The information in
this prospectus supplement is not complete and may be changed. A
registration statement relating to these securities has been
filed with and declared effective by the Securities and Exchange
Commission. This prospectus supplement is not an offer to sell
nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted.
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Filed pursuant to Rule 497
Registration Statement
No. 333-151930
SUBJECT TO COMPLETION, DATED
SEPTEMBER 20, 2010
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated August 12, 2010)
2,000,000 Shares
Common
Stock
Triangle Capital Corporation is organized as an
internally-managed, non-diversified closed-end management
investment company that has elected to be treated as a business
development company under the Investment Company Act of 1940. We
are offering 2,000,000 shares of our common stock.
Our common stock is listed on the Nasdaq Global Market under the
symbol TCAP. The last reported sale price on
September 17, 2010 was $16.28 per share. Our net asset value per
share was $11.08 as of June 30, 2010.
Please read this prospectus supplement and the accompanying
prospectus before investing and keep them for future reference.
This prospectus supplement and the accompanying prospectus
contain important information about us that a prospective
investor should know before investing in our common stock. We
file annual, quarterly and current reports, proxy statements and
other information about us with the Securities and Exchange
Commission. This information is available free of charge by
contacting us at 3700 Glenwood Avenue, Suite 530, Raleigh,
North Carolina 27612, or by telephone by calling collect at
(919) 719-4770,
or on our website at www.tcap.com. The information on our
website is not incorporated by reference into this prospectus
supplement or the accompanying prospectus. The SEC also
maintains a website at www.sec.gov that contains such
information.
Investing in our common stock is speculative and involves
numerous risks, including the risk associated with the use of
leverage. For more information regarding these risks, please see
Risk Factors beginning on page 14 of the
accompanying prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission, nor any other regulatory body, has
approved or disapproved of these securities or determined if
either this prospectus supplement or the accompanying prospectus
is truthful or complete. Any representation to the contrary is a
criminal offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount (4.75)%
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$
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$
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Proceeds to us before expenses(1)
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$
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$
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(1) |
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Before deducting estimated expenses payable by us of
approximately $230,000. |
The underwriters have the option to purchase up to an additional
300,000 shares of common stock at the public offering
price, less the underwriting discount, within 30 days from
the date of this prospectus supplement solely to cover any
over-allotments. If the over-allotment option is exercised in
full, the total public offering price will be
$ , and the total underwriting
discount (4.75%) will be $ . The
proceeds to us would be $ , before
deducting estimated expenses payable by us of $230,000.
The underwriters expect to deliver the shares on or about
September , 2010.
Morgan
Keegan & Company, Inc.
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BB&T
Capital Markets
A
Division of Scott & Stringfellow, LLC
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The date of this prospectus supplement is
September , 2010.
TABLE OF
CONTENTS
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PROSPECTUS SUPPLEMENT
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S-1
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S-5
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S-7
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S-8
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S-8
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S-9
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S-11
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S-13
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S-25
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S-29
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S-29
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S-29
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F-1
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PROSPECTUS
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Prospectus Summary
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1
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Fees and Expenses
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10
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Selected Consolidated Financial and Other Data
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11
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Selected Quarterly Financial Data
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13
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Risk Factors
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14
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Special Note Regarding Forward-Looking Statements
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33
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Formation Transactions
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34
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Business Development Company and Regulated Investment Company
Elections
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34
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Use of Proceeds
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36
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Price Range of Common Stock and Distributions
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36
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Selected Consolidated Financial and Other Data
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38
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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41
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Senior Securities
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59
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Business
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60
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Portfolio Companies
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70
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Management
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78
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Compensation of Directors and Executive Officers
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86
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Certain Relationships and Transactions
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101
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Control Persons and Principal Stockholders
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103
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Sales of Common Stock Below Net Asset Value
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104
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Dividend Reinvestment Plan
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109
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Description of Our Securities
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110
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Material U.S. Federal Income Tax Considerations
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116
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Regulation
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125
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Plan of Distribution
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130
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Custodian, Transfer and Dividend Paying Agent and Registrar
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131
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Brokerage Allocation and Other Practices
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131
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Legal Matters
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132
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Independent Registered Public Accounting Firm
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132
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Available Information
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132
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ABOUT
THIS PROSPECTUS
This document is in two parts. The first part is the prospectus
supplement, which describes the specific terms of the common
stock we are offering and certain other matters relating to us.
The second part, the accompanying prospectus, gives more general
information about the common stock which we may offer from time
to time, some of which may not apply to the common stock offered
by this prospectus supplement. For information about our common
stock, see Description of Our Securities in the
accompanying prospectus.
If information varies between this prospectus supplement and the
accompanying prospectus, you should rely only on such
information in this prospectus supplement. The information
contained or incorporated by reference in this prospectus
supplement supersedes any inconsistent information included or
incorporated by reference in the accompanying prospectus. In
various places in this prospectus supplement and the
accompanying prospectus, we refer you to other sections of such
documents for additional information by indicating the caption
heading of such other sections. The page on which each principal
caption included in this prospectus supplement and the
accompanying prospectus can be found is listed in the table of
contents above. All such cross references in this prospectus
supplement are to captions contained in this prospectus
supplement and not in the accompanying prospectus, unless
otherwise stated.
Unless we have indicated otherwise, all information in this
prospectus supplement assumes that the underwriters do not
exercise their option to purchase additional shares from us to
cover any over-allotments. Unless we have indicated otherwise,
or the context otherwise requires, references in this prospectus
supplement to $ or dollar are to the
lawful currency of the United States.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE
NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT
OR ADDITIONAL INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT
OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE
NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY
DOCUMENTS INCORPORATED BY REFERENCE IS ACCURATE ONLY AS OF THE
RESPECTIVE DATES OF SUCH INFORMATION, REGARDLESS OF THE TIME OF
DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS OR ANY SALES OF THE SHARES OF COMMON STOCK. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
PROSPECTS MAY HAVE CHANGED SINCE THOSE DATES.
PROSPECTUS
SUMMARY
This summary highlights some of the information in this
prospectus supplement and the accompanying prospectus. It is not
complete and may not contain all of the information that you may
want to consider. To understand the terms of the common stock
offered hereby, you should read the entire prospectus supplement
and the accompanying prospectus carefully. Together, these
documents describe the specific terms of the shares we are
offering. You should carefully read the sections titled
Risk Factors, Selected Consolidated Financial
and Other Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Available Information and the financial statements
contained elsewhere in this prospectus supplement and the
accompanying prospectus. Except as otherwise noted, all
information in this prospectus supplement and the accompanying
prospectus assumes no exercise of the underwriters
over-allotment option.
Triangle Capital Corporation is a Maryland corporation
incorporated on October 10, 2006, for the purpose of
acquiring Triangle Mezzanine Fund LLLP, or Triangle SBIC,
and its general partner, Triangle Mezzanine LLC, or TML, raising
capital in its initial public offering, or IPO, which closed on
February 21, 2007 and, thereafter, operating as an
internally managed business development company, or BDC, under
the Investment Company Act of 1940, or the 1940 Act. Triangle
SBIC is licensed as a small business investment company, or
SBIC, by the United States Small Business Administration, or
SBA. Simultaneously with the consummation of our IPO, we
acquired all of the equity interests in Triangle SBIC and TML as
described in the accompanying prospectus under Formation
Transactions, whereby Triangle SBIC became our wholly
owned subsidiary. Triangle Mezzanine Fund II LP, or
Triangle SBIC II, is a wholly owned subsidiary of Triangle
Capital Corporation that is licensed by the SBA to operate as an
SBIC. Unless otherwise noted in this prospectus supplement or
the accompanying prospectus, the terms we,
us, our, the Company and
Triangle refer to Triangle SBIC prior to the IPO and
to Triangle Capital Corporation and its subsidiaries, including
Triangle SBIC and Triangle SBIC II, currently existing and the
term SBIC subsidiaries refers collectively to
Triangle SBIC and Triangle SBIC II .
Triangle
Capital Corporation
Triangle Capital Corporation is a specialty finance company that
provides customized financing solutions to lower middle market
companies located throughout the United States. We define lower
middle market companies as those having annual revenues between
$10.0 and $100.0 million. Our investment objective is to
seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments. Our 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. We invest primarily in
senior and subordinated debt securities secured by first and
second lien security interests in portfolio company assets,
coupled with equity interests.
We focus on investments in companies with a history of
generating revenues and positive cash flows, an established
market position and a proven management team with a strong
operating discipline. Our target portfolio company generally has
annual revenues between $20.0 and $100.0 million and annual
earnings before interest, taxes, depreciation and amortization,
or EBITDA, between $3.0 and $20.0 million. We believe that
these companies have less access to capital and that the market
for such capital is underserved relative to larger companies.
Companies of this size are generally privately held and are less
well known to traditional capital sources such as commercial and
investment banks.
Our investments generally range from $5.0 to $15.0 million
per portfolio company. In certain situations, we have partnered
with other funds to provide larger financing commitments. We
intend to continue to make investments through our two wholly
owned SBIC subsidiaries and to utilize the proceeds of the sale
of SBA guaranteed debentures, referred to herein as SBA
leverage, in order to enhance returns to our stockholders. As of
June 30, 2010, we had investments in 41 portfolio
companies, with an aggregate cost of $248.2 million.
Our principal executive offices are located at 3700 Glenwood
Avenue, Suite 530, Raleigh, North Carolina 27612, and our
telephone number is
919-719-4770.
We maintain a website on the Internet at www.tcap.com.
Information contained on our website is not incorporated by
reference into this prospectus supplement or the accompanying
prospectus, and you should not consider that information to be
part of this prospectus supplement or the accompanying
prospectus.
S-1
Our
Business Strategy
We seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments by:
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Focusing on Underserved Markets. We believe that
broad-based consolidation in the financial services industry
coupled with operating margin and growth pressures have caused
financial institutions to de-emphasize services to lower middle
market companies in favor of larger corporate clients and
capital market transactions. We believe these dynamics have
resulted in the financing market for lower middle market
companies to be underserved, providing us with greater
investment opportunities.
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Providing Customized Financing Solutions. We offer a
variety of financing structures and have the flexibility to
structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt
securities, coupled with equity interests. We believe our
ability to customize financing arrangements makes us an
attractive partner to lower middle market companies.
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Leveraging the Experience of Our Management Team. Our
senior management team has more than 100 years of combined
experience advising, investing in, lending to and operating
companies across changing market cycles. The members of our
management team have diverse investment backgrounds, with prior
experience at investment banks, specialty finance companies,
commercial banks, and privately and publicly held companies in
the capacity of executive officers. We believe this diverse
experience provides us with an in-depth understanding of the
strategic, financial and operational opportunities associated
with lower middle market companies. We believe this
understanding allows us to select and structure better
investments and to efficiently monitor and provide managerial
assistance to our portfolio companies.
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Applying Rigorous Underwriting Policies and Active Portfolio
Management. Our senior management team has implemented
rigorous underwriting policies that are followed in each
transaction. These policies include a thorough analysis of each
potential portfolio companys competitive position,
financial performance, management team operating discipline,
growth potential and industry attractiveness, allowing us to
better assess the companys prospects. After investing in a
company, we monitor the investment closely, typically receiving
monthly, quarterly and annual financial statements. We analyze
and discuss in detail the companys financial performance
with management in addition to attending regular board of
directors meetings. We believe that our initial and ongoing
portfolio review process allows us to monitor effectively the
performance and prospects of our portfolio companies.
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Taking Advantage of Low Cost Debentures Guaranteed by the
SBA. Our license to do business as an SBIC allows us to
issue ten-year, fixed-rate, low interest debentures which are
guaranteed by the SBA and sold in the capital markets, which
allows us to finance our operations on more favorable terms than
other BDCs utilizing traditional leverage.
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Investing Across Multiple Industries. While we focus our
investments in lower middle market companies, we seek to invest
across various industries. We monitor our investment portfolio
to ensure we have acceptable industry balance, using industry
and market metrics as key indicators. By monitoring our
investment portfolio for industry balance we seek to reduce the
effects of economic downturns associated with any particular
industry or market sector. However, we may from time to time
hold securities of a single portfolio company that comprise more
than 5.0% of our total assets
and/or more
than 10.0% of the outstanding voting securities of the portfolio
company. For that reason, we are classified as a non-diversified
management investment company under the 1940 Act.
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Utilizing Long-Standing Relationships to Source Deals.
Our senior management team maintains extensive relationships
with entrepreneurs, financial sponsors, attorneys, accountants,
investment bankers, commercial bankers and other non-bank
providers of capital who refer prospective portfolio companies
to us. These relationships historically have generated
significant investment opportunities. We believe that our
network of relationships will continue to produce attractive
investment opportunities.
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S-2
Our
Investment Criteria
We utilize the following criteria and guidelines in evaluating
investment opportunities. However, not all of these criteria and
guidelines have been, or will be, met in connection with each of
our investments.
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Established Companies With Positive Cash Flow. We seek to
invest in established companies with a history of generating
revenues and positive cash flows. We typically focus on
companies with a history of profitability and minimum trailing
twelve month EBITDA of $3.0 million. We do not invest in
start-up
companies, distressed situations, turn-around
situations or companies that we believe have unproven business
plans.
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Experienced Management Teams With Meaningful Equity
Ownership. Based on our prior investment experience, we
believe that a management team with significant experience with
a portfolio company or relevant industry experience and
meaningful equity ownership is more committed to a portfolio
company. We believe management teams with these attributes are
more likely to manage the companies in a manner that protects
our debt investment and enhances the value of our equity
investment.
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Strong Competitive Position. We seek to invest in
companies that have developed strong positions within their
respective markets, are well positioned to capitalize on growth
opportunities and compete in industries with barriers to entry.
We also seek to invest in companies that exhibit a competitive
advantage, which may help to protect their market position and
profitability.
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Varied Customer and Supplier Base. We prefer to invest in
companies that have a varied customer and supplier base.
Companies with a varied customer and supplier base are generally
better able to endure economic downturns, industry consolidation
and shifting customer preferences.
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Significant Invested Capital. We believe the existence of
significant underlying equity value provides important support
to investments. We will look for portfolio companies that we
believe have sufficient value beyond the layer of the capital
structure in which we invest.
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Recent
Developments
In July 2010, we invested $5.5 million in subordinated debt
and warrants of Hatch Chile Co., LLC, a food products company
that distributes cooking sauces and related products for retail
customers, primarily in the Southwestern United States. Under
the terms of the investments, Hatch Chile Co., LLC will pay
interest on the subordinated debt at a rate of 18.0% per annum.
In August 2010, we invested $13.9 million in subordinated
debt and equity of Carolina Beer & Beverage, LLC, a
provider of beverage manufacturing and co-packaging services, as
well as fee-based warehousing, logistics and distribution
services. Under the terms of the investments, Carolina
Beer & Beverage, LLC will pay interest on the
subordinated debt at a rate of 16.0% per annum.
In September 2010, we invested $6.7 million in subordinated
debt and equity of AP Services, a supplier of gaskets and other
sealing technologies to power plants. Under the terms of the
investments, AP Services will pay interest on the subordinated
debt at a rate of 14.0%.
S-3
The
Offering
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Common stock offered by us |
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2,000,000 shares |
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Common stock outstanding prior to this offering |
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12,074,184 shares |
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Common stock to be outstanding after this offering(1) |
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14,074,184 shares |
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Over-allotment option |
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300,000 shares |
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Use of proceeds |
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The net proceeds from this offering (without exercise of the
over-allotment option and before deducting estimated expenses
payable by us of approximately $230,000) will be
$ . |
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We intend to use the net proceeds from selling our common stock
to make investments in lower middle market companies, including
investments made through Triangle SBIC II, in accordance
with our investment objective and strategies and for working
capital and general corporate purposes. See Use of
Proceeds in this prospectus supplement for more
information. |
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Dividends and distributions |
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Our dividends and other distributions, if any, are determined
and declared by our Board of Directors from time to time. On
August 25, 2010, our Board of Directors declared a
quarterly dividend of $0.41 per share which will be paid on
September 22, 2010. Our ability to declare dividends
depends on our earnings, our overall financial condition
(including our liquidity position), maintenance of our Regulated
Investment Company, or RIC, status, compliance with applicable
BDC regulations, our compliance with applicable SBIC regulations
and such other factors as our Board of Directors may deem
relevant from time to time. We typically pay quarterly dividends
and may pay other distributions to our stockholders out of
assets legally available for distribution. |
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Taxation |
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We have elected to be treated as a RIC. Accordingly, we
generally will not pay corporate-level federal income taxes on
any net ordinary income or capital gains that we distribute to
our stockholders as dividends. To maintain our RIC tax
treatment, we must meet specified
source-of-income
and asset diversification requirements and distribute annually
at least 90.0% of our net ordinary income and realized net
short-term capital gains in excess of realized net long-term
capital losses, if any. |
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Risk factors |
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See the Risk Factors section beginning on
page 14 of the accompanying prospectus. |
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Nasdaq Global Market symbol |
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TCAP |
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(1) |
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The number of shares of common stock to be outstanding after
this offering is based on 12,074,184 shares outstanding as
of September 20, 2010 and, unless we indicate otherwise,
excludes (i) 516,594 shares of common stock reserved
for issuance under our equity incentive plan, and (ii)
300,000 shares of common stock that the underwriters have
an option to purchase pursuant to their over-allotment option. |
S-4
FEES AND
EXPENSES
The following table is intended to assist you in understanding
our and our SBIC subsidiaries consolidated costs and
expenses that an investor in this offering will bear directly or
indirectly. We caution you that some of the percentages
indicated in the table below are estimates and may vary. Except
where the context suggests otherwise, whenever this prospectus
supplement contains a reference to fees or expenses paid by
you, us or Triangle, or that
we will pay fees or expenses, stockholders will
indirectly bear such fees or expenses as investors in us.
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Stockholder Transaction Expenses:
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Sales load (as a percentage of offering price)
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4.75
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%(1)
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Offering expenses (as a percentage of offering price)
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0.71
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%(2)
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Dividend reinvestment plan expenses
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(3)
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Total stockholder transaction expenses (as a percentage of
offering price)
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5.46
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%
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Annual Expenses (as a percentage of net assets
attributable to common stock):
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Interest payments on borrowed funds
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5.83
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%
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Other expenses
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5.33
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%(4)
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Total annual expenses
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11.16
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%(5)
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(1) |
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The underwriting discount with respect to our common stock sold
in this offering, which is a one-time fee, is the only sales
load paid in connection with this offering. |
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(2) |
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Based on the public offering price of $16.28, which was the last
reported sales price of our common stock on the Nasdaq Global
Market on September 17, 2010. The offering expenses of this
offering are estimated to be approximately $230,000. If the
underwriters exercise their over-allotment option in full, the
offering expenses borne by us (as a percentage of the offering
price) will be 0.61%. |
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(3) |
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The expenses of administering our dividend reinvestment plan are
included in Other expenses. |
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(4) |
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Other expenses represent our estimated annual operating
expenses, excluding interest payments on borrowed funds. We do
not have an investment adviser and are internally managed by our
executive officers under the supervision of our Board of
Directors. As a result, we do not pay investment advisory fees,
but instead we pay the operating costs associated with employing
investment management professionals. |
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(5) |
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The total annual expenses are the sum of interest payments on
borrowed funds and other expenses. Total annual
expenses as a percentage of average net assets
attributable to common stock are higher than the total annual
expenses percentage would be for a company that is not
leveraged. The SEC requires that the Total annual
expenses percentage be calculated as a percentage of
average net assets, rather than average total assets, which
includes assets that have been funded with borrowed money. If
the Total annual expenses percentage were calculated
instead as a percentage of average total assets, we estimate
that our Total annual expenses would be
approximately 5.28% of average total assets. |
Example
The following example is required by the SEC and demonstrates
the projected dollar amount of total cumulative expenses that
would be incurred over various periods with respect to a
hypothetical investment in us. In calculating the following
expense amounts, we assumed we would have no additional leverage
and that our operating expenses would remain at the levels set
forth in the table above, and that you would pay a sales load of
4.75% (the underwriting discount to be paid by us with respect
to common stock sold by us in this offering).
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1 Year
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3 Years
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5 Years
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10 Years
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You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return
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$
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162
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$
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369
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$
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551
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$
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911
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S-5
The example and the expenses in the tables above should not
be considered a representation of our future expenses, and
actual expenses may be greater or lesser than those shown.
While the example assumes, as required by the SEC, a 5.0%
annual return, our performance will vary and may result in a
return greater or less than 5.0%. The table above does not
reflect additional SBA leverage that we intend to employ in the
future. Other expenses are based on estimated
amounts for the current fiscal year. In addition, while the
example assumes reinvestment of all dividends at net asset
value, participants in our dividend reinvestment plan will
receive a number of shares of our common stock, determined by
dividing the total dollar amount of the dividend payable to a
participant by the market price per share of our common stock at
the close of trading on the dividend payment date, which may be
at, above or below net asset value. See Dividend
Reinvestment Plan in the accompanying prospectus for
additional information regarding our dividend reinvestment plan.
S-6
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus supplement constitute
forward-looking statements because they relate to future events
or our future performance or financial condition. The
forward-looking statements contained in this prospectus
supplement may include statements as to:
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our future operating results;
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our business prospects and the prospects of our portfolio
companies;
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the impact of the investments that we expect to make;
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the ability of our portfolio companies to achieve their
objectives;
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our expected financings and investments;
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the adequacy of our cash resources and working capital; and
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the timing of cash flows, if any, from the operations of our
portfolio companies.
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In addition, words such as anticipate,
believe, expect and intend
indicate a forward-looking statement, although not all
forward-looking statements include these words. The
forward-looking statements contained in this prospectus
supplement involve risks and uncertainties. Our actual results
could differ materially from those implied or expressed in the
forward-looking statements for any reason, including the factors
set forth elsewhere in this prospectus supplement. Other factors
that could cause actual results to differ materially include:
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changes in the economy;
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risks associated with possible disruption in our operations or
the economy generally due to terrorism; and
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future changes in laws or regulations and conditions in our
operating areas.
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We have based the forward-looking statements included in this
prospectus supplement on information available to us on the date
of this prospectus supplement, and we assume no obligation to
update any such forward-looking statements. Although we
undertake no obligation to revise or update any forward-looking
statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional
disclosures that we may make directly to you or through reports
that we may file in the future with the SEC, including annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
We note that the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of 1995
does not apply to statements made in this prospectus supplement.
S-7
USE OF
PROCEEDS
The net proceeds from the sale of 2,000,000 shares of our
common stock in this offering are estimated to be $30,783,400
($35,435,410 if the underwriters exercise their over-allotment
option in full), assuming a public offering price of $16.28 per
share (based on the last reported sales price of our common
stock on the Nasdaq Global Market on September 17, 2010), and
after deducting underwriting discounts of $1,546,600 (or
$1,778,590 if the underwriters exercise their over-allotment
option in full) and estimated offering expenses of approximately
$230,000 payable by us. We may change the size of this offering
based on demand and market conditions. A $1.00 increase
(decrease) in the assumed offering price per share would
increase (decrease) net proceeds to us from this offering by
$1,905,000, assuming the number of shares offered by us as set
forth on the cover page of this prospectus supplement remains
the same, after deducting the underwriting discounts and
estimated offering expenses payable by us.
We intend to invest the net proceeds in lower middle market
companies, including investments made through Triangle
SBIC II, in accordance with our investment objective and
strategies and for working capital and general corporate
purposes. Pending such use, we will invest the net proceeds of
this offering primarily in short-term securities consistent with
our BDC election and our election to be taxed as a RIC. See
Regulation Temporary Investments in the
accompanying prospectus.
CAPITALIZATION
The following table sets forth our capitalization:
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on an actual basis as of June 30, 2010; and
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on an as-adjusted basis giving effect to the sale of
2,000,000 shares of our common stock in this offering
assuming a public offering price of $16.28 per share (based on
the last reported sales price of our common stock on the Nasdaq
Global Market on September 17, 2010), less estimated
underwriting discounts and offering expenses payable by us.
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This table should be read in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial
statements and notes thereto included in this prospectus
supplement and the accompanying prospectus.
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As of June 30, 2010 (1),(2)
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As-adjusted for
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Actual
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this Offering
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(Unaudited)
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Cash and cash equivalents
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$
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44,885,473
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$
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75,668,873
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Borrowings (SBA-guaranteed debentures payable)
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154,500,000
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154,500,000
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Stockholders equity:
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Common stock, par value $0.001 per share;
150,000,000 shares authorized, 12,074,184 shares
outstanding, actual; 14,074,184 shares outstanding, as
adjusted
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12,074
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14,074
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Additional paid-in capital
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140,279,496
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171,060,896
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Investment income less than distributions
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(487,035
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)
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(487,035
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)
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Accumulated realized gains on investments
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1,155,817
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1,155,817
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Net unrealized depreciation of investments
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(7,150,994
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)
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(7,150,994
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)
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Total stockholders equity
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133,809,358
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164,592,758
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Total capitalization
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$
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288,309,358
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$
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319,092,758
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(1) |
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A $1.00 increase (decrease) in the assumed offering price per
share would increase (decrease) net proceeds to us from this
offering by $1,905,000, assuming the number of shares offered by
us as set forth on the cover page of this prospectus supplement
remains the same, after deducting the underwriting discounts and
estimated offering expenses payable by us. |
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(2) |
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This table does not reflect the $22.3 million in SBA
guaranteed debentures repaid by us on September 1, 2010,
nor does it reflect the $7.8 million in SBA guaranteed
debentures issued by us on September 13, 2010. |
S-8
PRICE
RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the Nasdaq Global Market under the
symbol TCAP. The following table sets forth, for
each fiscal quarter since our initial public offering, the range
of high and low sales prices of our common stock as reported on
the Nasdaq Global Market, the sales price as a percentage of our
net asset value, or NAV, and the distributions declared by us
for each fiscal quarter. The stock quotations are inter-dealer
quotations and do not include
mark-ups,
mark-downs or commissions and as such do not necessarily
represent actual transactions.
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Premium/Discount
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Premium/Discount
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Cash
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Price Range
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of High Sales
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of Low Sales Price
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Distributions
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NAV(1)
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High
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Low
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Price to NAV(2)
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to NAV(2)
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per Share(3)
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Year ended
December 31, 2008
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First Quarter
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$
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13.85
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$
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13.40
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$
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10.50
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97
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%
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76
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%
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$
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Second Quarter
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$
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13.73
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$
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12.25
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$
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10.81
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89
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%
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79
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%
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$
|
0.31
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Third Quarter
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$
|
13.76
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$
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13.75
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$
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9.91
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100
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%
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72
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%
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$
|
0.35
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Fourth Quarter
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$
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13.22
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$
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13.18
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$
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4.00
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|
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100
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%
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30
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%
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$
|
0.78
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|
Year ended
December 31, 2009
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First Quarter
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$
|
12.46
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|
|
$
|
12.92
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$
|
5.21
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|
|
104
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%
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42
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%
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$
|
0.45
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(4)
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Second Quarter
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$
|
11.31
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|
$
|
12.38
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|
$
|
7.50
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|
|
|
109
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%
|
|
|
66
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%
|
|
$
|
0.40
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Third Quarter
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$
|
10.60
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|
|
$
|
12.77
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|
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$
|
10.26
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|
|
|
120
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%
|
|
|
97
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%
|
|
$
|
0.41
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Fourth Quarter
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$
|
11.03
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$
|
13.28
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$
|
10.95
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|
|
|
120
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%
|
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|
99
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%
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$
|
0.41
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|
Year ended
December 31, 2010
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|
First Quarter
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$
|
10.87
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|
$
|
14.53
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|
$
|
11.45
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|
|
|
134
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%
|
|
|
105
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%
|
|
$
|
0.41
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|
Second Quarter
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|
$
|
11.08
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|
$
|
16.38
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|
$
|
12.16
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|
|
|
148
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%
|
|
|
110
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%
|
|
$
|
0.41
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Third Quarter (through September 17, 2010(5)
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|
$
|
*
|
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$
|
16.65
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$
|
14.06
|
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|
|
*
|
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|
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*
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|
$
|
0.41
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(1) |
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Net asset value per share is determined as of the last day in
the relevant quarter and therefore may not reflect the net asset
value per share on the date of the high and low sales prices.
The net asset values shown are based on outstanding shares at
the end of each period. |
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(2) |
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Calculated as the respective high or low sales price divided by
net asset value. |
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(3) |
|
Represents the distribution declared in the specified quarter.
We have adopted an opt out dividend reinvestment
plan for our common stockholders. As a result, if we declare a
distribution, then stockholders cash distributions will be
automatically reinvested in additional shares of our common
stock, unless they specifically opt out of the
dividend reinvestment plan so as to receive cash distributions.
See Dividend Reinvestment Plan. |
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(4) |
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Includes a capital gains distribution of $0.05 per share
declared on February 1, 2009. |
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(5) |
|
On August 25, 2010, our Board of Directors declared a
quarterly cash dividend of $0.41 per share that is payable on
September 22, 2010. |
The last reported price for our common stock on
September 17, 2010 was $16.28 per share. As of
September 17, 2010, we had 59 stockholders of record.
Shares of BDCs may trade at a market price that is less than the
value of the net assets attributable to those shares. The
possibilities that our shares of common stock will trade at a
discount from net asset value or at premiums that are
unsustainable over the long term are separate and distinct from
the risk that our net asset value will decrease. It is not
possible to predict whether the common stock offered hereby will
trade at, above, or below net asset value. Since our IPO in
February 2007, our shares of common stock have traded for
amounts both less than and exceeding our net asset value.
S-9
We have paid and intend to distribute quarterly distributions to
our stockholders. Our quarterly distributions, if any, are
determined by our Board of Directors. We have elected to be
taxed as a RIC under Subchapter M of the Internal Revenue Code
of 1986, as amended, or the Code. As long as we qualify as a
RIC, we will not be taxed on our investment company taxable
income or realized net capital gain, to the extent that such
taxable income or gain is distributed, or deemed to be
distributed, to stockholders on a timely basis.
To obtain and maintain RIC tax treatment, we must, among other
things, distribute at least 90.0% of our net ordinary income and
realized net short-term capital gain in excess of realized net
long-term capital loss, if any. In order to avoid certain excise
taxes imposed on RICs, we currently intend to distribute during
each calendar year an amount at least equal to the sum of
(1) 98.0% of our net ordinary income for the calendar year,
(2) 98.0% of our net capital gain for the calendar year and
(3) any net ordinary income and net capital gain for
preceding years that were not distributed during such years and
on which we paid no U.S. federal income tax. We may retain
for investment some or all of our net capital gain (i.e.,
realized net long-term capital gains in excess of realized net
short-term capital losses) and treat such amounts as deemed
distributions to our stockholders. If we do this, you will be
treated as if you received an actual distribution of the capital
gain we retain and then reinvested the net after-tax proceeds in
our common stock. You also may be eligible to claim a tax credit
(or, in certain circumstances, a tax refund) equal to your
allocable share of the tax we paid on the capital gain deemed
distributed to you. Please refer to Material
U.S. Federal Income Tax Considerations in the
accompanying prospectus for further information regarding the
consequences of our retention of net capital gain. We may, in
the future, make actual distributions to our stockholders of our
net capital gain. We can offer no assurance that we will achieve
results that will permit the payment of any cash distributions
and, if we issue senior securities, we will be prohibited from
making distributions if doing so causes us to fail to maintain
the asset coverage ratios stipulated by the 1940 Act or if
distributions are limited by the terms of any of our borrowings.
See Regulation and Material U.S. Federal
Income Tax Considerations in the accompanying prospectus.
We will report the U.S. federal income tax characteristics
of all distributions to our stockholders, as appropriate, on IRS
Form 1099-DIV
after the end of the year. Our ability to pay distributions
could be affected by future business performance, liquidity,
capital needs, alternative investment opportunities and loan
covenants.
The table below sets forth each class of our outstanding
securities as of June 30, 2010:
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(c)
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(d)
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Amount
|
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Amount
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Held by
|
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Outstanding
|
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Registrant
|
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Exclusive of
|
(a)
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|
(b)
|
|
or for its
|
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Amount Shown
|
Title of Class
|
|
Amount Authorized
|
|
Account
|
|
Under(c)
|
|
Common stock
|
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|
150,000,000
|
|
|
|
|
|
|
|
12,074,184
|
|
SBA-guaranteed debentures(1)
|
|
$
|
225,000,000
|
(2)
|
|
|
|
|
|
$
|
154,500,000
|
(3)
|
|
|
|
(1) |
|
For more information regarding our limitations as to SBA
guaranteed debenture issuances, see Regulation
Small Business Administration Regulation in the
accompanying prospectus. |
|
(2) |
|
As of June 30, 2010, Triangle SBIC had issued the maximum
$150.0 million of SBA guaranteed debentures. As of
June 30, 2010, Triangle SBIC II had issued
$4.5 million of SBA guaranteed debentures, has a leverage
commitment from the SBA to issue up to $53.4 million and
has the capacity to issue up to the statutory maximum of
$75.0 million, subject to SBA approval. |
|
(3) |
|
Does not reflect the $22,300,000 in SBA guaranteed debentures
repaid by us on September 1, 2010, nor does it reflect the
$7.8 million in SBA guaranteed debentures issued by us on
September 13, 2010. |
S-10
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical financial and other data below reflects
the consolidated operations of Triangle Capital Corporation and
its subsidiaries, including Triangle SBIC and Triangle SBIC II.
The selected financial data at and for the fiscal years ended
December 31, 2005, 2006, 2007, 2008 and 2009 have been
derived from our financial statements that have been audited by
Ernst & Young LLP, an independent registered public
accounting firm. Financial information prior to our initial
public offering in 2007 is that of Triangle SBIC, which is
Triangle Capital Corporations predecessor. Interim
financial information for the six months ended June 30,
2010 is derived from our unaudited financial statements, and in
the opinion of management, reflects all adjustments (consisting
only of normal recurring adjustments) that are necessary to
present fairly the results of such interim periods. Interim
results for the six months ended June 30, 2010 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2010. You should read
this selected financial and other data in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial
statements and notes thereto included in this prospectus
supplement and accompanying prospectus.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
5,855
|
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
|
$
|
21,056
|
|
|
$
|
27,149
|
|
|
$
|
15,639
|
|
Interest income from cash and cash equivalent investments
|
|
|
108
|
|
|
|
280
|
|
|
|
1,824
|
|
|
|
303
|
|
|
|
613
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
5,963
|
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
21,359
|
|
|
|
27,762
|
|
|
|
15,779
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,543
|
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
4,228
|
|
|
|
6,901
|
|
|
|
3,578
|
|
Amortization of deferred financing fees
|
|
|
90
|
|
|
|
100
|
|
|
|
113
|
|
|
|
255
|
|
|
|
363
|
|
|
|
196
|
|
Management fees
|
|
|
1,574
|
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
58
|
|
|
|
115
|
|
|
|
3,894
|
|
|
|
6,254
|
|
|
|
6,449
|
|
|
|
3,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,265
|
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
10,737
|
|
|
|
13,713
|
|
|
|
7,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2,698
|
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
10,622
|
|
|
|
14,049
|
|
|
|
8,352
|
|
Net realized gain (loss) on
investments non-control/non-affiliate
|
|
|
(3,500
|
)
|
|
|
6,027
|
|
|
|
(760
|
)
|
|
|
(1,393
|
)
|
|
|
448
|
|
|
|
(2,834
|
)
|
Net realized gain on investments affiliate
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
3,541
|
|
Net realized gain on investments control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
3,975
|
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
(4,286
|
)
|
|
|
(10,310
|
)
|
|
|
2,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
475
|
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(2,850
|
)
|
|
|
(9,862
|
)
|
|
|
2,757
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(133
|
)
|
|
|
(150
|
)
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
3,173
|
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
7,639
|
|
|
$
|
4,037
|
|
|
$
|
11,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and
diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
1.54
|
|
|
$
|
1.63
|
|
|
$
|
0.70
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.11
|
|
|
$
|
0.47
|
|
|
$
|
0.92
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.22
|
|
|
$
|
11.03
|
|
|
$
|
11.08
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
1.44
|
|
|
$
|
1.62
|
|
|
$
|
0.82
|
|
Capital gains distributions declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
S-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
36,617
|
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
182,105
|
|
|
$
|
201,318
|
|
|
$
|
241,314
|
|
Cash and cash equivalents
|
|
|
6,067
|
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
27,193
|
|
|
|
55,200
|
|
|
|
44,885
|
|
Interest and fees receivable
|
|
|
50
|
|
|
|
135
|
|
|
|
305
|
|
|
|
680
|
|
|
|
677
|
|
|
|
1,052
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
95
|
|
|
|
287
|
|
|
|
262
|
|
Deferred offering costs
|
|
|
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
29
|
|
|
|
39
|
|
Deferred financing fees
|
|
|
1,085
|
|
|
|
985
|
|
|
|
999
|
|
|
|
3,546
|
|
|
|
3,540
|
|
|
|
4,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
292,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital/net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
13
|
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
1,609
|
|
|
$
|
2,222
|
|
|
$
|
1,141
|
|
Interest payable
|
|
|
566
|
|
|
|
606
|
|
|
|
699
|
|
|
|
1,882
|
|
|
|
2,334
|
|
|
|
2,434
|
|
Distribution/dividends payable
|
|
|
|
|
|
|
532
|
|
|
|
2,041
|
|
|
|
2,767
|
|
|
|
4,775
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
30
|
|
|
|
59
|
|
|
|
52
|
|
Deferred revenue
|
|
|
75
|
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
75
|
|
|
|
38
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
|
|
844
|
|
|
|
577
|
|
|
|
247
|
|
SBA-guaranteed debentures payable
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
115,110
|
|
|
|
121,910
|
|
|
|
154,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
32,454
|
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
122,242
|
|
|
|
131,952
|
|
|
|
158,412
|
|
Total partners capital/shareholders equity
|
|
|
11,365
|
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
91,425
|
|
|
|
129,099
|
|
|
|
133,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net assets
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
292,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
|
|
13.5
|
%
|
|
|
14.0
|
%
|
Number of portfolio companies
|
|
|
12
|
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
|
|
37
|
|
|
|
41
|
|
Expense ratios (annualized, as percentage of average net
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
21.3
|
%
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
5.5
|
%
|
Interest expense and deferred financing fees
|
|
|
21.4
|
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
42.7
|
%
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
11.3
|
%
|
|
|
14.0
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-12
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this section contains forward-looking
statements that involve risks and uncertainties. Please see
Special Note Regarding Forward-Looking Statements in
this prospectus supplement and Risk Factors and
Special Note Regarding Forward-Looking Statements in
the accompanying prospectus for a discussion of the
uncertainties, risks and assumptions associated with these
statements. You should read the following discussion in
conjunction with the combined and consolidated financial
statements and related notes and other financial information
appearing elsewhere in this prospectus supplement and the
accompanying prospectus.
The following discussion is designed to provide a better
understanding of our unaudited consolidated financial statements
for the six months ended June 30, 2010, including a brief
discussion of our business, key factors that impacted our
performance and a summary of our operating results. The
following discussion should be read in conjunction with the
unaudited financial statements and the notes thereto included
elsewhere in this prospectus supplement, and the audited
financial statements and notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of
Operations for the year ended December 31, 2009 contained
in the accompanying prospectus. Historical results and
percentage relationships among any amounts in the financial
statements are not necessarily indicative of trends in operating
results for any future periods.
Overview
of our Business
We are a Maryland corporation which has elected to be treated
and operates as an internally managed BDC, under the 1940 Act.
Our wholly owned subsidiary, Triangle SBIC, is licensed as a
small business investment company, or SBIC, by the United States
Small Business Administration, or SBA, and has also elected to
be treated as a BDC under the 1940 Act. On December 15,
2009, our wholly owned subsidiary, Triangle SBIC II was
organized as a limited partnership under the laws of the state
of Delaware and received its SBIC license on May 10, 2010.
We, Triangle SBIC, and Triangle SBIC II invest primarily in debt
instruments, equity investments, warrants and other securities
of lower middle market privately held companies located in the
United States.
Our business is to provide capital to lower middle market
companies in the United States. We define lower middle market
companies as those with annual revenues between $10.0 and
$100.0 million. We focus on investments in companies with a
history of generating revenues and positive cash flows, an
established market position and a proven management team with a
strong operating discipline. Our target portfolio company
generally has annual revenues between $20.0 and
$100.0 million and annual earnings before interest, taxes,
depreciation and amortization, or EBITDA, between $3.0 and
$20.0 million.
We invest primarily in senior and subordinated debt securities
secured by first and second lien security interests in portfolio
company assets, coupled with equity interests. Our investments
generally range from $5.0 to $15.0 million per portfolio
company. In certain situations, we have partnered with other
funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily
from our investments in debt securities, loan origination and
other fees and dividend income. Fees generated in connection
with our debt investments are recognized over the life of the
loan using the effective interest method or, in some cases,
recognized as earned. In addition, we generate revenue in the
form of capital gains, if any, on warrants or other
equity-related securities that we acquire from our portfolio
companies. Our debt investments generally have a term of between
three and seven years and typically bear interest at fixed rates
between 12.0% and 17.0% per annum. Certain of our debt
investments have a form of interest, referred to as
payment-in-kind,
or PIK, interest, that is not paid currently but that is accrued
and added to the loan balance and paid at the end of the term.
In our negotiations with potential portfolio companies, we
generally seek to minimize PIK interest. Cash interest on our
debt investments is generally payable monthly; however, some of
our debt investments pay cash interest on a quarterly basis. As
of June 30, 2010 and December 31, 2009, the weighted
average yield on our outstanding debt investments other than
non-accrual debt investments (including PIK interest) was
approximately 15.4% and 14.7%, respectively. The weighted
average yield on all of our outstanding investments (including
equity
S-13
and equity-linked investments but excluding non-accrual debt
investments) was approximately 14.0% and 13.5% as of
June 30, 2010 and December 31, 2009, respectively. The
weighted average yield on all of our outstanding investments
(including equity and equity-linked investments and non-accrual
debt investments) was approximately 12.6% and 12.5% as of
June 30, 2010 and December 31, 2009, respectively.
Our two SBIC subsidiaries are eligible to sell debentures
guaranteed by the SBA in the capital markets at favorable
interest rates and invest these funds in portfolio companies. We
intend to continue to operate Triangle SBIC and Triangle SBIC II
as SBICs, subject to SBA approval, and to utilize the proceeds
of the sale of our two SBIC subsidiaries SBA-guaranteed
debentures, referred to herein as SBA leverage, to enhance
returns to our stockholders.
Portfolio
Composition
The total value of our investment portfolio was
$241.3 million as of June 30, 2010, as compared to
$201.3 million as of December 31, 2009. As of
June 30, 2010, we had investments in 41 portfolio companies
with an aggregate cost of $248.2 million. As of
December 31, 2009, we had investments in 37 portfolio
companies with an aggregate cost of $209.9 million. As of
both June 30, 2010 and December 31, 2009, none of our
portfolio investments represented greater than 10% of the total
fair value of our investment portfolio.
As of June 30, 2010 and December 31, 2009, our
investment portfolio consisted of the following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
June 30, 2010:
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
Subordinated debt, Unitranche and 2nd lien notes
|
|
$
|
215,676,120
|
|
|
|
87
|
%
|
|
$
|
202,282,962
|
|
|
|
84
|
%
|
Senior debt
|
|
|
8,943,390
|
|
|
|
4
|
|
|
|
7,932,415
|
|
|
|
3
|
|
Equity shares
|
|
|
19,024,914
|
|
|
|
8
|
|
|
|
22,837,000
|
|
|
|
9
|
|
Equity warrants
|
|
|
3,699,783
|
|
|
|
1
|
|
|
|
7,069,900
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
1,192,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
248,218,607
|
|
|
|
100
|
%
|
|
$
|
241,314,277
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and 2nd lien notes
|
|
$
|
179,482,425
|
|
|
|
86
|
%
|
|
$
|
166,087,684
|
|
|
|
83
|
%
|
Senior debt
|
|
|
11,090,514
|
|
|
|
5
|
|
|
|
10,847,886
|
|
|
|
5
|
|
Equity shares
|
|
|
15,778,681
|
|
|
|
8
|
|
|
|
17,182,500
|
|
|
|
9
|
|
Equity warrants
|
|
|
2,715,070
|
|
|
|
1
|
|
|
|
6,250,600
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,941,090
|
|
|
|
100
|
%
|
|
$
|
201,317,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activity
During the six months ended June 30, 2010, we made six new
investments totaling approximately $43.6 million, six
additional debt investments in existing portfolio companies
totaling approximately $13.9 million and five additional
equity investments in existing portfolio companies totaling
approximately $0.7 million. In addition, we sold two equity
investments in portfolio companies for total proceeds of
approximately $4.1 million, resulting in realized gains
totaling approximately $3.7 million, and converted a
subordinated debt investment in one portfolio company to equity,
resulting in a realized loss of approximately $3.0 million.
We had five portfolio company loans repaid at par totaling
approximately $13.2 million and received normal principal
repayments and partial loan prepayments totaling approximately
$4.4 million in the six months ended June 30, 2010.
During the six months ended June 30, 2009, we made one new
investment totaling $5.2 million and five additional
investments in existing portfolio companies totaling
approximately $4.0 million. We sold
S-14
investments in two portfolio companies for total proceeds of
approximately $1.9 million and recognized a net gain on
these sales of approximately $1.8 million. In addition, we
received a full repayment from one portfolio company totaling
approximately $2.0 million and received partial repayments
of loans from two portfolio companies totaling approximately
$2.0 million. In addition, we received normal principal
repayments totaling approximately $0.9 million in the six
months ended June 30, 2009.
Total portfolio investment activity for the six months ended
June 30, 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
Fair value of portfolio, beginning of period
|
|
|
|
$
|
201,317,970
|
|
|
$
|
182,105,291
|
|
|
|
New investments
|
|
|
|
|
58,216,292
|
|
|
|
9,193,735
|
|
|
|
Loan origination fees received
|
|
|
|
|
(1,157,860
|
)
|
|
|
(175,000
|
)
|
|
|
Proceeds from sale of investment
|
|
|
|
|
(4,089,571
|
)
|
|
|
(1,888,384
|
)
|
|
|
Net gains on sale of investment
|
|
|
|
|
707,653
|
|
|
|
848,164
|
|
|
|
Principal repayments received
|
|
|
|
|
(17,613,050
|
)
|
|
|
(4,903,577
|
)
|
|
|
Payment in kind interest earned
|
|
|
|
|
2,789,287
|
|
|
|
2,152,633
|
|
|
|
Payment in kind interest received
|
|
|
|
|
(1,305,422
|
)
|
|
|
(497,427
|
)
|
|
|
Accretion of loan discounts
|
|
|
|
|
312,106
|
|
|
|
203,742
|
|
|
|
Accretion of deferred loan origination revenue
|
|
|
|
|
418,082
|
|
|
|
310,902
|
|
|
|
Unrealized gains (losses) on investments
|
|
|
|
|
1,718,790
|
|
|
|
(10,854,802
|
)
|
|
|
|
|
|
|
|
|
Fair value of portfolio, end of period
|
|
|
|
$
|
241,314,277
|
|
|
$
|
176,495,277
|
|
|
|
|
|
|
|
|
|
Weighted average yield on debt investments at end of period(1)
|
|
|
|
|
15.4
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
Weighted average yield on total investments at end of period(1)
|
|
|
|
|
14.0
|
%
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
Weighted average yield on total investments at end of period
|
|
|
|
|
12.6
|
%
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes non-accrual debt investments. |
Non-Accrual
Assets
As of June 30, 2010, the fair value of our non-accrual
assets was approximately $11.4 million, which comprised
4.7% of the total fair value of our portfolio, and the cost of
our non-accrual assets was approximately $24.0 million,
which comprised 9.7% of the total cost of our portfolio. Our
non-accrual assets as of June 30, 2010 are as follows:
Gerli and
Company
In November 2008, we placed our debt investment in Gerli and
Company, or Gerli, on non-accrual status. As a result, under
generally accepted accounting principles in the United States,
or U.S. GAAP, we no longer recognize interest income on our
debt investment in Gerli for financial reporting purposes.
During 2008, we recognized an unrealized loss on our debt
investment in Gerli of $1.2 million and in the year ended
December 31, 2009, we recognized an additional unrealized
loss on our debt investment in Gerli of $0.5 million. In
the six months ended June 30, 2010, we recognized an
unrealized gain on our debt investment in Gerli of approximately
$0.2 million. As of June 30, 2010, the cost of our
debt investment in Gerli is $3.3 million and the fair value
of such investment is $1.8 million.
Fire
Sprinkler Systems, Inc.
In October 2008, we placed our debt investment in Fire Sprinkler
Systems, Inc., or Fire Sprinkler Systems, on non-accrual status.
As a result, under U.S. GAAP, we no longer recognize
interest income on our debt investment in Fire Sprinkler Systems
for financial reporting purposes. During 2008, we recognized an
unrealized loss of $1.4 million on our subordinated note
investment in Fire Sprinkler Systems. In the year ended
December 31, 2009, we recognized an additional unrealized
loss on our debt investment in Fire
S-15
Sprinkler Systems of $0.3 million and in the six months
ended June 30, 2010, we recognized an additional unrealized
loss on our debt investment in Fire Sprinkler Systems of
$0.1 million. As of June 30, 2010, the cost of our
debt investment in Fire Sprinkler Systems is $2.5 million
and the fair value of such investment is $0.8 million.
American
De-Rosa Lamparts, LLC and Hallmark Lighting
In 2008, we recognized an unrealized loss of $1.2 million
on our subordinated note investment in American De-Rosa
Lamparts, LLC and Hallmark Lighting, or collectively, ADL. This
unrealized loss reduced the fair value of our investment in ADL
to $6.9 million as of December 31, 2008. Through
August 31, 2009, we continued to receive interest payments
from ADL in accordance with the loan agreement. In September
2009, we received notification from ADLs senior lender
that ADL was blocked from making interest payments to us. As a
result, we placed our investment in ADL on non-accrual status
and under U.S. GAAP, we no longer recognize interest income
on our investment in ADL for financial reporting purposes. In
the year ended December 31, 2009, we recognized an
additional unrealized loss on our investment in ADL of
$3.2 million and in the first quarter of 2010, we
recognized an unrealized gain on our investment in ADL of
approximately $0.1 million. In June 2010, we converted
approximately $3.0 million of our subordinated debt in ADL
to equity as part of a restructuring, resulting in realized loss
of approximately $3.0 million. As of June 30, 2010,
the cost of our investment in ADL was approximately
$5.1 million and the fair value of such investment was
approximately $4.0 million.
FCL
Graphics, Inc. 2nd Lien Note
During the first eight months of 2009, we received cash interest
on our 2nd Lien note in FCL Graphics, Inc., or FCL, at the
stated contractual rate (20% per annum as of September 30,
2009). In September 2009, FCL did not make the scheduled
interest payments on its 2nd Lien notes. As a result, we
placed our 2nd Lien note in FCL on non-accrual status and
therefore, under U.S. GAAP, we no longer recognized
interest income on our 2nd Lien note investment in FCL for
financial reporting purposes. In November 2009, we amended the
terms of our note with FCL. The terms of the amendment provide
for cash interest at a rate of LIBOR plus 250 basis points
per annum and PIK interest at a rate of 8% per annum. In
addition, we exchanged approximately $0.4 million of unpaid
PIK interest on our FCL 2nd Lien note for common equity in
FCL Graphics, resulting in a $0.4 million realized
loss. While we are currently recognizing cash interest on our
2nd Lien investment in FCL, we have placed the PIK
component of this note on non-accrual status. In the year ended
December 31, 2009, we recognized an unrealized loss on our
2nd Lien note investment in FCL of approximately
$2.2 million and in the first six months of 2010, we
recognized an unrealized loss on our 2nd Lien note investment in
FCL of approximately $0.8 million. As of June 30,
2010, the cost of our 2nd Lien note investment in FCL was
approximately $3.0 million and the fair value of our
2nd Lien note investment in FCL was zero.
Waste
Recyclers Holdings, LLC
In 2009, in an effort to address liquidity and working capital
constraints at Waste Recyclers Holdings, LLC, or Waste
Recyclers, we restructured our debt investments in Waste
Recyclers to provide for a lower rate of current cash interest
and a higher rate of PIK interest. In addition, in 2009, we
recognized an unrealized loss on our debt investments in Waste
Recyclers of approximately $0.7 million. We continued to
receive scheduled cash interest payments from Waste Recyclers
during 2009. In March 2010, Waste Recyclers did not make its
scheduled cash interest payments for the first quarter of 2010
and in April 2010, we received notification from Waste
Recyclers senior lender that Waste Recyclers was blocked
from making interest payments to us for a period of
180 days. As a result, we placed our debt investments in
Waste Recyclers on non-accrual status and under U.S. GAAP,
we no longer recognize interest income on our debt investments
in Waste Recyclers for financial reporting purposes. In the
first six months of 2010, we recognized an unrealized loss on
our debt investments in Waste Recyclers of approximately
$4.5 million. As of June 30, 2010, the cost of our
debt investments in Waste Recyclers was approximately
$10.2 million and the fair value of our debt investments in
Waste Recyclers was approximately $4.9 million.
S-16
We are currently in negotiations with the Waste Recyclers
investor group regarding various restructuring alternatives,
including converting some or all of our existing debt
investments to an equity security. While there can be no
assurance that these negotiations will result in terms that are
acceptable to us, the Waste Recyclers investor group is working
diligently toward an acceptable restructuring.
Results
of Operations
Comparison
of six months ended June 30, 2010 and June 30,
2009
Investment
Income
For the six months ended June 30, 2010, total investment
income was $15.8 million, a 21% increase from
$13.1 million of total investment income for the six months
ended June 30, 2009. This increase was primarily
attributable to a $2.8 million increase in total loan
interest, fee and dividend income (including PIK interest
income). The increase in total loan interest, fee and dividend
income was due to 1) a net increase in our portfolio
investments from June 30, 2009, to June 30, 2010, and
2) an increase in non-recurring fee income of approximately
$0.7 million, offset by a decrease in interest income from
cash and cash equivalent investments of $0.1 million which
resulted from lower average cash balances and lower interest
rates in the first six months of 2010 as compared to the
corresponding period in 2009. Non-recurring fee income was
approximately $1.0 million for the six months ended
June 30, 2010, as compared to approximately
$0.3 million for the six months ended June 30, 2009.
Expenses
For the six months ended June 30, 2010, expenses increased
by 9% to $7.4 million from $6.8 million for the six
months ended June 30, 2009. The increase in expenses was
primarily attributable to a $0.2 million increase in
interest expense and a $0.3 million increase in general and
administrative expenses. The increase in interest expense is
related to higher average balances of SBA-guaranteed debentures
outstanding during the six months ended June 30, 2010 than
in the comparable period in 2009. The increase in general and
administrative costs in the first six months of 2010 was
primarily related to increased compensation costs (including
equity-based compensation).
Net
Investment Income
As a result of the $2.7 million increase in total
investment income and the $0.6 million increase in
expenses, net investment income for the six months ended
June 30, 2010 was $8.4 million compared to net
investment income of $6.3 million during the six months
ended June 30, 2009.
Net
Increase/Decrease in Net Assets Resulting From
Operations
In the six months ended June 30, 2010, we realized a gain
on the sale of one affiliate investment of approximately
$3.5 million, a gain on the sale of one
non-control/non-affiliate investment of approximately
$0.2 million and a realized loss on the partial conversion
of one non-control/non-affiliate debt investment to equity of
approximately $3.0 million. In addition, during the six
months ended June 30, 2010, we recorded net unrealized
appreciation of investments totaling approximately
$2.0 million, comprised of 1) unrealized appreciation
on 21 investments totaling approximately $11.3 million,
2) unrealized depreciation on 13 investments totaling
approximately $9.1 million and 3) a $0.2 million
unrealized depreciation reclassification adjustment related to
the $0.2 million realized gain noted above.
In the six months ended June 30, 2009, we recorded net
realized gains of $0.8 million, consisting primarily of
1) a realized gain on the sale of one investment of
$1.8 million and 2) a loss on the recapitalization of
another investment of $0.9 million. In the six months ended
June 30, 2009, we recorded net unrealized depreciation of
investments in the amount of $10.5 million, comprised of
net unrealized depreciation reclassification adjustments
totaling $0.6 million related to the sale of one investment
and the recapitalization of another investment noted above, as
well as unrealized depreciation on sixteen investments totaling
$12.6 million and unrealized appreciation on eleven
investments totaling $2.7 million.
S-17
As a result of these events, our net increase in net assets from
operations was $11.0 million for the six months ended
June 30, 2010 as compared to a net decrease in net assets
from operations of $3.4 million during the six months ended
June 30, 2009.
Liquidity
and Capital Resources
We believe that our current cash and cash equivalents on hand,
our available SBA leverage and our anticipated cash flows from
operations will be adequate to meet our cash needs for our daily
operations for at least the next twelve months.
In the future, depending on the valuation of Triangle
SBICs assets and Triangle SBIC IIs assets pursuant
to SBA guidelines, Triangle SBIC and Triangle SBIC II may be
limited by provisions of the Small Business Investment Act of
1958, and SBA regulations governing SBICs, from making certain
distributions to Triangle Capital Corporation that may be
necessary to enable Triangle Capital Corporation to make the
minimum required distributions to its stockholders and qualify
as a RIC.
Cash
Flows
For the six months ended June 30, 2010, we experienced a
net decrease in cash and cash equivalents in the amount of
$10.3 million. During that period, our operating activities
used $29.9 million in cash, consisting primarily of new
portfolio investments of $58.2 million, partially offset by
repayments received from portfolio companies of
$21.7 million. In addition, financing activities provided
$19.6 million of cash, consisting primarily of borrowings
under SBA guaranteed debentures payable of $32.6 million,
offset by cash dividends paid in the amount of
$11.4 million and financing fees paid in the amount of
$1.3 million. At June 30, 2010, we had
$44.9 million of cash and cash equivalents on hand.
For the six months ended June 30, 2009, we experienced a
net increase in cash and cash equivalents in the amount of
$8.7 million. During that period, our operating activities
provided $2.2 million in cash, consisting primarily of
1) net investment income and 2) sales/repayments of
portfolio investments of $6.8 million, offset by purchases
of investments totaling $9.2 million. In the six months
ended June 30, 2009, financing activities provided
$6.5 million of cash, consisting of proceeds from our
public stock offering of $12.5 million, net of cash
dividends and distributions to stockholders totaling
$5.9 million. At June 30, 2009, we had
$35.9 million of cash and cash equivalents on hand.
Financing
Transactions
Due to Triangle SBICs and Triangle SBIC IIs status
as licensed SBICs, Triangle SBIC and Triangle SBIC II have the
ability to issue debentures guaranteed by the SBA at favorable
interest rates. Under the Small Business Investment Act and the
SBA rules applicable to SBICs, an SBIC (or group of SBICs under
common control) can have outstanding at any time debentures
guaranteed by the SBA in an amount up to three times the amount
of its regulatory capital, which generally is the amount raised
from private investors. The maximum statutory limit on the
dollar amount of outstanding debentures guaranteed by the SBA
issued by a single SBIC is currently $150.0 million and by
a group of SBICs under common control is $225.0 million.
Debentures guaranteed by the SBA have a maturity of ten years,
with interest payable semi-annually. The principal amount of the
debentures is not required to be paid before maturity but may be
pre-paid at any time. Debentures issued prior to September 2006,
were subject to pre-payment penalties during their first five
years. Those pre-payment penalties no longer apply to debentures
issued after September 1, 2006.
As of June 30, 2010, Triangle SBIC had issued the maximum
$150.0 million of SBA guaranteed debentures. As of
June 30, 2010, Triangle SBIC II has issued
$4.5 million of SBA guaranteed debentures and has the
current capacity to issue up to the statutory maximum of
$75.0 million, subject to SBA approval. In addition to the
one-time 1.0% fee on the total commitment from the SBA, we also
pay a one-time 2.425% fee on the amount of each debenture
issued. These fees are capitalized as deferred financing costs
and are amortized over the term of the debt agreements using the
effective interest method. The weighted average interest rate
for all SBA guaranteed debentures as of June 30, 2010 was
4.98%. The weighted average interest rate as of June 30,
2010, included $121.9 million of pooled SBA-guaranteed
debentures with a weighted
S-18
average fixed interest rate of 5.96% and $32.6 million of
unpooled SBA-guaranteed debentures with a weighted average
interim interest rate of 1.30%.
Distributions
to Stockholders
We have elected to be treated as a RIC under Subchapter M of the
Internal Revenue Code of 1986, as amended (the Code)
and intend to make the required distributions to our
stockholders as specified therein. In order to qualify as a RIC
and to obtain RIC tax benefits, we must meet certain minimum
distribution, source-of-income and asset diversification
requirements. If such requirements are met, then we are
generally required to pay income taxes only on the portion of
our taxable income and gains we do not distribute (actually or
constructively) and certain built-in gains. We met our minimum
distribution requirements for 2009, 2008 and 2007 and
continually monitor our distribution requirements with the goal
of ensuring compliance with the Code.
The minimum distribution requirements applicable to RICs require
us to distribute to our stockholders at least 90% of our
investment company taxable income (ICTI), as defined
by the Code, each year. Depending on the level of ICTI earned in
a tax year, we may choose to carry forward ICTI in excess of
current year distributions into the next tax year and pay a 4%
excise tax on such excess. Any such carryover ICTI must be
distributed before the end of the next tax year through a
dividend declared prior to filing the final tax return related
to the year which generated such ICTI.
ICTI generally differs from net investment income for financial
reporting purposes due to temporary and permanent differences in
the recognition of income and expenses. We may be required to
recognize ICTI in certain circumstances in which we do not
receive cash. For example, if we hold debt obligations that are
treated under applicable tax rules as having original issue
discount (such as debt instruments issued with warrants), we
must include in ICTI each year a portion of the original issue
discount that accrues over the life of the obligation,
regardless of whether cash representing such income is received
by us in the same taxable year. We may also have to include in
ICTI other amounts that we have not yet received in cash, such
as 1) PIK interest income and 2) interest income from
investments that have been classified as non-accrual for
financial reporting purposes. Interest income on non-accrual
investments is not recognized for financial reporting purposes,
but generally is recognized in ICTI. Because any original issue
discount or other amounts accrued will be included in our ICTI
for the year of accrual, we may be required to make a
distribution to our stockholders in order to satisfy the minimum
distribution requirements, even though we will not have received
and may not ever receive any corresponding cash amount. ICTI
also excludes net unrealized appreciation or depreciation, as
investment gains or losses are not included in taxable income
until they are realized.
Current
Market Conditions
Since the beginning of 2008, the debt and equity capital markets
in the United States have been severely impacted by significant
write-offs in the financial services sector relating to subprime
mortgages and the re-pricing of credit risk in the broadly
syndicated bank loan market, among other factors. These events,
along with the deterioration of the housing market, have led to
an economic recession in the U.S. and abroad, which could
be long-term. Banks, investment companies and others in the
financial services industry have continued to report significant
write-downs in the fair value of their assets, which has led to
the failure of a number of banks and investment companies, a
number of distressed mergers and acquisitions, the government
take-over of the nations two largest government-sponsored
mortgage companies, and the passage of the $700 billion
Emergency Economic Stabilization Act of 2008 in October 2008 and
the passage of the American Recovery and Reinvestment Act of
2009 in February 2009. These events have significantly impacted
the financial and credit markets and have reduced the
availability of debt and equity capital for the market as a
whole, and for financial firms in particular. Notwithstanding
recent gains across both the equity and debt markets, these
conditions may continue for a prolonged period of time or worsen
in the future. While we have capacity to issue additional SBA
guaranteed debentures as discussed above, we may not be able to
access additional equity capital, which could result in the
slowing of our origination activity during the remainder of 2010
and beyond.
S-19
In the event that the United States economy remains in a
recession, it is possible that the results of some of the middle
market companies in which we invest could experience further
deterioration, which could ultimately lead to difficulty in
meeting debt service requirements and an increase in defaults.
There can be no assurance that the performance of certain of our
portfolio companies will not be negatively impacted by
challenging economic conditions which could have a negative
impact on our future results.
Recent
Developments
In July 2010, we invested $5.5 million in subordinated debt
and warrants of Hatch Chile Co., LLC, a food products company
that distributes cooking sauces and related products for retail
customers, primarily in the Southwestern United States. Under
the terms of the investments, Hatch Chile Co., LLC will pay
interest on the subordinated debt at a rate of 18.0% per annum.
In August 2010, we invested $13.9 million in subordinated
debt and equity of Carolina Beer & Beverage, LLC, a
provider of beverage manufacturing and co-packaging services, as
well as fee-based warehousing, logistics and distribution
services. Under the terms of the investments, Carolina
Beer & Beverage, LLC will pay interest on the
subordinated debt at a rate of 16.0% per annum.
In September 2010, we invested $6.7 million in subordinated
debt and equity of AP Services, a supplier of gaskets and other
sealing technologies to power plants. Under the terms of the
investments, AP Services will pay interest on the subordinated
debt at a rate of 14.0%.
Critical
Accounting Policies and Use of Estimates
The preparation of our unaudited financial statements in
accordance with U.S. GAAP requires management to make certain
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses for the
periods covered by such financial statements. We have identified
investment valuation and revenue recognition as our most
critical accounting estimates. On an on-going basis, we evaluate
our estimates, including those related to the matters described
below. These estimates are based on the information that is
currently available to us and on various other assumptions that
we believe to be reasonable under the circumstances. Actual
results could differ materially from those estimates under
different assumptions or conditions. A discussion of our
critical accounting policies follows.
Investment
Valuation
The most significant estimate inherent in the preparation of our
financial statements is the valuation of investments and the
related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented
processes and methodologies for determining the fair values of
portfolio company investments on a recurring (quarterly) basis.
As discussed below, we have engaged an independent valuation
firm to assist us in our valuation process.
On January 1, 2008, we adopted Federal Accounting Standards
Board Accounting Standards Codification, or FASB ASC, Topic 820,
Fair Value Measurements and Disclosures, or ASC Topic
820, which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted
accounting principles and expands disclosures about fair value
measurements.
ASC Topic 820 clarifies that the exchange price is the price in
an orderly transaction between market participants to sell an
asset or transfer a liability in the market in which the
reporting entity would transact for the asset or liability, that
is, the principal or most advantageous market for the asset or
liability. The transaction to sell the asset or transfer the
liability is a hypothetical transaction at the measurement date,
considered from the perspective of a market participant that
holds the asset or owes the liability. ASC Topic 820 provides a
consistent definition of fair value which focuses on exit price
and prioritizes, within a measurement of fair value, the use of
market-based inputs over entity-specific inputs. In addition,
ASC Topic 820 provides a framework for measuring fair value and
establishes a three-level hierarchy for fair value measurements
based upon the
S-20
transparency of inputs to the valuation of an asset or liability
as of the measurement date. The three levels of valuation
hierarchy established by ASC Topic 820 are defined as follows:
|
|
|
|
Level 1
|
inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets.
|
|
|
Level 2
|
inputs to the valuation methodology include quoted prices for
similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly
or indirectly, for substantially the full term of the financial
instrument.
|
|
|
Level 3
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inputs to the valuation methodology are unobservable and
significant to the fair value measurement.
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A financial instruments categorization within the
valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. Our investment
portfolio is comprised of debt and equity instruments of
privately held companies for which quoted prices falling within
the categories of Level 1 and Level 2 inputs are not
available. Therefore, we value all of our investments at fair
value, as determined in good faith by our Board of Directors,
using Level 3 inputs, as further described below. Due to
the inherent uncertainty in the valuation process, our Board of
Directors estimate of fair value may differ significantly
from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
In addition, changes in the market environment and other events
that may occur over the life of the investments may cause the
gains or losses ultimately realized on these investments to be
different than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that we might reasonably
expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the
most recently available portfolio company financial statements
and forecasts. We also consult with the portfolio companys
senior management to obtain further updates on the portfolio
companys performance, including information such as
industry trends, new product development and other operational
issues. Additionally, we consider some or all of the following
factors:
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financial standing of the issuer of the security;
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comparison of the business and financial plan of the issuer with
actual results;
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the size of the security held as it relates to the liquidity of
the market for such security;
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pending public offering of common stock by the issuer of the
security;
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pending reorganization activity affecting the issuer, such as
merger or debt restructuring;
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ability of the issuer to obtain needed financing;
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changes in the economy affecting the issuer;
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financial statements and reports from portfolio company senior
management and ownership;
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the type of security, the securitys cost at the date of
purchase and any contractual restrictions on the disposition of
the security;
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discount from market value of unrestricted securities of the
same class at the time of purchase;
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special reports prepared by analysts;
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information as to any transactions or offers with respect to the
security
and/or sales
to third parties of similar securities;
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S-21
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the issuers ability to make payments and the type of
collateral;
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the current and forecasted earnings of the issuer;
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statistical ratios compared to lending standards and to other
similar securities; and
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other pertinent factors.
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In making the good faith determination of the value of debt
securities, we start with the cost basis of the security, which
includes the amortized original issue discount, and
paid-in-kind
(PIK) interest, if any. We also use a risk rating system to
estimate the probability of default on the debt securities and
the probability of loss if there is a default. The risk rating
system covers both qualitative and quantitative aspects of the
business and the securities held. In valuing debt securities, we
utilize an income approach model that considers
factors including, but not limited to, (i) the portfolio
investments current risk rating (discussed below),
(ii) the portfolio companys current trailing twelve
months, or TTM, results of operations as compared to the
portfolio companys TTM results of operations as of the
date the investment was made and the portfolio companys
anticipated results for the next twelve months of operations,
(iii) the portfolio companys current leverage as
compared to its leverage as of the date the investment was made,
(iv) publicly available information regarding current
pricing and credit metrics for similar proposed and executed
investment transactions of private companies and, (v) when
management believes a relevant comparison exists, current
pricing and credit metrics for similar proposed and executed
investment transactions of publicly traded debt.
In valuing equity securities of private companies, we consider
valuation methodologies consistent with industry practice,
including but not limited to (i) valuation using a
valuation model based on original transaction multiples and the
portfolio companys recent financial performance,
(ii) publicly available information regarding the valuation
of the securities based on recent sales in comparable
transactions of private companies and, (iii) when
management believes there are similar companies that are
publicly traded, a review of these publicly traded companies and
the market multiple of their equity securities.
Unrealized appreciation or depreciation on portfolio investments
are recorded as increases or decreases in investments on the
balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets
resulting from operations.
Duff & Phelps, LLC, or Duff & Phelps, an
independent valuation firm, provides third party valuation
consulting services to us, which consist of certain limited
procedures that we identified and requested
Duff & Phelps to perform (hereinafter
referred to as the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one
or more portfolio companies. Such instances include, but are not
limited to, situations where the fair value of our investment in
the portfolio company is determined to be insignificant relative
to our total investment portfolio.
For the quarter ended March 31, 2010, we asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 25% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2010. For the quarter ended June 30, 2010, we asked
Duff & Phelps to perform the procedures on investments
in eight portfolio companies comprising approximately 29% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of June 30,
2010. Upon completion of the procedures, Duff & Phelps
concluded that the fair value, as determined by the Board of
Directors, of those investments subjected to the procedures did
not appear to be unreasonable. Our Board of Directors is
ultimately and solely responsible for determining the fair value
of our investments in good faith.
S-22
Revenue
Recognition
Interest
and Dividend Income
Interest income, adjusted for amortization of premium and
accretion of original issue discount, is recorded on an accrual
basis to the extent that such amounts are expected to be
collected. Generally, when interest
and/or
principal payments on a loan become past due, or if we otherwise
do not expect the borrower to be able to service its debt and
other obligations, we will place the loan on non-accrual status
and will generally cease recognizing interest income on that
loan for financial reporting purposes until all principal and
interest have been brought current through payment or due to a
restructuring such that the interest income is deemed to be
collectible. We write off any previously accrued and uncollected
interest when it is determined that interest is no longer
considered collectible. Dividend income is recorded on the
ex-dividend date.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with the origination of a
loan are recorded as deferred income and recognized as income
over the term of the loan. Loan prepayment penalties and loan
amendment fees are recorded into income when received. Any
previously deferred fees are immediately recorded into income
upon prepayment of the related loan.
