40-APP: Applications under the Investment Company Act other than those reviewed by Office of Insurance Products
Published on May 11, 2010
Table of Contents
File No. 812
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Application For An Amended Order Pursuant To Sections 6(c), 12(d)(1)(J) and 57(c) of the Investment
Company Act of 1940 (1940 Act) granting exemptions from Sections 12(d)(1)(A) and (C), 18(a),
21(b), 57(a)(1) (a)(3), and 61(a) of the 1940 Act; under Section 57(i) of the 1940 Act and Rule
17d-1 under the 1940 Act to permit certain joint transactions otherwise prohibited by Section
57(a)(4) of the 1940 Act, and under Section 12(h) of the Securities Exchange Act of 1934 (Exchange
Act) granting an exemption from Section 13(a) of the Exchange Act
Company Act of 1940 (1940 Act) granting exemptions from Sections 12(d)(1)(A) and (C), 18(a),
21(b), 57(a)(1) (a)(3), and 61(a) of the 1940 Act; under Section 57(i) of the 1940 Act and Rule
17d-1 under the 1940 Act to permit certain joint transactions otherwise prohibited by Section
57(a)(4) of the 1940 Act, and under Section 12(h) of the Securities Exchange Act of 1934 (Exchange
Act) granting an exemption from Section 13(a) of the Exchange Act
TRIANGLE CAPITAL CORPORATION
TRIANGLE MEZZANINE FUND LLLP
NEW TRIANGLE GP, LLC (NC)
NEW TRIANGLE GP, LLC (DE)
TRIANGLE MEZZANINE FUND II LP
TRIANGLE MEZZANINE FUND LLLP
NEW TRIANGLE GP, LLC (NC)
NEW TRIANGLE GP, LLC (DE)
TRIANGLE MEZZANINE FUND II LP
All Communications, Notices and Orders to: | Copies to: | |
Garland S. Tucker III and Steven C. Lilly | John A. Good, Esq. | |
Triangle Capital Corporation | Helen W. Brown, Esq. | |
3700 Glenwood Avenue, Suite 530 | Bass, Berry & Sims PLC | |
Raleigh, NC 27612 | 100 Peabody Place, Suite 900 | |
Telephone: (919) 719-4770 | Memphis, Tennessee 38103 | |
Telephone: (901) 543-5918 |
As filed with the Securities and Exchange Commission
On May 11, 2010
On May 11, 2010
TABLE OF CONTENTS
SIGNATURES |
Table of Contents
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
In the Matter of: Triangle Capital Corporation, Triangle Mezzanine Fund LLLP New Triangle GP, LLC New Triangle GP, LLC Triangle Mezzanine Fund II LP 3700 Glenwood Avenue, Suite 530 Raleigh, NC 27612 File No. 812- Investment Company Act of 1940 |
: : : : : : : : : : : : |
APPLICATION FOR AN AMENDED ORDER PURSUANT TO SECTIONS 6(c), 12(d)(1)(J) AND 57(c) OF THE INVESTMENT COMPANY ACT OF 1940 GRANTING EXEMPTIONS FROM SECTIONS 12(d)(1)(A) AND (C), 18(a), 21(b), 57(a)(1) (a)(3), AND 61(a) OF THE 1940 ACT; UNDER SECTION 57(i) OF THE 1940 ACT AND RULE 17d-1 UNDER THE 1940 ACT TO PERMIT CERTAIN JOINT TRANSACTIONS OTHERWISE PROHIBITED BY SECTION 57(a)(4) OF THE 1940 ACT, AND UNDER SECTION 12(h) OF THE SECURITIES EXCHANGE ACT OF 1934 GRANTING AN EXEMPTION FROM SECTION 13(a) OF THE EXCHANGE ACT. |
||
Triangle Capital Corporation, a Maryland corporation (Triangle), Triangle Mezzanine Fund
LLLP, a North Carolina limited liability limited partnership (TMF), New Triangle GP, LLC, a North
Carolina limited liability company (General Partner), New Triangle GP, LLC, a Delaware limited
liability company (GP II), and Triangle Mezzanine Fund II LP, a Delaware limited partnership
(SBIC II) (collectively, the Applicants), respectfully request an order (the Amended Order) of
the U.S. Securities and Exchange Commission (the Commission) pursuant to Sections 6(c),
12(d)(1)(J), 57(c), and 57(i) of the Investment Company Act of 1940 (1940 Act),1 and
under Rule 17d-l thereunder, and under Section 12(h) of the Securities Exchange Act of 1934
(Exchange Act) granting an exemption from Section 13(a) of the Exchange Act. The Amended Order
would amend an exemptive order issued by the Commission on October 14, 2008 (the Prior
Order)2 that was granted pursuant to Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of
the 1940 Act, and under Rule 17d-l thereunder, and under Section 12(h) of the Exchange Act.
1 | Unless otherwise indicated, all section references herein are to the 1940 Act. | |
2 | In the Matter of Triangle Capital Corporation, Investment Company Act Release Nos. 28383 (September 19, 2008) (notice) and 28437 (October 14, 2008) (order). |
2
Table of Contents
I. BACKGROUND AND SUMMARY OF APPLICATION
A. Request for Amended Order
In this application (Application), the Applicants, respectfully request an order (the
Amended Order) of the Commission pursuant to Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of the
Investment Company Act of 1940 (1940 Act), and under Rule 17d-l thereunder, and under Section
12(h) of the Securities Exchange Act of 1934 (Exchange Act). The Amended Order would amend an
exemptive order issued by the Commission on October 14, 2008 (the Prior Order)3 that
was granted pursuant to Sections 6(c), 12(d)(1)(J), 57(c), and 57(i) of the 1940 Act, and under
Rule 17d-l thereunder, and under Section 12(h) of the Exchange Act to Triangle, TMF and the General
Partner. The Prior Order permits Triangle and TMF to operate effectively as one company,
specifically allowing them to: (1) engage in certain transactions with each other; (2) invest in
securities in which the other is or proposes to be an investor; (3) be subject to modified
consolidated asset coverage requirements for senior securities issued by a business development
company and its small business investment company subsidiary; and (4) file consolidated reports
with the Commission.
The Prior Order granted the above relief to transactions between Triangle and, at the time of
the Prior Order, Triangles only wholly-owned small business investment company subsidiary, TMF.
Subsequent to the Prior Order, Triangle has formed a new wholly-owned small business investment
company subsidiary, SBIC II. The Applicants are requesting an amendment to the Prior Order to add
SBIC II, GP II, as well as any future Subsidiaries of Triangle, all of whose equity securities are
owned or will be owned directly or indirectly by Triangle and that are (or will be) consolidated by
Triangle for financial reporting purposes (collectively, the Subsidiaries, and each a
Subsidiary).
In particular, the relief requested by this Application for an Amended Order would: (1) permit
Triangle and any existing and future Subsidiary to engage in certain transaction that
3 | In the Matter of Triangle Capital Corporation, Investment Company Act Release Nos. 28383 (September 19, 2008) (notice) and 28437 (October 14, 2008) (order). |
3
Table of Contents
would otherwise be permitted if Triangle and its Subsidiaries were one company and (2) permit
Triangle, TMF, SBIC II, and to the extent that any of Triangles current or future Subsidiaries are
(or will become) licensed by the Small Business Administration (SBA) to operate under the Small
Business Investment Act of 1958 (SBA Act) as a small business investment company (SBIC)
(collectively, the SBIC Subsidiaries, and each an SBIC Subsidiary), to adhere to modified asset
coverage requirements under Section 61 of the 1940 Act.
Triangle may in the future create wholly-owned Subsidiaries that may also be SBICs or in some
cases may not be SBICs. TMF, SBIC II, any future Subsidiary of Triangle, including any SBIC
Subsidiary, are collectively referred to in this Application as the Subsidiaries. Any future
Subsidiary that relies on this order will do so only in accordance with the terms and conditions of
the order.
As discussed above, the Prior Order grants relief from Sections 12(d)(1)(A) and (C), 18(a),
21(b), 57(a)(1) (a)(3), and 61(a) of the 1940 Act; under Section 57(i) of the 1940 Act and Rule
17d-1 under the 1940 Act and under Section 12(h) of the Exchange Act to Triangle and TMF, but the
Prior Order did not specifically request relief for any future Triangle Subsidiaries. The
Applicants are submitting this request to amend the Prior Order to request the same exemptive
relief for SBIC II and any future Subsidiary that was granted under the Prior Order with respect to
TMF.
The terms and conditions of the Prior Order will continue to apply to Triangle, TMF and the
General Partner. Any existing entities that currently intend to rely on the Amended Order have
been named as Applicants, and any other existing or future entities that may rely on the Amended
Order in the future would comply with its terms and conditions.
B. Comparability of Relief Sought to Prior Relief Granted by the Commission
Applicants assert that the relief requested in this Application is identical to that granted
in the Prior Order, except that this Application requests relief for SBIC II and any future
Triangle Subsidiary.
4
Table of Contents
In preparing this Application with respect to transactions between the Applicants, Applicants
have reviewed previous exemptive orders issued by the Commission granting exemptive relief similar
to that requested herein, including relief with respect to possible future wholly-owned
subsidiaries of the parent. See MCG Capital Corporation, et al., File No. 812-13428, order issued
October 28, 2008 in Release IC-28474 (MCG Capital); Main Street Capital Corporation, et. al.,
File No. 812-13441, order issued in Release IC-28120, January 16, 2008 (Main Street); Hercules
Technology Growth Capital, Inc. et al. File No 812-13238, order granted in Release No. IC-27776,
April 5, 2007 (Hercules); Elk Associates Funding Corporation, et al., File No. 812-11420, order
issued in Release IC-24121 (November 2, 1999) (Elk Associates); Berthel Growth & Income Trust, et
al., File No. 812-10830, order issued in Release IC- 23864, June 8, 1999 (Berthel); and Allied
Capital Corporation, et al., File No. 812-10870, order granted in Release No. IC-22941, December
16, 1997 (Allied).4
In MCG, Main Street, Hercules, Elk Associates and Allied, a parent BDC with an SBIC subsidiary
obtained substantially the same relief as requested in this application, including relief as to
possible future wholly-owned subsidiaries of the parent. In MCG, Main Street and Hercules, the
application includes both future wholly-owned subsidiaries of the parent and future subsidiaries
that may operate as SBICs. In each case, the orders permit a parent BDC and its wholly-owned
subsidiaries (some of which are SBICs) to engage in certain transactions that otherwise would be
permitted if the BDC parent and its subsidiaries were one company and permits the parent BDC to
adhere to modified asset coverage requirements.
