Unknown. Final rule

4,706 words·~21 min read·/register/2000/11/29/00-30415

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

--- schema: federal-register doc_type: fedreg source_file: FR-2000-11-29.xml --- 65 230 Wednesday, November 29, 2000 Contents Agricultural Agricultural Marketing Service RULES Agricultural commodities: Potatoes (Irish) grown in— Washington; correction, 71201 C0-29944 Agriculture Agriculture Department See Agricultural Marketing Service See Forest Service See National Agricultural Statistics Service Broadcasting Broadcasting Board of Governors NOTICES Meetings; Sunshine Act, 71091 00-30569 Coast Guard Coast Guard RULES Drawbridge operations:

Texas, 71058-71060 00-30391 00-30392 Regatta and marine parades: San Diego Christmas Boat Parade of Lights, 71058 00-30446 Commerce Commerce Department See National Oceanic and Atmospheric Administration CITA Committee for the Implementation of Textile Agreements NOTICES Cotton, wool, and man-made textiles: Brazil, 71093-71094 00-30238 Delaware Delaware River Basin Commission NOTICES Meetings and hearings, 71094 00-30401 Energy Energy Department See Federal Energy Regulatory Commission NOTICES Electricity export and import authorizations, permits, etc.:

Sempra Energy Trading Corp., 71094-71095 00-30407 Grants and cooperative agreements; availability, etc.: Biobased products industry; multidisciplinary education and training programs, 71095 00-30406 Industry of the Future Sectors; cost-shared research and development of technologies, 71095-71096 00-30405 EPA Environmental Protection Agency RULES Air programs: Gasoline antidumping requirements; American Samoa exemption petition, 71067-71073 00-30273 Air quality implementation plans; approval and promulgation; various States; air quality planning purposes; designation of areas:

New Hampshire, 71060-71067 00-30275 PROPOSED RULES Air programs: Fuels and fuel additives— Gasoline antidumping requirements; American Samoa exemption petition, 71079 00-30274 Air quality implementation plans; approval and promulgation; various States; air quality planning purposes; designation of areas: New Hampshire, 71078-71079 00-30276 NOTICES Superfund program: Administrative cost recovery agreements— Barceloneta Landfill Site, PR, 71106-71107 00-30424 Water supply: Public water supply supervision program— Georgia, 71107 00-30422 Public water supply supervision program— Tennessee, 71107-71108 00-30423 Executive Executive Office of the President See Management and Budget Office See Trade Representative, Office of United States FAA Federal Aviation Administration PROPOSED RULES Airworthiness directives:

McDonnell Douglas, 71074-71078 00-30444 00-30445 NOTICES Meetings: Aviation Rulemaking Advisory Committee, 71198 00-30494 Passenger facility charges; applications, etc.: Craig Airport, FL, 71199 00-30427 Louisville International Airport, KY, 71199-71200 00-30428 FCC Federal Communications Commission RULES Radio stations; table of assignments: Nevada, 71073 00-30369 PROPOSED RULES Digital television stations; table of assignments: Nevada, 71080 00-30364 South Dakota, 71079-71080 00-30363 Radio stations; table of assignments:

Arizona, 71080-71081 00-30365 Oregon, 71081 00-30366 Federal Emergency Federal Emergency Management Agency NOTICES Disaster and emergency areas: Arizona, 71108 00-30451 Preparedness: Offsite radiological emergency preparedness program; services fee, 71108 00-30450 Federal Energy Federal Energy Regulatory Commission NOTICES Electric rate and corporate regulation filings: Central Hudson Gas & Electric Corp., 71103 00-30408 Naniwa Energy, LLC, et al., 71103-71105 00-30340 Hydroelectric applications, 71105-71106 00-30347 Meetings:

Columbia Gas Transmission Corp., and Columbia Gulf Transmission Co.; technical conference, 71106 00-30354 *Applications, hearings, determinations, etc.:* Arkansas Western Pipeline, L.L.C., 71096 00-30346 Carnegie Interstate Pipeline Co., 71096 00-30360 Chandeleur Pipe Line Co., 71096 00-30359 Consumers Energy Co., 71097 00-30356 Florida Gas Transmission Co., 71097 00-30341 Kern River Gas Transmission Co., 71097-71099 00-30355 Kinder Morgan Interstate Gas Transmission LLC, 71099 00-30350 Northern Natural Gas Co., 71099 00-30343 Ozark Gas Transmission, L.L.C., 71099-71100 00-30342 Southern California Edison Co., 71100 00-30357 00-30358 Tennessee Gas Pipeline Co., 71100-71101 00-30344 00-30345 Texas Gas Transmission Corp., 71101 00-30352 Transwestern Pipeline Co., 71101-71102 00-30349 00-30351 00-30353 Williston Basin Interstate Pipeline Co., 71102-71103 00-30348 Federal Mediation Federal Mediation and Conciliation Service NOTICES Privacy Act:

Systems of records, 71108-71109 00-30308 Federal Railroad Federal Railroad Administration NOTICES Exemption petitions, etc.: Sound Transit, 71200 00-30431 Union Pacific Railroad Co., 71200 00-30430 Federal Reserve Federal Reserve System NOTICES Banks and bank holding companies: Change in bank control, 71109-71110 00-30337 Formations, acquisitions, and mergers, 71110 00-30338 Permissible nonbanking activities, 71110 00-30339 Meetings; Sunshine Act, 71110-71111 00-30389 00-30390 Fish Fish and Wildlife Service NOTICES Agency information collection activities:

Proposed collection; comment request, 71116-71117 00-30246 Endangered and threatened species: Recovery plans— Stebbins’ morning-glory, etc., 71117-71118 00-30361 Meetings: North American Wetlands Conservation Council, 71118 00-30455 Food Food and Drug Administration RULES Food for human consumption: Irradiation in production, processing, and handling of food— X-radiation inspection limits, 71056-71058 00-30453 Forest Forest Service NOTICES Environmental statements; availability, etc.:

Interior Columbia Basin Ecosystem Management Project, OR et al., 71086-71087 00-30393 Environmental statements; notice of intent: Klamath National Forest, CA, 71087-71088 00-30400 Lassen National Forest, CA; mineral forest recovery project, 71088-71090 00-30017 Geological Geological Survey NOTICES Agency information collection activities: Proposed collection; comment request, 71118 00-30387 Health Health and Human Services Department See Food and Drug Administration See Health Resources and Services Administration NOTICES Meetings:

National Bioethics Advisory Commission, 71111 00-30429 Health Health Resources and Services Administration NOTICES Agency information collection activities: Proposed collection; comment request, 71111-71112 00-30454 Housing Housing and Urban Development Department RULES Public and Indian housing: Public housing agency consortia and joint ventures, 71203-71210 00-30332 NOTICES Grants and cooperative agreements; availability, etc.: Community Development Work Study Program, 71227-71232 00-30417 Privacy Act:

Computer matching programs, 71112-71116 00-30065 Interior Interior Department See Fish and Wildlife Service See Geological Survey See Land Management Bureau See Minerals Management Service See Reclamation Bureau IRS Internal Revenue Service PROPOSED RULES Income taxes: Partnerships; treatment of controlled foreign corporation's distributive share of partnership income; guidance under subpart F Hearing cancellation, 71078 00-30448 International International Boundary and Water Commission, United States and Mexico NOTICES Environmental statements; availability, etc.:

El Paso and Hudspeth Counties, TX; Rio Grande rectification project, 71126-71128 00-30079 Sierra and Dona Anna Counties, NM and El Paso County TX; El Paso-Las Cruces regional sustainable water project, 71128 00-30224 International International Trade Commission NOTICES Antidumping: Ferrovanadium and nitrided vanadium from— Russia, 71120-71121 00-30409 Labor Labor Department See Occupational Safety and Health Administration NOTICES Meetings: Trade Negotiations and Trade Policy Labor Advisory Committee, 71121-71122 00-30411 Land Land Management Bureau NOTICES Environmental statements; availability, etc.:

Interior Columbia Basin Ecosystem Management Project, OR, et al., 71086-71087 00-30393 Environmental statements; notice of intent: White River, Glenwood Springs, and Grand Junction, CO, 71119 00-30443 Meetings: Resource Advisory Councils— Central California, 71119 00-30388 Management Management and Budget Office NOTICES Federal credit programs and non-tax receivables policies (Circular A-129), 71211-71225 00-29928 Mexico Mexico and United States, International Boundary and Water Commission See International Boundary and Water Commission, United States and Mexico Minerals Minerals Management Service NOTICES Environmental statements; availability, etc.:

Central Gulf of Mexico OCS— Oil and gas lease sales, 71119-71120 00-30413 National Agricultural National Agricultural Statistics Service NOTICES Agency information collection activities: Proposed collection; comment request, 71090-71091 00-30426 National Highway National Highway Traffic Safety Administration PROPOSED RULES Motor vehicle safety standards: Occupant crash protection— Anthropomorphic test dummy, 71081-71085 00-30305 NOAA National Oceanic and Atmospheric Administration PROPOSED RULES Fishery conservation and management:

Atlantic highly migratory species— Technical gear workshop, 71085 00-30418 NOTICES Meetings: Mid-Atlantic Fishery Management Council, 71091-71092 00-30362 New England Fishery Management Council, 71092 00-30420 Permits Endangered and threatened species, 71092-71093 00-30419 Nuclear Nuclear Regulatory Commission NOTICES Committees; establishment, renewal, termination, etc.: Reactor Oversight Process Initial Implementation Evaluation Panel, 71128-71129 00-30432 Environmental statements; availability, etc.:

Tennessee Valley Authority, 71129-71130 00-30433 Meetings; Sunshine Act, 71130-71131 00-30465 Operating licenses, amendments; no significant hazards considerations; biweekly notices, 71131-71144 00-30282 Occupational Occupational Safety and Health Administration NOTICES Agency information collection activities: Proposed collection; comment request, 71122 00-30410 Nationally recognized testing laboratories, etc.: Intertek Testing Servicves, NA, Inc., 71122-71126 00-30412 Office Office of Management and Budget See Management and Budget Office Office of U.S.

Trade Office of United States Trade Representative See Trade Representative, Office of United States Public Public Health Service See Food and Drug Administration See Health Resources and Services Administration Reclamation Reclamation Bureau NOTICES Meetings: CALFED Bay-Delta Program Policy Group, 71120 00-30402 SEC Securities and Exchange Commission NOTICES Investment Company Act of 1940: Exemption applications— TIP Funds, et al., 71149-71150 00-30371 Meetings: Advisory Committee on Market Information, 71150 00-30370 Self-regulatory organizations; proposed rule changes:

American Stock Exchange LLC, 71150-71160 00-30377 00-30378 00-30381 Chicago Stock Exchange, Inc., 71161-71169 00-30375 00-30379 00-30384 National Association of Securities Dealers, Inc., 71169-71182 00-30374 00-30452 National Securities Clearing Corp., 71182-71183 00-30373 New York Stock Exchange, Inc., 71183-71185 00-30376 Pacific Exchange, Inc., 71185-71187 00-30385 Philadelphia Stock Exchange, Inc., 71187-71194 00-30380 00-30382 00-30383 *Applications, hearings, determinations, etc.:* Public utility holding company filings, 71144-71148 00-30372 SBA Small Business Administration RULES Small business investment companies:

Management-ownership diversity requirement to prohibit ownership of more than 70% of company by single investor or group, 71053-71056 00-30415 NOTICES Agency information collection activities: Submission for OMB review; comment request, 71194-71195 00-30334 00-30335 00-30414 Social Social Security Administration NOTICES Agency information collection activities: Proposed collection; comment request, 71195-71197 00-30403 Statistical Statistical Reporting Service See National Agricultural Statistics Service Textile Textile Agreements Implementation Committee See Committee for the Implementation of Textile Agreements Trade Trade Representative, Office of United States NOTICES Trade Policy Staff Committee:

