income
through its wholly-owned subsidiary, PMC Advisers, Ltd. (``Advisers'')
and PMC Asset Management, Inc., a wholly-owned subsidiary of Advisers.
Advisers and PMC Asset Management, Inc. provide investment advisory and
administrative services to PMC Commercial.\2\
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\2\ PMC Capital is also directly or indirectly the sole
shareholder or partner of the following non-investment company
subsidiaries: PMC Funding Corp., PMC Capital, L.P. 1998-1, and PMC
Capital, L.P. 1999-1. In addition, PMC Capital and PMC Commercial
jointly own interests in several special purpose entities formed in
connection with structured loan sale transactions.
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3. PMC Commercial is a Texas real estate investment trust and
primarily originates loans to small businesses collateralized by first
liens on the real estate of the related business. In addition, its
investments include the ownership of commercial properties in the
hospitality industry. PMC Commercial's loans receivable are primarily
to borrowers in the hospitality industry. It also originates loans for
commercial real estate in the service, retail, multi-family and
manufacturing industries. PMC Commercial's common shares trade on the
American Stock Exchange.
4. Applicants have proposed a merger (the ``Merger'') and have
entered into a merger agreement pursuant to which PMC Commercial has
agreed to acquire PMC Capital. If the Merger is completed,
[[Page 5616]]
PMC Capital shareholders will receive 0.37 PMC Commercial common shares
of beneficial interest for each share of PMC Capital common stock they
own and will hold approximately 40.49% of PMC Commercial's common
shares after the Merger. PMC Commercial shareholders will continue as
shareholders after the Merger, holding approximately 59.51% of the
outstanding shares of PMC Commercial.
5. Upon completion of the Merger, PMC Capital will be merged with
and into PMC Commercial, and the operations of PMC Commercial will
include the continuation of the businesses of PMC Capital. Each of PMC
Capital's wholly-owned subsidiaries will remain in existence following
the Merger, and will be wholly-owned by PMC Commercial. Both Advisers
and PMC Asset Management, Inc. will continue in existence after the
Merger; however, it is currently intended that they will have no
advisory contracts. It is anticipated that they will be taxable REIT
subsidiaries that will lease foreclosed properties and generate the
income of such properties, if any.
6. At a meeting of the PMC Commercial board of trust managers held
on June 14, 2002, management of Advisers indicated that a merger
between PMC Capital and PMC Commercial might be beneficial and should
be evaluated by PMC Commercial. The PMC Commercial board of trust
managers determined that it would be appropriate to consider such a
transaction and established a special committee of trust managers (the
``PMC Commercial Special Committee'') with no relationship to PMC
Capital to determine whether such a transaction would be in the best
interests of PMC Commercial shareholders and to report back to the full
board. On November 4, 2002, the PMC Commercial Special Committee
submitted an indication of interest to the PMC Capital board of
directors.
7. On November 8, 2002, having received and reviewed PMC
Commercial's indication of interest, the PMC Capital board held a
special meeting. At that meeting, the PMC Capital board appointed a
special committee composed of the PMC Capital directors who are not
``interested persons'' as defined in section 2(a)(19) of the Act (the
``PMC Capital Special Committee''). The PMC Capital Special Committee
was empowered to determine whether the proposed merger would be in the
best interests of PMC Capital's shareholders and to make a
recommendation to the PMC Capital board of directors. The PMC Capital
Special Committee was also authorized to (a) retain legal and financial
advisors of its own choosing, (b) review documents and otherwise
perform due diligence with respect to PMC Commercial, and (c) prepare
and negotiate the terms of the proposal and all documents necessary to
effect the Merger.
8. On November 8, 2002, at its first meeting, the PMC Capital
Special Committee engaged Sutherland Asbill & Brennan LLP
(``Sutherland'') as its legal counsel. On December 6, 2002, the PMC
Capital Special Committee engaged A.G. Edwards, an investment banking
firm, as its financial advisor in connection with the proposed merger.
A.G. Edwards had no previous relationship with PMC Capital or PMC
Commercial or any of their respective affiliates. From December 9, 2002
to January 6, 2003, the PMC Capital Special Committee, Sutherland and
A.G. Edwards conducted extensive due diligence investigations of PMC
Capital and PMC Commercial. As part of that process, representatives of
A.G. Edwards met with senior management of both PMC Capital and PMC
Commercial.