In addition, the relief requested in this Application is substantially similar to the relief
granted by the Commission pursuant to the orders cited in the prior application relating to the
Prior Order. Applicants have used the application filed in connection with the Prior Order as a
model for this Application, making the same kinds of representations and agreeing to similar
conditions, except that this Application includes Subsidiaries formed since the Prior Order and
requests relief for future Subsidiaries.
4 | In addition, the Commission is currently reviewing applications requesting similar relief, including relief as to possible future wholly-owned subsidiaries of the parent. See Fifth Street Finance Corp. et al., File No. 812-13698, filed with the Commission on September 9, 2009 (Fifth Street); Waterside Capital Corporation, et al., File No. 812-13705 filed with the Commission on September 9, 2009 (Waterside); and Rand Capital Corporation et al., File No. 812-13634, last amendment filed with the Commission on August 5, 2009 (Rand). |
5
Table of Contents
II. GENERAL DESCRIPTION OF APPLICANTS
A. Triangle Capital Corporation
Triangle Capital Corporation was organized under the General Corporation Law of the State of
Maryland on October 10, 2006, for the purpose of operating as an internally-managed,
non-diversified, closed-end management investment company that has elected to be regulated as a
business development company (BDC) within the meaning of Section 2(a)(48) of the 1940
Act.5 In addition, Triangle has elected to be treated for tax purposes as a regulated
investment company (RIC) as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended (Code).
Triangle first offered its common stock to the public (IPO) pursuant to an effective
Registration Statement on Form N-2 on February 13, 2007. Triangles common stock is listed on the
Nasdaq Global Market and trades under the ticker symbol TCAP.
On February 21, 2007, through a series of transactions that occurred simultaneously with the
closing of the IPO, Triangle acquired all of the equity interests in TMF and the General Partner,
each of which now operates as a subsidiary of Triangle.
Triangle operates as a specialty finance company that provides customized financing solutions
to lower middle market companies that have annual revenues between $10.0 and $100.0 million.
Triangles investment objective is to seek attractive returns by generating current income from
debt investments and capital appreciation from equity related investments. Triangles investment
philosophy is to partner with business owners, management teams and financial sponsors to provide
flexible financing solutions to fund growth, changes of control, or other corporate events.
Triangle invests primarily in senior and subordinated debt securities secured by first and second
lien security interests in portfolio company assets, coupled with equity interests. Triangles
investments generally range from $5.0 to $15.0 million per portfolio
5 | Section 2(a)(48) defines a BDC to be any closed-end investment company that operates for the purpose of making investments in securities described in Sections 55(a)(1) through 55(a)(3) of the 1940 Act and makes available significant managerial assistance with respect to the issuers of such securities. |
6
Table of Contents
company. In certain situations, Triangle has partnered with other unaffiliated funds to provide
larger financing commitments.
Triangles board of directors (Triangle Board) consists of eight members, five of whom are
not interested persons of Triangle within the meaning of Section 2(a)(19) of the 1940 Act (the
Non-Employee Directors). Triangle is internally managed by its executive officers under the
supervision of the Triangle Board. As a result, Triangle does not pay external investment advisory
fees, but instead incurs operating costs associated with employing investment and portfolio
management professionals.
B. The Subsidiaries
1. TMF
TMF was organized as a limited liability limited partnership under the laws of the State of
North Carolina on August 14, 2002 and received its license from the SBA on September 11, 2003 to
operate as a small business investment company under the SBA Act. Due to TMFs status as a licensed
SBIC, we have the ability to issue, through TMF, debentures guaranteed by the SBA at favorable
interest rates. Under the regulations applicable to SBIC funds, an SBIC can have outstanding
debentures guaranteed by the SBA generally in an amount up to twice its regulatory capital, which
effectively approximate the amount of its equity capital. Since the IPO, TMF has had the same
investment objectives and strategies as Triangle, as summarized above.
As a result of the IPO and other formation transactions, TMF failed to meet the requirements
for exclusion from the definition of an investment company set forth in Section 3(c)(1) of the 1940
Act by reason of subparagraph (A) of Section 3(c)(1) of the 1940 Act. Accordingly, on February 5,
2007, TMF, as a co-registrant, filed its Registration Statement on Form N-5 with the Commission and
on February 21, 2007, filed an election on Form N-54A to be regulated as a BDC under the 1940 Act.
Triangle directly owns a 99.9% limited partnership interest in TMF. The General Partner, a
wholly owned subsidiary of Triangle, owns a 0.1% general partnership interest in TMF. Therefore,
TMF is functionally a 100% owned subsidiary of Triangle because Triangle
7
Table of Contents
and the General Partner own all of the equity and voting interest in TMF. TMF is consolidated
with Triangle for financial reporting purposes.
Notwithstanding its limited partnership structure, the Second Amended and Restated Agreement
of Limited Partnership of TMF (LP Agreement), permits the appointment of a board of directors,
which appointment is permitted by the North Carolina Revised Uniform Limited Partnership Act, with
the authority to manage the business and affairs of TMF and take all action that the general
partner could otherwise take except any action required by statute to be taken by the general
partner of a North Carolina limited liability limited partnership. Consequently, pursuant to the LP
Agreement, the equity owners of TMF have appointed a board of directors (TMF Board) consisting of
five persons who are not interested persons of TMF within the meaning of Section 2(a)(19) of the
1940 Act and three persons who are interested persons of TMF. The members of the TMF Board are
appointed each year by the equity owners of TMF (i.e., Triangle and the General Partner). Under
the LP Agreement, the General Partner has irrevocably delegated the authority to manage the
business and affairs of TMF to the TMF Board. The SBA has approved the LP Agreement and the
members of the TMF Board pursuant to SBA regulations. We believe this structure is identical to
that structure proposed in the SECs No-Action Letter issued to Federated Core Trust II, L.P (the
Federated Core letter).6 In the case of TMF, the provision of the North Carolina
Revised Uniform Limited Partnership Act permitting delegation of general partner authority to a
board of directors is identical to the provisions in the Delaware Revised Uniform Limited
Partnership Act cited in the Federated Core letter.
2. SBIC II
SBIC II was organized as a limited partnership under the laws of the state of Delaware on
December 15, 2009, and received its license from the SBA on May 10, 2010 to operate as a small
business investment company under the SBA Act. As an SBIC, SBIC II will be subject to the same
regulatory scheme as TMF. Unlike TMF, SBIC II will not be registered under the 1940 Act based on
the exclusion from the definition of investment company contained in Section 3(c)(7) of the 1940
Act.
6 | See Federated Core Trust II, L.P., SEC No-Action Letter, pub. avail. February 6, 2002. |
8
Table of Contents
Triangle directly owns a 99.9% limited partnership interest in SBIC II. GP II, a wholly owned
subsidiary of Triangle, owns a 0.1% general partnership interest in SBIC II. Therefore, SBIC II is
functionally a 100% owned subsidiary of Triangle because Triangle and GP II own all of the equity
and voting interest in SBIC II. SBIC II is consolidated with Triangle for financial reporting
purposes.
3. Future SBIC Subsidiaries
The American Recovery and Reinvestment Act of 2009 enacted in February 2009 (the Stimulus
Bill) contains several provisions applicable to SBIC funds. One of the key SBIC-related provisions
included in the Stimulus Bill increased the maximum amount of combined SBIC leverage (or SBIC
leverage cap) to $225 million for affiliated SBIC funds. The prior maximum amount of SBIC leverage
available to affiliated SBIC funds was approximately $137 million, as adjusted annually based upon
changes in the Consumer Price Index. Due in part to the increase in the maximum amount of SBIC
leverage available to affiliated SBIC funds, Triangle formed SBIC II and may form future SBIC
Subsidiaries. In our view, the SBIC leverage, including the increased capacity, remains a strategic
advantage due to its long-term, flexible structure and a low fixed cost. Since the increase in the
SBIC leverage cap applies to affiliated SBIC funds, Triangle will allocate such increased borrowing
capacity between TMF, SBIC II and any future SBIC Subsidiary.
4. The General Partners
(a) General Partner of TMF
The General Partner was organized as a limited liability company under the laws of the state
of North Carolina on November 1, 2007 and is a wholly owned subsidiary of Triangle. The General
Partner is the sole general partner of TMF. Pursuant to the provisions of the LP Agreement, the
General Partner has irrevocably delegated its authority to manage the business and affairs of TMF
to the TMF Board.7 As a consequence, the General Partners only role is to perform
certain ministerial functions that result from decisions made by the TMF Board; the
7 | See Federated Core Trust II, L.P. (February 6, 2002). |
9
Table of Contents
General Partner is not able to prevent the TMF Board from acting independently. In addition, under
the LP Agreement, the General Partner may not seek to amend the LP Agreement or take any
substantive, non-ministerial action in the name of TMF without the prior approval of a majority of
the TMF Board.
(b) General Partner of SBIC II
GP II was organized as a limited liability company under the laws of the state of Delaware on
December 15, 2009 and is a wholly owned subsidiary of Triangle. GP II is the sole general partner
of SBIC II and owns a 0.1% general partnership interest in SBIC II.
III. PROPOSED OPERATIONS AS ONE COMPANY
A. Future Operations of Triangle and Triangles Subsidiaries.
As currently contemplated by Applicants, the following types of transactions may arise in the
future involving both Triangle and its Subsidiaries, including SBIC II.