United States-Singapore Free Trade Agreement, 71197-71198 00-30386 Transportation Transportation Department See Coast Guard See Federal Aviation Administration See Federal Railroad Administration See National Highway Traffic Safety Administration Treasury Treasury Department See Internal Revenue Service Separate Parts In This Issue Part II Department of Housing and Urban Development, 71203-71210 00-30332 Part III Office of Management and Budget, 71211-71225 00-29928 Part IV Department of Housing and Urban Development, 71227-71232 00-30417 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws. 65 230 Wednesday, November 29, 2000 Rules and Regulations SMALL BUSINESS ADMINISTRATION 13 CFR Part 107 Small Business Investment Companies AGENCY:

Small Business Administration. ACTION: Final rule. SUMMARY: This final rule modifies the management-ownership diversity requirement in SBA's Small Business Investment Company (“SBIC”) Program to prohibit the ownership of more than 70% of a leveraged SBIC by any single investor or group of affiliated investors. An exception to the prohibition permits an investor that qualifies as a “traditional investment company”, as determined by SBA, to own in excess of 70% of an SBIC. This final rule will help to ensure that each new leveraged SBIC has managers that exercise independence in managing the operations of the SBIC.

DATES: This rule is effective on December 29, 2000. FOR FURTHER INFORMATION CONTACT: Leonard W. Fagan, at

(202)205-7583. SUPPLEMENTARY INFORMATION: On August 14, 2000, SBA published a proposed rule (65 FR 49511) to revise the management-ownership diversity regulation in SBA's Small Business Investment Company (“SBIC”) Program. Under the proposal, no single investor or group of affiliated investors would be permitted to own or control more than 70% of a leveraged SBIC. SBA also proposed an exception to allow an entity qualifying as a “traditional investment company” to own and control more than 70% of an SBIC. SBA solicited comments on the proposed rule and specifically sought comment as to whether the proposed exception should be expanded to cover other categories of investors. SBA received no comments on the proposed rule and, accordingly, is finalizing it without substantive change. SBA has made certain minor non-substantive edits to the proposed version of section 107.150 (“Management-ownership diversity requirement”), including relettering of the paragraphs, in order to conform to drafting requirements of the **Federal Register** . The proposed rule summarized the changes in the management-ownership diversity regulation since its adoption in 1994. That summary and SBA's explanation of the proposed changes to the regulation, all of which have been implemented in this final rule, are repeated here as a convenience to the reader. In 1994, SBA adopted a regulation requiring that all small business investment companies (“SBICs”) intending to issue participating securities have independence, or “diversity”, between the management and the ownership of the company. 59 Fed. Reg. 16918 (April 8, 1994). This requirement of independence was designed to prevent the types of abuses that SBA had observed in SBICs owned and operated by a single individual or group of individuals. The abuses, which included conflict of interest transactions, misapplication of funds, and other types of self-dealing activities, had resulted in significant losses to SBA. To satisfy the 1994 management-ownership diversity regulation, at least 30% of the capital of the SBIC had to be owned by investors who were neither Associates nor Affiliates of any Associates of the SBIC (as such terms were defined in 13 CFR Parts 107 and 121). In other words, at least 30% of the capital of the SBIC had to be owned by investors who were not part of the SBIC's management team and did not control the SBIC's management team. In general, three such “diversity investors” were required, but a single diversity investor would suffice if the investor was an entity that met certain net worth and regulatory oversight requirements. The 1994 regulation permitted an SBIC with a parent company ( *i.e.,* an investor owning greater than 50% of the SBIC) to treat the parent company's investors as if they were direct investors in the SBIC for purposes of demonstrating diversity. SBA would, in effect, “look-through” to the investors in the parent company for the desired independence from, and oversight of, the management of the SBIC. In 1996, SBA extended the management-ownership diversity requirement to all new SBICs intending to use SBA financial assistance, or “leverage”, whether the leverage was in the form of participating securities or debentures. 61 FR 3177 (January 31, 1996). SBA also replaced the automatic look-through provision described above with a discretionary look-through: SBA, in the exercise of its discretion, could look through to the parent's investors, but such treatment was no longer automatic. This change was in response to the increasing complexity SBA was encountering in “drop-down” SBICs (SBIC subsidiaries of larger companies), where the combination of multi-tiered organizational structures and other factors had led SBA to conclude that the necessary oversight by independent owners might not be present. SBA could still look through to the parent company's investors to find diversity, but would do so only if SBA believed that the result was consistent with the intent of the diversity regulation. Later in 1996, Congress expressed its support for management-ownership diversity by enacting a statutory provision requiring SBA to ensure that the management of all new SBICs “is sufficiently diversified from and unaffiliated with the ownership of the licensee in a manner that ensures independence and objectivity in the financial management and oversight of the investments and operations of the licensee.” 15 U.S.C. 682(c); Public Law 104-208, section 208(c)(3) (September 30, 1996). SBA subsequently made minor changes to strengthen the management-ownership diversity regulation. These changes included requiring