Payment-in-Kind
Interest (PIK)
We currently hold, and we expect to hold in the future, some
loans in our portfolio that contain a PIK interest provision.
The PIK interest, computed at the contractual rate specified in
each loan agreement, is added to the principal balance of the
loan, rather than being paid to us in cash, and is recorded as
interest income. Thus, the actual collection of PIK interest may
be deferred until the time of debt principal repayment.
To maintain our status as a RIC, this non-cash source of income
must be paid out to stockholders in the form of dividends, even
though we have not yet collected the cash. Generally, when
current cash interest
and/or
principal payments on a loan become past due, or if we otherwise
do not expect the borrower to be able to service its debt and
other obligations, we will place the loan on non-accrual status
and will generally cease recognizing PIK interest income on that
loan for financial reporting purposes until all principal and
interest has been brought current through payment or due to a
restructuring such that the interest income is deemed to be
collectible. We write off any previously accrued and uncollected
PIK interest when it is determined that the PIK interest is no
longer collectible.
Recently
Issued Accounting Standards
In January 2010, the FASB issued Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures, or ASC
Topic 820. This update improves disclosure requirements
related to Fair Value Measurements and Disclosures-Overall
Subtopic, or ASC Subtopic 820-10, of the FASB Standards
Codification, originally issued as FASB Statement No. 157,
Fair Value Measurements. These improved disclosure
requirements will provide a greater level of disaggregated
information and more robust disclosures about valuation
techniques and inputs to fair value measurements. We adopted
these changes beginning with its financial statements for the
quarter ended March 31, 2010. The adoption of these changes
did not have a material impact on our financial position or
results of operations.
Off-Balance
Sheet Arrangements
We currently have no off-balance sheet arrangements.
Quantitative
and Qualitative Disclosures About Market Risk
Beginning in late 2007, the United States entered a recession,
which many believe could be prolonged. As the economy continued
to deteriorate in 2008, spending by both consumers and
businesses declined significantly, which has impacted the
broader financial and credit markets and has reduced the
availability of debt and equity capital for the market as a
whole and financial firms in particular. This reduction in
spending has had an adverse effect on a number of the industries
in which some of our portfolio companies operate, and on certain
of our portfolio companies as well.
S-23
During 2009, we experienced write-downs in our portfolio,
several of which were due to declines in the operating
performance of certain portfolio companies. In the first six
months of 2010, the fair value of our portfolio as a whole
remained relatively flat with the fair value as of
December 31, 2009.
As of June 30, 2010, the fair value of our non-accrual
assets was approximately $11.4 million, which comprised
approximately 4.7% of the total fair value of our portfolio, and
the cost of our non-accrual assets was approximately
$24.0 million, or 9.7% of the total cost of our portfolio.
In addition to these non-accrual assets, as of June 30,
2010, we had, on a fair value basis, approximately
$11.7 million of debt investments, or 4.9% of the total
fair value of our portfolio, which were current with respect to
scheduled principal and interest payments, but which were
carried at less than cost. The cost of these assets as of
June 30, 2010 was approximately $13.7 million, or 5.5%
of the total cost of our portfolio.
While the equity and debt markets have recently improved, these
stressed conditions may continue for a prolonged period of time
or worsen in the future. In the event that the current recession
continues for a significant time or the economy deteriorates
further, the financial position and results of operations of
certain of the middle-market companies in our portfolio could be
further affected adversely, which ultimately could lead to
difficulty in our portfolio companies meeting debt service
requirements and lead to an increase in defaults. There can be
no assurance that the performance of our portfolio companies
will not be further impacted by economic conditions, which could
have a negative impact on our future results.
In addition, we are subject to interest rate risk. Interest rate
risk is defined as the sensitivity of our current and future
earnings to interest rate volatility, variability of spread
relationships, the difference in re-pricing intervals between
our assets and liabilities and the effect that interest rates
may have on our cash flows. Changes in the general level of
interest rates can affect our net interest income, which is the
difference between the interest income earned on interest
earning assets and our interest expense incurred in connection
with our interest bearing debt and liabilities. Changes in
interest rates can also affect, among other things, our ability
to acquire and originate loans and securities and the value of
our investment portfolio. Our investment income is affected by
fluctuations in various interest rates, including LIBOR and
prime rates. We regularly measure exposure to interest rate risk
and determine whether or not any hedging transactions are
necessary to mitigate exposure to changes in interest rates. As
of June 30, 2010, we were not a party to any hedging
arrangements.
As of June 30, 2010, approximately 94.8%, or
$213.0 million of our debt portfolio investments bore
interest at fixed rates and approximately 5.2%, or
$11.6 million of our debt portfolio investments bore
interest at variable rates, which are either Prime-based or
LIBOR-based. A 200 basis point increase or decrease in the
interest rates on our variable-rate debt investments would
increase or decrease, as applicable, our investment income by
approximately $0.2 million on an annual basis. All of our
pooled SBA-guaranteed debentures bear interest at fixed rates.
Because we currently borrow, and plan to borrow in the future,
money to make investments, our net investment income is
dependent upon the difference between the rate at which we
borrow funds and the rate at which we invest the funds borrowed.
Accordingly, there can be no assurance that a significant change
in market interest rates will not have a material adverse effect
on our net investment income. In periods of rising interest
rates, our cost of funds would increase, which could reduce our
net investment income if there is not a corresponding increase
in interest income generated by our investment portfolio.
S-24
UNDERWRITING
Morgan Keegan & Company, Inc. is acting as the
representative of the underwriters of this offering. Under the
terms of an underwriting agreement dated the date of this
prospectus supplement, the underwriters set forth below have
agreed to purchase from us the number of shares set forth
opposite its name.
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Name
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Number of Shares
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Morgan Keegan & Company, Inc.
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BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
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Robert W. Baird & Co. Incorporated
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Janney Montgomery Scott LLC
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Total
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2,000,000
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The underwriting agreement provides that the underwriters
obligations to purchase the shares of common stock depend on the
satisfaction of the conditions contained in the underwriting
agreement and that if any of our shares of common stock are
purchased by the underwriters, all of our shares must be
purchased. The conditions contained in the underwriting
agreement include the condition that all the representations and
warranties made by us to the underwriters are true, that there
has been no material adverse change in the condition of us or in
the financial markets and that we deliver to the underwriters
customary closing documents.
The following table summarizes the underwriting discounts and
commissions we will pay to the underwriters in connection with
this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters option to purchase
additional shares of common stock. The underwriting fee is the
difference between the initial price to the public and the
amount the underwriters pay to us to purchase the shares.
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No
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Full
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Exercise
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Exercise
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Per share
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$
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$
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Total
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$
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$
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The maximum commission or discount to be received by any
Financial Industry Regulatory Authority, or FINRA, member or
independent broker-dealer will not exceed 10.0% for the sale of
any securities being registered. We will pay all expenses of the
offering that we incur. We estimate that total remaining
expenses of the offering payable by us, other than underwriting
discounts and commissions, will be approximately $230,000.
We have been advised by the underwriters that the underwriters
propose to offer shares of our common stock directly to the
public at the initial price to the public set forth on the cover
page of this prospectus supplement and to selected dealers (who
may include the underwriters) at this price to the public less a
concession not in excess of $ per
share. The underwriters may allow, and the selected dealers may
re-allow, a concession not in excess of
$ per share to other brokers and
dealers. After the offering, the representatives may change the
offering price and other selling terms.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act or
to contribute to payments that may be required to be made with
respect to these liabilities.
We have granted to the underwriters an option to purchase up to
an aggregate of 300,000 additional shares of common stock at the
initial price to the public less the underwriting discount set
forth on the cover page of this prospectus supplement
exercisable solely to cover over-allotments, if any. Such option
may be exercised in whole or in part at any time until
30 days after the date of this prospectus supplement. If
this option is exercised, each underwriter will be committed,
subject to satisfaction of the conditions specified in the
underwriting agreement, to purchase a number of additional
shares of common stock proportionate to the underwriters
initial commitment as indicated in the preceding table, and we
will be obligated, pursuant to the option, to sell these shares
to the underwriters.
S-25
We, all of our Board of Directors and our executive officers
have agreed that, subject to certain exceptions, we will not,
without the prior written consent of Morgan Keegan &
Company, Inc. directly or indirectly, (1) offer for sale,
sell, pledge, or otherwise dispose of (or enter into any
transaction or device that is designed to, or could be expected
to, result in the disposition by any person at any time in the
future of) any shares of common stock (including, without
limitation, shares of common stock that may be deemed to be
beneficially owned by us or them in accordance with the rules
and regulations of the SEC and shares of common stock that may
be issued upon exercise of any options or warrants) or
securities convertible into or exercisable or exchangeable for
common stock, (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any
of the economic consequences of ownership of the common stock,
(3) make any demand for or exercise any right or file or
cause to be filed a registration statement, including any
amendments thereto, with respect to the registration of any
shares of common stock or securities convertible, exercisable or
exchangeable into common stock or any of our other securities,
or (4) publicly disclose the intention to do any of the
foregoing for a period of 60 days after the date of this
prospectus supplement. The restrictions described in this
paragraph do not apply to:
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The sale of shares to the underwriters; or
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Restricted shares issued by us under the long-term incentive
plan or upon the exercise of options issued under the long-term
incentive plan.
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The 60-day
restricted period described in the preceding paragraphs will be
extended if:
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During the last 17 days of the
60-day
restricted period we issue an earnings release or material news
or a material event relating to us occurs; or
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Prior to the expiration of the
60-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
60-day
period;
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in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or material event.
Morgan Keegan & Company, Inc., in its sole discretion,
may release the shares subject to
lock-up
agreements in whole or in part at any time with or without
notice. When determining whether or not to release shares from
lock-up
agreements, Morgan Keegan & Company, Inc. will
consider, among other factors, the stockholders reasons
for requesting the release, the number of shares for which the
release is being requested and market conditions at the time.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required
to make for these liabilities.
In connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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Over-allotment transactions involve sales by the underwriters of
the shares in excess of the number of shares the underwriters
are obligated to purchase, which creates a syndicate short
position. The short position may be either a covered short
position or a naked short position. In a covered short position,
the number of shares over-allotted by the underwriters is not
greater than the number of shares they may purchase in their
option to purchase additional shares. In a naked short position,
the number of shares involved is greater than the number of
shares in the underwriters option to purchase additional
shares. The underwriters may close out any short position by
either exercising their option
and/or
purchasing shares in the open market. To the extent the
underwriters elect to close a short position by exercising their
over-allotment option, the price of the shares we issue may in
certain circumstances be
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S-26
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reduced to reflect the amount of any distributions we have
declared in respect of the shares underlying such short position
before such option was exercised.
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Syndicate covering transactions involve purchases of the shares
in the open market after the distribution has been completed in
order to cover syndicate short positions. In determining the
source of the shares to close out the short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through their
option. If the underwriters sell more shares than could be
covered by their option to purchase additional shares, which we
refer to in this prospectus as a naked short position, the
position can only be closed out by buying shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there could be downward
pressure on the price of the shares in the open market after
pricing that could adversely affect investors who purchase in
the offering.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the shares originally
sold by the syndicate member are purchased in a stabilizing or
syndicate covering transaction to cover syndicate short
positions.
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Similar to other purchase transactions, the underwriters
purchases to cover the syndicate short sales may have the effect
of raising or maintaining the market price of the shares or
preventing or retarding a decline in the market price of the
shares. As a result, the price of the shares may be higher than
the price that might otherwise exist in the open market.
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our shares or preventing or retarding a
decline in the market price of the shares. As a result, the
price of the shares may be higher than the price that might
otherwise exist in the open market. These transactions may be
effected on the Nasdaq Global Market or otherwise and, if
commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the shares. In addition, neither we nor any of the underwriters
make any representation that the underwriters will engage in
these stabilizing transactions or that any transaction, if
commenced, will not be discontinued without notice.
In connection with the offering, underwriters and selling group
members may engage in passive market making transactions in the
common stock on the Nasdaq Global Market in accordance with
Rule 103 of Regulation M under the Securities Exchange
Act of 1934 during the period before the commencement of offers
or sales of common stock and extending through the completion of
distribution. A passive market maker must display its bids at a
price not in excess of the highest independent bid of the
security. However, if all independent bids are lowered below the
passive market makers bid that bid must be lowered when
specified purchase limits are exceeded.
The underwriters and their affiliates have provided in the past
to us, and may from time to time in the future provide, certain
commercial banking, financial advisory, investment banking and
other services, for which they will be entitled to receive
separate fees. The underwriters and their affiliates may from
time to time in the future engage in transactions with us and
perform services for us or our portfolio companies in the
ordinary course of business.
Because FINRA views the shares of common stock offered hereby as
interests in a direct participation program, the offering is
being made in compliance with Rule 2810 of the NASDs
Conduct Rules (which are part of the FINRA Rules). Investor
suitability with respect to the shares of common stock should be
judged similarly to the suitability with respect to other
securities that are listed for trading on a national securities
exchange.
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and,
S-27
depending upon the particular underwriter or selling group
member, prospective investors may be allowed to place orders
online. The underwriters may agree with us to allocate a
specific number of shares for sale to online brokerage account
holders. Any such allocation for online distributions will be
made by the underwriters on the same basis as other allocations.
Other than the prospectus in electronic format, information
contained in any other web site maintained by an underwriter or
selling group member is not part of this prospectus or the
registration statement of which this prospectus forms a part,
has not been endorsed by us and should not be relied on by
investors in deciding whether to purchase any shares. The
underwriters and selling group members are not responsible for
information contained in web sites that they do not maintain.
The principal business address of Morgan Keegan &
Company, Inc. is 50 N. Front Street, 19th Floor,
Memphis, TN 38103. The principal business address of BB&T
Capital Markets, a division of Scott and Stringfellow, LLC, is
901 East Byrd Street, Suite 300, Richmond, VA 23219.
The principal business address of Robert W. Baird & Co.
Incorporated is 777 East Wisconsin Avenue, Milwaukee,
WI 53202. The principal business address of Janney
Montgomery Scott LLC is 1801 Market Street, Philadelphia,
PA 19103.
S-28
LEGAL
MATTERS
Certain legal matters will be passed upon for us by Bass,
Berry & Sims PLC, Memphis, Tennessee, and Venable LLP,
Baltimore, Maryland, will pass upon certain matters of Maryland
law. Certain legal matters in connection with this offering will
be passed upon for the underwriters by Sutherland
Asbill & Brennan LLP, Washington, D.C.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, Raleigh, North Carolina, is the
independent registered public accounting firm for Triangle
Capital Corporation.
AVAILABLE
INFORMATION
We have filed with the SEC a registration statement on
Form N-2,
together with all amendments and related exhibits, under the
Securities Act, with respect to the common stock offered by this
prospectus supplement. The registration statement contains
additional information about us and the common stock being
offered by this prospectus supplement.
We file with or submit to the SEC annual, quarterly and current
periodic reports, proxy statements and other information meeting
the informational requirements of the Exchange Act. You may
inspect and copy these reports, proxy statements and other
information, as well as the registration statement and related
exhibits and schedules, at the Public Reference Room of the SEC
at 100 F Street, N.E., Washington, D.C. 20549.
Copies of these reports, proxy and information statements and
other information may be obtained, after paying a duplicating
fee, by electronic request at the following
e-mail
address: publicinfo@sec.gov, or by writing the SECs Public
Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements and other information filed
electronically by us with the SEC which are available on the
SECs website at
http://www.sec.gov.
S-29
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June 30,
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December 31,
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2010
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2009
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(Unaudited)
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Assets
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments (cost
of $184,000,602 and $143,239,223 at June 30, 2010 and
December 31, 2009, respectively)
|
|
|
|
|
|
$
|
183,794,529
|
|
|
$
|
138,281,894
|
|
|
|
|
|
Affiliate investments (cost of $44,081,665 and $47,934,280
at June 30, 2010 and December 31, 2009, respectively)
|
|
|
|
|
|
|
35,048,700
|
|
|
|
45,735,905
|
|
|
|
|
|
Control investments (cost of $20,136,340 and $18,767,587
at June 30, 2010 and December 31, 2009, respectively)
|
|
|
|
|
|
|
22,471,048
|
|
|
|
17,300,171
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
|
|
|
|
241,314,277
|
|
|
|
201,317,970
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
44,885,473
|
|
|
|
55,200,421
|
|
|
|
|
|
Interest and fees receivable
|
|
|
|
|
|
|
1,051,665
|
|
|
|
676,961
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
261,749
|
|
|
|
286,790
|
|
|
|
|
|
Deferred financing fees
|
|
|
|
|
|
|
4,668,738
|
|
|
|
3,540,492
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
39,212
|
|
|
|
28,666
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
292,221,114
|
|
|
$
|
261,051,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
$
|
1,141,368
|
|
|
$
|
2,222,177
|
|
|
|
|
|
Interest payable
|
|
|
|
|
|
|
2,433,873
|
|
|
|
2,333,952
|
|
|
|
|
|
Dividends payable
|
|
|
|
|
|
|
|
|
|
|
4,774,534
|
|
|
|
|
|
Taxes payable
|
|
|
|
|
|
|
52,348
|
|
|
|
59,178
|
|
|
|
|
|
Deferred revenue
|
|
|
|
|
|
|
37,500
|
|
|
|
75,000
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
246,667
|
|
|
|
577,267
|
|
|
|
|
|
SBA guaranteed debentures payable
|
|
|
|
|
|
|
154,500,000
|
|
|
|
121,910,000
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
158,411,756
|
|
|
|
131,952,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 12,074,184 and
11,702,511 shares issued and outstanding as of
June 30, 2010 and December 31, 2009, respectively)
|
|
|
|
|
|
|
12,074
|
|
|
|
11,703
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
140,279,496
|
|
|
|
136,769,259
|
|
|
|
|
|
Investment income in excess of (less than) distributions
|
|
|
|
|
|
|
(487,035
|
)
|
|
|
1,070,452
|
|
|
|
|
|
Accumulated realized gains on investments
|
|
|
|
|
|
|
1,155,817
|
|
|
|
448,164
|
|
|
|
|
|
Net unrealized depreciation of investments
|
|
|
|
|
|
|
(7,150,994
|
)
|
|
|
(9,200,386
|
)
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
|
|
|
|
133,809,358
|
|
|
|
129,099,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
|
|
|
|
$
|
292,221,114
|
|
|
$
|
261,051,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
|
$
|
11.08
|
|
|
$
|
11.03
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments
|
|
|
|
|
|
$
|
5,217,203
|
|
|
$
|
4,210,128
|
|
|
$
|
10,018,845
|
|
|
$
|
8,401,748
|
|
|
|
|
|
Affiliate investments
|
|
|
|
|
|
|
1,078,074
|
|
|
|
909,035
|
|
|
|
2,108,670
|
|
|
|
1,840,871
|
|
|
|
|
|
Control investments
|
|
|
|
|
|
|
369,325
|
|
|
|
243,021
|
|
|
|
722,470
|
|
|
|
480,978
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
|
|
|
|
6,664,602
|
|
|
|
5,362,184
|
|
|
|
12,849,985
|
|
|
|
10,723,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paymentinkind interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NonControl / NonAffiliate investments
|
|
|
|
|
|
|
1,135,906
|
|
|
|
790,578
|
|
|
|
1,963,507
|
|
|
|
1,610,520
|
|
|
|
|
|
Affiliate investments
|
|
|
|
|
|
|
303,246
|
|
|
|
203,775
|
|
|
|
565,923
|
|
|
|
378,036
|
|
|
|
|
|
Control investments
|
|
|
|
|
|
|
133,909
|
|
|
|
82,955
|
|
|
|
259,857
|
|
|
|
164,078
|
|
|
|
|
|
|
|
|
|
|
|
Total paymentinkind interest income
|
|
|
|
|
|
|
1,573,061
|
|
|
|
1,077,308
|
|
|
|
2,789,287
|
|
|
|
2,152,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from cash and cash equivalent investments
|
|
|
|
|
|
|
56,484
|
|
|
|
136,911
|
|
|
|
139,782
|
|
|
|
204,672
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
|
|
|
|
8,294,147
|
|
|
|
6,576,403
|
|
|
|
15,779,054
|
|
|
|
13,080,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
1,838,004
|
|
|
|
1,730,575
|
|
|
|
3,577,984
|
|
|
|
3,387,566
|
|
|
|
|
|
Amortization of deferred financing fees
|
|
|
|
|
|
|
99,630
|
|
|
|
87,649
|
|
|
|
196,061
|
|
|
|
178,310
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
1,797,889
|
|
|
|
1,508,882
|
|
|
|
3,652,701
|
|
|
|
3,228,148
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
3,735,523
|
|
|
|
3,327,106
|
|
|
|
7,426,746
|
|
|
|
6,794,024
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
4,558,624
|
|
|
|
3,249,297
|
|
|
|
8,352,308
|
|
|
|
6,286,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on
investments Non-Control/Non-Affiliate
|
|
|
|
|
|
|
(3,032,785
|
)
|
|
|
848,164
|
|
|
|
(2,833,585
|
)
|
|
|
848,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain on investment Affiliate
|
|
|
|
|
|
|
3,541,238
|
|
|
|
|
|
|
|
3,541,238
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
|
|
|
|
1,840,049
|
|
|
|
(6,918,419
|
)
|
|
|
2,049,392
|
|
|
|
(10,523,563
|
)
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments before income taxes
|
|
|
|
|
|
|
2,348,502
|
|
|
|
(6,070,255
|
)
|
|
|
2,757,045
|
|
|
|
(9,675,399
|
)
|
|
|
|
|
Provision for taxes
|
|
|
|
|
|
|
39,846
|
|
|
|
30,899
|
|
|
|
92,744
|
|
|
|
46,694
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
|
|
|
$
|
6,867,280
|
|
|
$
|
(2,851,857
|
)
|
|
$
|
11,016,609
|
|
|
$
|
(3,435,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
|
|
|
$
|
0.38
|
|
|
$
|
0.41
|
|
|
$
|
0.70
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
per share basic and diluted
|
|
|
|
|
|
$
|
0.57
|
|
|
$
|
(0.36
|
)
|
|
$
|
0.92
|
|
|
$
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
|
|
|
|
$
|
0.41
|
|
|
$
|
0.40
|
|
|
$
|
0.82
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
Distributions of capital gains declared per common share
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding basic and diluted
|
|
|
|
|
|
|
12,003,068
|
|
|
|
7,924,772
|
|
|
|
11,940,724
|
|
|
|
7,463,653
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Unrealized
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Income
|
|
|
Realized
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
in Excess of
|
|
|
Gains on
|
|
|
(Depreciation) of
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
|
|
|
|
Balance, January 1, 2009
|
|
|
6,917,363
|
|
|
$
|
6,917
|
|
|
$
|
87,836,786
|
|
|
$
|
2,115,157
|
|
|
$
|
356,495
|
|
|
$
|
1,109,808
|
|
|
$
|
91,425,163
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,286,879
|
|
|
|
|
|
|
|
|
|
|
|
6,286,879
|
|
Net realized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
848,164
|
|
|
|
(557,316
|
)
|
|
|
290,848
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
323,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
323,295
|
|
Net unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,966,247
|
)
|
|
|
(9,966,247
|
)
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,694
|
)
|
|
|
|
|
|
|
|
|
|
|
(46,694
|
)
|
Dividends/distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,150,077
|
)
|
|
|
(352,366
|
)
|
|
|
|
|
|
|
(6,502,443
|
)
|
Public offering of common stock
|
|
|
1,280,000
|
|
|
|
1,280
|
|
|
|
12,535,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,536,461
|
|
Issuance of restricted stock
|
|
|
144,812
|
|
|
|
145
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for payroll taxes
upon vesting of restricted stock
|
|
|
(6,533
|
)
|
|
|
(6
|
)
|
|
|
(66,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,900
|
)
|
Forfeiture of restricted stock
|
|
|
(2,700
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
8,332,942
|
|
|
$
|
8,333
|
|
|
$
|
100,628,226
|
|
|
$
|
2,205,265
|
|
|
$
|
852,293
|
|
|
$
|
(9,413,755
|
)
|
|
$
|
94,280,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income in
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Excess of
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
(less than)
|
|
|
Gains on
|
|
|
Depreciation of
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
|
|
|
|
Balance, January 1, 2010
|
|
|
11,702,511
|
|
|
$
|
11,703
|
|
|
$
|
136,769,259
|
|
|
$
|
1,070,452
|
|
|
$
|
448,164
|
|
|
$
|
(9,200,386
|
)
|
|
$
|
129,099,192
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,352,308
|
|
|
|
|
|
|
|
|
|
|
|
8,352,308
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
545,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545,670
|
|
Net realized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707,653
|
|
|
|
(188,682
|
)
|
|
|
518,971
|
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,238,074
|
|
|
|
2,238,074
|
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,744
|
)
|
|
|
|
|
|
|
|
|
|
|
(92,744
|
)
|
Dividends/distributions declared
|
|
|
237,346
|
|
|
|
237
|
|
|
|
3,220,614
|
|
|
|
(9,817,051
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,596,200
|
)
|
Expenses related to public offerings of
common stock
|
|
|
|
|
|
|
|
|
|
|
(21,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,001
|
)
|
Issuance of restricted stock
|
|
|
152,944
|
|
|
|
153
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for payroll taxes
upon vesting of restricted stock
|
|
|
(18,617
|
)
|
|
|
(19
|
)
|
|
|
(234,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010
|
|
|
12,074,184
|
|
|
$
|
12,074
|
|
|
$
|
140,279,496
|
|
|
$
|
(487,035
|
)
|
|
$
|
1,155,817
|
|
|
$
|
(7,150,994
|
)
|
|
$
|
133,809,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
11,016,609
|
|
|
$
|
(3,435,214
|
)
|
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations
to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(58,216,292
|
)
|
|
|
(9,193,735
|
)
|
Repayments received/sales of portfolio investments
|
|
|
21,702,621
|
|
|
|
6,791,961
|
|
Loan origination and other fees received
|
|
|
1,157,860
|
|
|
|
175,000
|
|
Net realized gain on investments
|
|
|
(707,653
|
)
|
|
|
(848,164
|
)
|
Net unrealized depreciation (appreciation) of investments
|
|
|
(1,718,790
|
)
|
|
|
10,854,802
|
|
Deferred income taxes
|
|
|
(330,600
|
)
|
|
|
(331,240
|
)
|
Paymentinkind interest accrued, net of payments
received
|
|
|
(1,483,865
|
)
|
|
|
(1,655,206
|
)
|
Amortization of deferred financing fees
|
|
|
196,061
|
|
|
|
178,310
|
|
Accretion of loan origination and other fees
|
|
|
(418,082
|
)
|
|
|
(310,902
|
)
|
Accretion of loan discounts
|
|
|
(312,106
|
)
|
|
|
(203,742
|
)
|
Depreciation expense
|
|
|
9,609
|
|
|
|
11,141
|
|
Stock-based compensation
|
|
|
545,670
|
|
|
|
323,295
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(374,704
|
)
|
|
|
159,417
|
|
Prepaid expenses
|
|
|
25,041
|
|
|
|
(131,520
|
)
|
Accounts payable and accrued liabilities
|
|
|
(1,080,809
|
)
|
|
|
(585,250
|
)
|
Interest payable
|
|
|
99,921
|
|
|
|
361,147
|
|
Deferred revenue
|
|
|
(37,500
|
)
|
|
|
37,500
|
|
Taxes payable
|
|
|
(6,830
|
)
|
|
|
(5,537
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(29,933,839
|
)
|
|
|
2,192,063
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(20,155
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(20,155
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable
|
|
|
32,590,000
|
|
|
|
|
|
Financing fees paid
|
|
|
(1,324,307
|
)
|
|
|
|
|
Proceeds from public stock offerings, net of expenses
|
|
|
(21,001
|
)
|
|
|
12,536,461
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(234,912
|
)
|
|
|
(66,900
|
)
|
Cash dividends paid
|
|
|
(11,370,734
|
)
|
|
|
(5,583,845
|
)
|
Cash distributions paid
|
|
|
|
|
|
|
(352,366
|
)
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
19,639,046
|
|
|
|
6,533,350
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(10,314,948
|
)
|
|
|
8,725,413
|
|
Cash and cash equivalents, beginning of period
|
|
|
55,200,421
|
|
|
|
27,193,287
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
44,885,473
|
|
|
$
|
35,918,700
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,478,064
|
|
|
$
|
3,026,419
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
NonControl / NonAffiliate Investments:
|
Ambient Air Corporation (AA)
and Peaden-Hobbs Mechanical,
LLC (PHM) (4%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-
AA (15% Cash, 3% PIK, Due 06/13)
|
|
$4,419,823
|
|
$4,375,713
|
|
$4,375,713
|
|
|
|
|
Common Stock-PHM (128,571 shares)
|
|
|
|
128,571
|
|
127,700
|
|
|
|
|
Common Stock
Warrants-AA
(455 shares)
|
|
|
|
142,361
|
|
629,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,419,823
|
|
4,646,645
|
|
5,132,713
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (3%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(5% PIK, Due 10/13)
|
|
5,337,283
|
|
5,125,073
|
|
3,985,700
|
|
|
|
|
Membership Units
(6,516 Units)
|
|
|
|
350,000
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,337,283
|
|
5,475,073
|
|
3,985,700
|
American Direct Marketing Resources, LLC (3%)*
|
|
Direct Marketing
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 03/15)
|
|
4,220,054
|
|
4,155,955
|
|
4,155,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,220,054
|
|
4,155,955
|
|
4,155,955
|
Assurance Operations Corporation (0%)*
|
|
Auto Components/
Metal Fabrication
|
|
Common Stock
(517 shares)
|
|
|
|
516,867
|
|
404,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,867
|
|
404,100
|
Botanical Laboratories, Inc. (8%)*
|
|
Nutritional
Supplement
|
|
Senior Notes
(14% Cash, Due 02/15)
|
|
10,500,000
|
|
9,788,964
|
|
9,788,964
|
|
|
Manufacturing and Distribution
|
|
Common Unit Warrants (998,680 Units)
|
|
|
|
474,600
|
|
931,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500,000
|
|
10,263,564
|
|
10,720,364
|
CRS Reprocessing, LLC (5%)*
|
|
Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/14)
|
|
6,547,075
|
|
6,402,510
|
|
6,402,510
|
|
|
|
|
Common Unit Warrant
(174 Units)
|
|
|
|
38,513
|
|
123,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,547,075
|
|
6,441,023
|
|
6,525,810
|
CV Holdings, LLC (9%)*
|
|
Specialty Healthcare
Products
Manufacturer
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
11,449,249
|
|
10,709,824
|
|
10,709,824
|
|
|
|
|
Royalty rights
|
|
|
|
874,400
|
|
983,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,449,249
|
|
11,584,224
|
|
11,693,424
|
Electronic Systems Protection, Inc. (3%)*
|
|
Power Protection
Systems
Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
3,152,201
|
|
3,129,493
|
|
2,910,100
|
|
|
|
|
Senior Note
(8.3% Cash,
Due 01/14)
|
|
849,711
|
|
849,711
|
|
849,711
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
285,000
|
|
97,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,001,912
|
|
4,264,204
|
|
3,857,711
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
4,833
|
|
596,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
596,500
|
Energy Solutions International, Inc. (7%)*
|
|
Pipeline
Management
Software
|
|
Subordinated Note
(12% Cash, 5.5%
PIK, Due 6/15)
|
|
8,535,063
|
|
8,365,063
|
|
8,365,063
|
|
|
|
|
Limited Partnership
Interest (4.39%)
|
|
|
|
1,000,000
|
|
1,345,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,535,063
|
|
9,365,063
|
|
9,710,163
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Fire Sprinkler Systems, Inc. (1%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(2% PIK, Due 04/11)
|
|
$2,869,604
|
|
$2,451,849
|
|
$750,000
|
|
|
|
|
Common Stock
(295 shares)
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,869,604
|
|
2,746,473
|
|
750,000
|
Frozen Specialties, Inc. (6%)*
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
7,857,527
|
|
7,730,379
|
|
7,730,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,857,527
|
|
7,730,379
|
|
7,730,379
|
Garden Fresh Restaurant Corp. (1%)*
|
|
Restaurant
|
|
Membership Units (5,000 units)
|
|
|
|
500,000
|
|
869,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
869,400
|
Gerli & Company (1%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(0.69% PIK,
Due 08/11)
|
|
3,702,582
|
|
3,142,576
|
|
1,664,000
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75%
PIK, Due 08/11)
|
|
127,758
|
|
120,000
|
|
120,000
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
61,700
|
|
|
|
|
Common Stock
Warrants (56,559 shares)
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,830,340
|
|
3,345,990
|
|
1,845,700
|
Great Expressions Group
Holdings, LLC (4%)*
|
|
Dental Practice
Management
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 08/15)
|
|
4,515,000
|
|
4,447,500
|
|
4,447,500
|
|
|
|
|
Class A Units
(225 Units)
|
|
|
|
450,000
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,515,000
|
|
4,897,500
|
|
4,897,500
|
Grindmaster-Cecilware Corp. (4%)*
|
|
Food Services
Equipment
Manufacturer
|
|
Subordinated Note
(11% Cash, 3% PIK,
Due 03/15)
|
|
5,888,616
|
|
5,785,561
|
|
5,785,561
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
146,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,888,616
|
|
5,785,561
|
|
5,932,261
|
Inland Pipe Rehabilitation Holding Company LLC (12%)*
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(10% Cash, 4% PIK,
Due 01/14)
|
|
8,190,905
|
|
7,451,935
|
|
7,451,935
|
|
|
|
|
Subordinated Note
(10% Cash, 8% PIK,
Due 01/14)
|
|
3,826,346
|
|
3,773,520
|
|
3,773,520
|
|
|
|
|
Subordinated Note
(10% Cash, 5% PIK,
Due 01/14)
|
|
302,421
|
|
302,421
|
|
302,421
|
|
|
|
|
Membership Interest
Purchase Warrant (2.9%)
|
|
|
|
853,500
|
|
3,856,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,319,672
|
|
12,381,376
|
|
15,384,276
|
Jenkins Service, LLC (7%)*
|
|
Restoration
Services
|
|
Subordinated Note
(10.25% Cash, 7.25% PIK, Due 04/14)
|
|
7,791,657
|
|
7,680,637
|
|
7,680,637
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
1,375,000
|
|
1,345,924
|
|
1,561,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,166,657
|
|
9,026,561
|
|
9,241,737
|
Library Systems & Services, LLC (4%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12.5% Cash, 4.5% PIK,
Due 06/15)
|
|
5,263,125
|
|
5,105,625
|
|
5,105,625
|
|
|
|
|
Common Stock
Warrants (112 shares)
|
|
|
|
58,995
|
|
607,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,263,125
|
|
5,164,620
|
|
5,712,925
|
Media Temple, Inc. (9%)*
|
|
Web Hosting
Services
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 04/15)
|
|
8,800,000
|
|
8,609,369
|
|
8,609,369
|
|
|
|
|
Convertible Note
(8% Cash, 4% PIK,
Due 04/15)
|
|
3,200,000
|
|
2,617,023
|
|
2,617,023
|
|
|
|
|
Common Stock
Purchase Warrant
(28,000 Shares)
|
|
|
|
536,000
|
|
536,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
11,762,392
|
|
11,762,392
|
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Minco Technology Labs, LLC (4%)*
|
|
Semiconductor
Distribution
|
|
Subordinated Note
(13% Cash, 3.25% PIK,
Due 05/16)
|
|
$5,018,507
|
|
$4,893,507
|
|
$4,893,507
|
|
|
|
|
Class A Units
(5,000 Units)
|
|
|
|
500,000
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,018,507
|
|
5,393,507
|
|
5,393,507
|
Novolyte Technologies, Inc. (6%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5% PIK,
Due 04/15)
|
|
7,571,396
|
|
7,453,665
|
|
7,453,665
|
|
|
|
|
Preferred Units
(641 units)
|
|
|
|
640,818
|
|
640,818
|
|
|
|
|
Common Units
(24,522 units)
|
|
|
|
160,204
|
|
115,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,571,396
|
|
8,254,687
|
|
8,210,065
|
Syrgis Holdings, Inc. (3%)*
|
|
Specialty Chemical Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
3,123,426
|
|
3,104,335
|
|
3,104,335
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
1,000,000
|
|
892,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,123,426
|
|
4,104,335
|
|
3,996,535
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician
Management
Services
|
|
Senior Note
(14% Cash,
Due 11/14)
|
|
8,000,000
|
|
7,611,801
|
|
7,611,801
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
276,100
|
|
333,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
7,887,901
|
|
7,945,001
|
TrustHouse Services Group, Inc. (4%)*
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
4,395,496
|
|
4,331,374
|
|
4,331,374
|
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
475,000
|
|
380,200
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,395,496
|
|
4,831,374
|
|
4,711,574
|
Tulsa Inspection Resources, Inc. (TIR) and Regent
TIR Partners, LLC (RTIR) (4%)*
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash,
Due 03/14)
|
|
5,000,000
|
|
4,658,831
|
|
4,658,831
|
|
|
|
|
Common Units
RTIR (11 units)
|
|
|
|
200,000
|
|
7,100
|
|
|
|
|
Common Stock
Warrants - TIR (7 shares)
|
|
|
|
321,000
|
|
31,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
5,179,831
|
|
4,697,831
|
Twin-Star International, Inc. (4%)*
|
|
Consumer Home
Furnishings
Manufacturer
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
4,500,000
|
|
4,455,984
|
|
4,455,984
|
|
|
|
|
Senior Note (4.29%,
Due 04/13)
|
|
1,177,781
|
|
1,177,781
|
|
1,177,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,677,781
|
|
5,633,765
|
|
5,633,765
|
Wholesale Floors, Inc. (2%)*
|
|
Commercial
Services
|
|
Subordinated Note
(12.5%Cash, 1.5% PIK,
Due 06/14)
|
|
3,500,000
|
|
3,375,058
|
|
3,148,200
|
|
|
|
|
Membership Interest Purchase Warrant (4.0%)
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
3,507,858
|
|
3,148,200
|
Yellowstone Landscape Group, Inc. (8%)*
|
|
Landscaping
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
11,464,755
|
|
11,270,906
|
|
11,270,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,464,755
|
|
11,270,906
|
|
11,270,906
|
Zoom Systems (6%)*
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5 Cash, 1.5% PIK,
Due 12/14)
|
|
8,063,207
|
|
7,878,135
|
|
7,878,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,063,207
|
|
7,878,135
|
|
7,878,135
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal NonControl / NonAffiliate Investments
|
|
180,535,568
|
|
184,000,602
|
|
183,794,529
|
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Affiliate Investments:
|
Asset Point, LLC (4%)*
|
|
Asset Management
Software Provider
|
|
Senior Note
(12% Cash, 7% PIK,
Due 03/13)
|
|
$5,611,325
|
|
$5,549,131
|
|
$5,549,131
|
|
|
|
|
Membership Units
(10 units)
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,611,325
|
|
6,049,131
|
|
5,549,131
|
Axxiom Manufacturing, Inc. (1%)*
|
|
Industrial
Equipment
|
|
Common Stock (34,100 shares)
|
|
|
|
200,000
|
|
719,200
|
|
|
Manufacturer
|
|
Common Stock
Warrant (1,000 shares)
|
|
|
|
|
|
21,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
740,300
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation (14% Cash, Due 12/12)
|
|
3,800,000
|
|
3,725,656
|
|
3,141,300
|
Street) (4) (2%)*
|
|
|
|
Common Unit
Warrants Brantley
Transportation (4,560 common units)
|
|
|
|
33,600
|
|
|
|
|
|
|
Preferred Units Pine
Street (200 units)
|
|
|
|
200,000
|
|
|
|
|
|
|
Common Unit
Warrants Pine Street
(2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
3,959,256
|
|
3,141,300
|
Dyson Corporation (6%)*
|
|
Custom Forging
and Fastener
Supplies
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 12/13)
|
|
6,000,000
|
|
5,909,387
|
|
5,909,387
|
|
|
|
|
Class A Units (1,000,000 units)
|
|
|
|
1,000,000
|
|
2,164,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
6,909,387
|
|
8,074,187
|
Equisales, LLC (5%)*
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
6,000,000
|
|
5,945,560
|
|
5,945,560
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
500,000
|
|
480,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
6,445,560
|
|
6,426,460
|
Genapure Corporation (0%)*
|
|
Lab Testing
Services
|
|
Genapure Common Stock (5,594 shares)
|
|
|
|
563,602
|
|
566,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
566,400
|
Technology Crops International (4%)*
|
|
Supply Chain
Management
Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
5,199,301
|
|
5,109,422
|
|
5,109,422
|
|
|
|
|
Common Units
(50 Units)
|
|
|
|
500,000
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,199,301
|
|
5,609,422
|
|
5,634,422
|
Waste Recyclers Holdings, LLC (4%)*
|
|
Environmental and
Facilities Services
|
|
Subordinated Note
(8% Cash, 7.5% PIK,
Due 08/13)
|
|
4,463,608
|
|
4,058,669
|
|
4,058,669
|
|
|
|
|
Subordinated Note
(3% Cash, 12.5% PIK,
Due 08/13)
|
|
6,666,420
|
|
6,120,483
|
|
857,831
|
|
|
|
|
Class A Preferred
Units (300 Units)
|
|
|
|
2,251,100
|
|
|
|
|
|
|
Class B Preferred
Units (985,372 Units)
|
|
|
|
985,372
|
|
|
|
|
|
|
Common Unit
Purchase Warrant
(1,170,083 Units)
|
|
|
|
748,900
|
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,130,028
|
|
14,345,307
|
|
4,916,500
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
37,740,654
|
|
44,081,665
|
|
35,048,700
|
F-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Control Investments:
|
FCL Graphics, Inc. (2%)*
|
|
Commercial
Printing Services
|
|
Senior Note
(3.85% Cash, 2% PIK,
Due 9/11)
|
|
$1,502,459
|
|
$1,498,947
|
|
$1,066,400
|
|
|
|
|
Senior Note
(7.75% Cash, 2% PIK,
Due 9/11)
|
|
2,024,443
|
|
2,019,628
|
|
1,441,200
|
|
|
|
|
2nd Lien
Note
(2.75% Cash, 8% PIK,
Due 12/11)
|
|
3,331,630
|
|
2,995,277
|
|
|
|
|
|
|
Preferred Shares (35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
Common Shares (4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,858,532
|
|
6,513,852
|
|
2,507,600
|
Fischbein, LLC (14%)*
|
|
Packaging and
Materials Handling
Equipment
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
7,808,147
|
|
7,716,360
|
|
7,716,360
|
|
|
Manufacturer
|
|
Class A-1 Common
Units (52.5% of Units)
|
|
|
|
558,140
|
|
1,662,300
|
|
|
|
|
Class A Common
Units (4,200,000 units)
|
|
|
|
4,200,000
|
|
9,436,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,808,147
|
|
12,474,500
|
|
18,815,460
|
Weave Textiles, LLC (1%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Senior Note
(12% PIK,
Due 01/11)
|
|
292,988
|
|
292,988
|
|
292,988
|
|
|
|
|
Membership Units (425 units)
|
|
|
|
855,000
|
|
855,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292,988
|
|
1,147,988
|
|
1,147,988
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
14,959,667
|
|
20,136,340
|
|
22,471,048
|
|
|
|
|
|
|
|
Total Investments, June 30, 2010 (180%)*
|
|
$233,235,889
|
|
$248,218,607
|
|
$241,314,277
|
|
|
|
|
|
|
|
* Value as a percent of net assets
(1) All debt investments are income producing. Common
stock, preferred stock and all warrants are nonincome
producing.
(2) Disclosures of interest rates on notes include cash
interest rates and paymentinkind (PIK)
interest rates.
(3) All investments are restricted as to resale and were
valued at fair value as determined in good faith by the Board of
Directors.
(4) Pine Street Holdings, LLC is the majority owner of
Brantley Transportation, LLC and its sole business purpose is
its ownership of Brantley Transportation, LLC.
See accompanying notes.
F-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
NonControl / NonAffiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA)
and Peaden-Hobbs Mechanical,
LLC (PHM) (5%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-
AA (12% Cash,
2% PIK, Due 03/11)
|
|
$3,236,386
|
|
$3,173,098
|
|
$3,173,098
|
|
|
|
|
Subordinated Note-
AA (14% Cash,
4% PIK, Due 03/11)
|
|
1,982,791
|
|
1,965,757
|
|
1,965,757
|
|
|
|
|
Common Stock-PHM
(128,571 shares)
|
|
|
|
128,571
|
|
106,900
|
|
|
|
|
Common Stock
Warrants-AA
(455 shares)
|
|
|
|
142,361
|
|
656,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,219,177
|
|
5,409,787
|
|
5,902,455
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (3%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(11.5% Cash,
3.75% PIK, Due 10/13)
|
|
8,861,819
|
|
8,244,709
|
|
3,893,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,861,819
|
|
8,244,709
|
|
3,893,299
|
American Direct Marketing
Resources, LLC (3%)*
|
|
Direct Marketing
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 03/15)
|
|
4,157,458
|
|
4,088,475
|
|
4,088,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,157,458
|
|
4,088,475
|
|
4,088,475
|
Art Headquarters, LLC (2%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 01/10)
|
|
2,116,822
|
|
2,116,822
|
|
2,116,822
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
40,800
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,116,822
|
|
2,157,622
|
|
2,336,822
|
Assurance Operations Corporation (2%)*
|
|
Auto Components /
Metal Fabrication
|
|
Senior Note (6% Cash,
Due 06/11)
|
|
2,484,000
|
|
2,034,000
|
|
2,034,000
|
|
|
|
|
Common Stock (300 shares)
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,484,000
|
|
2,334,000
|
|
2,034,000
|
CRS Reprocessing, LLC (2%)*
|
|
Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/14)
|
|
3,005,333
|
|
2,929,233
|
|
2,929,233
|
|
|
|
|
Common Unit Warrant
(107 Units)
|
|
|
|
23,600
|
|
23,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,005,333
|
|
2,952,833
|
|
2,952,833
|
CV Holdings, LLC (9%)*
|
|
Specialty
Healthcare
Products
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
11,221,670
|
|
10,391,652
|
|
10,391,652
|
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
874,400
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,221,670
|
|
11,266,052
|
|
11,340,952
|
Electronic Systems Protection, Inc.
(3%)*
|
|
Power Protection
Systems
Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
3,120,913
|
|
3,096,783
|
|
2,869,000
|
|
|
|
|
Senior Note
(8.3% Cash,
Due 01/14)
|
|
895,953
|
|
895,953
|
|
895,953
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
285,000
|
|
31,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,016,866
|
|
4,277,736
|
|
3,796,253
|
Energy Hardware Holdings, LLC
(0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units (4,833 units)
|
|
|
|
4,833
|
|
572,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
572,300
|
F-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Fire Sprinkler Systems, Inc. (1%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(11%-12.5% PIK,
Due 04/11)
|
|
$2,765,917
|
|
$2,369,744
|
|
$750,000
|
|
|
|
|
Common Stock
(295 shares)
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,765,917
|
|
2,664,368
|
|
750,000
|
Frozen Specialties, Inc. (6%)*
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
7,662,863
|
|
7,523,924
|
|
7,523,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,662,863
|
|
7,523,924
|
|
7,523,924
|
Garden Fresh Restaurant Corp.
(3%)*
|
|
Restaurant
|
|
2nd Lien
Note
(7.8% Cash,
Due 12/11)
|
|
3,000,000
|
|
3,000,000
|
|
3,000,000
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
500,000
|
|
811,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
3,500,000
|
|
3,811,300
|
Gerli & Company (1%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(0.69% PIK,
Due 08/11)
|
|
3,630,774
|
|
3,124,893
|
|
1,442,000
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75%
PIK, Due 08/11)
|
|
122,389
|
|
120,000
|
|
120,000
|
|
|
|
|
Common Stock Warrants (56,559
shares)
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,753,163
|
|
3,328,307
|
|
1,562,000
|
Grindmaster-Cecilware Corp.
(4%)*
|
|
Food Services
Equipment
Manufacturer
|
|
Subordinated Note
(11% Cash, 3% PIK,
Due 03/15)
|
|
5,800,791
|
|
5,689,665
|
|
5,689,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,800,791
|
|
5,689,665
|
|
5,689,665
|
Inland Pipe Rehabilitation Holding
Company LLC (11%)*
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(14% Cash,
Due 01/14)
|
|
8,108,641
|
|
7,279,341
|
|
7,279,341
|
|
|
|
|
Subordinated Note
(18% Cash,
Due 01/14)
|
|
3,750,000
|
|
3,699,679
|
|
3,699,679
|
|
|
|
|
Membership Interest
Purchase Warrant (2.9%)
|
|
|
|
853,500
|
|
3,742,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,858,641
|
|
11,832,520
|
|
14,721,920
|
Jenkins Service, LLC (7%)*
|
|
Restoration
Services
|
|
Subordinated Note
(10.25% Cash, 7.25%
PIK, Due 04/14)
|
|
7,515,221
|
|
7,392,334
|
|
7,392,334
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
1,375,000
|
|
1,342,799
|
|
1,342,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,890,221
|
|
8,735,133
|
|
8,735,133
|
Library Systems & Services, LLC
(2%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12% Cash,
Due 03/11)
|
|
1,000,000
|
|
972,768
|
|
972,768
|
|
|
|
|
Common Stock
Warrants (112 shares)
|
|
|
|
58,995
|
|
1,242,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
1,031,763
|
|
2,215,568
|
Novolyte Technologies, Inc. (6%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5%
PIK, Due 04/15)
|
|
7,366,289
|
|
7,230,970
|
|
7,230,970
|
|
|
|
|
Preferred Units (600
units)
|
|
|
|
600,000
|
|
545,900
|
|
|
|
|
Common Units
(22,960 units)
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,366,289
|
|
7,980,970
|
|
7,776,870
|
F-12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Syrgis Holdings, Inc. (3%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
$3,337,740
|
|
$3,314,933
|
|
$3,314,933
|
|
|
|
|
Common Units (2,114
units)
|
|
|
|
1,000,000
|
|
447,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,337,740
|
|
4,314,933
|
|
3,762,733
|
TBG Anesthesia Management,
LLC (6%)*
|
|
Physician
Management
Services
|
|
Senior Note
(14% Cash,
Due 11/14)
|
|
8,000,000
|
|
7,579,320
|
|
7,579,320
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
276,100
|
|
276,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
7,855,420
|
|
7,855,420
|
TrustHouse Services Group, Inc.
(4%)*
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
4,351,628
|
|
4,282,621
|
|
4,282,621
|
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
475,000
|
|
409,700
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,351,628
|
|
4,782,621
|
|
4,692,321
|
Tulsa Inspection Resources, Inc.
(TIR) and Regent TIR Partners,
LLC (RTIR) (4%)*
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash,
Due 03/14)
|
|
5,000,000
|
|
4,625,242
|
|
4,625,242
|
|
|
|
|
Common Units
RTIR (11 units)
|
|
|
|
200,000
|
|
8,000
|
|
|
|
|
Common Stock
Warrants - TIR (7
shares)
|
|
|
|
321,000
|
|
34,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
5,146,242
|
|
4,667,942
|
Twin-Star International, Inc. (4%)*
|
|
Consumer Home
Furnishings
Manufacturer
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
4,500,000
|
|
4,450,037
|
|
4,168,000
|
|
|
|
|
Senior Note (4.29%,
Due 04/13)
|
|
1,287,564
|
|
1,287,564
|
|
1,145,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,787,564
|
|
5,737,601
|
|
5,313,000
|
Wholesale Floors, Inc. (3%)*
|
|
Commercial
Services
|
|
Subordinated Note
(12.5% Cash, 1.5%
PIK, Due 06/14)
|
|
3,500,000
|
|
3,363,335
|
|
3,363,335
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0%)
|
|
|
|
132,800
|
|
39,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
3,496,135
|
|
3,403,135
|
Yellowstone Landscape Group,
Inc. (9%)*
|
|
Landscaping
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
11,294,699
|
|
11,080,907
|
|
11,080,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,294,699
|
|
11,080,907
|
|
11,080,907
|
Zoom Systems (6%)*
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5 Cash, 1.5%
PIK, Due 12/14)
|
|
8,002,667
|
|
7,802,667
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,002,667
|
|
7,802,667
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal NonControl / NonAffiliate Investments
|
|
|
|
142,455,328
|
|
143,239,223
|
|
138,281,894
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (4%)*
|
|
Asset Management
Software Provider
|
|
Subordinated Note
(12% Cash, 7% PIK,
Due 03/13)
|
|
5,417,830
|
|
5,346,346
|
|
5,346,346
|
|
|
|
|
Membership Units
(10 units)
|
|
|
|
500,000
|
|
173,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,417,830
|
|
5,846,346
|
|
5,519,946
|
F-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Axxiom Manufacturing, Inc.
(0%)*
|
|
Industrial
Equipment
|
|
Common Stock
(34,100 shares)
|
|
|
|
$200,000
|
|
$542,400
|
|
|
Manufacturer
|
|
Common Stock
Warrant
(1,000 shares)
|
|
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
556,400
|
Brantley Transportation, LLC
(Brantley Transportation) and
Pine Street Holdings, LLC (Pine
Street) (4) (1%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation
(14% Cash, Due 12/12)
|
|
$3,800,000
|
|
3,713,247
|
|
1,400,000
|
|
|
|
|
Common Unit
Warrants Brantley
Transportation (4,560
common units)
|
|
|
|
33,600
|
|
|
|
|
|
|
Preferred Units Pine
Street (200 units)
|
|
|
|
200,000
|
|
|
|
|
|
|
Common Unit
Warrants Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
3,946,847
|
|
1,400,000
|
Dyson Corporation (10%)*
|
|
Custom Forging
and Fastener
Supplies
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 12/13)
|
|
10,000,000
|
|
9,833,080
|
|
9,833,080
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
1,000,000
|
|
2,634,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
10,833,080
|
|
12,467,780
|
Equisales, LLC (6%)*
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
6,547,511
|
|
6,479,476
|
|
6,479,476
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
500,000
|
|
1,375,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,547,511
|
|
6,979,476
|
|
7,855,176
|
Flint Acquisition Corporation
(2%)*
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock (9,875
shares)
|
|
|
|
308,333
|
|
2,571,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
2,571,600
|
Genapure Corporation (0%)*
|
|
Lab Testing
Services
|
|
Genapure Common
Stock (5,594 shares)
|
|
|
|
563,602
|
|
641,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
641,300
|
Technology Crops International
(4%)*
|
|
Supply Chain
Management
Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
5,070,492
|
|
4,973,767
|
|
4,973,767
|
|
|
|
|
Common Units
(50 Units)
|
|
|
|
500,000
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,070,492
|
|
5,473,767
|
|
5,473,767
|
Waste Recyclers Holdings, LLC
(7%)*
|
|
Environmental and
Facilities Services
|
|
Subordinated Note
(8% Cash, 7.5% PIK,
Due 08/13)
|
|
4,116,978
|
|
4,048,936
|
|
4,048,936
|
|
|
|
|
Subordinated Note
(3% Cash, 12.5%
PIK, Due 08/13)
|
|
5,734,318
|
|
5,666,275
|
|
4,920,000
|
|
|
|
|
Class A Preferred
Units (300 Units)
|
|
|
|
2,251,100
|
|
|
|
|
|
|
Class B Preferred
Units (886,835 Units)
|
|
|
|
886,835
|
|
281,000
|
|
|
|
|
Common Unit
Purchase Warrant
(1,170,083 Units)
|
|
|
|
748,900
|
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,851,296
|
|
13,782,829
|
|
9,249,936
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
40,687,129
|
|
47,934,280
|
|
45,735,905
|
F-14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
(1) (2)
|
|
Amount
|
|
Cost
|
|
Value (3)
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (3%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
$1,562,891
|
|
$1,558,472
|
|
$1,514,200
|
|
|
|
|
Senior Note
(7.76% Cash, 2% PIK,
Due 9/11)
|
|
2,005,114
|
|
1,999,592
|
|
1,943,800
|
|
|
|
|
2nd Lien
Note
(2.76% Cash, 8% PIK,
Due 12/11)
|
|
3,200,672
|
|
2,994,352
|
|
823,000
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,768,677
|
|
6,552,416
|
|
4,281,000
|
Fischbein, LLC (10%)*
|
|
Packaging and
Materials Handling
Equipment
|
|
Subordinated Note
(12% Cash, 6.5%
PIK, Due 05/13)
|
|
7,595,671
|
|
7,490,171
|
|
7,490,171
|
|
|
Manufacturer
|
|
Class A1 Common
Units (52.5% of
Units)
|
|
|
|
525,000
|
|
1,122,300
|
|
|
|
|
Class A Common
Units (4,200,000
units)
|
|
|
|
4,200,000
|
|
4,406,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,595,671
|
|
12,215,171
|
|
13,019,171
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
14,364,348
|
|
18,767,587
|
|
17,300,171
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2009 (156%)*
|
|
|
|
$197,506,805
|
|
$209,941,090
|
|
$201,317,970
|
|
|
|
|
|
|
|
|
|
* Value as a percent of net assets
(1) All debt investments are income producing. Common
stock, preferred stock and all warrants are nonincome
producing.
(2) Disclosures of interest rates on subordinated notes
include cash interest rates and paymentin kind
(PIK) interest rates.
(3) All investments are restricted as to resale and were
valued at fair value as determined in good faith by the Board of
Directors.
(4) Pine Street Holdings, LLC is the majority owner of
Brantley Transportation, LLC and its sole business purpose is
its ownership of Brantley Transportation, LLC.
See accompanying
notes.
F-15
|
|
1.
|
ORGANIZATION,
BASIS OF PRESENTATION AND BUSINESS
|
Organization
Triangle Capital Corporation and its wholly owned subsidiaries,
including Triangle Mezzanine Fund LLLP (the
Fund) and Triangle Mezzanine Fund II LP
(Fund II) (collectively, the
Company) operate as a Business Development Company
(BDC) under the Investment Company Act of 1940 (the
1940 Act). The Fund and Fund II are specialty
finance limited partnerships formed to make investments
primarily in middle market companies located throughout the
United States. On September 11, 2003, the Fund was licensed
to operate as a Small Business Investment Company
(SBIC) under the authority of the United States
Small Business Administration (SBA). On May 26,
2010, Fund II obtained its license to operate as an SBIC.
As SBICs, both the Fund and Fund II are subject to a
variety of regulations concerning, among other things, the size
and nature of the companies in which they may invest and the
structure of those investments.
The Company currently operates as a closedend,
nondiversified investment company and has elected to be
treated as a BDC under the 1940 Act. The Company is internally
managed by its executive officers under the supervision of its
board of directors. The Company does not pay management or
advisory fees, but instead incurs the operating costs associated
with employing executive management and investment and portfolio
management professionals.
Basis of
Presentation
The financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries, including the
Fund and Fund II. Neither the Fund nor Fund II
consolidates portfolio company investments. The effects of all
intercompany transactions between the Company and its
subsidiaries have been eliminated in consolidation.
The accompanying unaudited financial statements are presented in
conformity with United States generally accepted accounting
principles (U.S. GAAP) for interim financial
information and pursuant to the requirements for reporting on
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, certain disclosures accompanying annual
consolidated financial statements prepared in accordance with
U.S. GAAP are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals
considered necessary for the fair presentation of financial
statements for the interim period, have been included. The
current periods results of operations are not necessarily
indicative of results that ultimately may be achieved for the
year. Therefore, the unaudited financial statements and notes
should be read in conjunction with the audited financial
statements and notes thereto for the period ended
December 31, 2009. Financial statements prepared on a
U.S. GAAP basis require management to make estimates and
assumptions that affect the amounts and disclosures reported in
the consolidated financial statements and accompanying notes.
Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts
reported and disclosed herein.
Recently
Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820). This
update improves disclosure requirements related to Fair Value
Measurements and Disclosures-Overall Subtopic (Subtopic
820-10) of
the FASB Standards Codification, originally issued as FASB
Statement No. 157, Fair Value Measurements. These
improved disclosure requirements will provide a greater level of
disaggregated information and more robust disclosures about
valuation techniques and inputs to fair value measurements. The
Company adopted these changes beginning with its financial
statements for the quarter ended March 31, 2010. The
adoption of these changes did not have a material impact on the
Companys financial position or results of operations.
F-16
Summaries of the composition of the Companys investment
portfolio at cost and fair value as a percentage of total
investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
|
|
|
|
|
|
|
June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
|
|
|
|
$
|
215,676,120
|
|
|
|
87
|
%
|
|
$
|
202,282,962
|
|
|
|
84
|
%
|
|
|
|
|
Senior debt
|
|
|
|
|
|
|
8,943,390
|
|
|
|
4
|
|
|
|
7,932,415
|
|
|
|
3
|
|
|
|
|
|
Equity shares
|
|
|
|
|
|
|
19,024,914
|
|
|
|
8
|
|
|
|
22,837,000
|
|
|
|
9
|
|
|
|
|
|
Equity warrants
|
|
|
|
|
|
|
3,699,783
|
|
|
|
1
|
|
|
|
7,069,900
|
|
|
|
3
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
|
|
|
|
1,192,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
248,218,607
|
|
|
|
100
|
%
|
|
$
|
241,314,277
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
|
|
|
|
$
|
179,482,425
|
|
|
|
86
|
%
|
|
$
|
166,087,684
|
|
|
|
83
|
%
|
|
|
|
|
Senior debt
|
|
|
|
|
|
|
11,090,514
|
|
|
|
5
|
|
|
|
10,847,886
|
|
|
|
5
|
|
|
|
|
|
Equity shares
|
|
|
|
|
|
|
15,778,681
|
|
|
|
8
|
|
|
|
17,182,500
|
|
|
|
9
|
|
|
|
|
|
Equity warrants
|
|
|
|
|
|
|
2,715,070
|
|
|
|
1
|
|
|
|
6,250,600
|
|
|
|
3
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,941,090
|
|
|
|
100
|
%
|
|
$
|
201,317,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
During the three months ended June 30, 2010, the Company
made four new investments totaling approximately
$32.0 million and seven investments in existing portfolio
companies totaling approximately $12.1 million. During the
six months ended June 30, 2010, the Company made six new
investments totaling approximately $43.6 million and ten
investments in existing portfolio companies totaling
approximately $14.6 million.
The Company made no new investments during the three months
ended June 30, 2009. During the six months ended
June 30, 2009, the Company made one new investment totaling
approximately $5.2 million and five investments in existing
portfolio companies totaling approximately $4.0 million.
Valuation
of Investments
The Company has established and documented processes and
methodologies for determining the fair values of portfolio
company investments on a recurring basis in accordance with FASB
ASC Topic 820, Fair Value Measurements and Disclosures
(ASC Topic 820). Under ASC Topic 820, a
financial instruments categorization within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of
valuation hierarchy established by ASC TOPIC 820 are defined as
follows:
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
The Companys investment portfolio is comprised of debt and
equity instruments of privately held companies for which quoted
prices falling within the categories of Level 1 and
Level 2 inputs are not available. Therefore, the Company
values all of its investments at fair value, as determined in
good faith by the Board of Directors (Level 3 inputs, as
further described below). Due to the inherent uncertainty in the
valuation process, the Board of Directors estimate of fair
value may differ significantly from the values that
F-17
would have been used had a ready market for the securities
existed, and the differences could be material. In addition,
changes in the market environment and other events that may
occur over the life of the investments may cause the gains or
losses ultimately realized on these investments to be different
than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the
security.
Management evaluates the investments in portfolio companies
using the most recent portfolio company financial statements and
forecasts. Management also consults with the portfolio
companys senior management to obtain further updates on
the portfolio companys performance, including information
such as industry trends, new product development and other
operational issues.
In making the good faith determination of the value of debt
securities, the Company starts with the cost basis of the
security, which includes the amortized original issue discount,
and paymentinkind (PIK) interest, if any. The
Company also uses a risk rating system to estimate the
probability of default on the debt securities and the
probability of loss if there is a default. The risk rating
system covers both qualitative and quantitative aspects of the
business and the securities held. In valuing debt securities,
management utilizes an income approach model that
considers factors including, but not limited to, (i) the
portfolio investments current risk rating, (ii) the
portfolio companys current trailing twelve months
(TTM) results of operations as compared to the
portfolio companys TTM results of operations as of the
date the investment was made and the portfolio companys
anticipated results for the next twelve months of operations,
(iii) the portfolio companys current leverage as
compared to its leverage as of the date the investment was made,
(iv) publicly available information regarding current
pricing and credit metrics for similar proposed and executed
investment transactions of private companies and, (v) when
management believes a relevant comparison exists, current
pricing and credit metrics for similar proposed and executed
investment transactions of publicly traded debt.
In valuing equity securities of private companies, the Company
considers valuation methodologies consistent with industry
practice, including but not limited to (i) valuation using
a valuation model based on original transaction multiples and
the portfolio companys recent financial performance,
(ii) publicly available information regarding the valuation
of the securities based on recent sales in comparable
transactions of private companies and, (iii) when
management believes there are similar companies that are
publicly traded, a review of these publicly traded companies and
the market multiple of their equity securities.
The following table presents the Companys financial
instruments carried at fair value as of June 30, 2010 and
December 31, 2009, on the consolidated balance sheet by ASC
Topic 820 valuation hierarchy, as previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2010
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio company investments
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
241,314,277
|
|
|
$
|
241,314,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
241,314,277
|
|
|
$
|
241,314,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio company investments
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,317,970
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,317,970
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
F-18
The following table reconciles the beginning and ending balances
of our portfolio company investments measured at fair value on a
recurring basis using significant unobservable inputs
(Level 3) for the six months ended June 30, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, beginning of period
|
|
$
|
201,317,970
|
|
|
$
|
182,105,291
|
|
|
|
|
|
New investments
|
|
|
58,216,292
|
|
|
|
9,193,735
|
|
|
|
|
|
Loan origination fees received
|
|
|
(1,157,860
|
)
|
|
|
(175,000
|
)
|
|
|
|
|
Proceeds from sale of investment
|
|
|
(4,089,571
|
)
|
|
|
(1,888,384
|
)
|
|
|
|
|
Net gains on sale of investment
|
|
|
707,653
|
|
|
|
848,164
|
|
|
|
|
|
Principal repayments received
|
|
|
(17,613,050
|
)
|
|
|
(4,903,577
|
)
|
|
|
|
|
Paymentinkind interest earned
|
|
|
2,789,287
|
|
|
|
2,152,633
|
|
|
|
|
|
Paymentinkind interest received
|
|
|
(1,305,422
|
)
|
|
|
(497,427
|
)
|
|
|
|
|
Accretion of loan discounts
|
|
|
312,106
|
|
|
|
203,742
|
|
|
|
|
|
Accretion of deferred loan origination revenue
|
|
|
418,082
|
|
|
|
310,902
|
|
|
|
|
|
Unrealized gains (losses) on investments
|
|
|
1,718,790
|
|
|
|
(10,854,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, end of period
|
|
$
|
241,314,277
|
|
|
$
|
176,495,277
|
|
|
|
|
|
|
|
|
|
|
|
All realized and unrealized gains and losses are included in
earnings (changes in net assets) and are reported on separate
line items within the Companys statements of operations.
Net unrealized gains on investments of $1,482,000 and
$1,128,000, respectively, during the three and six months ended
June 30, 2010 are related to portfolio company investments
that were still held by the Company as of June 30, 2010.
Net unrealized losses on investments of $6,692,000 and
$10,929,000, respectively, during the three and six months ended
June 30, 2009 are related to portfolio company investments
that were still held by the Company as of June 30, 2009.
Duff & Phelps, LLC (Duff &
Phelps), an independent valuation firm, provides third
party valuation consulting services to the Company which consist
of certain limited procedures that the Company identified and
requested Duff & Phelps to perform (hereinafter
referred to as the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one
or more portfolio companies. Such instances include, but are not
limited to, situations where the fair value of our investment in
the portfolio company is determined to be insignificant relative
to our total investment portfolio.
For the quarter ended March 31, 2010, the Company asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 25% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2010. For the quarter ended June 30, 2010, the Company
asked Duff & Phelps to perform the procedures on
investments in eight portfolio companies comprising
approximately 29% of the total investments at fair value
(exclusive of the fair value of new investments made during the
quarter) as of June 30, 2010.
For the quarter ended March 31, 2009, the Company asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 26% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2009. For the quarter ended June 30, 2009, the Company
asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately
20% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2009.
F-19
Upon completion of the procedures, Duff & Phelps
concluded that the fair value, as determined by the Board of
Directors, of those investments subjected to the procedures did
not appear to be unreasonable. The Board of Directors of
Triangle Capital Corporation is ultimately and solely
responsible for determining the fair value of the Companys
investments in good faith.
Warrants
When originating a debt security, the Company will sometimes
receive warrants or other equityrelated securities from
the borrower. The Company determines the cost basis of the
warrants or other equityrelated securities received based
upon their respective fair values on the date of receipt in
proportion to the total fair value of the debt and warrants or
other equityrelated securities received. Any resulting
difference between the face amount of the debt and its recorded
fair value resulting from the assignment of value to the warrant
or other equity instruments is treated as original issue
discount and accreted into interest income over the life of the
loan.
Realized
Gain or Loss and Unrealized Appreciation or Depreciation of
Portfolio Investments
Realized gains or losses are recorded upon the sale or
liquidation of investments and calculated as the difference
between the net proceeds from the sale or liquidation, if any,
and the cost basis of the investment using the specific
identification method. Unrealized appreciation or depreciation
reflects the difference between the fair value of the
investments and the cost basis of the investments.
Investment
Classification
In accordance with the provisions of the 1940 Act, the Company
classifies investments by level of control. As defined in the
1940 Act, Control Investments are investments in
those companies that the Company is deemed to
Control. Affiliate Investments are
investments in those companies that are Affiliated
Companies of the Company, as defined in the 1940 Act,
other than Control Investments.
NonControl/NonAffiliate Investments are
those that are neither Control Investments nor Affiliate
Investments. Generally, under the 1940 Act, the Company is
deemed to control a company in which it has invested if the
Company owns more than 25.0% of the voting securities of such
company or has greater than 50.0% representation on its board.
The Company is deemed to be an affiliate of a company in which
the Company has invested if it owns between 5.0% and 25.0% of
the voting securities of such company.
Investment
Income
Interest income, adjusted for amortization of premium and
accretion of original issue discount, is recorded on the accrual
basis to the extent that such amounts are expected to be
collected. Generally, when interest
and/or
principal payments on a loan become past due, or if the Company
otherwise does not expect the borrower to be able to service its
debt and other obligations, the Company will place the loan on
non-accrual status and will generally cease recognizing interest
income on that loan until all principal and interest has been
brought current through payment or due to a restructuring such
that the interest income is deemed to be collectible. The
Company writes off any previously accrued and uncollected
interest when it is determined that interest is no longer
considered collectible. Dividend income is recorded on the
exdividend date.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with loan agreements are
recorded as deferred income and recognized as income over the
term of the loan. Loan prepayment penalties and loan amendment
fees are recorded into income when the respective prepayment or
loan amendment occurs. Any previously deferred fees are
immediately recorded into income upon prepayment of the related
loan.
Payment-in-Kind
Interest
The Company holds loans in its portfolio that contain a
paymentinkind (PIK) interest provision.
The PIK interest, computed at the contractual rate specified in
each loan agreement, is added to the principal balance of the
loan and is recorded as interest income. Thus, the actual
collection of PIK interest may be deferred until the time of
debt principal repayment.
F-20
To maintain the Companys status as a Regulated Investment
Company (RIC) under Subchapter M of the Internal
Revenue Code of 1986, as Amended (the Code), this
non-cash source of income must be paid out to stockholders in
the form of dividends, even though the Company has not yet
collected the cash. Generally, when current cash interest
and/or
principal payments on a loan become past due, or if the Company
otherwise does not expect the borrower to be able to service its
debt and other obligations, the Company will place the loan on
non-accrual status and will generally cease recognizing PIK
interest income on that loan for financial reporting purposes
until all principal and interest has been brought current
through payment or due to a restructuring such that the interest
income is deemed to be collectible. The Company writes off any
accrued and uncollected PIK interest when it is determined that
the PIK interest is no longer collectible.