1. Triangle may from time to time make additional investments in one or more of the
Subsidiaries either as contributions to capital, purchases of common stock, or loans. In the case
of any SBIC Subsidiary, such investments might be made for the purpose of increasing any SBIC
Subsidiaries regulatory capital to allow such SBIC Subsidiary to issue additional SBA guaranteed
debentures or increasing the size of its overline limit for any one investment.
2. One or more of the Subsidiaries may from time to time make distributions of profits and
capital to Triangle in respect of Triangles investment in such Subsidiary, subject to the
requirements of the SBA Act and regulations issued thereunder in any case involving any SBIC
Subsidiary.
3. One or more of the Subsidiaries might from time to time make loans or other advances to
Triangle, subject in each case to the requirements of the SBA Act and regulations, as applicable.
Such loans and advances might be made for the purpose of providing funds to Triangle with which to
pay dividends to maintain its qualification as a RIC or to make investments for its own account or
to pay operating expenses. As stated in the Prior Order for TMF, none of the Subsidiaries will
purchase or otherwise acquire any of the common stock in Triangle.
10
Table of Contents
4. One or more of Triangle, TMF, SBIC II or any future Subsidiary might determine from time to
time to invest in securities of the same issuer, simultaneously or sequentially, in the same or
different securities of such issuer, and to purchase or sell such investments separately or
jointly.
5. One or more of Triangle, TMF, SBIC II or any future Subsidiary might from time to time
purchase all or a portion of the portfolio investments held by the other in order to enhance the
liquidity of the selling company or for other reasons, subject in each case to the requirements of
the SBA and the regulations thereunder, as applicable.
B. Exemptive Relief Requested from Section 12(d)(1).
1. General. Section 12 of the 1940 Act applies to BDCs by virtue of Section 60 of the
1940 Act. Section 12(d)(1)(A) makes it unlawful for any registered investment company to purchase
or otherwise acquire the securities of another investment company, except to the limited extent
permitted by Sections 12(d)(1)(A)(i), (ii) and (iii). In addition, Section 12(d)(1)(C) makes it
unlawful for any investment company to purchase or otherwise acquire any security issued by a
registered closed-end investment company, if the acquiring company (and other affiliated investment
companies) would own more than 10% of the voting stock of the closed-end company.
2. Application of Section 12(d)(1) to Applicants. Unlike TMF, SBIC II will not be
registered under the 1940 Act based on the exclusion from the definition of investment company
contained in Section 3(c)(7) of the 1940 Act. However, Triangle may form future Subsidiaries that
do not meet any such exemptions and therefore may be required to register under the 1940 Act.
Triangle may make loans or advances to such Subsidiaries, which might be considered to be
acquisitions of such Subsidiaries debt or equity securities. Rule 60a-1 under the 1940 Act exempts
the acquisition by a BDC of the securities of an SBIC that is operated as a wholly-owned subsidiary
of the BDC from Section 12(d)(1)(A) and (C) of the 1940 Act. Accordingly, since Triangle is a BDC
and since TMF and SBIC II (and any future SBIC Subsidiary) is an SBIC operated as a wholly-owned
subsidiary of Triangle, the transfer of assets from Triangle to the SBIC Subsidiaries is exempt from the provisions of Section 12(d)(1)(A) and (C) by virtue
of Rule 60a-1.
11
Table of Contents
Rule 60a-1 does not, however, exempt from the provisions of Section 12(d)(1) certain upstream
transactions by an SBIC subsidiary to its BDC parent, or transactions between TMF (as a BDC) and
other Subsidiaries. The making of loans or advances by any Subsidiary to Triangle might be deemed
to violate Section 12(d)(1) if the loans or advances are construed as constituting purchases by the
Subsidiary of the securities of Triangle.
Moreover, Section 12(d)(1) would prohibit the acquisition by Triangle of the debt or equity
securities of, or the making of loans by Triangle to, future investment company Subsidiaries that
are not SBICs. As in the case of TMF, it would also prohibit the acquisition of debt securities of
Triangle by any such future Subsidiary that is also a BDC (like TMF) since they would each be a BDC
and an entity controlled by a BDC. While SBIC II is not registered under the 1940 Act in reliance
on the exemption from the definition of investment company contained in Section 3(c)(7), future
Subsidiaries may not be exempt from such registration. In the event any future Subsidiary is
formed as a BDC then loans or advances to Triangle by such future Subsidiary would be prohibited if
the transactions were deemed to be the purchase by the lender of the securities of the borrower.
3. Requested Exemptions. Section 12(d)(1)(J) of the 1940 Act provides that the
Commission may exempt persons or transactions from any provision of Section 12(d)(1) if and to the
extent such exception is consistent with the public interest and the protection of investors. As
discussed above, the Prior Order only extends relief from Section 12(d)(1)(A) and (C) to TMF but
not to any future Subsidiaries. Applicants are submitting this Application to request an Amended
Order of the Commission exempting current and future Subsidiaries (to the extent applicable)from
the provisions of Section 12(d)(1)(A) and (C) of the 1940 Act with respect to acquisitions by such
Subsidiary of any securities of Triangle representing indebtedness.
C. Exemptive Relief Requested from Sections 57(a)(1) and (2).
1. General. Sections 57(a)(1) and (2) make it unlawful for any person related to a
12
Table of Contents
BDC in the manner described in Section 57(b), or any affiliated person of that person (1) to
sell any security or other property to the BDC or to any company controlled by the BDC (except
securities of which the buyer is the issuer or securities of which the seller is the issuer and
which are part of a general offering to the holders of a class of its securities), and (2) to
purchase from any BDC or from any company controlled by such BDC any security (except securities of
which the seller is the issuer).
Section 57(b) specifies the persons to whom the prohibitions of Sections 57(a)(1) and (2)
apply. These persons include the following: (1) any director, officer, employee, or other member of
an advisory board of the BDC or any person who controls, is controlled by, or is under common
control with such director, officer, employee, or advisory board member; or (2) (A) any investment
adviser or promoter of, general partner in, principal underwriter for, or person directly or
indirectly either controlling, controlled by, or under common control with, the BDC (except the BDC
itself and any person who, if it were not directly or indirectly controlled by the BDC, would not
be directly or indirectly under the control of a person who controls the BDC), or (B) any person
(i) who controls, is controlled by, or is in common control with such adviser, promoter, general
partner, principal underwriter, or person controlling, controlled by, or under common control with
the BDC or (ii) who is an officer, director, partner, copartner, or employee of such adviser,
promoter, general partner, principal underwriter, or person controlling, controlled by, or under
common control with the BDC.
2. Application of Section 57(a)(l) and (2) to Applicants. Triangle is an affiliated
person of SBIC II by reason of its direct ownership of all of the limited partnership interests in
SBIC II and its indirect ownership of all of the general partnership interests in GP II through its
100% ownership of GP II. SBIC II will be an affiliated person of Triangle because it will be
deemed to be under the control of Triangle. Accordingly, Triangle is related to SBIC II in the
manner set forth in Section 57(b), and SBIC II is related to Triangle in the manner set forth in
Section 57(b) (and any future Subsidiaries would be related to one another in a manner described in
Section 57(b)). There may be circumstances when it is in the interest of Triangle and its
stockholders that SBIC II (or any future Subsidiary) invest in securities of an issuer that may be
deemed to be a controlled affiliate of Triangle (or of a Subsidiary) or that Triangle invest in
13
Table of Contents
securities of an issuer that may be deemed to be a controlled affiliate of SBIC II or any
future Subsidiary. For example, a portfolio company may be deemed to be affiliated with Triangle or
any Subsidiary within the meaning of Section 2(a)(3)(C) of the 1940 Act as a result of Triangles
or such Subsidiaries ownership of more than 25% of the portfolio companys voting securities.
If Triangle were to engage in SBIC activities other than through a subsidiary, transactions
with affiliated portfolio companies whether controlled or not controlled, would be permissible
without Commission approval by virtue of Rule 57b-1. The Commission made this clear in Investment
Company Act Release 11493 (December 16, 1986) where, in adopting Rule 57b-l, it stated in relevant
part:
However, non-controlled portfolio affiliates of a business development company are
not among those persons whose participation in transactions with the business
development company requires Commission approval (under Section 57(c) [15 U.S.C.
80a-56(c)] or specific statutory findings regarding the transaction by the companys
Board of Directors (under Section 57(f) [15 U.S.C. 80a-56(f)]. The legislative
history of the 1980 Amendments indicates that Congress also did not intend to
require Commission approval or such specific statutory findings by the Board of
Directors of a business development company for transactions between the company and
a controlled portfolio affiliate. As the House Committee Report on the bill which
became the 1980 Amendments states:
Conspicuously absent from the prohibitions in Section 57 against
transactions with the business development company are
persons which it controls or of which it holds at
least 5 percent of the outstanding securities. Also omitted from the
prohibitions are persons affiliated with such so-called downstream
affiliates of the business development company. In this regard, it
should be noted that the Commission has undertaken through
rulemaking to exempt all investment companies from prohibitions
relating to transactions solely between investment companies and
such downstream affiliates. The Committee again wishes to note that
if experience demonstrates that under such exclusion from statutory
prohibitions investors are not being adequately protected, the
Committee would expect to revisit this area.
H.R. Rep. No. 1341, at 48 (1980) (Comm. Rep.) (emphasis added).
However, due to an apparently inadvertent drafting error, business development
company transactions involving controlled portfolio affiliates and certain
affiliated persons of such affiliates must be approved by the Commission. The
Commission proposes to correct this error by the rulemaking.
14
Table of Contents
As pointed out in the House Committee report, even if Triangle were an investment company but
not a BDC, it would be exempt from prohibitions relating to transactions between itself and its
downstream affiliates. See Rules 17a-6 and 17d-1(d)(5) and (6). Thus, transactions between BDCs or
investment companies and their downstream affiliates are exempt from the prohibitions of Sections
57(a) and 17(a) and (d).