(1)that the diversity investors be unrelated to each other,

(2)that each diversity investor have a significant ownership interest in dollar and percentage terms, and

(3)that an SBIC's diversity be evidenced in its paid-in capital, not just its unfunded commitments. 63 FR 5859 (February 5, 1998). As SBA stated in the proposed rule published on August 14, 2000, SBA believes that, overall, the management-ownership diversity regulation has been successful in encouraging the presence of investors who are truly independent of management. However, SBA has had concerns as to whether independence was assured when a single investor, unrelated to the management team, owned substantially all of an SBIC. To provide diversity under the regulation as in effect since 1994, the non-management interest was required to be at least 30% of the SBIC, but could have been as much as 100% and could have been owned by a single entity. This single super-majority investor could provide the required diversity from management as long as the investor did not control, was not controlled by, and was not under common control with, the managers of the SBIC. Thus, for diversity to be provided by a single super-majority investor who was otherwise unrelated to the SBIC's management team, SBA had to conclude that the investor did not control the SBIC's managers by virtue of the size of the investor's ownership interest in the SBIC. As SBA explained in the proposed rule, SBA believes that the degree of influence that can be exerted by a super-majority investor may significantly reduce the management team's ability to act independently and objectively. The larger the size of an investor's ownership interest, the greater the investor's potential influence over the activities of the SBIC. This is true even if the investor is a passive limited partner. At some ownership level, an investor's power to influence effectively becomes the power to control the managers of the SBIC, and the management team can no longer be said to have the ability to act independently. SBA's experience in administering the management-ownership diversity regulation persuaded it that it is difficult to objectively establish when that ownership level is reached. However, if the super-majority investor is limited to owning not more than 70%, and there is a 30% diversity investor that is independent of both the management and the super-majority investor, the super-majority investor's degree of potential influence on management becomes acceptable. Accordingly, SBA proposed to amend the management-ownership diversity regulation, section 107.150, to prohibit ownership of more than 70% of a leveraged SBIC by a single investor or group of affiliated investors. SBA recognized that there might be categories of investors who could be permitted to own in excess of 70% of an SBIC without destroying the SBIC's management-ownership diversity. SBA proposed an exception for one such category—the traditional investment company—a professionally managed firm organized exclusively to pool capital from more than one source for the purpose of investing in businesses that are expected to generate substantial returns to the firm's investors. A subsidiary SBIC of such a traditional investment company can offer meaningful management-ownership diversity even if the investment company owns substantially all of the SBIC. This is true for a number of reasons. First, a traditional investment company has managers who are largely unrelated to and unaffiliated with the investors in the firm. These independent managers typically also serve as the managers of the subsidiary SBIC. Second, the managers of a traditional investment company and its subsidiary SBIC are properly authorized and motivated to make investments that, in their independent judgment, are likely to produce significant returns to all investors in the investment company and in the SBIC. Although the managers act independently of the investors in the firm, they are directly accountable to them. Most importantly, a traditional investment company benefits from the use of a subsidiary SBIC only if the SBIC makes profitable investments. As SBA discussed in the proposed rule, SBICs with other types of super-majority investors do not necessarily present the same degree of management independence and objectivity, plus investor oversight. The objectives of other super-majority investors may include something other than profit maximization at the SBIC level. Large operating companies, for example, may profit from the use of a subsidiary SBIC other than through the financial performance of the SBIC. The SBIC might make strategic investments to support or otherwise benefit the non-investing activities of the operating company, rather than investments intended solely to contribute to the profitability of the SBIC. This would defeat one of the underlying purposes of management-ownership diversity—the protection of SBA's financial interest in the SBIC. Under the final rule, a traditional investment company is permitted to own and control more than 70% of an SBIC. In addition, the final rule adopts without change the proposed revisions to the 30% test (new paragraph

