Securities and Exchange Commission (“Commission”).
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.
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”).
PMC Capital and PMC Commercial.
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.
Secretary, Commission, 450 5th Street, NW., Washington, DC 20549-0609. Applicants, 18111 Preston Road, Suite 600, Dallas, TX 75252.Start Further Info
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).End Further Info End Preamble Start Supplemental 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).
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”). 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.
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.
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, Start Printed Page 5616PMC 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.Start Printed 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”) 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.
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.Start Signature
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Jill M. Peterson,
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.Back to Citation
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.Back to Citation
3. File No. 333-108180.Back to Citation
[FR Doc. 04-2357 Filed 2-4-04; 8:45 am]
BILLING CODE 8010-01-P