However, without the relief requested by this Application, purchase or sale transactions
between any of the Subsidiaries and downstream controlled affiliates of Triangle may violate
Section 57(a)(1) or (2) of the 1940 Act. Similarly, a purchase or sale transaction between
Triangle and downstream controlled affiliates of a Subsidiary may violate Section 57(a)(1) or (2)
since Rule 57b-1 may be read to only exempt from the prohibitions of Section 57(a) those affiliates
of downstream controlled affiliates of a BDC that are affiliated within the meaning of Section
2(a)(3)(C) or (D) of the 1940 Act.1 Thus, a purchase or sale transaction between
Triangle and a portfolio company of which a Subsidiary owns more than 25% of the outstanding voting
securities, and transactions between a Subsidiary and a portfolio company of which Triangle or a
Subsidiary owns more than 25% of the outstanding voting securities, might not be exempt by Rule
57b-1 from the prohibitions of Sections 57(a)(1) and (2).
Triangle and its Subsidiaries should not be precluded from investing in portfolio affiliates
of each other if such investments would be permitted if Triangle and such Subsidiary were treated
as one combined company.
3. Requested Exemptions. As discussed above, the Prior Order only extends relief from
Sections 57(a)(1) and (2) to TMF. Accordingly, the Applicants respectfully request an Amended
Order of the Commission pursuant to Section 57(c) exempting Triangle and any current or future
Subsidiary from the provisions of Sections 57(a)(l) and (2) for transactions between Triangle and
one or more Subsidiary, and any transaction between one Subsidiary and any other Subsidiary with
respect to the purchase or sale of securities or other property. The Applicants also request an
Amended Order of the Commission exempting from the provisions of
8 | According to Section 2(a)(3)(C) and (D): Affiliated person of another person means.....(C) any person directly or indirectly controlling, controlled by, or under common control with the other person; (D) any officer, director, partner, copartner, or employee of the other person[.] These subsections do not cover an entity that is deemed an affiliate because such entity owns 5% or more of the voting power of the affiliate or vice versa. |
15
Table of Contents
Section 57(a)(1) and (2) any transaction between Triangle and a controlled portfolio affiliate
of a Subsidiary, or any transaction between a Subsidiary and a controlled portfolio affiliate of
Triangle or of another Subsidiary, but only to the extent that any such transaction would not be
prohibited if such Subsidiary were deemed to be part of Triangle and not a separate company. It is
the intent of this request only to permit Triangle and it Subsidiaries to do that which they
otherwise would be permitted to do within the provisions of the 1940 Act if they were one company,
as opposed to TMF, SBIC II (or any future Subsidiary) being a wholly owned subsidiary of Triangle.
D. Exemptive Relief Requested from Sections 21(b) and 57(a)(3).
1. General. Section 57(a)(3) of the 1940 Act makes it unlawful for certain affiliated
persons of a BDC, and certain affiliated persons of those persons, to borrow money or other
property from such BDC or from any company controlled by the BDC (unless the borrower is controlled
by the lender), except as permitted by Section 21(b) or Section 62. Section 21(b) (made applicable
to BDCs by Section 62) provides that it shall be unlawful for a BDC to lend any money or property,
directly or indirectly, to any person that controls or is under common control with the BDC, except
to any company that owns all of the outstanding securities of the BDC other than directors
qualifying shares.
2. Application of Sections 21(b) and 57(a)(3) to Applicants. As discussed in the
Application for the Prior Order, Triangle is an affiliated person of TMF by reason of its direct
ownership of all of the limited partnership interests in TMF and its indirect ownership of all of
the general partnership interests in TMF through its 100% ownership of the General Partner.
Similarly, as discussed above, Triangle is an affiliated person of SBIC II by reason of its direct
ownership of all of the limited partnership interests in SBIC II and its indirect ownership of all
of the general partnership interests in GP II through its 100% ownership of GP II. As with TMF,
Triangle does not directly own all of the outstanding securities of SBIC II because GP II holds a
0.1% general partnership interest in SBIC II and SBIC II has issued SBA-guaranteed debentures and,
in the future, may have other outstanding securities in the form of indebtedness not owned by
Triangle. As with TMF, SBIC II will be an affiliated person of Triangle because it will be deemed
to be under the control of Triangle. In addition, GP II, SBIC II and any future Subsidiary
16
Table of Contents
may be deemed to be affiliated persons of each other under Section 2(a)(3)(C) of the 1940 Act
because they are wholly owned subsidiaries of Triangle. Accordingly, Triangle is related to SBIC II
in the manner set forth in Section 57(b) and SBIC II is related to Triangle in the manner set forth
in Section 57(b).
There may be instances when it would be in the best interests of Triangle and its stockholders
for Triangle to make loans to SBIC II or any future Subsidiary. There may also be instances when it
would be in the best interests of Triangle and its stockholders for SBIC II or any future
Subsidiary to make loans to Triangle. In the case of loans from SBIC II or any future Subsidiary to
Triangle, the loans would be prohibited by Section 21(b) and Section 57(a)(3) because in those
cases, the borrower controls the lender and the lender may have outstanding securities (such as,
the general partnership interests owned by the GP II, or SBA-guaranteed debentures) not owned by
the borrower.
3. Requested Exemptions. As discussed above, the Prior Order only extends relief from
Sections 21(b) and 57(a)(3) to TMF. Accordingly, the Applicants respectfully request an Amended
Order of the Commission pursuant to Section 57(c) exempting from the provisions of Section 57(a)(3)
the borrowing of money or property by Triangle from SBIC II or any future Subsidiary. The
Applicants also respectfully request an Amended Order of the Commission pursuant to Section 6(c)
exempting from the provisions of Section 21(b) the lending of money or other property by SBIC II or
any future Subsidiary to Triangle and by Triangle to SBIC II or any future Subsidiary. It is the
intent of this request only to permit Triangle and SBIC II or any future Subsidiary to do that
which they otherwise would be permitted to do within the provisions of the 1940 Act if they were
one company.
E. Exemptive Relief Requested from Section 57(a)(4) and Rule 17d-1.
1. General. Section 57(a)(4) of the 1940 Act makes it unlawful for certain persons
related to a BDC in the manner set forth in Section 57(b), acting as principal, knowingly to effect
any transaction in which the BDC or a company controlled by the BDC is a joint or joint and several
participant with that person in contravention of such rules and regulations as the Commission may
prescribe for the purpose of limiting or preventing participation by the BDC or controlled company
on a basis less advantageous than that of the other participant. Section 57(i)
17
Table of Contents
of the 1940 Act states that the rules and regulations of the Commission under Section 17(d) of
the 1940 Act applicable to registered closed-end investment companies (e.g., Rule 17d-1) shall be
deemed to apply to transactions subject to Section 57(a) of the 1940 Act until the adoption by the
Commission of rules and regulations under Section 57(a).
Rule 17d-1 under the 1940 Act prohibits an affiliate or, when applying Rule 17d-1 to
implement Section 57(a)(4), a person related to a BDC in a manner described in Section 57(b) -
acting as principal, from participating in, or effecting any transaction in connection with, any
joint enterprise or other joint arrangement or profit-sharing plan in which any such BDC, or a
company controlled by such BDC, is a participant, except pursuant to an order of the Commission.
Rule 17d-1(d)(5) grants exemptions for certain transactions described therein where so-called
upstream affiliates of any registered investment company participants are also participants in
the transaction.
2. Application of Section 57(a)(4) and Rule 17d-1(a) to Applicants. As described
above, Triangle and the Subsidiaries are (and future Subsidiaries will be) related to one another
in a manner described in Section 57(b). There may be circumstances when it is in the interest of
Triangle and its stockholders that Triangle, TMF, SBIC II (or any future Subsidiary) invest in
securities of the same issuer, either simultaneously or sequentially, in the same or different
securities of that issuer, and that they deal with their investments separately or jointly. Such
transactions would not involve upstream affiliates of any party (except for Triangle as a
controlling person of TMF and SBIC II). Also, these activities could conceivably involve joint
investments in persons under the common control of Triangle and its Subsidiaries, in which case the
exemption provided by Rule 17d-1(d)(5) does not appear to be available. However, if Triangle and
all of its Subsidiaries were one combined investment company, Rule 17d-l(d)(5) would exempt
transactions between that company and downstream affiliates, and if they were one combined BDC, the
transactions would be exempted by Rule 57b-1. Because these exemptions may not be available in the
circumstances proposed, Applicants are seeking an Amended Order permitting this class of
transactions under Section 57(a)(4) and Rule 17d-l with respect to Triangles current and future
Subsidiaries. As stated in the application for the Prior Order, Applicants submit that it is
reasonable and fair to permit these kinds of transactions since Triangle would not be subject to
the provisions of Section 57(a)(4) and Rule 17d-l had it decided to conduct its SBIC activities itself instead of through wholly owned subsidiaries.
18
Table of Contents
3. Requested Exemptions. As discussed above, the Prior Order only extends relief from
Section 57(a)(4) and Rule 17d-1 for such transactions between Triangle and TMF. Accordingly,
Applicants are seeking an Amended Order of the Commission pursuant to Section 57(i) of the 1940 Act
and Rule 17d-1 thereunder, permitting any joint transaction that would otherwise be prohibited by
Section 57(a)(4), in which a Subsidiary and Triangle or another Subsidiary participate, but only to
the extent that the transaction would not be prohibited if the Subsidiaries participating were
deemed to be part of Triangle, and not a separate company. As stated in the application for the
Prior Order, the intent of this request is only to permit Triangle and its Subsidiaries to conduct
their businesses as otherwise permitted by the 1940 Act, as if Triangle and its Subsidiaries were a
single company.
