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EXHIBIT 5.01
TANNER PROPP, LLP
99 PARK AVENUE
NEW YORK, NEW YORK 10016
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Tel (212) 476-0700
Fax (212) 687-0056
LESTER J. TANNER
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PARTNER
WRITER'S DIRECT DIAL
(212) 476-0710
November 16, 2000
MFC Development Corp.
271 North Avenue
New Rochelle, NY 10801
Re: MFC DEVELOPMENT CORP.
Gentlemen and Ladies:
This letter supplements our previous letter dated September 29, 2000
and is written in connection with the General Form For Registration (Amendment
No. 1 to Form 10) of the Common Stock, Par Value $.001 per share ("Common
Stock") of MFC Development Corp., a Delaware corporation ("MFC" or the
"Company"). It is our opinion that the 1,800,000 shares of MFC Common Stock to
be distributed as a dividend to the shareholders of FRM Nexus, Inc. ("FRM
Corp.") upon the effective date of MFC's Form 10 Registration is not required to
be registered under the Securities Act of 1933, as amended. This letter will
provide our reasoned legal analysis and the underlying facts on which we base
that conclusion.
Section 5 of the Securities Act of 1933, as amended (the "1933 Act")
requires registration of a "sale" of securities unless the transaction is
exempted by Section 4 of the 1933 Act. Section 4(2) provides that the provisions
of Section 5 shall not apply to transactions by an issuer not involving any
public offering. In our opinion this "spin-off" of MFC stock by FRM Corp is
neither a "sale" nor a "public offering" of the securities by FRM Corp.
Our opinion dated September 29, 2000 based this conclusion on the
following paragraph on the second page:
"MFC has been a wholly owned subsidiary of FRM Corp. since November
17, 1993. The shareholders of FRM Corp. are not providing any
consideration for the MFC Common Stock they will receive pro-rata to
their ownership of FRM Corp. common stock. The Form 10 provides
adequate information about the distribution and about MFC including
the separate businesses to be conducted in the future by the separate
management and employees of each of FRM Corp. and MFC."
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We wish to expand on these reasons and provide underlying facts as
presented in the Company's Registration under the Securities Exchange Act of
1934 (the "1934 Act"). In doing so, we wish to coordinate this opinion with
Staff Legal Bulletin No. 4 (CF), September 16, 1997 (the "Staff Legal
Bulletin"). We understand that the Staff Legal Bulletin represents the views of
the staff of the Division of Corporation Finance. In this transaction those
views confirm for us that the spin-off is not a "sale" of the MFC common stock
by FRM Corp.
A registration under the 1933 Act is not required in the Division's
view if five conditions are met. These conditions are set forth below with the
underlying facts of this transaction.
1. THE SHAREHOLDERS OF FRM CORP. DO NOT PROVIDE CONSIDERATION FOR
THE SPUN-OFF SHARES OF MFC.
The MFC shareholders are receiving the MFC common stock as a spin-off
distribution. They are not paying for the shares. Form 10 states as follows:
"The Board of Directors of FRM Corp. has adopted resolutions to
distribute on November 30, 2000, or such later date as this
registration statement becomes effective, to its shareholders as of
the close of business on November 1, 2000 (the "record date") one
share of MFC common stock for each one share of FRM common stock". at
page 3.
2. THE SPIN-OFF MUST BE PRO-RATA.
In this case, as indicated in paragraph 1, the spin-off is pro-rata
because FRM's shareholders have the same proportionate interest in FRM Corp. and
MFC both before and after the date of distribution of the MFC stock.
3. FRM CORP MUST PROVIDE ADEQUATE INFORMATION TO ITS SHAREHOLDERS
AND THE TRADING MARKETS.
FRM is a reporting company. MFC is not a reporting company but the
final Form 10 will be given to FRM's shareholders with the distribution of the
MFC stock. At that time the MFC stock will have been registered by MFC under the
1934 Act. We believe that the Form 10 as amended substantially complies with
Regulation 14C under the 1934 Act.
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4. VALID BUSINESS PURPOSE FOR SPIN-OFF
FRM Corp is not retaining any portion of the MFC shares so it cannot
be receiving any value for the spun-off shares through the creation of a market
in those securities. Moreover, the Division has recognized specific examples of
valid business purposes even where the parent retains shares of the spun-off
company. The Form 10 notes that the applicability of these specific examples in
this text at page 4.
"The Company and FRM Corp. will be engaged, after the distribution of
the shares to be spun-off, in different businesses. The Company will continue to
engage in the real estate and medical business as described herein. See the
chart of its subsidiaries below as the same will be in effect after the
spin-off. FRM Corp. will have no subsidiary after the spin-off and will seek to
develop an internet strategy that is not limited to the medical field. It will
use its new management's experience to identify, and participate with, companies
in early stages of promising business strategies including but not limited to
high technology products and systems, computers, software, and products in the
internet and other sectors. The two websites which had been established for the
medical division, and referred to below, will belong to MFC which will use it
for marketing.
"The spin-off will enable each corporation to be identified by its
shareholders and trading markets for the separate business in which they engage
and focus on their different business sectors. This separation will enhance
access to the financial and business community by allowing each corporation to
raise capital and obtain lending facilities to take advantage of growth
opportunities in their respective business activities. Incentivizing management
and employees who do not already have significant equity interests and the
separation of the two corporations will permit each of them to issue stock-based
incentives linked specifically to the results of the operations of one or the
other corporation. After the spin-off the Company, FRM Corp. will be raising
private equity capital from the FRM Control Group by the sale of its common
stock. The Company, which has no present intention to sell common stock, will
conduct its business as shown in this diagram or chart of subsidiaries."
5. FRM CORP IS NOT SPINNING OFF "RESTRICTED SECURITIES" AND MFC
HAS BEEN A SUBSIDIARY FOR MORE THAN TWO YEARS.
Where a company spins-off "restricted securities" it may be an
underwriter in the public distribution of those securities. This is not the fact
here. Moreover in the Staff Legal Bulletin, it is noted expressly that the
parent would not be an underwriter of the spun-off securities and the subsidiary
would not have to register the spin-off under the 1933 Act even when there are
"restricted securities" where the stock is held for at least two years and the
spin-off satisfies the four conditions described above. Moreover it is
specifically noted by the Division that even the two-year holding period
condition does not apply where the parent did not acquire the business from a
third party. That is also the fact in this transaction.
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CONCLUSION
In our opinion, the MFC Common Stock to be distributed to the
shareholders of FRM Corp on November 30, 2000, or such later date as its
registration of said securities under the Securities Exchange Act of 1934
becomes effective, is not required to be registered under the Securities Act of
1933 because the distribution is not a "sale" pursuant to Section 5 of said Act.
The transaction is also an exempted transaction under Section 4 (2) of said Act.
Very truly yours,
/s/ Tanner Propp, LLP
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