(c)of section 107.150) in the management-ownership diversity regulation. Under those revisions,

(1)publicly-traded licensees can no longer automatically satisfy the 30% test,

(2)two new categories are added to the list of entities permitted to serve as the sole (30%) diversity investor in an SBIC, and

(3)the scope of one of the other categories of entities on that list is clarified. The first of those revisions is accomplished by deleting paragraph (a)(2) of the old diversity regulation. The second revision, the addition of two new categories of entities permitted to serve as the sole diversity investor, appears in new paragraphs (c)(1)(ii) and

(iii)of section 107.150. The new categories are Institutional Investors that

(1)are listed on the New York Stock Exchange or

(2)are publicly-traded and meet the minimum numerical and corporate governance listing standards of that Exchange. Companies satisfying either of these listing standards have sufficient size and public oversight and visibility to justify treating them the same as regulated companies for purposes of the diversity regulation. SBA expects this change to resolve any uncertainty as to the requirements for a publicly-traded company to be considered acceptable to SBA as a single diversity investor under the regulation. The third revision referred to above appears in new paragraph (c)(1)(i) of section 107.150. It makes clear that an entity seeking to qualify as the sole diversity investor because it is subject to government oversight or regulation must have its overall activities both regulated and periodically examined by a governmental authority satisfactory to SBA. U.S. federal and state bank regulators or insurance commissions are examples of satisfactory governmental authorities for this purpose. Regulation of an entity's health and safety activities by the Office of Safety and Health Administration (OSHA), on the other hand, would not be acceptable for this purpose. An existing SBIC that is not currently required to have diversity will become subject to the new management-ownership diversity regulation only if

(1)the SBIC applies for approval of a change of control and SBA requires diversity as a condition of its approval, or

(2)the SBIC was not licensed with the expectation that it would issue leverage but it now seeks approval to do so. As was proposed, SBA also is amending section 107.440(c) to clarify that SBA's approval of a change of control of an SBIC may be conditioned upon the licensee's compliance with the diversity regulation, as well as minimum capital requirements, then in effect. This has been SBA's practice since the diversity regulation was first adopted. Compliance With Executive Orders 12866, 12988, and 13132, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Paperwork Reduction Act (44 U.S.C. Ch. 35). This final rule is not a significant regulatory action for purposes of Executive Order 12866 and therefore was not reviewed by the Office of Management and Budget. SBA has determined that this final rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601-612. The purpose of the final rule is to redefine and clarify the concept of management-ownership diversity in an SBIC. The final rule will not apply to the approximately 365 companies currently licensed as SBICs, except in the insignificant number of cases where a transfer of control of the licensee occurs or where an SBIC that was not licensed with the expectation that it would issue leverage applies for such approval. For purposes of Executive Order 12988, SBA has determined that this final rule is drafted, to the extent practicable, in accordance with the standards set forth in Section 3 of that Order. For purposes of Executive Order 13132, SBA has determined that this final rule will have no federalism implications. For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this final rule contains no new reporting or recordkeeping requirements. List of Subjects in 13 CFR Part 107 Investment companies, Loan programs—business, Reporting and recordkeeping requirements, Small businesses. For the reasons stated above, the SBA amends 13 CFR part 107 as follows: PART 107—SMALL BUSINESS INVESTMENT COMPANIES 1. The authority citation for part 107 continues to read as follows: Authority: 15 U.S.C. 681 *et seq.* , 683, 687(c), 6887b, 687d, 687g and 687m. 2. Revise § 107.150 to read as follows: § 107.150 Management-ownership diversity requirement.

(a)*Diversity requirement.* You must satisfy the requirements in paragraphs (b),

(c)and

(d)of this section:

(1)In order to obtain an SBIC license (unless you do not plan to obtain Leverage),

(2)If at the time you were licensed you did not plan to obtain Leverage, but you now wish to be eligible for Leverage, or

(3)If SBA so requires as a condition of approval of your transfer of Control under § 107.440.