Concentration
of Credit Risk
The Companys investees are generally lower
middlemarket companies in a variety of industries. At both
June 30, 2010 and December 31, 2009, there were no
individual investments greater than 10% of the fair value of the
Companys portfolio. Income, consisting of interest,
dividends, fees, other investment income, and realization of
gains or losses on equity interests, can fluctuate dramatically
upon repayment of an investment or sale of an equity interest
and in any given year can be highly concentrated among several
investees.
The Companys investments carry a number of risks
including, but not limited to: 1) investing in lower middle
market companies which have a limited operating history and
financial resources; 2) investing in senior subordinated
debt which ranks equal to or lower than debt held by other
investors; 3) holding investments that are not publicly
traded and are subject to legal and other restrictions on resale
and other risks common to investing in below investment grade
debt and equity instruments.
Triangle Capital Corporation has elected for federal income tax
purposes to be treated as a RIC under Subchapter M of the Code.
As a RIC, so long as certain minimum distribution,
source-of-income
and asset diversification requirements are met, income taxes are
generally required to be paid only on the portion of taxable
income and gains that are not distributed (actually or
constructively) and on certain built-in gains.
The Company has certain wholly owned taxable subsidiaries (the
Taxable Subsidiaries) each of which holds one or
more of the Companys portfolio investments that are listed
on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for financial reporting purposes,
such that the Companys consolidated financial statements
reflect the Companys investments in the portfolio
companies owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit the Company to hold certain
portfolio companies that are organized as limited liability
companies (LLCs) (or other forms of
passthrough entities) and still satisfy the RIC tax
requirement that at least 90% of the RICs gross revenue
for income tax purposes must consist of qualifying investment
income. Absent the Taxable Subsidiaries, a proportionate amount
of any gross income of an LLC (or other passthrough
entity) portfolio investment would flow through directly to the
RIC. To the extent that such income did not consist of
qualifying investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause
the Company to incur significant amounts of federal income
taxes. When LLCs (or other pass-through entities) are owned by
the Taxable Subsidiaries, their income is taxed to the Taxable
Subsidiaries and does not flow through to the RIC, thereby
helping the Company preserve its RIC status and resultant tax
advantages. The Taxable Subsidiaries are not consolidated for
income tax purposes and may generate income tax expense as a
result of their ownership of the portfolio companies. This
income tax expense is reflected in the Companys Statements
of Operations.
For federal income tax purposes, the cost of investments owned
at June 30, 2010 was approximately $250.2 million.
F-21
At June 30, 2010 and December 31, 2009, the Company
had the following debentures guaranteed by the SBA outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized
|
|
|
|
|
|
|
|
|
|
|
|
Return
|
|
|
June 30,
|
|
|
December 31,
|
|
Issuance/Pooling Date
|
|
Maturity Date
|
|
(Interest) Rate
|
|
|
2010
|
|
|
2009
|
|
|
|
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539
|
%
|
|
$
|
8,700,000
|
|
|
$
|
8,700,000
|
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893
|
%
|
|
|
13,600,000
|
|
|
|
13,600,000
|
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796
|
%
|
|
|
9,500,000
|
|
|
|
9,500,000
|
|
March 28, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.191
|
%
|
|
|
6,410,000
|
|
|
|
6,410,000
|
|
September 24, 2008
|
|
September 1, 2018
|
|
|
6.580
|
%
|
|
|
4,840,000
|
|
|
|
4,840,000
|
|
September 24, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
46,060,000
|
|
|
|
46,060,000
|
|
March 25, 2009
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
22,000,000
|
|
|
|
22,000,000
|
|
March 24, 2010
|
|
March 1, 2020
|
|
|
4.825
|
%
|
|
|
6,800,000
|
|
|
|
6,800,000
|
|
April 14, 2010
|
|
September 1, 2020
|
|
|
1.425
|
%
|
|
|
3,690,000
|
|
|
|
|
|
June 8, 2010
|
|
September 1, 2020
|
|
|
1.586
|
%
|
|
|
5,000,000
|
|
|
|
|
|
June 8, 2010
|
|
September 1, 2020
|
|
|
1.275
|
%
|
|
|
5,000,000
|
|
|
|
|
|
June 18, 2010
|
|
September 1, 2020
|
|
|
1.249
|
%
|
|
|
5,000,000
|
|
|
|
|
|
June 25, 2010
|
|
September 1, 2020
|
|
|
1.225
|
%
|
|
|
5,000,000
|
|
|
|
|
|
June 25, 2010
|
|
September 1, 2020
|
|
|
1.225
|
%
|
|
|
4,400,000
|
|
|
|
|
|
June 28, 2010
|
|
September 1, 2020
|
|
|
1.096
|
%
|
|
|
4,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154,500,000
|
|
|
$
|
121,910,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semiannually. There are no
principal payments required on these issues prior to maturity.
Debentures issued prior to September 2006 were subject to
prepayment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after
September 1, 2006.
Under the Small Business Investment Act and current SBA policy
applicable to SBICs, an SBIC (or group of SBICs under common
control) can have outstanding at any time SBA guaranteed
debentures up to three times the amount of its regulatory
capital. As of June 30, 2010, the maximum statutory limit
on the dollar amount of outstanding SBA guaranteed debentures
that can be issued by a single SBIC is $150.0 million and
by a group of SBICs under common control is $225.0 million.
As of June 30, 2010, the Fund has issued the maximum
$150.0 million of SBA guaranteed debentures. As of
June 30, 2010, Fund II has issued $4.5 million of
SBA guaranteed debentures and has the current capacity to issue
up to the statutory maximum of $75.0 million, subject to
SBA approval. In addition to a onetime 1.0% fee on the
total commitment from the SBA, the Company also pays a
onetime 2.425% fee on the amount of each debenture issued.
These fees are capitalized as deferred financing costs and are
amortized over the term of the debt agreements using the
effective interest method. The weighted average interest rates
for all SBA guaranteed debentures as of June 30, 2010, and
December 31, 2009 were 4.98% and 5.77%, respectively. The
weighted average interest rate as of June 30, 2010,
included $121.9 million of pooled SBA-guaranteed debentures
with a weighted average fixed interest rate of 5.96% and
$32.6 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 1.30%. The weighted
average interest rate as of December 31, 2009, included
$115.1 million of pooled SBA-guaranteed debentures with a
weighted average fixed interest rate of 6.03% and
$6.8 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 1.41%.
F-22
|
|
5.
|
EQUITY-BASED
COMPENSATION
|
The Companys Board of Directors and stockholders have
approved the Triangle Capital Corporation Amended and Restated
2007 Equity Incentive Plan (the Plan), under which
there are 900,000 shares of the Companys Common Stock
authorized for issuance. Under the Plan, the Board of Directors
(or compensation committee, if delegated administrative
authority by the Board of Directors) may award stock options,
restricted stock or other stock based incentive awards to
executive officers, employees and directors. Equity-based awards
granted under the Plan to independent directors generally will
vest over a one-year period and equity-based awards granted
under the Plan to executive officers and employees generally
will vest ratably over a four-year period.
The Company accounts for its equity-based compensation plan
using the fair value method, as prescribed by ASC Topic 718,
Stock Compensation. Accordingly, for restricted stock
awards, we measure the grant date fair value based upon the
market price of our common stock on the date of the grant and
amortize this fair value to compensation expense over the
requisite service period or vesting term.
The following table presents information with respect to the
Plan for the six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number of
|
|
|
Grant-Date Fair
|
|
|
Number of
|
|
|
Grant-Date Fair
|
|
|
|
Shares
|
|
|
Value per Share
|
|
|
Shares
|
|
|
Value per Share
|
|
|
|
|
|
|
Unvested shares, beginning of period
|
|
|
219,813
|
|
|
$
|
10.76
|
|
|
|
110,800
|
|
|
$
|
11.11
|
|
Shares granted during the period
|
|
|
152,944
|
|
|
$
|
12.01
|
|
|
|
144,812
|
|
|
$
|
10.58
|
|
Shares vested during the period
|
|
|
(70,059)
|
|
|
$
|
10.72
|
|
|
|
(35,799)
|
|
|
$
|
11.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
302,698
|
|
|
$
|
11.40
|
|
|
|
219,813
|
|
|
$
|
10.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three and six months ended June 30, 2010, the
Company recognized equity-based compensation expense of
approximately $0.3 million and $0.5 million,
respectively. In the three and six months ended June 30,
2009, the Company recognized equity-based compensation expense
of approximately $0.2 million and $0.3 million,
respectively. This expense is included in general and
administrative expenses in the Companys consolidated
statements of operations.
As of June 30, 2010, there was approximately
$3.1 million of total unrecognized compensation cost,
related to the Companys non-vested restricted shares. This
cost is expected to be recognized over a weighted-average period
of approximately 2.7 years.
F-23
The following is a schedule of financial highlights for the six
months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
11.03
|
|
|
$
|
13.22
|
|
Net investment income(1)
|
|
|
0.70
|
|
|
|
0.84
|
|
Net realized gain on investments(1)
|
|
|
0.06
|
|
|
|
0.11
|
|
Net unrealized appreciation (depreciation) on investments(1)
|
|
|
0.17
|
|
|
|
(1.41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) from investment operations(1)
|
|
|
0.93
|
|
|
|
(0.46
|
)
|
|
|
|
|
|
|
|
|
|
Cash dividends/distributions declared
|
|
|
(0.82
|
)
|
|
|
(0.85
|
)
|
Shares issued pursuant to Dividend Reinvestment Plan
|
|
|
0.05
|
|
|
|
|
|
Common stock offering
|
|
|
|
|
|
|
(0.41
|
)
|
Stock-based compensation
|
|
|
0.05
|
|
|
|
0.04
|
|
Income tax provision(1)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Grant of restricted shares
|
|
|
(0.14
|
)
|
|
|
(0.20
|
)
|
Other(2)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
11.08
|
|
|
$
|
11.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(3)
|
|
$
|
14.22
|
|
|
$
|
10.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
12,074,184
|
|
|
|
8,332,942
|
|
Net assets at end of period
|
|
$
|
133,809,358
|
|
|
$
|
94,280,362
|
|
Average net assets
|
|
$
|
132,201,696
|
|
|
$
|
93,022,600
|
|
Ratio of total expenses to average net assets (annualized)
|
|
|
11%
|
|
|
|
15%
|
|
Ratio of net investment income to average net assets (annualized)
|
|
|
13%
|
|
|
|
14%
|
|
Portfolio turnover ratio
|
|
|
11%
|
|
|
|
4%
|
|
Total Return(4)
|
|
|
24%
|
|
|
|
15%
|
|
(1) Weighted average basic per share data.
|
|
|
|
(2)
|
Represents the impact of the different share amounts used in
calculating per share data as a result of calculating certain
per share data based upon the weighted average basic shares
outstanding during the period and certain per share data based
on the shares outstanding as of a period end or transaction date.
|
|
|
(3)
|
Represents the closing price of the Companys common stock
on the last day of the period.
|
|
|
(4)
|
Total return equals the change in the ending market value of the
Companys common stock during the period, plus dividends
declared per share during the period, divided by the market
value of the Companys common stock on the first day of the
period. Total return is not annualized.
|
In July 2010, the Company invested $5.5 million in
subordinated debt and warrants of Hatch Chile Co., LLC, food
products company that distributes cooking sauces and related
products for retail customers, primarily in the Southwestern
United States. Under the terms of the investments, Hatch Chile
Co., LLC will pay interest on the subordinated debt at a rate of
18% per annum.
F-24
PROSPECTUS
$300,000,000
Common
Stock
We may offer, from time to time, up to $300,000,000 worth of our
common stock, $0.001 par value per share in one or more
offerings. Our common stock may be offered at prices and on
terms to be disclosed in one or more supplements to this
prospectus.
We may offer shares of common stock at a discount to net asset
value per share in certain circumstances. On May 5, 2010,
our common stockholders voted to allow us to issue common stock
at a price below net asset value per share for a period of one
year ending on the earlier of May 4, 2011 or the date of
our 2011 annual stockholders meeting. Sales of common stock at
prices below net asset value per share dilute the interests of
existing stockholders, have the effect of reducing our net asset
value per share and may reduce our market price per share.
Our stockholders did not specify a maximum discount below net
asset value at which we are able to issue our common stock;
however, we do not intend to issue shares of our common stock
below net asset value unless our Board of Directors determines
that it would be in our stockholders best interests to do
so. Shares of closed-end investment companies such as us
frequently trade at a discount to their net asset value. This
risk is separate and distinct from the risk that our net asset
value per share may decline. We cannot predict whether our
common stock will trade above, at or below net asset value. You
should read this prospectus and the applicable prospectus
supplement carefully before you invest in our common stock.
Our common stock may be offered directly to one or more
purchasers through agents designated from time to time by us, or
to or through underwriters or dealers. The prospectus supplement
relating to the offering will identify any agents or
underwriters involved in the sale of our common stock, and will
disclose any applicable purchase price, fee, commission or
discount arrangement between us and our agents or underwriters
or among our underwriters or the basis upon which such amount
may be calculated. See Plan of Distribution. We may
not sell any of our common stock through agents, underwriters or
dealers without delivery of a prospectus supplement describing
the method and terms of the offering of such common stock.
We are a specialty finance company that provides customized
financing solutions to lower middle market companies located
throughout the United States, with an emphasis on the Southeast.
Our investment objective is to seek attractive returns by
generating current income from our debt investments and capital
appreciation from our equity related investments. We are an
internally managed, closed-end, non-diversified management
investment company that has elected to be treated as a business
development company under the Investment Company Act of 1940.
Our common stock is listed on the Nasdaq Global Market under the
symbol TCAP. On June 7, 2010, the last reported
sale price of our common stock on the Nasdaq Global Market was
$13.42 per share.
Investing in our common stock is speculative and involves
numerous risks, and you could lose your entire investment if any
of the risks occurs. Among these risks is the risk associated
with the use of leverage. For more information regarding these
risks, please see Risk Factors beginning on
page 14.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Please read this prospectus and the accompanying prospectus
supplement, if any, before investing, and keep it for future
reference. It concisely sets forth important information about
us that a prospective investor ought to know before investing in
our common stock. We file annual, quarterly and current reports,
proxy statements and other information about us with the
Securities and Exchange Commission. This information is
available free of charge by contacting us at 3700 Glenwood
Avenue, Suite 530, Raleigh, North Carolina 27612, or by
telephone at
(919) 719-4770
or on our website at www.tcap.com. Information contained
on our website is not incorporated by reference into this
prospectus, and you should not consider that information to be
part of this prospectus. The Securities and Exchange Commission
also maintains a website at www.sec.gov that contains
such information.
The date of this prospectus is August 12, 2010.
TABLE OF
CONTENTS
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1
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10
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11
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13
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14
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33
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34
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34
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36
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36
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38
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41
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59
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60
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70
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78
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|
86
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101
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|
103
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104
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|
109
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110
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116
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125
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130
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131
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131
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132
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132
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132
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|
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission, or SEC, using
the shelf registration process. Under the shelf
registration process, we may offer, from time to time, up to
$300,000,000 worth of our common stock on terms to be determined
at the time of the offering. This prospectus provides you with a
general description of the common stock that we may offer. Each
time we use this prospectus to offer common stock, we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. Please carefully read this prospectus and
any accompanying prospectus supplement together with the
additional information described under Available
Information and Risk Factors before you make
an investment decision.
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this
prospectus or any accompanying supplement to this prospectus.
You must not rely on any unauthorized information or
representations not contained in this prospectus or any
accompanying prospectus supplement as if we had authorized it.
This prospectus and any accompanying prospectus supplement do
not constitute an offer to sell or a solicitation of any offer
to buy any security other than the registered securities to
which they relate, nor do they constitute an offer to sell or a
solicitation of an offer to buy any securities in any
jurisdiction to any person to whom it is unlawful to make such
an offer or solicitation in such jurisdiction. The information
contained in this prospectus and any accompanying prospectus
supplement is accurate as of the dates on their covers.
PROSPECTUS
SUMMARY
This summary highlights some of the information in this
prospectus. It is not complete and may not contain all of the
information that you may want to consider. You should read the
entire prospectus and any prospectus supplement carefully,
including Risk Factors, Selected Consolidated
Financial and Other Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements contained
elsewhere in this prospectus.
Triangle Capital Corporation is a Maryland corporation
incorporated on October 10, 2006, for the purpose of
acquiring Triangle Mezzanine Fund LLLP, or Triangle SBIC,
and its general partner, Triangle Mezzanine LLC, or TML, raising
capital in its initial public offering, or IPO, which closed on
February 21, 2007 and, thereafter, operating as an
internally managed business development company, or BDC, under
the Investment Company Act of 1940, or the 1940 Act. Triangle
SBIC is licensed as a small business investment company, or
SBIC, by the United States Small Business Administration, or
SBA. Simultaneously with the consummation of our IPO, we
acquired all of the equity interests in Triangle SBIC and TML as
described elsewhere in this prospectus under Formation
Transactions, whereby Triangle SBIC became our wholly
owned subsidiary. Triangle Mezzanine Fund II LP, or Triangle
SBIC II, is a recently formed, wholly owned subsidiary of
Triangle Capital Corporation that is licensed by the SBA to
operate as an SBIC. Unless otherwise noted in this prospectus or
any accompanying prospectus supplement, the terms
we, us, our, the
Company and Triangle refer to Triangle
SBIC prior to the IPO and to Triangle Capital Corporation and
its subsidiaries, including Triangle SBIC and Triangle SBIC II,
currently existing.
Triangle
Capital Corporation
Triangle Capital Corporation is a specialty finance company that
provides customized financing solutions to lower middle market
companies located throughout the United States. We define lower
middle market companies as those having annual revenues between
$10.0 and $100.0 million. Our investment objective is to
seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments. Our 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. We invest primarily in
senior and subordinated debt securities secured by first and
second lien security interests in portfolio company assets,
coupled with equity interests.
We focus on investments in companies with a history of
generating revenues and positive cash flows, an established
market position and a proven management team with a strong
operating discipline. Our target portfolio company generally has
annual revenues between $20.0 and $100.0 million and annual
earnings before interest, taxes, depreciation and amortization,
or EBITDA, between $3.0 and $20.0 million. We believe that
these companies have less access to capital and that the market
for such capital is underserved relative to larger companies.
Companies of this size are generally privately held and are less
well known to traditional capital sources such as commercial and
investment banks.
Our investments generally range from $5.0 to $15.0 million
per portfolio company. In certain situations, we have partnered
with other funds to provide larger financing commitments. We
intend to continue to make investments through our two wholly
owned SBIC subsidiaries and to utilize the proceeds of the sale
of SBA guaranteed debentures, referred to herein as SBA
leverage, in order to enhance returns to our stockholders. As of
March 31, 2010, we had investments in 38 portfolio
companies, with an aggregate cost of $218.9 million.
Our principal executive offices are located at 3700 Glenwood
Avenue, Suite 530, Raleigh, North Carolina 27612, and our
telephone number is
919-719-4770.
We maintain a website on the Internet at www.tcap.com.
Information contained on our website is not incorporated by
reference into this prospectus or any prospectus supplement, and
you should not consider that information to be part of this
prospectus.
1
Our
Business Strategy
We seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments by:
|
|
|
|
|
Focusing on Underserved Markets. We believe
that broad-based consolidation in the financial services
industry coupled with operating margin and growth pressures have
caused financial institutions to
de-emphasize
services to lower middle market companies in favor of larger
corporate clients and capital market transactions. We believe
these dynamics have resulted in the financing market for lower
middle market companies to be underserved, providing us with
greater investment opportunities.
|
|
|
|
Providing Customized Financing Solutions. We
offer a variety of financing structures and have the flexibility
to structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt
securities, coupled with equity interests. We believe our
ability to customize financing arrangements makes us an
attractive partner to lower middle market companies.
|
|
|
|
Leveraging the Experience of Our Management
Team. Our senior management team has more than
100 years of combined experience advising, investing in,
lending to and operating companies across changing market
cycles. The members of our management team have diverse
investment backgrounds, with prior experience at investment
banks, specialty finance companies, commercial banks, and
privately and publicly held companies in the capacity of
executive officers. We believe this diverse experience provides
us with an in depth understanding of the strategic, financial
and operational opportunities associated with lower middle
market companies. We believe this understanding allows us to
select and structure better investments and to efficiently
monitor and provide managerial assistance to our portfolio
companies.
|
|
|
|
Applying Rigorous Underwriting Policies and Active Portfolio
Management. Our senior management team has
implemented rigorous underwriting policies that are followed in
each transaction. These policies include a thorough analysis of
each potential portfolio companys competitive position,
financial performance, management team operating discipline,
growth potential and industry attractiveness, allowing us to
better assess the companys prospects. After investing in a
company, we monitor the investment closely, typically receiving
monthly, quarterly and annual financial statements. We analyze
and discuss in detail the companys financial performance
with management in addition to attending regular meetings of the
board of directors. We believe that our initial and ongoing
portfolio review process allows us to monitor effectively the
performance and prospects of our portfolio companies.
|
|
|
|
Taking Advantage of Low Cost Debentures Guaranteed by the
SBA. Our license to do business as an SBIC allows
us to issue fixed-rate, low interest debentures which are
guaranteed by the SBA and sold in the capital markets,
potentially allowing us to increase our net interest income
beyond the levels achievable by other BDCs utilizing traditional
leverage.
|
|
|
|
Investing Across Multiple Industries. While we
focus our investments in lower middle market companies, we seek
to invest across various industries. We monitor our investment
portfolio to ensure we have acceptable industry balance, using
industry and market metrics as key indicators. By monitoring our
investment portfolio for industry balance we seek to reduce the
effects of economic downturns associated with any particular
industry or market sector. However, we may from time to time
hold securities of a single portfolio company that comprise more
than 5.0% of our total assets
and/or more
than 10.0% of the outstanding voting securities of the portfolio
company. For that reason, we are classified as a non-diversified
management investment company under the 1940 Act.
|
|
|
|
Utilizing Long-Standing Relationships to Source
Deals. Our senior management team maintains
extensive relationships with entrepreneurs, financial sponsors,
attorneys, accountants, investment bankers, commercial bankers
and other non-bank providers of capital who refer prospective
portfolio companies to us. These relationships historically have
generated significant investment opportunities. We believe that
our network of relationships will continue to produce attractive
investment opportunities.
|
2
Our
Investment Criteria
We utilize the following criteria and guidelines in evaluating
investment opportunities. However, not all of these criteria and
guidelines have been, or will be, met in connection with each of
our investments.
|
|
|
|
|
Established Companies With Positive Cash
Flow. We seek to invest in established companies
with a history of generating revenues and positive cash flows.
We typically focus on companies with a history of profitability
and minimum trailing twelve month EBITDA of $3.0 million.
We do not invest in
start-up
companies, distressed situations, turn-around
situations or companies that we believe have unproven business
plans.
|
|
|
|
Experienced Management Teams With Meaningful Equity
Ownership. Based on our prior investment
experience, we believe that a management team with significant
experience with a portfolio company or relevant industry
experience and meaningful equity ownership is more committed to
a portfolio company. We believe management teams with these
attributes are more likely to manage the companies in a manner
that protects our debt investment and enhances the value of our
equity investment.
|
|
|
|
Strong Competitive Position. We seek to invest
in companies that have developed strong positions within their
respective markets, are well positioned to capitalize on growth
opportunities and compete in industries with barriers to entry.
We also seek to invest in companies that exhibit a competitive
advantage, which may help to protect their market position and
profitability.
|
|
|
|
Varied Customer and Supplier Base. We prefer
to invest in companies that have a varied customer and supplier
base. Companies with a varied customer and supplier base are
generally better able to endure economic downturns, industry
consolidation and shifting customer preferences.
|
|
|
|
Significant Invested Capital. We believe the
existence of significant underlying equity value provides
important support to investments. We will look for portfolio
companies that we believe have sufficient value beyond the layer
of the capital structure in which we invest.
|
Our
Investment Portfolio
As of March 31, 2010, we had investments in 38 portfolio
companies with an aggregate cost of approximately
$218.9 million. As of March 31, 2010, we had no
investments that represented more than 10% of the total fair
value of our investment portfolio. As of March 31, 2010,
the weighted average yield on our outstanding debt investments
other than non-accrual debt investments (including
payment-in-kind, or PIK, interest) was approximately 14.7%. The
weighted average yield on all of our outstanding investments
(including equity and equity-linked investments but excluding
non-accrual debt investments) was approximately 13.4% as of
March 31, 2010. The weighted average yield on all of our
outstanding investments (including equity and equity-linked
investments and non-accrual debt investments) was approximately
11.8% as of March 31, 2010. There is no assurance that the
portfolio yields will remain at these levels after the offering.
The following table sets forth certain unaudited information as
of March 31, 2010 for each portfolio company in which we
had a debt or equity investment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non-Control / Non-Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA) and Peaden-Hobbs
Mechanical, LLC (PHM) (5%)*
620 West Baldwin Road
Panama City, FL 32405
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-AA
(12% Cash, 2% PIK, Due 03/11)
|
|
$
|
3,236,386
|
|
|
$
|
3,185,018
|
|
|
$
|
3,185,018
|
|
|
|
|
Subordinated Note-AA
(14% Cash, 4% PIK, Due 03/11)
|
|
|
1,982,791
|
|
|
|
1,968,934
|
|
|
|
1,968,934
|
|
|
|
|
|
Common Stock-PHM (128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
105,100
|
|
|
|
|
|
Common Stock Warrants-AA (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
643,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,219,177
|
|
|
|
5,424,884
|
|
|
|
5,902,452
|
|
American De-Rosa Lamparts, LLC
|
|
Wholesale and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Hallmark Lighting (3%)*
|
|
Distribution
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
1945 S. Tubeway Ave.
|
|
|
|
(11.5% Cash, 3.75%
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce, CA 90040
|
|
|
|
PIK, Due 10/13)
|
|
|
9,203,983
|
|
|
|
8,251,190
|
|
|
|
3,985,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,203,983
|
|
|
|
8,251,190
|
|
|
|
3,985,700
|
|
American Direct Marketing Resources, LLC (3%) 400 Chesterfield
Center, Suite 500
Chesterfield, MO 63017
|
|
Direct Marketing
Services
|
|
Subordinated Note
(12% Cash, 3% PIK, Due 03/15)
|
|
|
4,188,639
|
|
|
|
4,122,062
|
|
|
|
4,122,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,188,639
|
|
|
|
4,122,062
|
|
|
|
4,122,062
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Assurance Operations Corp. (2%)*
9341 Highway 43
|
|
Auto Components /
Metal Fabrication
|
|
Senior Note
(6% Cash, 8% PIK, Due 06/11)
|
|
$
|
2,533,680
|
|
|
$
|
2,083,680
|
|
|
$
|
2,083,680
|
|
Killen, AL 35645
|
|
|
|
Common Stock (300 shares)
|
|
|
|
|
|
|
300,000
|
|
|
|
166,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,533,680
|
|
|
|
2,383,680
|
|
|
|
2,249,780
|
|
Botanical Laboratories, Inc. (8%)*
1441 West Smith Road
|
|
Nutritional Supplement
Manufacturing and Distribution
|
|
Senior Notes
(14% Cash, Due 02/15)
|
|
|
10,500,000
|
|
|
|
9,762,900
|
|
|
|
9,762,900
|
|
Ferndale, WA 98248
|
|
|
|
Common Unit Warrants (998,680 Units)
|
|
|
|
|
|
|
474,600
|
|
|
|
474,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500,000
|
|
|
|
10,237,500
|
|
|
|
10,237,500
|
|
CRS Reprocessing, LLC (4%)*
|
|
Fluid Reprocessing Services
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
13551 Triton Park Blvd.
|
|
|
|
(12% Cash, 2% PIK, Due 11/14)
|
|
|
5,270,385
|
|
|
|
5,148,155
|
|
|
|
5,148,155
|
|
Louisville, KY 40223
|
|
|
|
Common Unit Warrant (150 Units)
|
|
|
|
|
|
|
33,187
|
|
|
|
33,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,270,385
|
|
|
|
5,181,342
|
|
|
|
5,181,342
|
|
CV Holdings, LLC (9%)*
|
|
Specialty
|
|
Subordinated Note (12% Cash, 4%
|
|
|
|
|
|
|
|
|
|
|
|
|
1030 Riverfront Center
|
|
Healthcare Products
|
|
PIK, Due 09/13)
|
|
|
11,334,261
|
|
|
|
10,548,870
|
|
|
|
10,548,870
|
|
Amsterdam, NY 12010
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,334,261
|
|
|
|
11,423,270
|
|
|
|
11,498,170
|
|
Electronic Systems Protection, Inc. (3%)*
517 North Industrial Drive
Zebulon, NC 27577
|
|
Power Protection
Systems Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
|
3,136,518
|
|
|
|
3,113,089
|
|
|
|
2,888,901
|
|
|
|
|
|
Senior Note
(8.3% Cash, Due 01/14)
|
|
|
888,728
|
|
|
|
888,728
|
|
|
|
888,728
|
|
|
|
|
|
Common Stock (500 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
96,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,025,246
|
|
|
|
4,286,817
|
|
|
|
3,874,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
|
|
Voting Units
|
|
|
|
|
|
|
|
|
|
|
|
|
2730 E. Phillips Road
|
|
Distribution
|
|
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greer, SC 29650
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
600,000
|
|
Fire Sprinkler Systems, Inc. (1%)*
705 E. Harrison Street, Suite 200
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(2% PIK, Due 04/11)
|
|
|
2,765,917
|
|
|
|
2,373,242
|
|
|
|
750,000
|
|
Corona, CA 92879
|
|
|
|
Common Stock
(370 shares)
|
|
|
|
|
|
|
369,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,765,917
|
|
|
|
2,742,866
|
|
|
|
750,000
|
|
Frozen Specialties, Inc. (6%)*
1465 Timberwolf Dr.
Holland, OH 43258
|
|
Frozen Foods Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
|
7,759,048
|
|
|
|
7,625,910
|
|
|
|
7,625,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,759,048
|
|
|
|
7,625,910
|
|
|
|
7,625,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. (3%)*
15822 Bernardo Center Drive
San Diego, CA 92127
|
|
Restaurant
|
|
2nd Lien
Note
(7.8% Cash, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
778,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,778,800
|
|
Gerli & Company (1%)*
75 Stark Street
Plains, PA 18705
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(0.69% PIK, Due 08/11)
Subordinated Note
|
|
|
3,696,132
|
|
|
|
3,133,591
|
|
|
|
1,817,000
|
|
|
|
|
|
(6.25% Cash, 11.75% PIK,
Due 08/11)
|
|
|
124,073
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,820,205
|
|
|
|
3,337,005
|
|
|
|
1,937,000
|
|
Grindmaster-Cecilware Corp. (4%)*
43-05 20th Ave
Long Island City, NY 11105
|
|
Food Services
Equipment Manufacturer
|
|
Subordinated Note
(11% Cash, 3% PIK,
Due 03/15)
|
|
|
5,844,297
|
|
|
|
5,737,151
|
|
|
|
5,737,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,844,297
|
|
|
|
5,737,151
|
|
|
|
5,737,151
|
|
Inland Pipe Rehabilitation
Holding Company, LLC (11%)*
|
|
Cleaning and Repair
Services
|
|
Subordinated Note
(14% Cash, Due 01/14)
|
|
|
8,108,641
|
|
|
|
7,329,114
|
|
|
|
7,329,114
|
|
350 N. Old Woodward, Ste. 100
|
|
|
|
Subordinated Note (18% Cash, Due 01/14)
|
|
|
3,750,000
|
|
|
|
3,693,060
|
|
|
|
3,693,060
|
|
Birmingham, MI 48009
|
|
|
|
Membership Interest
Purchase Warrant (2.9%)
|
|
|
|
|
|
|
853,500
|
|
|
|
3,742,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,858,641
|
|
|
|
11,875,674
|
|
|
|
14,765,074
|
|
Jenkins Services, LLC (7%)*
45681 Oakbrook Ct., Ste. 113
Sterling, VA 20166
|
|
Restoration
Services
|
|
Subordinated Note
(10.25% Cash, 7.25% PIK,
Due 04/14)
|
|
|
7,651,434
|
|
|
|
7,534,406
|
|
|
|
7,534,406
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,375,000
|
|
|
|
1,344,342
|
|
|
|
1,344,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,026,434
|
|
|
|
8,878,748
|
|
|
|
8,878,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC (1%)*
|
|
Municipal Business
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
12850 Middlebrook Road
|
|
Services
|
|
(12% Cash, Due 03/11)
|
|
|
1,000,000
|
|
|
|
979,277
|
|
|
|
979,277
|
|
Germantown, MD 20874
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
839,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,038,272
|
|
|
|
1,818,877
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Novolyte Technologies, Inc. (6%)*
111 West Irene Road
Zachory, LA 70791
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5%
PIK, Due 04/15)
|
|
$
|
7,467,576
|
|
|
$
|
7,340,921
|
|
|
$
|
7,340,921
|
|
|
|
|
|
Preferred Units
(641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
592,500
|
|
|
|
|
|
Common Units
(24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,467,576
|
|
|
|
8,141,943
|
|
|
|
7,933,421
|
|
Syrgis Holdings, Inc. (3%)*
1025 Mary Laidley Drive
Covington, KY 41017
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
3,230,583
|
|
|
|
3,209,611
|
|
|
|
3,209,611
|
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
665,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,230,583
|
|
|
|
4,209,611
|
|
|
|
3,874,911
|
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician
|
|
Senior Note
|
|
|
|
|
|
|
|
|
|
|
|
|
1770 1st St., Suite 703
|
|
Management
|
|
(14% Cash, Due 11/14)
|
|
|
8,000,000
|
|
|
|
7,595,281
|
|
|
|
7,595,281
|
|
Highland Park, Il 60035
|
|
Services
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
281,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
|
|
7,871,381
|
|
|
|
7,876,681
|
|
TrustHouse Services Group, Inc. (4%)*
21 Armory Drive
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK, Due 09/15)
|
|
|
4,373,386
|
|
|
|
4,306,785
|
|
|
|
4,306,785
|
|
Wheeling, WV 26003
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
386,100
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,373,386
|
|
|
|
4,806,785
|
|
|
|
4,692,885
|
|
Tulsa Inspection Resources, Inc.
(TIR) and Regent TIR Partners, LLC
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash, Due 03/14)
|
|
|
5,000,000
|
|
|
|
4,641,748
|
|
|
|
4,641,748
|
|
(RTIR) (4%)*
|
|
|
|
Common Units RTIR (11 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
4111 S. Darlington Ave, Suite 1000
|
|
|
|
Common Stock Warrants TIR
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa, OK 74135,
|
|
|
|
(7 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,162,748
|
|
|
|
4,641,748
|
|
Twin-Star International, Inc. (4%)*
115 S.E. 4th Avenue
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(12% Cash, 3% PIK, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,452,967
|
|
|
|
4,420,000
|
|
Delray Beach, FL 33483
|
|
Manufacturer
|
|
Senior Note
(4.25%, Due 04/13)
|
|
|
1,246,851
|
|
|
|
1,246,851
|
|
|
|
1,192,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,746,851
|
|
|
|
5,699,818
|
|
|
|
5,612,700
|
|
Wholesale Floors, Inc. (3%)*
8855 N. Black Canyon Highway
Phoenix, AZ 85021
|
|
Commercial
Services
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 06/14)
|
|
|
3,500,000
|
|
|
|
3,369,106
|
|
|
|
3,369,106
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
34,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
3,501,906
|
|
|
|
3,403,606
|
|
Yellowstone Landscape Group, Inc. (9%)*
|
|
Landscaping
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
220 Elm Street
New Canaan, CT 06840
|
|
Services
|
|
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
11,379,409
|
|
|
|
11,175,441
|
|
|
|
11,175,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,379,409
|
|
|
|
11,175,441
|
|
|
|
11,175,441
|
|
Zoom Systems (6%)*
22 Fourth Street., Floor 16
San Francisco, CA 94103
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5 Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,032,711
|
|
|
|
7,840,060
|
|
|
|
7,840,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,032,711
|
|
|
|
7,840,060
|
|
|
|
7,840,060
|
|
Subtotal Non Control / Non Affiliate
Investments
|
|
|
|
|
|
|
154,080,429
|
|
|
|
154,460,897
|
|
|
|
149,994,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (4%)*
770 Pelham Road, Suite 200
|
|
Asset Management
Software Provider
|
|
Senior Note (12% Cash,
7% PIK, Due 03/13)
|
|
|
5,485,835
|
|
|
|
5,418,928
|
|
|
|
5,418,928
|
|
Greenville, SC 29615
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,485,835
|
|
|
|
5,918,928
|
|
|
|
5,418,928
|
|
Axxiom Manufacturing, Inc (1%)*
11927 South Highway 6
|
|
Industrial
Equipment
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresno, TX 77545
|
|
Manufacturer
|
|
Common Stock Warrant
|
|
|
|
|
|
|
200,000
|
|
|
|
635,800
|
|
|
|
|
|
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
18,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
654,400
|
|
Brantley Transportation, LLC
(Brantley Transportation) and
Pine Street Holdings, LLC
(Pine Street)(4) (2%)*
808 N. Ruth Street
Monahans, TX 79756
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation (14%
Cash, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,719,360
|
|
|
|
1,958,000
|
|
|
|
|
Common Unit Warrants
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
|
|
Preferred Units
Pine Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Unit Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,952,960
|
|
|
|
1,958,000
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Dyson Corporation (6%)*
53 Freedom Road
Painesville, OH 44077
|
|
Custom Forging and
Fastener Supplies
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 12/13)
|
|
$
|
6,000,000
|
|
|
$
|
5,904,530
|
|
|
$
|
5,904,530
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,394,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,904,530
|
|
|
|
8,298,730
|
|
Equisales, LLC (6%)*
13811 Cullen Blvd.
Houston, TX 77047
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
|
6,613,204
|
|
|
|
6,551,866
|
|
|
|
6,551,866
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,440,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,613,204
|
|
|
|
7,051,866
|
|
|
|
7,992,366
|
|
Flint Acquisition Corporation (3%)*
115 Todd Court
Thomasville, NC 27360
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
3,350,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
3,350,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation (0%)*
1205 Industrial Blvd. 18966
Southampton, PA
|
|
Lab Testing
Services
|
|
Genapure
Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
641,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
641,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Crops International (4%)*
7996 North Point Blvd.
Winston-Salem NC 27106
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5%
PIK, Due 03/15)
|
|
|
5,134,137
|
|
|
|
5,040,785
|
|
|
|
5,040,785
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,134,137
|
|
|
|
5,540,785
|
|
|
|
5,540,785
|
|
Waste Recyclers Holdings, LLC (4%)*
261 Highway 20 East.
Suites A, B & D.
Freeport, FL 32439
|
|
Environmental
and Facilities
Services
|
|
Subordinated Note
(8% Cash, 7.5% PIK,
Due 08/13)
|
|
|
4,276,511
|
|
|
|
4,053,730
|
|
|
|
4,053,730
|
|
|
|
|
Subordinated Note
(3% Cash, 12.5% PIK,
Due 08/13)
|
|
|
5,956,523
|
|
|
|
5,671,070
|
|
|
|
1,558,270
|
|
|
|
|
|
Class A Preferred Units
(300 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units
(985,372 Units)
|
|
|
|
|
|
|
985,372
|
|
|
|
|
|
|
|
|
|
Common Unit Purchase Warrant
(1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,233,034
|
|
|
|
13,890,955
|
|
|
|
5,612,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
37,266,210
|
|
|
|
44,331,959
|
|
|
|
39,467,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (3%)*
4600 North Olcott Avenue
Harwood Heights, IL 60706
|
|
Commercial
Printing Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
|
1,561,337
|
|
|
|
1,557,366
|
|
|
|
1,476,300
|
|
|
|
|
|
Senior Note
(7.76% Cash, 2% PIK, Due 9/11)
|
|
|
2,014,241
|
|
|
|
2,009,067
|
|
|
|
1,905,800
|
|
|
|
|
|
2nd Lien
Note
(2.76% Cash, 8% PIK, Due 12/11)
|
|
|
3,265,134
|
|
|
|
2,994,804
|
|
|
|
1,065,000
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,840,712
|
|
|
|
6,561,237
|
|
|
|
4,447,100
|
|
Fischbein, LLC (12%)*
151 Walker Road
Statesville, NC 28625
|
|
Packaging and
Materials Handling
Equipment Manufacturer
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
|
7,700,590
|
|
|
|
7,601,845
|
|
|
|
7,601,845
|
|
|
|
|
|
Class A-1 Common Units
(52.5% of Units)
|
|
|
|
|
|
|
558,140
|
|
|
|
1,290,000
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
6,536,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,700,590
|
|
|
|
12,359,985
|
|
|
|
15,428,745
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Weave Textiles, LLC (1%)*
3700 Glenwood Avenue,
|
|
Specialty
Woven Fabrics
|
|
Senior Note
(12% PIK, Due 01/11)
|
|
$
|
284,456
|
|
|
$
|
284,456
|
|
|
$
|
284,456
|
|
Suite 530.
Raleigh, North Carolina, 27612
|
|
Manufacturer
|
|
Membership Units
(425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
855,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284,456
|
|
|
|
1,139,456
|
|
|
|
1,139,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,825,758
|
|
|
|
20,060,678
|
|
|
|
21,015,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31, 2010 (162%)*
|
|
|
|
$
|
206,172,397
|
|
|
$
|
218,853,534
|
|
|
$
|
210,476,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non-income producing. |
|
(2) |
|
Disclosures of interest rates on notes include cash interest
rates and PIK interest rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by our Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC, and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
Formation
Triangle Capital Corporation is a Maryland corporation formed on
October 10, 2006, for the purpose of acquiring 100% of the
equity interests in Triangle SBIC and TML, raising capital in
our IPO and thereafter operating as an internally managed BDC
under the 1940 Act. Each of Triangle SBIC and Triangle
SBIC II is our wholly owned subsidiary and each is licensed
to do business as an SBIC.
We are a closed-end, non-diversified management investment
company that has elected to be treated as a BDC under the 1940
Act. In addition, Triangle SBIC has elected to be treated as a
BDC. We are internally managed by our executive officers under
the supervision of our Board of Directors. As a result, we do
not pay any external investment advisory fees, but instead we
incur the operating costs associated with employing investment
and portfolio management professionals.
As a BDC, we are required to comply with numerous regulatory
requirements. We are permitted to, and expect to, finance our
investments using debt and equity. However, our ability to use
debt is limited in certain significant respects. See
Regulation. Commencing with our taxable year ended
December 31, 2007, we have qualified and elected to be
treated for U.S. federal income tax purposes as a regulated
investment company, or RIC, under the Internal Revenue Code of
1986, as amended, or the Code. Accordingly, we generally will
not pay corporate-level federal income taxes on any net ordinary
income or capital gains that we distribute to our stockholders
out of our current and accumulated earnings and profits. To
maintain our RIC tax treatment, we must meet specified
source-of-income and asset diversification requirements and
distribute annually at least 90.0% of our net ordinary income
and realized net short-term capital gains in excess of realized
net long-term capital losses, if any. See Material
U.S. Federal Income Tax Considerations.
The
Offering
We may offer, from time to time, up to $300,000,000 worth of our
common stock, on terms to be determined at the time of the
offering. Our common stock may be offered at prices and on terms
to be disclosed in one or more prospectus supplements.
We may offer shares of common stock at a discount to net asset
value per share at prices approximating market value less
selling expenses upon approval of our directors, including a
majority of our independent directors, in certain circumstances.
On May 5, 2010, our common stockholders voted to allow us
to issue common stock at a price below net asset value per share
for a period of one year ending on the earlier of May 4,
2011 or the date of our 2011 annual stockholders meeting. See
Sales of Common Stock Below Net Asset Value in this
prospectus and in the prospectus supplement, if applicable.
Sales of common stock at
7
prices below net asset value per share dilute the interests of
existing stockholders, have the effect of reducing our net asset
value per share and may reduce our market price per share.
Our stockholders did not specify a maximum discount below net
asset value at which we are able to issue or common stock;
however, we do not intend to issue shares of our common stock
below net asset value unless our Board of Directors determines
that it would be in our stockholders best interests to do
so.
Our common stock may be offered directly to one or more
purchasers by us or through agents designated from time to time
by us, or to or through underwriters or dealers. The prospectus
supplement relating to the offering will disclose the terms of
the offering, including the name or names of any agents or
underwriters involved in the sale of our common stock by us, the
purchase price, and any fee, commission or discount arrangement
between us and our agents or underwriters or among our
underwriters or the basis upon which such amount may be
calculated. See Plan of Distribution. We may not
sell any of our common stock through agents, underwriters or
dealers without delivery of a prospectus supplement describing
the method and terms of the offering of our common stock.
Set forth below is additional information regarding the offering
of our common stock:
|
|
|
Nasdaq Global Market symbol |
|
TCAP |
|
Use of proceeds |
|
We intend to use the net proceeds from selling our common stock
to make investments in lower middle market companies in
accordance with our investment objective and strategies and for
working capital and general corporate purposes. |
|
Dividends and distributions |
|
We pay quarterly dividends to our stockholders out of assets
legally available for distribution. Our dividends, if any, will
be determined by our Board of Directors. |
|
Taxation |
|
We have elected to be treated as a RIC. Accordingly, we
generally will not pay corporate-level federal income taxes on
any net ordinary income or capital gains that we distribute to
our stockholders as dividends. To maintain our RIC tax
treatment, we must meet specified source-of-income and asset
diversification requirements and distribute annually at least
90.0% of our net ordinary income and realized net short-term
capital gains in excess of realized net long-term capital
losses, if any. |
|
Dividend reinvestment plan |
|
We have a dividend reinvestment plan for our stockholders. The
dividend reinvestment plan is an opt out dividend
reinvestment plan. As a result, if we declare a dividend, then
stockholders cash dividends will be automatically
reinvested in additional shares of our common stock, unless they
specifically opt out of the dividend reinvestment
plan so as to receive cash dividends. Stockholders who receive
distributions in the form of stock will be subject to the same
federal, state and local tax consequences as stockholders who
elect to receive their distributions in cash. See Dividend
Reinvestment Plan. |
|
Trading at a discount |
|
Shares of closed-end investment companies frequently trade at a
discount to their net asset value. This risk is separate and
distinct from the risk that our net asset value per share may
decline. We cannot predict whether our common stock will trade
above, at or below net asset value. |
|
Risk factors |
|
See Risk Factors beginning on page 14 and the
other information included in this prospectus, or any prospectus
supplement, for a |
8
|
|
|
|
|
discussion of factors you should carefully consider before
deciding to invest in our common stock. |
|
Available information |
|
We are required to file periodic reports, current reports, proxy
statements and other information with the SEC. This information
is available at the SECs public reference room in
Washington, D.C. and on the SECs Internet website at
www.sec.gov. We intend to provide much of the same information
on our website at www.tcap.com. Information contained on our
website is not part of this prospectus or any prospectus
supplement and should not be relied upon as such. |
9
FEES AND
EXPENSES
The following table is intended to assist you in understanding
our consolidated costs and expenses that an investor in this
offering will bear directly or indirectly. We caution you that
some of the percentages indicated in the table below are
estimates and may vary. Except where the context suggests
otherwise, whenever this prospectus contains a reference to fees
or expenses paid by you, us or
Triangle, or that we will pay fees or
expenses, stockholders will indirectly bear such fees or
expenses as investors in us.
|
|
|
|
|
Stockholder Transaction Expenses:
|
|
|
|
|
Sales load (as a percentage of offering price)
|
|
|
(1
|
)
|
Offering expenses
|
|
|
(2
|
)
|
Dividend reinvestment plan expenses
|
|
|
(3
|
)
|
Total stockholder transaction expenses (as a percentage of
offering price)
|
|
|
(4
|
)
|
Annual Expenses (as a percentage of net assets
attributable to common stock):
|
|
|
|
|
Interest payments on borrowed funds
|
|
|
7.41
|
%
|
Other expenses
|
|
|
6.57
|
%(5)
|
Total annual expenses
|
|
|
13.98
|
%(6)
|
|
|
|
(1) |
|
In the event that our common stock is sold to or through
underwriters, a corresponding prospectus supplement will
disclose the applicable sales load. |
|
(2) |
|
In the event that we conduct an offering of our common stock, a
corresponding prospectus supplement will disclose the estimated
offering expenses. |
|
(3) |
|
The expenses of administering our dividend reinvestment plan are
included in operating expenses. |
|
(4) |
|
Total stockholder transaction expenses may include sales load
and will be disclosed in a future prospectus supplement, if any. |
|
(5) |
|
Other expenses represent our estimated annual operating
expenses, excluding interest payments on borrowed funds. We do
not have an investment adviser and are internally managed by our
executive officers under the supervision of our Board of
Directors. As a result, we do not pay investment advisory fees,
but instead we pay the operating costs associated with employing
investment management professionals. |
|
(6) |
|
The total annual expenses are the sum of interest payments on
borrowed funds and other expenses. Total annual
expenses as a percentage of average net assets
attributable to common stock are higher than the total annual
expenses percentage would be for a company that is not
leveraged. The SEC requires that the Total annual
expenses percentage be calculated as a percentage of
average net assets, rather than average total assets, which
includes assets that have been funded with borrowed money. If
the Total annual expenses percentage were calculated
instead as a percentage of average total assets, we estimate
that our Total annual expenses would be
approximately 6.09% of average total assets. |
Example
The following example is required by the SEC and demonstrates
the projected dollar amount of total cumulative expenses that
would be incurred over various periods with respect to a
hypothetical investment in us. In calculating the following
expense amounts, we assumed we would have no additional leverage
and that our operating expenses would remain at the levels set
forth in the table above. In the event that shares to which this
prospectus relates are sold to or through underwriters, a
corresponding prospectus supplement will restate this example to
reflect the applicable sales load.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
|
You would pay the following expenses on a $1,000 investment,
assuming a 5.0% annual return
|
|
$
|
143
|
|
|
$
|
391
|
|
|
$
|
595
|
|
|
$
|
959
|
|
The example and the expenses in the tables above should not
be considered a representation of our future expenses, and
actual expenses may be greater or lesser than those shown.
While the example assumes, as required by the SEC, a 5.0%
annual return, our performance will vary and may result in a
return greater or less than 5.0%. The table above does not
reflect additional SBA leverage that we intend to employ in the
future. Other expenses are based on estimated
amounts for the current fiscal year. In addition, while the
example assumes reinvestment of all dividends at net asset
value, participants in our dividend reinvestment plan will
receive a number of shares of our common stock, determined by
dividing the total dollar amount of the dividend payable to a
participant by the market price per share of our common stock at
the close of trading on the dividend payment date, which may be
at, above or below net asset value. See Dividend
Reinvestment Plan for additional information regarding our
dividend reinvestment plan.
10
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical financial and other data below reflects
the consolidated operations of Triangle Capital Corporation and
its subsidiaries, including Triangle SBIC and Triangle SBIC II.
The selected financial data at and for the fiscal years ended
December 31, 2005, 2006, 2007, 2008 and 2009 have been
derived from our financial statements that have been audited by
Ernst & Young LLP, an independent registered public
accounting firm. Financial information prior to our initial
public offering in 2007 is that of Triangle SBIC, which is
Triangle Capital Corporations predecessor. Interim
financial information for the three months ended March 31,
2010 is derived from our unaudited financial statements, and in
the opinion of management, reflects all adjustments (consisting
only of normal recurring adjustments) that are necessary to
present fairly the results of such interim periods. Interim
results for the three months ended March 31, 2010 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2010. You should read
this selected financial and other data in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial
statements and notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
5,855
|
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
|
$
|
21,056
|
|
|
$
|
27,149
|
|
|
$
|
7,402
|
|
|
|
|
|
Interest income from cash and cash equivalent investments
|
|
|
108
|
|
|
|
280
|
|
|
|
1,824
|
|
|
|
303
|
|
|
|
613
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
5,963
|
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
21,359
|
|
|
|
27,762
|
|
|
|
7,485
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,543
|
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
4,228
|
|
|
|
6,901
|
|
|
|
1,740
|
|
|
|
|
|
Amortization of deferred financing fees
|
|
|
90
|
|
|
|
100
|
|
|
|
113
|
|
|
|
255
|
|
|
|
363
|
|
|
|
96
|
|
|
|
|
|
Management fees
|
|
|
1,574
|
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
58
|
|
|
|
115
|
|
|
|
3,894
|
|
|
|
6,254
|
|
|
|
6,449
|
|
|
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,265
|
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
10,737
|
|
|
|
13,713
|
|
|
|
3,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
2,698
|
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
10,622
|
|
|
|
14,049
|
|
|
|
3,794
|
|
|
|
|
|
Net realized gain (loss) on
investments non-control/non-affiliate
|
|
|
(3,500
|
)
|
|
|
6,027
|
|
|
|
(760
|
)
|
|
|
(1,393
|
)
|
|
|
448
|
|
|
|
199
|
|
|
|
|
|
Net realized gain on investments affiliate
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
3,975
|
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
(4,286
|
)
|
|
|
(10,310
|
)
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
475
|
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(2,850
|
)
|
|
|
(9,862
|
)
|
|
|
408
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(133
|
)
|
|
|
(150
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
3,173
|
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
7,639
|
|
|
$
|
4,037
|
|
|
$
|
4,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
1.54
|
|
|
$
|
1.63
|
|
|
$
|
0.32
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.11
|
|
|
$
|
0.47
|
|
|
$
|
0.35
|
|
|
|
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.22
|
|
|
$
|
11.03
|
|
|
$
|
10.87
|
|
|
|
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
1.44
|
|
|
$
|
1.62
|
|
|
$
|
0.41
|
|
|
|
|
|
Capital gains distributions declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
36,617
|
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
182,105
|
|
|
$
|
201,318
|
|
|
$
|
210,477
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
6,067
|
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
27,193
|
|
|
|
55,200
|
|
|
|
43,273
|
|
|
|
|
|
Interest and fees receivable
|
|
|
50
|
|
|
|
135
|
|
|
|
305
|
|
|
|
680
|
|
|
|
677
|
|
|
|
1,240
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
95
|
|
|
|
287
|
|
|
|
349
|
|
|
|
|
|
Deferred offering costs
|
|
|
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
29
|
|
|
|
23
|
|
|
|
|
|
Deferred financing fees
|
|
|
1,085
|
|
|
|
985
|
|
|
|
999
|
|
|
|
3,546
|
|
|
|
3,540
|
|
|
|
3,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
258,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital/net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
13
|
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
1,609
|
|
|
$
|
2,222
|
|
|
$
|
1,030
|
|
|
|
|
|
Interest payable
|
|
|
566
|
|
|
|
606
|
|
|
|
699
|
|
|
|
1,882
|
|
|
|
2,334
|
|
|
|
596
|
|
|
|
|
|
Distribution/dividends payable
|
|
|
|
|
|
|
532
|
|
|
|
2,041
|
|
|
|
2,767
|
|
|
|
4,775
|
|
|
|
4,893
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
30
|
|
|
|
59
|
|
|
|
32
|
|
|
|
|
|
Deferred revenue
|
|
|
75
|
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
75
|
|
|
|
38
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
|
|
844
|
|
|
|
577
|
|
|
|
614
|
|
|
|
|
|
SBA-guaranteed debentures payable
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
115,110
|
|
|
|
121,910
|
|
|
|
121,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
32,454
|
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
122,242
|
|
|
|
131,952
|
|
|
|
129,113
|
|
|
|
|
|
Total partners capital/shareholders equity
|
|
|
11,365
|
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
91,425
|
|
|
|
129,099
|
|
|
|
129,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net assets
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
258,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
|
|
13.5
|
%
|
|
|
13.4
|
%
|
|
|
|
|
Number of portfolio companies
|
|
|
12
|
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
|
|
37
|
|
|
|
38
|
|
|
|
|
|
Expense ratios (annualized, as percentage of average net
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
21.3
|
%
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
5.6
|
%
|
|
|
|
|
Interest expense and deferred financing fees
|
|
|
21.4
|
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
42.7
|
%
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
11.3
|
%
|
|
|
14.0
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
SELECTED
QUARTERLY FINANCIAL DATA
The following tables set forth certain quarterly financial
information for each of the nine quarters ended with the quarter
ended March 31, 2010. This information was derived from our
unaudited consolidated financial statements. Results for any
quarter are not necessarily indicative of results for the past
fiscal year or for any future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Total investment income
|
|
$
|
3,863,984
|
|
|
$
|
5,020,091
|
|
|
$
|
5,869,637
|
|
|
$
|
6,605,786
|
|
Net investment income
|
|
|
1,913,695
|
|
|
|
2,542,442
|
|
|
|
3,211,706
|
|
|
|
2,954,435
|
|
Net increase in net assets resulting from operations
|
|
|
765,391
|
|
|
|
2,848,507
|
|
|
|
2,476,346
|
|
|
|
1,548,257
|
|
Net investment income per share
|
|
$
|
0.28
|
|
|
$
|
0.37
|
|
|
$
|
0.46
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Total investment income
|
|
$
|
6,504,500
|
|
|
$
|
6,576,403
|
|
|
$
|
7,096,643
|
|
|
$
|
7,584,436
|
|
Net investment income
|
|
|
3,037,582
|
|
|
|
3,249,297
|
|
|
|
3,717,857
|
|
|
|
4,043,838
|
|
Net increase in net assets resulting from operations
|
|
|
(583,357
|
)
|
|
|
(2,851,857
|
)
|
|
|
(778,659
|
)
|
|
|
8,250,576
|
|
Net investment income per share
|
|
$
|
0.43
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Total investment income
|
|
$
|
7,484,907
|
|
Net investment income
|
|
|
3,793,684
|
|
Net increase in net assets resulting from operations
|
|
|
4,149,329
|
|
Net investment income per share
|
|
$
|
0.32
|
|
13
RISK
FACTORS
Investing in our common stock involves a number of
significant risks. In addition to the other information
contained in this prospectus and any accompanying prospectus
supplement, you should consider carefully the following
information before making an investment in our common stock. The
risks set out below are not the only risks we face. Additional
risks and uncertainties not presently known to us or not
presently deemed material by us might also impair our operations
and performance. If any of the following events occur, our
business, financial condition and results of operations could be
materially and adversely affected. In such case, our net asset
value and the trading price of our common stock could decline,
and you may lose all or part of your investment.
Risks
Relating to Our Business and Structure
Our
financial condition and results of operations will depend on our
ability to manage and deploy capital effectively.
Our ability to continue to achieve our investment objective will
depend on our ability to effectively manage and deploy our
capital, which will depend, in turn, on our management
teams ability to continue to identify, evaluate, invest
in, and monitor companies that meet our investment criteria. We
cannot assure you that we will continue to achieve our
investment objective.
Accomplishing this result on a cost-effective basis will be
largely a function of our management teams handling of the
investment process, its ability to provide competent, attentive
and efficient services and our access to investments offering
acceptable terms. In addition to monitoring the performance of
our existing investments, members of our management team and our
investment professionals may also be called upon to provide
managerial assistance to our portfolio companies. These demands
on their time may distract them or slow the rate of investment.
Even if we are able to grow and build upon our investment
operations in a manner commensurate with the increased capital
available to us as a result of recent offerings of our common
stock, any failure to manage our growth effectively could have a
material adverse effect on our business, financial condition,
results of operations and prospects. The results of our
operations will depend on many factors, including the
availability of opportunities for investment, readily accessible
short and long-term funding alternatives in the financial
markets and economic conditions. Furthermore, if we cannot
successfully operate our business or implement our investment
policies and strategies as described in this prospectus, or any
prospectus supplement, it could negatively impact our ability to
pay distributions and cause you to lose all or part of your
investment.
Current
market conditions have impacted debt and equity capital markets
in the United States, and we do not expect these conditions to
improve in the near future.
Since the third quarter of 2007, global credit and other
financial markets have suffered substantial stress, volatility,
illiquidity and disruption. These forces reached extraordinary
levels in late 2008, resulting in the bankruptcy of, the
acquisition of, or government intervention in the affairs of
several major domestic and international financial institutions.
In particular, the financial services sector has been negatively
impacted by significant write-offs as the value of the assets
held by financial firms has declined, impairing their capital
positions and abilities to lend and invest. We believe that such
value declines were exacerbated by widespread forced
liquidations as leveraged holders of financial assets, faced
with declining prices, were compelled to sell to meet margin
requirements and maintain compliance with applicable capital
standards. Such forced liquidations have also impaired or
eliminated many investors and investment vehicles, leading to a
decline in the supply of capital for investment and depressed
pricing levels for many assets. These events significantly
diminished overall confidence in the debt and equity markets,
engendered unprecedented declines in the values of certain
assets, and caused extreme economic uncertainty.
Since March 2009, there have been signs that the global credit
and other financial market conditions have improved as stability
has increased throughout the international financial system.
Concentrated policy initiatives undertaken by central banks and
governments appear to have curtailed the incidence of
large-scale
14
failures within the global financial system. Concurrently,
investor confidence, financial indicators, capital markets
activity and asset prices have shown signs of marked improvement
since the second quarter of 2009. While financial conditions
have improved, economic activity has remained subdued and
corporate interest rate risk premiums, otherwise known as credit
spreads, remain at historically high levels, particularly in the
commercial loan and high yield bond markets. These conditions
could increase our funding costs, limit our access to the
capital markets or result in a decision by lenders not to extend
credit to us. These events could prevent us from increasing our
investment originations and negatively impact our operating
results.
Our
investment portfolio is and will continue to be recorded at fair
value as determined in good faith by our Board of Directors and,
as a result, there is and will continue to be uncertainty as to
the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio
investments at market value or, if there is no readily available
market value, at fair value as determined by our Board of
Directors. Typically there is not a public market for the
securities of the privately held companies in which we have
invested and will generally continue to invest. As a result, we
value these securities quarterly at fair value as determined in
good faith by our Board of Directors based on input from
management, a third party independent valuation firm and our
audit committee.
The determination of fair value and consequently, the amount of
unrealized gains and losses in our portfolio, is to a certain
degree subjective and dependent on the judgment of our Board.
Certain factors that may be considered in determining the fair
value of our investments include the nature and realizable value
of any collateral, the portfolio companys earnings and its
ability to make payments on its indebtedness, the markets in
which the portfolio company does business, comparison to
comparable publicly-traded companies, discounted cash flows and
other relevant factors. Because such valuations, and
particularly valuations of private securities and private
companies, are inherently uncertain, may fluctuate over short
periods of time and may be based on estimates, our
determinations of fair value may differ materially from the
values that would have been used if a ready market for these
securities existed. Due to this uncertainty, our fair value
determinations may cause our net asset value on a given date to
materially understate or overstate the value that we may
ultimately realize upon the sale or disposition of one or more
of our investments. As a result, investors purchasing our common
stock based on an overstated net asset value would pay a higher
price than the value of our investments might warrant.
Conversely, investors selling shares during a period in which
the net asset value understates the value of our investments
will receive a lower price for their shares than the value of
our investments might warrant.
We
operate in a highly competitive market for investment
opportunities.
A large number of entities compete with us to make the types of
investments that we make in target companies. We compete for
investments with other BDCs and investment funds (including
private equity funds and mezzanine funds), as well as
traditional financial services companies such as commercial and
investment banks and other sources of funding. Moreover,
alternative investment vehicles, such as hedge funds, also
invest in lower middle market companies.
As a result, competition for investment opportunities in lower
middle market companies is intense. Many of our competitors are
substantially larger and have considerably greater financial,
technical and marketing resources than we do. For example, some
competitors may have a lower cost of capital and access to
funding sources that are not available to us. In addition, some
of our competitors may have higher risk tolerances or different
risk assessments than we have. These characteristics could allow
our competitors to consider a wider variety of investments,
establish more relationships and offer better pricing and more
flexible structuring than we are able to do. We may lose
investment opportunities if we do not match our
competitors pricing, terms and structure. If we are forced
to match our competitors pricing, terms and structure, we
may not be able to achieve acceptable returns on our investments
or may bear substantial risk of capital loss. A significant part
of our competitive advantage stems from the fact that the market
for investments in lower middle market companies is underserved
by traditional commercial banks and other financing sources. A
significant increase in the number
and/or the
size of our competitors in this target market could force us to
accept less attractive
15
investment terms. Furthermore, many of our competitors have
greater experience operating under, or are not subject to, the
regulatory restrictions that the 1940 Act imposes on us as a BDC.
We are
dependent upon our key investment personnel for our future
success.
We depend on the members of our senior management team,
particularly executive officers Garland S. Tucker, III,
Brent P.W. Burgess and Steven C. Lilly, for the final selection,
structuring, closing and monitoring of our investments. These
executive officers have critical industry experience and
relationships that we rely on to implement our business plan. If
we lose the services of these individuals, we may not be able to
operate our business as we expect, and our ability to compete
could be harmed, which could cause our operating results to
suffer. Effective February 21, 2009, Messrs. Tucker,
Burgess and Lilly are no longer employed by us pursuant to
employment agreements. Rather, each is currently employed by us
on an at-will basis.
Our
success depends on attracting and retaining qualified personnel
in a competitive environment.
We experience competition in attracting and retaining qualified
personnel, particularly investment professionals, and we may be
unable to maintain or grow our business if we cannot attract and
retain such personnel. Our ability to attract and retain
personnel with the requisite credentials, experience and skills
depends on several factors including, but not limited to, our
ability to offer competitive wages, benefits and professional
growth opportunities. Many of the entities, including investment
funds (such as private equity funds and mezzanine funds) and
traditional financial services companies, with which we compete
for experienced personnel have greater resources than we have.
The competitive environment for qualified personnel may require
us to take certain measures to ensure that we are able to
attract and retain experienced personnel. Such measures may
include increasing the attractiveness of our overall
compensation packages, altering the structure of our
compensation packages through the use of additional forms of
compensation, or other steps. The inability to attract and
retain experienced personnel could have a material adverse
effect on our business.
Our
business model depends to a significant extent upon strong
referral relationships, and our inability to maintain or develop
these relationships, as well as the failure of these
relationships to generate investment opportunities, could
adversely affect our business.
We expect that members of our management team will maintain
their relationships with financial institutions, private equity
and other non-bank investors, investment bankers, commercial
bankers, attorneys, accountants and consultants, and we will
rely to a significant extent upon these relationships to provide
us with potential investment opportunities. If our management
team fails to maintain its existing relationships or develop new
relationships with other sponsors or sources of investment
opportunities, we will not be able to grow our investment
portfolio. In addition, individuals with whom members of our
management team have relationships are not obligated to provide
us with investment opportunities, and, therefore, there is no
assurance that such relationships will generate investment
opportunities for us.
We
have limited operating history as a business development company
and as a regulated investment company, which may impair your
ability to assess our prospects.
The 1940 Act imposes numerous constraints on the operations of
BDCs. Prior to the consummation of our initial public offering
in February 2007, we had not operated, and our management team
had no experience operating, as a BDC under the 1940 Act or as a
RIC under Subchapter M of the Code. As a result, we have limited
operating results under these regulatory frameworks that can
demonstrate to you either their effect on our business or our
ability to manage our business under these frameworks. Our
management teams limited experience in managing a
portfolio of assets under such constraints may hinder our
ability to take advantage of attractive investment opportunities
and, as a result, achieve our investment objective. Furthermore,
any failure to comply with the requirements imposed on BDCs by
the 1940 Act could cause the SEC to bring an enforcement action
against us. If we do not remain a BDC, we might be regulated as
a closed-end investment company under the 1940 Act, which would
further decrease our operating flexibility.
16
Regulations
governing our operation as a business development company will
affect our ability to, and the way in which we raise additional
capital.
Our business will require capital to operate and grow. We may
acquire such additional capital from the following sources:
Senior Securities. Currently we, through our
SBIC subsidiaries, issue debt securities guaranteed by the SBA.
In the future, we may issue debt securities or preferred stock
and/or
borrow money from banks or other financial institutions, which
we refer to collectively as senior securities. As a result of
issuing senior securities, we will be exposed to additional
risks, including, but not limited to, the following:
|
|
|
|
|
Under the provisions of the 1940 Act, we are permitted, as a
BDC, to issue senior securities only in amounts such that our
asset coverage, as defined in the 1940 Act, equals at least 200%
after each issuance of senior securities. If the value of our
assets declines, we may be unable to satisfy this test. If that
happens, we may be required to sell a portion of our investments
and, depending on the nature of our leverage, repay a portion of
our debt at a time when such sales
and/or
repayments may be disadvantageous.
|
|
|
|
Any amounts that we use to service our debt or make payments on
preferred stock will not be available for distributions to our
common stockholders.
|
|
|
|
It is likely that any senior securities or other indebtedness we
issue will be governed by an indenture or other instrument
containing covenants restricting our operating flexibility.
Additionally, some of these securities or other indebtedness may
be rated by rating agencies, and in obtaining a rating for such
securities and other indebtedness, we may be required to abide
by operating and investment guidelines that further restrict
operating and financial flexibility.
|
|
|
|
We and, indirectly, our stockholders will bear the cost of
issuing and servicing such securities and other indebtedness.
|
|
|
|
Preferred stock or any convertible or exchangeable securities
that we issue in the future may have rights, preferences and
privileges more favorable than those of our common stock,
including separate voting rights and could delay or prevent a
transaction or a change in control to the detriment of the
holders of our common stock.
|
Additional Common Stock. We are not generally
able to issue and sell our common stock at a price below net
asset value per share. We may, however, sell our common stock,
warrants, options or rights to acquire our common stock, at a
price below the current net asset value of the common stock if
our Board of Directors determines that such sale is in the best
interests of our stockholders, and our stockholders approve such
sale. At our Annual Stockholders Meeting on May 5, 2010,
our stockholders voted to allow us to issue common stock at a
price below net asset value per share for a period of one year
ending on the earlier of May 4, 2011 or the date of our
2011 annual meeting of stockholders. Our stockholders did not
specify a maximum discount below net asset value at which we are
able to issue our common stock; however, we do not intend to
issue shares of our common stock below net asset value unless
our Board of Directors determines that it would be in our
stockholders best interests to do so. In any such case,
however, the price at which our common stock are to be issued
and sold may not be less than a price which, in the
determination of our Board of Directors, closely approximates
the market value of such securities (less any distributing
commission or discount). We may also make rights offerings to
our stockholders (though not in conjunction with this
prospectus) at prices per share less than the net asset value
per share, subject to applicable requirements of the 1940 Act.
If we raise additional funds by issuing more common stock or
senior securities convertible into, or exchangeable for, our
common stock, the percentage ownership of our stockholders at
that time would decrease, and they may experience dilution.
Moreover, we can offer no assurance that we will be able to
issue and sell additional equity securities in the future, on
favorable terms or at all.
Recent
healthcare reform legislation may affect our revenue and
financial condition.
On March 23, 2010, the President of the United States
signed into law the Patient Protection and Affordable Care Act
of 2010 and on March 30, 2010, the President signed into
law the Health Care and Education Reconciliation Act, which in
part modified the Patient Protection and Affordable Care Act.
Together, the two Acts
17
serve as the primary vehicle for comprehensive health care
reform in the United States. The Acts are intended to reduce the
number of individuals in the United States without health
insurance and effect significant other changes to the ways in
which health care is organized, delivered and reimbursed. The
complexities and ramifications of the new legislation are
significant, and will be implemented in a phased approach
beginning in 2010 and concluding in 2018. At this time, the
effects of health care reform and its impact on our operations
and on the business, revenues and financial condition of our
portfolio companies are not yet known. Accordingly, the reform
could adversely affect the cost of providing healthcare coverage
generally and could adversely affect the financial success of
both the portfolio companies in which we invest and us.
Our
SBIC subsidiaries are licensed by the SBA, and therefore subject
to SBA regulations.
Our SBIC subsidiaries are licensed to act as SBICs and are
regulated by the SBA. Pursuant to SBA regulations, an SBIC can
make loans to eligible small businesses. The SBA
also places certain limitations on the financing terms of
investments by SBICs in portfolio companies and prohibits SBICs
from providing funds for certain purposes or to businesses in a
few prohibited industries. See Regulation
Small Business Administration Regulations for more
discussion on these limitations. Compliance with SBA
requirements may cause our SBIC subsidiaries, and us, as their
parent, to forego attractive investment opportunities that are
not permitted under SBA regulations.