9. On January 6, 2003, representatives of the PMC Capital Special
Committee, Sutherland and A.G. Edwards met to discuss the results of
the due diligence process and to discuss the terms of the indication of
interest. At this meeting, A.G. Edwards presented to the PMC Capital
Special Committee a comprehensive review of the terms of the proposal
and several possible strategic alternatives thereto, including a REIT
conversion and recapitalization, a partial asset liquidation and share
repurchase, and an equity financing. The PMC Capital Special Committee
determined at this meeting to pursue the indication of interest with an
exchange ratio range of 0.34 to 0.41. Subsequently, the PMC Commercial
Special Committee and PMC Capital Special Committee negotiated an
exchange ratio of 0.37.
10. On March 27, 2003, the PMC Capital Special Committee met with
its legal and financial advisors to discuss the exchange ratio. A.G.
Edwards delivered its oral opinion to the PMC Capital Special Committee
that, based on and subject to the various assumptions and
qualifications to be set forth in its written opinion as of March 27,
2003, the exchange ratio of 0.37 was fair to PMC Capital shareholders
from a financial point of view. The PMC Capital Special Committee then
unanimously voted to recommend to the PMC Capital board of directors
that (a) the Merger and the transactions contemplated thereby were fair
to and in the best interest of PMC Capital shareholders from a
financial and procedural point of view; and (b) the Merger, the merger
agreement and the transactions contemplated thereby be approved and
recommended to PMC Capital shareholders.
11. On March 27, 2003, the full PMC Capital board of directors met
to consider the proposed merger, the merger agreement and the
transactions contemplated thereby. Sutherland reviewed the terms of the
merger agreement with the board and discussed the fiduciary duties to
which the board members were subject. A.G. Edwards delivered its oral
opinion that, based on and subject to the various assumptions and
qualifications to be set forth in its written opinion as of March 27,
2003, the exchange ratio of 0.37 was fair, from a financial point of
view, to PMC Capital shareholders. The Chairman of the PMC Capital
Special Committee presented the unanimous recommendation of the PMC
Capital Special Committee that (a) the Merger and the transactions
contemplated thereby were fair to and in the best interest of PMC
Capital shareholders from a financial and procedural point of view; and
(b) the Merger, the merger agreement and the transactions contemplated
thereby should be approved and recommended to PMC Capital shareholders.
12. Based on the information and factors considered by the PMC
Capital Special Committee and the unanimous recommendation of the PMC
Capital Special Committee, the PMC Capital board of directors (a)
determined that the Merger and the transactions contemplated thereby
were fair to and in the best interest of the PMC Capital shareholders
from a financial and procedural point of view; and (b) approved the
Merger, the merger agreement and the transactions contemplated thereby
and recommended such matters to PMC Capital's shareholders.
13. The exchange ratio was based on (a) The financial terms and
conditions of the merger agreement; (b) historical business and
financial information relating to the two companies; (c) financial
forecasts and other data relating to the two companies' business; (d)
discussions with members of senior management with respect to the
business and prospects of the two companies, including the benefits and
costs related to the Merger; (e) the historical stock prices and
trading volumes of the two companies' common stock; and (f) public
information with respect to other companies believed to be generally
comparable to the two companies.
[[Page 5617]]
14. In reaching its decision to approve the Merger, the terms of
the merger agreement and the transactions contemplated thereby and to
recommend that the PMC Capital board of directors approve and recommend
such matters to PMC Capital's shareholders, the PMC Capital Special
Committee consulted with PMC Capital management as well as its legal
counsel and financial advisor and carefully considered the following
material factors: (a) Its review and knowledge of the business,
financial condition, results of operations and prospects of PMC
Capital, and its general familiarity with and knowledge about PMC
Capital's affairs; (b) the present and possible future economic and
competitive environment of the small business lending industry in which
PMC Capital operates; (c) the written opinion of A.G. Edwards as of
March 27, 2003 that the exchange ratio of 0.37 of a common share of PMC
Commercial for each share of PMC Capital common stock was fair, from a
financial point of view, to PMC Capital's shareholders, and the
analyses presented to the PMC Capital Special Committee by A.G.