(b)*Percentage ownership requirement.*

(1)Except as provided in paragraph (b)(2) of this section, no Person or group of Persons who are Affiliates of one another may own or control, directly or indirectly, more than 70 percent of your Regulatory Capital or your Leverageable Capital.

(2)*Exception.* An investor that is a traditional investment company, as determined by SBA, may own and control more than 70 percent of your Regulatory Capital and your Leverageable Capital. For purposes of this section, a traditional investment company must be a professionally managed firm organized exclusively to pool capital from more than one source for the purpose of investing in businesses that are expected to generate substantial returns to the firm's investors. In determining whether a firm is a traditional investment company for purposes of this section, SBA will also consider:

(i)Whether the managers of the firm are unrelated to and unaffiliated with the investors in the firm;

(ii)Whether the managers of the firm are authorized and motivated to make investments that, in their independent judgment, are likely to produce significant returns to all investors in the firm;

(iii)Whether the firm benefits from the use of the SBIC only through the financial performance of the SBIC; and

(iv)Other related factors.

(c)*Non-affiliation requirement.*

(1)*General rule.* At least 30 percent of your Regulatory Capital and Leverageable Capital must be owned and controlled by three Persons unaffiliated with your management and unaffiliated with each other, and whose investments are significant in dollar and percentage terms as determined by SBA. Such Persons must not be your Associates (except for their status as your shareholders, limited partners, or members) and must not Control, be Controlled by, or be under Common Control with any of your Associates. A single “acceptable” Institutional Investor may be substituted for two or three of the three Persons who are otherwise required under this paragraph. The following Institutional Investors are “acceptable” for this purpose:

(i)Entities whose overall activities are regulated and periodically examined by state, Federal or other governmental authorities satisfactory to SBA;

(ii)Entities listed on the New York Stock Exchange;

(iii)Entities that are publicly-traded and that meet both the minimum numerical listing standards and the corporate governance listing standards of the New York Stock Exchange;

(iv)Public or private employee pension funds;

(v)Trusts, foundations, or endowments, but only if exempt from Federal income taxation; and

(vi)Other Institutional Investors satisfactory to SBA.

(2)*Look-through for traditional investment company investors.* SBA, in its sole discretion, may consider the requirement in paragraph (c)(1) of this section to be satisfied if at least 30 percent of your Regulatory Capital and Leverageable Capital is owned and controlled indirectly, through a traditional investment company, by Persons unaffiliated with your management.

(d)*Voting requirement.*

(1)Except as provided in paragraph (d)(2) of this section, the investors required for you to satisfy diversity may not delegate their voting rights to any Person who is your Associate, or who Controls, is Controlled by, or is under Common Control with any of your Associates, without prior SBA approval.

(2)*Exception.* Paragraph (d)(1) of this section does not apply to investors in publicly-traded Licensees, to proxies given to vote in accordance with specific instructions for single specified meetings, or to any delegation of voting rights to a Person who is neither a diversity investor in the Licensee nor affiliated with management of the Licensee.

(e)*Requirement to maintain diversity.* If you were required to have management-ownership diversity at any time, you must maintain such diversity while you have outstanding Leverage or Earmarked Assets. To maintain management-ownership diversity, you may continue to satisfy the diversity requirement as in effect at the time it was first applicable to you or you may satisfy the management-ownership diversity requirement as currently in effect. If, at any time, you no longer have the required management-ownership diversity, you must:

(1)Notify SBA within 10 days; and

(2)Re-establish diversity within six months. For the consequences of failure to re-establish diversity, see §§ 107.1810(g) and 107.1820(f). 3. In § 107.440, revise paragraph

(c)to read as follows: § 107.440 Standards governing prior SBA approval for a proposed transfer of Control.

(c)Require compliance with any other conditions set by SBA, including compliance with the requirements for minimum capital and management-ownership diversity as in effect at such time for new license applicants. Dated: November 16, 2000. Aida Alvarez, Administrator. [FR Doc. 00-30415 Filed 11-28-00; 8:45 am]

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