Further, the SBA regulations require that a licensed SBIC be
periodically examined and audited by the SBA to determine its
compliance with the relevant SBA regulations. The SBA prohibits,
without prior SBA approval, a change of control of
an SBIC or transfers that would result in any person (or a group
of persons acting in concert) owning 10.0% or more of a class of
capital stock of a licensed SBIC. If our SBIC subsidiaries fail
to comply with applicable SBA regulations, the SBA could,
depending on the severity of the violation, limit or prohibit
our SBIC subsidiaries use of debentures, declare
outstanding debentures immediately due and payable,
and/or limit
our SBIC subsidiaries from making new investments. In addition,
the SBA can revoke or suspend a license for willful or repeated
violation of, or willful or repeated failure to observe, any
provision of the Small Business Investment Act of 1958 or any
rule or regulation promulgated thereunder. Such actions by the
SBA would, in turn, negatively affect us because our SBIC
subsidiaries are wholly owned.
Because
we borrow money, the potential for gain or loss on amounts
invested in us is magnified and may increase the risk of
investing in us.
Borrowings, also known as leverage, magnify the potential for
gain or loss on invested equity capital. As we intend to use
leverage to partially finance our investments, you will
experience increased risks associated with investing in our
common stock. Our SBIC subsidiaries issue debt securities
guaranteed by the SBA and sold in the capital markets. As a
result of its guarantee of the debt securities, the SBA has
fixed dollar claims on the assets of our SBIC subsidiaries that
are superior to the claims of our common stockholders. We may
also borrow from banks and other lenders in the future. If the
value of our assets increases, then leveraging would cause the
net asset value attributable to our common stock to increase
more sharply than it would have had we not leveraged.
Conversely, if the value of our assets decreases, leveraging
would cause net asset value to decline more sharply than it
otherwise would have had we not leveraged. Similarly, any
increase in our income in excess of interest payable on the
borrowed funds would cause our net investment income to increase
more than it would without the leverage, while any decrease in
our income would cause our net investment income to decline more
sharply than it would have had we not borrowed. Such a decline
could negatively affect our ability to make distributions to our
stockholders. Leverage is generally considered a speculative
investment technique.
As a BDC, we are generally required to meet a coverage ratio of
total assets to total borrowings and other senior securities,
which include all of our borrowings (other than SBA leverage)
and any preferred stock we may issue in the future, of at least
200%. If this ratio declines below 200%, we may not be able to
incur additional debt and may need to sell a portion of our
investments to repay some debt when it is disadvantageous to do
so, and we may not be able to make distributions. Currently, we
do not have senior securities outstanding and therefore are not
limited by this ratio.
18
On March 31, 2010, we, had $121.9 million of
outstanding indebtedness guaranteed by the SBA, which had a
weighted average annualized interest cost of 5.96%.
Illustration. The following table illustrates
the effect of leverage on returns from an investment in our
common stock assuming various annual returns, net of expenses.
The calculations in the table below are hypothetical and actual
returns may be higher or lower than those appearing below.
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Assumed Return on our Portfolio
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(Net of Expenses)
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(10.0
|
)%
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(5.0
|
)%
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0.0
|
%
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5.0
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%
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10.0
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%
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Corresponding net return to stockholder(1)
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(25.6
|
)%
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(15.6
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)%
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(5.6
|
)%
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4.4
|
%
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14.4
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%
|
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|
(1) |
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Assumes $258.8 million in total assets, $121.9 million
in debt outstanding, $121.7 million in net assets and an
average cost of funds of 5.96%, which was the weighted average
borrowing cost on our borrowings at March 31, 2010. |
Our ability to achieve our investment objective may depend in
part on our ability to achieve additional leverage on favorable
terms by issuing debentures guaranteed by the SBA or by
borrowing from banks, or insurance companies, and there can be
no assurance that such additional leverage can in fact be
achieved.
SBA
regulations limit the outstanding dollar amount of SBA
guaranteed debentures that may be issued by an SBIC or group of
SBICs under common control.
The SBA regulations currently limit the dollar amount of SBA
guaranteed debentures that can be issued by any one SBIC to
$150.0 million or to a group of SBICs under common control to
$225.0 million. Moreover, an SBIC may not borrow an amount
in excess of three times its regulatory capital. As of
March 31, 2010, Triangle SBIC had issued
$121.9 million in debentures guaranteed by the SBA and has
the current capacity to issue up to the statutory maximum of
$150.0 million of
SBA-guaranteed
debentures. Triangle SBIC II has issued no
SBA-guaranteed
debentures and has the current capacity to issue up to the
statutory maximum of $75.0 million. While we cannot
presently predict whether or not we will borrow the maximum
permitted amount, if we reach the maximum dollar amount of
SBA-guaranteed debentures permitted, and thereafter require
additional capital, our cost of capital may increase, and there
is no assurance that we will be able to obtain additional
financing on acceptable terms.
Moreover, the current status of our SBIC subsidiaries as SBICs
does not automatically assure that our SBIC subsidiaries will
continue to receive SBA guaranteed debenture funding. Receipt of
SBA leverage funding is dependent upon our SBIC subsidiaries
continuing to be in compliance with SBA regulations and policies
and available SBA funding. The amount of SBA leverage funding
available to SBICs is dependent upon annual Congressional
authorizations and in the future may be subject to annual
Congressional appropriations. There can be no assurance that
there will be sufficient debenture funding available at the
times desired by our SBIC subsidiaries.
The debentures guaranteed by the SBA have a maturity of ten
years and require semi-annual payments of interest. Our SBIC
subsidiaries will need to generate sufficient cash flow to make
required interest payments on the debentures. If our SBIC
subsidiaries are unable to meet their financial obligations
under the debentures, the SBA, as a creditor, will have a
superior claim to our SBIC subsidiaries assets over our
stockholders in the event we liquidate our SBIC subsidiaries or
the SBA exercises its remedies under such debentures as the
result of a default by us. In addition, the SBA must approve our
independent directors before our SBIC subsidiaries will be
permitted to issue additional debentures guaranteed by the SBA.
We may
experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating
results due to a number of factors, including our ability or
inability to make investments in companies that meet our
investment criteria, the interest rate payable on the debt
securities we acquire, the level of our expenses, variations in
and the timing of the recognition of realized and unrealized
gains or losses, the degree to which we encounter competition in
our
19
markets and general economic conditions. As a result of these
factors, results for any period should not be relied upon as
being indicative of performance in future periods.
Our
ability to enter into and exit investment transactions with our
affiliates will be restricted.
Except in those instances where we have received prior exemptive
relief from the SEC, we will be prohibited under the 1940 Act
from knowingly participating in certain transactions with our
affiliates without the prior approval of our independent
directors. Any person that owns, directly or indirectly, 5.0% or
more of our outstanding voting securities is deemed our
affiliate for purposes of the 1940 Act, and we are generally
prohibited from buying or selling any security from or to such
affiliate, absent the prior approval of our independent
directors. The 1940 Act also prohibits joint
transactions with an affiliate, which could include investments
in the same portfolio company (whether at the same or different
times), without prior approval of our independent directors. If
a person acquires more than 25.0% of our voting securities, we
will be prohibited from buying or selling any security from or
to such person, or entering into joint transactions with such
person, absent the prior approval of the SEC. These restrictions
could limit or prohibit us from making certain attractive
investments that we might otherwise make absent such
restrictions.
Our
Board of Directors may change our operating policies and
strategies without prior notice or stockholder approval, the
effects of which may be adverse.
Our Board of Directors has the authority to modify or waive our
current operating policies and strategies without prior notice
and without stockholder approval. We cannot predict the effect
any changes to our current operating policies, investment
criteria and strategies would have on our business, net asset
value, operating results and value of our stock. However, the
effects might be adverse, which could negatively impact our
ability to pay you distributions and cause you to lose all or
part of your investment. Moreover, we will have significant
flexibility in investing the net proceeds of the offering and
may use the net proceeds from an offering in ways with which
investors may not agree or for purposes other than those
contemplated at the time of the offering.
We
will be subject to corporate-level U.S. federal income tax if we
are unable to maintain our status as a regulated investment
company under Subchapter M of the Code, which will adversely
affect our results of operations and financial
condition.
We have elected to be treated as a RIC under the Code, which
generally will allow us to avoid being subject to
corporate-level U.S. federal income tax. To obtain and maintain
RIC tax treatment under the Code, we must meet the following
annual distribution, income source and asset diversification
requirements.
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The annual distribution requirement for a RIC will be satisfied
if we distribute to our stockholders on an annual basis at least
90.0% of our net ordinary income and net short-term capital gain
in excess of net long-term capital loss, if any. We will be
subject to a 4.0% nondeductible U.S. federal excise tax,
however, to the extent that we do not satisfy certain additional
minimum distribution requirements on a calendar year basis.
Because we use debt financing, we are subject to certain asset
coverage ratio requirements under the 1940 Act and may in the
future become subject to certain financial covenants under loan
and credit agreements that could, under certain circumstances,
restrict us from making distributions necessary to satisfy the
distribution requirement. If we are unable to obtain cash from
other sources, we could fail to qualify for RIC tax treatment
and thus become subject to corporate-level U.S. federal income
tax.
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|
The income source requirement will be satisfied if we obtain at
least 90.0% of our income for each year from distributions,
interest, gains from the sale of stock or securities or similar
sources.
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|
The asset diversification requirement will be satisfied if we
meet certain asset diversification requirements at the end of
each quarter of our taxable year. To satisfy this requirement,
at least 50.0% of the value of our assets must consist of cash,
cash equivalents, U.S. Government securities, securities of
other RICs, and other acceptable securities; and no more than
25.0% of the value of our assets can be invested in the
securities, other than U.S. government securities or
securities of other RICs, of one
|
20
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issuer, of two or more issuers that are controlled, as
determined under applicable Code rules, by us and that are
engaged in the same or similar or related trades or businesses
or of certain qualified publicly traded
partnerships. Failure to meet these requirements may
result in our having to dispose of certain investments quickly
in order to prevent the loss of RIC status. Because most of our
investments will be in private companies, and therefore will be
relatively illiquid, any such dispositions could be made at
disadvantageous prices and could result in substantial losses.
|
If we fail to qualify for or maintain RIC tax treatment for any
reason and are subject to corporate-level U.S. federal income
tax, the resulting corporate taxes could substantially reduce
our net assets, the amount of income available for distribution
and the amount of our distributions. We may also be subject to
certain U.S. federal excise taxes, as well as state, local and
foreign taxes.
We may
not be able to pay you distributions, our distributions may not
grow over time, and a portion of distributions paid to you may
be a return of capital.
We intend to pay quarterly distributions to our stockholders out
of assets legally available for distribution. We cannot assure
you that we will achieve investment results that will allow us
to make a specified level of cash distributions or year-to-year
increases in cash distributions. Our ability to pay
distributions might be harmed by, among other things, the risk
factors described in this prospectus. In addition, the inability
to satisfy the asset coverage test applicable to us as a BDC
could limit our ability to pay distributions. All distributions
will be paid at the discretion of our Board of Directors and
will depend on our earnings, our financial condition,
maintenance of our RIC status, compliance with applicable BDC
regulations, Triangle SBIC and Triangle SBIC IIs
compliance with applicable SBIC regulations and such other
factors as our Board of Directors may deem relevant from time to
time. We cannot assure you that we will pay distributions to our
stockholders in the future.
When we make quarterly distributions, we will be required to
determine the extent to which such distributions are paid out of
current or accumulated earnings and profits, recognized capital
gain or capital. To the extent there is a return of capital,
investors will be required to reduce their basis in our stock
for federal income tax purposes.
We may
have difficulty paying our required distributions if we
recognize income before or without receiving cash representing
such income.
For U.S. federal income tax purposes, we may be required to
recognize taxable income in circumstances in which we do not
receive a corresponding payment in cash. For example, if we hold
debt obligations that are treated under applicable tax rules as
having original issue discount (such as debt instruments with
PIK interest or, in certain cases, increasing interest rates or
debt instruments that were issued with warrants), we must
include in income each year a portion of the original issue
discount that accrues over the life of the obligation,
regardless of whether cash representing such income is received
by us in the same taxable year. We may also have to include in
income other amounts that we have not yet received in cash, such
as deferred loan origination fees that are paid after
origination of the loan or are paid in non-cash compensation
such as warrants or stock. We anticipate that a portion of our
income may constitute original issue discount or other income
required to be included in taxable income prior to receipt of
cash. Further, we may elect to amortize market discounts and
include such amounts in our taxable income in the current year,
instead of upon disposition, as an election not to do so would
limit our ability to deduct interest expenses for
U.S. federal income tax purposes.
Because any original issue discount or other amounts accrued
will be included in our investment company taxable income for
the year of the accrual, we may be required to make a
distribution to our stockholders in order to satisfy the annual
distribution requirement, even though we will not have received
any corresponding cash amount. As a result, we may have
difficulty meeting the annual distribution requirement necessary
to obtain and maintain RIC tax treatment under the Code. We may
have to sell some of our investments at times
and/or at
prices we would not consider advantageous, raise additional debt
or equity capital or forgo new investment opportunities for this
purpose. If we are not able to obtain cash from other
21
sources, we may fail to qualify for RIC tax treatment and thus
become subject to corporate-level U.S. federal income tax.
For additional discussion regarding the tax implications of a
RIC, see Material U.S. Federal Income Tax
Considerations Taxation as a RIC.
You
may receive shares of our common stock as distributions which
could result in adverse tax consequences to you.
In order to satisfy the annual distribution requirement
applicable to RICs, we have the ability to declare a large
portion of a distribution in shares of our common stock instead
of in cash. As long as a portion of such distribution is paid in
cash (which portion can be as low as 10% for our taxable years
ending on or before December 31, 2011) and certain
requirements are met, the entire distribution to the extent of
our current and accumulated earnings and profits would be a
dividend for U.S. federal income tax purposes. As a result,
a stockholder would be taxed on the entire distribution in the
same manner as a cash distribution, even though a portion of the
distribution was paid in shares of our common stock.
You
may have current tax liability on distributions you elect to
reinvest in our common stock but would not receive cash from
such distributions to pay such tax liability.
If you participate in our distribution reinvestment plan, you
will be deemed to have received, and for U.S. federal
income tax purposes will be taxed on, the amount reinvested in
our common stock to the extent the amount reinvested was not a
tax-free return of capital. As a result, unless you are a
tax-exempt entity, you may have to use funds from other sources
to pay your tax liability on the value of our common stock
received from the distribution.
Our
SBIC subsidiaries, as SBICs, may be unable to make distributions
to us that may harm our ability to meet regulated investment
company requirements, which could result in the imposition of an
entity-level tax.
In order for us to continue to qualify as a RIC, we will be
required to distribute on an annual basis substantially all of
our taxable income, including income from our subsidiaries,
including our SBIC subsidiaries. As the majority of our
investments are generally held through our SBIC subsidiaries, we
will be substantially dependent on our SBIC subsidiaries for
cash distributions to enable us to meet the RIC distribution
requirements. Our SBIC subsidiaries may be limited by the Small
Business Investment Act of 1958, and SBA regulations governing
SBICs, from making certain distributions to us that may be
necessary to enable us to qualify as a RIC. We may have to
request a waiver of the SBAs restrictions for our SBIC
subsidiaries to make certain distributions to maintain our
status as a RIC. We cannot assure you that the SBA will grant
such waiver and if our SBIC subsidiaries are unable to obtain a
waiver, compliance with the SBA regulations may result in loss
of RIC status and a consequent imposition of corporate-level
U.S. federal income tax on us.
Because
we intend to distribute substantially all of our income to our
stockholders to maintain our status as a regulated investment
company, we will continue to need additional capital to finance
our growth and regulations governing our operation as a business
development company will affect our ability to, and the way in
which we, raise additional capital.
In order to satisfy the requirements applicable to a RIC and to
avoid payment of U.S. federal excise tax, we intend to
distribute to our stockholders substantially all of our net
ordinary income and net capital gain income except for certain
net long-term capital gains recognized after we became a RIC,
some or all of which we may retain, pay applicable U.S. federal
income taxes with respect thereto, and elect to treat as deemed
distributions to our stockholders. As a BDC, we generally are
required to meet a coverage ratio of total assets to total
senior securities, which includes all of our borrowings (other
than SBA leverage) and any preferred stock we may issue in the
future, of at least 200.0%. This requirement limits the amount
that we may borrow. If the value of our assets declines, we may
be unable to satisfy this test. If that happens, we may be
required to sell a portion of our investments or sell additional
common stock and, depending on the nature of our leverage, to
repay a portion of our indebtedness at a time when such sales
may be disadvantageous. In addition, issuance of additional
securities could dilute the percentage ownership of our current
stockholders in us.
22
While we expect to be able to borrow and to issue additional
debt and equity securities, we cannot assure you that debt and
equity financing will be available to us on favorable terms, or
at all. If additional funds are not available to us, we could be
forced to curtail or cease new investment activities, and our
net asset value could decline. In addition, as a BDC, we
generally are not permitted to issue equity securities priced
below net asset value without stockholder approval. At our
Annual Stockholders Meeting on May 5, 2010, our
stockholders voted to allow us to issue common stock at a price
below net asset value per share for a period of one year ending
on the earlier of May 4, 2011 or the date of our 2011
annual meeting of stockholders. Our stockholders did not specify
a maximum discount below net asset value at which we are able to
issue our common stock; however, we do not intend to issue
shares of our common stock below net asset value unless our
Board of Directors determines that it would be in our
stockholders best interests to do so. For an illustration
on the potential dilutive effect of an offering of our common
stock at a price below net asset value, please see the
illustration below.
Illustration: Examples of Dilutive Effect of the Issuance of
Shares Below Net Asset Value. The following table
illustrates the level of net asset value dilution that would be
experienced by a nonparticipating stockholder in three different
hypothetical offerings of different sizes and levels of discount
from net asset value per share, although it is not possible to
predict the level of market price decline that may occur. Actual
sales prices and discounts may differ from the presentation
below.
Assume that Company XYZ has 1,000,000 common shares outstanding,
$15,000,000 in total assets and $5,000,000 in total liabilities.
The current net asset value and net asset value per share are
thus $10,000,000 and $10.00, respectively. The table illustrates
the dilutive effect on nonparticipating Stockholder A of
(1) an offering of 50,000 shares (5% of the
outstanding shares) at $9.50 per share after offering expenses
and commission (a 5% discount from net asset value), (2) an
offering of 100,000 shares (10% of the outstanding shares)
at $9.00 per share after offering expenses and commissions (a
10% discount from net asset value) and (3) an offering of
200,000 shares (20% of the outstanding shares) at $8.00 per
share after offering expenses and commissions (a 20% discount
from net asset value). The acronym NAV stands for
net asset value.
In any offering of common stock, we will present the actual
dilution to stockholders in tabular form in the prospectus
supplement specific to that offering.
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Example 1
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Example 2
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Example 3
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5% Offering
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|
10% Offering
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20% Offering
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at 5% Discount
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at 10% Discount
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at 20% Discount
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|
Prior to Sale
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Following
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%
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Following
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%
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Following
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Below NAV
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Sale
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Change
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Sale
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Change
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Sale
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% Change
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Offering Price
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Price per Share to Public
|
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$
|
10.00
|
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|
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|
$
|
9.47
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|
|
$
|
8.42
|
|
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|
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|
Net Proceeds per Share to Issuer
|
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$
|
9.50
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$
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9.00
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$
|
8.00
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Decrease to NAV
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Total Shares Outstanding
|
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|
1,000,000
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|
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|
1,050,000
|
|
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|
5.00
|
%
|
|
|
1,100,000
|
|
|
|
10.00
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%
|
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|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.98
|
|
|
|
(0.24
|
)%
|
|
$
|
9.91
|
|
|
|
(0.91
|
)%
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
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Dilution to Stockholder
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Shares Held by Stockholder A
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10,000
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10,000
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10,000
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10,000
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Percentage Held by Stockholder A
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1.0
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%
|
|
|
0.95
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%
|
|
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(4.76
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)%
|
|
|
0.91
|
%
|
|
|
(9.09
|
)%
|
|
|
0.83
|
%
|
|
|
(16.67
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)%
|
Total Asset Values
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Total NAV Held by Stockholder A
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$
|
100,000
|
|
|
$
|
99,762
|
|
|
|
(0.24
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)%
|
|
$
|
99,091
|
|
|
|
(0.91
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)%
|
|
$
|
96,667
|
|
|
|
(3.33
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)%
|
Total Investment by Stockholder A (Assumed to Be $10.00 per
Share)
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$
|
100,000
|
|
|
$
|
100,000
|
|
|
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|
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|
$
|
100,000
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$
|
100,000
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Total Dilution to Stockholder A (Total NAV Less Total Investment)
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$
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(238
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)
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$
|
(909
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)
|
|
|
|
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|
$
|
(3,333
|
)
|
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Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Stockholder A
|
|
|
|
|
|
$
|
9.98
|
|
|
|
|
|
|
$
|
9.91
|
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to be $10.00
per Share)
|
|
$
|
10.00
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
Dilution per Share Held by Stockholder A (NAV per Share Less
Investment per Share)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
$
|
(0.33
|
)
|
|
|
|
|
Percentage Dilution to Stockholder A (Dilution per Share Divided
by Investment per Share)
|
|
|
|
|
|
|
|
|
|
|
(0.24
|
)%
|
|
|
|
|
|
|
(0.91
|
)%
|
|
|
|
|
|
|
(3.33
|
)%
|
23
Changes
in laws or regulations governing our operations may adversely
affect our business or cause us to alter our business
strategy.
We, our SBIC subsidiaries, and our portfolio companies will be
subject to regulation at the local, state and federal level. New
legislation may be enacted or new interpretations, rulings or
regulations could be adopted, including those governing the
types of investments we are permitted to make, any of which
could harm us and our stockholders, potentially with retroactive
effect. In addition, any change to the SBAs current
debenture program could have a significant impact on our ability
to obtain lower-cost leverage and, therefore, our competitive
advantage over other finance companies.
Additionally, any changes to the laws and regulations governing
our operations relating to permitted investments may cause us to
alter our investment strategy in order to avail ourselves of new
or different opportunities. Such changes could result in
material differences to the strategies and plans set forth in
this prospectus and may result in our investment focus shifting
from the areas of expertise of our management team to other
types of investments in which our management team may have less
expertise or little or no experience. Thus, any such changes, if
they occur, could have a material adverse effect on our results
of operations and the value of your investment.
Efforts
to comply with the Sarbanes-Oxley Act will involve significant
expenditures, and non-compliance with the Sarbanes-Oxley Act may
adversely affect us.
We are subject to the Sarbanes-Oxley Act of 2002, and the
related rules and regulations promulgated by the SEC. Among
other requirements, under Section 404 of the Sarbanes-Oxley
Act and rules and regulations of the SEC thereunder, our
management is required to report on our internal controls over
financial reporting. We are required to review on an annual
basis our internal controls over financial reporting, and on a
quarterly and annual basis to evaluate and disclose significant
changes in our internal controls over financial reporting. We
have and expect to continue to incur significant expenses
related to compliance with the Sarbanes-Oxley Act, which will
negatively impact our financial performance and our ability to
make distributions. In addition, this process results in a
diversion of managements time and attention. Since we have
a limited operating history as a company subject to the
Sarbanes-Oxley Act, we cannot assure you that our internal
controls over financial reporting will continue to be effective.
In the event that we are unable to maintain compliance with the
Sarbanes-Oxley Act and related rules, we may be adversely
affected.
Risks
Relating to Our Investments
Our
investments in portfolio companies may be risky, and we could
lose all or part of our investment.
Investing in lower middle market companies involves a number of
significant risks. Among other things, these companies:
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may have limited financial resources to meet future capital
needs and thus may be unable to grow or meet their obligations
under their debt instruments that we hold, which may be
accompanied by a deterioration in the value of any collateral
and a reduction in the likelihood of us realizing any guarantees
from subsidiaries or affiliates of our portfolio companies that
we may have obtained in connection with our investment, as well
as a corresponding decrease in the value of the equity
components of our investments;
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may have shorter operating histories, narrower product lines,
smaller market shares
and/or more
significant customer concentration than larger businesses, which
tend to render them more vulnerable to competitors actions
and market conditions, as well as general economic downturns;
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are more likely to depend on the management talents and efforts
of a small group of persons; therefore, the death, disability,
resignation or termination of one or more of these persons could
have a material adverse impact on our portfolio company and, in
turn, on us;
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generally have less predictable operating results, may from time
to time be parties to litigation, may be engaged in rapidly
changing businesses with products subject to a substantial risk
of obsolescence, and
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24
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|
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|
may require substantial additional capital to support their
operations, finance expansion or maintain their competitive
position; and
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generally have less publicly available information about their
businesses, operations and financial condition. We rely on the
ability of our management team and investment professionals to
obtain adequate information to evaluate the potential returns
from investing in these companies. If we are unable to uncover
all material information about these companies, we may not make
a fully informed investment decision, and may lose all or part
of our investment.
|
In addition, in the course of providing significant managerial
assistance to certain of our portfolio companies, certain of our
officers and directors may serve as directors on the boards of
such companies. To the extent that litigation arises out of our
investments in these companies, our officers and directors may
be named as defendants in such litigation, which could result in
an expenditure of funds (through our indemnification of such
officers and directors) and the diversion of management time and
resources.
The
lack of liquidity in our investments may adversely affect our
business.
We invest, and will continue to invest in companies whose
securities are not publicly traded, and whose securities will be
subject to legal and other restrictions on resale or will
otherwise be less liquid than publicly traded securities. The
illiquidity of these investments may make it difficult for us to
sell these investments when desired. In addition, if we are
required to liquidate all or a portion of our portfolio quickly,
we may realize significantly less than the value at which we had
previously recorded these investments. As a result, we do not
expect to achieve liquidity in our investments in the near-term.
Our investments are usually subject to contractual or legal
restrictions on resale or are otherwise illiquid because there
is usually no established trading market for such investments.
The illiquidity of most of our investments may make it difficult
for us to dispose of them at a favorable price, and, as a
result, we may suffer losses.
We are
a non-diversified investment company within the meaning of the
1940 Act, and therefore we are not limited with respect to the
proportion of our assets that may be invested in securities of a
single issuer.
We are classified as a non-diversified investment company within
the meaning of the 1940 Act, which means that we are not limited
by the 1940 Act with respect to the proportion of our assets
that we may invest in securities of a single issuer. To the
extent that we assume large positions in the securities of a
small number of issuers, our net asset value may fluctuate to a
greater extent than that of a diversified investment company as
a result of changes in the financial condition or the
markets assessment of the issuer. We may also be more
susceptible to any single economic or regulatory occurrence than
a diversified investment company. Beyond our regulated
investment company asset diversification requirements and
certain SBA diversification requirements for our investments
held by our two wholly-owned SBIC subsidiaries, we do not have
fixed guidelines for diversification, and our investments could
be concentrated in relatively few portfolio companies.
We may
not have the funds or ability to make additional investments in
our portfolio companies.
We may not have the funds or ability to make additional
investments in our portfolio companies. After our initial
investment in a portfolio company, we may be called upon from
time to time to provide additional funds to such company or have
the opportunity to increase our investment through the exercise
of a warrant to purchase common stock. There is no assurance
that we will make, or will have sufficient funds to make,
follow-on investments. Any decisions not to make a follow-on
investment or any inability on our part to make such an
investment may have a negative impact on a portfolio company in
need of such an investment, may result in a missed opportunity
for us to increase our participation in a successful operation
or may reduce the expected yield on the investment.
25
Our
portfolio companies may incur debt that ranks equally with, or
senior to, our investments in such companies.
We invest primarily in senior secured debt and subordinated
notes as well as equity issued by lower middle market companies.
Our portfolio companies may have, or may be permitted to incur,
other debt that ranks equally with, or senior to, the debt in
which we invest. By their terms, such debt instruments may
entitle the holders to receive payment of interest or principal
on or before the dates on which we are entitled to receive
payments with respect to the debt instruments in which we
invest. Also, in the event of insolvency, liquidation,
dissolution, reorganization or bankruptcy of a portfolio
company, holders of debt instruments ranking senior to our
investment in that portfolio company would typically be entitled
to receive payment in full before we receive any distribution.
After repaying such senior creditors, such portfolio company may
not have any remaining assets to use for repaying its obligation
to us. In the case of debt ranking equally with debt instruments
in which we invest, we would have to share on an equal basis any
distributions with other creditors holding such debt in the
event of an insolvency, liquidation, dissolution, reorganization
or bankruptcy of the relevant portfolio company.
There
may be circumstances where our debt investments could be
subordinated to claims of other creditors or we could be subject
to lender liability claims.
Even though we may have structured certain of our investments as
senior loans, if one of our portfolio companies were to go
bankrupt, depending on the facts and circumstances and based
upon principles of equitable subordination as defined by
existing case law, a bankruptcy court could subordinate all or a
portion of our claim to that of other creditors and transfer any
lien securing such subordinated claim to the bankruptcy estate.
The principles of equitable subordination defined by case law
have generally indicated that a claim may be subordinated only
if its holder is guilty of misconduct or where the senior loan
is re-characterized as an equity investment and the senior
lender has actually provided significant managerial assistance
to the bankrupt debtor. We may also be subject to lender
liability claims for actions taken by us with respect to a
borrowers business or instances where we exercise control
over the borrower. It is possible that we could become subject
to a lenders liability claim, including as a result of
actions taken in rendering significant managerial assistance or
actions to compel and collect payments from the borrower outside
the ordinary course of business.
Second
priority liens on collateral securing loans that we make to our
portfolio companies may be subject to control by senior
creditors with first priority liens. If there is a default, the
value of the collateral may not be sufficient to repay in full
both the first priority creditors and us.
Certain loans that we make are secured by a second priority
security interest in the same collateral pledged by a portfolio
company to secure senior debt owed by the portfolio company to
commercial banks or other traditional lenders. Often the senior
lender has procured covenants from the portfolio company
prohibiting the incurrence of additional secured debt without
the senior lenders consent. Prior to and as a condition of
permitting the portfolio company to borrow money from us secured
by the same collateral pledged to the senior lender, the senior
lender will require assurances that it will control the
disposition of any collateral in the event of bankruptcy or
other default. In many such cases, the senior lender will
require us to enter into an intercreditor agreement
prior to permitting the portfolio company to borrow from us.
Typically the intercreditor agreements we are requested to
execute expressly subordinate our debt instruments to those held
by the senior lender and further provide that the senior lender
shall control: (1) the commencement of foreclosure or other
proceedings to liquidate and collect on the collateral;
(2) the nature, timing and conduct of foreclosure or other
collection proceedings; (3) the amendment of any collateral
document; (4) the release of the security interests in
respect of any collateral; and (5) the waiver of defaults
under any security agreement. Because of the control we may cede
to senior lenders under intercreditor agreements we may enter,
we may be unable to realize the proceeds of any collateral
securing some of our loans.
Finally, the value of the collateral securing our debt
investment will ultimately depend on market and economic
conditions, the availability of buyers and other factors.
Therefore, there can be no assurance that the proceeds, if any,
from the sale or sales of all of the collateral would be
sufficient to satisfy the loan
26
obligations secured by our second priority liens after payment
in full of all obligations secured by the senior lenders
first priority liens on the collateral. There is also a risk
that such collateral securing our investments may decrease in
value over time, may be difficult to sell in a timely manner,
may be difficult to appraise and may fluctuate in value based
upon the success of the portfolio company and market conditions.
If such proceeds are not sufficient to repay amounts outstanding
under the loan obligations secured by our second priority liens,
then we, to the extent not repaid from the proceeds of the sale
of the collateral, will only have an unsecured claim against the
companys remaining assets, if any.
If we
do not invest a sufficient portion of our assets in qualifying
assets, we could fail to qualify as a business development
company or be precluded from investing according to our current
business strategy.
As a BDC, we may not acquire any assets other than
qualifying assets unless, at the time of and after
giving effect to such acquisition, at least 70.0% of our total
assets are qualifying assets. For further detail, see
Regulation.
We believe that substantially all of our investments are
qualifying assets. However, we may be precluded from investing
in what we believe are attractive investments if such
investments are not qualifying assets for purposes of the 1940
Act. If we do not invest a sufficient portion of our assets in
qualifying assets, we could lose our status as a BDC, which
would have a material adverse effect on our business, financial
condition and results of operations. Similarly, these rules
could prevent us from making follow-on investments in existing
portfolio companies (which could result in the dilution of our
position).
We are
a non-diversified investment company within the meaning of the
1940 Act, and therefore we are not limited with respect to the
proportion of our assets that may be invested in securities of a
single issuer.
We are classified as a non-diversified investment company within
the meaning of the 1940 Act, which means that we are not limited
by the 1940 Act with respect to the proportion of our assets
that we may invest in securities of a single issuer. To the
extent that we assume large positions in the securities of a
small number of issuers, our net asset value may fluctuate to a
greater extent than that of a diversified investment company as
a result of changes in the financial condition or the
markets assessment of the issuer. We may also be more
susceptible to any single economic or regulatory occurrence than
a diversified investment company. Beyond our RIC asset
diversification requirements, we do not have fixed guidelines
for diversification, and our investments could be concentrated
in relatively few portfolio companies.
We
generally will not control our portfolio
companies.
We do not, and do not expect to, control most of our portfolio
companies, even though we may have board representation or board
observation rights, and our debt agreements may contain certain
restrictive covenants. As a result, we are subject to the risk
that a portfolio company in which we invest may make business
decisions with which we disagree and the management of such
company, as representatives of the holders of their common
equity, may take risks or otherwise act in ways that do not
serve our interests as debt investors. Due to the lack of
liquidity for our investments in non-traded companies, we may
not be able to dispose of our interests in our portfolio
companies as readily as we would like or at an appropriate
valuation. As a result, a portfolio company may make decisions
that could decrease the value of our portfolio holdings.
Economic
recessions or downturns could impair our portfolio companies and
harm our operating results.
Since the third quarter of 2007, global credit and other
financial markets have suffered substantial stress, volatility,
illiquidity and disruption. These forces reached extraordinary
levels in late 2008, resulting in the bankruptcy of, the
acquisition of, or government intervention in the affairs of
several major domestic and international financial institutions.
In particular, the financial services sector has been negatively
impacted by significant write-offs as the value of the assets
held by financial firms has declined, impairing their capital
positions and abilities to lend and invest. We believe that such
value declines were exacerbated by widespread forced
liquidations as leveraged holders of financial assets, faced
with declining prices, were compelled to sell
27
to meet margin requirements and maintain compliance with
applicable capital standards. Such forced liquidations have also
impaired or eliminated many investors and investment vehicles,
leading to a decline in the supply of capital for investment and
depressed pricing levels for many assets. These events
significantly diminished overall confidence in the debt and
equity markets, engendered unprecedented declines in the values
of certain assets, and caused extreme economic uncertainty.
Since March 2009, there have been signs that the global credit
and other financial market conditions have improved as stability
has increased throughout the international financial system.
Concentrated policy initiatives undertaken by central banks and
governments appear to have curtailed the incidence of
large-scale failures within the global financial system.
Concurrently, investor confidence, financial indicators, capital
markets activity and asset prices have shown signs of marked
improvement since the second quarter of 2009. While financial
conditions have improved, economic activity has remained subdued
and corporate interest rate risk premiums, otherwise known as
credit spreads, remain at historically high levels, particularly
in the commercial loan and high yield bond markets.
Many of our current
and/or
future portfolio companies may be susceptible to economic
slowdowns or recessions and may be unable to repay our debt
investments during these periods. Therefore, our nonperforming
assets are likely to increase, and the value of our portfolio is
likely to decrease during these periods. Current adverse
economic conditions may also decrease the value of any
collateral securing some of our debt investments and the value
of our equity investments. A prolonged economic slowdown or
recession may further decrease the value of such collateral and
result in losses of value in our portfolio and a decrease in
investment income, net investment income, assets, and net worth.
Unfavorable economic conditions also could increase our funding
costs, limit our access to the capital markets or result in a
decision by lenders not to extend credit to us on terms we deem
acceptable. These events could prevent us from increasing
investments and harm our operating results.
Our
financial results may be affected adversely if one or more of
our portfolio investments defaults on its loans or fails to
perform as we expect.
Our portfolio consists primarily of debt and equity investments
in privately owned middle-market businesses. Compared to larger
publicly owned companies, these middle-market companies may be
in a weaker financial position and experience wider variations
in their operating results, which may make them more vulnerable
to economic downturns. Typically, these companies need more
capital to compete; however, their access to capital is limited
and their cost of capital is often higher than that of their
competitors. Our portfolio companies face intense competition
from larger companies with greater financial, technical and
marketing resources and their success typically depends on the
management talents and efforts of an individual or a small group
of persons. The loss of any of their key employees could affect
their ability to compete effectively and harm their financial
condition. Further, some of these companies conduct business in
regulated industries that are susceptible to regulatory changes.
These factors could impair the cash flow of our portfolio
companies and result in other events, such as bankruptcy. These
events could limit a portfolio companys ability to repay
their obligations to us, which may have an adverse affect on the
return on, or the recovery of, our investment in these
businesses. Deterioration in a borrowers financial
condition and prospects may be accompanied by deterioration in
the value of the loans collateral.
Some of these companies cannot obtain financing from public
capital markets or from traditional credit sources, such as
commercial banks. Accordingly, loans made to these types of
companies pose a higher default risk, than loans made to
companies who have access to traditional credit sources.
Generally, little, if any, public information is available about
such companies. Therefore, we must rely on our employees
diligence to obtain the information needed to make well-informed
investment decisions. If we do not uncover material information
about these companies, we may not make a fully informed
investment decision, which could, in turn cause us to lose money
on our investments.
28
Potential
writedowns or losses with respect to portfolio investments
existing and to be made in the future could adversely affect our
results of operations, cash flows, dividend level, net asset
value and stock price.
As of March 31, 2010, the fair value of our non-accrual
assets was approximately $13.3 million, which comprised
approximately 6.3% of the total fair value of our portfolio. The
fair value of these non-accrual assets was less than cost as of
March 31, 2010. In addition, as of March 31, 2010, we
had, on a fair value basis, approximately $13.8 million of
debt investments or 6.6% of the total fair value of our
portfolio, which were current with respect to scheduled interest
and principal payments, but which were carried at less than
cost. In light of current economic conditions, certain of our
portfolio companies may be unable to service our debt
investments on a timely basis. These conditions may also
decrease the value of collateral securing some of our debt
investments, as well as the value of our equity investments. As
a result, the number of non-performing assets in our portfolio
may increase, and the overall value of our portfolio may
decrease, which could lead to financial losses in our portfolio
and a decrease in our investment income, net investment income,
dividends and assets.
Any
unrealized losses we experience on our loan portfolio may be an
indication of future realized losses, which could reduce our
income available for distribution.
As a BDC, we are required to carry our investments at market
value or, if no market value is ascertainable, at the fair value
as determined in good faith by our Board of Directors. Decreases
in the market values or fair values of our investments will be
recorded as unrealized depreciation. Any unrealized losses in
our loan portfolio could be an indication of a portfolio
companys inability to meet its repayment obligations to us
with respect to the affected loans. This could result in
realized losses in the future and ultimately in reductions of
our income available for distribution in future periods.
Defaults
by our portfolio companies will harm our operating
results.
A portfolio companys failure to satisfy financial or
operating covenants imposed by us or other lenders could lead to
defaults and, potentially, termination of its loans and
foreclosure on its secured assets, which could trigger
cross-defaults under other agreements and jeopardize a portfolio
companys ability to meet its obligations under the debt or
equity securities that we hold. We may incur expenses to the
extent necessary to seek recovery upon default or to negotiate
new terms, which may include the waiver of certain financial
covenants, with a defaulting portfolio company.
Prepayments
of our debt investments by our portfolio companies could
adversely impact our results of operations and reduce our return
on equity.
We are subject to the risk that the investments we make in our
portfolio companies may be repaid prior to maturity. When this
occurs, we will generally reinvest these proceeds in temporary
investments, pending their future investment in new portfolio
companies. These temporary investments will typically have
substantially lower yields than the debt being prepaid and we
could experience significant delays in reinvesting these
amounts. Any future investment in a new portfolio company may
also be at lower yields than the debt that was repaid. As a
result, our results of operations could be materially adversely
affected if one or more of our portfolio companies elect to
prepay amounts owed to us. Additionally, prepayments could
negatively impact our return on equity, which could result in a
decline in the market price of our common stock.
Changes
in interest rates may affect our cost of capital and net
investment income.
Most of our debt investments will bear interest at fixed rates,
and the value of these investments could be negatively affected
by increases in market interest rates. In addition, an increase
in interest rates would make it more expensive to use debt to
finance our investments. As a result, a significant increase in
market interest rates could both reduce the value of our
portfolio investments and increase our cost of capital, which
would reduce our net investment income. Also, an increase in
interest rates available to investors could make an investment
in our common stock less attractive if we are not able to
increase our distribution rate, a situation
29
which could reduce the value of our common stock. Conversely, a
decrease in interest rates may have an adverse impact on our
returns by requiring us to seek lower yields on our debt
investments and by increasing the risk that our portfolio
companies will prepay our debt investments, resulting in the
need to redeploy capital at potentially lower rates.
We may
not realize gains from our equity investments.
Certain investments that we have made in the past and may make
in the future include warrants or other equity securities.
Investments in equity securities involve a number of significant
risks, including the risk of further dilution as a result of
additional issuances, inability to access additional capital and
failure to pay current distributions. Investments in preferred
securities involve special risks, such as the risk of deferred
distributions, credit risk, illiquidity and limited voting
rights. In addition, we may from time to time make non-control,
equity co-investments in companies in conjunction with private
equity sponsors. Our goal is ultimately to realize gains upon
our disposition of such equity interests. However, the equity
interests we receive may not appreciate in value and, in fact,
may decline in value. Accordingly, we may not be able to realize
gains from our equity interests, and any gains that we do
realize on the disposition of any equity interests may not be
sufficient to offset any other losses we experience. We also may
be unable to realize any value if a portfolio company does not
have a liquidity event, such as a sale of the business,
recapitalization or public offering, which would allow us to
sell the underlying equity interests. We often seek puts or
similar rights to give us the right to sell our equity
securities back to the portfolio company issuer. We may be
unable to exercise these puts rights for the consideration
provided in our investment documents if the issuer is in
financial distress.
Risks
Relating to an Offering of Our Common Stock
We may
be unable to invest a significant portion of the net proceeds
raised from our offerings on acceptable terms, which would harm
our financial condition and operating results.
Delays in investing the net proceeds raised in our offerings may
cause our performance to be worse than that of other fully
invested BDCs or other lenders or investors pursuing comparable
investment strategies. We cannot assure you that we will be able
to identify any investments that meet our investment objective
or that any investment that we make will produce a positive
return. We may be unable to invest the net proceeds of any
offering on acceptable terms within the time period that we
anticipate or at all, which could harm our financial condition
and operating results.
We anticipate that, depending on market conditions and the
amount of any particular offering, it may take a substantial
period of time to invest substantially all of the net proceeds
of any offering in securities meeting our investment objective.
During such a period, we have and will continue to invest the
net proceeds of any offering primarily in cash, cash
equivalents, U.S. government securities, repurchase
agreements and high-quality debt instruments maturing in one
year or less from the time of investment, which may produce
returns that are significantly lower than the returns which we
expect to achieve when our portfolio is fully invested in
securities meeting our investment objective. As a result, any
distributions that we pay during such period may be
substantially lower than the distributions that we may be able
to pay when our portfolio is fully invested in securities
meeting our investment objective. In addition, until such time
as the net proceeds of any offering are invested in securities
meeting our investment objective, the market price for our
common stock may decline. Thus, the return on your investment
may be lower than when, if ever, our portfolio is fully invested
in securities meeting our investment objective.
Shares
of closed-end investment companies, including business
development companies, frequently trade at a discount to their
net asset value.
Shares of closed-end investment companies, including BDCs,
frequently trade at a discount from net asset value. This
characteristic of closed-end investment companies and BDCs is
separate and distinct from the risk that our net asset value per
share may decline. We cannot predict whether our common stock
will trade at, above or below net asset value. In addition, if
our common stock trades below net asset value, we will
30
generally not be able to issue additional common stock at the
market price without first obtaining the approval of our
stockholders and our independent directors. At our Annual
Stockholders Meeting on May 5, 2010, our stockholders voted
to allow us to issue common stock at a price below net asset
value per share for a period of one year ending on the earlier
of May 4, 2011 or the date of our 2011 annual meeting of
stockholders. Our stockholders did not specify a maximum
discount below net asset value at which we are able to issue our
common stock; however, we do not intend to issue shares of our
common stock below net asset value unless our Board of Directors
determines that it would be in our stockholders best
interests to do so.
Recent
developments may increase the risks associated with our business
and an investment in us.
The U.S. economy and financial markets have been
experiencing a high level of volatility, disruption and stress,
which was exacerbated by the failure of several major financial
institutions in the last few months of 2008. In addition, the
U.S. economy has entered a recession, which is likely to be
severe and prolonged. Similar conditions have occurred in the
financial markets and economies of numerous other countries and
could worsen, both in the U.S. and globally. These
conditions have raised the level of many of the risks described
herein and could have an adverse effect on our portfolio
companies and on their results of operations, financial
conditions, access to credit and capital. The stress in the
credit market and upon banks have led other creditors to tighten
credit and the terms of credit. In certain cases, senior lenders
to our customers can block payments by our customers in respect
of our loans to such customers. In turn, these could have
adverse effects on our business, financial condition, results of
operations, dividend payments, access to capital, valuation of
our assets and our stock price. Notwithstanding recent gains
across both the equity and debt markets, these conditions may
continue for a prolonged period of time or worsen in the future.
If, in
the future we sell common stock at a discount to our net asset
value per share, stockholders who do not participate in such
sale will experience immediate dilution in an amount that may be
material.
At our annual meeting of stockholders held on May 5, 2010,
our stockholders approved our ability to sell an unlimited
number of shares of our common stock at any level of discount
from net asset value per share for a period of one year ending
on the earlier of May 4, 2011 or the date of our 2011 annual
meeting of stockholders. If we issue or sell shares of our
common stock at a discount to net asset value, it will pose a
risk of dilution to our stockholders. In particular,
stockholders who do not purchase additional shares at or below
the discounted price in proportion to their current ownership
will experience an immediate decrease in net asset value per
share (as well as in the aggregate net asset value of their
shares if they do not participate at all). These stockholders
will also experience a disproportionately greater decrease in
their participation in our earnings and assets and their voting
power than the increase we experience in our assets, potential
earning power and voting interests from such issuances or sale.
In addition, such sales may adversely affect the price at which
our common stock trades. For additional information and
hypothetical examples of these risks, see Sales of Common
Stock Below Net Asset Value, and for actual dilution
illustrations specific to an offering, see the prospectus
supplement pursuant to which such sale is made.
Our
net asset value may have changed significantly since our last
valuation.
Our Board of Directors determines the fair value of our
portfolio investments on a quarterly basis based on input from
management, our audit committee and, as to certain of our
investments, a third party independent valuation firm. While the
Board of Directors will review our net asset value per share in
connection with any offering, it will not always have the
benefit of input from the independent valuation firm when it
does so. Moreover, our financial statements have not been
audited by our independent registered public accounting firm for
any periods since December 31, 2009. The fair value of
various individual investments in our portfolio
and/or the
aggregate fair value of our investments may change significantly
over time. If the fair value of our investment portfolio at
December 31, 2010 is less than the fair value at the time
of an offering during 2010, then we may record an unrealized
loss on our investment portfolio and may report a lower net
asset value per share than will be reflected in the Selected
Condensed Financial Data and the financial statements included
in the prospectus supplement of that offering. If the fair value
of our investment portfolio at December 31, 2010 is greater
than the fair value at the time of an offering during 2010, we
may
31
record an unrealized gain on our investment portfolio and may
report a greater net asset value per share than so reflected in
the prospectus supplement of that offering. Upon publication of
this information in connection with our announcement of
operating results for our fiscal year ended December 31,
2010, the market price of our common stock may fluctuate
materially, and may be substantially less than the price per
share you pay for our common stock in an offering.
Investing
in our common stock may involve an above average degree of
risk.
The investments we make in accordance with our investment
objective may result in a higher amount of risk than alternative
investment options and a higher risk of volatility or loss of
principal. Our investments in portfolio companies may be highly
speculative, and therefore, an investment in our shares may not
be suitable for someone with lower risk tolerance.
The
market price of our common stock may be volatile and fluctuate
significantly.
Fluctuations in the trading prices of our shares may adversely
affect the liquidity of the trading market for our shares and,
if we seek to raise capital through future equity financings,
our ability to raise such equity capital. The market price and
liquidity of the market for our common stock may be
significantly affected by numerous factors, some of which are
beyond our control and may not be directly related to our
operating performance. These factors include:
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significant volatility in the market price and trading volume of
securities of BDCs or other companies in our sector, which are
not necessarily related to the operating performance of these
companies;
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changes in regulatory policies or tax guidelines, particularly
with respect to RICs, BDCs or SBICs;
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inability to obtain certain exemptive relief from the SEC;
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loss of RIC status or either of our SBIC subsidiaries
status as an SBIC;
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changes in our earnings or variations in our operating results;
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changes in the value of our portfolio of investments;
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any shortfall in investment income or net investment income or
any increase in losses from levels expected by investors or
securities analysts;
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loss of a major funding source;
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fluctuations in interest rates;
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the operating performance of companies comparable to us;
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departure of our key personnel;
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global or national credit market changes; and
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general economic trends and other external factors.
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As illustrated by recent events in the market for subprime
loans, and mortgage securities generally, the market for any
security is subject to volatility. The loans and securities
purchased by us and issued by us are no exception to this
fundamental investment truism that prices will fluctuate,
although we lack any material exposure to the subprime and
mortgage markets.
If a
substantial number of shares become available for sale and are
sold in a short period of time, the market price of our common
stock could decline.
As of March 31, 2010, we had 11,934,594 shares of
common stock outstanding. Sales of substantial amounts of our
common stock, or the availability of shares for sale, including
those offered hereby, could adversely affect the prevailing
market price of our common stock. If this occurs and continues,
it could impair our ability to raise additional capital through
the sale of equity securities should we desire to do so.
32
Provisions
of the Maryland General Corporation Law and our charter and
bylaws could deter takeover attempts and have an adverse impact
on the price of our common stock.
The Maryland General Corporation Law and our charter and bylaws
contain provisions that may have the effect of discouraging,
delaying or making difficult a change in control of our Company
or the removal of our incumbent directors. Specifically, our
Board of Directors may adopt resolutions to classify our Board
of Directors so that stockholders do not elect every director on
an annual basis. Also, our charter provides that a director may
be removed only for cause by the vote of at least two-thirds of
the votes entitled to be cast for the election of directors
generally. In addition, our bylaws provide that a special
meeting of stockholders may be called by the stockholders only
upon the written request of the stockholders entitled to cast at
least a majority of all the votes entitled to be cast at the
meeting.
In addition, subject to the provisions of the 1940 Act, our
charter permits our Board of Directors, without stockholder
action, to authorize the issuance of shares of stock in one or
more classes or series, including preferred stock. See
Description of Our Securities. Subject to compliance
with the 1940 Act, our Board of Directors may, without
stockholder action, amend our charter to increase the number of
shares of stock of any class or series that we have authority to
issue. The existence of these provisions, among others, may have
a negative impact on the price of our common stock and may
discourage third party bids for ownership of our company. These
provisions may prevent any premiums being offered to you for
shares of our common stock.
Terrorist
attacks, acts of war or national disasters may affect any market
for our common stock, impact the businesses in which we invest
and harm our business, operating results and financial
condition.
Terrorist acts, acts of war or national disasters may disrupt
our operations, as well as the operations of the businesses in
which we invest. Such acts have created, and continue to create,
economic and political uncertainties and have contributed to
global economic instability. Future terrorist activities,
military or security operations, or natural disasters could
further weaken the domestic/global economies and create
additional uncertainties, which may negatively impact the
businesses in which we invest directly or indirectly and, in
turn, could have a material adverse impact on our business,
operating results and financial condition. Losses from terrorist
attacks and natural disasters are generally uninsurable.
We
could face losses and potential liability if intrusion, viruses
or similar disruptions to our technology jeopardize our
confidential information or that of users of our
technology.
Although we have implemented, and will continue to implement,
security measures, our technology platform is and will continue
to be vulnerable to intrusion, computer viruses or similar
disruptive problems caused by transmission from unauthorized
users. The misappropriation of proprietary information could
expose us to a risk of loss or litigation.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and the accompanying
prospectus supplement, if any, constitute forward-looking
statements because they relate to future events or our future
performance or financial condition. The forward-looking
statements contained in this prospectus may include statements
as to:
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our future operating results;
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our business prospects and the prospects of our portfolio
companies;
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the impact of the investments that we expect to make;
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the ability of our portfolio companies to achieve their
objectives;
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our expected financings and investments;
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the adequacy of our cash resources and working capital; and
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the timing of cash flows, if any, from the operations of our
portfolio companies.
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33
In addition, words such as anticipate,
believe, expect and intend
indicate a forward-looking statement, although not all
forward-looking statements include these words. The
forward-looking statements contained in this prospectus involve
risks and uncertainties. Our actual results could differ
materially from those implied or expressed in the
forward-looking statements for any reason, including the factors
set forth in Risk Factors and elsewhere in this
prospectus and the accompanying prospectus supplement, if any.
Other factors that could cause actual results to differ
materially include:
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changes in the economy;
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risks associated with possible disruption in our operations or
the economy generally due to terrorism; and
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future changes in laws or regulations and conditions in our
operating areas.
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You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus
or the accompanying prospectus supplement, if any. Although we
undertake no obligation to revise or update any forward-looking
statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional
disclosures that we may make directly to you or through reports
that we file with the SEC, including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
FORMATION
TRANSACTIONS
Triangle Capital Corporation is a Maryland corporation, formed
on October 10, 2006, for the purposes of acquiring 100% of
the equity interests in Triangle SBIC and its general partner,
TML, raising capital in our IPO, which was completed in February
2007 and thereafter operating as an internally managed business
development company under the 1940 Act.
On February 21, 2007, concurrently with the closing of our
IPO, we consummated the following formation transactions:
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Triangle Capital Corporation acquired 100% of the limited
partnership interests in Triangle SBIC in exchange for
approximately 1.4 million shares of Triangles common
stock, having an aggregate value of $21,250,000 based on the IPO
price. Triangle SBIC became our wholly owned subsidiary,
retained its SBIC license, continues to hold its existing
investments and will make new investments with the proceeds from
our IPO.
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Triangle Capital Corporation acquired 100% of the equity
interests in TML, the general partner of Triangle SBIC, in
exchange for 500,000 shares of Triangles common
stock, having an aggregate value of $7,500,000 based on the IPO
price.
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On December 15, 2009, Triangle SBIC II was organized as a
limited partnership under the laws of the State of Delaware and
received its SBIC license on May 10, 2010. Triangle SBIC
has made and we will continue to make new investments with the
net proceeds of any offering and proceeds from SBA guaranteed
debentures issued from time to time to our two wholly owned SBIC
subsidiaries.
BUSINESS
DEVELOPMENT COMPANY AND REGULATED INVESTMENT COMPANY
ELECTIONS
As a result of the IPO and the formation transactions described
above, we and Triangle SBIC are closed-end, non-diversified
management investment companies that have elected to be treated
as BDCs under the 1940 Act. In addition, we have elected to be
treated as a RIC under Subchapter M of the Code. Our election to
be regulated as a BDC and our election to be treated as a RIC
for federal income tax purposes have a significant impact on our
operations. Some of the most important effects on our operations
of our election to be regulated as a BDC and our election to be
treated as a RIC are outlined below.
34
We
report our investments at market value or fair value with
changes in value reported through our statement of
operations.
We report all of our investments, including debt investments, at
market value or, for investments that do not have a readily
available market value, at their fair value as
determined in good faith by our Board of Directors. Changes in
these values will be reported through our statement of
operations under the caption of net unrealized
appreciation (depreciation) of investments. See
Business Valuation Process and Determination
of Net Asset Value.
We
intend to distribute substantially all of our income to our
stockholders. We generally will be required to pay income taxes
only on the portion of our taxable income we do not distribute
to stockholders (actually or constructively).
As a BDC, we have elected to be treated as a RIC under
Subchapter M of the Code. As a RIC, so long as we meet certain
minimum distribution,
source-of-income
and asset diversification requirements, we generally are
required to pay U.S. federal income taxes only on the
portion of our taxable income and gains we do not distribute
(actually or constructively) and certain built-in gains. We
intend to distribute to our stockholders substantially all of
our income. We may, however, make deemed distributions to our
stockholders of any retained net long-term capital gain. If this
happens, our stockholders will be treated as if they received an
actual distribution of the net capital gain and reinvested the
net after-tax proceeds in us. Our stockholders also may be
eligible to claim a tax credit (or, in certain circumstances, a
tax refund) equal to their allocable share of the
corporate-level U.S. federal income tax we pay on the
deemed distribution. See Material U.S. Federal Income
Tax Considerations. We met our minimum distribution
requirements for 2007, 2008 and 2009 and continually monitor our
distribution requirements with the goal of ensuring compliance
with the Code.
In addition, we have certain wholly-owned taxable subsidiaries
(the Taxable Subsidiaries), each of which holds a
portion of one or more of our portfolio investments that are
listed on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for GAAP purposes, such that our
consolidated financial statements reflect our investments in the
portfolio companies owned by the Taxable Subsidiaries. The
purpose of the Taxable Subsidiaries is to permit us to hold
certain interests in portfolio companies that are organized as
limited liability companies (LLCs) (or other forms
of pass-through entities) and still satisfy the RIC tax
requirement that at least 90% of a RICs gross income must
consist of investment income. Absent the Taxable Subsidiaries, a
proportionate amount of any gross income of an LLC (or other
pass-through entity) portfolio investment would flow through
directly to the RIC. To the extent that such income did not
consist of investment income, it could jeopardize our ability to
qualify as a RIC and therefore cause us to incur significant
amounts of corporate-level U.S. federal income tax.
Where interests in LLCs (or other pass-through entities) are
owned by the Taxable Subsidiaries, however, the income from such
interests is taxed to the Taxable Subsidiaries and does not flow
through to the RIC, thereby helping us preserve our RIC status
and resultant tax advantages. The Taxable Subsidiaries are not
consolidated for U.S. federal income tax purposes and may
generate income tax expense as a result of their ownership of
the portfolio companies.
Our
ability to use leverage as a means of financing our portfolio of
investments will be limited.
As a BDC, we are required to meet a coverage ratio of total
assets to total senior securities of at least 200.0%. For this
purpose, senior securities include all borrowings (other than
SBA leverage and certain other short-term borrowings) and any
preferred stock we may issue in the future. Additionally, our
ability to continue to utilize leverage as a means of financing
our portfolio of investments is limited by this asset coverage
test.
We are
required to comply with the provisions of the 1940 Act
applicable to business development companies.
As a BDC, we are required to have a majority of directors who
are not interested persons under the 1940 Act. In
addition, we are required to comply with other applicable
provisions of the 1940 Act, including those requiring the
adoption of a code of ethics, fidelity bond and custody
arrangements. See also Regulation.
35
USE OF
PROCEEDS
Unless otherwise specified in any prospectus supplement
accompanying this prospectus, we intend to use the net proceeds
from the sale of our common stock for investment and general
corporate purposes. We intend to invest the net proceeds in
lower middle market companies in accordance with our investment
objective and strategies and for working capital and general
corporate purposes. We plan to raise new equity when we have
attractive investment opportunities available. Pending such use,
we will invest the net proceeds of any offering primarily in
short-term securities consistent with our BDC election and our
election to be taxed as a RIC. See Regulation
Temporary Investments.
Our ability to achieve our investment objective may be limited
to the extent that the net proceeds from an offering, pending
full investment, are held in interest-bearing deposits or other
short-term instruments. The supplement to this prospectus
relating to an offering will more fully identify the use of
proceeds from such an offering.
PRICE
RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the Nasdaq Global Market under the
symbol TCAP. The following table sets forth, for
each fiscal quarter since our initial public offering, the range
of high and low sales prices of our common stock as reported on
the Nasdaq Global Market, the sales price as a percentage of our
net asset value, or NAV, and the distributions declared by us
for each fiscal quarter. The stock quotations are inter-dealer
quotations and do not include
mark-ups,
mark-downs or commissions and as such do not necessarily
represent actual transactions.
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Premium/Discount
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Premium/Discount
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Cash
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Price Range
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of High Sales
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of Low Sales Price
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Distributions
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NAV(1)
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High
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Low
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Price to NAV(2)
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to NAV(2)
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per Share(3)
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Year ended December 31, 2008
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First Quarter
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$
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13.85
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$
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13.40
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$
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10.50
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97
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%
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76
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%
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$
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Second Quarter
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$
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13.73
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$
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12.25
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$
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10.81
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89
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%
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79
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%
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$
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0.31
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Third Quarter
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$
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13.76
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$
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13.75
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$
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9.91
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100
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%
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72
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%
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$
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0.35
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Fourth Quarter
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$
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13.22
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$
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13.18
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$
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4.00
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100
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%
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30
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%
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$
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0.78
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Year ended December 31, 2009
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First Quarter
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$
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12.46
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$
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12.92
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$
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5.21
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104
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%
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42
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%
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$
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0.45
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(4)
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Second Quarter
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$
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11.31
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$
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12.38
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$
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7.50
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109
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%
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66
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%
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$
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0.40
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Third Quarter
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$
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10.60
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$
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12.77
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$
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10.26
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120
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%
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97
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%
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$
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0.41
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Fourth Quarter
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$
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11.03
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$
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13.28
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$
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10.95
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120
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%
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99
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%
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$
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0.41
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Year ended December 31, 2010
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First Quarter
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$
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10.87
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$
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14.53
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$
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11.45
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134
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%
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105
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%
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$
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0.41
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(1) |
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Net asset value per share is determined as of the last day in
the relevant quarter and therefore may not reflect the net asset
value per share on the date of the high and low sales prices.
The net asset values shown are based on outstanding shares at
the end of each period. |
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(2) |
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Calculated as the respective high or low sales price divided by
net asset value. |
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(3) |
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Represents the distribution declared in the specified quarter.
We have adopted an opt out dividend reinvestment
plan for our common stockholders. As a result, if we declare a
distribution, then stockholders cash distributions will be
automatically reinvested in additional shares of our common
stock, unless they specifically opt out of the
dividend reinvestment plan so as to receive cash distributions.
See Dividend Reinvestment Plan. |
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(4) |
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Includes a capital gains distribution of $0.05 per share
declared on February 1, 2009. |
The last reported price for our common stock on June 7,
2010 was $13.42 per share. As of June 7, 2010, we had
64 stockholders of record.
36
Shares of BDCs may trade at a market price that is less than the
value of the net assets attributable to those shares. The
possibilities that our shares of common stock will trade at a
discount from net asset value or at premiums that are
unsustainable over the long term are separate and distinct from
the risk that our net asset value will decrease. It is not
possible to predict whether the common stock offered hereby will
trade at, above, or below net asset value. Since our IPO in
February 2007, our shares of common stock have traded for
amounts both less than and exceeding our net asset value.
We intend to distribute quarterly distributions to our
stockholders. Our quarterly distributions, if any, are
determined by our Board of Directors. We have elected to be
taxed as a RIC under Subchapter M of the Code. As long as we
qualify as a RIC, we will not be taxed on our investment company
taxable income or realized net capital gain, to the extent that
such taxable income or gain is distributed, or deemed to be
distributed, to stockholders on a timely basis.
To obtain and maintain RIC tax treatment, we must, among other
things, distribute at least 90.0% of our net ordinary income and
realized net short-term capital gain in excess of realized net
long-term capital loss, if any. In order to avoid certain excise
taxes imposed on RICs, we currently intend to distribute during
each calendar year an amount at least equal to the sum of
(1) 98.0% of our net ordinary income for the calendar year,
(2) 98.0% of our net capital gain for the calendar year and
(3) any net ordinary income and net capital gain for
preceding years that were not distributed during such years and
on which we paid no U.S. federal income tax. We may retain for
investment some or all of our net capital gain (i.e., realized
net long-term capital gains in excess of realized net short-term
capital losses) and treat such amounts as deemed distributions
to our stockholders. If we do this, you will be treated as if
you received an actual distribution of the capital gain we
retain and then reinvested the net after-tax proceeds in our
common stock. You also may be eligible to claim a tax credit
(or, in certain circumstances, a tax refund) equal to your
allocable share of the tax we paid on the capital gain deemed
distributed to you. Please refer to Material
U.S. Federal Income Tax Considerations for further
information regarding the consequences of our retention of net
capital gain. We may, in the future, make actual distributions
to our stockholders of our net capital gain. We can offer no
assurance that we will achieve results that will permit the
payment of any cash distributions and, if we issue senior
securities, we will be prohibited from making distributions if
doing so causes us to fail to maintain the asset coverage ratios
stipulated by the 1940 Act or if distributions are limited by
the terms of any of our borrowings. See Regulation
and Material U.S. Federal Income Tax
Considerations.
We will report the U.S. federal income tax characteristics
of all distributions to our stockholders, as appropriate, on IRS
Form 1099-DIV
after the end of the year. Our ability to pay distributions
could be affected by future business performance, liquidity,
capital needs, alternative investment opportunities and loan
covenants.
37
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical financial and other data below reflects
the consolidated operations of Triangle Capital Corporation and
its subsidiaries, including Triangle SBIC and Triangle SBIC II.
The selected financial data at and for the fiscal years ended
December 31, 2005, 2006, 2007, 2008 and 2009 have been
derived from our financial statements that have been audited by
Ernst & Young LLP, an independent registered public
accounting firm. Financial information prior to our initial
public offering in 2007 is that of Triangle SBIC, which is
Triangle Capital Corporations predecessor. Interim
financial information for the three months ended March 31,
2010 is derived from our unaudited financial statements, and in
the opinion of management, reflects all adjustments (consisting
only of normal recurring adjustments) that are necessary to
present fairly the results of such interim periods. Interim
results for the three months ended March 31, 2010 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2010. You should read
this selected financial and other data in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial
statements and notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
5,855
|
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
|
$
|
21,056
|
|
|
$
|
27,149
|
|
|
$
|
7,402
|
|
Interest income from cash and cash equivalent investments
|
|
|
108
|
|
|
|
280
|
|
|
|
1,824
|
|
|
|
303
|
|
|
|
613
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
5,963
|
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
21,359
|
|
|
|
27,762
|
|
|
|
7,485
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,543
|
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
4,228
|
|
|
|
6,901
|
|
|
|
1,740
|
|
Amortization of deferred financing fees
|
|
|
90
|
|
|
|
100
|
|
|
|
113
|
|
|
|
255
|
|
|
|
363
|
|
|
|
96
|
|
Management fees
|
|
|
1,574
|
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
58
|
|
|
|
115
|
|
|
|
3,894
|
|
|
|
6,254
|
|
|
|
6,449
|
|
|
|
1,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,265
|
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
10,737
|
|
|
|
13,713
|
|
|
|
3,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
2,698
|
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
10,622
|
|
|
|
14,049
|
|
|
|
3,794
|
|
Net realized gain (loss) on investments
non-control/non-affiliate
|
|
|
(3,500
|
)
|
|
|
6,027
|
|
|
|
(760
|
)
|
|
|
(1,393
|
)
|
|
|
448
|
|
|
|
199
|
|
Net realized gain on investments affiliate
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
3,975
|
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
(4,286
|
)
|
|
|
(10,310
|
)
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
475
|
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(2,850
|
)
|
|
|
(9,862
|
)
|
|
|
408
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(133
|
)
|
|
|
(150
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
3,173
|
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
7,639
|
|
|
$
|
4,037
|
|
|
$
|
4,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
1.54
|
|
|
$
|
1.63
|
|
|
$
|
0.32
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.11
|
|
|
$
|
0.47
|
|
|
$
|
0.35
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.22
|
|
|
$
|
11.03
|
|
|
$
|
10.87
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
1.44
|
|
|
$
|
1.62
|
|
|
$
|
0.41
|
|
Capital gains distributions declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
March 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
36,617
|
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
182,105
|
|
|
$
|
201,318
|
|
|
$
|
210,477
|
|
Cash and cash equivalents
|
|
|
6,067
|
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
27,193
|
|
|
|
55,200
|
|
|
|
43,273
|
|
Interest and fees receivable
|
|
|
50
|
|
|
|
135
|
|
|
|
305
|
|
|
|
680
|
|
|
|
677
|
|
|
|
1,240
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
95
|
|
|
|
287
|
|
|
|
349
|
|
Deferred offering costs
|
|
|
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
29
|
|
|
|
23
|
|
Deferred financing fees
|
|
|
1,085
|
|
|
|
985
|
|
|
|
999
|
|
|
|
3,546
|
|
|
|
3,540
|
|
|
|
3,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
258,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital/net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
13
|
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
1,609
|
|
|
$
|
2,222
|
|
|
$
|
1,030
|
|
Interest payable
|
|
|
566
|
|
|
|
606
|
|
|
|
699
|
|
|
|
1,882
|
|
|
|
2,334
|
|
|
|
596
|
|
Distribution/dividends payable
|
|
|
|
|
|
|
532
|
|
|
|
2,041
|
|
|
|
2,767
|
|
|
|
4,775
|
|
|
|
4,893
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
30
|
|
|
|
59
|
|
|
|
32
|
|
Deferred revenue
|
|
|
75
|
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
75
|
|
|
|
38
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
|
|
844
|
|
|
|
577
|
|
|
|
614
|
|
SBA-guaranteed debentures payable
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
115,110
|
|
|
|
121,910
|
|
|
|
121,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
32,454
|
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
122,242
|
|
|
|
131,952
|
|
|
|
129,113
|
|
Total partners capital/shareholders equity
|
|
|
11,365
|
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
91,425
|
|
|
|
129,099
|
|
|
|
129,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net assets
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
258,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
|
|
13.5
|
%
|
|
|
13.4
|
%
|
Number of portfolio companies
|
|
|
12
|
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
|
|
37
|
|
|
|
38
|
|
Expense ratios (annualized, as percentage of average net
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
21.3
|
%
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
5.6
|
%
|
Interest expense and deferred financing fees
|
|
|
21.4
|
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
42.7
|
%
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
11.3
|
%
|
|
|
14.0
|
%
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
SELECTED
QUARTERLY FINANCIAL DATA
The following tables set forth certain quarterly financial
information for each of the nine quarters ended with the quarter
ended March 31, 2010. This information was derived from our
unaudited consolidated financial statements. Results for any
quarter are not necessarily indicative of results for the past
fiscal year or for any future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Total investment income
|
|
$
|
3,863,984
|
|
|
$
|
5,020,091
|
|
|
$
|
5,869,637
|
|
|
$
|
6,605,786
|
|
Net investment income
|
|
|
1,913,695
|
|
|
|
2,542,442
|
|
|
|
3,211,706
|
|
|
|
2,954,435
|
|
Net increase in net assets resulting from operations
|
|
|
765,391
|
|
|
|
2,848,507
|
|
|
|
2,476,346
|
|
|
|
1,548,257
|
|
Net investment income per share
|
|
$
|
0.28
|
|
|
$
|
0.37
|
|
|
$
|
0.46
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Total investment income
|
|
$
|
6,504,500
|
|
|
$
|
6,576,403
|
|
|
$
|
7,096,643
|
|
|
$
|
7,584,436
|
|
Net investment income
|
|
|
3,037,582
|
|
|
|
3,249,297
|
|
|
|
3,717,857
|
|
|
|
4,043,838
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
(583,357
|
)
|
|
|
(2,851,857
|
)
|
|
|
(778,659
|
)
|
|
|
8,250,576
|
|
Net investment income per share
|
|
$
|
0.43
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
Total investment income
|
|
$
|
7,484,907
|
|
Net investment income
|
|
|
3,793,684
|
|
Net increase in net assets resulting from operations
|
|
|
4,149,329
|
|
Net investment income per share
|
|
$
|
0.32
|
|
40
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this section contains forward-looking
statements that involve risks and uncertainties. Please see
Risk Factors and Special Note Regarding
Forward-Looking Statements for a discussion of the
uncertainties, risks and assumptions associated with these
statements. You should read the following discussion in
conjunction with the combined financial statements and related
notes and other financial information appearing elsewhere in
this prospectus.