F. Exemptive Relief Requested from Sections 18(a) and 61(a).
1. General. Section 18(a) makes it unlawful for any closed-end management company to
issue any class of senior security or to sell any senior security of which it is the issuer, unless
such company complies with the asset coverage and other requirements set forth in Section 18(a).
Asset coverage is defined in Section 18(h) to mean a ratio which the value of the total assets of
an issuer, less all liabilities not represented by senior securities, bears to the amount of senior
securities. Section 61 applies Section 18, with certain modifications, to a BDC. Section 18(k)
makes the asset coverage and other requirements of subparagraphs (A) and (B) of paragraph (1) of
Section 18(a) inapplicable to investment companies operating under the SBA Act. However, companies
operating under the SBA Act, such as SBIC II (and future SBIC Subsidiaries, are subject to the
SBAs substantial regulation of permissible leverage in their capital structure. An SBIC with
outstanding SBA financial assistance may not incur any secured third-party debt or refinance any
debt with secured third-party debt without prior written approval of the SBA. SBIC II is (and any
future SBIC Subsidiaries would be) regulated by the SBA and operates under the SBA Act. There is no
difference in the SBAs regulation of the SBIC II due to the fact that it is not registered under
the 1940 Act and is not a BDC.
2. Application of Sections 18(a) and 61(a) to Applicants. As a BDC, Triangle is
subject to the requirements of Section 18(a) by way of Section 61(a). TMF, as an investment
19
Table of Contents
company licensed as an SBIC under the SBA Act is exempt, on a stand-alone basis, from Section
18(a)(1)(A) and (B) and Section 61(a) by reason of the exemption provided by Section 18(k). SBIC II
is not a BDC (and any future SBIC Subsidiary that is not a BDC) will not be entitled to rely on the
exemptions afforded by Section 18(k). However, since SBIC II is (and any future SBIC Subsidiary
would be) a wholly owned subsidiary of Triangle, a question exists as to whether Triangle must
comply with the asset coverage requirements of Section 18(a) (as modified by Section 61(a) for
BDCs) solely on an individual basis or whether Triangle must also comply with these asset coverage
requirements on a consolidated basis, because Triangle may be deemed to be an indirect issuer of
any class of senior security issued by any SBIC Subsidiary. To do so would mean that Triangle
would treat as its own all assets held directly by Triangle and any SBIC Subsidiary and would also
treat as its own any liabilities of any SBIC Subsidiary (with intercompany receivables and
liabilities eliminated), including liabilities of such SBIC Subsidiary with respect to senior
securities as to which such SBIC Subsidiary is exempt from the provisions of Section 18(a)(1)(A)
and (B) by virtue of Section 18(k).
3. Requested Exemptions. As discussed above, the Prior Order granted relief under
Section 6(c) from Sections 18(a) and 61(a) to permit Triangle to exclude from its consolidated
asset coverage ratio any senior security representing indebtedness issued by TMF (not any future
SBIC Subsidiary. Accordingly, the Applicants respectfully request, on behalf of themselves and any
future SBIC Subsidiary, an Amended Order from the Commission, pursuant to Section 6(c) of the 1940
Act, exempting Triangle from the provisions of Section 18(a), as modified by Section 61(a), to
permit Triangle to exclude from its consolidated asset coverage ratio any senior security
representing indebtedness that is (or will be) issued by any current or future SBIC Subsidiary. For
the purposes of the requested relief, and only for such purposes, Triangle wishes to treat SBIC II
(and any future non-BDC SBIC Subsidiary) as if it were a BDC subject to Sections 18 and 61. Since
SBIC II would be entitled to rely on Section 18(k) if it were a BDC itself (like TMF), there is no
policy reason to deny the benefit of that exemption to Triangle.
G. Precedents.
In addition to the Prior Order granting such relief to Triangle and TMF, the Applicants have
reviewed previous exemptive orders issued by the Commission granting exemptive relief
20
Table of Contents
similar to that requested herein. See MCG Capital Corporation, et al., Investment Company Act
Release Nos. 28427 (Sept. 30, 2008) (notice) and 28474 (Oct. 28, 2008) (order) (MCG Capital);
Main Street Capital Corporation, et. al., Investment Company Act Release No. IC-28120; File No.
812-13411 (Jan. 16, 2008) (Main Street); Hercules Technology Growth Capital, Inc., et al.,
Investment Company Act Release Nos. 27748 (Mar. 7, 2007) (notice) and 27776 (Apr. 5, 2007) (order)
(Hercules); Elk Associates Funding Corporation, et. al, Investment Company Act Release No. 24121,
File No. 812-11420 (November 2, 1999)(Elk Associates); Berthel Growth & Income Trust I, et. al.,
Investment Company Act Release No. 23864, 69 SEC Docket 2233 (June 8, 1999) (Berthel); Allied
Capital Corporation, et. al., Investment Company Act Release No. 22941, 66 SEC Docket 297 (Dec. 16,
1997) (Allied Capital); Capital Southwest Corporation, et. al., Investment Company Act Release
No. 22586, 64 SEC Docket 457 (Mar. 26, 1997) (Capital Southwest); MACC Private Equities Inc., et.
al., Investment Company Act Release No. 20887; 58 SEC Docket 2067 (Feb. 7, 1995) (Private
Equities); Allied Capital Corporation II, et. al., Investment Company Act Release No.17492, 46 SEC
Docket 343 (May 16, 1990) (Allied II); and Greater Washington Investors, et. al., Investment
Company Act Release No.16055, 39 SEC Docket 549 (Oct. 15, 1987) (Greater Washington).
In Main Street, a parent BDC with an SBIC subsidiary obtained the same relief as requested
herein and on the same representations and conditions contained herein, except as modified to
reflect that the SBIC subsidiary is not a BDC. The Main Street order permits a Parent BDC and its
wholly-owned subsidiaries (one of which is an SBIC) to engage in certain transactions that
otherwise would be permitted if the BDC and its subsidiaries were one company and permits the
Parent BDC to adhere to a modified asset coverage requirements. The Main Street order applies to
future SBIC subsidiaries.
In Berthel, a parent BDC with a BDC/SBIC subsidiary obtained the same relief as requested
herein, and on the same representations and conditions as contained herein, except as modified to
reflect that the parent was a trust rather than a corporation and that the subsidiary was a limited
liability company rather than a limited liability limited partnership. In Capital Southwest, a
parent BDC with a closed-end management investment company/SBIC subsidiary, obtained exemptive
relief similar to the relief requested in this application, and on the same kind
21
Table of Contents
of representations and conditions as contained in this application. The Private Equities case
involved a reorganization pursuant to a bankruptcy plan which provided for the transfer of all of
the capital stock of an SBIC subsidiary of the debtors to a newly created BDC, and the election of
the SBIC also to be regulated as a BDC. The Greater Washington, and Allied II, cases involved
existing SBICs that reorganized by establishing wholly owned subsidiaries to which the parent would
transfer its SBIC license. The parent company in each case remained a BDC with public ownership.
In addition, as discussed under Section I.B. above, Applicants have reviewed previous
exemptive orders issued by the Commission granting exemptive relief with respect to future
wholly-owned subsidiaries of the parent. See Main Street, MCG Capital, Hercules, Elk Associates,
and Allied. In Main Street, MCG Capital, Hercules, Elk Associates and Allied, a parent BDC with an
SBIC subsidiary obtained substantially the same relief as requested in this application, including
relief as to possible future wholly-owned subsidiaries of the parent.
Triangle is requesting the ability to engage in exactly the same transactions with its new
SBIC subsidiary and any future SBIC Subsidiaries as requested by Triangle in the Prior Order.
H. Applicants Legal Analysis.
1. Section 6(c).
Section 6(c) of the 1940 Act permits the Commission to conditionally or unconditionally exempt
any person or transaction from any provision or provisions of the 1940 Act, if and to the extent
that such exemption is necessary or appropriate in the public interest and consistent with the
protection of investors and the purposes fairly intended by the policies and provisions of the 1940
Act.
(a) The Exemptions Requested are Appropriate in the Public Interest.
The operation of Triangle as a BDC with wholly owned SBIC Subsidiaries is intended to permit
Triangle to engage in an expanded scope of operations beyond that which would be available to it if
it conducted the SBIC operations itself. Triangle and any SBIC Subsidiary will be engaged in
operations permitted (and in fact contemplated) by the 1940 Act and subject to the
22
Table of Contents
provisions thereof, as they are applied to BDCs. Moreover, since such SBIC Subsidiary will be
a wholly owned subsidiary of Triangle, any activity carried on by it will in all material respects
have the same economic effect and substance with respect to Triangles stockholders as it would if
done directly by Triangle.
With respect to the exemptions from Sections 21(b) and 57(a)(3), the transactions are solely
between Triangle and its wholly owned Subsidiaries. Thus, these transactions will have no
substantive economic effect, and there is no basis for overreaching or harm to the public interest.
With respect to the Sections 18(a) and 61(a) exemption, the net effect of application of the
asset coverage requirements on a consolidated basis as to Triangle and any SBIC Subsidiary, if
relief were not obtained, could be to restrict the ability of such SBIC Subsidiary to obtain the
kind of financing that would be available to Triangle if it were to conduct the SBIC operations
itself. Section 18(k) exempts any class of senior securities representing an indebtedness issued
by certain closed-end companies from the asset coverage and other requirements of subparagraphs (A)
and (B) of paragraph (1) of Section 18(a), whether or not such class of senior securities
representing an indebtedness is held or guaranteed by the SBA. The application of Section 18(k) to
Triangle would not expose investors to the risks of unconstrained leverage because the SBA
regulates the capital structure of such SBIC Subsidiary. Accordingly, no harm to the public
interest will occur if these exemptions are granted.
Based on the foregoing, it is clear that the public interest will not be harmed by the
granting of the requested exemptions, while the interests of Triangle and its stockholders will be
enhanced.
(b) The Exemptions Requested are Consistent with the Protection of Investors and the Purposes
Fairly Intended by the Policies and Provisions of the 1940 Act.
