[Federal Register Volume 85, Number 47 (Tuesday, March 10, 2020)]
[Notices]
[Pages 13965-13966]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04797]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 33810; File No. 811-08387]
Waterside Capital Corporation
March 4, 2020.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
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Notice of an application for an order under section 8(f) of the
Investment Company Act of 1940 (the ``Act'') declaring that the
applicant has ceased to be an investment company.
Applicant: Waterside Capital Corporation.
Filing Dates: The application was filed on January 18, 2018, and
amended on June 4, 2018, October 30, 2018, June 12, 2019, August 26,
2019, December 20, 2019, and February 26, 2020.
Hearing or Notification of Hearing: An order granting the request
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 30, 2020 and should be accompanied by proof of service on
applicant, in the form of an affidavit or, for lawyers, a certificate
of service. Pursuant to rule 0-5 under the Act, hearing requests should
state the nature of the writer's interest, any facts bearing upon the
desirability of a hearing on the matter, 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: c/o Jolie Kahn, Esq.,
12 E 49th Street, 11th Floor, New York, NY 10017.
FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-3038, or Daniele Marchesani, Assistant Chief Counsel, at
(202) 551-6821 (Division of Investment Management, Chief Counsel's
Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Summary of the Application
1. Applicant was incorporated under the laws of the Commonwealth of
Virginia on July 13, 1993 and is registered under the Act as a closed-
end investment company. It operated as a small business investment
company under a license from the Small Business Administration (the
``SBA'') and was internally managed.\1\
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\1\ Applicant's outstanding shares of common stock are traded on
the Pink[supreg] Open Market.
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2. On March 30, 2010, the SBA notified applicant that its account
had been transferred to liquidation status and that its outstanding
debentures plus accrued interest were due and payable within fifteen
days of the notification. Applicant did not have sufficient liquid
assets to make that payment and the SBA repurchased the debentures
under a note agreement with applicant (the ``Note Agreement'').
3. On May 24, 2012, the SBA delivered to applicant a notice of an
event of default for failure to meet the principal repayment schedule
under the Note Agreement (the ``Notice''). Under the terms of the
Notice and the Note Agreement, the SBA maintained a continuing right to
terminate the Note Agreement and appoint a receiver to manage
applicant's assets.
4. On November 20, 2013, the SBA filed a complaint in the United
States District Court for the Eastern District of Virginia (the
``District Court'') seeking, among other things, receivership for
applicant and a judgment in the amount outstanding under the Note
Agreement plus continuing interest. On May 28, 2014, the District Court
entered an order (the ``Order'') that appointed the SBA as receiver of
applicant. The SBA designated a principal agent to act on its behalf as
the receiver (the ``Receiver''). The Order authorized the Receiver to
act for the purpose of marshaling and liquidating in an orderly manner
all of applicant's assets (the ``Receivership''). The Order also served
to enter judgment against applicant for its liability in excess of
$11,000,000 to the SBA.
5. Applicant effectively stopped conducting an active business upon
the appointment of the SBA as Receiver. Over the course of the
Receivership, the activity of applicant was limited to the liquidation
of applicant's assets by the Receiver and the payment of the proceeds
to the SBA and for the expenses of the Receivership. Effective March
20, 2017, the SBA revoked the license that it had granted to applicant.
6. On June 28, 2017, the District Court entered an order that
terminated the Receivership and discharged all claims and obligations
of applicant other than
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the judgment held by the SBA (the ``Final Order''). Before the District
Court entered the Final Order, the Receiver provided notice to all
shareholders of applicant. The Receiver also initiated separate
contacts with the largest shareholders of applicant in an attempt to
identify a shareholder willing to assume responsibility for the control
of applicant on behalf of applicant's shareholders. Roran Capital, LLC
(``Roran'') was the only shareholder willing to assume such control.\2\
At the direction of the Receiver, the Final Order stated that ``Control
of Waterside shall be unconditionally transferred and returned to its
shareholders c/o Roran Capital, LLC (``Roran'') upon notification of
entry of this Order.'' In reliance on and in compliance with the Final
Order, Roran appointed Zindel Zelmanovitch as the director and officer
of applicant.\3\
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\2\ As of the Final Order, Roran owned 51,000 shares of
applicant's common stock, representing 2.7% of the issued and
outstanding shares of common stock of applicant at that time.
\3\ Because of the liability exposure inherent in serving on the
board of a public company, applicant's lack of financial resources,
and applicant's loss of its SBIC license, applicant states that
Roran was unable to locate any qualified individuals to serve on the
board of directors. Zindel Zelmanovitch agreed to serve as director.
Zindel Zelmanovitch is the father of Yitzhak Zelmanovitch, the
managing member of Roran. Applicant states that Zindel Zelmanovitch
has not been compensated for any of his services as a director or
officer of applicant.
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7. In July 2017, Roran purchased from the SBA applicant's
outstanding judgment owed to the SBA. On May 16, 2019, Roran forgave
the entire principal amount and interest due under the judgment
payable.