The following discussion is designed to provide a better
understanding of our consolidated financial statements,
including a brief discussion of our business, key factors that
impacted our performance and a summary of our operating results.
As discussed further in Note 1 to our financial statements,
on February 21, 2007, concurrent with the closing of our
IPO, we acquired Triangle SBIC and Triangle SBICs General
Partner, TML, in exchange for shares of our common stock. These
acquisitions constituted an exchange of shares between entities
under common control. In accordance with the guidance on
exchanges of shares between entities under common control
contained in Statement of Financial Accounting Standards
No. 141, Business Combinations, the financial data and
information discussed herein for the year ended
December 31, 2007 are presented as if the acquisition had
occurred as of January 1, 2007.
The following discussion should be read in conjunction with the
financial statements and the notes thereto included herein.
Historical results and percentage relationships among any
amounts in the financial statements are not necessarily
indicative of trends in operating results for any future periods.
Overview
of our Business
We are a Maryland corporation which has elected to be treated
and operates as an internally managed BDC, under the 1940 Act.
Our wholly owned subsidiary, Triangle SBIC, is licensed as a
small business investment company, or SBIC, by the United States
Small Business Administration, or SBA, and has also elected to
be treated as a BDC under the 1940 Act. On December 15, 2009,
Triangle SBIC II was organized as a limited partnership under
the laws of the state of Delaware and received its SBIC license
on May 10, 2010. We, Triangle SBIC, and Triangle SBIC II
invest primarily in debt instruments, equity investments,
warrants and other securities of lower middle market privately
held companies located in the United States.
Our business is to provide capital to lower middle market
companies in the United States. We define lower middle market
companies as those with annual revenues between $10.0 and
$100.0 million. We focus on investments in companies with a
history of generating revenues and positive cash flows, an
established market position and a proven management team with a
strong operating discipline. Our target portfolio company
generally has annual revenues between $20.0 and
$100.0 million and annual earnings before interest, taxes,
depreciation and amortization, or EBITDA, between $3.0 and
$20.0 million.
We invest primarily in senior and subordinated debt securities
secured by first and second lien security interests in portfolio
company assets, coupled with equity interests. Our investments
generally range from $5.0 to $15.0 million per portfolio
company. In certain situations, we have partnered with other
funds to provide larger financing commitments.
We generate revenues in the form of interest income, primarily
from our investments in debt securities, loan origination and
other fees and dividend income. Fees generated in connection
with our debt investments are recognized over the life of the
loan using the effective interest method or, in some cases,
recognized as earned. In addition, we generate revenue in the
form of capital gains, if any, on warrants or other
equity-related securities that we acquire from our portfolio
companies. Our debt investments generally have a term of between
three and seven years and typically bear interest at fixed rates
between 12.0% and 17.0% per annum. Certain of our debt
investments have a form of interest, referred to as
payment-in-kind,
or PIK, interest, that is not paid currently but that is accrued
and added to the loan balance and paid at the end of the term.
In our negotiations with potential portfolio companies, we
generally seek to minimize PIK interest. Cash interest on our
debt investments is generally payable monthly; however, some of
our debt investments pay cash interest on a quarterly basis. As
of both March 31, 2010, and December 31, 2009, the
weighted average yield on our
41
outstanding debt investments other than non-accrual debt
investments (including PIK interest) was approximately 14.7%.
The weighted average yield on all of our outstanding investments
(including equity and equity-linked investments but excluding
non-accrual debt investments) was approximately 13.4% and 13.5%
as of March 31, 2010 and December 31, 2009,
respectively. The weighted average yield on all of our
outstanding investments (including equity and equity-linked
investments and non-accrual debt investments) was approximately
11.8% and 12.5% as of March 31, 2010 and December 31,
2009, respectively.
Our two SBIC subsidiaries are eligible to sell debentures
guaranteed by the SBA in the capital markets at favorable
interest rates and invest these funds in portfolio companies. We
intend to continue to operate Triangle SBIC and Triangle SBIC II
as SBICs, subject to SBA approval, and to utilize the proceeds
of the sale of our two SBIC subsidiaries SBA-guaranteed
debentures, referred to herein as SBA leverage, to enhance
returns to our stockholders.
Portfolio
Composition
The total value of our investment portfolio was
$210.5 million as of March 31, 2010, as compared to
$201.3 million as of December 31, 2009,
$182.1 million as of December 31, 2008, and
$113.0 million as of December 31, 2007. As of
March 31, 2010, we had investments in 38 portfolio
companies with an aggregate cost of $218.9 million. As of
December 31, 2009, we had investments in 37 portfolio
companies with an aggregate cost of $209.9 million. As of
December 31, 2008, we had investments in 34 portfolio
companies with an aggregate cost of $180.2 million. As of
December 31, 2007, we had investments in 26 portfolio
companies with an aggregate cost of $105.9 million. As of
March 31, 2010, December 31, 2009, and
December 31, 2008, none of our portfolio investments
represented greater than 10% of the total fair value of our
investment portfolio. As of December 31, 2007, we had one
portfolio investment that represented greater than 10% of the
total fair value of our investment portfolio.
42
As of March 31, 2010, and December 31, 2009, 2008 and
2007, our investment portfolio consisted of the following
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
186,649,538
|
|
|
|
85
|
%
|
|
$
|
171,383,096
|
|
|
|
82
|
%
|
Senior debt
|
|
|
11,279,759
|
|
|
|
5
|
|
|
|
11,041,275
|
|
|
|
5
|
|
Equity shares
|
|
|
16,891,380
|
|
|
|
8
|
|
|
|
21,034,900
|
|
|
|
10
|
|
Equity warrants
|
|
|
3,158,457
|
|
|
|
2
|
|
|
|
6,068,187
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
218,853,534
|
|
|
|
100
|
%
|
|
$
|
210,476,758
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
179,482,425
|
|
|
|
86
|
%
|
|
$
|
166,087,684
|
|
|
|
83
|
%
|
Senior debt
|
|
|
11,090,514
|
|
|
|
5
|
|
|
|
10,847,886
|
|
|
|
5
|
|
Equity shares
|
|
|
15,778,681
|
|
|
|
8
|
|
|
|
17,182,500
|
|
|
|
9
|
|
Equity warrants
|
|
|
2,715,070
|
|
|
|
1
|
|
|
|
6,250,600
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,941,090
|
|
|
|
100
|
%
|
|
$
|
201,317,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd lien
notes
|
|
$
|
147,493,871
|
|
|
|
82
|
%
|
|
$
|
143,015,291
|
|
|
|
79
|
%
|
Senior debt
|
|
|
16,269,628
|
|
|
|
9
|
|
|
|
16,269,628
|
|
|
|
9
|
|
Equity shares
|
|
|
13,684,269
|
|
|
|
8
|
|
|
|
17,301,372
|
|
|
|
9
|
|
Equity warrants
|
|
|
1,829,370
|
|
|
|
1
|
|
|
|
4,644,600
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
874,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180,151,538
|
|
|
|
100
|
%
|
|
$
|
182,105,291
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd lien
notes
|
|
$
|
80,902,982
|
|
|
|
76
|
%
|
|
$
|
80,902,982
|
|
|
|
72
|
%
|
Senior debt
|
|
|
14,728,958
|
|
|
|
14
|
|
|
|
14,728,958
|
|
|
|
13
|
|
Equity shares
|
|
|
9,699,689
|
|
|
|
9
|
|
|
|
15,335,900
|
|
|
|
13
|
|
Equity warrants
|
|
|
548,172
|
|
|
|
1
|
|
|
|
1,870,500
|
|
|
|
2
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,879,801
|
|
|
|
100
|
%
|
|
$
|
113,036,240
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activity
During the three months ended March 31, 2010, we made two new
investments totaling approximately $11.6 million, one additional
debt investment in an existing portfolio company of $2.2 million
and four additional equity investments in existing portfolio
companies totaling approximately $0.3 million. We sold one
equity investment in a portfolio company for approximately $0.2
million, resulting in a realized gain of $0.2 million. We had
one portfolio company loan repaid at par in the amount of
approximately $2.1 million and received normal principal
repayments and partial loan prepayments totaling approximately
$4.2 million in the three months ended March 31, 2010.
During the three months ended March 31, 2009, we made one new
investment totaling $5.2 million and five additional investments
in existing portfolio companies totaling approximately $4.0
million. We also received a full repayment from one portfolio
company totaling approximately $2.0 million. In addition, we
received normal principal repayments totaling approximately $0.3
million in the three months ended March 31, 2009.
43
Total portfolio investment activity for the three months ended
March 31, 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
Fair value of portfolio, beginning of period
|
|
$
|
201,317,970
|
|
|
$
|
182,105,291
|
|
New investments
|
|
|
14,143,949
|
|
|
|
9,193,735
|
|
Loan origination fees received
|
|
|
(301,875
|
)
|
|
|
(175,000
|
)
|
Proceeds from sale of investment
|
|
|
(240,000
|
)
|
|
|
|
|
Gain on sale of investment
|
|
|
199,200
|
|
|
|
|
|
Principal repayments received
|
|
|
(6,280,580
|
)
|
|
|
(2,246,284
|
)
|
Payment-in-kind
interest earned
|
|
|
1,216,226
|
|
|
|
1,075,326
|
|
Payment-in-kind
interest received
|
|
|
(156,710
|
)
|
|
|
(427,105
|
)
|
Accretion of loan discounts
|
|
|
117,201
|
|
|
|
104,626
|
|
Accretion of deferred loan origination revenue
|
|
|
215,033
|
|
|
|
184,906
|
|
Unrealized gains (losses) on investments
|
|
|
246,344
|
|
|
|
(3,604,584
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, end of period
|
|
$
|
210,476,758
|
|
|
$
|
186,210,911
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on debt investments at end of period(1)
|
|
|
14.7
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
Weighted average yield on total investments at end of period(1)
|
|
|
13.4
|
%
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
Weighted average yield on total investments at end of period
|
|
|
11.8
|
%
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes non-accrual debt investments. |
During the year ended December 31, 2009, we made seven new
investments totaling $43.0 million, additional debt
investments in three existing portfolio companies totaling
$4.1 million and five additional equity investments in
existing portfolio companies totaling approximately
$1.4 million. We also sold two investments in portfolio
companies for approximately $1.9 million, resulting in
realized gains totaling $1.8 million and recognized
realized losses related to restructurings of two portfolio
companies totaling $1.3 million. We had four portfolio
company loans repaid at par in the amount of $13.2 million.
In addition, we received normal principal repayments, partial
loan prepayments and payment in kind (PIK) interest repayments
totaling approximately $9.2 million in the year ended
December 31, 2009.
44
Total portfolio investment activity for the year ended
December 31, 2009 was as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2009
|
|
|
Fair value of portfolio, January 1, 2009
|
|
$
|
182,105,291
|
|
New investments
|
|
|
48,475,570
|
|
Proceeds from sales of investments
|
|
|
(1,888,384
|
)
|
Loan origination fees received
|
|
|
(952,500
|
)
|
Principal repayments received
|
|
|
(19,543,314
|
)
|
Payment in kind interest earned
|
|
|
5,074,819
|
|
Payment in kind interest payments received
|
|
|
(2,909,804
|
)
|
Accretion/writeoff of loan discounts
|
|
|
421,495
|
|
Accretion of deferred loan origination revenue
|
|
|
663,506
|
|
Net realized gain on investments
|
|
|
448,164
|
|
Net unrealized losses on investments
|
|
|
(10,576,873
|
)
|
Fair value of portfolio, December 31, 2009
|
|
$
|
201,317,970
|
|
|
|
|
|
|
Weighted average yield on debt investments as of
December 31, 2009
|
|
|
14.7
|
%
|
|
|
|
|
|
Weighted average yield on total investments as of
December 31, 2009
|
|
|
13.5
|
%
|
|
|
|
|
|
During the year ended December 31, 2008, we made twelve new
investments totaling $91.0 million, additional debt
investments in an existing portfolio company of
$1.9 million and four additional equity investments in
existing portfolio companies of approximately $0.2 million.
We also sold three investments in portfolio companies for
approximately $3.6 million, resulting in realized gains
totaling $2.9 million and recognized a realized loss on the
writeoff of one investment totaling $1.5 million. We had
four portfolio company loans repaid at par in the amount of
$12.5 million. In addition, we received normal principal
repayments, partial loan prepayments and payment in kind (PIK)
interest repayments totaling approximately $6.9 million in
the year ended December 31, 2008.
Total portfolio investment activity for the year ended
December 31, 2008 was as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2008
|
|
|
Fair value of portfolio, January 1, 2008
|
|
$
|
113,036,240
|
|
New investments
|
|
|
93,054,022
|
|
Proceeds from sale of investment
|
|
|
(3,631,876
|
)
|
Loan origination fees received
|
|
|
(1,686,996
|
)
|
Principal repayments received
|
|
|
(17,336,521
|
)
|
Payment in kind interest earned
|
|
|
3,761,786
|
|
Payment in kind interest payments received
|
|
|
(1,978,498
|
)
|
Accretion of loan discounts
|
|
|
169,548
|
|
Accretion of deferred loan origination revenue
|
|
|
484,664
|
|
Realized gains on investments
|
|
|
1,435,608
|
|
Unrealized losses on investments
|
|
|
(5,202,686
|
)
|
|
|
|
|
|
Fair value of portfolio, December 31, 2008
|
|
$
|
182,105,291
|
|
|
|
|
|
|
Weighted average yield on debt investments as of
December 31, 2008
|
|
|
14.4
|
%
|
|
|
|
|
|
Weighted average yield on total investments as of
December 31, 2008
|
|
|
13.2
|
%
|
|
|
|
|
|
During the year ended December 31, 2007, we made nine new
investments totaling $62.2 million, one additional debt
investment in an existing portfolio company of $1.9 million
and one additional equity investment in an existing portfolio
company of approximately $0.1 million. In 2007, we sold one
investment in a portfolio
45
company for approximately $1.3 million, resulting in a
realized loss of approximately $1.4 million. We also
received principal prepayments from two portfolio companies
totaling $3.2 million, which resulted in a realized gain of
approximately $0.1 million. In the fourth quarter of 2007,
we sold an equity investment in a portfolio company for total
proceeds of $0.9 million, resulting in a realized gain of
approximately $0.6 million and we received a principal
prepayment from this portfolio company of $4.2 million,
which resulted in a realized gain of approximately
$0.1 million. In addition, we received normal principal
repayments and PIK interest payments totaling approximately
$1.0 million in the year ended December 31, 2007.
Total portfolio investment activity for the year ended
December 31, 2007 was as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2007
|
|
|
Fair value of portfolio, January 1, 2007
|
|
$
|
54,247,212
|
|
New investments
|
|
|
64,159,172
|
|
Proceeds from sale of investment
|
|
|
(2,227,124
|
)
|
Loan origination fees received
|
|
|
(875,905
|
)
|
Principal repayments and payment in kind interest payments
received
|
|
|
(8,483,843
|
)
|
Payment in kind interest earned
|
|
|
1,521,114
|
|
Accretion/writeoff of loan discounts
|
|
|
205,725
|
|
Accretion of deferred loan origination revenue
|
|
|
287,143
|
|
Net realized gain (loss) on investments
|
|
|
(618,620
|
)
|
Net unrealized gain on investments
|
|
|
4,821,366
|
|
|
|
|
|
|
Fair value of portfolio, December 31, 2007
|
|
$
|
113,036,240
|
|
|
|
|
|
|
Weighted average yield on debt investments as of
December 31, 2007
|
|
|
13.9
|
%
|
|
|
|
|
|
Weighted average yield on total investments as of
December 31, 2007
|
|
|
12.6
|
%
|
|
|
|
|
|
Non-Accrual
Assets
As of March 31, 2010, the fair value of our non-accrual
assets was approximately $13.3 million, which comprised
6.3% of the total fair value of our portfolio, and the cost of
our non-accrual assets was approximately $26.6 million,
which comprised 12.2% of the total cost of our portfolio. Our
non-accrual assets as of March 31, 2010 are as follows:
Gerli and
Company
In November 2008, we placed our debt investment in Gerli and
Company (Gerli) on non-accrual status. As a result,
under generally accepted accounting principles in the United
States, or U.S. GAAP, we no longer recognize interest
income on our debt investment in Gerli for financial reporting
purposes. During 2008, we recognized an unrealized loss on our
debt investment in Gerli of $1.2 million and in the year
ended December 31, 2009, we recognized an additional
unrealized loss on our debt investment in Gerli of
$0.5 million. In the quarter ended March 31, 2010, we
recognized an unrealized gain on our debt investment in Gerli of
approximately $0.4 million. As of March 31, 2010, the
cost of our debt investment in Gerli is $3.3 million and
the fair value of such investment is $1.9 million.
Fire
Sprinkler Systems, Inc.
In October 2008, we placed our debt investment in Fire Sprinkler
Systems, Inc. (Fire Sprinkler Systems) on
non-accrual status. As a result, under U.S. GAAP, we no
longer recognize interest income on our debt investment in Fire
Sprinkler Systems for financial reporting purposes. During 2008,
we recognized an unrealized loss of $1.4 million on our
subordinated note investment in Fire Sprinkler Systems. In the
year ended December 31, 2009, we recognized an additional
unrealized loss on our debt investment in Fire Sprinkler Systems
of $0.3 million. As of March 31, 2010, the cost of our
debt investment in Fire Sprinkler Systems is $2.4 million
and the fair value of such investment is $0.8 million.
46
American
De-Rosa Lamparts, LLC and Hallmark Lighting
In 2008, we recognized an unrealized loss of $1.2 million
on our subordinated note investment in American De-Rosa
Lamparts, LLC and Hallmark Lighting, or collectively, ADL. This
unrealized loss reduced the fair value of our investment in ADL
to $6.9 million as of December 31, 2008. Through
August 31, 2009, we continued to receive interest payments
from ADL in accordance with the loan agreement. In September
2009, we received notification from ADLs senior lender
that ADL was blocked from making interest payments to us. As a
result, we placed our investment in ADL on non-accrual status
and under U.S. GAAP, we no longer recognize interest income
on our investment in ADL for financial reporting purposes. In
the year ended December 31, 2009, we recognized an
additional unrealized loss on our investment in ADL of
$3.2 million and in the first quarter of 2010, we
recognized an unrealized gain on our investment in ADL of
approximately $0.1 million. As of March 31, 2010, the
cost of our investment in ADL was approximately
$8.3 million and the fair value of such investment was
approximately $4.0 million.
FCL
Graphics, Inc. 2nd Lien Note
During the first eight months of 2009, we received cash interest
on our 2nd Lien note in FCL at the stated contractual rate
(20% per annum as of September 30, 2009). In September
2009, FCL did not make the scheduled interest payments on its
2nd Lien notes. As a result, we placed our 2nd Lien
note in FCL on non-accrual status and therefore, under
U.S. GAAP, we no longer recognized interest income on our
2nd Lien note investment in FCL for financial reporting
purposes. In November 2009, we amended the terms of our note
with FCL. The terms of the amendment provide for cash interest
at a rate of LIBOR plus 250 basis points per annum and PIK
interest at a rate of 8% per annum. In addition, we exchanged
approximately $0.4 million of unpaid PIK interest on our
FCL 2nd lien note for common equity in FCL Graphics,
resulting in a $0.4 million realized loss. While we are
currently recognizing cash interest on our 2nd Lien
investment in FCL, we have placed the PIK component of this note
on non-accrual status. In the year ended December 31, 2009,
we recognized an unrealized loss on our 2nd Lien note
investment in FCL of approximately $2.2 million and in the
first quarter of 2010, we recognized an unrealized gain on our
2nd Lien note investment in FCL of approximately
$0.2 million. As of March 31, 2010, the cost of our
2nd Lien note investment in FCL was approximately
$3.0 million and the fair value of our 2nd Lien note
investment in FCL was approximately $1.1 million.
Waste
Recyclers Holdings, LLC
In 2009, in an effort to address liquidity and working capital
constraints at Waste Recyclers Holdings, LLC, or Waste
Recyclers, we restructured our debt investments in Waste
Recyclers to provide for a lower rate of current cash interest
and a higher rate of PIK interest. In addition, in 2009, we
recognized an unrealized loss on our debt investments in Waste
Recyclers of approximately $0.7 million. We continued to
receive scheduled cash interest payments from Waste Recyclers
during 2009. In March 2010, Waste Recyclers did not make its
scheduled cash interest payments for the first quarter of 2010
and in April 2010, we received notification from Waste
Recyclers senior lender that Waste Recyclers was blocked
from making interest payments to us for a period of
180 days. As a result, we placed our debt investments in
Waste Recyclers on non-accrual status and under U.S. GAAP,
we no longer recognize interest income on our debt investments
in Waste Recyclers for financial reporting purposes. In the
first quarter of 2010, we recognized an unrealized loss on our
debt investments in Waste Recyclers of approximately
$3.4 million. As of March 31, 2010, the cost of our
debt investments in Waste Recyclers was approximately
$9.7 million and the fair value of our debt investments in
Waste Recyclers was approximately $5.6 million.
We are currently in negotiations with the Waste Recyclers
investor group regarding various restructuring alternatives,
including converting some or all of our existing debt
investments to an equity security. While there can be no
assurance that these negotiations will result in an outcome that
is acceptable to us, the investor group is working diligently
toward an acceptable restructuring.
47
Results
of Operations
Comparison
of three months ended March 31, 2010 and March 31,
2009
Investment
Income
For the three months ended March 31, 2010, total investment
income was $7.5 million, a 15% increase from
$6.5 million of total investment income for the three
months ended March 31, 2009. This increase was primarily
attributable to a $1.0 million increase in total loan
interest, fee and dividend income (including PIK interest
income) due to 1) a net increase in our portfolio
investments from March 31, 2009, to March 31, 2010,
and 2) an increase in non-recurring fee income of
approximately $0.3 million. Non-recurring fee income was
approximately $0.6 million for the three months ended
March 31, 2010, as compared to approximately
$0.3 million for the three months ended March 31, 2009.
Expenses
For the three months ended March 31, 2010, expenses
increased by 6% to $3.7 million from $3.5 million for
the three months ended March 31, 2009. The increase in
expenses was primarily attributable to a $0.1 million
increase in interest expense and a $0.1 million increase in
general and administrative expenses. The increase in interest
expense is related to higher average balances of SBA-guaranteed
debentures outstanding during the three months ended
March 31, 2010 than in the comparable period in 2009. In
addition, we experienced a slight increase in general and
administrative costs in the first quarter of 2010, primarily
related to increased compensation costs (including equity-based
compensation).
Net
Investment Income
As a result of the $1.0 million increase in total
investment income and the $0.2 million increase in
expenses, net investment income for the three months ended
March 31, 2010 was $3.8 million compared to net
investment income of $3.0 million during the three months
ended March 31, 2009.
Net
Increase/Decrease in Net Assets Resulting From
Operations
In the three months ended March 31, 2010, we realized a
gain on the sale of one non-control/non-affiliate investment of
approximately $0.2 million. In addition, during the three
months ended March 31, 2010, we recorded net unrealized
appreciation of investments totaling approximately
$0.2 million, comprised of 1) unrealized appreciation
on 15 investments totaling approximately $5.2 million,
2) unrealized depreciation on 11 investments totaling
approximately $4.8 million and 3) a $0.2 million
unrealized depreciation reclassification adjustment related to
the realized gain noted above.
During the three months ended March 31, 2009, we recorded
net unrealized depreciation of investments in the amount of
$3.6 million, comprised of unrealized depreciation on 11
investments totaling $6.2 million and unrealized gains on
11 other investments totaling $2.6 million.
As a result of these events, our net increase in net assets from
operations was $4.1 million for the three months ended
March 31, 2010 as compared to a net decrease in net assets
from operations of $0.6 million during the three months
ended March 31, 2009.
Comparison
of year ended December 31, 2009 and December 31,
2008
Investment
Income
For the year ended December 31, 2009, total investment
income was $27.8 million, a 30% increase from
$21.4 million of total investment income for the year ended
December 31, 2008. This increase was primarily attributable
to a $4.8 million increase in total loan interest, fee and
dividend income and a $1.3 million increase in total
payment in kind interest income due to a net increase in our
portfolio investments from December 31, 2008 to
December 31, 2009, and a $0.3 million increase in
interest income from cash and cash equivalent investments due to
an increase in average cash balances in 2009 over the 2008 due
to proceeds
48
from our secondary offerings of common stock. Non-recurring fee
income was $0.8 million for the year ended
December 31, 2009 as compared to $0.7 million for the
year ended December 31, 2008.
Expenses
For the year ended December 31, 2009, expenses increased by
28% to $13.7 million from $10.7 million for the year
ended December 31, 2008. The increase in expenses was
primarily attributable to a $2.7 million increase in
interest expense. The increase in interest expense is related to
higher average balances of SBA-guaranteed debentures outstanding
during the year ended December 31, 2009 than in the
comparable period in 2008. In addition, during 2008, a
significant portion of our outstanding SBA-guaranteed debentures
were bearing interest at interim (pre-pooling) interest rates,
which are generally lower than the fixed pooled interest rates.
During 2009, these debentures bore interest at the higher fixed
rates resulting in increased interest expense.
Net
Investment Income
As a result of the $6.4 million increase in total
investment income and the $3.0 million increase in
expenses, net investment income for the year ended
December 31, 2009 was $14.0 million compared to net
investment income of $10.6 million during the year ended
December 31, 2008.
Net
Increase in Net Assets Resulting From Operations
For the year ended December 31, 2009, total net realized
gains on non-control/non-affiliate investments was approximately
$0.4 million, which consisted of realized gains on the
sales of two investments totaling approximately
$1.8 million, partially offset by realized losses on the
restructuring of two other investments totaling approximately
$1.3 million. For the year ended December 31, 2008,
total net realized gains on investments totaled approximately
$1.4 million. Net realized gain on control investments for
the year ended December 31, 2008 was $2.8 million,
which consisted of a realized gain on one investment. For the
year ended December 31, 2008, net realized loss on
non-control/non-affiliate investments was $1.4 million,
which consisted of a realized loss on the writeoff of one
investment of $1.5 million and a realized gain on one
investment of $0.1 million.
In the year ended December 31, 2009, we recorded net
unrealized depreciation of investments, net of income taxes, in
the amount of $10.3 million, comprised primarily of
unrealized depreciation on 15 investments totaling approximately
$17.4 million and unrealized appreciation, net of tax, on
13 other investments totaling approximately $7.3 million.
In addition, we recorded net unrealized depreciation
reclassification adjustments of approximately $0.2 million
related to the realized losses on non-control/non-affiliate
investments noted above. In the year ended December 31,
2008, we recorded net unrealized depreciation of investments,
net of income taxes, in the amount of $4.3 million,
comprised partially of net unrealized depreciation
reclassification adjustments of approximately $1.2 million
related to the realized gain on control investments and the
realized losses on non-control/non-affiliate investments noted
above. In addition, in the year ended December 31, 2008, we
recorded unrealized appreciation, net of tax, on eleven other
investments totaling $5.6 million and unrealized
depreciation on 17 investments totaling $8.6 million.
As a result of these events, our net increase in net assets from
operations during the year ended December 31, 2009 was
$4.0 million as compared to $7.6 million for the year
ended December 31, 2008.
Comparison
of year ended December 31, 2008 and December 31,
2007
Investment
Income
For the year ended December 31, 2008, total investment
income was $21.4 million, a 68% increase from
$12.7 million of total investment income for the year ended
December 31, 2007. This increase was primarily attributable
to a $7.9 million increase in total loan interest, fee and
dividend income and a $2.2 million increase in total
paid-in-kind
interest income due to a net increase in our portfolio
investments from December 31, 2007 to December 31,
2008, partially offset by a $1.5 million decrease in
interest income from
49
cash and cash equivalent investments due to (i) a
significant decrease in average cash balances in 2008 over the
comparable period in 2007 and (ii) a decrease in overall
interest rates. Non-recurring fee income was $0.7 million
for the year ended December 31, 2008 as compared to
$0.5 million for the year ended December 31, 2007.
Expenses
For the year ended December 31, 2008, expenses increased by
70% to $10.7 million from $6.3 million for the year
ended December 31, 2007. The increase in expenses was
primarily attributable to a $2.4 million increase in
general and administrative expenses and a $2.2 million
increase in interest expense. As a result of the IPO and the
Formation Transactions described in Note 1 to our unaudited
financial statements, we are an internally managed investment
company and on February 21, 2007, we began incurring
general and administrative costs associated with employing our
executive officers, key investment personnel and corporate
professionals and other general corporate overhead costs. As of
December 31, 2008, we had 14 full-time employees, as
compared to 11 full-time employees as of December 31,
2007. In addition, we experienced an increase in general and
administrative costs in 2008 associated with being a
publicly-traded company, such as increased insurance,
accounting, corporate governance and legal costs. The increase
in interest expense is related to higher average balances of
SBA-guaranteed debentures outstanding during the year ended
December 31, 2008 than in the comparable period in 2007.
These increases in general and administrative costs and interest
costs were partially offset by a $0.2 million decrease in
management fees. We incurred no management fees in 2008 compared
to $0.2 million in management fees in 2007.
Net
Investment Income
As a result of the $8.6 million increase in total
investment income and the $4.4 million increase in
expenses, net investment income for the year ended
December 31, 2008 was $10.6 million compared to net
investment income of $6.4 million during the year ended
December 31, 2007.
Net
Increase in Net Assets Resulting From Operations
For the year ended December 31, 2008, total net realized
gains on investments totaled approximately $1.4 million.
Net realized gain on control investments for the year ended
December 31, 2008 was $2.8 million, which consisted of
a realized gain on one investment. For the year ended
December 31, 2008, net realized loss on
non-control/non-affiliate investments was $1.4 million,
which consisted of a realized loss on the writeoff of one
investment of $1.5 million and a realized gain on one
investment of $0.1 million. For the year ended
December 31, 2007, we recognized a realized gain of
$0.1 million on an affiliate investment. In addition,
during the year ended December 31, 2007, net realized loss
on non-control/non-affiliate investments was $0.8 million
which related to a realized loss on one investment of
$1.4 million, offset by a realized gain on a second
investment of $0.6 million.
In the year ended December 31, 2008, we recorded net
unrealized depreciation of investments, net of income taxes, in
the amount of $4.3 million, comprised partially of net
unrealized depreciation reclassification adjustments of
approximately $1.2 million related to the realized gain on
control investments and the realized losses on
non-control/non-affiliate investments noted above. In addition,
in the year ended December 31, 2008, we recorded unrealized
appreciation, net of tax, on eleven other investments totaling
$5.6 million and unrealized depreciation on 17 investments
totaling $8.6 million. During the year ended
December 31, 2007, we recorded net unrealized appreciation
of investments, net of income taxes, in the amount of
$3.1 million, comprised partially of net unrealized
appreciation/depreciation reclassification adjustments of
approximately $1.1 million related to the realized gain and
loss noted above. In addition, in the year ended
December 31, 2007, we recorded unrealized appreciation, net
of tax, on nine other investments totaling $4.3 million and
unrealized depreciation on 11 investments totaling
$2.3 million.
As a result of these events, our net increase in net assets from
operations during the year ended December 31, 2008 was
$7.6 million as compared to $8.8 million for the year
ended December 31, 2007.
50
Liquidity
and Capital Resources
We believe that our current cash and cash equivalents on hand,
our available SBA leverage and our anticipated cash flows from
operations will be adequate to meet our cash needs for our daily
operations for at least the next twelve months.
In the future, depending on the valuation of our SBIC
subsidiaries assets pursuant to SBA guidelines, our SBIC
subsidiaries may be limited by provisions of the Small Business
Investment Act of 1958, and SBA regulations governing SBICs,
from making certain distributions to Triangle Capital
Corporation that may be necessary to enable Triangle Capital
Corporation to make the minimum required distributions to its
stockholders and qualify as a RIC.
Cash
Flows
For the three months ended March 31, 2010, we experienced a
net decrease in cash and cash equivalents in the amount of
$11.9 million. During that period, our operating activities
used $8.2 million in cash, consisting primarily of new
portfolio investments of $14.1 million, partially offset by
repayments received from portfolio companies of
$6.5 million. In addition, we used $3.7 million of
cash in financing activities, consisting primarily of cash
dividends paid in the amount of $3.6 million. At
March 31, 2010, we had $43.3 million of cash and cash
equivalents on hand.
For the three months ended March 31, 2009, we experienced a
net decrease in cash and cash equivalents in the amount of
$9.8 million. During that period, our operating activities
used $6.6 million in cash, consisting primarily of
purchases of investments totaling $9.2 million, net of
repayments received totaling $2.2 million. In the three
months ended March 31, 2009, we used $3.1 million of
cash for financing activities, consisting of cash dividends and
distributions to stockholders. At March 31, 2009, we had
$17.4 million of cash and cash equivalents on hand.
For the year ended December 31, 2009, we experienced a net
increase in cash and cash equivalents in the amount of
$28.0 million. During that period, our operating activities
used $13.4 million in cash, consisting primarily of new
portfolio investments of $48.5 million, partially offset by
net investment income of $14.0 million and repayments of
loans received and proceeds from sales of investments of
$21.4 million. We generated $41.4 million of cash from
financing activities, consisting of proceeds from public
offerings of $47.3 million and proceeds from borrowings
under SBA guaranteed debentures payable of $6.8 million,
offset by financing fees paid of $0.4 million and cash
dividends paid of $12.3 million. At December 31, 2009,
we had $55.2 million of cash and cash equivalents on hand.
For the year ended December 31, 2008, we experienced a net
increase in cash and cash equivalents in the amount of
$5.4 million. During that period, our operating activities
used $60.6 million in cash, consisting primarily of new
portfolio investments of $93.1 million, partially offset by
repayments of loans received and proceeds from sales of
investments of $21.0 million. We generated
$66.1 million of cash from financing activities, consisting
of proceeds from borrowings under SBA guaranteed debentures
payable of $78.1 million, offset by financing fees paid of
$2.8 million and cash dividends paid of $9.2 million.
At December 31, 2008, we had $27.2 million of cash and
cash equivalents on hand.
For the year ended December 31, 2007, we experienced a net
increase in cash and cash equivalents in the amount of
$19.2 million. During that period, our operating activities
used $47.8 million in cash, and we generated
$67.1 million of cash from financing activities, consisting
of (i) proceeds from our IPO of $64.7 million,
(ii) proceeds from the issuance of SBA guaranteed
debentures of $5.2 million and (iii) a decrease in
deferred offering costs of $1.0 million, partially offset
by cash dividends paid of $3.0 million, tax distributions
to partners of $0.7 million and financing fees paid to the
SBA of $0.1 million. At December 31, 2007, we had
$21.8 million of cash and cash equivalents on hand.
Financing
Transactions
Due to our SBIC subsidiaries status as licensed SBICs, our
SBIC subsidiaries have the ability to issue debentures
guaranteed by the SBA at favorable interest rates. Under the
Small Business Investment Act and
51
the SBA rules applicable to SBICs, an SBIC (or group of SBICs
under common control) can have outstanding at any time
debentures guaranteed by the SBA in an amount up to three times
the amount of its regulatory capital, which generally is the
amount raised from private investors. The maximum statutory
limit on the dollar amount of outstanding debentures guaranteed
by the SBA issued by a single SBIC is currently
$150.0 million and for a group of SBICs under common
control is $225.0 million. Debentures guaranteed by the SBA
have a maturity of ten years, with interest payable
semi-annually. The principal amount of the debentures is not
required to be paid before maturity but may be pre-paid at any
time. Debentures issued prior to September 2006, were subject to
pre-payment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after
September 1, 2006.
In June 2009, Triangle SBIC received a new leverage commitment
from the SBA which increased Triangle SBICs ability to
issue SBA guaranteed debentures up to the maximum statutory
limit of $150.0 million. In addition, on May 10, 2010,
Triangle SBIC II received its SBIC license which provides us
with the capability to issue an additional $75.0 million of
SBA-guaranteed debentures. As of March 31, 2010, Triangle
SBIC had $121.9 million of SBA guaranteed debentures
outstanding. In addition to the one-time 1.0% fee on the total
commitment from the SBA, the Company also pays a one-time 2.425%
fee on the amount of each debenture issued. These fees are
capitalized as deferred financing costs and are amortized over
the term of the debt agreements using the effective interest
method. The weighted average interest rate for all SBA
guaranteed debentures as of March 31, 2010 was 5.963%. As
of March 31, 2010, all SBA-guaranteed debentures have been
pooled and assigned fixed rates.
Distributions
to Stockholders
We have elected to be treated as a RIC under Subchapter M of the
Code and intend to make the required distributions to our
stockholders as specified therein. In order to qualify as a RIC
and to obtain RIC tax benefits, we must meet certain minimum
distribution,
source-of-income
and asset diversification requirements. If such requirements are
met, then we are generally required to pay income taxes only on
the portion of our taxable income and gains we do not distribute
(actually or constructively) and certain built-in gains. We met
our minimum distribution requirements for 2009, 2008 and 2007
and continually monitor our distribution requirements with the
goal of ensuring compliance with the Code.
The minimum distribution requirements applicable to RICs require
us to distribute to our stockholders at least 90% of our
investment company taxable income (ICTI), as defined
by the Code, each year. Depending on the level of ICTI earned in
a tax year, we may choose to carry forward ICTI in excess of
current year distributions into the next tax year and pay a 4%
U.S. federal excise tax on such excess. Any such carryover ICTI
must be distributed before the end of the next tax year through
a dividend declared prior to filing the final tax return related
to the year which generated such ICTI.
ICTI generally differs from net investment income for financial
reporting purposes due to temporary and permanent differences in
the recognition of income and expenses. We may be required to
recognize ICTI in certain circumstances in which we do not
receive cash. For example, if we hold debt obligations that are
treated under applicable tax rules as having original issue
discount (such as debt instruments issued with warrants), we
must include in ICTI each year a portion of the original issue
discount that accrues over the life of the obligation,
regardless of whether cash representing such income is received
by us in the same taxable year. We may also have to include in
ICTI other amounts that we have not yet received in cash, such
as 1) PIK interest income and 2) interest income from
investments that have been classified as non-accrual for
financial reporting purposes. Interest income on non-accrual
investments is not recognized for financial reporting purposes,
but generally is recognized in ICTI. Because any original issue
discount or other amounts accrued will be included in our ICTI
for the year of accrual, we may be required to make a
distribution to our stockholders in order to satisfy the minimum
distribution requirements, even though we will not have received
and may not ever receive any corresponding cash amount. ICTI
also excludes net unrealized appreciation or depreciation, as
investment gains or losses are not included in taxable income
until they are realized.
52
Current
Market Conditions
Since the beginning of 2008, the debt and equity capital markets
in the United States have been severely impacted by significant
write-offs in the financial services sector relating to subprime
mortgages and the re-pricing of credit risk in the broadly
syndicated bank loan market, among other factors. These events,
along with the deterioration of the housing market, have led to
an economic recession in the U.S. and abroad, which could be
long-term. Banks, investment companies and others in the
financial services industry have continued to report significant
write-downs in the fair value of their assets, which has led to
the failure of a number of banks and investment companies, a
number of distressed mergers and acquisitions, the government
take-over of the nations two largest government-sponsored
mortgage companies, and the passage of the $700 billion
Emergency Economic Stabilization Act of 2008 in October 2008 and
the passage of the American Recovery and Reinvestment Act of
2009 in February 2009. These events have significantly impacted
the financial and credit markets and have reduced the
availability of debt and equity capital for the market as a
whole, and for financial firms in particular. Notwithstanding
recent gains across both the equity and debt markets, these
conditions may continue for a prolonged period of time or worsen
in the future. While we have capacity to issue additional SBA
guaranteed debentures as discussed above, we may not be able to
access additional equity capital, which could result in the
slowing of our origination activity during 2010 and beyond.
In the event that the United States economy remains in a
recession, it is possible that the results of some of the middle
market companies in which we invest could experience further
deterioration, which could ultimately lead to difficulty in
meeting debt service requirements and an increase in defaults.
There can be no assurance that the performance of certain of our
portfolio companies will not be negatively impacted by
challenging economic conditions which could have a negative
impact on our future results.
Recent
Developments
In April 2010, we invested $12.0 million in subordinated
debt, convertible debt and warrants of Media Temple, Inc., a
privately held, web hosting and virtualization service provider.
Under the terms of the investments, Media Temple, Inc. will pay
interest on the subordinated debt at a rate of 16% per annum and
will pay interest on the convertible debt at a rate of 12% per
annum.
In May 2010, we invested $5.5 million in subordinated debt
and equity of Minco Technology Labs, LLC (Minco), a
processor, packager, and distributor of semi-conductors for use
in military, space, industrial, and other high temperature,
harsh environments. Under the terms of the investment, Minco
will pay interest on the subordinated debt at a rate of 16.25%
per annum.
In June 2010, we invested $5.0 million in subordinated debt
and equity of Great Expressions Dental Centers
(GEDC), one of the fastest growing dental practice
management companies in the United States with locations in
Florida, Michigan, Georgia, Virginia, Massachusetts and
Connecticut. Under the terms of the investment, GEDC will pay
interest on the subordinated debt at a rate of 16% per annum.
Critical
Accounting Policies and Use of Estimates
The preparation of our financial statements in accordance with
accounting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses for the periods covered by such financial
statements. We have identified investment valuation and revenue
recognition as our most critical accounting estimates. On an
on-going basis, we evaluate our estimates, including those
related to the matters described below. These estimates are
based on the information that is currently available to us and
on various other assumptions that we believe to be reasonable
under the circumstances. Actual results could differ materially
from those estimates under different assumptions or conditions.
A discussion of our critical accounting policies follows.
53
Investment
Valuation
The most significant estimate inherent in the preparation of our
financial statements is the valuation of investments and the
related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented
processes and methodologies for determining the fair values of
portfolio company investments on a recurring (quarterly) basis.
As discussed below, we have engaged an independent valuation
firm to assist us in our valuation process.
On January 1, 2008, we adopted FASB ASC Topic 820, Fair
Value Measurements and Disclosures, which defines fair
value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and
expands disclosures about fair value measurements.
ASC Topic 820 clarifies that the exchange price is the price in
an orderly transaction between market participants to sell an
asset or transfer a liability in the market in which the
reporting entity would transact for the asset or liability, that
is, the principal or most advantageous market for the asset or
liability. The transaction to sell the asset or transfer the
liability is a hypothetical transaction at the measurement date,
considered from the perspective of a market participant that
holds the asset or owes the liability. ASC Topic 820 provides a
consistent definition of fair value which focuses on exit price
and prioritizes, within a measurement of fair value, the use of
market-based inputs over entity-specific inputs. In addition,
ASC Topic 820 provides a framework for measuring fair value and
establishes a three-level hierarchy for fair value measurements
based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. The three levels
of valuation hierarchy established by ASC Topic 820 are defined
as follows:
Level 1 inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or liabilities
in active markets.
Level 2 inputs to the valuation methodology
include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 3 inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
A financial instruments categorization within the
valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. Our investment
portfolio is comprised of debt and equity instruments of
privately held companies for which quoted prices falling within
the categories of Level 1 and Level 2 inputs are not
available. Therefore, we value all of our investments at fair
value, as determined in good faith by our Board of Directors,
using Level 3 inputs, as further described below. Due to
the inherent uncertainty in the valuation process, our Board of
Directors estimate of fair value may differ significantly
from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
In addition, changes in the market environment and other events
that may occur over the life of the investments may cause the
gains or losses ultimately realized on these investments to be
different than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that we might reasonably
expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the
most recently available portfolio company financial statements
and forecasts. We also consult with the portfolio companys
senior management to obtain further updates on the portfolio
companys performance, including information such as
industry trends, new product development and other operational
issues. Additionally, we consider some or all of the following
factors:
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financial standing of the issuer of the security;
|
|
|
|
comparison of the business and financial plan of the issuer with
actual results;
|
54
|
|
|
|
|
the size of the security held as it relates to the liquidity of
the market for such security;
|
|
|
|
pending public offering of common stock by the issuer of the
security;
|
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|
|
pending reorganization activity affecting the issuer, such as
merger or debt restructuring;
|
|
|
|
ability of the issuer to obtain needed financing;
|
|
|
|
changes in the economy affecting the issuer;
|
|
|
|
financial statements and reports from portfolio company senior
management and ownership;
|
|
|
|
the type of security, the securitys cost at the date of
purchase and any contractual restrictions on the disposition of
the security;
|
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|
discount from market value of unrestricted securities of the
same class at the time of purchase;
|
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|
special reports prepared by analysts;
|
|
|
|
information as to any transactions or offers with respect to the
security
and/or sales
to third parties of similar securities;
|
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|
|
the issuers ability to make payments and the type of
collateral;
|
|
|
|
the current and forecasted earnings of the issuer;
|
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|
|
statistical ratios compared to lending standards and to other
similar securities; and
|
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|
other pertinent factors.
|
In making the good faith determination of the value of debt
securities, we start with the cost basis of the security, which
includes the amortized original issue discount, and
paid-in-kind
(PIK) interest, if any. We also use a risk rating system to
estimate the probability of default on the debt securities and
the probability of loss if there is a default. The risk rating
system covers both qualitative and quantitative aspects of the
business and the securities held. In valuing debt securities, we
utilize an income approach model that considers
factors including, but not limited to, (i) the portfolio
investments current risk rating (discussed below),
(ii) the portfolio companys current trailing twelve
months (TTM) results of operations as compared
to the portfolio companys TTM results of operations as of
the date the investment was made and the portfolio
companys outlook for the next twelve months of operations,
(iii) the portfolio companys current leverage as
compared to its leverage as of the date the investment was made
and (iv) current pricing and credit metrics for similar
proposed and executed investment transactions. In valuing equity
securities of private companies, we consider valuation
methodologies consistent with industry practice, including
(i) valuation using a valuation model based on original
transaction multiples and the portfolio companys recent
financial performance, (ii) valuation of the securities
based on recent sales in comparable transactions and
(iii) a review of similar companies that are publicly
traded and the market multiple of their equity securities.
Unrealized appreciation or depreciation on portfolio investments
are recorded as increases or decreases in investments on the
balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets
resulting from operations.
Duff & Phelps, LLC, or Duff & Phelps, an
independent valuation firm, provides third party valuation
consulting services to us, which consist of certain limited
procedures that we identified and requested Duff &
Phelps to perform (hereinafter referred to as the
procedures). We generally request Duff &
Phelps to perform the procedures on each portfolio company at
least once in every calendar year and for new portfolio
companies, at least once in the twelve-month period subsequent
to the initial investment. In certain instances, we may
determine that it is not cost-effective, and as a result is not
in our stockholders best interest, to request
Duff & Phelps to perform the procedures on one or more
portfolio companies. Such instances include, but are not limited
to, situations where the fair value of our investment in the
portfolio company is determined to be insignificant relative to
our total investment portfolio.
55
For the quarter ended March 31, 2010, we asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 25% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2010. Upon completion of the procedures, Duff & Phelps
concluded that the fair value, as determined by the Board of
Directors, of those investments subjected to the procedures did
not appear to be unreasonable. Our Board of Directors is
ultimately and solely responsible for determining the fair value
of our investments in good faith.
Revenue
Recognition
Interest
and Dividend Income
Interest income, adjusted for amortization of premium and
accretion of original issue discount, is recorded on the accrual
basis to the extent that such amounts are expected to be
collected. Generally, when interest
and/or
principal payments on a loan become past due, or if we otherwise
do not expect the borrower to be able to service its debt and
other obligations, we will place the loan on non-accrual status
and will generally cease recognizing interest income on that
loan for financial reporting purposes until all principal and
interest have been brought current through payment or due to a
restructuring such that the interest income is deemed to be
collectible. We write off any previously accrued and uncollected
interest when it is determined that interest is no longer
considered collectible. Dividend income is recorded on the
ex-dividend date.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with the origination of a
loan are recorded as deferred income and recognized as income
over the term of the loan. Loan prepayment penalties and loan
amendment fees are recorded into income when received. Any
previously deferred fees are immediately recorded into income
upon prepayment of the related loan.
Payment-in-Kind
Interest (PIK)
We currently hold, and we expect to hold in the future, some
loans in our portfolio that contain a PIK interest provision.
The PIK interest, computed at the contractual rate specified in
each loan agreement, is added to the principal balance of the
loan, rather than being paid to us in cash, and is recorded as
interest income. Thus, the actual collection of PIK interest may
be deferred until the time of debt principal repayment.
To maintain our status as a RIC, this non-cash source of income
must be paid out to stockholders in the form of dividends, even
though we have not yet collected the cash. Generally, when
current cash interest
and/or
principal payments on a loan become past due, or if we otherwise
do not expect the borrower to be able to service its debt and
other obligations, we will place the loan on non-accrual status
and will generally cease recognizing PIK interest income on that
loan for financial reporting purposes until all principal and
interest has been brought current through payment or due to a
restructuring such that the interest income is deemed to be
collectible. We write off any previously accrued and uncollected
PIK interest when it is determined that the PIK interest is no
longer collectible.
Recently
Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board, or
FASB, issued Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820). This
update improves disclosure requirements related to Fair Value
Measurements and Disclosures-Overall Subtopic (Subtopic
820-10) of
the FASB Standards Codification, originally issued as FASB
Statement No. 157, Fair Value Measurements. These
improved disclosure requirements will provide a greater level of
disaggregated information and more robust disclosures about
valuation techniques and inputs to fair value measurements. We
adopted these changes beginning with its financial statements
for the quarter ended March 31, 2010. The adoption of these
changes did not have a material impact on our financial position
or results of operations.
56
Off-Balance
Sheet Arrangements
We currently have no off-balance sheet arrangements.
Quantitative
and Qualitative Disclosures About Market Risk.
Beginning in late 2007, the United States entered a recession,
which many believe could be prolonged. As the economy continued
to deteriorate in 2008, spending by both consumers and
businesses declined significantly, which has impacted the
broader financial and credit markets and has reduced the
availability of debt and equity capital for the market as a
whole and financial firms in particular. This reduction in
spending has had an adverse effect on a number of the industries
in which some of our portfolio companies operate, and on certain
of our portfolio companies as well.
During 2009, we experienced write-downs in our portfolio,
several of which were due to declines in the operating
performance of certain portfolio companies. In the first quarter
of 2010, the fair value of our portfolio as a whole remained
relatively flat with the fair value as of December 31, 2009.
As of March 31, 2010, the fair value of our non-accrual
assets was approximately $13.3 million, which comprised
approximately 6.3% of the total fair value of our portfolio, and
the cost of our non-accrual assets was approximately
$26.6 million, or 12.2% of the total cost of our portfolio.
In addition to these non-accrual assets, as of March 31,
2010, we had, on a fair value basis, approximately
$13.8 million of debt investments, or 6.6% of the total
fair value of our portfolio, which were current with respect to
scheduled principal and interest payments, but which were
carried at less than cost. The cost of these assets as of
March 31, 2010 was approximately $16.1 million, or
7.4% of the total cost of our portfolio.
While the equity and debt markets have recently improved, these
stressed conditions may continue for a prolonged period of time
or worsen in the future. In the event that the current recession
continues for a significant time or the economy deteriorates
further, the financial position and results of operations of
certain of the middle-market companies in our portfolio could be
further affected adversely, which ultimately could lead to
difficulty in our portfolio companies meeting debt service
requirements and lead to an increase in defaults. There can be
no assurance that the performance of our portfolio companies
will not be further impacted by economic conditions, which could
have a negative impact on our future results.
In addition, we are subject to interest rate risk. Interest rate
risk is defined as the sensitivity of our current and future
earnings to interest rate volatility, variability of spread
relationships, the difference in re-pricing intervals between
our assets and liabilities and the effect that interest rates
may have on our cash flows. Changes in the general level of
interest rates can affect our net interest income, which is the
difference between the interest income earned on interest
earning assets and our interest expense incurred in connection
with our interest bearing debt and liabilities. Changes in
interest rates can also affect, among other things, our ability
to acquire and originate loans and securities and the value of
our investment portfolio. Our investment income is affected by
fluctuations in various interest rates, including LIBOR and
prime rates. We regularly measure exposure to interest rate risk
and determine whether or not any hedging transactions are
necessary to mitigate exposure to changes in interest rates. As
of March 31, 2010, we were not a party to any hedging
arrangements.
As of March 31, 2010, approximately 92.5%, or
$183.0 million of our debt portfolio investments bore
interest at fixed rates and approximately 7.5%, or
$14.9 million of our debt portfolio investments bore
interest at variable rates, which are either Prime-based or
LIBOR-based. A 200 basis point increase or decrease in the
interest rates on our variable-rate debt investments would
increase or decrease, as applicable, our investment income by
approximately $0.3 million on an annual basis. All of our
pooled SBA-guaranteed debentures bear interest at fixed rates.
Because we currently borrow, and plan to borrow in the future,
money to make investments, our net investment income is
dependent upon the difference between the rate at which we
borrow funds and the rate at which we invest the funds borrowed.
Accordingly, there can be no assurance that a significant change
in market interest rates will not have a material adverse effect
on our net investment income. In periods of rising
57
interest rates, our cost of funds would increase, which could
reduce our net investment income if there is not a corresponding
increase in interest income generated by our investment
portfolio.
Related
Party Transactions
The 1940 Act prohibits certain transactions between us, Triangle
SBIC, Triangle SBIC II, as well as our and their
affiliates, without first obtaining an exemptive order from the
SEC. We and Triangle SBIC filed a joint exemptive application
with the SEC in 2007 requesting relief under various Sections of
the 1940 Act that would permit us, as the BDC parent, and
Triangle SBIC, as a BDC/SBIC subsidiary, to operate effectively
as one company for 1940 Act regulatory purposes. Specifically,
the application requested relief for us and Triangle SBIC to
(a) engage in certain transactions with each other,
(b) invest in securities in which the other is an investor
and engage in transactions with portfolio companies that would
not otherwise be prohibited if the BDC and its subsidiary were
one company, (c) be subject to modified consolidated asset
coverage requirements for senior securities issued by the BDC
and the BDC/SBIC subsidiary, (d) allow the
BDC/SBIC
subsidiary to have the maximum amount of borrowing capacity for
SBICs permitted under the SBA and the 1940 Act, and
(e) allow Triangle SBIC, as the BDC/SBIC subsidiary, to
file reports under the Securities Exchange Act of 1934, or the
Exchange Act, on a consolidated basis with us, the parent BDC.
In October 2008, the SEC issued an exemptive relief order
approving the above requests. We with our two wholly owned SBIC
subsidiaries have filed a joint application with the SEC
requesting an amendment to its exemptive relief order issued in
October 2008 to include Triangle SBIC II and any future Triangle
subsidiaries in its exemptive relief order. Our application
requesting an amendment is currently pending with the SEC.
In addition, under current SEC rules and regulations, BDCs may
not grant options or restricted stock to directors who are not
officers or employees of the BDC. Similarly, under the 1940 Act,
BDCs cannot issue stock for services to their executive officers
and employees other than options, warrants and rights to acquire
capital stock. In March 2008, we received an exemptive relief
order from the SEC that permits us to grant restricted stock to
our independent directors as a portion of their compensation for
service on our Board of Directors and permits us to grant
restricted stock in exchange for or in recognition of services
by our executive officers and employees.
Contractual
Obligations
As of December 31, 2009, our future fixed commitments for
cash payments are as follows (in thousands):
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2011 to
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2013 to
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2015 and
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Total
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|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
Thereafter
|
|
|
SBA guaranteed debentures payable
|
|
$
|
121,910,000
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|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,700,000
|
|
|
$
|
113,210,000
|
|
Interest due on SBA guaranteed debentures payable
|
|
|
56,159,580
|
|
|
|
6,977,249
|
|
|
|
13,901,655
|
|
|
|
13,882,638
|
|
|
|
21,398,038
|
|
Unused commitments to extend credit(1)
|
|
|
4,295,612
|
|
|
|
4,295,612
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|
|
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Operating lease payments(2)
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|
1,165,113
|
|
|
|
281,409
|
|
|
|
582,336
|
|
|
|
301,368
|
|
|
|
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Total
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$
|
183,530,305
|
|
|
$
|
11,554,270
|
|
|
$
|
14,483,991
|
|
|
$
|
22,884,006
|
|
|
$
|
134,608,038
|
|
|
|
|
|
|
|
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|
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|
(1) |
|
We have a commitment to extend credit, in the form of loans and
additional equity contributions, to two of our portfolio
companies which are undrawn as of December 31, 2009. Since
this commitment may expire without being drawn upon, the total
commitment amount does not necessarily represent future cash
requirements, however we have chosen to present the amount of
this unused commitment as an obligation in this table. |
|
(2) |
|
We lease our corporate office facility under an operating lease
that terminates on December 31, 2013. We believe that our
existing facilities will be adequate to meet our needs at least
through 2010, and that we will be able to obtain additional
space when, where and as needed on acceptable terms. |
58
SENIOR
SECURITIES
Information about our senior securities is shown in the
following table as of December 31, 2009 and for the years
indicated in the table, unless otherwise noted.
Ernst &Young LLPs report on the senior
securities table as of December 31, 2009 is attached as an
exhibit to the registration statement of which this prospectus
is a part.
|
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|
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Total Amount
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|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
Exclusive of
|
|
|
Asset
|
|
|
Liquidating
|
|
|
Average Market
|
|
|
|
Treasury
|
|
|
Coverage per
|
|
|
Preference per
|
|
|
Value per
|
|
Class and Year
|
|
Securities(a)
|
|
|
Unit(b)
|
|
|
Unit(c)
|
|
|
Unit(d)
|
|
|
|
(Dollars in
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|
|
|
|
|
|
|
|
|
|
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
SBA guaranteed debentures payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
2004
|
|
|
17,700
|
|
|
|
1,283
|
|
|
|
|
|
|
|
N/A
|
|
2005
|
|
|
31,800
|
|
|
|
1,357
|
|
|
|
|
|
|
|
N/A
|
|
2006
|
|
|
31,800
|
|
|
|
1,791
|
|
|
|
|
|
|
|
N/A
|
|
2007
|
|
|
37,010
|
|
|
|
3,526
|
|
|
|
|
|
|
|
N/A
|
|
2008
|
|
|
115,110
|
|
|
|
1,794
|
|
|
|
|
|
|
|
N/A
|
|
2009
|
|
|
121,910
|
|
|
|
2,059
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
(a) |
|
Total amount of each class of senior securities outstanding at
the end of the period presented. |
|
(b) |
|
Asset coverage per unit is the ratio of the carrying value of
our total consolidated assets, less all liabilities and
indebtedness not represented by senior securities, to the
aggregate amount of senior securities representing indebtedness.
Asset coverage per unit is expressed in terms of dollar amounts
per $1,000 of indebtedness. |
|
(c) |
|
The amount to which such class of senior security would be
entitled upon the involuntary liquidation of the issuer in
preference to any security junior to it. The
indicates information which the Securities and Exchange
Commission expressly does not require to be disclosed for
certain types of senior securities. |
|
(d) |
|
Not applicable because senior securities are not registered for
public trading. |
59
BUSINESS
Triangle Capital Corporation is a specialty finance company that
provides customized financing solutions to lower middle market
companies located throughout the United States. We define lower
middle market companies as those having annual revenues between
$10.0 and $100.0 million. Our investment objective is to
seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments. Our 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. We invest primarily in
senior and subordinated debt securities secured by first and
second lien security interests in portfolio company assets,
coupled with equity interests.
We focus on investments in companies with a history of
generating revenues and positive cash flows, an established
market position and a proven management team with a strong
operating discipline. Our target portfolio company generally has
annual revenues between $20.0 and $100.0 million and EBITDA
between $3.0 and $20.0 million. We believe that these
companies have less access to capital and that the market for
such capital is underserved relative to larger companies.
Companies of this size are generally privately held and are less
well known to traditional capital sources such as commercial and
investment banks.
Our investments generally range from $5.0 to $15.0 million
per portfolio company. In certain situations, we have partnered
with other funds to provide larger financing commitments. We
intend to continue to make investments through our two wholly
owned SBIC subsidiaries and to utilize the proceeds of the sale
of SBA guaranteed debentures, referred to herein as SBA
leverage, in order to enhance returns to our stockholders. As of
March 31, 2010, we had investments in 38 portfolio
companies, with an aggregate cost of $218.9 million.
Our
Business Strategy
We seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments by:
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Focusing on Underserved Markets. We believe
that broad-based consolidation in the financial services
industry coupled with operating margin and growth pressures have
caused financial institutions to de-emphasize services to lower
middle market companies in favor of larger corporate clients and
capital market transactions. We believe these dynamics have
resulted in the financing market for lower middle market
companies to be underserved, providing us with greater
investment opportunities.
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Providing Customized Financing Solutions. We
offer a variety of financing structures and have the flexibility
to structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt
securities, coupled with equity interests. We believe our
ability to customize financing arrangements makes us an
attractive partner to lower middle market companies.
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Leveraging the Experience of Our Management
Team. Our senior management team has extensive
experience advising, investing in, lending to and operating
companies across changing market cycles. The members of our
management team have diverse investment backgrounds, with prior
experience at investment banks, specialty finance companies,
commercial banks, and privately and publicly held companies in
the capacity of executive officers. We believe this diverse
experience provides us with an in depth understanding of the
strategic, financial and operational challenges and
opportunities of lower middle market companies. We believe this
understanding allows us to select and structure better
investments and to efficiently monitor and provide managerial
assistance to our portfolio companies.
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Applying Rigorous Underwriting Policies and Active Portfolio
Management. Our senior management team has
implemented rigorous underwriting policies that are followed in
each transaction. These policies include a thorough analysis of
each potential portfolio companys competitive position,
financial performance, management team operating discipline,
growth potential and industry attractiveness, allowing us to
better assess the companys prospects. After investing in a
company, we monitor the investment closely, typically receiving
monthly, quarterly and annual financial statements. We analyze
and discuss in detail the companys financial performance
with management in addition to
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attending regular board of directors meetings. We believe that
our initial and ongoing portfolio review process allows us to
monitor effectively the performance and prospects of our
portfolio companies.
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Taking Advantage of Low Cost Debentures Guaranteed by the
SBA. Our SBIC subsidiaries licenses to do
business as SBICs allow us to issue fixed-rate, low interest
debentures which are guaranteed by the SBA and sold in the
capital markets, potentially allowing us to increase our net
interest income beyond the levels achievable by other BDCs
utilizing traditional leverage.
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Investing Across Multiple Industries. While we
focus our investments in lower middle market companies, we seek
to invest across various industries. We monitor our investment
portfolio to ensure we have acceptable industry balance, using
industry and market metrics as key indicators. By monitoring our
investment portfolio for industry balance we seek to reduce the
effects of economic downturns associated with any particular
industry or market sector. However, we may from time to time
hold securities of a single portfolio company that comprise more
than 5.0% of our total assets
and/or more
than 10.0% of the outstanding voting securities of the portfolio
company. For that reason, we are classified as a non-diversified
management investment company under the 1940 Act.
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Utilizing Long-Standing Relationships to Source
Deals. Our senior management team maintains
extensive relationships with entrepreneurs, financial sponsors,
attorneys, accountants, investment bankers, commercial bankers
and other non-bank providers of capital who refer prospective
portfolio companies to us. These relationships historically have
generated significant investment opportunities. We believe that
our network of relationships will continue to produce attractive
investment opportunities.
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Our
Investment Criteria
We utilize the following criteria and guidelines in evaluating
investment opportunities. However, not all of these criteria and
guidelines have been, or will be, met in connection with each of
our investments.
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Established Companies With Positive Cash
Flow. We seek to invest in established companies
with a history of generating revenues and positive cash flows.
We typically focus on companies with a history of profitability
and minimum trailing twelve month EBITDA of $3.0 million.
We do not invest in
start-up
companies, distressed situations, turn-around
situations or companies that we believe have unproven business
plans.
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Experienced Management Teams With Meaningful Equity
Ownership. Based on our prior investment
experience, we believe that a management team with significant
experience with a portfolio company or relevant industry
experience and meaningful equity ownership is more committed to
a portfolio company. We believe management teams with these
attributes are more likely to manage the companies in a manner
that protects our debt investment and enhances the value of our
equity investment.
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Strong Competitive Position. We seek to invest
in companies that have developed strong positions within their
respective markets, are well positioned to capitalize on growth
opportunities and compete in industries with barriers to entry.
We also seek to invest in companies that exhibit a competitive
advantage, which may help to protect their market position and
profitability.
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Varied Customer and Supplier Base. We prefer
to invest in companies that have a varied customer and supplier
base. Companies with a varied customer and supplier base are
generally better able to endure economic downturns, industry
consolidation and shifting customer preferences.
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Significant Invested Capital. We believe the
existence of significant underlying equity value provides
important support to investments. We will look for portfolio
companies that we believe have sufficient value beyond the layer
of the capital structure in which we invest.
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Investments
Debt
Investments
We tailor the terms of our debt investments to the facts and
circumstances of each transaction and prospective portfolio
company, negotiating a structure that seeks to protect our
rights and manage our risk while creating incentives for the
portfolio company to achieve its business plan. To that end, we
typically seek board observation rights with each of our
portfolio companies and offer managerial assistance. We also
seek to limit the downside risks of our investments by
negotiating covenants that are designed to protect our
investments while affording our portfolio companies as much
flexibility in managing their businesses as possible. Such
restrictions may include affirmative and negative covenants,
default penalties, lien protection, change of control provisions
and put rights. We typically add a prepayment penalty structure
to enhance our total return on our investments.
We typically invest in senior secured debt and subordinated
notes. Senior subordinated notes are junior to senior secured
debt but senior to other series of subordinated notes. Our
senior secured debt investments and subordinated note
investments generally have terms of three to seven years. Our
senior secured debt investments generally provide for variable
interest at rates ranging from LIBOR plus 350 basis points
to LIBOR plus 950 basis points and our subordinated debt
investments generally provide for fixed interest rates between
12.0% and 17.0% per annum. Our subordinated note investments
generally are secured by a second priority security interest in
the assets of the borrower and generally include an equity
component, such as warrants to purchase common stock in the
portfolio company. In addition, certain loan investments may
have a form of interest that is not paid currently but is
accrued and added to the loan balance and paid at the end of the
term, referred to as
payment-in-kind,
or PIK interest. In our negotiations with potential portfolio
companies we generally seek to minimize PIK interest as we have
to pay out such accrued interest as distributions to our
stockholders, and we may have to borrow money or raise
additional capital in order to meet the requirement of having to
pay out at least 90.0% of our income to continue to qualify as a
Regulated Investment Company, or RIC, for U.S. federal income
tax purposes. As of both March 31, 2010, and
December 31, 2009, the weighted average yield on our
outstanding debt investments other than non-accrual debt
investments (including PIK interest) was approximately 14.7%.
The weighted average yield on all of our outstanding investments
(including equity and equity-linked investments but excluding
non-accrual debt investments) was approximately 13.4% and 13.5%
as of March 31, 2010 and December 31, 2009,
respectively. The weighted average yield on all of our
outstanding investments (including equity and equity-linked
investments and non-accrual debt investments) was approximately
11.8% and 12.5% as of March 31, 2010 and December 31,
2009, respectively.
Equity
Investments
When we provide financing, we may acquire equity interests in
the portfolio company. We generally seek to structure our equity
investments as non-control investments to provide us with
minority rights and event-driven or time-driven puts. We also
seek to obtain registration rights in connection with these
investments, which may include demand and piggyback
registration rights, board seats and board observation rights.
Our investments have in the past and may in the future contain a
synthetic equity position pursuant to a formula typically
setting forth royalty rights we may exercise in accordance with
such formula.
Investment
Process
Triangle Capital Corporation has an investment committee that is
responsible for all aspects of our investment process relating
to investments made by Triangle Capital Corporation or any of
its subsidiaries, other than investments made by Triangle SBIC.
The members of the Triangle Capital Corporation investment
committee are Messrs. Garland S. Tucker III, Brent P.W.
Burgess, Steven C. Lilly, Jeffrey A. Dombcik, Douglas A. Vaughn,
and David F. Parker.
Triangle SBIC has an investment committee that is responsible
for all aspects of our investment process relating to
investments made by Triangle SBIC. The members of the Triangle
SBIC investment committee are Messrs. Garland S. Tucker
III, Brent P.W. Burgess, Steven C. Lilly, Jeffrey A. Dombcik,
Douglas A. Vaughn,
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and David F. Parker. Douglas A. Vaughns appointment to the
Triangle SBIC investment committee is contingent upon our
receiving confirmation from the U.S. Small Business
Administration. For purposes of the discussion herein, any
reference to the investment committee refers to both
the investment committee of Triangle Capital Corporation and the
investment committee of Triangle SBIC. Our investment committee
meets once a week but also meets on an as needed basis depending
on transaction volume. Our investment committee has organized
our investment process into five distinct stages:
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Origination
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Due Diligence and Underwriting
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Approval
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Documentation and Closing
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Portfolio Management and Investment Monitoring
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Our investment process is summarized in the following chart:
Origination
The origination process for our investments includes sourcing,
screening, preliminary due diligence, transaction structuring,
and negotiation. Our origination process ultimately leads to the
issuance of a non-binding term sheet. Investment origination is
conducted by our investment professionals who are responsible
for sourcing potential investment opportunities. Our investment
professionals utilize their extensive relationships with various
financial sponsors, entrepreneurs, attorneys, accountants,
investment bankers and other non-bank providers of capital to
source transactions with prospective portfolio companies.
If a transaction meets our investment criteria, we perform
preliminary due diligence, taking into consideration some or all
of the following factors:
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A comprehensive financial model that we prepare based on
quantitative analysis of historical financial performance,
financial projections and pro forma financial ratios assuming
investment;
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Competitive landscape surrounding the potential investment;
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Strengths and weaknesses of the potential investments
business strategy and industry;
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Results of a broad qualitative analysis of the companys
products or services, market position, market dynamics and
customers and suppliers; and
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Potential investment structures, certain financing ratios and
investment pricing terms.
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If the results of our preliminary due diligence are
satisfactory, the origination team prepares a Summary
Transaction Memorandum which is presented to our investment
committee. If our investment committee recommends moving
forward, we issue a non-binding term sheet to the potential
portfolio company. Upon execution of a term sheet, we begin our
formal due diligence and underwriting process as we move toward
investment approval.
Due
Diligence and Underwriting
Our due diligence on a prospective investment is completed by a
minimum of two investment professionals, which we define as the
underwriting team. The members of the underwriting
team work together to conduct due diligence and to understand
the relationships among the prospective portfolio companys
business plan, operations and financial performance through
various methods, including, among others,
on-site
visits with management, in-depth review of historical and
projected financial data, interviews with customers and
suppliers, management background checks, third-party accounting
reports and review of any material contracts.
In most circumstances, we utilize outside experts to review the
legal affairs, accounting systems and results, and, where
appropriate, we engage specialists to investigate issues like
environmental matters and general industry outlooks. During the
underwriting process, significant attention is given to
sensitivity analyses and how companies might be expected to
perform in a protracted downside operating
environment. In addition, we analyze key financing ratios and
other industry metrics, including total debt to EBITDA, EBITDA
to fixed charges, EBITDA to total interest expense, total debt
to total capitalization and total senior debt to total
capitalization.
Upon completion of a satisfactory due diligence review and as
part of our evaluation of a proposed investment, the
underwriting team prepares an Investment Memorandum for
presentation to our investment committee. The Investment
Memorandum includes information about the potential portfolio
company such as its history, business strategy, potential
strengths and risks involved, analysis of key customers and
suppliers, working capital analysis, third party consultant
findings, expected returns on investment structure, anticipated
sources of repayment and exit strategies, analysis of historical
financials, and potential capitalization and ownership.
Approval
The underwriting team for the proposed investment presents the
Investment Memorandum to our investment committee for
consideration and approval. After reviewing the Investment
Memorandum, members of the investment committee may request
additional due diligence or modify the proposed financing
structure or terms of the proposed investment. Before we proceed
with any investment, the investment committee must approve the
proposed investment. Upon receipt of transaction approval, the
involved investment professionals proceed to document and, upon
satisfaction of applicable closing conditions, fund the
investment.