With respect to the exemptions requested in relation to transactions between Triangle and its
Subsidiaries, as noted above, the exemptions will have no material adverse financial or economic
impact on Triangles stockholders because such Subsidiary is (or will be) wholly owned by Triangle,
and Triangles stockholders effectively own all economic interests in such Subsidiary. Also, the
representations and agreements of Triangle made in this Application
23
Table of Contents
effectively eliminate any substantive differences between applying the regulatory framework to
Triangle conducting its SBIC activities as one entity and the framework applicable to Triangle and
any such Subsidiary as separate entities.
Congress meant to encourage the development of venture capital companies by the enactment of
the 1980 Amendments. A principal purpose of the 1980 Amendments was to remove regulatory burdens on
venture capital companies while assuring adequate protection of the interests of investors in such
companies. S. Rep. No. 958, at 5 (1980); H.R. Rep. No. 1341, at
21-22 (1980), as reprinted in 1980 U.S.C.C.A.N. 4803, 4904. The 1980 Amendments sought to eliminate
provisions of the 1940 Act that created unnecessary disincentives to venture capital activities.
Id. One goal underlying elimination of these disincentives was to increase investment by
the public, particularly institutional investors, in professionally managed venture capital
companies in order to provide a new source of risk capital for small developing companies. See
Reginald L. Thomas & Paul F. Roye, Regulation of Business Development Companies Under the
Investment Company Act, 55 S. Cal. L. Rev. 895, 912 (1982).
In adopting interim rules 60a-l and 57b-l, the Commission recognized this goal, stating [t]he
1980 Amendments, which became effective immediately upon their signing by the President, represent
the considerable efforts of Congress and numerous other participants, including representatives of
the Commission and the venture capital industry, to enhance the flow of capital to small,
developing businesses and financially troubled businesses. Investment Company Act Release No.
11493, [1980 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶83,704 (Dec. 16, 1980). The Commission also
stated in this Release that it is clear that Congress did not intend to prohibit business
development companies from acquiring the securities of and operating wholly owned SBICs. Indeed,
the 1980 Amendments specifically recognized the possibility of such ownership. Subsidiary SBICs
are also contemplated by Item 8 of the instructions to Form N-2.
The Applicants submit that the proposed transactions are entirely consistent with the general
purposes of the 1980 Amendments. By this Application, Triangle seeks relief that will allow it,
together with its current and future SBIC Subsidiaries, to expand and broaden its activities
consistent with the Congressional policies described above and without creating
24
Table of Contents
conflicting regulatory problems. The goal can be accomplished only by obtaining the exemptions
requested. The proposed transactions are therefore consistent with the general purposes of the 1940
Act, as amended by the 1980 Amendments.
It is submitted that granting the requested exemptions on the terms set forth in this
Application is consistent with the policies and provisions of the 1940 Act and will enhance the
interests of Triangles stockholders while retaining for them the important protections afforded by
the provisions of the 1940 Act.
2. Section 12(d)(1)(J).
Applicants request an Amended Order of the Commission exempting from the provisions of Section
12(d)(1) of the 1940 Act any loans or advances by any Subsidiary to Triangle that may be deemed to
violate Section 12(d)(1) if the loans or advances were construed as purchases by such Subsidiary of
the securities of Triangle representing indebtedness. Section l2(d)(1)(J) of the 1940 Act permits
the Commission to conditionally or unconditionally exempt any person or transaction from any
provision of Section 12(d)(1) if and to the extent that the exemption is consistent with the public
interest and the protection of investors.
With respect to the exemption from Section l2(d)(1) allowing a Subsidiary to make loans or
advances to Triangle without creating a prohibited purchase of securities from a related BDC, the
fact that all current and future Subsidiaries of Triangle, are (or will be) wholly owned by
Triangle and consolidated by Triangle for financial reporting purposes will both eliminate the
possibility of overreaching and prevent confusion as to the financial status of Triangle to
Triangles stockholders, who are the investors that the 1940 Act is intended to protect.
3. Section 57(c).
In addition to relief under Sections 6(c) and 12(d)(1)(J), the Applicants request relief under
Section 57(c) with respect to the proposed operations as one company and certain transactions
between the Applicants and portfolio companies, as specified above. Section 57(c) of the 1940 Act
directs the Commission to exempt a transaction from one or more provisions of Sections 57(a)(1),
(2), and (3) if all three of the following standards are met: (i) the terms of the proposed
transaction, including the consideration to be paid or received, are reasonable and fair
25
Table of Contents
and do not involve overreaching of the business development company or its stockholders or partners
on the part of any person concerned; (ii) the proposed transaction is consistent with the policy of
the business development company as recited in the filings made by such company with the Commission
under the Securities Act, its registration statement and reports filed under the Exchange Act, and
its reports to stockholders or partners; and (iii) the proposed transaction is consistent with the
general purposes of the 1940 Act.
(a) Under Section 57(c)(l), the terms of the proposed transaction must be reasonable
and fair and must not involve overreaching of the business development company or its
stockholders on the part of any person. As discussed above, the proposed operations as one
company will enhance efficient operations of Triangle and its wholly owned subsidiaries and
allow them to deal with portfolio companies as if Triangle and such Subsidiary were one
company. Operation as essentially one company in these circumstances has been repeatedly
recognized by the Commission in exemptive orders, including with respect to Triangle under
the Prior Order, Main Street, Elk Associates/Ameritrans, Berthel, Capital Southwest, Private
Equities, Greater Washington, and Allied Capital II and other companies cited in the
applications of these companies. As discussed above with respect to the Applicants legal
arguments under Section 6(c), the contemplated transactions among the Applicants and
affiliates as specified above will be reasonable and fair and will not involve overreaching
on the part of any person.
(b) As indicated above, the terms of the proposed transactions are reasonable and fair
and do not involve overreaching of Triangle or its stockholders by any person. Triangle
believes that the requested order would permit it and the Subsidiaries to carry out more
effectively (1) the purposes and objectives of the Applicants of investing primarily in
small business concerns, and (2) the intent and policy of Congress as stated in and
implemented by the 1940 Act, the SBA Act and the 1980 Amendments.
(c) Under Section 57(c)(2), relief may be granted if the proposed transactions are
consistent with the policy of the business development company as specified in filings with
the Commission and reports to stockholders. The proposed operations of the Applicants as one
company and the requested relief are consistent with the disclosure in
26
Table of Contents
Triangles public filings with the Commission pursuant to the Exchange Act.
Accordingly, this condition is also met.
(d) In addition, the representations and agreements of Triangle made in this
Application effectively eliminate any substantive differences between applying the
regulatory framework to Triangle conducting its SBIC activities as one entity and the
framework applicable to Triangle and its current and future Subsidiaries as separate
entities and granting the requested exemptions on the terms set forth in this Application is
consistent with the policies and provisions of the 1940 Act and will enhance the interests
of Triangles stockholders while retaining for them the important protections afforded by
the provisions of the 1940 Act.
(e) With respect to the exemptions from Sections 57(a)(1) and (2), since SBIC II is a
wholly owned subsidiary of Triangle and since no officers or directors of SBIC II or of
Triangle, or any controlling persons or other upstream affiliates of Triangle will have
any prohibited financial interest in the transactions described with respect to operation as
one company, there can be no overreaching on the part of any persons and no harm to the
public interest will occur in transactions solely between Triangle and SBIC II.
(f) With respect to the exemption from Section 57(a)(3), the transactions are solely
between Triangle and its wholly owned Subsidiaries. Thus, these transactions will have no
substantive economic effect, and there is no basis for overreaching or harm to the public
interest.
In summary, the Applicants meet the standards for relief under Section 57(c) with respect to
the exemptions from Sections 57(a)(l), (2) and (3) as described above.
27
Table of Contents
4. Section 57(i), Rule 17d-l and Section 57(a)(4).
Relief is also requested under Rule 17d-l with respect to certain joint transactions that
would otherwise be prohibited by Section 57(a)(4) of the 1940 Act, including transfers of assets
between the Applicants and investments in the same portfolio companies by Triangle and the SBIC
Subsidiaries, all as described above. Section 57(i) of the 1940 Act provides that rules and
regulations under Section 17(d) of the 1940 Act will apply to transactions subject to Section
57(a)(4) in the absence of rules under that Section. The Commission has not adopted rules under
Section 57(a)(4) with respect to joint transactions and, accordingly, the standards set forth in
Rule 17d-1 govern Applicants request for relief. In determining whether to grant an order under
Section 57(i) and Rule 17d-1, the Commission considers whether the participation of the BDC in the
joint transaction is consistent with the provisions, policies and purposes of the 1940 Act and the
extent to which such participation is on a basis different from or less advantageous than that of
other participants in the transaction.
(a) First, as discussed above with respect to the Applicants legal arguments under
Section 6(c), the proposed transactions are consistent with the policy and provisions of
the 1940 Act and will enhance the interests of Triangles stockholders while retaining for
them the important protections afforded by the provisions of the 1940 Act.
(b) Second, since the joint participants will conduct their operations as though they
comprise one company, the participation of one will not be on a basis different from or
less advantageous than the others.
In summary, the Applicants meet the standards for relief under Rule 17d-1.
IV. CONSOLIDATED REPORTING
A. BDC Elections.
Section 54 of the 1940 Act provides that any company defined as a business development
company in Section 2(a)(48)(A) and (B) may elect to be regulated as a BDC, that is, subject to the
provisions of Sections 55 through 65 of the 1940 Act and to those sections of the 1940 Act made
applicable to BDCs by Section 59 thereof. However, Section 54 requires that
28
Table of Contents
in order to elect BDC treatment under the 1940 Act, such company must have a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934 or have filed a
registration statement pursuant to Section 12 of the Securities Exchange Act of 1934 for a class of
its equity securities.
1. Triangles Exchange Act Registration and BDC Election.
Triangle has elected to be regulated as a BDC. It meets the definitional requirements of
Section 2(a)(48) of the 1940 Act and has filed a registration statement on Form 8-A, registering
its common stock under Section 12(b) of the Exchange Act.