8. On September 19, 2017, applicant entered into a convertible loan
agreement with Roran (the ``Loan Agreement'') with loans advanced under
the terms of a convertible promissory note (the ``Note'').\4\ The
purpose of Roran's loans to the applicant, including subsequent ones
under amendments to the Loan Agreement, has been to pay for applicant's
reasonable operational expenses to third party service providers,
consisting solely of expenses such as legal, accounting, transfer agent
and edgarization costs, all at the actual cost for such services.\5\
Roran agreed to fund reasonable expenses of applicant so long as
progress was being made to reorganize applicant and to identify either
(a) a new business to enter into; or, (b) an active business with which
to merge or otherwise acquire.
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\4\ The Note bears interest at 12% per annum and has a maturity
date of June 19, 2020. Roran has the right to convert all or any
portion of the Note into shares of applicant's common stock at a
conversion price equal to 60% of the share price. Roran was not
compensated, and will not be compensated, for its efforts during and
after the Receivership. It will, however, be reimbursed for all
ordinary and necessary expenses incurred on behalf of applicant, and
it will be repaid all amounts it loans to applicant.
\5\ Applicant states that for the fiscal year ended June 30,
2019 and all times after the most recent fiscal year, it had no
assets, other than cash on hand which the applicant used to pay
incurred expenses.
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9. Applicant states that it is and hold itself out as being engaged
primarily in the business of seeking either (i) a new business to enter
into; or, (ii) merger or acquisition candidates which would benefit
from operating as a public entity; however, applicants represent that
until the Application is approved, no such transaction is feasible.
Applicant also states that it is not currently a party to any
litigation or administrative proceedings.
10. Applicant represents that, if the requested order is granted,
its shares of common stock will continue to be quoted on the
Pink[supreg] Open Market.
Applicant's Legal Analysis
1. Section 8(f) of the Act provides that whenever the Commission,
upon application or its own motion, finds that a registered investment
company has ceased to be an investment company, the Commission shall so
declare by order and upon the taking effect of such order, the
registration of such company shall cease to be in effect.
2. Section 3(a)(1)(A) of the Act defines an ``investment company''
as any issuer that ``is or holds itself out as being engaged primarily,
or proposes to engage primarily, in the business of investing,
reinvesting, or trading in securities.'' Section 3(a)(1)(C) of the Act
defines an ``investment company'' as any issuer that ``is engaged or
proposes to engage in the business of investing, reinvesting, owning,
holding, or trading in securities, and owns or proposes to acquire
investment securities having a value exceeding 40 per centum of the
value of such issuer's total assets (exclusive of Government securities
and cash items) on an unconsolidated basis.'' \6\
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\6\ Section 3(a)(2) of the Act defines ``investment securities''
as ``all securities except (A) Government securities, (B) securities
issued by employees' securities companies, and (C) securities issued
by majority-owned subsidiaries of the owner which (i) are not
investment companies, and (ii) are not relying on the exception from
the definition of investment company in paragraph (1) or (7) of
subsection (c).''
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3. Section 3(b)(1) of the Act provides that ``[n]otwithstanding
paragraph (1)(C) of subsection (a), none of the following persons is an
investment company within the meaning of this title: (1) Any issuer
primarily engaged, directly or through a wholly owned subsidiary or
subsidiaries, in a business or businesses other than that of investing,
reinvesting, owning, holding, or trading in securities.'' Rule 3a-1
under the Act states that ``[n]otwithstanding section 3(a)(1)(C) of the
Act, an issuer will be deemed not to be an investment company under the
Act, provided, that: (a) No more than 45 percent of the value (as
defined in section 2(a)(41) of the Act) of such issuer's total assets
(exclusive of Government securities and cash items) consists of, and no
more than 45 percent of such issuer's net income after taxes (for the
last four fiscal quarters combined) is derived from, securities other
than: (1) Government securities; (2) securities issued by employees'
securities companies; (3) securities issued by majority-owned
subsidiaries of the issuer (other than subsidiaries relying on the
exclusion from the definition of investment company in section 3(b)(3)
or (c)(1) of the Act) which are not investment companies; and (4)
securities issued by companies: (i) Which are controlled primarily by
such issuer; (ii) through which such issuer engages in a business other
than that of investing, reinvesting, owning, holding or trading in
securities; and (iii) which are not investment companies; (b) the
issuer is not an investment company as defined in section 3(a)(1)(A) or
3(a)(1)(B) of the Act and is not a special situation investment
company; and (c) the percentages described in paragraph (a) of this
section are determined on an unconsolidated basis, except that the
issuer shall consolidate its financial statements with the financial
statements of any wholly-owned subsidiaries.''
4. Applicant states that it is no longer an investment company as
defined in section 3(a)(1)(A) or section 3(a)(1)(C). Applicant states
that its business is: (a) To enter into a new business; or, (b) to
merge with, or otherwise acquire, an active business which would
benefit from operating as a public entity. Applicant states that its
historical development, its public representations, the activities of
its director and officer, its lack of assets and income support this
assertion. Applicant states that it is thus qualified for an order of
the Commission pursuant to section 8(f) of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-04797 Filed 3-9-20; 8:45 am]
BILLING CODE 8011-01-P