Documentation
and Closing
The underwriting team is responsible for leading the negotiation
of all documentation related to investment closings. We also
rely on law firms with whom we have worked on multiple
transactions to help us complete the necessary documentation
associated with transaction closings. If a transaction changes
materially from what was originally approved by the investment
committee, the underwriting team requests a formal meeting of
the investment committee to communicate the contemplated
changes. The investment committee
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has the right to approve the amended transaction structure, to
suggest alternative structures or not to approve the
contemplated changes.
Portfolio
Management and Investment Monitoring
Our investment professionals generally employ several methods of
evaluating and monitoring the performance of our portfolio
companies, which, depending on the particular investment, may
include the following specific processes, procedures and reports:
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Monthly and quarterly review of actual financial performance
versus the corresponding period of the prior year and financial
projections;
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Monthly and quarterly monitoring of all financial and other
covenants;
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Review of senior lender loan compliance certificates, where
applicable;
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Quarterly review of operating results, and general business
performance, including the preparation of a portfolio monitoring
report which is distributed to members of our investment
committee;
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Periodic face-to-face meetings with management teams and
financial sponsors of portfolio companies;
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Attendance at portfolio company board meetings through board
seats or observation rights; and
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Application of our investment rating system to each investment.
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In the event that our investment committee determines that an
investment is underperforming, or circumstances suggest that the
risk associated with a particular investment has significantly
increased, we undertake more aggressive monitoring of the
affected portfolio company. The frequency of our monitoring of
an investment is determined by a number of factors, including,
but not limited to, the trends in the financial performance of
the portfolio company, the investment structure and the type of
collateral securing our investment, if any.
Investment
Rating System
We monitor a wide variety of key credit statistics that provide
information regarding our portfolio companies to help us assess
credit quality and portfolio performance. We generally require
our portfolio companies to provide annual audits in addition to
monthly and quarterly unaudited financial statements. Using
these statements, we calculate and evaluate certain financing
ratios. For purposes of analyzing the financial performance of
our portfolio companies, we may make certain adjustments to
their financial statements to reflect the pro forma results of a
company consistent with a change of control transaction, to
reflect anticipated cost savings resulting from a merger or
restructuring, costs related to new product development,
compensation to previous owners, and other acquisition or
restructuring related items.
As part of our valuation procedures we risk rate all of our
investments in debt securities. Our investment rating system
uses a scale of 0 to 10, with 10 being the lowest probability of
default and principal loss. This system is used to estimate the
probability of default on our debt securities and the
probability of loss if there is a default. The system is also
used to assist us in estimating the fair value of equity related
securities. These types of systems are referred to as risk
rating systems and are used by banks and rating agencies. Our
risk rating system covers both qualitative and quantitative
aspects of the business and the securities we hold.
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Each portfolio company debt investment is rated based upon the
following numeric investment rating system:
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Investment
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Rating
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Description
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10
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Investment is performing above original expectations and
possibly 30.0% or more above original projections provided by
the portfolio company. Investment has been positively influenced
by an unforeseen external event. Full return of principal and
interest is expected. Capital gain is expected.
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9
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Investment is performing above original expectations and
possibly 30.0% or more above original projections provided by
the portfolio company. Investment may have been or is soon to be
positively influenced by an unforeseen external event. Full
return of principal and interest is expected. Capital gain is
expected.
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8
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Investment is performing above original expectations and
possibly 21.0% to 30.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Capital gain is expected.
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7
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Investment is performing above original expectations and
possibly 11.0% to 21.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Depending on age of transaction, potential for capital
gain exists.
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Investment is performing above original expectations and
possibly 5.0% to 11.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Depending on age of transaction, potential for capital
gain exists.
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5
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Investment is performing in line with expectations. Full return
of principal and interest is expected. Depending on age of
transaction, potential for nominal capital gain may be expected.
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4
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Investment is performing below expectations, but no covenant
defaults have occurred. Full return of principal and interest is
expected. Little to no capital gain is expected.
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Investment is in default of transaction covenants but interest
payments are current. No loss of principal is expected.
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Investment is in default of transaction covenants and interest
(and possibly principal) payments are not current. A principal
loss of between 1.0% and 33.0% is expected.
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Investment is in default of transaction covenants and interest
(and possibly principal) payments are not current. A principal
loss of between 34.0% and 67.0% is expected.
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0
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Investment is in default and a principal loss of between 68.0%
and 100.0% is expected.
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Valuation
Process and Determination of Net Asset Value
Valuation
Process
The most significant estimate inherent in the preparation of our
financial statements is the valuation of investments and the
related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented
processes and methodologies for determining the fair values of
portfolio company investments on a recurring (quarterly) basis.
As discussed below, we have engaged an independent valuation
firm to assist us in our valuation process.
On January 1, 2008, we adopted Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements, which was later codified as Financial
Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 820, Fair
Value Measurements and Disclosures. ASC Topic 820,
which defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value measurements.
ASC Topic 820 clarifies that the exchange price is the
price in an orderly transaction between market participants to
sell an asset or transfer a liability in the market in which the
reporting entity would transact for the asset or liability, that
is, the principal or most advantageous market for the asset or
liability. The transaction to sell the asset or transfer the
liability is a hypothetical transaction at the measurement date,
considered from the perspective of a market participant that
holds the asset or owes the liability. ASC
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Topic 820 provides a consistent definition of fair value
which focuses on exit price and prioritizes, within a
measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, ASC Topic 820 provides
a framework for measuring fair value, and establishes a
three-level hierarchy for fair value measurements based upon the
transparency of inputs to the valuation of an asset or liability
as of the measurement date. The three levels of valuation
hierarchy established by ASC Topic 820 are defined as
follows:
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2 inputs to the valuation
methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
A financial instruments categorization within the
valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. We invest
primarily in debt and equity instruments of privately held
companies for which quoted prices falling within the categories
of Level 1 and Level 2 inputs are not available.
Therefore, we value all of our investments at fair value, as
determined in good faith by our Board of Directors, using
Level 3 inputs, as further described below. Due to the
inherent uncertainty in the valuation process, our Board of
Directors estimate of fair value may differ significantly
from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
In addition, changes in the market environment and other events
that may occur over the life of the investments may cause the
gains or losses ultimately realized on these investments to be
different than the valuations currently assigned. For a
discussion of the risks inherent in determining the value of
securities for which readily available market values do not
exist, see Risk Factors Risks Relating to Our
Business and Structure Our investment portfolio is
and will continue to be recorded at fair value as determined in
good faith by our Board of Directors and, as a result, there is
and will continue to be uncertainty as to the value of our
portfolio investments.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that we might reasonably
expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the
most recent portfolio company financial statements and
forecasts. We also consult with the portfolio companys
senior management to obtain further updates on the portfolio
companys performance, including information such as
industry trends, new product development and other operational
issues. Additionally, we consider some or all of the following
factors:
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financial standing of the issuer of the security;
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comparison of the business and financial plan of the issuer with
actual results;
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the size of the security held as it relates to the liquidity of
the market for such security;
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pending public offering of common stock by the issuer of the
security;
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pending reorganization activity affecting the issuer, such as
merger or debt restructuring;
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ability of the issuer to obtain needed financing;
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changes in the economy affecting the issuer;
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financial statements and reports from portfolio company senior
management and ownership;
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the type of security, the securitys cost at the date of
purchase and any contractual restrictions on the disposition of
the security;
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discount from market value of unrestricted securities of the
same class at the time of purchase;
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special reports prepared by analysts;
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information as to any transactions or offers with respect to the
security
and/or sales
to third parties of similar securities;
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the issuers ability to make payments and the type of
collateral;
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the current and forecasted earnings of the issuer;
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statistical ratios compared to lending standards and to other
similar securities; and
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other pertinent factors.
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In making the good faith determination of the value of debt
securities, we start with the cost basis of the security, which
includes any unamortized original issue discount, unamortized
loan origination fees, and payment in
kind (PIK) interest, if any. We also use the risk rating system
discussed above under Investment Rating System to
estimate the probability of default on the debt securities and
the probability of loss if there is a default. The risk rating
system covers both qualitative and quantitative aspects of the
business and the securities held. In valuing debt securities, we
utilize an income approach model that considers
factors including, but not limited to, (i) the portfolio
investments current risk rating, (ii) the portfolio
companys current trailing twelve months
(TTM) results of operations as compared to the
portfolio companys TTM results of operations as of the
date the investment was made, (iii) the portfolio
companys current leverage as compared to its leverage as
of the date the investment was made and (iv) current
pricing and credit metrics for similar proposed and executed
investment transactions. In valuing equity securities of private
companies, we consider valuation methodologies consistent with
industry practice, including (i) valuation using a
valuation model based on original transaction multiples and the
portfolio companys recent financial performance,
(ii) valuation of the securities based on recent sales in
comparable transactions and (iii) a review of similar
companies that are publicly traded and the market multiple of
their equity securities.
Unrealized appreciation or depreciation on portfolio investments
are recorded as increases or decreases in investments on the
balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets
resulting from operations.
Determination of the fair value involves subjective judgements
and estimates not susceptible to substantiation by auditing
procedures. Accordingly, under current auditing standards, the
notes to our financial statements will refer to the uncertainty
with respect to the possible effect of such valuations, and any
change in such valuations, on our financial statements. In
addition, the SBA has established certain valuation guidelines
for SBICs to follow when valuing portfolio investments.
Duff & Phelps, an independent valuation firm, provides
third party valuation consulting services to us, which consist
of certain limited procedures that we identified and requested
Duff & Phelps to perform (hereinafter referred to as
the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one
or more portfolio companies. Such instances include, but are not
limited to, situations where the fair value of our investment in
the portfolio company is determined to be insignificant relative
to our total investment portfolio.
For the quarter ended March 31, 2010, we asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 25% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2010. Upon completion of the procedures, Duff & Phelps
concluded that the fair value, as determined by the Board of
Directors, of those investments subjected to the procedures did
not appear to be unreasonable. Our Board of Directors is
ultimately and solely responsible for determining the fair value
of our investments in good faith.
68
Quarterly
Net Asset Value Determination
We determine the net asset value per share of our common stock
on at least a quarterly basis and more frequently if we are
required to do so pursuant to an equity offering or pursuant to
federal laws and regulations. The net asset value per share is
equal to the value of our total assets minus liabilities and any
preferred stock outstanding divided by the total number of
shares of common stock outstanding.
Managerial
Assistance
As a BDC, we offer, and must provide upon request, managerial
assistance to certain of our portfolio companies. This
assistance typically involves, among other things, monitoring
the operations of our portfolio companies, participating in
board and management meetings, consulting with and advising
officers of portfolio companies and providing other
organizational and financial guidance. Our senior management
team provides such services. We believe, based on our management
teams combined experience at investment banks, specialty
finance companies, commercial banks, and operating in
executive-level capacities in various operating companies, we
offer this assistance effectively. We may receive fees for these
services.
Competition
We compete for investments with a number of BDCs and investment
funds (including private equity funds, mezzanine funds and other
SBICs), as well as traditional financial services companies such
as commercial banks and other sources of financing. Many of
these entities have greater financial and managerial resources
than we do. We believe we compete with these entities primarily
on the basis of our willingness to make smaller investments, the
experience and contacts of our management team, our responsive
and efficient investment analysis and decision-making processes,
our comprehensive suite of customized financing solutions and
the investment terms we offer.
We believe that some of our competitors make senior secured
loans, junior secured loans and subordinated debt investments
with interest rates that are comparable to or lower than the
rates we offer. Therefore, we do not seek to compete primarily
on the interest rates we offer to potential portfolio companies.
Our competitors also do not always require equity components in
their investments. For additional information concerning the
competitive risks we face, see Risk Factors
Risks Relating to Our Business and Structure We
operate in a highly competitive market for investment
opportunities.
Employees
At March 31, 2010, we employed thirteen individuals,
including investment and portfolio management professionals,
operations professionals and administrative staff. We expect to
expand our management team and administrative staff in the
future in proportion to our growth.
Properties
We do not own any real estate or other physical properties
materially important to our operation or any of our
subsidiaries. Currently, we lease approximately
11,027 square feet of office space located at
3700 Glenwood Avenue, Suite 530, Raleigh, North
Carolina 27612. We believe that our current facilities are
adequate for our business as we intend to conduct it.
Legal
Proceedings
Although we may, from time to time, be involved in litigation
arising out of our operations in the normal course of business
or otherwise, neither we nor any of our subsidiaries are
currently a party to any pending material legal proceedings.
69
PORTFOLIO
COMPANIES
The following table sets forth certain information as of
March 31, 2010 for each portfolio company in which we had a
debt or equity investment. Other than these investments, our
only relationships with our portfolio companies involve the
managerial assistance we may separately provide to our portfolio
companies, such services being ancillary to our investments, and
the board observer or participation rights we may receive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non-Control / Non-Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA) and Peaden-Hobbs
Mechanical, LLC (PHM) (5%)*
620 West Baldwin Road
Panama City, FL 32405
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-AA
(12% Cash, 2% PIK, Due 03/11)
|
|
$
|
3,236,386
|
|
|
$
|
3,185,018
|
|
|
$
|
3,185,018
|
|
|
|
|
Subordinated Note-AA
(14% Cash, 4% PIK, Due 03/11)
|
|
|
1,982,791
|
|
|
|
1,968,934
|
|
|
|
1,968,934
|
|
|
|
|
|
Common Stock-PHM (128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
105,100
|
|
|
|
|
|
Common Stock Warrants-AA (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
643,400
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
5,219,177
|
|
|
|
5,424,884
|
|
|
|
5,902,452
|
|
American De-Rosa Lamparts, LLC
|
|
Wholesale and
|
|
|
|
|
|
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|
|
|
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|
|
|
|
and Hallmark Lighting (3%)*
|
|
Distribution
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
1945 S. Tubeway Ave.
|
|
|
|
(11.5% Cash, 3.75%
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce, CA 90040
|
|
|
|
PIK, Due 10/13)
|
|
|
9,203,983
|
|
|
|
8,251,190
|
|
|
|
3,985,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,203,983
|
|
|
|
8,251,190
|
|
|
|
3,985,700
|
|
American Direct Marketing Resources, LLC (3%) 400 Chesterfield
Center, Suite 500
Chesterfield, MO 63017
|
|
Direct Marketing
Services
|
|
Subordinated Note
(12% Cash, 3% PIK, Due 03/15)
|
|
|
4,188,639
|
|
|
|
4,122,062
|
|
|
|
4,122,062
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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|
4,188,639
|
|
|
|
4,122,062
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|
|
|
4,122,062
|
|
Assurance Operations Corp. (2%)*
9341 Highway 43
|
|
Auto Components /
Metal Fabrication
|
|
Senior Note
(6% Cash, 8% PIK, Due 06/11)
|
|
|
2,533,680
|
|
|
|
2,083,680
|
|
|
|
2,083,680
|
|
Killen, AL 35645
|
|
|
|
Common Stock (300 shares)
|
|
|
|
|
|
|
300,000
|
|
|
|
166,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,533,680
|
|
|
|
2,383,680
|
|
|
|
2,249,780
|
|
Botanical Laboratories, Inc. (8%)*
1441 West Smith Road
|
|
Nutritional Supplement
Manufacturing and Distribution
|
|
Senior Notes
(14% Cash, Due 02/15)
|
|
|
10,500,000
|
|
|
|
9,762,900
|
|
|
|
9,762,900
|
|
Ferndale, WA 98248
|
|
|
|
Common Unit Warrants (998,680 Units)
|
|
|
|
|
|
|
474,600
|
|
|
|
474,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500,000
|
|
|
|
10,237,500
|
|
|
|
10,237,500
|
|
CRS Reprocessing, LLC (4%)*
|
|
Fluid Reprocessing Services
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
13551 Triton Park Blvd.
|
|
|
|
(12% Cash, 2% PIK, Due 11/14)
|
|
|
5,270,385
|
|
|
|
5,148,155
|
|
|
|
5,148,155
|
|
Louisville, KY 40223
|
|
|
|
Common Unit Warrant (150 Units)
|
|
|
|
|
|
|
33,187
|
|
|
|
33,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,270,385
|
|
|
|
5,181,342
|
|
|
|
5,181,342
|
|
CV Holdings, LLC (9%)*
|
|
Specialty
|
|
Subordinated Note (12% Cash, 4%
|
|
|
|
|
|
|
|
|
|
|
|
|
1030 Riverfront Center
|
|
Healthcare Products
|
|
PIK, Due 09/13)
|
|
|
11,334,261
|
|
|
|
10,548,870
|
|
|
|
10,548,870
|
|
Amsterdam, NY 12010
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,334,261
|
|
|
|
11,423,270
|
|
|
|
11,498,170
|
|
Electronic Systems Protection, Inc. (3%)*
517 North Industrial Drive
Zebulon, NC 27577
|
|
Power Protection
Systems Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
|
3,136,518
|
|
|
|
3,113,089
|
|
|
|
2,888,901
|
|
|
|
|
|
Senior Note
(8.3% Cash, Due 01/14)
|
|
|
888,728
|
|
|
|
888,728
|
|
|
|
888,728
|
|
|
|
|
|
Common Stock (500 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
96,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,025,246
|
|
|
|
4,286,817
|
|
|
|
3,874,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
|
|
Voting Units
|
|
|
|
|
|
|
|
|
|
|
|
|
2730 E. Phillips Road
|
|
Distribution
|
|
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greer, SC 29650
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
600,000
|
|
Fire Sprinkler Systems, Inc. (1%)*
705 E. Harrison Street, Suite 200
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(2% PIK, Due 04/11)
|
|
|
2,765,917
|
|
|
|
2,373,242
|
|
|
|
750,000
|
|
Corona, CA 92879
|
|
|
|
Common Stock
(370 shares)
|
|
|
|
|
|
|
369,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,765,917
|
|
|
|
2,742,866
|
|
|
|
750,000
|
|
Frozen Specialties, Inc. (6%)*
1465 Timberwolf Dr.
Holland, OH 43258
|
|
Frozen Foods Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
|
7,759,048
|
|
|
|
7,625,910
|
|
|
|
7,625,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,759,048
|
|
|
|
7,625,910
|
|
|
|
7,625,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. (3%)*
15822 Bernardo Center Drive
San Diego, CA 92127
|
|
Restaurant
|
|
2nd Lien
Note
(7.8% Cash, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
778,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,778,800
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Gerli & Company (1%)*
75 Stark Street
Plains, PA 18705
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(0.69% PIK, Due 08/11)
Subordinated Note
|
|
$
|
3,696,132
|
|
|
$
|
3,133,591
|
|
|
$
|
1,817,000
|
|
|
|
|
|
(6.25% Cash, 11.75% PIK,
Due 08/11)
|
|
|
124,073
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,820,205
|
|
|
|
3,337,005
|
|
|
|
1,937,000
|
|
Grindmaster-Cecilware Corp. (4%)*
43-05 20th Ave
Long Island City, NY 11105
|
|
Food Services
Equipment Manufacturer
|
|
Subordinated Note
(11% Cash, 3% PIK,
Due 03/15)
|
|
|
5,844,297
|
|
|
|
5,737,151
|
|
|
|
5,737,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,844,297
|
|
|
|
5,737,151
|
|
|
|
5,737,151
|
|
Inland Pipe Rehabilitation
Holding Company, LLC (11%)*
|
|
Cleaning and Repair
Services
|
|
Subordinated Note
(14% Cash, Due 01/14)
|
|
|
8,108,641
|
|
|
|
7,329,114
|
|
|
|
7,329,114
|
|
350 N. Old Woodward, Ste. 100
|
|
|
|
Subordinated Note (18% Cash, Due 01/14)
|
|
|
3,750,000
|
|
|
|
3,693,060
|
|
|
|
3,693,060
|
|
Birmingham, MI 48009
|
|
|
|
Membership Interest
Purchase Warrant (2.9%)
|
|
|
|
|
|
|
853,500
|
|
|
|
3,742,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,858,641
|
|
|
|
11,875,674
|
|
|
|
14,765,074
|
|
Jenkins Services, LLC (7%)*
45681 Oakbrook Ct., Ste. 113
Sterling, VA 20166
|
|
Restoration
Services
|
|
Subordinated Note
(10.25% Cash, 7.25% PIK,
Due 04/14)
|
|
|
7,651,434
|
|
|
|
7,534,406
|
|
|
|
7,534,406
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,375,000
|
|
|
|
1,344,342
|
|
|
|
1,344,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,026,434
|
|
|
|
8,878,748
|
|
|
|
8,878,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC (1%)*
|
|
Municipal Business
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
12850 Middlebrook Road
|
|
Services
|
|
(12% Cash, Due 03/11)
|
|
|
1,000,000
|
|
|
|
979,277
|
|
|
|
979,277
|
|
Germantown, MD 20874
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
839,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,038,272
|
|
|
|
1,818,877
|
|
Novolyte Technologies, Inc. (6%)*
111 West Irene Road
Zachory, LA 70791
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5%
PIK, Due 04/15)
|
|
|
7,467,576
|
|
|
|
7,340,921
|
|
|
|
7,340,921
|
|
|
|
|
|
Preferred Units
(641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
592,500
|
|
|
|
|
|
Common Units
(24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,467,576
|
|
|
|
8,141,943
|
|
|
|
7,933,421
|
|
Syrgis Holdings, Inc. (3%)*
1025 Mary Laidley Drive
Covington, KY 41017
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
3,230,583
|
|
|
|
3,209,611
|
|
|
|
3,209,611
|
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
665,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,230,583
|
|
|
|
4,209,611
|
|
|
|
3,874,911
|
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician
|
|
Senior Note
|
|
|
|
|
|
|
|
|
|
|
|
|
1770 1st St., Suite 703
|
|
Management
|
|
(14% Cash, Due 11/14)
|
|
|
8,000,000
|
|
|
|
7,595,281
|
|
|
|
7,595,281
|
|
Highland Park, Il 60035
|
|
Services
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
281,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
|
|
7,871,381
|
|
|
|
7,876,681
|
|
TrustHouse Services Group, Inc. (4%)*
21 Armory Drive
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK, Due 09/15)
|
|
|
4,373,386
|
|
|
|
4,306,785
|
|
|
|
4,306,785
|
|
Wheeling, WV 26003
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
386,100
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,373,386
|
|
|
|
4,806,785
|
|
|
|
4,692,885
|
|
Tulsa Inspection Resources, Inc.
(TIR) and Regent TIR Partners, LLC
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash, Due 03/14)
|
|
|
5,000,000
|
|
|
|
4,641,748
|
|
|
|
4,641,748
|
|
(RTIR) (4%)*
|
|
|
|
Common Units RTIR (11 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
4111 S. Darlington Ave, Suite 1000
|
|
|
|
Common Stock Warrants TIR
|
|
|
|
|
|
|
|
|
|
|
|
|
Tulsa, OK 74135,
|
|
|
|
(7 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,162,748
|
|
|
|
4,641,748
|
|
Twin-Star International, Inc. (4%)*
115 S.E. 4th Avenue
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(12% Cash, 3% PIK, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,452,967
|
|
|
|
4,420,000
|
|
Delray Beach, FL 33483
|
|
Manufacturer
|
|
Senior Note
(4.25%, Due 04/13)
|
|
|
1,246,851
|
|
|
|
1,246,851
|
|
|
|
1,192,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,746,851
|
|
|
|
5,699,818
|
|
|
|
5,612,700
|
|
Wholesale Floors, Inc. (3%)*
8855 N. Black Canyon Highway
Phoenix, AZ 85021
|
|
Commercial
Services
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 06/14)
|
|
|
3,500,000
|
|
|
|
3,369,106
|
|
|
|
3,369,106
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
34,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
3,501,906
|
|
|
|
3,403,606
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Yellowstone Landscape Group, Inc. (9%)*
|
|
Landscaping
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
220 Elm Street
New Canaan, CT 06840
|
|
Services
|
|
(12% Cash, 3% PIK,
Due 04/14)
|
|
$
|
11,379,409
|
|
|
$
|
11,175,441
|
|
|
$
|
11,175,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,379,409
|
|
|
|
11,175,441
|
|
|
|
11,175,441
|
|
Zoom Systems (6%)*
22 Fourth Street., Floor 16
San Francisco, CA 94103
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5 Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,032,711
|
|
|
|
7,840,060
|
|
|
|
7,840,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,032,711
|
|
|
|
7,840,060
|
|
|
|
7,840,060
|
|
Subtotal Non Control / Non Affiliate
Investments
|
|
|
|
|
|
|
154,080,429
|
|
|
|
154,460,897
|
|
|
|
149,994,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (4%)*
770 Pelham Road, Suite 200
|
|
Asset Management
Software Provider
|
|
Senior Note (12% Cash,
7% PIK, Due 03/13)
|
|
|
5,485,835
|
|
|
|
5,418,928
|
|
|
|
5,418,928
|
|
Greenville, SC 29615
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,485,835
|
|
|
|
5,918,928
|
|
|
|
5,418,928
|
|
Axxiom Manufacturing, Inc (1%)*
11927 South Highway 6
|
|
Industrial
Equipment
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fresno, TX 77545
|
|
Manufacturer
|
|
Common Stock Warrant
|
|
|
|
|
|
|
200,000
|
|
|
|
635,800
|
|
|
|
|
|
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
18,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
654,400
|
|
Brantley Transportation, LLC
(Brantley Transportation) and
Pine Street Holdings, LLC
(Pine Street)(4) (2%)*
808 N. Ruth Street
Monahans, TX 79756
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation (14%
Cash, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,719,360
|
|
|
|
1,958,000
|
|
|
|
|
Common Unit Warrants
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
|
|
Preferred Units
Pine Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Unit Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,952,960
|
|
|
|
1,958,000
|
|
Dyson Corporation (6%)*
53 Freedom Road
Painesville, OH 44077
|
|
Custom Forging and
Fastener Supplies
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 12/13)
|
|
|
6,000,000
|
|
|
|
5,904,530
|
|
|
|
5,904,530
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,394,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,904,530
|
|
|
|
8,298,730
|
|
Equisales, LLC (6%)*
13811 Cullen Blvd.
Houston, TX 77047
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
|
6,613,204
|
|
|
|
6,551,866
|
|
|
|
6,551,866
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,440,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,613,204
|
|
|
|
7,051,866
|
|
|
|
7,992,366
|
|
Flint Acquisition Corporation (3%)*
115 Todd Court
Thomasville, NC 27360
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
3,350,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
3,350,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation (0%)*
1205 Industrial Blvd. 18966
Southampton, PA
|
|
Lab Testing
Services
|
|
Genapure
Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
641,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
641,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology Crops International (4%)*
7996 North Point Blvd.
Winston-Salem NC 27106
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5%
PIK, Due 03/15)
|
|
|
5,134,137
|
|
|
|
5,040,785
|
|
|
|
5,040,785
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,134,137
|
|
|
|
5,540,785
|
|
|
|
5,540,785
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Waste Recyclers Holdings, LLC (4%)*
261 Highway 20 East.
Suites A, B & D.
Freeport, FL 32439
|
|
Environmental
and Facilities
Services
|
|
Subordinated Note
(8% Cash, 7.5% PIK,
Due 08/13)
|
|
$
|
4,276,511
|
|
|
$
|
4,053,730
|
|
|
$
|
4,053,730
|
|
|
|
|
Subordinated Note
(3% Cash, 12.5% PIK,
Due 08/13)
|
|
|
5,956,523
|
|
|
|
5,671,070
|
|
|
|
1,558,270
|
|
|
|
|
|
Class A Preferred Units
(300 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units
(985,372 Units)
|
|
|
|
|
|
|
985,372
|
|
|
|
|
|
|
|
|
|
Common Unit Purchase Warrant
(1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,233,034
|
|
|
|
13,890,955
|
|
|
|
5,612,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
37,266,210
|
|
|
|
44,331,959
|
|
|
|
39,467,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (3%)*
4600 North Olcott Avenue
Harwood Heights, IL 60706
|
|
Commercial
Printing Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
|
1,561,337
|
|
|
|
1,557,366
|
|
|
|
1,476,300
|
|
|
|
|
|
Senior Note
(7.76% Cash, 2% PIK, Due 9/11)
|
|
|
2,014,241
|
|
|
|
2,009,067
|
|
|
|
1,905,800
|
|
|
|
|
|
2nd Lien
Note
(2.76% Cash, 8% PIK, Due 12/11)
|
|
|
3,265,134
|
|
|
|
2,994,804
|
|
|
|
1,065,000
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,840,712
|
|
|
|
6,561,237
|
|
|
|
4,447,100
|
|
Fischbein, LLC (12%)*
151 Walker Road
Statesville, NC 28625
|
|
Packaging and
Materials Handling
Equipment Manufacturer
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
|
7,700,590
|
|
|
|
7,601,845
|
|
|
|
7,601,845
|
|
|
|
|
|
Class A-1 Common Units
(52.5% of Units)
|
|
|
|
|
|
|
558,140
|
|
|
|
1,290,000
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
6,536,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,700,590
|
|
|
|
12,359,985
|
|
|
|
15,428,745
|
|
Weave Textiles, LLC (1%)*
3700 Glenwood Avenue,
|
|
Specialty
Woven Fabrics
|
|
Senior Note
(12% PIK, Due 01/11)
|
|
|
284,456
|
|
|
|
284,456
|
|
|
|
284,456
|
|
Suite 530.
Raleigh, North Carolina, 27612
|
|
Manufacturer
|
|
Membership Units
(425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
855,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284,456
|
|
|
|
1,139,456
|
|
|
|
1,139,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,825,758
|
|
|
|
20,060,678
|
|
|
|
21,015,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31, 2010 (162%)*
|
|
|
|
$
|
206,172,397
|
|
|
$
|
218,853,534
|
|
|
$
|
210,476,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non-income producing. |
|
(2) |
|
Disclosures of interest rates on notes include cash interest
rates and PIK interest rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by our Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC, and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
Description
of our Portfolio Companies
Set forth below is a brief description of each of our portfolio
companies as of March 31, 2010.
Ambient
Air Corporation (f/k/a JR Hobbs Acquisition Corp.)
Ambient Air Corporation is a leading design/build contractor for
HVAC systems in the multi-family housing industry with an
emphasis on the Southeast.
73
American
De-Rosa Lamparts and Hallmark Lighting
American De-Rosa Lamparts and Hallmark Lighting, headquartered
in Commerce, California, markets a wide variety of lighting
products, including fixtures, bulbs, electrical components,
glass, and hardware to maintenance and repair organizations,
lighting wholesalers, retailers, and original equipment
manufacturers.
American
Direct Marketing Resources, LLC
American Direct Marketing Resources, LLC is a full-service
direct marketing services company specializing in turnkey direct
mail programs.
AssetPoint,
LLC
AssetPoint, LLC is a supplier of integrated enterprise asset
management and computerized maintenance management software and
services that improve profitability and productivity for the
process and manufacturing industries.
Assurance
Operations Corporation
Assurance Operations Corp. designs and fabricates custom racking
products for the automotive industry and provides light to
medium duty stamping for a variety of industries.
Axxiom
Manufacturing, Inc.
Axxiom Manufacturing Inc., based in Fresno, Texas, is the
exclusive provider of Axxiom and Schmidt abrasive air blast
equipment.
Botanical
Laboratories, Inc.
Botanical Laboratories, Inc. develops, manufactures, markets and
distributes branded and private label vitamins, minerals and
nutritional supplements through 40,000 retail locations within
the U.S. and six international countries.
Brantley
Transportation, LLC and Pine Street Holdings, LLC
Brantley Transportation, LLC is an oil services company based in
Monahans, Texas, which provides oil and gas rig and associated
heavy equipment intrastate hauling services primarily to
drilling companies operating in Texas and New Mexico, as well as
oil and gas producing regions in the Mid Continent. Pine Street
Holdings, LLC is the majority owner of Brantley Transportation,
LLC, and its sole business purpose is its ownership of Brantley
Transportation, LLC.
CRS
Reprocessing, LLC
CRS Reprocessing, LLC is a global provider of
on-site
fluid reprocessing services for the solar power and
semiconductor industries as well as aluminum cold rolling
operations.
CV
Holdings, LLC
CV Holdings, LLC designs, manufactures and markets customized,
high-performance polymer products.
Dyson
Corporation
Dyson Corporation is a supplier of custom fasteners and forgings
to industrial markets, including the high-growth wind energy
industry.
74
Electronic
Systems Protection, Inc.
Electronic Systems Protection, Inc. is a leading manufacturer of
power protection technology for the office technology industry.
Energy
Hardware Holdings, LLC
Energy Hardware Holdings, LLC is a global distributor of
fasteners, machined parts, seals and gaskets to the power
generation industry.
Equisales,
LLC
Equisales, LLC is a global provider of transformers, high
voltage switch gear and power production equipment.
FCL
Graphics, Inc.
FCL Graphics, Inc. is a leading commercial printer which
produces such items as direct mailings, brochures, annual
reports, posters, catalogs, sell sheets, newspaper inserts and
labels.
Fire
Sprinkler Systems, Inc.
Fire Sprinkler Systems, Inc. designs and installs sprinkler
systems for residential applications throughout southern
California.
Fischbein,
LLC
Fischbein, LLC is a leading designer and manufacturer of
flexible packaging and materials handling equipment based in
Statesville, North Carolina.
Flint
Acquisition Corporation (d/b/a Flint Trading)
Flint Trading and related entities serve the traffic safety
market with a focus on road markings, street graphics and road
warning markers.
Frozen
Specialties, Inc.
Frozen Specialties, Inc. is a leading manufacturer of private
label frozen pizzas and pizza bites, sold primarily through the
retail grocery channel.
Garden
Fresh Restaurant Corp.
Garden Fresh Restaurant Corp. is a casual dining restaurant
chain focused on serving fresh, wholesome meals in an upscale,
self-service format. The company operates approximately 100
restaurants in 15 states under the Sweet Tomatoes and
Souplantation brand names.
Genapure
(QC Labs) and Genpref, LLC
Genapure provides lab testing services for the environmental
engineering, food and pharmaceutical industries. Services
include groundwater monitoring, stream surveys, soil testing,
swimming pool testing, and dairy product testing. Genpref is the
sole owner of Genapures preferred stock, and its sole
business purpose is its ownership of Genapures preferred
stock.
Gerli &
Company
Gerli & Company markets high-end decorative fabrics to
a diverse customer base focusing on interior design. The company
has dobby and jacquard manufacturing in Plains, Pennsylvania and
sources fabrics worldwide. It is best known for its color
direction and design aesthetic in the broad range of fabric
types offered.
75
Grindmaster-Cecilware
Corp.
Grindmaster-Cecilware Corp. is a leading designer, manufacturer
and distributor of a broad line of beverage dispensing, cooking,
and other equipment for the convenience store and commercial
foodservice market.
Inland
Pipe Rehabilitation Holding Company, LLC
Inland Pipe Rehabilitation Holding Company, LLC provides
maintenance, inspection, and repair for piping, sewers, drains,
and storm lines by utilizing several of the industrys
leading technologies including pipe bursting,
cured-in-place-pipe,
and spiral-wound piping.
Jenkins
Services, LLC
Jenkins Services, LLC, headquartered in Sterling, Virginia, is a
provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and
commercial buildings caused by fire, wind, storm, vandalism, or
burglary.
Library
Systems & Services, LLC
Library Systems & Services, LLC is a provider of
outsourced library management services in the U.S., with
customers including federal libraries such as the Library of
Congress and the Smithsonian.
Novolyte
Technologies, Inc.
Novolyte Technologies, Inc. is a manufacturer of electrolytes
and materials used for lithium batteries, ultracapacitors and
other energy storage devices, solvents used in a variety of
industrial processes and products, electronic materials, polymer
ingredients, and pharmaceutical and agricultural chemicals.
Syrgis
Holdings, Inc.
Syrgis Holdings, Inc., headquartered in Covington, Kentucky, is
a holding company comprised of four distinct specialty chemical
subsidiaries. Through its operating subsidiaries, Syrgis
manufactures specialty chemicals critical to the performance of
products in diverse industries, including natural gas and oil
refineries, cleaning solutions and supplies, and various lumber
products.
TBG
Anesthesia Management, LLC
TBG Anesthesia Management, LLC is a leading physician management
company that provides contracted outsourced anesthesiology
services to hospitals and medical centers in the Midwest.
Technology
Crops International
Technology Crops International works with customers to develop
and maintain supply chains for high value, plant derived, oils
and oil seeds used as manufacturing ingredients in the food,
chemical, cosmetics, and pharmaceutical industries.
TrustHouse
Services Group, Inc.
TrustHouse Services Group, Inc. provides outsourced food
management services to educational institutions, healthcare
facilities and businesses primarily in the Northeast,
Mid-Atlantic and Midwestern regions of the United States.
Tulsa
Inspection Resources, Inc.
Tulsa Inspection Resources, Inc. is a leading independent
provider of pipeline inspection services for the oil and gas
industry.
76
Twin
Star International, Inc.
Twin Star International, Inc., based in Delray Beach, Florida,
is a leading producer of high quality home furnishings,
including electric fireplaces and decorative bathroom vanities.
Waste
Recyclers Holdings, LLC
Waste Recyclers Holdings, LLC is one of the largest independent
providers of waste management services in the Florida and
Alabama/Mississippi Gulf Coast region.
Weave
Textiles, LLC
Weave Textiles, LLC is a Denver, PA based manufacturer of
decorative fabrics for commercial and residential use.
Wholesale
Floors, Inc.
Wholesale Floors, Inc., headquartered near Phoenix, Arizona,
provides commercial flooring design and installation services
for institutional and corporate clients and is the largest
full-service flooring contractor in the state of Arizona.
Yellowstone
Landscape Group, Inc.
Yellowstone Landscape Group, Inc., headquartered in Dallas,
Texas, is a full-service lawn care provider focused primarily on
the commercial market with services including lawn and landscape
maintenance, construction/installation, irrigation, turf
management, and tree care throughout Texas and the Southeast.
Zoom
Systems
Zoom Systems partners with leading brands to implement networks
of fully automated retail kiosks in high-traffic locations such
as airports, shopping centers, supermarkets and retail stores.
77
MANAGEMENT
Our business and affairs are managed under the direction of our
Board of Directors. Our Board of Directors elects our officers,
who serve at the discretion of the Board of Directors.
Day-to-day management of our portfolio is the responsibility of
our investment committee. As a result, our investment committee
must approve the acquisition and disposition of all of our
investments.
Board of
Directors and Executive Officers
Our Board of Directors consists of eight members, five of whom
are classified under applicable Nasdaq listing standards as
independent directors. Pursuant to our charter, each
member of our Board of Directors serves a one year term, with
each current director serving until the 2011 annual meeting of
stockholders and until his respective successor is duly
qualified and elected. Our charter permits the Board of
Directors to elect directors to fill vacancies that are created
either through an increase in the number of directors or due to
the resignation, removal or death of any director.
Directors
Information regarding our Board of Directors is set forth below.
We have divided the directors into two groups
independent directors and interested directors. Interested
directors are interested persons of Triangle Capital
Corporation as defined in Section 2(a)(19) of the 1940 Act.
Certain of our directors who are also officers of the Company
may serve as directors of, or on the boards of managers of,
certain of our portfolio companies. In addition, the Board of
Directors of Triangle SBIC is composed of all of the
Companys directors. The business address of each director
listed below is 3700 Glenwood Avenue, Suite 530, Raleigh,
North Carolina 27612. For information regarding our
directors compensation, see Director
Compensation below, and for information regarding our
directors ownership interest in our Companys stock,
see Control Persons and Principal Stockholders below.
Independent
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of
|
Name
|
|
Age
|
|
Director Since
|
|
Current Term
|
|
W. McComb Dunwoody
|
|
|
65
|
|
|
January 2007
|
|
2011 Annual Meeting
|
Mark M. Gambill
|
|
|
59
|
|
|
August 2009
|
|
2011 Annual Meeting
|
Benjamin S. Goldstein
|
|
|
54
|
|
|
January 2007
|
|
2011 Annual Meeting
|
Simon B. Rich, Jr.
|
|
|
65
|
|
|
January 2007
|
|
2011 Annual Meeting
|
Sherwood H. Smith, Jr.
|
|
|
75
|
|
|
January 2007
|
|
2011 Annual Meeting
|
Interested
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of
|
Name
|
|
Age
|
|
Director Since
|
|
Current Term
|
|
Garland S. Tucker, III
|
|
|
62
|
|
|
October 2006
|
|
2011 Annual Meeting
|
Brent P. W. Burgess
|
|
|
44
|
|
|
October 2006
|
|
2011 Annual Meeting
|
Steven C. Lilly
|
|
|
40
|
|
|
October 2006
|
|
2011 Annual Meeting
|
78
Executive
Officers
The following persons serve as our executive officers in the
following capacities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
Name
|
|
Age
|
|
Position(s) Held with the Company
|
|
Officer Since
|
|
Garland S. Tucker, III
|
|
|
62
|
|
|
Chairman of the Board, Chief Executive Officer and President
|
|
|
2007
|
|
Brent P.W. Burgess
|
|
|
44
|
|
|
Director and Chief Investment Officer
|
|
|
2007
|
|
Steven C. Lilly
|
|
|
40
|
|
|
Director, Chief Financial Officer, Secretary, Treasurer and
Chief Compliance Officer
|
|
|
2007
|
|
In addition to the positions described above, each of our
executive officers is a member of our investment committee. The
address for each executive officer is
c/o Triangle
Capital Corporation, 3700 Glenwood Avenue, Suite 530,
Raleigh, North Carolina, 27612. For information regarding our
executive officers compensation, see Executive
Compensation below, and for information regarding our
executive officers ownership interest in our
Companys stock, see Control Persons and Principal
Stockholders below.
Biographical
Information
Independent
Directors
W. McComb Dunwoody. Since 2007, Mr. Dunwoody
has served on our Board of Directors and is a member of our
compensation committee. He is the founder of The Inverness Group
Incorporated and a Managing Member of Inverness Management LLC,
a private equity investment firm that specializes in management
buyout transactions. Inverness is not a parent, subsidiary or
other affiliate of Triangle. Prior to Inverness,
Mr. Dunwoody began the Corporate Finance Department of
First City National Bank of Houston as a Senior Vice President.
From 1968 to 1975, he worked in New York as an investment banker
with The First Boston Corporation and Donaldson,
Lufkin & Jenrette. Mr. Dunwoody currently serves
on various corporate boards of directors and was formerly the
Chairman of the Executive Committee of the Board of Directors of
National-Oilwell, Inc. Mr. Dunwoodys community
involvement includes the co-founding of Imagine College, an
education program serving over 5,000 inner-city students. He
received an undergraduate degree in Business Administration from
the University of Texas Honors Program.
Mr. Dunwoody was selected to serve as a director on our
Board due to his extensive experience and leadership in public
and private companies. Mr. Dunwoodys broad business
experience enhances his participation on the Board and oversight
of our compensation objectives.
Mark M. Gambill. On August 5, 2009, Mark M. Gambill
was elected by our Board of Directors to fill a vacant seat
created in August 2008. In addition, he has been appointed as a
member of our nominating and corporate governance committee.
Mr. Gambill is a co-founder and current Chairman of Cary
Street Partners, a Richmond, Virginia based advisory and
wealth management firm. From 1972 to 1999, Mr. Gambill was
employed by Wheat First Butcher Singer (Wheat). He
served as head of Wheats capital markets group in the late
1980s, where he was responsible for investment banking, public
finance, taxable fixed income, municipal sales and trading,
equity sales, trading and research. He became President of Wheat
in 1996. Wheat merged with First Union Corporation in
January 1998. Subsequent to Wheats merger with First
Union, Mr. Gambill served as President of Wheat First
Union. He later was named Head of Equity Capital Markets
of Wheat First Union. He currently serves on the Board of
Directors of Speedway Motorsports, Inc. (NYSE: TRK) where
he is Chairman of its audit committee and a member of its
compensation committee. Mr. Gambill is also a director of
NewMarket Corporation (NYSE: NEU) and serves on its audit
committee. Mr. Gambill graduated summa cum laude from
Hampden-Sydney College.
Mr. Gambill was selected to serve as a director on our
Board due to his involvement in the capital markets for over
thirty-five years, supervising various functions such as
investment banking, public finance and equity research.
Mr. Gambills experience serving as an advisor to
various public and private companies brings crucial skills and
contributions to the Board.
79
Benjamin S. Goldstein. Mr. Goldstein has served on
our Board of Directors since 2007 and is a member of our
compensation committee and chairs our audit committee. He is
currently the President and co-founder of The Advisory Group,
LLC, a real estate advisory, development and investment firm
based in Raleigh, North Carolina. The Advisory Group is not a
parent, subsidiary or other affiliate of Triangle.
Mr. Goldstein is also active in his community, as he
currently serves on the boards of the Wake Education
Partnership, based in Raleigh, North Carolina, as well as
Paragon Commercial Bank. Prior to co-founding The Advisory
Group, Mr. Goldstein was President and Partner of Roanoke
Properties, the developer of a residential resort real estate
community on the Outer Banks of North Carolina, which had a
build out value of over $300 million. He spent three years
in the securities business, serving as the Chief Financial
Officer of Carolina Securities Corporation for one year, and
later named to head the Carolina Securities Division of Thomson
McKinnon Corporation, which had acquired Carolina Securities. He
began his career at KPMG, where he worked with audit and
consulting clients with an emphasis on the real estate industry.
A native of North Carolina, Mr. Goldstein is a CPA and
graduated from UNC-Chapel Hill with a degree in business.
Mr. Goldstein was selected to serve as a director on our
Board due to his extensive audit and consulting-related
experience with private and public companies.
Mr. Goldsteins experience and background in public
accounting enhances his ability to provide effective leadership
as chairman of our audit committee and to provide effective
oversight of compensation decisions in his capacity as member of
our compensation committee.
Simon B. Rich, Jr. Mr. Rich has served on our
Board of Directors since 2007 and is a member of our audit
committee and our nominating and corporate governance committee.
Mr. Rich is also a director of Verenium Corporation, a
company traded on the Nasdaq Global Market under the symbol,
VRNM. He retired in 2001 from his positions as Chief
Executive Officer of Louis Dreyfus Holding Co. and Chairman and
Chief Executive Officer of Louis Dreyfus Natural Gas, two
affiliated Delaware and Oklahoma companies, respectively,
neither of which was a parent, subsidiary or other affiliate of
Triangle. As CEO, Mr. Richs companies combined
operations included roles such as oil refinery processing,
petroleum product storage and distribution, natural gas
production and distribution and the merchandising and
distribution of electricity in North America and Europe, as well
as the merchandising and processing of agricultural products in
North America, South America and Europe. During
Mr. Richs tenure, his companies successfully
partnered with Electricite de France, creating EDF Trading, a
company that currently dispatches Frances electric
generation system. From 2005 to 2006, Mr. Rich also served
as a director and member of the audit committee of Fisher
Scientific. His work experience, which spans more than thirty
years, includes many aspects of the energy and agriculture
industries. His expertise involves private equity investments
with an emphasis on sustainability in energy and agriculture. In
addition to Mr. Richs career in the energy and
agriculture industries, he currently serves as a trustee of
Warren Wilson College and serves on the Board of Directors of
Environmental Defense. Mr. Rich is also the former Chairman
of the Board of Visitors of The Nicholas School of the
Environment and Earth Sciences at Duke University, where he is
now Emeritus and an adjunct instructor. Mr. Rich holds an
undergraduate degree in Economics from Duke University.
Mr. Rich was selected to serve as a director on our Board
due to his prior public and private company experience, as well
as his experience structuring private equity transactions.
Mr. Richs leadership and experience provide valuable
contributions to the oversight of our companys governance
guidelines and financial records.
Sherwood H. Smith, Jr. Mr. Smith has served on our
Board of Directors since 2007 and is a member of our audit
committee, nominating and corporate governance committee and our
compensation committee. He currently serves as a director of
Franklin Street Partners, a privately held investment management
firm in Chapel Hill, North Carolina. Until 2000 he served as a
director of Carolina Power & Light Company (now
Progress Energy Corporation), a company for which he has also
served as Chairman, President and Chief Executive Officer. In
addition, Mr. Smith has served as a director of Wachovia
Corporation (now Wells Fargo and Company), Nortel Networks,
Springs Industries, and Northwestern Mutual Life Insurance
Company (Trustee). Other than his current position as director,
Mr. Smith has never been employed by a parent, subsidiary
or other affiliate of Triangle. He has been a member of the
Business Roundtable and The Business
80
Council and has served as Chairman of the North Carolina
Citizens for Business and Industry. Mr. Smith has both an
undergraduate and law degree from the University of North
Carolina at Chapel Hill.
Mr. Smith was selected to serve as a director on our Board
due to his extensive experience as an executive officer and
director of various public companies and his extensive business
knowledge. Mr. Smiths public company experience and
knowledge are important in providing effective oversight in
light of our operational and organizational structure.
Interested
Directors
Garland S. Tucker, III. Mr. Tucker has served
as Chairman of our Board of Directors, Chief Executive Officer
and President since 2006 and is a member of our investment
committee. Mr. Tucker was a co-founder of Triangle Capital
Partners, LLC, the former external manager of Triangle SBIC
prior to our IPO. Prior to co-founding Triangle Capital
Partners, LLC in 2000, Mr. Tucker and an outside investor
group sold First Travelcorp, a corporate travel services company
that he and the investors founded in 1991. For the two years
preceding the founding of First Travelcorp, Mr. Tucker
served as Group Vice President, Chemical Bank, New York, with
responsibility for southeastern corporate finance. Prior to
Chemical Bank, Mr. Tucker spent a decade with Carolina
Securities Corporation, serving as President and Chief Executive
Officer until 1988. During his tenure, Carolina Securities
Corporation was a member of the New York Stock Exchange, and
Mr. Tucker served a term as President of the Mid-Atlantic
Securities Industry Association. Mr. Tucker entered the
securities business in 1975 with Investment Corporation of
Virginia. He is a graduate of Washington & Lee
University and Harvard Business School.
Mr. Tucker was selected to serve as a director on our Board
due to his prior service to the Company as its Chairman,
President and Chief Executive Officer and his thirty-five years
of experience in the financial and investment industries.
Mr. Tuckers intimate knowledge of the Company and his
familiarity with the financial and investment industries are
critical to the oversight of our strategic goals and the
evaluation of our operational performance.
Brent P.W. Burgess. Mr. Burgess has served as our
Chief Investment Officer and member of our Board of Directors
since 2006 and is a member of our investment committee.
Mr. Burgess was a co-founder of Triangle Capital Partners,
LLC. Prior to joining Triangle, he was Vice President for five
years at Oberlin Capital, an SBIC mezzanine fund. He began his
private equity career in 1996 with Cherokee International
Management, a Raleigh based private equity firm, where he worked
as an analyst and associate. He previously served on the Board
of Governors of the National Association of SBICs and is a past
president of the Southern Regional Association of SBICs. He is a
graduate of the University of Regina and Regent College,
Vancouver.
Mr. Burgess was selected to serve as a director on our
Board due to his successful history with the Company as its
Chief Investment Officer and member of our Board of Directors
and his experience in leading and managing investments.
Mr. Burgess leadership and comprehensive knowledge of
the investment industry are integral to the oversight of our
investment goals.
Steven C. Lilly. Mr. Lilly has served as our Chief
Financial Officer, Secretary, Treasurer and member of our Board
of Directors since 2006 (as well as our Chief Compliance Officer
since our IPO in 2007) and is a member of our investment
committee. From 2005 to 2006, Mr. Lilly served as Chief
Financial Officer of Triangle Capital Partners, LLC. Prior to
joining Triangle Capital Partners in December, 2005,
Mr. Lilly spent six and a half years with SpectraSite,
Inc., which prior to its sale in August, 2005, was the third
largest independent wireless tower company in the United States.
At SpectraSite, Mr. Lilly served as Senior Vice
President-Finance & Treasurer and Interim Chief
Financial Officer. On November 15, 2002, SpectraSite
Holdings, Inc. (SpectraSites predecessor company) filed a
voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the U.S. Bankruptcy Court for the
Eastern District of North Carolina to implement a pre-negotiated
financial restructuring pursuant to the companys Plan of
Reorganization, confirmed by the Bankruptcy Court on
January 28, 2003. Prior to SpectraSite, Mr. Lilly was
Vice President of the Media & Communications Group
with First Union Capital Markets (now Wells Fargo and Company),
specializing in arranging financings for high growth, financial
sponsor driven companies across the media and
81
telecommunications sector. Mr. Lilly is a graduate of
Davidson College and has completed the executive education
program at the University of North Carolinas Kenan-Flagler
School of Business.
Mr. Lilly was selected to serve as a director on our Board
due to his prior service to the Company as its Chief Financial
Officer, Secretary, Treasurer and Chief Compliance Officer and
his broad experience and leadership both financing and operating
public and private companies. Mr. Lillys knowledge of
the Company and extensive experience in the capital markets are
crucial to the evaluation of our operational performance and
financial goals.
Other
Members of Investment Committee
Jeffrey A. Dombcik. Mr. Dombcik joined Triangle in
February 2007. Prior to joining us, Mr. Dombcik was a
managing director and co-founder of South Franklin Street
Partners, an SBIC focused on providing junior capital to middle
market companies. Prior to co-founding South Franklin Street
Partners in 2003, Mr. Dombcik served as Executive Vice
President and Partner of Edgewater Capital Partners, L.P., a
private equity investment firm focused on the acquisition of
middle market companies. Mr. Dombcik also served as a
senior vice president of investment banking for McDonald
Investments, Inc., a wholly owned subsidiary of Key Corp., and
vice president of Brown, Gibbons, Lang & Company L.P.,
a middle market investment bank with offices in Chicago and
Cleveland. Mr. Dombcik is a graduate of Miami University
and John Carroll University.
Douglas A. Vaughn. Mr. Vaughn joined Triangle in
February 2008. Prior to joining us, Mr. Vaughn was
President and a Director of VIETRI, Inc., Americas largest
importer, distributor and marketer of handmade Italian ceramic
and home décor items. Prior to his eight years at VIETRI,
Inc., Mr. Vaughn advised business owners and managers,
including private equity funds, on strategic initiatives
including acquisitions and corporate finance first
as a Senior Consultant at Deloitte Consulting and later as a
Partner at Chatham Partners. Prior to that, Mr. Vaughn
served in management roles for Sara Lee Corporation.
Mr. Vaughn holds a BA from the University of Virginia and
an MBA from The University of North Carolinas
Kenan-Flagler School of Business.
David F. Parker. Mr. Parker joined Triangle in 2002.
Prior to that, Mr. Parker was a partner in Crimson Capital
Company, a Greensboro, North Carolina private investment banking
firm that specialized in management buyouts of middle market
companies in a variety of industries. Before joining Crimson,
Mr. Parker was Vice-President and Treasurer at Marion
Laboratories, Inc., a Fortune 500 pharmaceutical company, where
Mr. Parker was responsible for Marions public and private
financings, venture capital investments, divestitures, and
investor communications. Before working at Marion Laboratories,
Mr. Parker worked six years as Vice-President and Director of
Private Placements at J. Henry Schroder Corp, a position that
followed three years at Kidder, Peabody & Co., on its
private placement desk. Mr. Parker began his career in 1971
at Shearson, Hammill & Co. in New York. Mr. Parker is
a graduate of North Carolina State University and Harvard
Business School.
Meetings
of the Board of Directors and Committees
During 2009, our Board of Directors held five Board meetings.
Our Board of Directors has established an audit committee, a
compensation committee, a nominating and corporate governance
committee and an investment committee. Each of the audit
committee, compensation committee and nominating and corporate
governance committee operates pursuant to a charter, each of
which is available under Corporate Governance on the
Investor Relations section of our website at the following URL:
http://ir.tcap.com,
and is also available in print to any stockholder who requests a
copy. All directors attended 100% of the aggregate number of
meetings of the Board and of the respective committees on which
they served. We expect each director to make a diligent effort
to attend all Board and committee meetings, as well as each
Annual Meeting of Stockholders.
We have designated Simon B. Rich, Jr. as the presiding
director of all executive sessions of non-employee directors.
Executive sessions of non-employee directors are held each Board
meeting. Stockholders may communicate with Mr. Rich by
writing to: Board of Directors, Triangle Capital Corporation,
3700 Glenwood Avenue, Suite 530, Raleigh, North
Carolina 27612.
82
Audit
Committee
We have a separately-designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the
Exchange Act. The audit committee is responsible for compliance
with legal and regulatory requirements, selecting our
independent registered public accounting firm, reviewing the
plans, scope and results of the audit engagement with our
independent registered public accounting firm, approving
professional services provided by our independent registered
public accounting firm, reviewing the independence of our
independent registered public accounting firm, reviewing the
integrity of the audits of the financial statements and
reviewing the adequacy of our internal accounting controls.
Our Board of Directors adopted the Audit Committee Charter on
January 31, 2007. The Audit Committee Charter is publicly
available under Corporate Governance on the Investor
Relations section of our website at the following URL:
http://ir.tcap.com.
The members of the audit committee are Messrs. Goldstein,
Rich and Smith, each of whom is independent for purposes of
Section 2(a)(19) of the 1940 Act and the Nasdaq Global
Market corporate governance listing standards.
Mr. Goldstein serves as the chairman of the audit
committee. Our Board of Directors has determined that
Mr. Goldstein is an audit committee financial
expert as defined under Item 407(d)(5) of
Regulation S-K
of the Exchange Act. Mr. Goldstein meets the current
independence requirements of
Rule 10A-3
of the Exchange Act, Nasdaq listing standards, and, in addition,
is not an interested person of the Company, as
defined in Section 2(a)(19) of the 1940 Act. Our audit
committee held five meetings during 2009.
Compensation
Committee
The compensation committee is appointed by the Board to
discharge its responsibilities relating to the compensation of
our executive officers and other key employees. The compensation
committee has the responsibility for recommending appropriate
compensation levels for our executive officers, evaluating and
approving executive officer compensation plans, policies and
programs, reviewing benefit plans for executive officers and
other employees and producing an annual report on executive
compensation for inclusion in our proxy statement. The
compensation committee may form and delegate any of its
responsibilities to a subcommittee so long as such subcommittee
is solely composed of one or more members of the compensation
committee. The Compensation Committee Charter is available under
Corporate Governance on the Investor Relations
section of our website at the following URL:
http://ir.tcap.com.
Members of our compensation committee review annually and
approve goals and objectives relevant to our executive
officers compensation, including annual performance
objectives. They evaluate annually the performance of the chief
executive officer and other executive officers, and recommend to
the independent directors of the Board the compensation level
for each such person based on this evaluation. They review on a
periodic basis our executive compensation programs to determine
whether they are properly coordinated and achieve their intended
purposes. They review and recommend to the Board for approval
any changes in incentive compensation plans and equity-based
compensation plans. The members of the compensation committee
review and approve all equity-based compensation plans of
Triangle, whether or not final approval rests with the
Companys stockholders, and grant equity-based awards
pursuant to such plans in compliance with the 1940 Act. They
review and approve employment agreements and any special
supplemental benefits or perquisites for our executive officers.
They review broadly employee compensation strategies, including
salary levels and ranges and employee fringe benefits, in
conjunction with compensation consultants.
In determining executive compensation levels for our executive
officers, the compensation committee meets at least annually
with management, and may meet with independent compensation
consultants, in order to determine whether current methods of
executive compensation are effective in achieving
Triangles short and long term strategies. The compensation
committee, in conjunction with a compensation consultant if
necessary, will analyze the compensation of executive officers
and directors of other BDCs in order to establish the
compensation levels necessary to attract and retain quality
executive officers and investment professionals.
83
The members of the compensation committee are
Messrs. Dunwoody, Goldstein and Smith, each of whom is
independent for purposes of Section 2(a)(19) the 1940 Act
and the Nasdaq Global Market corporate governance listing
standards. Mr. Smith serves as the chairman of the
compensation committee. Our compensation committee held two
meetings during 2009.
Nominating
and Corporate Governance Committee
The nominating and corporate governance committee is responsible
for identifying, researching and nominating directors for
election by our stockholders, selecting nominees to fill
vacancies on our Board of Directors or a committee of the Board,
developing and recommending to the Board of Directors a set of
corporate governance principles and overseeing the evaluation of
the Board of Directors and our management. The nominating and
corporate governance committees policy is to consider
nominees properly recommended by our stockholders in accordance
with our charter, bylaws and applicable law.
In considering possible candidates for nomination, the
nominating and corporate governance committee will consider
certain factors including whether the composition of the Board
contains a majority of independent directors as determined by
the Nasdaq Global Market standards and the 1940 Act, the
candidates character and integrity, whether the candidate
possesses an inquiring mind, vision and the ability to work well
with others, conflicts of interest interfering with the proper
performance of the responsibilities of a director, a
candidates experience and what type of diversity he or she
brings to the Board, whether the candidate has sufficient time
to devote to the affairs of Triangle, including consistent
attendance at Board and committee meetings and advance review of
materials and whether each candidate can be trusted to act in
the best interests of us and all of our stockholders.
The Nominating and Corporate Governance Committee Charter is
publicly available under Corporate Governance on the
Investor Relations section of our website at the following URL:
http://ir.tcap.com.
The members of the nominating and corporate governance committee
are Messrs. Gambill, Rich and Smith, each of whom is
independent for purposes of Section 2(a)(19) the 1940 Act
and the Nasdaq Global Market corporate governance listing
standards. Mr. Dunwoody served on the nominating and
corporate governance committee until August 2009, at which time
Mr. Gambill became a member of the nominating and corporate
governance committee, relieving Mr. Dunwoody of such
duties. Mr. Rich serves as the chairman of the nominating
and corporate governance committee. Our nominating and corporate
governance committee held one meeting during 2009.
Investment
Committee
Our investment committee is responsible for all aspects of our
investment process. The members of the Triangle Capital
Corporation investment committee are Messrs. Tucker,
Burgess, Lilly, Jeffrey A. Dombcik, Douglas A. Vaughn and David
F. Parker. Triangle SBIC has a separate investment committee
that is responsible for all aspects of our investment process
relating to investments made by Triangle SBIC. The members of
the Triangle SBIC investment committee are also
Messrs. Tucker, Burgess, Lilly, Dombcik, Vaughn and Parker.
Mr. Vaughns appointment to the Triangle SBIC
investment committee is contingent upon our receiving approval
from the SBA. For purposes of the discussion herein, any
reference to the investment committee refers to both
the investment committee of Triangle Capital Corporation and the
investment committee of Triangle SBIC.
Our investment committee generally meets once a week but also
meets on an as needed basis depending on transaction volume. Our
investment committee is involved in all significant stages of
the investment process, including, origination, due diligence
and underwriting, approval, documentation and closing, and
portfolio management and investment monitoring.
Communication
with the Board of Directors
Stockholders with questions about Triangle Capital Corporation
are encouraged to contact Steven C. Lilly, at 3700 Glenwood
Avenue, Suite 530, Raleigh, North Carolina 27612,
(919) 719-4770.
However, if
84
stockholders feel their questions have not been addressed, they
may communicate with our Board of Directors by sending their
communications to: Triangle Capital Corporation Board of
Directors,
c/o Simon
B. Rich, Jr., 3700 Glenwood Avenue, Suite 530,
Raleigh, North Carolina 27612. In addition, stockholders may
communicate with us by clicking Contact IR on the
Investor Relations section of our website at the following URL:
http://ir.tcap.com.
All stockholder communications received by our corporate
secretary in this manner will be delivered to one or more
members of the Board of Directors.
Corporate
Leadership Structure
Mr. Tucker serves jointly as the Chairman of our Board of
Directors and President and Chief Executive Officer. In
addition, we have designated Mr. Rich as our lead
independent director to preside over all executive sessions of
non-employee directors. We believe that consolidating our
leadership structure without an independent chairman provides an
efficient and effective management model which fosters direct
accountability, effective decision-making and alignment of
corporate strategy between our Board of Directors and
management. Mr. Tucker is, and Mr. Rich is not, an
interested person as defined Section 2(a)(19)
of the 1940 Act.
Oversight
of Risk Management
On behalf of the Board of Directors, the Audit Committee
oversees our enterprise risk management function. To this end,
the Audit Committee meets at least annually (i) as a
committee to discuss the Companys risk management
guidelines, policies and exposures and (ii) with our
independent auditors to review our internal control environment
and other risk exposures. Additionally, on behalf of the Board
of Directors, the Compensation Committee oversees the management
of risks relating to our executive compensation program and
other employee benefit plans. In fulfillment of its duties, the
Compensation Committee reviews at least annually our executive
compensation program and meets regularly with our chief
executive officer to understand the financial, human resources
and stockholder implications of all compensation decisions. The
Audit Committee and the Compensation Committee each report to
the Board of Directors on a quarterly basis to apprise the Board
of Directors regarding the status of remediation efforts of
known risks and of any new risks that may have arisen since the
previous report.
Compliance
Policies and Procedures
In accordance with the 1940 Act, we have adopted and implemented
written policies and procedures reasonably designed to prevent
violation of the U.S. federal securities laws, and we
review these compliance policies and procedures annually for
their adequacy and the effectiveness of their implementation. In
addition, we have designated Mr. Lilly as our Chief
Compliance Officer. As such, Mr. Lilly is responsible for
administering our compliance program and meeting with our Board
of Directors at least annually to assess its effectiveness.
Code of
Conduct and Corporate Governance Guidelines
We have adopted a code of conduct and corporate governance
guidelines covering ethics and business conduct. These documents
apply to our directors, officers and employees. Our code of
conduct and corporate governance guidelines are available on the
Investor Relations section of our website at the following URL:
http://ir.tcap.com.
We will report any material amendments to or waivers of a
required provision of our code of conduct
and/or
corporate governance guidelines on our website
and/or in a
Current Report on
Form 8-K.
85
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR
COMPENSATION
Our directors are divided into two groups interested
directors and independent directors. Interested directors are
interested persons as defined in
Section 2(a)(19) of the 1940 Act. The compensation table
below sets forth compensation that our independent directors
earned during the year ended December 31, 2009. Our
interested directors are not compensated for their service as
Board members.
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Fees Earned
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or Paid in
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Stock
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All Other
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Name
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Year
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Cash
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Awards(1)
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Compensation
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Total
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W. McComb Dunwoody
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2009
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$
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13,250
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$
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30,000
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$
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43,250
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Mark M. Gambill(2)
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2009
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$
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16,250
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$
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27,500
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Benjamin S. Goldstein
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2009
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$
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29,000
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$
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30,000
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$
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59,000
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Simon B. Rich, Jr.
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2009
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$
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24,000
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$
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30,000
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$
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54,000
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Sherwood H. Smith, Jr.
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2009
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$
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25,000
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$
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30,000
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$
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55,000
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(1) |
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Grant date fair value of restricted stock awards granted to each
non-employee director on May 6, 2009. SEC disclosure rules
require reporting of the aggregate grant date fair value
computed in accordance with FASB ASC Topic 718. |
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(2) |
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On August 8, 2009, Mr. Gambill was elected by our
Board of Directors to fill a vacant Board seat. He was therefore
only compensated for Board service from August 8, 2009,
through December 31, 2009. |
Director
Fees
In 2009, each of our directors (other than Mr. Gambill) who were
not one of our employees or an employee of our subsidiaries
earned an annual fee of $30,000 worth of restricted stock in
Triangle, calculated based on the share price of our common
stock as of the close of the Nasdaq Global Market on May 6,
2009, the date of grant. Based on this calculation, each of our
independent directors (other than Mr. Gambill) received
2,953 shares of restricted stock, which vested on
May 6, 2010.
In addition, independent directors received a fee of $2,500 for
each Board meeting attended in person and $1,250 for each Board
meeting attended by conference telephone or similar
communications equipment; audit committee members receive a fee
of $1,500 for each audit committee meeting attended in person
and $750 for each audit committee meeting attended by conference
telephone or similar communication equipment; and members of our
compensation committee and nominating and corporate governance
committee receive a fee of $1,000 for each committee meeting
attended in person and $500 for each committee meeting attended
by conference telephone or similar communication equipment.
Finally, our audit committee chairman receives an annual fee of
$10,000, and each of our compensation committee and nominating
and corporate governance committee chairmen received an annual
fee of $5,000 for their services as chairmen of their respective
committees. The Director Compensation Table above takes into
account all changes in director compensation made during the
2009 fiscal year. We also reimbursed our independent directors
for all reasonable direct
out-of-pocket
expenses incurred in connection with their service on the Board.
Directors who are also our employees or employees of our
subsidiaries did not receive compensation for their services as
directors.
Non-Employee
Director Equity Compensation
Our Board of Directors and sole stockholder approved
Triangles 2007 Equity Incentive Plan, or the Original
Plan, effective February 13, 2007, for the purpose of
attracting and retaining the services of executive officers,
directors and other key employees. During our fiscal year ended
December 31, 2007, no equity incentive awards were granted
under the Original Plan, in part due to certain 1940 Act
restrictions which disallow the issuance of certain types of
compensation to a business development companys employees
and non-employee directors without having first obtained
exemptive relief. In 2007, we filed a request with the
Securities and Exchange Commission, or the SEC, for such
exemptive relief with respect to our ability to
86
issue restricted stock to our employees and non-employee
directors. On March 18, 2008 we received an order from the
SEC authorizing such issuance of restricted stock to our
employees and non-employee directors pursuant to the terms of
the Triangle Capital Corporation Amended and Restated 2007
Equity Incentive Plan, or the Amended and Restated Plan, and as
otherwise set forth in the exemptive order. In 2008, our Board
approved, and at the 2008 Annual Stockholders Meeting the
stockholders voted to approve, the Amended and Restated Plan.
During our fiscal year ended December 31, 2009, we granted
restricted share awards to our officers, directors and key
employees as compensation related to performance in 2008.
The following is a summary of the material features of the
Amended and Restated Plan. It may not contain all of the
information important to you. The Amended and Restated Plan
includes provisions allowing the issuance of restricted stock to
all key employees and directors. Restricted stock refers to an
award of stock that is subject to forfeiture restrictions and
may not be transferred until such restrictions have lapsed. The
Amended and Restated Plan will also allow us to issue options to
our key employees in the future should our Board and
compensation committee choose to do so.
Under the Amended and Restated Plan, up to 900,000 shares
of our common stock are authorized for issuance. Participants in
the Amended and Restated Plan who are employees and employee
directors may receive awards of options to purchase shares of
common stock or grants of restricted stock, as determined by the
Board. Participants who are non-employee directors may receive
awards of restricted stock in accordance with certain parameters
as discussed below. The basis of such participation is to
provide incentives to our employees and directors in order to
attract and retain the services of qualified professionals.
Options granted under the Amended and Restated Plan entitle the
optionee, upon exercise, to purchase shares of common stock at a
specified exercise price per share. Options must have a per
share exercise price of no less than the fair market value of a
share of stock on the date of the grant, subject to forfeiture
provisions as determined by the Board. The exercise period of
each stock option awarded will expire on a date determined by
the Board, such date to be specified in the stock option award
agreement; however, the Plan also states that no stock option
award will be exercisable after the expiration of ten years from
the date such stock option was granted.
The Amended and Restated Plan permits the issuance of restricted
stock to employees and directors consistent with such terms and
conditions as the Board shall deem appropriate, subject to the
limitations set forth in the plan. With respect to awards issued
to our employees and officers, the Board will determine the time
or times at which such shares of restricted stock will become
exercisable and the terms on which such shares will remain
exercisable. Shares granted pursuant to a restricted stock award
will not be transferable until such shares have vested in
accordance with the terms of the award agreement, unless the
transfer is by will or by the laws of descent and distribution.
The Amended and Restated Plan provides that our non-employee
directors each receive an automatic grant of restricted stock at
the beginning of each one-year term of service on the Board, for
which forfeiture restrictions lapse one year from the grant
date. The number of shares granted to each non-employee director
in 2009 was the equivalent of $30,000 worth of shares, taken at
the market value at the close of the Nasdaq Global Market on the
date of grant, which historically has been the date of our
annual stockholders meeting. The grants of restricted stock to
non-employee directors under the Amended and Restated Plan will
be automatic (that is, the grants will equal $30,000 worth of
restricted stock each year), and the terms thereunder will not
be changed without SEC approval. Shares granted pursuant to a
restricted stock award will not be transferable until such
shares have vested in accordance with the terms of the award
agreement, unless the transfer is by will or by the laws of
descent and distribution.