2. TMFs Exchange Act Registration and BDC Election.
TMF also meets the 1940 Acts definitional requirements for a BDC; however, it will never
issue equity securities listed or admitted for trading on a national securities exchange, nor will
a class of its equity securities be required to be registered under the Exchange Act pursuant to
Section 12(g) of the Exchange Act. Therefore, although TMF is not required to register its equity
securities under Section 12 of the Exchange Act, pursuant to the provisions of the Exchange Act,
TMF voluntarily registered its securities under Section 12 of the Exchange Act in order to elect
BDC treatment under the 1940 Act.
3. Exchange Act Registration and BDC election of future Subsidiaries.
Unlike TMF, SBIC II will not be registered under the 1940 Act based on the exclusion from the
definition of investment company contained in Section 3(c)(7) of the 1940 Act. However, Triangle
may form future SBIC Subsidiaries that do not meet any such exemptions and therefore may be
required to register under the 1940 Act (Non-Exempt SBIC Subsidiaries). In order to elect to be
treated as a BDC, any future Non-Exempt SBIC Subsidiaries of Triangle would also have to be
registered or file a registration under Section 12 of the Exchange Act for a class of its equity
securities. In this scenario, without an exemptive order, such Non-Exempt SBIC Subsidiary,
although it would have no public stockholders and its sole stockholder would be Triangle, would be
required to register under the Exchange Act and the periodic reports with the Commission that are
required by section 13 of the Exchange Act in order to become a BDC.
29
Table of Contents
Section 12(g) of the Exchange Act requires issuers with specified assets and a specified
number of security holders to register under the Exchange Act. Because all of the equity securities
of any future Non-Exempt SBIC Subsidiaries will be owned by one person (Triangle), such Non-Exempt
SBIC Subsidiaries will not ever meet the second test. Nevertheless, Section 12(g) provides that
[a]ny issuer may register any class of equity security not required to be registered by filing a
registration statement pursuant to the provisions of this paragraph.
Form N-2, used for registration of securities under the 1933 Act for a company electing
business development company treatment, specifically contemplates that a BDC may have a wholly
owned SBIC subsidiary that also is a BDC. Item 8, paragraph 6 Business Development Companies,
specifies certain information that BDCs must provide.
If the Registrant has a wholly owned small business investment
company subsidiary, disclose: (1) whether the subsidiary is
regulated as a business development company or investment company
under the 1940 Act . . .
SEC Form N-2, Item 8, 6.b.
The instructions contemplate exactly the same structure as that of the Applicants, i.e. a
public parent offering securities pursuant to a registration statement under the 1933 Act, with
such securities being registered under the Exchange Act and the public parent having a wholly owned
SBIC subsidiary that is eligible to make a BDC election. This structure is also expressly
contemplated by Section 2(a)(46) of the 1940 Act (added by the 1980 Amendments) which allows a
wholly owned SBIC to be deemed an eligible portfolio security of a BDC.
The 1980 Amendments were designed to remove unnecessary and costly regulatory burdens to the
entrepreneurial activities of the venture capital industry. [T]his Bill seeks specifically to
reduce some of the costs of government regulation imposed on the capital-raising process, to the
extent that it can be done without sacrificing necessary investor protection. H.R. Rep.
No. 96-1341, at 37 (1980).
If any future Non-Exempt SBIC Subsidiary does not voluntarily registered under the Exchange
Act, its only alternative would be to continue to be regulated as a closed-end
30
Table of Contents
investment
management company. As set forth in the Prior Order with respect to TMF, requiring
any future Non-Exempt SBIC Subsidiary to function as a registered management investment company
while its parent operates as a business development company would have increased the administrative
and legal costs of operating the business.
For example, different provisions regulating transactions with affiliated persons would apply
(Section l7(a) (e) applies to investment companies; Section 57 applies to BDCs). Any transaction
would need to be reviewed under both provisions. In addition, the numerous other 1940 Act
provisions made inapplicable to BDCs (and, accordingly, to Triangle) by the 1980 Amendments would
be applicable to such Non-Exempt SBIC Subsidiary. This would be an illogical result, given that the
types of securities to be acquired by any such Non-Exempt SBIC Subsidiary and the managerial
assistance to be offered to the portfolio companies of any such Non-Exempt SBIC Subsidiary fall
squarely within the 1940 Act provisions applicable to BDCs. In addition, as set forth in full
below, the periodic reporting requirements for Triangle and any such Non-Exempt SBIC Subsidiary
would be different, with Triangle filing periodic reports under Section 13 of the Exchange Act, and
such Non-Exempt SBIC Subsidiary filing different reports, on an unconsolidated basis, under the
provisions of the 1940 Act. This is precisely the type of unnecessary regulatory burden on the
provision of capital to small businesses sought to be avoided by enactment of the 1980 Amendments.
Moreover, this dual public reporting by two members of a corporate group that have no uncommon
ultimate owners could confuse stockholders and the securities markets.
In summary, the Applicants do not believe that, in these circumstances, any such Non-Exempt
SBIC Subsidiary should be denied the benefits of the 1980 Amendments. To do so would defeat the
attempt of the 1980 Amendments to provide a measure of regulatory relief to this SBIC, the very
kind of company intended to receive such relief.
B. Exemptive Relief Requested from Sections 12(h) and 13 of the Exchange Act.
1. General. Section 12(h) of the Exchange Act provides in part as follows:
The Commission may. . . upon application of an interested person, by order, after
notice and opportunity for hearing, exempt in whole or in part any issuer. . . from the
provisions of. . . section 13. . . upon such terms and conditions and for such period as it
31
Table of Contents
deems necessary or appropriate, if the Commission finds, by reason of the number of
public investors, amount of trading interest in the securities, the nature and extent of the
activities of the issuer, income or assets of the issuer, or otherwise, that such action is
not inconsistent with the public interest or the protection of investors.
Section 13 of the Exchange Act is the primary section requiring filing of periodic reports under
that Act.
2. Application of Section 12(h) and Section 13 of the Exchange Act to Non-Exempt SBIC
Subsidiaries. As was the case for TMF, in order to be a BDC, any Non-Exempt SBIC Subsidiary
would need to register a class of equity securities under Section 12(g) of the Exchange Act. Absent
an exemptive order, such registration subjects the Non-Exempt SBIC Subsidiary, on an unconsolidated
basis, to periodic filings with the Commission, even though the Non-Exempt SBIC Subsidiary will
have only one equity holder, who obviously has ready access to such information on a more timely
basis than required under the Exchange Act.
3. Requested Exemption. Accordingly, the Applicants request an order of the Commission
under Section 12(h) of the Exchange Act exempting any future Non-Exempt SBIC Subsidiary from the
reporting requirements of Section 13(a) of the Exchange Act, subject to the conditions specified in
this Application.
C. Precedents.
In connection with the relief requested in this Section, reference is made to: the Prior
Order; Berthel Growth & Income Trust I, et. al., Investment Company Act Release No. 23864, 69 SEC
Docket 2233 (June 8, 1999) (Berthel); MACC Private Equities Inc., et. al., Investment Company Act
Release No. 20887; 58 SEC Docket 2067 (Feb. 7, 1995) (Private Equities); and Midland Capital
Corporation, et. al., Investment Company Act Release No. 13021, 27 SEC Docket 226 (Feb. 9, 1983)
(Midland). In Berthel and Private Equities, a parent BDC with a BDC/SBIC subsidiary obtained the
same relief as requested herein, and on substantially the same representations and conditions
contained herein. In Midland, a parent BDC with a BDC/SBIC subsidiary obtained a joint exemptive
order with respect to various 1940 Act issues as well as relief from reporting requirements under
Section 12(h) of the Exchange Act. With a two-level
32
Table of Contents
BDC structure, the SBIC subsidiary had for some time filed Exchange Act reports with the SEC
but obtained relief from further filing in the Midland order.
V. CONDITIONS OF EXEMPTIVE ORDER
Applicants agree that the requested order will be subject to the following conditions:
1. Triangle will at all times own and hold, beneficially and of record, all of the outstanding
equity interests in any Subsidiary, including all of the outstanding membership interests in any
general partner of any Subsidiary, or otherwise own and hold beneficially, all of the outstanding
voting securities and other equity interests in such Subsidiary.
2. No person shall serve as a member of any board of directors of any Subsidiary unless such
person shall also be a member of the Triangle Board. The board of directors or the managers, as
applicable, of any Subsidiary will be appointed by the equity owners of such Subsidiary.
3. Triangle will not itself issue or sell any senior security, and Triangle will not cause or
permit any SBIC Subsidiary to issue or sell any senior security of which Triangle or such SBIC
Subsidiary is the issuer except to the extent permitted by Section 18 (as modified for BDCs by
Section 61) of the 1940 Act; provided that immediately after the issuance or sale of any such notes
or evidences of indebtedness by either Triangle or any SBIC Subsidiary, Triangle individually and
on a consolidated basis shall have the asset coverage required by Section 18(a) (as modified by
Section 61(a)), except that, in determining whether Triangle and any SBIC Subsidiary on a
consolidated basis have the asset coverage required by Section 61(a), any borrowings by any SBIC
Subsidiary shall not be considered senior securities and, for purposes of the definition of asset
coverage in Section 18(h), shall be treated as indebtedness not represented by senior securities.
4. Triangle will acquire securities of any Subsidiary representing indebtedness only if, in
each case, the prior approval of the SBA has been obtained, if required. In addition, Triangle and
any SBIC Subsidiary will purchase and sell portfolio securities between themselves only if, in each
case, the prior approval of the SBA has been obtained, if required by the SBA.