Edwards; (d) the need to increase the capital base of PMC Capital at a
reduced cost to achieve operating efficiencies, which the Merger of PMC
Capital with PMC Commercial could offer; (e) the need to diversify PMC
Capital's investment assets in an effort to provide PMC Capital
shareholders with greater earnings performance and operating and
dividend stability; (f) its belief that any transaction with PMC
Commercial should result in maximizing shareholder value; (g) after
conducting a review of strategic alternatives, its belief that the
proposed merger provided the best method of maximizing shareholder
value; (h) the negotiations it and its financial and legal advisors
conducted with the PMC Commercial Special Committee and its financial
and legal advisors; (i) the nature of the parties' representations and
warranties contained in the merger agreement; (j) the other terms and
conditions in the merger agreement, including the right of PMC Capital
to terminate the merger agreement prior to its approval by PMC Capital
shareholders in the exercise of its fiduciary duty in connection with a
superior proposal, subject to a termination fee; (k) that the combined
company would have a larger equity market capitalization, which could
generate greater research coverage and institutional investment as well
as potentially increase the trading volume of the PMC Commercial common
shares to be received by PMC Capital shareholders in the Merger as
compared to the trading volume of PMC Capital's common stock before the
Merger; (l) the historical market prices and trading information with
respect to the PMC Capital common stock and PMC Commercial common
shares; (m) the comparisons of historical financial measures for PMC
Capital and PMC Commercial, including earnings, return on capital and
cash flow, and comparisons of historical operational measures for PMC
Commercial and PMC Capital; (n) the expectation that the Merger would
be a tax-free transaction for U.S. Federal income tax purposes; (o) the
proposed composition of the management of PMC Commercial following the
Merger, which would facilitate the integration of both companies and
assist the continuation of the best practices of PMC Capital and PMC
Commercial following the completion of the Merger; (p) the expectation
that unification of the businesses of PMC Capital and PMC Commercial
would remove some of the confusion in the marketplace resulting from
having two separate public companies with similar names and management;
(q) the timing of receipt and the terms of approvals from appropriate
governmental entities, including the possibility of delay in obtaining
satisfactory approvals or the imposition of unfavorable terms or
conditions in the approvals; (r) the desire to simplify PMC Capital's
complex business and regulatory structure; (s) the likelihood that the
transactions contemplated by the Merger would be successfully
completed; and (t) the current industry, economic, market and other
relevant conditions.
15. On August 22, 2003, PMC Commercial's registration statement on
Form S-4 (the ``Registration Statement'')\3\ was filed with the
Commission. The Registration Statement includes a joint proxy
statement/prospectus (the ``Joint Proxy Statement/Prospectus''), which
was used to offer the securities to be issued by PMC Commercial and to
solicit proxies in connection with the approval of the Merger by the
stockholders of each of PMC Commercial and PMC Capital. The
Registration Statement was declared effective on November 12, 2003, and
the Joint Proxy Statement/Prospectus was first mailed to shareholders
on or about November 12, 2003. On December 30, 2003, PMC Capital
shareholders approved the Merger. On January 9, 2004, PMC Commercial
shareholders approved the Merger.
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\3\ File No. 333-108180.
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Applicants' Legal Analysis
1. Section 57(a)(2) generally makes it unlawful for any person
related to a BDC in a manner described in section 57(b), acting as
principal, knowingly to purchase from such BDC any security or other
property. Section 57(b), in turn, provides that section 57(a) applies
to, among other persons, any person directly or indirectly controlled
by or under common control with a BDC.
2. The transfer of the assets of PMC Capital to PMC Commercial as a
result of the Merger could be deemed to violate section 57(a)(2) to the
extent that PMC Capital and PMC Commercial are deemed to be under
common control by virtue of PMC Capital controlling Advisers, which, as
PMC Commercial's investment adviser, could be deemed to control PMC
Commercial.
3. Section 57(c) of the Act provides that the Commission will
exempt a transaction from section 57(a) if the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching of the BDC or its
shareholders on the part of any person concerned, and the proposed
transaction is consistent with the policy of the BDC and consistent
with the general purposes of the Act. Applicants believe that the
requested relief meets these standards for the reasons discussed below.
4. Applicants believe that the Merger, whereby shares of PMC
Capital will be converted into the right to receive shares of PMC
Commercial, would benefit PMC Capital's stockholders in a number of
ways. It would result in increased size, increased portfolio diversity,
and a superior mix of current and capital gain income. The Merger would
also eliminate the need for costly duplication of efforts related to
maintaining and reporting for two separate public entities.
5. Applicants assert that the extensive involvement of the board of
PMC Capital, including PMC Capital Special Committee, the fairness
opinion rendered by the independent financial adviser for PMC Capital,
and the fact that PMC Capital was represented by separate counsel in
connection with the Merger ensures that no overreaching of PMC Capital
or its shareholders will occur in connection with the Merger.
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For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-2357 Filed 2-4-04; 8:45 am]
BILLING CODE 8010-01-P