Our Board of Directors has delegated administration of the
Amended and Restated Plan to its compensation committee,
currently comprised solely of three (3) independent
directors who are independent pursuant to the listing
requirements of the Nasdaq Global Market. Our Board may abolish
such committee at any time and revest in our Board the
administration of the Amended and Restated Plan. Our Board
administers the Amended and Restated Plan in a manner that is
consistent with the applicable requirements of the Nasdaq Global
Market and the exemptive order.
87
EXECUTIVE
COMPENSATION
General
In 2009, our senior management team consisted of Garland S.
Tucker, Brent P.W. Burgess and Steven C. Lilly. We refer to
these three officers in 2009 as our named executive officers, or
NEOs. Each of our NEOs entered into employment
agreements with us in 2007 for two-year terms, was compensated
according to the terms of such agreements, which are described
herein, and each employment expired on February 20, 2009.
In February 2009, upon determination by our compensation
committee that it would be in the best interests of the Company
and its stockholders for the Company to operate without
employment agreements, we requested that our NEOs waive all
notice requirements pursuant to their employment agreements and
agree not to renew them on a going-forward basis in 2009. After
consideration, Messrs. Tucker, Burgess, and Lilly agreed
with our compensation committee, voluntarily waiving their
notice rights as to the renewal of their employment agreements.
As a result, since February 21, 2009, none of our employees
is party to an employment agreement with us. Each executive
officer continues to be paid a base salary and is eligible to
receive cash bonuses and equity incentives in the discretion of
our Board of Directors and compensation committee.
Our executive compensation program is designed to encourage our
executive officers to think and act like stockholders of the
Company. The structure of the NEOs employment agreements
and our incentive compensation programs were designed to
encourage and reward the following:
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sourcing and pursuing attractively priced investment
opportunities in all types of securities of lower middle market
privately-held companies;
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participating in comprehensive due diligence with respect to our
investments;
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ensuring we allocate capital in the most effective manner
possible; and
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working efficiently and developing relationships with other
professionals.
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Our compensation committee reviewed and approved all of our
compensation policies for 2009.
We completed our initial public offering, or IPO, in February
2007. As our first three years of operation as a publicly traded
business development company, or BDC, 2007, 2008 and 2009
represented a period of constant development and growth for us,
and we worked to create an executive compensation program that
would effectively achieve our desired objectives stated above.
We intend to continue the process of aligning executive
compensation and our goals in 2010.
As a BDC, we must comply with the requirements of the 1940 Act.
The 1940 Act imposes certain limitations on the structure of our
compensation programs, including limitations on our ability to
issue certain equity-based compensation to our employees and
directors. In 2008, we received an exemptive order from the SEC
which permits us to issue restricted share awards as part of the
compensation packages for our employees and directors. In 2008,
we revised our 2007 Equity Incentive Plan in accordance with the
SECs comments. Our Board has approved the Amended and
Restated Plan and our stockholders voted to approve the Amended
and Restated Plan at our 2008 Annual Meeting of Stockholders.
Executive
Compensation Policy
In 2009, we compensated our NEOs through a combination of base
salary, cash bonuses and restricted stock awards. Our
integration of restricted stock awards into our overall
compensation philosophy is designed to make us competitive with
comparable employers and to align managements incentives
with the long-term interests of our stockholders. In allocating
among these elements the compensation committee believes that
the compensation of our NEOs should be based predominately on
company and individual performance.
88
Overview
Our performance-driven compensation policy consists of the
following three components:
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Base salary;
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Annual cash bonuses; and
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Long-term compensation pursuant to our equity incentive plan.
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We designed each NEOs compensation package to
appropriately reward the NEO for his contribution to the
Company. Our compensation philosophy has not historically been,
and going forward will not be, a mechanical process, and our
compensation committee will continue to use its judgment and
experience, working in conjunction with our chief executive
officer and an independent compensation consultant, to determine
the appropriate mix of compensation for each individual. Cash
compensation consisting of base salary and discretionary cash
bonuses tied to achievement of performance goals set by the
compensation committee are intended to incentivize NEOs to
remain with us in their roles and work hard to achieve our
goals. Stock-based compensation in the form of restricted stock
was awarded based on individual performance expectations set by
the compensation committee.
Establishing
Compensation Levels
Role
of the Compensation Committee and Management
As set forth in the Compensation Committee Charter, our
compensation committees primary responsibility is to
evaluate the compensation of our executive officers and assure
that they are compensated effectively and in a manner consistent
with our stated compensation objectives. The compensation
committee also periodically reviews our corporate goals and
objectives relevant to executive compensation, our executive
compensation structure to ensure that it is designed to achieve
the objectives of rewarding the companys executive
officers appropriately for their contributions to corporate
growth and profitability and our other goals and objectives. At
least annually, the compensation committee will evaluate the
compensation of our executive officers and determine the amounts
and individual elements of total compensation for executive
officers consistent with our corporate goals and objectives and
will communicate to stockholders the factors and criteria on
which the executive officers compensation is based,
including the relationship of our performance to the executive
officers compensation. With respect to the compensation of
our executive officers other than the chief executive officer,
the committee works with the chief executive officer to conduct
these reviews. The committee will also periodically evaluate the
terms and administration of our annual and long-term incentive
plans, including equity compensation plans, to ensure that they
are structured and administered in a manner consistent with our
goals and objectives as to participation in such plans, target
annual incentive awards, corporate financial goals, actual
awards paid to executive officers, and total funds allocated for
payment under the compensation plans.
Assessment
of Market Data
To assess the competitiveness of our executive compensation
levels, we developed a comparative group of internally managed
BDCs and performed comprehensive analyses of competitive
performance and compensation levels. In 2009, this comparative
group included the following: Capital Southwest Corporation;
Hercules Technology Growth Capital, Inc.; Kohlberg Capital
Corporation; Main Street Capital Corporation; MCG Capital
Corporation; Medallion Financial Corp.; Patriot Capital Funding,
Inc.; and Utek Corporation. In addition, our compensation
committee reviewed various independent consulting reports
regarding compensation within the private equity industry.
Our analysis centered around key elements of compensation
practices within the BDC industry in general and, more
specifically, compensation practices at internally managed BDCs
closer in asset size, typical investment size, typical
investment type, market capitalization, and general business
scope to our Company. Items we reviewed included, but were not
necessarily limited to, base compensation, bonus compensation
and restricted stock awards. In addition to actual levels of
compensation, we also analyzed the approach other
89
BDCs were taking with regard to their compensation practices.
Items we reviewed included, but were not necessarily limited to,
the use of employment agreements for certain employees, the
targeted mix of cash and equity compensation, the use of a third
party compensation consultant, and certain corporate and
executive performance measures established to achieve total
returns for stockholders.
Using the above data, we ranked below the median of the
comparative group in market capitalization, below the median in
net income, and in the lower quartile in assets and number of
employees. Although each of the comparative companies is not
exactly comparable in size, scope and operations, the
compensation committee believes that they were the most relevant
comparable companies available with disclosed executive
compensation data, and they provide a good representation of
competitive compensation levels for our executives.
Assessment
of Company Performance
We believe that the alignment of (i) a companys
business plan, (ii) its stockholders expectations and
(iii) its employee compensation is essential to long term
business success in the interest of our stockholders and
employees. We typically make three to seven year investments in
privately held businesses. Our business plan involves taking on
investment risk over an extended period of time, and a premium
is placed on our ability to maintain stability of net asset
values and continuity of earnings to pass through to
stockholders in the form of recurring dividends. Our strategy is
to generate income and capital gains from our portfolio of
investments in the debt and equity securities of our customers.
This income supports the payment of dividends to our
stockholders. Therefore, a key element of our return to
stockholders is in the form of current income through the
payment of dividends. This recurring payout requires a
methodical asset acquisition approach and active monitoring and
management of our investment portfolio over time. A meaningful
part of our employee base is dedicated to the maintenance of
asset values and expansion of this recurring revenue to support
and grow dividends.
Compensation
Determination
We analyzed the competitiveness of the previously described
components of compensation individually, as well as in total, in
conjunction with our peer group of BDCs listed above. Our
comparative analysis indicated that in aggregate, for 2009, our
base salaries plus target bonuses resulted in total annual cash
compensation below the market median. We believe this is
primarily due to the fact that the Company is smaller than the
other BDCs in our peer group. As the Company grows and matures
we would expect our compensation levels would, over time, more
closely approximate the median of our peer group.
Classes
of Executive Compensation
Base
salary
Base salary is used to recognize particularly the experience,
skills, knowledge and responsibilities required of the executive
officers in their roles. In establishing the 2009 base salaries
of the NEOs, the compensation committee and management
considered a number of factors including the seniority of the
individual, the functional role of the position, the level of
the individuals responsibility, the ability to replace the
individual and the base salary of the individual in 2008. In
addition, we considered the base salaries paid to comparably
situated executive officers in other BDCs and other competitive
market practices. Finally, we used a compensation consultant in
order to get an objective third party experts insight into
our NEOs base salaries.
The salaries of the NEOs are reviewed on an annual basis, as
well as at the time of promotion or other changes in
responsibilities. The leading factors in determining increases
in salary level are relative cost of living and competitive
pressures.
On February 21, 2007, we entered into employment agreements
with Messrs. Tucker, Burgess and Lilly, and each employment
agreements term ended without renewal on February 20,
2009. Each of our NEOs is now employed on an at-will basis. In
general the agreements provided for the compensation of each
NEO, as discussed above, payments to each executive upon various
termination scenarios and contained certain
90
restrictive covenants on competition and solicitation of our
employees and clients. The 2009 base salaries and target bonus
levels for the three NEOs were the same as they were in 2008.
Pursuant to these agreements, each executive would have received
compensation for termination due to death or disability,
termination by us other than for cause, termination by the
executive for good reason or termination upon a change in
control. See Employment Agreements and
Potential Payments upon Termination or Change in
Control below for additional information regarding the
material terms of these agreements.
In February 2009, upon determination by our compensation
committee that it would be in the best interests of the Company
and its stockholders for the Company to operate without
employment agreements, we requested that our NEOs waive all
notice requirements pursuant to their employment agreements and
agree not to renew them on a going-forward basis in 2009. After
consideration, Messrs. Tucker, Burgess, and Lilly agreed
with our compensation committee, voluntarily waiving their
notice rights as to the renewal of their employment agreements.
As a result, since February 21, 2009, none of our employees
is party to an employment agreement with us.
Determination
of 2009 Annual Base Salary
The compensation committee annually reviews the base salary for
each of our executive officers and determines whether or not to
adjust it in its sole discretion. Increases to base salary are
awarded to recognize levels of responsibilities and related
individual performance, and to address changes in the external
competitive market for a given position.
Mr. Tucker was paid an annual base salary of $265,000.
Mr. Tuckers base salary did not increase from 2008 to
2009. Mr. Tuckers base salary recognizes his overall
responsibility for the Company and his continued leadership
which enabled us to achieve the majority of our operational and
financial objectives in 2009.
Mr. Burgess was paid an annual base salary of $240,000 for
2009. Mr. Burgess base salary did not increase from
2008 to 2009. Mr. Burgess base salary recognizes his
lead role in managing all investment activity of the Company,
including marketing, structuring, closing and monitoring
portfolio company investments.
Mr. Lilly was paid an annual base salary of $240,000 for
2009. Mr. Lillys base salary did not increase from
2008 to 2009. Mr. Lillys base salary recognizes his
lead role in managing all financial aspects of our Company,
including his leadership in matters relating to our capital
structure, the media and investor relations.
Mr. Lillys base salary also reflected his service as
our Companys Chief Compliance Officer.
Annual
Cash Bonuses
We pay annual cash bonuses to reward corporate and individual
achievements for the prior fiscal year. We determined that
annual cash bonuses will be based on the compensation
committees discretionary assessment of the Companys
and the NEOs performance, with recommendations from the
chief executive officer for NEOs other than himself. For 2009,
NEOs were eligible for cash bonuses, ranging from 0% to up to
139.6% of their highest annual rate of base salary, depending on
the NEOs position. Performance achievements which were
considered in the determination of cash bonuses for fiscal 2009
include individual performance and Company performance (based
upon a comparison of actual performance to budgeted performance).
Determination
of Annual Cash Bonuses
Cash bonuses for 2009 were paid in February of 2010 and were
typically determined as a percentage of each employees
salary, based on individual performance and each employees
level within the Company. Our NEOs annual cash bonuses
paid for performance in 2009 are disclosed in the bonus column
of the Summary Compensation Table. All of our NEOs cash
bonuses earned during 2009 were determined based on performance
goals adopted by the compensation committee. The potential bonus
ranges for each of our NEOs
91
are presented below, as well as the actual percentage of bonuses
paid as compared to salary paid in 2009 for each of our NEOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Target
|
|
Actual %
|
|
|
Performance %
|
|
Performance
|
|
of 2009 Salary
|
NEO
|
|
of 2009 Salary
|
|
% of 2009 Salary
|
|
Awarded
|
|
Garland S. Tucker, III
|
|
|
0
|
%
|
|
|
139.6
|
%
|
|
|
139.6
|
%
|
Brent P.W. Burgess
|
|
|
0
|
%
|
|
|
129.2
|
%
|
|
|
129.2
|
%
|
Steven C. Lilly
|
|
|
0
|
%
|
|
|
108.3
|
%
|
|
|
108.3
|
%
|
All of our NEOs cash bonuses for 2009 were determined
based on the compensation committees analysis of certain
individual performance-based elements including how efficiently
capital was deployed and the establishment of meaningful
operational policies and procedures, including but not limited
to, portfolio valuation, portfolio monitoring processes, asset
management processes, transaction monitoring processes and
maintaining appropriate dividend payouts to stockholders.
Mr. Tucker was paid an annual cash bonus of $370,000
for 2009, which is a $105,000 increase from his annual cash
bonus for 2008. Mr. Tuckers cash bonus reflects his
overall responsibility for the Company and his continued
leadership in 2009, which enabled us to achieve the majority of
our operational and financial objectives.
Mr. Burgess was paid an annual cash bonus of
$310,000 for 2009, which is a $70,000 increase from his annual
cash bonus for 2008. Mr. Burgess cash bonus reflects
his ability to manage the Companys investment process,
including sourcing new investments, monitoring our portfolio and
guiding all of the investments we made during 2009 to a
successful closing on terms we believe will be favorable to the
Company.
Mr. Lilly was paid an annual cash bonus of $260,000
for 2009, which is a $20,000 increase from his annual cash bonus
for 2008. Mr. Lillys cash bonus reflects his lead
role in managing all financial aspects of our Company, including
his leadership in matters relating to our capital structure, the
media and investor relations. Mr. Lillys cash bonus
also reflected his service as our Chief Compliance Officer
during 2009.
Long Term
Incentive Compensation
General
Our Board of Directors adopted the Amended and Restated Plan in
order to provide stock-based awards as incentive compensation to
our employees and non-employee directors. Since our IPO, our
compensation committee has chosen to utilize shares of our
restricted stock, rather than stock options or other
equity-based incentive compensation, as its long term incentive
compensation strategy.
We use stock-based awards to (i) attract and retain key
employees, (ii) motivate our employees by means of
performance-related incentives to achieve long-range performance
goals, (iii) enable our employees to participate in our
long-term growth and (iv) link our employees
compensation to the long-term interests of our stockholders. The
compensation committee has been delegated exclusive authority by
our Board of Directors to select the persons to receive
stock-based awards. At the time of each award granted to each
NEO, the compensation committee determines the terms of the
award in its sole discretion, including their performance period
(or periods) and the performance objectives relating to the
award.
Options
Since our IPO, our compensation committee has not utilized
options to purchase our common stock as a form of compensation
to our NEOs and other employees. As such, we did not grant any
stock options to our employees in 2009.
Our compensation committee may, however, in its sole discretion
(upon delegation by the Board) grant our employees options to
purchase our common stock (including incentive stock options and
non-qualified stock options). We expect that, if granted,
options will represent a fixed number of shares of our common
stock, will have an exercise, or strike, price equal to the fair
market value of our common stock on the date of
92
such grant, and will be exercisable, or vested, at
some later time after grant. Upon any stock option grant, its
exercise price will not be changed absent specific SEC approval
that we may do so. The fair market value will be
defined as either (i) the closing sales price of the our
common stock on the Nasdaq Global Market, or any other such
exchange on which the shares are traded, on such date,
(ii) in the absence of reported sales on such date, the
closing sales price on the immediately preceding date on which
sales were reported or (iii) in the event there is no
public market for the shares on such date, the fair market value
as determined, in good faith, by our Board in its sole
discretion (which will in no event will be less than the net
asset value of such shares of common stock on such date), and
for purposes of a sale of a share of common stock as of any
date, the actual sales price on that date. Some stock options
granted by our compensation committee may vest simply by the
holder remaining with the Company for a period of time, and some
may vest based on meeting certain performance goals. We
anticipate that our options, if granted in the future, will be
valued for financial reporting purposes using the Black Scholes
valuation method, and charges to earnings will be taken over the
relevant service period pursuant to Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) ASC Topic 718, Stock
Compensation (formerly Statement of Accounting Standards
No. 123R, Share-Based Payment).
Specific performance factors that the compensation committee may
consider in determining the vesting of options may include
individual employee performance objectives such as work ethic,
business development, proficiency and overall contribution to
the Company.
Restricted
Stock
Upon obtaining the requisite exemptive relief from the SEC in
2008, our compensation committee has utilized restricted shares
of our common stock as the sole form of equity-based incentive
compensation to our NEOs and other employees.
Generally BDCs, such as us, may not grant shares of their stock
for services without an exemptive order from the SEC. In 2007,
we filed a request with the SEC for exemptive relief with
respect to our ability to issue restricted stock to our
employees and non-employee directors. On February 6, 2008,
the Board voted to approve the Amended and Restated Plan and to
recommend approval of the Amended and Restated Plan by
stockholders, subject to an order from the SEC granting
exemptive relief. On March 18, 2008, we received an order
from the SEC authorizing such issuance of restricted stock to
our employees and non-employee directors, subject to certain
restrictions. As such, we were able to begin the implementation
of our long-term compensation strategies through granting
restricted stock to our non-employee directors, NEOs and other
key employees in 2008 and continued to do so in 2009. We have
complied with each condition required by the SECs
exemptive order, as amended.
The Amended and Restated Plan allows our Board (and compensation
committee, after delegation of administrative duties) to grant
shares of restricted stock to our employees. Each restricted
stock award is for a fixed number of shares as set forth in an
award agreement between the grantee and us. Award agreements set
forth time
and/or
performance vesting schedules and other appropriate terms
and/or
restrictions with respect to awards, including rights to
dividends and voting rights.
Determination
of Restricted Stock Awards
Specific performance factors that the compensation committee
considered in determining the granting of restricted stock in
2009 included individual employee performance objectives such as
work ethic, proficiency and overall contribution to the Company
during our fiscal year ended December 31, 2008. The amount
of restricted stock awarded to each of our executive officers is
unrelated to the number of shares we may sell below net asset
value. Restricted stock is issued to employees under our Amended
and Restated Plan, pursuant to which we have reserved a total of
900,000 shares of common stock for issuance.
Mr. Tucker was awarded 29,182 shares of
restricted stock in 2009, which is an increase of
7,128 shares of restricted stock from that which was
granted to him in 2008. This award reflects
Mr. Tuckers leadership during 2008, which enabled us
to achieve the majority of our operational and financial
objectives. Mr. Tuckers performance during this time
period was vital to our Companys success.
93
Mr. Burgess was awarded 23,636 shares of
restricted stock in 2009, which is an increase of
3,663 shares of restricted stock from that which was
granted to him in 2008. This award reflects
Mr. Burgess leadership in implementing our investment
strategy during 2008, including the expansion of our investment
team, the deal sourcing of certain portfolio investments and
guidance of each investment through our internal investment
process from inception to closing.
Mr. Lilly was awarded 21,091 shares of
restricted stock in 2009, which is an increase of
1,118 shares of restricted stock from that which was
granted to him in 2008. This award reflects
Mr. Lillys role in managing all financial aspects of
our Company, including his leadership in matters relating to our
capital structure, the media and investor relations.
Mr. Lillys cash bonus also reflected his service as
our Chief Compliance Officer during 2009.
Change in
Control and Severance
Effective February 2009, resulting from the determination by our
compensation committee that it would be in the best interests of
the Company and our stockholders for the Company to operate
without employment agreements, none of our employees is party to
an employment agreement with us, and, as such, our NEOs are no
longer entitled to any severance or other compensation upon the
termination of their employment, including any such compensation
as a result of a change in control of the Company. However,
since each of our NEOs was party to an employment agreement with
us from January 1, 2009 through February 20, 2009, we
are required to describe certain terms of their former
employment agreements, which we have set forth below.
Change
in Control
Upon termination of employment after a change of control, the
NEOs would have received severance payments pursuant to their
employment agreements entered into in connection with our IPO
Effective February 20, 2009, however, our NEOs voluntarily
waived their rights to the renewal of their employment
agreements. As a result, effective February 21, 2009, none
of our NEOs is eligible to receive severance upon a change of
control.
Upon specified covered transactions involving a change of
control (as defined in the Amended and Restated Plan), all
outstanding awards under the Amended and Restated Plan will
either be assumed or substituted for by the surviving entity. If
the surviving entity does not assume or substitute similar
awards, the awards held by the participants will be accelerated
in full and then terminated to the extent not exercised prior to
the covered transaction.
Severance
Under specified covered transactions involving a change in
control (as defined in each NEOs employment agreement), if
an NEO had terminated his employment with us within two years
following such change in control, or if we had terminated or
given the NEO notice of non-renewal of the NEOs employment
within the two years commencing with a change in control, he
would have received a severance package beginning on the date of
termination. The severance package would have included monthly
payments equal to one- twelfth of (i) the NEOs annual
salary at that time plus (ii) the NEOs bonus
compensation as described in the employment agreement, and
(iii) the Company would have continued to provide the NEO
with all of the benefits provided to him immediately prior to
the termination, as described in the employment agreement. The
severance package would have continued to be in effect for
thirty-six months. In the event that an NEOs severance pay
had been triggered under his employment agreement, he would have
continued to receive his respective severance package even if he
had been hired by another employer, including a competing
business development company or other fund; however, the
Companys obligation to continue the NEOs
then-existing benefits under the severance package would have
terminated on the date the NEO became eligible to receive such
equal benefit from another employer.
In addition, a separate severance package existed in the event
the NEOs employment had been terminated as a result of
death or disability, or in the event that the Company had
terminated the NEOs employment outside of the two-year
period after a specified covered transaction involving a change
in control.
94
The same severance package referenced in the immediately
preceding paragraph would have been provided to the NEO, except
that the severance package would have only continued to be in
effect for twenty-four months.
Each NEOs employment agreement also included a right to
allow the executive officer the opportunity to evaluate his
position with the Company for a one-month period beginning at
the end of one year after a change in control had occurred, in
order to determine whether at that time it would have been in
the best interests of the Company and the executive officer for
the executive officer to continue serving in his then current
position. If the NEO had been dissatisfied with his
responsibilities one year after the change in control had
occurred, he could have terminated his employment with the
Company without good reason and still would have received a
severance package. The severance package would have included
monthly payments equal to one-twelfth of (i) the NEOs
annual salary at that time plus (ii) the NEOs bonus
compensation as described in the employment agreement, and
(iii) the Company would have continued to provide the NEO
with all of the benefits provided to him immediately prior to
the termination, as described in the employment agreement. The
severance package would have continued to be in effect for
thirty-six months.
Finally, if we had failed to renew any NEOs employment
agreement outside of the two-year period after a specified
covered transaction involving a change in control (causing such
NEOs employment to terminate), any severance payment or benefit
would have been payable at the absolute discretion of the Board.
The rationale behind providing a severance package in certain
events was to attract talented executives who would be assured
that they would not be financially injured if they physically
relocated
and/or left
another job to join us but were forced out through no fault of
their own and to ensure that our business would be operated and
governed for our stockholders by a management team, and under
the direction of a Board of Directors, who were not financially
motivated to frustrate the execution of a change in control
transaction. For more discussion regarding executive
compensation in the event of a termination or change of control,
please see the table below entitled 2009 Potential
Payments Upon Termination or Change in Control and
accompanying discussion.
Tax
and Accounting Considerations
Section 162(m) of the Code limits our deduction for
U.S. federal income tax purposes to not more than
$1 million of compensation paid to certain executive
officers in a calendar year. Compensation above $1 million
may be deducted if it is performance-based
compensation as defined in the Code and the Treasury
Regulations thereunder. Our compensation committee has not
established a policy for determining which forms of incentive
compensation awarded to our executive officers should be
designated to qualify as performance-based
compensation for U.S. federal income tax purposes. To
maintain flexibility in compensating our executive officers in a
manner designed to promote our objectives, the compensation
committee has not adopted a policy that requires all
compensation to be deductible. However, the compensation
committee evaluates the effects of the compensation limits of
Section 162(m) of the Code on all compensation it proposes
to grant, and the compensation committee intends to provide all
executive compensation in a manner consistent with our best
interests and those of our stockholders. In 2009, none of our
executive officers received compensation that would exceed the
$1 million limit on deductibility under Section 162(m)
of the Code.
In awarding restricted stock awards for performance in 2009, we
accounted for share-based awards under the provisions of FASB
ASC Topic 718, Stock Compensation (formerly Statement of
Accounting Standards No. 123R, Share-Based Payment).
ASC Topic 718 establishes accounting for stock-based awards
exchanged for goods or services. Accordingly, stock-based
compensation cost is measured at grant date, based on the fair
value of the awards, and is recognized as an expense ratably
over the requisite service period. Accounting rules also require
us to record cash compensation as an expense at the time the
obligation is incurred.
Conclusion
Our compensation policies are designed to fairly compensate,
retain and motivate our NEOs. The retention and motivation of
our NEOs should enable us to grow strategically and position
ourselves competitively in our market.
95
EXECUTIVE
OFFICER COMPENSATION
Due to the fact that we consummated our initial public offering
of common stock in February 2007, we only have executive officer
compensation data for a portion of 2007, in addition to the 2008
and 2009 data. The respective compensation of our named
executive officers in 2007, 2008 and 2009 was as follows:
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
|
|
|
|
|
|
|
Principal
|
|
|
|
Base
|
|
|
|
Stock
|
|
All Other
|
|
|
Name
|
|
Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Compensation
|
|
Total
|
|
Garland S. Tucker, III
|
|
|
CEO
|
|
|
|
2009
|
|
|
$
|
265,000
|
|
|
$
|
370,000
|
|
|
$
|
309,913
|
(1)
|
|
$
|
109,254
|
(2)
|
|
$
|
1,054,167
|
|
|
|
|
|
|
|
|
2008
|
|
|
$
|
265,000
|
|
|
$
|
265,000
|
|
|
$
|
245,020
|
(3)
|
|
$
|
60,389
|
(4)
|
|
$
|
835,409
|
|
|
|
|
|
|
|
|
2007
|
|
|
$
|
231,875
|
(5)
|
|
$
|
265,000
|
|
|
|
|
|
|
$
|
18,277
|
|
|
$
|
515,152
|
|
Brent P.W. Burgess
|
|
|
CIO
|
(6)
|
|
|
2009
|
|
|
$
|
240,000
|
|
|
$
|
310,000
|
|
|
$
|
251,014
|
(1)
|
|
$
|
85,568
|
(2)
|
|
$
|
886,582
|
|
|
|
|
|
|
|
|
2008
|
|
|
$
|
240,000
|
|
|
$
|
240,000
|
|
|
$
|
221,900
|
(3)
|
|
$
|
46,290
|
(4)
|
|
$
|
748,190
|
|
|
|
|
|
|
|
|
2007
|
|
|
$
|
210,000
|
(5)
|
|
$
|
240,000
|
|
|
|
|
|
|
$
|
12,318
|
|
|
$
|
462,318
|
|
Steven C. Lilly
|
|
|
CFO
|
|
|
|
2009
|
|
|
$
|
240,000
|
|
|
$
|
260,000
|
|
|
$
|
223,986
|
(1)
|
|
$
|
81,187
|
(2)
|
|
$
|
805,173
|
|
|
|
|
|
|
|
|
2008
|
|
|
$
|
240,000
|
|
|
$
|
240,000
|
|
|
$
|
221,900
|
(3)
|
|
$
|
46,054
|
(4)
|
|
$
|
747,954
|
|
|
|
|
|
|
|
|
2007
|
|
|
$
|
210,000
|
(5)
|
|
$
|
280,416
|
(7)
|
|
|
|
|
|
$
|
11,488
|
|
|
$
|
501,904
|
|
|
|
|
(1) |
|
Grant date fair value of restricted stock awards granted during
2009. |
|
(2) |
|
Includes (i) value of benefits in the form of 401(k)
contributions, health, life and disability insurance premiums
paid by the Company in 2009 and (ii) value of dividends
received or earned in respect of each executive officers
restricted stock awards received in 2009. |
|
(3) |
|
Grant date fair value of restricted stock awards granted during
2008. |
|
(4) |
|
Includes (i) value of benefits in the form of 401(k)
contributions, health, life and disability insurance premiums
paid by the Company in 2008 and (ii) value of dividends
received or earned in respect of each executive officers
restricted stock awards received in 2008. |
|
(5) |
|
Includes base salary paid from February 21, 2007 through
December 31, 2007. |
|
(6) |
|
CIO stands for Chief Investment Officer. |
|
(7) |
|
Includes a tax
gross-up
bonus approved by the compensation committee. |
Equity
Incentive Plan
Our Board of Directors and sole stockholder approved
Triangles 2007 Equity Incentive Plan, or the Original
Plan, effective February 13, 2007, for the purpose of
attracting and retaining the services of executive officers,
directors and other key employees. During our fiscal year ended
December 31, 2007, no equity incentive awards were granted
under the Original Plan, in part due to certain 1940 Act
restrictions which disallow the issuance of certain types of
compensation to a business development companys
non-employee directors and employees without having first
obtained exemptive relief. In 2007, we filed a request with the
Securities and Exchange Commission, or the SEC, for such
exemptive relief with respect to our ability to issue restricted
stock to our employees and non-employee directors. On
March 18, 2008 we received an order from the SEC
authorizing such issuance of restricted stock to our employees
and non-employee directors pursuant to the terms of the Amended
and Restated Plan and as otherwise set forth in the exemptive
order. In 2008, our Board approved, and the stockholders voted
to approve, the Triangle Capital Corporation Amended and
Restated 2007 Equity Incentive Plan, or the Amended and Restated
Plan. During our fiscal year ended December 31, 2009, we
granted restricted share awards to our officers, directors and
key employees in accordance with the Amended and Restated Plan.
The following is a summary of the material features of the
Amended and Restated Plan. It may not contain all of the
information important to you. The Amended and Restated Plan
includes provisions allowing the issuance of restricted stock to
all key employees and directors. Restricted stock refers to an
award of stock that is subject to forfeiture restrictions and
may not be transferred until such restrictions have lapsed. The
Amended and Restated Plan will also allow us to issue options to
our key employees in the future should our Board and
compensation committee choose to do so.
96
Under the Amended and Restated Plan, up to 900,000 shares
of our common stock are authorized for issuance. Participants in
the Amended and Restated Plan who are employees may receive
awards of options to purchase shares of common stock or grants
of restricted stock, as determined by the Board. Participants
who are non-employee directors may receive awards of restricted
stock in accordance with certain parameters as discussed below.
The basis of such participation is to provide incentives to our
employees and directors in order to attract and retain the
services of qualified professionals.
Options granted under the Amended and Restated Plan entitle the
optionee, upon exercise, to purchase shares of common stock at a
specified exercise price per share. Options must have a per
share exercise price of no less than the fair market value of a
share of stock on the date of the grant, subject to forfeiture
provisions as determined by the Board. The exercise period of
each stock option awarded will expire on a date determined by
the Board, such date to be specified in the stock option award
agreement; however, the Plan also states that no stock option
award will be exercisable after the expiration of ten years from
the date such stock option was granted.
The Amended and Restated Plan permits the issuance of restricted
stock to employees and directors consistent with such terms and
conditions as the Board shall deem appropriate, subject to the
limitations set forth in the plan. With respect to awards issued
to our employees, the Board will determine the time or times at
which such shares of restricted stock will become exercisable
and the terms on which such shares will remain exercisable.
Shares granted pursuant to a restricted stock award will not be
transferable until such shares have vested in accordance with
the terms of the award agreement, unless the transfer is by will
or by the laws of descent and distribution.
The Amended and Restated Plan provides that our non-employee
directors each receive an automatic grant of restricted stock at
the beginning of each one-year term of service on the Board, for
which forfeiture restrictions lapse one year from the grant
date. From 2008 forward, the grants of restricted stock to
non-employee directors under the Amended and Restated Plan are
automatic, that is, the grants will equal $30,000 worth of
restricted stock each year, taken at the market value at the
close of the Nasdaq Global Market on the date of grant, which
historically has been the date of our annual stockholders
meeting. The terms thereunder will not be changed without SEC
approval. Shares granted pursuant to a restricted stock award
will not be transferable until such shares have vested in
accordance with the terms of the award agreement, unless the
transfer is by will or by the laws of descent and distribution.
Our Board of Directors has delegated administration of the
Amended and Restated Plan to its compensation committee,
currently comprised solely of three (3) independent
directors who are independent pursuant to the listing
requirements of the Nasdaq Global Market. Our Board may abolish
such committee at any time and revest in our Board the
administration of the Amended and Restated Plan. Our Board
administers the Amended and Restated Plan in a manner that is
consistent with the applicable requirements of the Nasdaq Global
Market and the exemptive order.
The following tables and discussions thereunder provide
information regarding the Amended and Restated Plan generally
and the restricted stock awards granted to our executive
officers in 2009:
Grants of
Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards:
|
|
Grant Date
|
|
|
|
|
Number of
|
|
Fair Value
|
Name
|
|
Grant Date
|
|
Shares of Stock
|
|
of Stock
|
|
Garland S. Tucker, III
|
|
February 4, 2009
|
|
|
29,182
|
(1)
|
|
$
|
309,913
|
|
Brent P.W. Burgess
|
|
February 4, 2009
|
|
|
23,636
|
(1)
|
|
$
|
251,014
|
|
Steven C. Lilly
|
|
February 4, 2009
|
|
|
21,091
|
(1)
|
|
$
|
223,986
|
|
|
|
|
(1) |
|
Consists of restricted stock which vests ratably over four years
from the date of grant. |
On February 4, 2009, the Board of Directors, upon
recommendation of our compensation committee, approved grants of
restricted stock awards to the Companys executive officers
as set forth above. All of these restricted shares of stock were
valued at $10.62, the closing price of our common stock on the
Nasdaq Global
97
Market on February 4, 2009, the grant date. The restricted
share awards granted to the executive officers vest ratably over
four years from this grant date.
None of these shares of restricted Stock may be sold, assigned,
transferred, pledged, hypothecated or otherwise encumbered or
disposed of prior to the their vesting date, and, except as
otherwise determined by our Board or compensation committee at
or after the grant of each executive officers award of
restricted stock, any of the shares which have not fully vested
will be forfeited, and all rights of the executive officer to
such shares shall terminate, without further obligation on the
part of Triangle, unless the executive officer remains employed
with us for the entire vesting period relating to the restricted
stock.
In addition, in accordance with the Amended and Restated Plan
and each individual award agreement, any share of the
Companys stock distributed with respect to the restricted
stock reflected in the table above is subject to the same
ratable vesting restrictions, terms and conditions as the
restricted stock awarded to each executive officer.
Outstanding
Equity Awards at Fiscal Year-End 2009
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|
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|
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|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
Equity Incentive
|
|
Plan Awards: Market
|
|
|
Number of
|
|
Market Value of
|
|
Plan Awards: Number
|
|
or Payout Value of
|
|
|
Shares of Stock
|
|
Shares of Stock
|
|
of Unearned Shares
|
|
Unearned Shares
|
|
|
That Have Not
|
|
That Have Not
|
|
That Have Not
|
|
That Have Not
|
Name
|
|
Vested
|
|
Vested(1)
|
|
Vested
|
|
Vested(1)
|
|
Garland S. Tucker, III
|
|
|
45,723
|
(2)
|
|
$
|
552,791
|
|
|
|
45,723
|
(2)
|
|
$
|
552,791
|
|
Brent P.W. Burgess
|
|
|
38,616
|
(3)
|
|
$
|
466,867
|
|
|
|
38,616
|
(3)
|
|
$
|
466,867
|
|
Steven C. Lilly
|
|
|
36,071
|
(4)
|
|
$
|
436,098
|
|
|
|
36,071
|
(4)
|
|
$
|
436,098
|
|
|
|
|
(1) |
|
The values of the unvested common stock listed are based on a
$12.09 closing price of our common stock as reported on the
Nasdaq Global Market on December 31, 2009. |
|
(2) |
|
16,541 of the shares listed will vest ratably on May 6 of each
year until May 6, 2013, and 29,182 of the shares listed
will vest ratably on February 4 of each year until
February 4, 2014, at which respective times such shares
will be fully vested, subject to the executive officer still
being employed with us at such vesting dates. |
|
(3) |
|
14,980 of the shares listed will vest ratably on May 6 of each
year until May 6, 2013, and 23,636 of the shares listed
will vest ratably on February 4 of each year until
February 4, 2014, at which respective times such shares
will be fully vested, subject to the executive officer still
being employed with us at such vesting dates. |
|
(4) |
|
14,980 of the shares listed will vest ratably on May 6 of each
year until May 6, 2013, and 21,091 of the shares listed
will vest ratably on February 4 of each year until
February 4, 2014, at which respective times such shares
will be fully vested, subject to the executive officer still
being employed with us at such vesting dates. |
Employment
Agreements
Effective February 2009, resulting from the determination by our
compensation committee that it would be in the best interests of
the Company and our stockholders for the Company to operate
without employment agreements, none of our employees is party to
an employment agreement with us. However, since each of our NEOs
was party to an employment agreement with us from
January 1, 2009 through February 20, 2009, we are
required to describe certain terms of their former employment
agreements, which we have done herein.
Upon consummation of our IPO, we entered into employment
agreements with Messrs. Tucker, Burgess, and Lilly that
provide for a two year term. The initial base salaries under the
employment agreements for Messrs. Tucker, Burgess, and
Lilly were $265,000, $240,000, and $240,000, respectively.
In addition, in 2008, each executive officer was eligible to
receive an annual bonus of up to a maximum of 100% of the
executive officers 2008 base salary for achieving certain
performance objectives. Our
98
compensation committee established such performance objectives,
as well as the bonus awarded to each executive officer, the
details of which are discussed in the Compensation
Discussion & Analysis section above.
After recent consideration, our Board of Directors and
compensation committee determined that it would be in the best
interests of the Company and our stockholders if these
employment agreements were not renewed for additional one-year
terms. Accordingly, on February 20, 2009, each executive
officer affirmatively waived his non-renewal notice rights set
forth in his employment agreement, and the Company formally
acknowledged such waivers.
Potential
Payments upon Termination or Change in Control
Effective February 2009, resulting from the determination by our
compensation committee that it would be in the best interests of
the Company and our stockholders for the Company to operate
without employment agreements, none of our employees is party to
an employment agreement with us and, as such, our NEOs are no
longer entitled to any severance or other compensation upon the
termination of their employment, including any such compensation
as a result of a change in control of the Company. However,
since each of our NEOs was party to an employment agreement with
us from January 1, 2009 through February 20, 2009, we
are required to describe certain terms of their former
employment agreements, including potential payments to our NEOs
upon their termination or a change in control, which we have set
forth below.
Under their respective employment agreements (which, as
explained above in the section entitled Employment
Agreements, are no longer in effect as of
February 21, 2009), each NEO was entitled to certain
payments upon termination of employment or in the event of a
change in control. The following table sets forth those
potential payments with respect to each NEO between
January 1, 2009 and February 21, 2009. In providing
the estimated potential payments, we have made the following
general assumptions in all circumstances where applicable:
|
|
|
|
|
change in control event would have occurred, and the date of
termination was February 21, 2009;
|
|
|
|
the annual salary at the time of termination would have been as
follows: Garland S. Tucker, III, $265,000; Brent P.W.
Burgess, $240,000; and Steven C. Lilly $240,000;
|
|
|
|
there would have been no unpaid bonus for the prior year;
|
|
|
|
there would have been no accrued and unpaid salary; and
|
|
|
|
there would have been no unpaid reimbursement for expenses
incurred prior to the date of termination.
|
99
2009
Potential Payments Upon Termination or Change in Control
(through February 20, 2009)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within Two
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
|
|
|
|
|
|
|
|
|
|
|
Outside of
|
|
After
|
|
|
|
|
|
Thirteenth
|
|
|
|
|
Two Years
|
|
Change in
|
|
|
|
|
|
Month After
|
|
|
|
|
After
|
|
Control;
|
|
|
|
|
|
Change in
|
|
|
|
|
Change
|
|
Termination
|
|
|
|
|
|
Control;
|
|
|
|
|
in Control;
|
|
w/o Cause or
|
|
|
|
|
|
Termination
|
|
|
|
|
Termination
|
|
for Good
|
|
|
|
|
|
w/o Good
|
Name
|
|
Benefit
|
|
w/o Cause(3)
|
|
Reason(4)
|
|
Death
|
|
Disability
|
|
Reason(5)
|
|
Garland S. Tucker, III
|
|
|
Severance Pay(1)
|
|
|
$
|
530,000
|
|
|
$
|
795,000
|
|
|
$
|
530,000
|
|
|
$
|
530,000
|
|
|
$
|
795,000
|
|
|
|
Bonu
|
s Compensation(2)
|
|
|
$
|
530,000
|
|
|
$
|
795,000
|
|
|
$
|
530,000
|
|
|
$
|
530,000
|
|
|
$
|
795,000
|
|
Brent P.W. Burgess
|
|
|
Severance Pay(1)
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
$
|
480,000
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
|
Bonu
|
s Compensation(2)
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
$
|
480,000
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
Steven C. Lilly
|
|
|
Severance Pay(1)
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
$
|
480,000
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
|
Bonu
|
s Compensation(2)
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
$
|
480,000
|
|
|
$
|
480,000
|
|
|
$
|
720,000
|
|
|
|
|
(1) |
|
Severance pay would have included an NEOs annual salary
and applicable multiple thereof paid monthly beginning at the
time of termination, plus the employees benefits in the
form of medical, health or other employee welfare benefit plan
adopted by us. |
|
(2) |
|
Bonus compensation would at most have been equal to 100% of an
employees annual salary, multiplied by the number of years
in which the employee would have been eligible to receive
severance pay as defined above. |
|
(3) |
|
Change in control was defined in each employees employment
agreement. |
|
(4) |
|
Good Reason was defined in each employees employment
agreement. |
|
(5) |
|
The intent of this particular provision in each of our executive
officers employment agreements was to allow the executive
officer the opportunity to evaluate his position with the
Company one year after a change in control had occurred, in
order to determine whether at that time it would have been in
the best interests of the Company and the executive officer for
the executive officer to continue serving in his then current
position. |
Under specified covered transactions involving a change in
control, if an NEO had terminated his employment with us within
two (2) years following such change in control, or if we
had terminated or given the NEO notice of non-renewal of the
NEOs employment within the two years commencing with a
change in control, he would have received a severance package
beginning on the date of termination. The severance package
would have included monthly payments equal to one-twelfth of
(i) the NEOs annual salary at that time plus
(ii) the NEOs bonus compensation as described in the
employment agreement, and (iii) the Company would have
continued to provide the NEO with all of the benefits provided
to him immediately prior to the termination, as described in the
employment agreement. The severance package would have continued
to be in effect for thirty-six months.
In addition, a separate severance package existed in the event
the NEOs employment had been terminated as a result of
death or disability, or in the event that the Company had
terminated the NEOs employment outside of the two-year
period after a specified covered transaction involving a change
in control. The same severance package referenced in the
immediately preceding paragraph would have been provided to the
NEO, except that the severance package would have only continued
to be in effect for twenty-four months.
Each NEOs employment agreement also included a right to
allow the executive officer the opportunity to evaluate his
position with the Company for a one-month period beginning at
the end of one year after a change in control had occurred, in
order to determine whether at that time it would have been in
the best interests of the Company and the NEO for the NEO to
continue serving in his then current position. If the NEO had
been dissatisfied with his responsibilities under the management
after the change in control had occurred, he could have
terminated his employment with the Company without good reason
and still would have received a severance package. The severance
package would have included monthly payments equal to
one-twelfth of (i) the NEOs annual salary at that
time plus (ii) the NEOs bonus compensation as
described in the employment agreement, and (iii) the
Company would have continued to provide the NEO with all of the
100
benefits provided to him immediately prior to the termination,
as described in the employment agreement. The severance package
would have continued to be in effect for thirty-six months.
Finally, if we had failed to renew any NEOs employment
agreement outside of the two-year period after a specified
covered transaction involving a change in control (thereby
terminating such NEOs employment with us), any severance
payment or benefit would have been payable at the absolute
discretion of the Board.
In addition to severance compensation, each NEOs
employment agreement provided noncompetition, nonsolicitation,
non-interference and confidentiality covenants in the event an
NEOs employment had been terminated. Under the applicable
employment agreements, for a period of two years after an
NEOs employment with Triangle terminated for any reason
whatsoever, the NEO would have been prohibited from competing
with our Company, soliciting our employees and interfering with
our business relationships. Further, each executive officer was
required to keep confidential, whether during or after
employment, all of our Companys confidential
information, as such term was defined in each employment
agreement.
After recent consideration, our Board of Directors and
compensation committee determined that it would be in the best
interests of the Company and our stockholders if these
employment agreements were not renewed for additional one-year
terms; however, we had not given any of our executive officers
the requisite three-month notice in accordance with the terms of
their employment agreements. To that end, Messrs. Tucker,
Burgess and Lilly were in agreement with us that non-renewal of
their employment agreements is desirable, and accordingly, on
February 20, 2009, each executive officer affirmatively
waived his non-renewal notice rights set forth in his employment
agreement, and we formally acknowledged such waivers.
Effective February 21, 2009, none of the executive officers
is employed by us pursuant to an employment agreement. Rather,
each executive officer is currently employed by us on an at-will
basis. Each executive officer will continue to be paid his
respective salary set forth in his previously effective
employment agreement (as described herein) and is eligible to
receive cash bonuses and equity incentives in the discretion of
our Board of Directors and compensation committee.
401(k)
Plan
In 2009, we maintained a 401(k) plan in which all full-time
employees who were at least 21 years of age were eligible
to participate. Only full-time employees who are at least
21 years of age and have 90 days of service are
eligible to participate and receive certain employer
contributions. Eligible employees have the opportunity to
contribute their compensation on a pretax salary basis into the
401(k) plan up to $16,500 for the plan year, and to direct the
investment of these contributions. Plan participants who reach
the age of 50 prior to or during the plan year are eligible to
defer up to an additional $5,500 for the plan year.
CERTAIN
RELATIONSHIPS AND TRANSACTIONS
The 1940 Act prohibits certain transactions between us, Triangle
SBIC, Triangle SBIC II, as well as our and their affiliates,
without first obtaining an exemptive order from the SEC. We and
Triangle SBIC filed a joint exemptive application with the SEC
in 2007 requesting relief under various Sections of the 1940 Act
that would permit us, as the BDC parent, and Triangle SBIC, as a
BDC/SBIC subsidiary, to operate effectively as one company for
1940 Act regulatory purposes. Specifically, the application
requested relief for us and Triangle SBIC to (a) engage in
certain transactions with each other, (b) invest in
securities in which the other is an investor and engage in
transactions with portfolio companies that would not otherwise
be prohibited if the BDC and its subsidiary were one company,
(c) be subject to modified consolidated asset coverage
requirements for senior securities issued by the BDC and the
BDC/SBIC subsidiary, (d) allow the BDC/SBIC subsidiary to
have the maximum amount of borrowing capacity for SBICs
permitted under the SBA and the 1940 Act, and (e) allow
Triangle SBIC, as the BDC/SBIC subsidiary, to file reports under
the Exchange Act on a consolidated basis with us, the parent
BDC. In October 2008, the SEC issued an exemptive relief order
approving the above requests. We, Triangle SBIC and Triangle
SBIC II have also filed an application requesting an amendment
to the SECs October 2008 exemptive order to provide this
relief, as applicable, to Triangle SBIC II and any future
Triangle subsidiaries. Our application is currently pending with
the SEC.
101
In addition, under current SEC rules and regulations, BDCs may
not grant options or restricted stock to directors who are not
officers or employees of the BDC. Similarly, under the 1940 Act,
BDCs cannot issue stock for services to their executive officers
and employees other than options, warrants and rights to acquire
capital stock. In March 2008, we received an exemptive relief
order from the SEC that permits us to grant restricted stock to
our independent directors as a portion of their compensation for
service on our Board of Directors and permits us to grant
restricted stock in exchange for or in recognition of services
by our executive officers and employees.
For information regarding the amount of common stock owned by
members of management, see Control Persons and Principal
Stockholders below.
102
CONTROL
PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock as of March 1,
2010, by each of our executive officers and independent
directors and all of our directors and executive officers as a
group. As of March 1, 2010, we are not aware of any 5%
beneficial owners of our common stock, nor are we aware of any
person who controls us, control being defined as the
beneficial ownership of more than 25% of our common stock.
Beneficial ownership has been determined in accordance with
rule 13d-3
of the Exchange Act. There is no common stock subject to options
or warrants that are currently exercisable or exercisable within
60 days of March 1, 2010. Percentage of beneficial
ownership is based on 11,934,594 shares of common stock
outstanding as of March 1, 2010. The business address of
each person below is 3700 Glenwood Avenue, Suite 530,
Raleigh, North Carolina 27612.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Dollar Range of
|
|
|
|
Shares
|
|
|
|
|
|
Equity
|
|
|
|
Beneficially
|
|
|
Percentage
|
|
|
Securities
|
|
Name of Beneficial Owner
|
|
Owned
|
|
|
of Class
|
|
|
Beneficially Owned by(1)
|
|
|
Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Garland S. Tucker, III
|
|
|
195,284
|
(2)
|
|
|
1.6
|
%
|
|
over $
|
100,000
|
|
Brent P.W. Burgess
|
|
|
183,774
|
(3)
|
|
|
1.5
|
%
|
|
over $
|
100,000
|
|
Steven C. Lilly
|
|
|
139,649
|
(4)
|
|
|
1.2
|
%
|
|
over $
|
100,000
|
|
Independent Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
W. McComb Dunwoody
|
|
|
137,850
|
(5)
|
|
|
1.2
|
%
|
|
over $
|
100,000
|
|
Mark M. Gambill
|
|
|
|
|
|
|
|
|
|
|
0
|
|
Benjamin S. Goldstein
|
|
|
14,962
|
(6)
|
|
|
*
|
|
|
over $
|
100,000
|
|
Simon B. Rich, Jr.
|
|
|
27,771
|
(7)
|
|
|
*
|
|
|
over $
|
100,000
|
|
Sherwood H. Smith, Jr.
|
|
|
59,241
|
(8)
|
|
|
*
|
|
|
over $
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group
|
|
|
758,531
|
|
|
|
6.4
|
%
|
|
over $
|
100,000
|
|
|
|
|
* |
|
Less than 1.0% |
|
(1) |
|
The dollar range of equity securities beneficially owned are:
none, $1-$10,000, $10,001-$50,000,
$50,001-$100,000,
or over $100,000. The dollar ranges are based on the price of
our common stock on March 1, 2010 of $13.50 per share. |
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(2) |
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Includes 69,261 shares of restricted stock and
812 shares held by Mr. Tuckers wife. |
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(3) |
|
Includes 59,374 shares of restricted stock. |
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(4) |
|
Includes 51,632 shares of restricted stock. |
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(5) |
|
Includes 6,771 shares of restricted stock. |
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(6) |
|
Includes 6,771 shares of restricted stock. |
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(7) |
|
Includes 6,771 shares of restricted stock and
3,500 shares held by Mr. Richs wife. |
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(8) |
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Includes 6,771 shares of restricted stock. |
103
SALES OF
COMMON STOCK BELOW NET ASSET VALUE
At our annual meeting of stockholders held on May 5, 2010,
our stockholders approved our ability to sell an unlimited
number of shares of our common stock at any level of discount
from net asset value (NAV) per share for a period of one year
ending on the earlier of May 4, 2011 or the date of our
2011 annual meeting of stockholders. In order to sell shares
pursuant to this authorization a majority of our directors who
have no financial interest in the sale and a majority of our
independent directors must (a) find that the sale is in our
best interests and in the best interests of our stockholders,
and (b) in consultation with any underwriter or
underwriters of the offering, make a good faith determination as
of a time either immediately prior to the first solicitation by
us or on our behalf of firm commitments to purchase such shares,
or immediately prior to the issuance of such shares, that the
price at which such shares are to be sold is not less than a
price which closely approximates the market value of such
shares, less any distributing commission or discount. Any
offering of common stock below NAV per share will be designed to
raise capital for investment in accordance with our investment
objective.
In making a determination that an offering below NAV per share
is in our and our stockholders best interests, our Board
of Directors would consider a variety of factors including:
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The effect that an offering below NAV per share would have on
our stockholders, including the potential dilution they would
experience as a result of the offering;
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The amount per share by which the offering price per share and
the net proceeds per share are less than the most recently
determined NAV per share;
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The relationship of recent market prices of par common stock to
NAV per share and the potential impact of the offering on the
market price per share of our common stock;
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Whether the estimated offering price would closely approximate
the market value of our shares;
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The potential market impact of being able to raise capital
during the current financial market difficulties;
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the nature of any new investors anticipated to acquire shares in
the offering;
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The anticipated rate of return on and quality, type and
availability of investments; and
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The leverage available to us.
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We will not sell shares under a prospectus supplement to the
post-effective amendment to the registration statement of which
this prospectus forms a part (the current amendment)
if the cumulative dilution to the Companys NAV per share
from offerings under the current amendment exceeds 15%. This
would be measured separately for each offering pursuant to the
current amendment by calculating the percentage dilution or
accretion to aggregate NAV from that offering and then summing
the percentage from each offering. For example, if our most
recently determined NAV at the time of the first offering is
$15.00 and we have 30 million shares outstanding, sale of
6 million shares at net proceeds to us of $7.50 per share
(a 50% discount) would produce dilution of 8.33%. If we
subsequently determined that our NAV per share increased to
$15.75 on the then 36 million shares outstanding and then
made an additional offering, we could, for example, sell
approximately an additional 7.2 million shares at net
proceeds to us of $9.45 per share, which would produce dilution
of 6.67%, before we would reach the aggregate 15% limit. If we
file a new post-effective amendment, the threshold would reset.
Sales by us of our common stock at a discount from NAV pose
potential risks for our existing stockholders whether or not
they participate in the offering, as well as for new investors
who participate in the offering.
The following three headings and accompanying tables will
explain and provide hypothetical examples on the impact of an
offering at a price less than NAV per share on three different
set of investors:
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existing stockholders who do not purchase any shares in the
offering;
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existing stockholders who purchase a relative small amount of
shares in the offering or a relatively large amount of shares in
the offering;
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new investors who become stockholders by purchasing shares in
the offering.
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104
Impact On
Existing Stockholders Who Do Not Participate in the
Offering
Our existing stockholders who do not participate in an offering
below Net Asset Value or NAV per share or who do not
buy additional shares in the secondary market at the same or
lower price we obtain in the offering (after expenses and
commissions) face the greatest potential risks. These
stockholders will experience an immediate decrease (often called
dilution) in the NAV of the shares they hold and their NAV per
share. These stockholders will also experience a
disproportionately greater decrease in their participation in
our earnings and assets and their voting power than the increase
we will experience in our assets, potential earning power and
voting interests due to the offering. These stockholders may
also experience a decline in the market price of their shares,
which often reflects to some degree announced or potential
increases and decreases in NAV per share. This decrease could be
more pronounced as the size of the offering and level of
discounts increases.
The following table illustrates the level of NAV dilution that
would be experienced by a nonparticipating stockholder in three
different hypothetical offerings of different sizes and levels
of discount from NAV per share. It is not possible to predict
the level of market price decline that may occur. Actual sales
prices and discounts may differ from the presentation below.
The examples assume that Company XYZ has 1,000,000 common shares
outstanding, $15,000,000 in total assets and $5,000,000 in total
liabilities. The current NAV and NAV per share are thus
$10,000,000 and $10.00. The table illustrates the dilutive
effect on nonparticipating Stockholder A of (1) an offering
of 50,000 shares (5% of the outstanding shares) at $9.50
per share after offering expenses and commission (a 5% discount
from NAV), (2) an offering of 100,000 shares (10% of
the outstanding shares) at $9.00 per share after offering
expenses and commissions (a 10% discount from NAV) and
(3) an offering of 200,000 shares (20% of the
outstanding shares) at $8.00 per share after offering expenses
and commissions (a 20% discount from NAV).
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Example 1
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Example 2
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Example 3
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5% Offering
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10% Offering
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20% Offering
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at 5% Discount
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at 10% Discount
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at 20% Discount
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Prior to Sale
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Following
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Following
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Following
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Below NAV
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Sale
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% Change
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Sale
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% Change
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Sale
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% Change
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Offering Price
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Price per Share to Public
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$
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10.00
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$
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9.47
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$
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8.42
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Net Proceeds per Share to Issuer
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$
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9.50
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$
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9.00
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$
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8.00
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Decrease to NAV
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Total Shares Outstanding
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1,000,000
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1,050,000
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5.00
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%
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1,100,000
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10.00
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%
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1,200,000
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20.00
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%
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NAV per Share
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$
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10.00
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$
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9.98
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(0.24
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)%
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$
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9.91
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(0.91
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)%
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$
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9.67
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(3.33
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)%
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Dilution to Stockholder
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Shares Held by Stockholder A
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10,000
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10,000
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10,000
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10,000
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Percentage Held by Stockholder A
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1.0
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%
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0.95
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%
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(4.76
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)%
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0.91
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%
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(9.09
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)%
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0.83
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%
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(16.67
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)%
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Total Asset Values
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Total NAV Held by Stockholder A
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$
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100,000
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$
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99,762
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(0.24
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)%
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$
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99,091
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(0.91
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)%
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$
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96,667
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(3.33
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)%
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Total Investment by Stockholder A (Assumed to Be $10.00 per
Share)
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$
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100,000
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$
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100,000
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$
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100,000
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$
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100,000
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Total Dilution to Stockholder A (Total NAV Less Total Investment)
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$
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(238
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)
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$
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(909
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$
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(3,333
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)
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105
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Example 1
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Example 2
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Example 3
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5% Offering
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10% Offering
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20% Offering
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at 5% Discount
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at 10% Discount
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at 20% Discount
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Prior to Sale
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Following
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Following
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Following
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Below NAV
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Sale
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% Change
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Sale
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% Change
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Sale
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% Change
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Per Share Amounts
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NAV per Share Held by Stockholder A
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$
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9.98
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$
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9.91
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$
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9.67
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Investment per Share Held by Stockholder A (Assumed to be $10.00
per Share)
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$
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10.00
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$
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10.00
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$
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10.00
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$
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10.00
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Dilution per Share Held by Stockholder A (NAV per Share Less
Investment per Share)
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$
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(0.02
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)
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$
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(0.09
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)
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$
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(0.33
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)
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Percentage Dilution to Stockholder A (Dilution per Share Divided
by Investment per Share)
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(0.24
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)%
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(0.91
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)%
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(3.33
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)%
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Impact On
Existing Stockholders Who Do Participate in the
Offering
Our existing stockholders who participate in an offering below
NAV per share or who buy additional shares in the secondary
market at the same or lower price as we obtain in the offering
(after expenses and commissions) will experience the same types
of NAV dilution as the nonparticipating stockholders, albeit at
a lower level, to the extent they purchase less than the same
percentage of the discounted offering as their interest in our
shares immediately prior to the offering. The level of NAV
dilution will decrease as the number of shares such stockholders
purchase increases. Existing stockholders who buy more than such
percentage will experience NAV dilution but will, in contrast to
existing stockholders who purchase less than their proportionate
share of the offering, experience an increase (often called
accretion) in NAV per share over their investment per share and
will also experience a disproportionately greater increase in
their participation in our earnings and assets and their voting
power than our increase in assets, potential earning power and
voting interests due to the offering. The level of accretion
will increase as the excess number of shares such stockholder
purchases increases. Even a stockholder who overparticipates
will, however, be subject to the risk that we may make
additional discounted offerings in which such stockholder does
not participate, in which case such a stockholder will
experience NAV dilution as described above in such subsequent
offerings. These stockholders may also experience a decline in
the market price of their shares, which often reflects to some
degree announced or potential increases and decreases in NAV per
share. This decrease could be more pronounced as the size of the
offering and the level of discounts increases.
The following table illustrates the level of dilution and
accretion in the hypothetical 20% discount offering from the
prior table (Example 3) for a stockholder that acquires
shares equal to (1) 50% of its proportionate share of the
offering (i.e., 1,000 shares, which is 0.5% of an offering
of 200,000 shares) rather than its 1.0% proportionate share
and (2) 150% of such percentage (i.e. 3,000 shares,
which is 1.5% of an offering of 200,000 shares rather than
its 1.0% proportionate share). The prospectus supplement
pursuant to which any discounted offering is made will include a
table for these examples based on the actual number of shares in
such offering and the actual discount from the most recently
determined NAV per share. It is not
106
possible to predict the level of market price decline that may
occur. Actual sales prices and discounts may differ from the
presentation below.
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50% Participation
|
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150% Participation
|
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|
Prior to Sale
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Following
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Following
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Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
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|
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|
|
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|
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Price per Share to Public
|
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|
$
|
8.42
|
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|
$
|
8.42
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|
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|
|
Net Proceeds per Share to Issuer
|
|
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|
|
|
$
|
8.00
|
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|
|
$
|
8.00
|
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|
|
Decrease/Increase to NAV
|
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|
Total Shares Outstanding
|
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|
1,000,000
|
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|
1,200,000
|
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|
20.00
|
%
|
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|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
Dilution/Accretion to Participating Stockholder
|
|
|
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|
Shares Held by Stockholder A
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|
10,000
|
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|
11,000
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|
10.00
|
%
|
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|
13,000
|
|
|
|
30.00
|
%
|
Percentage Held by Stockholder A
|
|
|
1.0
|
%
|
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|
0.92
|
%
|
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|
(8.33
|
)%
|
|
|
1.08
|
%
|
|
|
8.33
|
%
|
Total Asset Values
|
|
|
|
|
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|
Total NAV Held by Stockholder A
|
|
$
|
100,000
|
|
|
$
|
106,333
|
|
|
|
6.33
|
%
|
|
$
|
125,667
|
|
|
|
25.67
|
%
|
Total Investment by Stockholder A (Assumed to Be $10.00 per
Share on Shares Held Prior to Sale)
|
|
$
|
100,000
|
|
|
$
|
108,421
|
|
|
|
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|
$
|
125,263
|
|
|
|
|
|
Total Dilution/Accretion to Stockholder A (Total NAV Less
Total Investment)
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|
|
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$
|
(2,088
|
)
|
|
|
|
|
|
$
|
404
|
|
|
|
|
|
Per Share Amounts
|
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|
NAV per Share Held by Stockholder A
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|
$
|
9.67
|
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|
|
|
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|
$
|
9.67
|
|
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to be
$10.00 per Share on Shares Held Prior to Sale)
|
|
$
|
10.00
|
|
|
$
|
9.86
|
|
|
|
|
|
|
$
|
9.64
|
|
|
|
|
|
Dilution/ Accretion per Share Held by Stockholder A (NAV per
Share Less Investment per Share)
|
|
|
|
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
Percentage Dilution/Accretion to Stockholder A (Dilution/
Accretion per Share Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
|
|
(1.93
|
)%
|
|
|
|
|
|
|
0.32
|
%
|
Impact On
New Investors
Investors who are not currently stockholders and who participate
in an offering below NAV but whose investment per share is
greater than the resulting NAV per share due to selling
compensation and expenses paid by the issuer will experience an
immediate decrease, albeit small, in the NAV of their shares and
their NAV per share compared to the price they pay for their
shares. Investors who are not currently stockholders and who
participate in an offering below NAV per share and whose
investment per share is also less than the resulting NAV per
share due to selling compensation and expenses paid by the
issuer being significantly less than the discount per share will
experience an immediate increase in the NAV of their shares and
their NAV per share compared to the price they pay for their
shares. These investors will experience a disproportionately
greater participation in our earnings and assets and their
voting power than our increase in assets, potential earning
power and voting interests. These investors will, however, be
subject to the risk that we may make additional discounted
offerings in which such new stockholder does not participate, in
which case such new stockholder will experience dilution as
described above in such subsequent offerings. These investors
may also experience a decline in the market price of their
shares, which often reflects to some degree announced or
potential increases and decreases in NAV per share. This
decrease could be more pronounced as the size of the offering
and level of discounts increases.
The following table illustrates the level of dilution or
accretion for new investors that would be experienced by a new
investor in the same hypothetical 5%, 10% and 20% discounted
offerings as described in the first table above. The
illustration is for a new investor who purchases the same
percentage (1.0%) of the shares in the offering as Stockholder A
in the prior examples held immediately prior to the offering.
The prospectus supplement pursuant to which any discounted
offering is made will include a table for these
107
examples based on the actual number of shares in such offering
and the actual discount from the most recently determined NAV
per share. It is not possible to predict the level of market
price decline that may occur. Actual sales prices and discounts
may differ from the presentation below.
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Example 1
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Example 2
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Example 3
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5% Offering
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10% Offering
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20% Offering
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at 5% Discount
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at 10% Discount
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at 20% Discount
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Prior to Sale
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Following
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Following
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Following
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Below NAV
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Sale
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% Change
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Sale
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% Change
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Sale
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% Change
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Offering Price
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Price per Share to Public
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$
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10.00
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$
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9.47
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$
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8.42
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Net Proceeds per Share to Issuer
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$
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9.50
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$
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9.00
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$
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8.00
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Decrease/Increase to NAV
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Total Shares Outstanding
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1,000,000
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1,050,000
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5.00
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%
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1,100,000
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10.00
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%
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1,200,000
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20.00
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%
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NAV per Share
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$
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10.00
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$
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9.98
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(0.24
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)%
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$
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9.91
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(0.91
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)%
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$
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9.67
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(3.33
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)%
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Dilution/Accretion to New Investor A
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Shares Held by Investor A
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500
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1,000
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2,000
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Percentage Held by Investor A
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0.05
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%
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0.09
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%
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0.17
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%
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Total Asset Values
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Total NAV Held by Investor A
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$
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4,988
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$
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9,909
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$
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19,333
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Total Investment by Investor A (At Price to Public)
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$
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5,000
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$
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9,474
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$
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16,842
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Total Dilution/ Accretion to Investor A (Total NAV Less
Total Investment)
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$
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(12
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)
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$
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435
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$
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2,491
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Per Share Amounts
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NAV per Share Held by Investor A
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$
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9.98
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$
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9.91
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$
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9.67
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Investment per Share Held by Investor A
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$
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10.00
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$
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9.47
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$
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8.42
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Dilution/ Accretion per Share Held by Investor A (NAV per Share
Less Investment per Share)
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$
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(0.02
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)
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$
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0.44
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$
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1.25
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Percentage Dilution/ Accretion to Investor A (Dilution per Share
Divided by Investment per Share)
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(0.24
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)%
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4.60
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%
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14.79
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%
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108
DIVIDEND
REINVESTMENT PLAN
We have adopted a dividend reinvestment plan that provides for
reinvestment of our distributions on behalf of our stockholders,
unless a stockholder elects to receive cash as provided below.
As a result, if our Board of Directors authorizes, and we
declare, a cash dividend, then our stockholders who have not
opted out of our dividend reinvestment plan will
have their cash dividends automatically reinvested in additional
shares of our common stock, rather than receiving the cash
dividends.
No action will be required on the part of a registered
stockholder to have their cash dividend reinvested in shares of
our common stock. A registered stockholder may elect to receive
an entire dividend in cash by notifying The Bank of New York
Mellon, the Plan Administrator and our transfer
agent and registrar, in writing so that such notice is received
by the plan administrator no later than the record date for
dividends to stockholders. The plan administrator will set up an
account for shares acquired through the plan for each
stockholder who has not elected to receive dividends in cash and
hold such shares in non-certificated form. Upon request by a
stockholder participating in the plan, received in writing not
less than three days prior to the payment date fixed by the
Board of Directors, the plan administrator will, instead of
crediting shares to the participants account, issue a
certificate registered in the participants name for the
number of whole shares of our common stock and a check for any
fractional share. Those stockholders whose shares are held by a
broker or other financial intermediary may receive dividends in
cash by notifying their broker or other financial intermediary
of their election.
We intend to use primarily newly issued shares to implement the
plan, so long as our shares are trading at or above net asset
value. If our shares are trading below net asset value, we
intend to purchase shares in the open market in connection with
our implementation of the plan. If we use newly issued shares to
implement the plan, the number of shares to be issued to a
stockholder is determined by dividing the total dollar amount of
the dividend payable to such stockholder by the market price per
share of our common stock at the close of regular trading on the
Nasdaq Global Market on the dividend payment date. Market price
per share on that date will be the closing price for such shares
on the Nasdaq Global Market or, if no sale is reported for such
day, at the average of their reported bid and asked prices. If
we purchase shares in the open market to implement the plan, the
number of shares to be issued to a stockholder is determined by
dividing the total dollar amount of the dividend payable to such
stockholder by the average price per share for all shares
purchased by the Plan Administrator in the open market in
connection with the dividend. The number of shares of our common
stock to be outstanding after giving effect to payment of the
dividend cannot be established until the value per share at
which additional shares will be issued has been determined and
elections of our stockholders have been tabulated.
There will be no brokerage charges or other charges to
stockholders who participate in the plan. We will pay the plan
administrators fees under the plan. If a participant
elects by written notice to the plan administrator to have the
plan administrator sell part or all of the shares held by the
plan administrator in the participants account and remit
the proceeds to the participant, the plan administrator is
authorized to deduct a $15.00 transaction fee plus a $0.10 per
share brokerage commissions from the proceeds.
Stockholders who receive dividends in the form of stock
generally are subject to the same federal, state and local tax
consequences as are stockholders who elect to receive their
dividends in cash. A stockholders basis for determining
gain or loss upon the sale of stock received in a dividend from
us will be equal to the total dollar amount of the dividend
payable to the stockholder. Any stock received in a dividend
will have a holding period for U.S. federal income tax purposes
commencing on the day following the day on which the shares are
credited to the U.S. stockholders account.
Participants may terminate their accounts under the plan by
notifying the plan administrator via its website at
https://www.bnymellon.com/shareowner/isd, by filling out the
transaction request form located at the bottom of their
statement and sending it to the plan administrator at BNY Mellon
Shareowner Services, P.O. Box 358035, Pittsburgh,
Pennsylvania
15252-8015,
or by calling the plan administrator at
(866) 228-7201.
We may terminate the plan upon notice in writing mailed to each
participant at least 30 days prior to any record date for
the payment of any dividend by us. All correspondence concerning
the plan should be directed to the plan administrator by mail at
BNY Mellon Shareowner Services, P.O. Box 358035,
Pittsburgh, Pennsylvania
15252-8015.
109
DESCRIPTION
OF OUR SECURITIES
The following description is based on relevant portions of
the Maryland General Corporation Law and on our charter and
bylaws. This summary may not contain all of the information that
is important to you, and we refer you to the Maryland General
Corporation Law and our charter and bylaws for a more detailed
description of the provisions summarized below.
Capital
Stock
Our authorized capital stock consists of 150,000,000 shares
of common stock, par value $0.001 per share, of which
11,934,594 shares were outstanding as of March 31,
2010. Under our charter, our Board of Directors is authorized to
classify and reclassify any unissued shares of stock into other
classes or series of stock, and to cause the issuance of such
shares, without obtaining stockholder approval. In addition, as
permitted by the Maryland General Corporation Law, but subject
to the 1940 Act, our charter provides that the Board of
Directors, without any action by our stockholders, may amend the
charter from time to time to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of
any class or series that we have authority to issue. Under
Maryland law, our stockholders generally are not personally
liable for our debts or obligations.