33
Table of Contents
VI. CONCLUSION AND REQUEST FOR ORDER
Based on the foregoing, Applicants respectfully request that the Commission issue an Amended
Order, on behalf of the Applicants and any future Subsidiary, pursuant to Sections 6(c),
12(d)(l)(J), and 57(c) of the 1940 Act granting exemptions from Sections 12(d)(1)(A) and (C),
18(a), 21(b), 57(a)(1) (a)(3), and 61(a) of the 1940 Act; under Section 57(i) of the 1940 Act and
Rule 17d-1 under the 1940 Act to permit certain joint transactions otherwise prohibited by Section
57(a)(4) of the 1940 Act; and on behalf of any future Non-Exempt SBIC Subsidiary, under Section
12(h) of the Exchange Act granting an exemption from Section 13(a) of the Exchange Act, all on the
terms and conditions set forth herein and in the Prior Order.
VII. PROCEDURAL MATTERS
A. Exhibit List.
The following documents are annexed to this Application as Exhibits and are incorporated by
reference.
Exhibit A
|
Verifications Required by Rule 0-2(d) | |
Exhibit B
|
Resolutions Authorizing Application |
B. Authorizations Required By Rule 0-2
The verification required by Rule 0-2(d) under the 1940 Act is attached to this Application as
Exhibit A. The filing of this Application has been specifically authorized by a resolution of the
Triangle Board dated November 4, 2009. A copy of this resolution, which remains in full force and
effect, is attached to this Application as Exhibit B. The filing of this Application by the other
Applicants was authorized by their respective members, general partners or officers, as applicable,
pursuant to authority granted to such persons by their respective operating agreements, articles of
incorporation or bylaws, as applicable. Each of the foregoing authorizations remain in effect.
34
Table of Contents
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the Applicants have caused
this Application to be duly signed on their behalf on the 11th day of May, 2010.
TRIANGLE CAPITAL CORPORATION |
||||
By: | /s/ Garland S. Tucker, III | |||
Name: | Garland S. Tucker, III | |||
Title: | President, Chief Executive Officer and Chairman of the Board of Directors |
|||
TRIANGLE MEZZANINE FUND LLLP |
||||
By: | New Triangle GP, LLC, Its General Partner |
By: | Triangle Capital Corporation, Its Manager | |||
By: | /s/ Garland S. Tucker, III | |||
Name: | Garland S. Tucker III | |||
Title: | President, Chief Executive Officer and Chairman of the Board of Directors |
TRIANGLE MEZZANINE FUND II LP |
||||
By: | New Triangle GP, LLC, Its General Partner |
By: | Triangle Capital Corporation, Its Manager | |||
By: | /s/ Garland S. Tucker, III | |||
Name: | Garland S. Tucker III | |||
Title: | President, Chief Executive Officer and Chairman of the Board of Directors |
NEW TRIANGLE GP, LLC (a North Carolina entity) |
By: | Triangle Capital Corporation, Its Manager | |||
By: | /s/ Garland S. Tucker, III | |||
Name: | Garland S. Tucker III | |||
Title: | President, Chief Executive Officer and Chairman of the Board of Directors |
NEW TRIANGLE GP, LLC (a Delaware entity) |
By: | Triangle Capital Corporation, Its Manager | |||
By: | /s/ Garland S. Tucker, III | |||
Name: | Garland S. Tucker III | |||
Title: | President, Chief Executive Officer and Chairman of the Board of Directors |
Table of Contents
EXHIBIT A
Verifications Required by Rule 0-2(d)
STATE OF NORTH CAROLINA
|
} | |
COUNTY OF WAKE
|
} |
The undersigned states that he has duly executed the attached Application for an Amended Order
Pursuant to Sections 6(c), 12(d)(1)(J), and 57(c) granting exemptions from Sections 12(d)(1)(A) and
(C), 18(a), 21(b), 57(a)(1) (a)(3), and 61(a) of the 1940 Act and under Section 12(h) of the
Securities Exchange Act of 1934, for and on behalf of Triangle Capital Corporation, a Maryland
corporation (Triangle), Triangle Mezzanine Fund LLLP, a North Carolina limited liability limited
partnership (TMF), New Triangle GP, LLC, a North Carolina limited liability company (General
Partner), New Triangle GP, LLC, a Delaware limited liability company (GP II), and Triangle
Mezzanine Fund II LP, a Delaware limited partnership (SBIC II); that he is the President, Chief
Executive Officer and Chairman of the Board of Directors of Triangle; that he has been authorized
by Triangle, TMF, SBIC II, the General Partner, and GP II to execute the attached Application in
the name of and/or on behalf of Triangle, TMF, SBIC II, the General Partner, and GP II; and that
all action by stockholders, directors, and other bodies necessary to authorize the undersigned to
execute and file such instrument has been taken. The undersigned further states that he is familiar
with such instrument, and the contents thereof, and that the facts therein set forth are true to
the best of his knowledge, information and belief.
By: | /s/ Garland S. Tucker, III | ||||
Name: | Garland S. Tucker III | ||||
Title: | President, Chief Executive Officer and Chairman of the Board of Directors of Triangle Capital Corporation |
||||
Date: | May 11, 2010 |
Table of Contents
EXHIBIT B
JOINT RESOLUTIONS
OF THE BOARDS OF DIRECTORS OF
TRIANGLE CAPITAL CORPORATION AND TRIANGLE MEZZANINE FUND LLLP
JOINT RESOLUTIONS
OF THE BOARDS OF DIRECTORS OF
TRIANGLE CAPITAL CORPORATION AND TRIANGLE MEZZANINE FUND LLLP
WHEREAS, the Company, the Fund, and the Funds general partner, New Triangle GP, LLC (the
General Partner), previously filed a joint exemptive application with the SEC requesting an order
under Sections 6(c), 12(d)(1)(J), and 57(c) of the Investment Company Act of 1940, as amended (the
1940 Act), granting exemptions from Sections 12(d)(1)(A) and (C), 18(a), 21(b), 57(a)(1)-(a)(3),
and 61(a) of the 1940 Act, under Section 57(i) of the 1940 Act and Rule 17d-1 thereunder to permit
certain joint transactions otherwise prohibited by Section 57(a)(4) of the 1940 Act, and under
Section 12(h) of the 1934 Act granting an exemption from Section 13(a) of the Exchange Act (the
Prior Application);
WHEREAS, on October 14, 2008, the SEC issued an exemptive order (the Prior Order) granting
the relief requested by the Prior Application;
WHEREAS, the Company, as the sole manager of the New GP to be formed, intends to form the New
Fund, and may form other direct or indirect wholly-owned subsidiaries in the future; and
WHEREAS, the Board believes that it is in the best interests of the Company and its
stockholders that the Company, on behalf of the New Fund, as well as any future direct or indirect
wholly-owned subsidiaries of the Company (the Subsidiaries, and each a Subsidiary) seek the
same exemptive relief for the New Fund and any future Subsidiary that was granted under the Prior
Order by filing a new application with the SEC requesting an amendment to the Prior Order (the
Amended Application) to add the New Fund as an applicant as well as any future Subsidiaries.
NOW, THEREFORE, BE IT RESOLVED, that the officers of the Company shall be, and each of them
hereby is, authorized, empowered, and directed, by and on behalf of the Company, the Fund, the New
Fund and any other direct or indirect wholly-owned subsidiary of the Company, to execute and file
the Amended Application with the SEC requesting exemption from various sections of the 1940 Act and
the Exchange Act, and to execute and file any other applications for exemptive relief, and any
amendments deemed necessary or appropriate thereto, and any other related documents, including but
not limited to requests for no action relief or interpretative positions under the Securities Act
of 1933, as amended (the Securities Act), the 1940 Act or the Exchange Act, or any other
applicable federal or state securities laws, as such officers, in their sole discretion, deem
necessary, appropriate or advisable in order to effectuate the transactions contemplated therein
and the relief sought thereby, on behalf of the Company, the Fund, and the New Fund, or any other
current or future Subsidiary, as the case may be.
FURTHER RESOLVED, that the officers of the Company shall be, and each of them hereby is,
authorized, empowered, and directed, by and on behalf of the Company, as the sole member and
manager of the General Partner of the Fund and as the sole member and manager of the new general
partner of the New Fund, and in such new general partners name, to execute and file the Amended
Application with the SEC requesting exemption from various sections of the 1940 Act and the
Exchange Act, and to execute and file any other applications for exemptive relief, and any
amendments deemed necessary or appropriate thereto, and any other related documents, including but
not limited to requests for no action relief or interpretative positions under the Securities Act,
the 1940 Act or the Exchange Act, or any other applicable federal or state securities laws, as such
officers, in their sole discretion, deem necessary, appropriate or advisable in order to effectuate
the transactions contemplated therein and the relief sought thereby, on behalf of such general
partners and on behalf of the Fund, the New Fund or any other current or future Subsidiary, as the
case may be.
Table of Contents
FURTHER RESOLVED, that the officers of the Company be, and each of them hereby is, authorized,
empowered and directed to certify and deliver copies of these resolutions to such government
bodies, agencies, persons, firms or corporations as the officers may deem necessary and to identify
by his or her signature or certificate, or in such form as may be required, the documents and
instruments presented to and approved herein and to furnish evidence of the approval, by an officer
authorized to give such approval, of any document, instrument or provision or any addition,
deletion or change in any document or instrument.
FURTHER RESOLVED, that the officers of the Company are hereby authorized, empowered, and
directed to take any and all such actions and to execute and deliver any and all other such
documents as each may reasonably deem necessary, appropriate or advisable to give effect to the
intent of these resolutions.
FURTHER RESOLVED, that in every instance in the foregoing resolutions where an officer is
authorized to take such actions or make such changes to a document as he or she determines to be
necessary, desirable or appropriate, then the taking of the action or the execution of such
document with such changes shall evidence conclusively his or her determination that such actions
or changes to such documents are necessary, desirable or appropriate (as applicable).
FURTHER RESOLVED, that any and all actions previously taken by any of the officers of the
Company in connection with the foregoing resolutions are hereby ratified, approved and confirmed in
all respects as and for the acts and deeds of the parties thereto.