Common
Stock
All shares of our common stock have equal rights as to earnings,
assets, distribution and voting privileges, except as described
below, and, when they are issued, will be duly authorized,
validly issued, fully paid and nonassessable. Distributions may
be paid to the holders of our common stock if, as and when
authorized by our Board of Directors and declared by us out of
assets legally available therefor. Shares of our common stock
have no conversion, exchange, preemptive or redemption rights.
In the event of a liquidation, dissolution or winding up of our
company, each share of our common stock would be entitled to
share ratably in all of our assets that are legally available
for distribution after we pay all debts and other liabilities
and subject to any preferential rights of holders of our
preferred stock, if any preferred stock is outstanding at such
time. Each share of our common stock is entitled to one vote on
all matters submitted to a vote of stockholders, including the
election of directors. Except as provided with respect to any
other class or series of stock, the holders of our common stock
will possess exclusive voting power. There is no cumulative
voting in the election of directors, which means that holders of
a majority of the outstanding shares of common stock will elect
all of our directors, and holders of less than a majority of
such shares will be unable to elect any director.
Preferred
Stock
Our charter authorizes our Board of Directors to classify and
reclassify any unissued shares of stock into other classes or
series of stock, including preferred stock. Prior to issuance of
shares of each class or series, the Board of Directors is
required by Maryland law and by our charter to set the terms,
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of
redemption for each class or series. Thus, the Board of
Directors could authorize the issuance of shares of preferred
stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in
control that might involve a premium price for holders of our
common stock or otherwise be in their best interest. You should
note, however, that any issuance of preferred stock must comply
with the requirements of the 1940 Act. The 1940 Act requires,
among other things, that (1) immediately after issuance and
before any dividend or other distribution is made with respect
to our common stock and before any purchase of common stock is
made, such preferred stock together with all other senior
securities must not exceed an amount equal to 50.0% of our total
assets after deducting the amount of such distribution or
purchase price, as the case may be, and (2) the holders of
shares of preferred stock, if any are issued, must be entitled
as a class to elect two directors at all times and to elect a
majority of the directors if distributions on such preferred
stock are in arrears by two years or more. Certain matters under
the 1940 Act require the separate vote of the holders of any
issued and outstanding preferred stock. We believe that the
availability for issuance of preferred stock will provide us
with increased flexibility in structuring future financings and
acquisitions.
110
Long-Term
Debt
Debentures guaranteed by the SBA have a maturity of ten years,
require semi-annual payments of interest, do not require any
principal payments prior to maturity, and, historically, were
subject to certain prepayment penalties. Those prepayment
penalties no longer apply as of September 2006. As of
March 31, 2010, we (through Triangle SBIC) had issued
$121.9 million of SBA guaranteed debentures, which had an
annual weighted-average interest rate of approximately 5.96%.
With $65.3 million of regulatory capital as of
March 31, 2010, we have the capacity to issue up to a total
of $150.0 million of SBA guaranteed debentures through
Triangle SBIC. On March 2010, Triangle SBIC II obtained its SBIC
license, providing us the capability to issue an additional
$75.0 million of SBA-guaranteed debentures.
Outstanding
Securities
Set forth below are our outstanding classes of securities as of
March 31, 2010.
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Amount held by
|
|
|
|
|
Amount
|
|
Company
|
|
Amount
|
Title of Class
|
|
Authorized
|
|
or for its Account
|
|
Outstanding
|
|
Common Stock
|
|
|
150,000,000
|
|
|
|
|
|
|
|
11,934,594
|
|
SBA-Guaranteed Debentures
|
|
$
|
150,000,000
|
(1)
|
|
|
|
|
|
$
|
121,910,000
|
|
|
|
|
(1) |
|
Based on $65.3 million of regulatory capital as of
March 31, 2010. For more information regarding our
limitations as to SBA guaranteed debenture issuances, see
Regulation Small Business Administration
Regulation below. |
Limitation
on Liability of Directors and Officers; Indemnification and
Advance of Expenses
Maryland law permits a Maryland corporation to include in its
charter a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money
damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause
of action. Our charter contains such a provision that eliminates
directors and officers liability to the maximum
extent permitted by Maryland law, subject to the requirements of
the 1940 Act.
Our charter authorizes us, to the maximum extent permitted by
Maryland law and subject to the requirements of the 1940 Act, to
indemnify any present or former director or officer or any
individual who, while a director or officer and at our request,
serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise as a
director, officer, partner or trustee, from and against any
claim or liability to which such person may become subject or
which such person may incur by reason of his or her service in
any such capacity, except with respect to any matter as to which
he or she is finally adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his or her
action was in our best interest.
Our bylaws obligate us, to the maximum extent permitted by
Maryland law and subject to the requirements of the 1940 Act, to
indemnify any present or former director or officer or any
individual who, while a director or officer and at our request,
serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise as a
director, officer, partner or trustee and who is made, or
threatened to be made, a party to the proceeding by reason of
his or her service in any such capacity from and against any
claim or liability to which that person may become subject or
which that person may incur by reason of his or her service in
any such capacity. Our bylaws also require us, to the maximum
extent permitted by Maryland law, without requiring a
preliminary determination of the ultimate entitlement to
indemnification, to pay or reimburse reasonable expenses
incurred by any such indemnified person in advance of the final
disposition of a proceeding.
Maryland law requires a corporation (unless its charter provides
otherwise, which our charter does not) to indemnify a director
or officer who has been successful in the defense of any
proceeding to which he or she is made, or threatened to be made,
a party by reason of his or her service in that capacity.
Maryland law permits
111
a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made, or
threatened to be made, a party by reason of their service in
those or other capacities unless it is established that
(a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and
(1) was committed in bad faith or (2) was the result
of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under
Maryland law, a Maryland corporation may not indemnify for an
adverse judgment in a suit by or in the right of the corporation
or for a judgment of liability on the basis that a personal
benefit was improperly received, unless in either case a court
orders indemnification, and then only for expenses. In addition,
Maryland law permits a corporation to advance reasonable
expenses to a director or officer upon the corporations
receipt of (a) a written affirmation by the director or
officer of his or her good faith belief that he or she has met
the standard of conduct necessary for indemnification by the
corporation and (b) a written undertaking by him or her or
on his or her behalf to repay the amount paid or reimbursed by
the corporation if it is ultimately determined that the standard
of conduct was not met.
We have purchased directors and officers insurance
policies covering our directors and officers and us for any acts
and omissions committed, attempted or allegedly committed by any
director or officer during the policy period. The policy is
subject to customary exclusions.
Provisions
of The Maryland General Corporation Law and Charter And
Bylaws
The Maryland General Corporation Law and our charter and bylaws
contain provisions that could make it more difficult for a
potential acquiror to acquire us by means of a tender offer,
proxy contest or otherwise. These provisions are expected to
discourage certain coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire
control of us to negotiate first with our Board of Directors. We
believe that the benefits of these provisions outweigh the
potential disadvantages of discouraging any such acquisition
proposals because, among other things, the negotiation of such
proposals may improve their terms.
Director
Terms; Election of Directors
Our charter provides that the term of each director is one year
unless and until the Board of Directors, acting by authority
provided under
Section 3-802
of the Maryland General Corporation Law, establishes staggered
terms in the manner provided in
Section 3-803
of the Maryland General Corporation Law. Our bylaws currently
provide that directors are elected by a plurality of the votes
cast in the election of directors. Pursuant to our charter and
bylaws, our Board of Directors may amend the bylaws to alter the
vote required to elect directors.
Number
of Directors; Vacancies; Removal
Our charter provides that the number of directors will be set
only by the Board of Directors in accordance with our bylaws.
Our bylaws provide that a majority of our entire Board of
Directors may at any time increase or decrease the number of
directors. However, unless the bylaws are amended, the number of
directors may never be less than one nor more than 12. We have
elected to be subject to the provision of Subtitle 8 of
Title 3 of the Maryland General Corporation Law regarding
the filling of vacancies on the board of directors. Accordingly,
at such time, except as may be provided by the board of
directors in setting the terms of any class or series of
preferred stock, any and all vacancies on the board of directors
may be filled only by the affirmative vote of a majority of the
remaining directors in office, even if the remaining directors
do not constitute a quorum, and any director elected to fill a
vacancy shall serve for the remainder of the full term of the
directorship in which the vacancy occurred and until a successor
is elected and qualifies, subject to any applicable requirements
of the 1940 Act. Our charter provides that a director may be
removed only for cause, as defined in the charter, and then only
by the affirmative vote of at least two-thirds of the votes
entitled to be cast generally in the election of directors.
112
Action
by Stockholders
Under the Maryland General Corporation Law, stockholder action
may be taken only at an annual or special meeting of
stockholders or by unanimous consent in lieu of a meeting
(unless the charter provides for stockholder action by less than
unanimous written consent, which our charter permits only as set
forth in our bylaws or in the terms of any class or series of
preferred stock). These provisions, combined with the
requirements of our bylaws regarding the calling of a
stockholder-requested special meeting of stockholders discussed
below, may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting.
Advance
Notice Provisions for Stockholder Nominations and Stockholder
Proposals
Our bylaws provide that with respect to an annual meeting of
stockholders, nominations of individuals for election to the
Board of Directors and the proposal of other business to be
considered by stockholders may be made only (1) pursuant to
our notice of the meeting, (2) by or at the direction of
the Board of Directors or (3) by a stockholder who is a
stockholder of record both at the time of giving the notice
required by our bylaws and at the time of the meeting, who is
entitled to vote at the meeting in the election of each
individual so nominated or on any such other business and who
has complied with the advance notice procedures of the bylaws.
With respect to special meetings of stockholders, only the
business specified in our notice of the meeting may be brought
before the meeting. Nominations of individuals for election to
the Board of Directors at a special meeting may be made only
(1) by or at the direction of the Board of Directors or
(2) provided that the meeting has been called in accordance
with our bylaws for the purpose of electing directors, by a
stockholder who is a stockholder of record both at the time of
giving the notice required by our bylaws and at the time of the
meeting, who is entitled to vote at the meeting in the election
of each individual so nominated and who has complied with the
advance notice provisions of the bylaws.
The purpose of requiring stockholders to give us advance notice
of nominations and other business is to afford our Board of
Directors a meaningful opportunity to consider the
qualifications of the proposed nominees and the advisability of
any other proposed business and, to the extent deemed necessary
or desirable by our Board of Directors, to inform stockholders
and make recommendations about such qualifications or business,
as well as to provide a more orderly procedure for conducting
meetings of stockholders. Although our bylaws do not give our
Board of Directors any power to disapprove stockholder
nominations for the election of directors or proposals
recommending certain action, they may have the effect of
precluding a contest for the election of directors or the
consideration of stockholder proposals if proper procedures are
not followed and of discouraging or deterring a third party from
conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal without regard to
whether consideration of such nominees or proposals might be
harmful or beneficial to us and our stockholders.
Calling
of Special Meeting of Stockholders
Our bylaws provide that special meetings of stockholders may be
called by our Board of Directors and certain of our officers.
Additionally, our bylaws provide that, subject to the
satisfaction of certain procedural and informational
requirements by the stockholders requesting the meeting, a
special meeting of stockholders shall be called by our secretary
to act upon any matter that may properly be considered at a
meeting of stockholders upon the written request of stockholders
entitled to cast not less than a majority of all of the votes
entitled to be cast on such matter at such meeting.
Approval
of Extraordinary Corporate Action; Amendment of Charter and
Bylaws
Under Maryland law, a Maryland corporation generally cannot
dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business,
unless approved by the affirmative vote of stockholders entitled
to cast at least two-thirds of the votes entitled to be cast on
the matter. However, a Maryland corporation may provide in its
charter for approval of these matters by a lesser percentage,
but not less than a majority of all of the votes entitled to be
cast on the matter. Our charter generally provides for approval
of amendments to our charter and
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extraordinary transactions by the stockholders entitled to cast
at least a majority of the votes entitled to be cast on the
matter. Our charter also provides that certain amendments and
any proposal for our conversion, whether by merger or otherwise,
from a closed-end company to an open-end company or any proposal
for our liquidation or dissolution requires the approval of the
stockholders entitled to cast at least 75.0% of the votes
entitled to be cast on such matter. However, if such amendment
or proposal is approved by at least 75.0% of our continuing
directors (in addition to approval by our Board of Directors),
such amendment or proposal may be approved by the stockholders
entitled to cast a majority of the votes entitled to be cast on
such a matter. The continuing directors are defined
in our charter as our current directors, as well as those
directors whose nomination for election by the stockholders or
whose election by the directors to fill vacancies is approved by
a majority of the continuing directors then on the Board of
Directors.
Our charter and bylaws provide that the Board of Directors will
have the exclusive power to make, alter, amend or repeal any
provision of our bylaws.
No
Appraisal Rights
Except with respect to appraisal rights arising in connection
with the Maryland Control Share Acquisition Act, or Control
Share Act, discussed below, as permitted by the Maryland General
Corporation Law, our charter provides that stockholders will not
be entitled to exercise appraisal rights, unless the Board of
Directors, upon the affirmative vote of a majority of the Board
of Directors, shall determine that such rights apply, with
respect to all or any class or series of stock, to one or more
transactions occurring after the date of determination in
connection with which holders of such shares would otherwise be
entitled to exercise such rights.
Control
Share Acquisitions
The Control Share Act provides that control shares of a Maryland
corporation acquired in a control share acquisition have no
voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter.
Shares owned by the acquiror, by officers or by employees who
are directors of the corporation are excluded from shares
entitled to vote on the matter. Control shares are voting shares
of stock which, if aggregated with all other shares of stock
owned by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within
one of the following ranges of voting power:
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one-tenth or more but less than one-third;
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one-third or more but less than a majority; or
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a majority or more of all voting power.
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The requisite stockholder approval must be obtained each time an
acquiror crosses one of the thresholds of voting power set forth
above. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously
obtained stockholder approval. A control share acquisition means
the acquisition of issued and outstanding control shares,
subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition may compel the board of directors of the corporation
to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the
shares. The right to compel the calling of a special meeting is
subject to the satisfaction of certain conditions, including an
undertaking to pay the expenses of the meeting. If no request
for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement
as required by the statute, then the corporation may repurchase
for fair value any or all of the control shares, except those
for which voting rights have previously been approved. The right
of the corporation to repurchase control shares is subject to
certain conditions and limitations. Fair value is determined,
without regard to the absence of voting rights for the control
shares, as of the date of the last
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control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of the shares are
considered and not approved. If voting rights for control shares
are approved at a stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value
of the shares as determined for purposes of appraisal rights may
not be less than the highest price per share paid by the
acquiror in the control share acquisition.
The Control Share Act does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation
is a party to the transaction or (b) to acquisitions
approved or exempted by the charter or bylaws of the
corporation. Moreover, it does not apply to a corporation, such
as us, registered under the 1940 Act as a closed-end investment
company unless the board of directors adopts a resolution that
the corporation will be subject to the Control Share Act. Our
Board of Directors has not adopted and does not presently intend
to adopt, such a resolution.
Business
Combinations
Under the Maryland Business Combination Act, or the Business
Combination Act, business combinations between a
Maryland corporation and an interested stockholder or an
affiliate of an interested stockholder are prohibited for five
years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business
combinations include a merger, consolidation, share exchange or,
in circumstances specified in the statute, an asset transfer or
issuance or reclassification of equity securities. An interested
stockholder is defined as:
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any person who beneficially owns 10.0% or more of the voting
power of the corporations outstanding voting stock; or
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an affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was
the beneficial owner of 10.0% or more of the voting power of the
then outstanding stock of the corporation.
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A person is not an interested stockholder under this statute if
the board of directors approved in advance the transaction by
which such stockholder otherwise would have become an interested
stockholder. However, in approving a transaction, the board of
directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms and
conditions determined by the board.
After the
5-year
prohibition, any business combination between the Maryland
corporation and an interested stockholder generally must be
recommended by the board of directors of the corporation and
approved by the affirmative vote of at least:
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80.0% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting
stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the
business combination is to be effected or held by an affiliate
or associate of the interested stockholder.
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These super-majority vote requirements do not apply if the
corporations common stockholders receive a minimum price,
as defined under Maryland law, for their shares in the form of
cash or other consideration in the same form as previously paid
by the interested stockholder for its shares.
The statute permits various exemptions from its provisions,
including business combinations that are exempted by the board
of directors before the time that the interested stockholder
becomes an interested stockholder. Moreover, it does not apply
to a corporation, such as us, registered under the 1940 Act as a
closed-end investment company unless the board of directors
adopts a resolution that the corporation will be subject to the
Business Combination Act. Our Board of Directors has not adopted
and does not presently intend to adopt such a resolution.
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Subtitle
8
Subtitle 8 of Title 3 of the Maryland General Corporation
Law permits a Maryland corporation with a class of equity
securities registered under the Securities Exchange Act of 1934
and at least three independent directors to elect to be subject
by provision in its charter or bylaws or a resolution of its
board of directors and notwithstanding any contrary provision in
the charter or bylaws, to any or all to live provisions:
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a classified board,
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a two-thirds vote requirement for removing a director,
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a requirement that the number of directors be fixed only by vote
of the directors,
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a requirement that a vacancy on the board be filled only by the
remaining directors and for the remainder of the full term of
the class of directors and which the vacancy occurred and
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a majority requirement for the calling of a special meeting of
stockholders.
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Pursuant to Subtitle 8, we have elected to provide that
vacancies on our Board of Directors may be filled only by the
remaining directors and for the remainder of the full term of
the directorship in which the vacancy occurred. Through
provisions in our charter and bylaws unrelated to Subtitle 8, we
already (a) require a two-thirds vote for the removal any
director from the Board, (b) vest in the Board the
exclusive power to fix the number of directorships and
(c) require, unless called by our Board of Directors or
certain of our officers, the request of stockholders entitled to
cast a majority of the votes entitled to be cast on any matter
to call a special meeting.
Conflict
with 1940 Act
Our bylaws provide that, if and to the extent that any provision
of the Maryland General Corporation Law, or any provision of our
charter or bylaws conflicts with any provision of the 1940 Act,
the applicable provision of the 1940 Act will control.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material
U.S. federal income tax considerations applicable to us and
to an investment in our shares. This summary does not purport to
be a complete description of the income tax considerations
applicable to us or to investors in such an investment. For
example, we have not described tax consequences that we assume
to be generally known by investors or certain considerations
that may be relevant to certain types of holders subject to
special treatment under U.S. federal income tax laws,
including stockholders subject to the alternative minimum tax,
tax-exempt organizations, insurance companies, dealers in
securities, pension plans and trusts, financial institutions,
U.S. stockholders (as defined below) whose functional
currency is not the U.S. dollar, persons who
mark-to-market
our shares and persons who hold our shares as part of a
straddle, hedge or
conversion transaction. This summary assumes that
investors hold shares of our common stock as capital assets
(within the meaning of the Code). The discussion is based upon
the Code, Treasury regulations, and administrative and judicial
interpretations, each as of the date of this prospectus and all
of which are subject to change, possibly retroactively, which
could affect the continuing validity of this discussion. We have
not sought and do not intend to seek any ruling from the
Internal Revenue Service, or the IRS, regarding any offer and
sale of our common stock under this prospectus. This summary
does not discuss any aspects of U.S. estate or gift tax or
foreign, state or local tax. It does not discuss the special
treatment under U.S. federal income tax laws that could
result if we invested in tax-exempt securities or certain other
investment assets.
For purposes of our discussion, a
U.S. stockholder means a beneficial owner of
shares of our common stock that is for U.S. federal income
tax purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity treated as a corporation for
U.S. federal income tax purposes, created or organized in
or under the laws of the United States or any state thereof or
the District of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if (1) a U.S. court is able to exercise
primary supervision over the administration of such trust and
one or more U.S. persons have the authority to control all
substantial decisions of the trust or (2) it has a valid
election in place to be treated as a U.S. person.
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For purposes of our discussion, a
Non-U.S. stockholder
means a beneficial owner of shares of our common stock that is
neither a U.S. stockholder nor a partnership (including an
entity treated as a partnership for U.S. federal income tax
purposes).
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds shares of our
common stock, the tax treatment of a partner or member of the
partnership will generally depend upon the status of the partner
and the activities of the partnership. A prospective stockholder
that is a partner in a partnership holding shares of our common
stock should consult his, her or its tax advisors with respect
to the purchase, ownership and disposition of shares of our
common stock.
Tax matters are very complicated and the tax consequences to an
investor of an investment in our shares will depend on the facts
of his, her or its particular situation. We encourage investors
to consult their own tax advisors regarding the specific
consequences of such an investment, including tax reporting
requirements, the applicability of U.S. federal, state,
local and foreign tax laws, eligibility for the benefits of any
applicable tax treaty and the effect of any possible changes in
the tax laws.
Election
to be Taxed as a RIC
We have qualified and elected to be treated as a RIC under
Subchapter M of the Code commencing with our taxable year ended
December 31, 2007. As a RIC, we generally are not subject
to corporate-level U.S. federal income taxes on any
income that we distribute to our stockholders from our tax
earnings and profits. To qualify as a RIC, we must, among other
things, meet certain
source-of-income
and asset diversification requirements (as described below). In
addition, in order to obtain RIC tax treatment, we must
distribute to our stockholders, for each taxable year, at least
90% of our investment company taxable income, which
is generally our net ordinary income plus the excess, if any, of
realized net short-term capital gain over realized net long-term
capital loss, or the Annual Distribution Requirement. Even if we
qualify as a RIC, we generally will be subject to
corporate-level U.S. federal income tax on our
undistributed taxable income and could be subject to
U.S. federal excise, state, local and foreign taxes.
Taxation
as a RIC
Provided that we qualify as a RIC and satisfy the Annual
Distribution Requirement, we will not be subject to
U.S. federal income tax on the portion of our investment
company taxable income and net capital gain (which we define as
net long-term capital gain in excess of net short-term capital
loss) that we timely distribute to stockholders. We will be
subject to U.S. federal income tax at the regular corporate
rates on any income or capital gain not distributed (or deemed
distributed) to our stockholders.
We will be subject to a 4% nondeductible U.S. federal
excise tax on certain undistributed income of RICs unless we
distribute in a timely manner an amount at least equal to the
sum of (1) 98% of our ordinary income for each calendar
year, (2) 98% of our capital gain net income for each
calendar year and (3) any income recognized, but not
distributed, in preceding years and on which we paid no
U.S. federal income tax. We generally will endeavor in each
taxable year to avoid any U.S. federal excise tax on our
earnings.
In order to qualify as a RIC for U.S. federal income tax
purposes, we must, among other things:
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elect to be treated as a SIC;
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meet the Annual Distribution Requirement;
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qualify to be treated as a BDC or be registered as a management
investment company under the 1940 Act at all times during each
taxable year;
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derive in each taxable year at least 90% of our gross income
from dividends, interest, payments with respect to certain
securities loans, gains from the sale or other disposition of
stock, securities or currencies, other income derived with
respect to our business of investing in such stock, securities
or currencies and net income derived from an interest in a
qualified publicly traded partnership (as defined in
the Code), or the 90% Income Test; and
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diversify our holdings so that at the end of each quarter of the
taxable year:
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at least 50% of the value of our assets consists of cash, cash
equivalents, U.S. Government securities, securities of
other RICs, and other securities if such other securities of any
one issuer do not represent more than 5% of the value of our
assets or more than 10% of the outstanding voting securities of
the issuer (which for these purposes includes the equity
securities of a qualified publicly traded
partnership); and
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no more than 25% of the value of our assets is invested in the
securities, other than U.S. Government securities or
securities of other RICs, (i) of one issuer (ii) of
two or more issuers that are controlled, as determined under
applicable tax rules, by us and that are engaged in the same or
similar or related trades or businesses or (iii) of one or
more qualified publicly traded partnerships, or the
Diversification Tests.
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To the extent that we invest in entities treated as partnerships
for U.S. federal income tax purposes (other than a
qualified publicly traded partnership), we generally
must include the items of gross income derived by the
partnerships for purposes of the 90% Income Test, and the income
that is derived from a partnership (other than, a
qualified publicly traded partnership) will be
treated as qualifying income for purposes of the 90% Income Test
only to the extent that such income is attributable to items of
income of the partnership which would be qualifying income if
realized by us directly. In addition, we generally must take
into account our proportionate share of the assets held by
partnerships (other than a qualified publicly traded
partnership) in which we are a partner for purposes of the
diversification tests.
In order to meet the 90% Income Test, we have established
several special purpose corporations, and in the future may
establish additional such corporations, to hold assets from
which we do not anticipate earning dividend, interest or other
qualifying income under the 90% Income Test (the Taxable
Subsidiaries). Any investments held through the Taxable
Subsidiaries are generally subject to U.S. federal income
and other taxes, and therefore we can expect to achieve a
reduced after-tax yield on such investments.
We may be required to recognize taxable income in circumstances
in which we do not receive a corresponding payment in cash. For
example, if we hold debt obligations that are treated under
applicable tax rules as having original issue discount (such as
debt instruments with
payment-in-kind
interest or, in certain cases, increasing interest rates or
issued with warrants), we must include in income each year a
portion of the original issue discount that accrues over the
life of the obligation, regardless of whether cash representing
such income is received by us in the same taxable year. We may
also have to include in income other amounts that we have not
yet received in cash, such as deferred loan origination fees
that are paid after origination of the loan or are paid in
non-cash compensation such as warrants or stock. We anticipate
that a portion of our income may constitute original issue
discount or other income required to be included in taxable
income prior to receipt of cash.
Because any original issue discount or other amounts accrued
will be included in our investment company taxable income for
the year of the accrual, we may be required to make a
distribution to our stockholders in order to satisfy the Annual
Distribution Requirement, even though we will not have received
any corresponding cash amount. As a result, we may have
difficulty meeting the annual distribution requirement necessary
to obtain and maintain RIC tax treatment under the Code. We may
have to sell some of our investments at times
and/or at
prices we would not consider advantageous, raise additional debt
or equity capital or forgo new investment opportunities for this
purpose. If we are not able to obtain cash from other sources,
we may fail to qualify for RIC tax treatment and thus become
subject to corporate-level income tax.
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Furthermore, a portfolio company in which we invest may face
financial difficulty that requires us to work-out, modify or
otherwise restructure our investment in the portfolio company.
Any such restructuring may result in unusable capital losses and
future non-cash income. Any restructuring may also result in our
recognition of a substantial amount of non-qualifying income for
purposes of the 90% Income Test, such as cancellation of
indebtedness income in connection with the work-out of a
leveraged investment (which, while not free from doubt, may be
treated as non-qualifying income) or the receipt of other
non-qualifying income.
Gain or loss realized by us from warrants acquired by us as well
as any loss attributable to the lapse of such warrants generally
will be treated as capital gain or loss. Such gain or loss
generally will be long-term or short-term, depending on how long
we held a particular warrant.
Any investment in
non-U.S. securities
may be subject to
non-U.S. income,
withholding and other taxes. In that case, our yield on those
securities would be decreased. Stockholders will generally not
be entitled to claim a credit or deduction with respect to
non-U.S. taxes paid by us.
If we purchase shares in a passive foreign investment
company, or PFIC, it may be subject to U.S. federal
income tax on a portion of any excess distribution
or gain from the disposition of such shares even if such income
is distributed as a taxable dividend by us to our stockholders.
Additional charges in the nature of interest may be imposed on
us in respect of deferred taxes arising from such distributions
or gains. If we invest in a PFIC and elect to treat the PFIC as
a qualified electing fund under the code, or QEF, in
lieu of the foregoing requirements, we will be required to
include in income each year a portion of the ordinary earnings
and net capital gain of the QEF, even if such income is not
distributed to it. Alternatively, we can elect to
mark-to-market
at the end of each taxable year our shares in a PFIC; in this
case, we will recognize as ordinary income any increase in the
value of such shares and as ordinary loss any decrease in such
value to the extent it does not exceed prior increases included
in income. Under either election, we may be required to
recognize in a year income in excess of our distributions from
PFICs and our proceeds from dispositions of PFIC stock during
that year, and such income will nevertheless be subject to the
Annual Distribution Requirement and will be taken into account
for purposes of the 4% excise tax.
Under Section 988 of the Code, gain or loss attributable to
fluctuations in exchange rates between the time we accrue
income, expenses, or other liabilities denominated in a foreign
currency and the time we actually collect such income or pay
such expenses or liabilities are generally treated as ordinary
income or loss. Similarly, gain or loss on foreign currency
forward contracts and the disposition of debt denominated in a
foreign currency, to the extent attributable to fluctuations in
exchange rates between the acquisition and disposition dates,
are also treated as ordinary income or loss.
Although we do not presently expect to do so, we are authorized
to borrow funds and to sell assets in order to satisfy
distribution requirements. However, under the 1940 Act, we are
not permitted to make distributions to our stockholders while
our debt obligations and other senior securities are outstanding
unless certain asset coverage tests are met See
Regulation Senior Securities. Moreover,
our ability to dispose of assets to meet our distribution
requirements may be limited by (1) the illiquid nature of
our portfolio
and/or
(2) other requirements relating to our status as a RIC,
including the Diversification Tests. If we dispose of assets in
order to meet the Annual Distribution Requirement or to avoid
the excise tax, we may make such dispositions at times that,
from an investment standpoint, are not advantageous.
If we fail to satisfy the Annual Distribution Requirement or
otherwise fail to qualify as a RIC in any taxable year, we will
be subject to tax in that year on all of our taxable income,
regardless of whether we make any distributions to our
stockholders. In that case, all of such income will be subject
to corporate-level U.S. federal income tax, reducing
the amount available to be distributed to our stockholders. See
Failure To Obtain RIC Tax Treatment.
As a regulated investment company, we are not allowed to carry
forward or carry back a net operating loss for purposes of
computing our investment company taxable income in other taxable
years. U.S. federal income tax law generally permits RICs
to carry forward net capital losses for up to eight taxable
years. However, future transactions we engage in may cause our
ability to use any capital loss carryforwards, and unrealized
losses once realized, to be limited under Section 382 of
the Code. Certain of our investment
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practices may be subject to special and complex
U.S. federal income tax provisions that may, among other
things, (i) disallow, suspend or otherwise limit the
allowance of certain losses or deductions, (ii) convert
lower taxed long-term capital gain and qualified dividend income
into higher taxed short-term capital gain or ordinary income,
(iii) convert an ordinary loss or a deduction into a
capital loss (the deductibility of which is more limited),
(iv) cause us to recognize income or gain without a
corresponding receipt of cash, (v) adversely affect the
time as to when a purchase or sale of stock or securities is
deemed to occur, (vi) adversely alter the characterization
of certain, complex financial transactions, and
(vii) produce income that will not be qualifying income for
purposes of the 90% Income Test. We will monitor our
transactions and may make certain tax elections in order to
mitigate the effect of these provisions.
As described above, to the extent that we invest in equity
securities of entities that are treated as partnerships for
U.S. federal income tax purposes, the effect of such
investments for purposes of the 90% Income Test and the
diversification tests will depend on whether or not the
partnership is a qualified publicly traded
partnership (as defined in the Code). If the partnership
is a qualified publicly traded partnership, the net
income derived from such investments will be qualifying income
for purposes of the 90% Income Test and will be
securities for purposes of the diversification
tests. If the partnership, however, is not treated as a
qualified publicly traded partnership, then the
consequences of an investment in the partnership will depend
upon the amount and type of income and assets of the partnership
allocable to us. The income derived from such investments may
not be qualifying income for purposes of the 90% Income Test
and, therefore, could adversely affect our qualification as a
RIC. We intend to monitor our investments in equity securities
of entities that are treated as partnerships for
U.S. federal income tax purposes to prevent our
disqualification as a RIC.
We may invest in preferred securities or other securities the
U.S. federal income tax treatment of which may not be clear
or may be subject to recharacterization by the IRS. To the
extent the tax treatment of such securities or the income from
such securities differs from the expected tax treatment, it
could affect the timing or character of income recognized,
requiring us to purchase or sell securities, or otherwise change
our portfolio, in order to comply with the tax rules applicable
to RICs under the Code.
Taxation
of U.S. Stockholders
Whether an investment in shares of our common stock is
appropriate for a U.S. stockholder will depend upon that
persons particular circumstances. An investment in shares
of our common stock by a U.S. stockholder may have adverse
tax consequences. The following summary generally describes
certain U.S. federal income tax consequences of an
investment in shares of our common stock by taxable
U.S. stockholders and not by U.S. stockholders that
are generally exempt from U.S. federal income taxation.
U.S. stockholders should consult their own tax advisors
before making an investment in our common stock.
Distributions by us generally are taxable to
U.S. stockholders as ordinary income or capital gain.
Distributions of our investment company taxable
income (which is, generally, our ordinary income excluding
net capital gain) will be taxable as ordinary income to
U.S. stockholders to the extent of our current or
accumulated earnings and profits, whether paid in cash or
reinvested in additional common stock. To the extent such
distributions paid by us to noncorporate U.S. stockholders
(including individuals) are attributable to dividends from
U.S. corporations and certain qualified foreign
corporations, such distributions generally will be eligible for
taxation at rates applicable to qualifying dividends
(at a maximum tax rate of 15% through 2010) provided that
we properly designate such distribution as derived from
qualified dividend income and certain holding period
and other requirements are satisfied. In this regard, it is not
anticipated that a significant portion of distributions paid by
us will be attributable to qualifying dividends; therefore, our
distributions generally will not qualify for the preferential
rates applicable to qualified dividend income. Distributions of
our net capital gain (which is generally our net long-term
capital gain in excess of net short-term capital loss) properly
designated by us as capital gain dividends will be
taxable to a U.S. stockholder as long-term capital gain (at
a maximum rate of 15% through 2010 in the case of individuals,
trusts or estates), regardless of the
U.S. stockholders holding period for his, her or its
common stock and regardless of whether paid in cash or
reinvested in additional common stock. Distributions in excess
of our current and accumulated
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earnings and profits first will reduce a
U.S. stockholders adjusted tax basis in such
stockholders common stock and, after the adjusted basis is
reduced to zero, will constitute capital gain to such
U.S. stockholder.
Although we currently intend to distribute any long-term capital
gain at least annually, we may in the future decide to retain
some or all of our long-term capital gain, but designate the
retained amount as a deemed distribution. In that
case, among other consequences, we will pay tax on the retained
amount, each U.S. stockholder will be required to include
his, her or its proportionate share of the deemed distribution
in income as if it had been actually distributed to the
U.S. stockholder, and the U.S. stockholder will be
entitled to claim a credit equal to his, her or its allocable
share of the tax paid thereon by us. The amount of the deemed
distribution net of such tax will be added to the
U.S. stockholders tax basis for his, her or its
common stock. Since we expect to pay tax on any retained capital
gain at our regular corporate tax rate, and since that rate is
in excess of the maximum rate currently payable by individuals
on net capital gain, the amount of tax that individual
stockholders will be treated as having paid and for which they
will receive a credit will exceed the tax they owe on the
retained net capital gain. Such excess generally may be claimed
as a credit against the U.S. stockholders other
U.S. federal income tax obligations or may be refunded to
the extent it exceeds a stockholders liability for
U.S. federal income tax. A stockholder that is not subject
to U.S. federal income tax or otherwise required to file a
U.S. federal income tax return would be required to file a
U.S. federal income tax return on the appropriate form in
order to claim a refund for the taxes we paid. In order to
utilize the deemed distribution approach, we must provide
written notice to our stockholders prior to the expiration of
60 days after the close of the relevant taxable year. We
cannot treat any of our investment company taxable income as a
deemed distribution.
We could be subject to the alternative minimum tax, or the AMT,
but any items that are treated differently for AMT purposes must
be apportioned between us and our stockholders and this may
affect U.S. stockholders AMT liabilities. Although
regulations explaining the precise method of apportionment have
not yet been issued, such items will generally be apportioned in
the same proportion that distributions paid to each stockholder
bear to our taxable income (determined without regard to the
dividends paid deduction), unless a different method for a
particular item is warranted under the circumstances.
For purposes of determining (1) whether the Annual
Distribution Requirement is satisfied for any year and
(2) the amount of capital gain dividends paid for that
year, we may, under certain circumstances, elect to treat a
dividend that is paid during the following taxable year as if it
had been paid during the taxable year in question. If we make
such an election, the U.S. stockholder will still be
treated as receiving the dividend in the taxable year in which
the distribution is made. However, any dividend declared by us
in October, November or December of any calendar year, payable
to stockholders of record on a specified date in any such month
and actually paid during January of the following year, will be
treated as if it had been received by our U.S. stockholders
on December 31 of the year in which the dividend was declared.
Certain distributions made by a publicly-traded RIC consisting
of both cash and its stock will be treated as dividend
distributions for purposes of satisfying the annual distribution
requirements applicable to RICs. If we satisfy certain
requirements, including the requirement that at least 10% of the
total value of any such distribution consists of cash, the cash
and our stock that we distribute will be treated as a dividend,
to the extent of our earnings and profits. If we make such a
distribution to our stockholders, each of our stockholders will
be required to treat the total value of the distribution that
each stockholder receives as a dividend, to the extent of each
stockholders pro-rata share of our earnings and profits,
regardless of whether such stockholder receives cash, our stock
or a combination of cash and our stock.
We advise each of our stockholders that the taxes resulting from
your receipt of a distribution consisting of cash and our stock
may exceed the cash that you receive in the distribution. We
urge each of our stockholders to consult your tax advisor
regarding the specific federal, state, local and foreign income
and other tax consequences of distributions consisting of both
cash and our stock.
If an investor purchases shares of our common stock shortly
before the record date of a distribution, the price of the
shares will include the value of the distribution, and the
investor will be subject to tax on the distribution even though
it represents a return of his, her or its investment.
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A U.S. stockholder generally will recognize taxable gain or
loss if the stockholder sells or otherwise disposes of his, her
or its shares of our common stock. The amount of gain or loss
will be measured by the difference between such
stockholders adjusted tax basis in the common stock sold
and the amount of the proceeds received in exchange. Any gain
arising from such sale or disposition generally will be treated
as long-term capital gain or loss if the stockholder has held
his, her or its shares for more than one year. Otherwise, it
will be classified as short-term capital gain or loss. However,
any capital loss arising from the sale or disposition of shares
of our common stock held for six months or less will be treated
as long-term capital loss to the extent of the amount of capital
gain dividends received, or undistributed capital gain deemed
received, with respect to such shares. In addition, all or a
portion of any loss recognized upon a disposition of shares of
our common stock may be disallowed if other substantially
identical shares are purchased (whether through reinvestment of
distributions or otherwise) within 30 days before or after
the disposition. The ability to otherwise deduct capital loss
may be subject to other limitations under the Code.
In general, noncorporate U.S. stockholders, including
individuals, trusts and estates, are subject to a maximum
U.S. federal income tax rate of 15% (through 2010) on
their net capital gain, or the excess of realized net long-term
capital gain over realized net short-term capital loss for a
taxable year, including a long-term capital gain derived from an
investment in our shares. Such rate is lower than the maximum
rate on ordinary income currently payable by individuals.
Corporate U.S. stockholders currently are subject to
U.S. federal income tax on net capital gain at the maximum
35% rate also applied to ordinary income. Noncorporate
stockholders with net capital loss for a year (which we define
as capital loss in excess of capital gain) generally may deduct
up to $3,000 of such losses against their ordinary income each
year; any net capital loss of a. noncorporate stockholder in
excess of $3,000 generally may be carried forward and used in
subsequent years as provided in the Code. Corporate stockholders
generally may not deduct any net capital loss for a year, but
may carry back such losses for three years or carry forward such
losses for five years.
For taxable years beginning after December 31, 2012,
certain U.S. stockholders who are individuals, estates or
trusts generally will be subject to a 3.8% Medicare tax on,
among other things, dividends on and capital gain from the sale
or other disposition of our common stock.
A publicly offered regulated investment company is a
regulated investment company whose shares are either
(i) continuously offered pursuant to a public offering,
(ii) regularly traded on an established securities market
or (iii) held by at least 500 persons at all times
during the taxable year. If we are not a publicly offered
regulated investment company for any period, a non-corporate
shareholders pro rata portion of our affected expenses,
including our management fees, will be treated as an additional
dividend to the shareholder and will be deductible by such
shareholder only to the extent permitted under the limitations
described below. For non-corporate shareholders, including
individuals, trusts, and estates, significant limitations
generally apply to the deductibility of certain expenses of a
nonpublicly offered regulated investment company, including
advisory fees. In particular, these expenses, referred to as
miscellaneous itemized deductions, are deductible only to
individuals to the extent they exceed 2% of such a
shareholders adjusted gross income, and are not deductible
for AMT purposes. Because we anticipate that shares of our
common stock will continue to regularly traded on an established
securities market, we believe that we will continue to qualify
as a publicly offered regulated investment company.
We will send to each of our U.S. stockholders, as promptly
as possible after the end of each calendar year, a notice
detailing, on a per share and per distribution basis, the
amounts includible in such U.S. stockholders taxable
income for such year as ordinary income and as long-term capital
gain. In addition, the U.S. federal tax status of each
years distributions generally will be reported to the IRS
(including the amount of dividends, if any, eligible for the 15%
maximum rate). Distributions paid by us generally will not be
eligible for the dividends-received deduction or the
preferential tax rate applicable to qualifying dividends.
Distributions may also be subject to additional state, local and
foreign taxes depending on a U.S. stockholders
particular situation.
We may be required to withhold U.S. federal income tax, or
backup withholding, at a rate of 28% (through 2010), from all
taxable distributions to any noncorporate U.S. stockholder
(1) who fails to furnish us with a correct taxpayer
identification number or a certificate that such stockholder is
exempt from backup
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withholding or (2) with respect to whom the IRS notifies us
that such stockholder has failed to properly report certain
interest and dividend income to the IRS and to respond to
notices to that effect. An individuals taxpayer
identification number is his or her social security number.
Backup withholding tax is not an additional tax, and any amount
withheld may be refunded or credited against the
U.S. stockholders U.S. federal income tax
liability, provided that proper information is timely provided
to the IRS.
For taxable years beginning after December 31, 2012, a
U.S. withholding tax at a 30% rate will be imposed on
dividends and proceeds of sale in respect of our common stock
received by U.S. stockholders who own their stock through
foreign accounts or foreign intermediaries if certain disclosure
requirements related to U.S. accounts or ownership are not
satisfied. We will not pay any additional amounts in respect of
any amounts withheld.
Under U.S. Treasury regulations, if a stockholder
recognizes a loss with respect to shares of our stock of
$2 million or more for a noncorporate stockholder or
$10 million or more for a corporate stockholder in any
single taxable year (or a greater loss over a combination of
years), the stockholder must file with the IRS a disclosure
statement on IRS Form 8886 (or successor form). Direct
stockholders of portfolio securities in many cases are excepted
from this reporting requirement, but under current guidance,
stockholders of a RIC are not excepted. Future guidance may
extend the current exception from this reporting requirement to
stockholders of most or all RICs. The fact that a loss is
reportable under these regulations does not affect the legal
determination of whether the taxpayers treatment of the
loss is proper. Significant monetary penalties apply to a
failure to comply with this reporting requirement. States may
also have a similar reporting requirement. Stockholders should
consult their own tax advisors to determine the applicability of
these regulations in light of their individual
circumstances.
Taxation
of Non-U.S.
Stockholders
Whether an investment in the shares is appropriate for a
Non-U.S. stockholder
will depend upon that persons particular circumstances. An
investment in the shares by a
Non-U.S. stockholder
may have adverse tax consequences.
Non-U.S. stockholders
should consult their tax advisers before investing in our common
stock.
Distributions of our investment company taxable
income to
Non-U.S. stockholders
that are not effectively connected with a
U.S. trade or business carried on by the
Non-U.S. stockholder,
will generally be subject to withholding of U.S. federal
income tax at a rate of 30% (or lower rate provided by an
applicable treaty) to the extent of our current and accumulated
earnings and profits, unless an applicable exception applies.
Actual or deemed distributions of our net capital gain to a
Non-U.S. stockholder,
and gain realized by a
Non-U.S. stockholder
upon the sale of our common stock, that are not effectively
connected with a U.S. trade or business carried on by the
Non-U.S. stockholder, will generally not be subject to
U.S. federal withholding tax and generally will not be
subject to U.S. federal income tax unless the
Non-U.S. stockholder
is a nonresident alien individual and is physically present in
the United States for more than 182 days during the taxable
year and meets certain other requirements. However, withholding
of U.S. federal income tax at a rate of 30% on capital gain
of nonresident alien individuals who are physically present in
the United States for more than the 182 day period only
applies in exceptional cases because any individual present in
the United States for more than 182 days during the taxable
year is generally treated as a resident for U.S. income tax
purposes; in that case, he or she would be subject to
U.S. income tax on his or her worldwide income at the
graduated rates applicable to U.S. citizens, rather than
the 30% U.S. federal withholding tax.
If we distribute our net capital gain in the form of deemed
rather than actual distributions (which we may do in the
future), a
Non-U.S. stockholder
will be entitled to a U.S. federal income tax credit or tax
refund equal to the stockholders allocable share of the
tax we pay on the capital gain deemed to have been distributed.
In order to obtain the refund, the
Non-U.S. stockholder
must obtain a U.S. taxpayer identification number and file
a U.S. federal income tax return even if the
Non-U.S. stockholder
would not otherwise be required to obtain a U.S. taxpayer
identification number or file a U.S. federal income tax
return. Accordingly, investment in the shares may not be
appropriate for a
Non-U.S. stockholder.
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Distributions of our investment company taxable
income and net capital gain (including deemed
distributions) to
Non-U.S. stockholders,
and gain realized by
Non-U.S. stockholders
upon the sale of our common stock that is effectively
connected with a U.S. trade or business carried on by
the
Non-U.S. stockholder
(or if an income tax treaty applies, attributable to a
permanent establishment in the United States), will
be subject to U.S. federal income tax at the graduated
rates applicable to U.S. citizens, residents and domestic
corporations. Corporate
Non-U.S. stockholders
may also be subject to an additional branch profits tax at a
rate of 30% imposed by the Code (or lower rate provided by an
applicable treaty). In the case of a non-corporate
Non-U.S. stockholder,
we may be required to withhold U.S. federal income tax from
distributions that are otherwise exempt from withholding tax (or
taxable at a reduced rate) unless the
Non-U.S. stockholder
certifies his or her foreign status under penalties of perjury
or otherwise establishes an exemption.
We have the ability to declare a large portion of a distribution
in shares of our common stock to satisfy the Annual Distribution
Requirement. If a portion of such distribution is paid in cash
(which portion may be as low as 10% for our taxable years
through 2011) and certain requirements are met, the entire
distribution to the extent of our current and accumulated
earnings and profits will be treated as a dividend for
U.S. federal income tax purposes. As a result,
non-U.S. stockholders
will be taxed on the distribution as if the entire distribution
was cash distribution, even though most of the distribution was
paid in shares of our common stock.
The tax consequences to a
Non-U.S. stockholder
entitled to claim the benefits of an applicable tax treaty may
differ from those described herein.
Non-U.S. stockholders
are advised to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in our
shares.
A
Non-U.S. stockholder
who is a nonresident alien individual may be subject to
information reporting and backup withholding of
U.S. federal income tax on dividends unless the
Non-U.S. stockholder
provides us or the dividend paying agent with an IRS
Form W-8BEN
(or an acceptable substitute form) or otherwise meets
documentary evidence requirements for establishing that it is a
Non-U.S. stockholder
or otherwise establishes an exemption from backup withholding.
For taxable years beginning after December 31, 2012, a
U.S. withholding tax at a 30% rate will be imposed on
dividends and proceeds of sale in respect of our common stock
received by certain
non-U.S. stockholders
if certain disclosure requirements related to U.S. accounts
or ownership are not satisfied. If payment of withholding taxes
is required, non-U.S. stockholders that are otherwise eligible
for an exemption from, or reduction of, U.S. withholding
taxes with respect of such dividends and proceeds will be
required to seek a refund from the IRS to obtain the benefit or
such exemption or reduction. We will not pay any additional
amounts in respect of any amounts withheld.
Non-U.S. persons
should consult their own tax advisors with respect to the
U.S. federal income tax and withholding tax, and state,
local and foreign tax consequences of an investment in the
shares.
Failure
To Obtain RIC Tax Treatment
If we were unable to obtain tax treatment as a RIC, we would be
subject to tax on all of our taxable income at regular corporate
rates. We would not be able to deduct distributions to
stockholders, nor would they be required to be made.
Distributions would generally be taxable to our stockholders as
dividend income to the extent of our current and accumulated
earnings and profits (in the case of noncorporate
U.S. stockholders, at a maximum rate applicable to
qualified dividend income of 15% through 2010). Subject to
certain limitations under the Code, corporate distributees would
be eligible for the dividends-received deduction. Distributions
in excess of our current and accumulated earnings and profits
would be treated first as a return of capital to the extent of
the stockholders tax basis, and any remaining
distributions would be treated as a capital gain.
If we fail to meet the RIC requirements for more than two
consecutive years and then, seek to re-qualify as a RIC, we
would be subject to corporate-level taxation on any built-in
gain recognized during the
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succeeding
10-year
period unless we made a special election to recognize all such
built-in gain upon our re-qualification as a RIC and to pay the
corporate-level tax on such built-in gain.
Sunset of
Reduced Tax Rate Provisions
Certain tax laws providing for certain reduced tax rates
described herein are subject to sunset provisions. The sunset
provisions generally provide that for taxable years beginning
after December 31, 2010, certain provisions that are
currently in the Code will revert back to a prior version of
those provisions. Such provisions include those related to the
reduced maximum income tax rates generally applicable to
ordinary income, long-term capital gain and qualified dividend
income recognized by certain noncorporate taxpayers and certain
other tax rate provisions described herein. The impact of this
reversion is not discussed herein. Consequently, prospective
stockholders should consult their own tax advisors regarding the
effect of these sunset provisions on an investment in our common
stock.
Possible
Legislative or Other Actions Affecting Tax
Considerations
Prospective investors should recognize that the present
U.S. federal income tax treatment of an investment in our
stock may be modified by legislative, judicial or administrative
action at any time, and that any such action may affect
investments and commitments previously made. The rules dealing
with U.S. federal income taxation are constantly under
review by persons involved in the legislative process any by the
IRS and the U.S. Treasury Department, resulting in
revisions of regulations and revised interpretations of
established concepts as well as statutory changes. Revisions in
U.S. federal tax laws and interpretations thereof could
adversely affect the tax consequences of an investment in our
stock.
The discussion set forth herein does not constitute tax advice,
and potential investors should consult their own tax advisors
concerning the tax considerations relevant to their particular
situation.
REGULATION
We, and Triangle SBIC, have elected to be treated as a BDC under
the 1940 Act. The 1940 Act contains prohibitions and
restrictions relating to transactions between BDCs and their
affiliates, principal underwriters and affiliates of those
affiliates or underwriters. The 1940 Act requires that a
majority of the directors be persons other than interested
persons, as that term is defined in the 1940 Act. In
addition, the 1940 Act provides that we may not change the
nature of our business so as to cease to be, or to withdraw our
election as, a BDC unless approved by a majority of our
outstanding voting securities.
The 1940 Act defines a majority of the outstanding voting
securities as the lesser of (i) 67.0% or more of the
voting securities present at a meeting if the holders of more
than 50.0% of our outstanding voting securities are present or
represented by proxy, or (ii) 50.0% of our voting
securities.
Qualifying
Assets
Under the 1940 Act, a BDC may not acquire any asset other than
assets of the type listed in Section 55(a) of the 1940 Act,
which are referred to as qualifying assets, unless, at the time
the acquisition is made, qualifying assets represent at least
70.0% of the companys total assets. The principal
categories of qualifying assets relevant to our business are any
of the following:
(1) Securities purchased in transactions not involving any
public offering from the issuer of such securities, which issuer
(subject to certain limited exceptions) is an eligible portfolio
company, or from any person who is, or has been during the
preceding 13 months, an affiliated person of an eligible
portfolio company, or from any other person, subject to such
rules as may be prescribed by the SEC. An eligible portfolio
company is defined in the 1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal
place of business in, the United States;
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(b) is not an investment company (other than a small
business investment company wholly owned by the BDC) or a
company that would be an investment company but for certain
exclusions under the 1940 Act; and
(c) satisfies any of the following:
(i) does not have any class of securities that is traded on
a national securities exchange or has a class of securities
listed on a national securities exchange but has an aggregate
market value of outstanding voting and non-voting common equity
of less than $250.0 million;
(ii) is controlled by a BDC or a group of companies
including a BDC and the BDC has an affiliated person who is a
director of the eligible portfolio company; or
(iii) is a small and solvent company having total assets of
not more than $4.0 million and capital and surplus of not
less than $2.0 million.
(2) Securities of any eligible portfolio company that we
control.
(3) Securities purchased in a private transaction from a
U.S. issuer that is not an investment company or from an
affiliated person of the issuer, or in transactions incident
thereto, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the
purchase of its securities was unable to meet its obligations as
they came due without material assistance other than
conventional lending or financing arrangements.
(4) Securities of an eligible portfolio company purchased
from any person in a private transaction if there is no ready
market for such securities and we already own 60.0% of the
outstanding equity of the eligible portfolio company.
(5) Securities received in exchange for or distributed on
or with respect to securities described in (1) through
(4) above, or pursuant to the exercise of warrants or
rights relating to such securities.
(6) Cash, cash equivalents, U.S. government securities
or high-quality debt securities maturing in one year or less
from the time of investment.
In addition, a BDC must have been organized and have its
principal place of business in the United States and must be
operated for the purpose of making investments in the types of
securities described in (1), (2) or (3) above.
Managerial
Assistance to Portfolio Companies
In order to count portfolio securities as qualifying assets for
the purpose of the 70.0% test, we must either control the issuer
of the securities or must offer to make available to the issuer
of the securities (other than small and solvent companies
described above) significant managerial assistance; except that,
where we purchase such securities in conjunction with one or
more other persons acting together, one of the other persons in
the group may make available such managerial assistance. Making
available managerial assistance means, among other things, any
arrangement whereby the BDC, through its directors, officers or
employees, offers to provide, and, if accepted, does so provide,
significant guidance and counsel concerning the management,
operations or business objectives and policies of a portfolio
company.
Temporary
Investments
Pending investment in other types of qualifying
assets, as described above, our investments may consist of
cash, cash equivalents, U.S. government securities or
high-quality debt securities maturing in one year or less from
the time of investment, which we refer to, collectively, as
temporary investments, so that 70.0% of our assets are
qualifying assets. Typically, we will invest in
U.S. Treasury bills or in repurchase agreements, provided
that such agreements are fully collateralized by cash or
securities issued by the U.S. Government or its agencies. A
repurchase agreement involves the purchase by an investor, such
as us, of a specified security and the simultaneous agreement by
the seller to repurchase it at an
agreed-upon
future date and at a price that is greater than the purchase
price by an amount that reflects an
agreed-upon
interest rate. There is no
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percentage restriction on the proportion of our assets that may
be invested in such repurchase agreements. However, if more than
25.0% of our total assets constitute repurchase agreements from
a single counterparty, we would not meet the Diversification
Tests in order to qualify as a RIC for U.S. federal income tax
purposes. Thus, we do not intend to enter into repurchase
agreements with a single counterparty in excess of this limit.
Our management team will monitor the creditworthiness of the
counterparties with which we enter into repurchase agreement
transactions.
Senior
Securities
We are permitted, under specified conditions, to issue multiple
classes of debt and one class of stock senior to our common
stock if our asset coverage, as defined in the 1940 Act, is at
least equal to 200.0% immediately after each such issuance. In
addition, while any senior securities remain outstanding, we
must make provisions to prohibit any distribution to our
stockholders or the repurchase of such securities or shares
unless we meet the applicable asset coverage ratios at the time
of the distribution or repurchase. We may also borrow amounts up
to 5.0% of the value of our total assets for temporary or
emergency purposes without regard to asset coverage. For a
discussion of the risks associated with leverage, see Risk
Factors Risks Relating to Our Business and
Structure Because we intend to distribute
substantially all of our income to our stockholders to maintain
our status as a regulated investment company, we will continue
to need additional capital to finance our growth and regulations
governing our operation as a business development company will
affect our ability to, and the way in which we, raise additional
capital.
Code of
Ethics and Corporate Governance Guidelines
We have adopted a code of ethics and corporate governance
guidelines covering ethics and business conduct. These documents
apply to our directors, officers and employees. Our code of
ethics and corporate governance guidelines are available on the
Investor Relations section of our website at the following URL:
http://ir.tcap.com/governance.cfm.
We will report any amendments to or waivers of a required
provision of our code of ethics and corporate governance
guidelines on our website or in a Current Report on
Form 8-K.
Proxy
Voting Policies and Procedures
We vote proxies relating to our portfolio securities in the best
interest of our stockholders. We review on a
case-by-case
basis each proposal submitted to a stockholder vote to determine
its impact on the portfolio securities held by us. Although we
generally vote against proposals that may have a negative impact
on our portfolio securities, we may vote for such a proposal if
there exists compelling long-term reasons to do so.
Our proxy voting decisions are made by the investment
professionals who are responsible for monitoring each of our
investments. To ensure that our vote is not the product of a
conflict of interest, we require that: (i) anyone involved
in the decision making process disclose to our chief compliance
officer any potential conflict that he or she is aware of and
any contact that he or she has had with any interested party
regarding a proxy vote; and (ii) employees involved in the
decision making process or vote administration are prohibited
from revealing how we intend to vote on a proposal in order to
reduce any attempted influence from interested parties.
Stockholders may, without charge, obtain information regarding
how we voted proxies with respect to our portfolio securities by
making a written request for proxy voting information to: Chief
Compliance Officer, 3700 Glenwood Avenue, Suite 530,
Raleigh, North Carolina 27612.
Other
We may also be prohibited under the 1940 Act from knowingly
participating in certain transactions with our affiliates
without the prior approval of our Board of Directors who are not
interested persons and, in some cases, prior approval by the SEC.
We will be periodically examined by the SEC for compliance with
the 1940 Act.
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We are required to provide and maintain a bond issued by a
reputable fidelity insurance company to protect us against
larceny and embezzlement. Furthermore, as a business development
company, we are prohibited from protecting any director or
officer against any liability to us or our stockholders arising
from willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such
persons office.
We are required to adopt and implement written policies and
procedures reasonably designed to prevent violation of the
federal securities laws, review these policies and procedures
annually for their adequacy and the effectiveness of their
implementation, and to designate a chief compliance officer to
be responsible for administering the policies and procedures.
Small
Business Administration Regulations
Each of Triangle SBIC and Triangle SBIC II, our wholly-owned
subsidiaries, is licensed by the Small Business Administration
to operate as a Small Business Investment Company under
Section 301(c) of the Small Business Investment Act of
1958. Triangle SBIC initially obtained its SBIC license on
September 11, 2003. Triangle SBIC II obtained its SBIC
license on May 10, 2010.
SBICs are designed to stimulate the flow of private equity
capital to eligible small businesses. Under SBA regulations,
SBICs may make loans to eligible small businesses, invest in the
equity securities of such businesses and provide them with
consulting and advisory services. Triangle SBIC has typically
invested in senior and subordinated debt, acquired warrants
and/or made
equity investments in qualifying small businesses and we intend
to make similar investments through Triangle SBIC II.
Under present SBA regulations, eligible small businesses
generally include businesses that (together with their
affiliates) have a tangible net worth not exceeding
$18.0 million and have average annual net income after U.S.
federal income taxes not exceeding $6.0 million (average
net income to be computed without benefit of any carryover loss)
for the two most recent fiscal years. In addition, an SBIC must
devote 20.0% of its investment activity to smaller
concerns as defined by the SBA. A smaller concern generally
includes businesses that have a tangible net worth not exceeding
$6.0 million and have average annual net income after U.S.
federal income taxes not exceeding $2.0 million (average
net income to be computed without benefit of any net carryover
loss) for the two most recent fiscal years. SBA regulations also
provide alternative size standard criteria to determine
eligibility for designation as an eligible small business or
smaller concern, which criteria depend on the industry in which
the business is engaged and are based on such factors as the
number of employees and gross revenue. However, once an SBIC has
invested in a company, it may continue to make follow on
investments in the company, regardless of the size of the
portfolio company at the time of the follow on investment, up to
the time of the portfolio companys initial public offering.
The SBA prohibits an SBIC from providing funds to small
businesses for certain purposes, such as relending and
investment outside the United States, to businesses engaged in a
few prohibited industries, and to certain passive
(non-operating) companies. In addition, without prior SBA
approval, an SBIC may not invest an amount equal to more than
20.0% of the SBICs regulatory capital in any one portfolio
company.
The SBA places certain limitations on the financing terms of
investments by SBICs in portfolio companies (such as limiting
the permissible interest rate on debt securities held by an SBIC
in a portfolio company). Although prior regulations prohibited
an SBIC from controlling a small business concern except in
limited circumstances, regulations adopted by the SBA in 2002
now allow an SBIC to exercise control over a small business for
a period of seven years from the date on which the SBIC
initially acquires its control position. This control period may
be extended for an additional period of time with the SBAs
prior written approval.
The SBA restricts the ability of an SBIC to lend money to any of
its officers, directors and employees or to invest in affiliates
thereof. The SBA also prohibits, without prior SBA approval, a
change of control of an SBIC or transfers that would
result in any person (or a group of persons acting in concert)
owning 10.0% or more of a class of capital stock of a licensed
SBIC. A change of control is any event which would
result in the transfer of the power, direct or indirect, to
direct the management and policies of an SBIC, whether through
ownership, contractual arrangements or otherwise.
128
An SBIC (or group of SBICs under common control) may generally
have outstanding debentures guaranteed by the SBA in amounts up
to three times the amount of the regulatory capital of the
SBIC(s). Debentures guaranteed by the SBA have a maturity of ten
years, require semi-annual payments of interest, do not require
any principal payments prior to maturity, and, historically,
were subject to certain prepayment penalties. Those prepayment
penalties no longer apply as of September 2006. As of
March 31, 2010, we had issued $121.9 million of
SBA-guaranteed debentures, which had an annual weighted average
interest rate of 5.96%. As of March 31, 2010, the maximum
statutory limit on the dollar amount of outstanding
SBA-guaranteed debentures that may be issued by a single SBIC
was $150.0 million and $225.0 million for a group of
SBICs under common control. On May 10, 2010, the SBA
approved our application for an SBIC license for a new wholly
owned subsidiary, Triangle SBIC II, which provides us with the
capability to issue an additional $75.0 million of
SBA-guaranteed debentures.
SBICs must invest idle funds that are not being used to make
loans in investments permitted under SBA regulations in the
following limited types of securities: (i) direct
obligations of, or obligations guaranteed as to principal and
interest by, the United States government, which mature within
15 months from the date of the investment;
(ii) repurchase agreements with federally insured
institutions with a maturity of seven days or less (and the
securities underlying the repurchase obligations must be direct
obligations of or guaranteed by the federal government);
(iii) certificates of deposit with a maturity of one year
or less, issued by a federally insured institution; (iv) a
deposit account in a federally insured institution that is
subject to a withdrawal restriction of one year or less;
(v) a checking account in a federally insured institution;
or (vi) a reasonable petty cash fund.
SBICs are periodically examined and audited by the SBAs
staff to determine its compliance with SBIC regulations and are
periodically required to file certain forms with the SBA.
Neither the SBA nor the U.S. government or any of its
agencies or officers has approved any ownership interest to be
issued by us or any obligation that we or any of our
subsidiaries may incur.
Securities
Exchange Act and Sarbanes-Oxley Act Compliance
We are subject to the reporting and disclosure requirements of
the Exchange Act, including the filing of quarterly, annual and
current reports, proxy statements and other required items. In
addition, we are subject to the Sarbanes-Oxley Act of 2002,
which imposes a wide variety of regulatory requirements on
publicly-held companies and their insiders. For example:
|
|
|
|
|
pursuant to
Rule 13a-14
of the Exchange Act, our Chief Executive Officer and Chief
Financial Officer are required to certify the accuracy of the
financial statements contained in our periodic reports;
|
|
|
|
pursuant to Item 307 of
Regulation S-K,
our periodic reports are required to disclose our conclusions
about the effectiveness of our disclosure controls and
procedures; and
|
|
|
|
pursuant to
Rule 13a-15
of the Exchange Act, our management is required to prepare a
report regarding its assessment of our internal control over
financial reporting, and such report must be audited by our
independent registered public accounting firm.
|
The Sarbanes-Oxley Act requires us to review our current
policies and procedures to determine whether we comply with the
Sarbanes-Oxley Act and the regulations promulgated thereunder.
We monitor our compliance with all regulations that are adopted
under the Sarbanes-Oxley Act and will take all actions necessary
to ensure that we are in compliance therewith.
The
Nasdaq Global Market Corporate Governance Regulations
The Nasdaq Global Market has adopted corporate governance
regulations that listed companies must comply with. We believe
we are in compliance with such corporate governance listing
standards. We intend to monitor our compliance with all future
listing standards and to take all necessary actions to ensure
that we are in compliance therewith.
129
PLAN OF
DISTRIBUTION
We may sell our common stock through underwriters or dealers,
directly to one or more purchasers or through agents or through
a combination of any such methods of sale. Any underwriter or
agent involved in the offer and sale of our common stock will
also be named in the applicable prospectus supplement.
The distribution of our common stock may be effected from time
to time in one or more transactions at a fixed price or prices,
which may be changed, at prevailing market prices at the time of
sale, at prices related to such prevailing market prices, or at
negotiated prices, provided, however, that the offering price
per share of our common stock less any underwriting commissions
or discounts must equal or exceed the net asset value per share
of our common stock except that we may sell shares of our common
stock at a price below net asset value per share if a majority
of the number of beneficial holders of our stock have approved
such a sale or if the following conditions are met:
(i) holders of a majority of our stock and a majority of
our stock not held by affiliated persons have approved issuance
at less than net asset value per share during the one year
period prior to such sale; (ii) a majority of our directors
who have no financial interest in the sale and a majority of
such directors who are not interested persons of us have
determined that such sale would be in our best interest and in
the best interests of our stockholders; and (iii) a
majority of our directors who have no financial interest in the
sale and a majority of such directors who are not interested
persons of us, in consultation with the underwriter or
underwriters of the offering if it is to be underwritten, have
determined in good faith, and as of a time immediately prior to
the first solicitation by or on behalf of us of firm commitments
to purchase such securities or immediately prior to the issuance
of such securities, that the price at which such securities are
to be sold is not less than a price which closely approximates
the market value of those securities, less any distributing
commission or discount.
On May 5, 2010, our common stockholders voted to allow us
to issue common stock at a price below net asset value per share
for a period of one year ending on the earlier of May 4,
2011 or the date of our 2011 annual meeting of stockholders. Our
stockholders did not specify a maximum discount below net asset
value at which we are able to issue our common stock; however,
we do not intend to issue shares of our common stock below net
asset value unless our Board of Directors determines that it
would be in our stockholders best interests to do so.
In connection with the sale of our common stock, underwriters or
agents may receive compensation from us or from purchasers of
our common stock, for whom they may act as agents, in the form
of discounts, concessions or commissions. Underwriters may sell
our common stock to or through dealers and such dealers may
receive compensation in the form of discounts, concessions or
commissions from the underwriters
and/or
commissions from the purchasers for whom they may act as agents.
Underwriters, dealers and agents that participate in the
distribution of our common stock may be deemed to be
underwriters under the Securities Act, and any discounts and
commissions they receive from us and any profit realized by them
on the resale of our common stock may be deemed to be
underwriting discounts and commissions under the Securities Act.
Any such underwriter or agent will be identified and any such
compensation received from us will be described in the
applicable prospectus supplement.
We may enter into derivative transactions with third parties, or
sell securities not covered by this prospectus to third parties
in privately negotiated transactions. If the applicable
prospectus supplement indicates, in connection with those
derivatives, the third parties may sell common stock covered by
this prospectus and the applicable prospectus supplement,
including in short sale transactions. If so, the third party may
use securities pledged by us or borrowed from us or others to
settle those sales or to close out any related open borrowings
of stock, and may use securities received from us in settlement
of those derivatives to close out any related open borrowings of
stock. The third parties in such sale transactions will be
underwriters and, if not identified in this prospectus, will be
identified in the applicable prospectus supplement (or a
post-effective amendment).
Any of our common stock sold pursuant to a prospectus supplement
will be listed on The Nasdaq Global Market, or another exchange
on which our common stock is traded.
130
Under agreements into which we may enter, underwriters, dealers
and agents who participate in the distribution of our common
stock may be entitled to indemnification by us against certain
liabilities, including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions
with, or perform services for, us in the ordinary course of
business.
If so indicated in the applicable prospectus supplement, we will
authorize underwriters or other persons acting as our agents to
solicit offers by certain institutions to purchase our common
stock from us pursuant to contracts providing for payment and
delivery on a future date. Institutions with which such
contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all
cases such institutions must be approved by us. The obligations
of any purchaser under any such contract will be subject to the
condition that the purchase of our common stock shall not at the
time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such
contracts. Such contracts will be subject only to those
conditions set forth in the prospectus supplement, and the
prospectus supplement will set forth the commission payable for
solicitation of such contracts.
In order to comply with the securities laws of certain states,
if applicable, our common stock offered hereby will be sold in
such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states, our common stock may
not be sold unless it has been registered or qualified for sale
in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The maximum commission or discount to be received by any member
of the Financial Industry Regulatory Authority, Inc. will not be
greater than 10.0% for the sale of any securities being
registered.
CUSTODIAN,
TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
Our securities are held under a custody agreement by
U.S. Bank National Association. The address of the
custodian is: U.S. Bank National Association, Attn:
Institutional Trust & Custody, 214 North Tryon Street;
27th floor, Charlotte, NC 28202. The Bank of New York
Mellon acts as our transfer agent, dividend paying agent and
registrar. The principal business address of our transfer agent
is BNY Mellon, Shareowner Services, PO Box 358035,
Pittsburgh, PA,
15252-8035,
telephone number:
(866) 228-7201.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Since we generally acquire and dispose of our investments in
privately negotiated transactions, we infrequently use brokers
in the normal course of our business. Our management team is
primarily responsible for the execution of the publicly traded
securities portion of our portfolio transactions and the
allocation of brokerage commissions. We do not expect to execute
transactions through any particular broker or dealer, but will
seek to obtain the best net results for us, taking into account
such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of
execution, and operational facilities of the firm and the
firms risk and skill in positioning blocks of securities.
While we will generally seek reasonably competitive trade
execution costs, we will not necessarily pay the lowest spread
or commission available. Subject to applicable legal
requirements, we may select a broker based partly upon brokerage
or research services provided to us. In return for such
services, we may pay a higher commission than other brokers
would charge if we determine in good faith that such commission
is reasonable in relation to the services provided. We did not
pay any brokerage commissions during the years ended
December 31, 2009, 2008 or 2007.
131
LEGAL
MATTERS
Certain legal matters will be passed upon for us by Bass,
Berry & Sims PLC, Memphis, Tennessee. Venable LLP,
Baltimore, Maryland, will pass upon the legality of the common
stock offered by us and certain other matters of Maryland law.
Certain legal matters will be passed upon for underwriters, if
any, by the counsel named in the prospectus supplement, if any.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, an independent registered public
accounting firm whose address is 4130 ParkLake Avenue,
Suite 500, Raleigh NC 27612, has audited our financial
statements and financial highlights at December 31, 2009
and 2008, and for each of the three years in the period ended
December 31, 2009, as set forth in their report. We have
included our financial statements and financial highlights in
the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLPs report, given on
its authority as an expert in accounting and auditing.
AVAILABLE
INFORMATION
We have filed with the SEC a registration statement on
Form N-2,
together with all amendments and related exhibits, under the
Securities Act, with respect to the common stock offered by this
prospectus. The registration statement contains additional
information about us and the common stock being offered by this
prospectus.
We file with or submit to the SEC annual, quarterly and current
periodic reports, proxy statements and other information meeting
the informational requirements of the Exchange Act. You may
inspect and copy these reports, proxy statements and other
information, as well as the registration statement and related
exhibits and schedules, at the Public Reference Room of the SEC
at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy
and information statements and other information filed
electronically by us with the SEC which are available on the
SECs website at
http://www.sec.gov.
Copies of these reports, proxy and information statements and
other information may be obtained, after paying a duplicating
fee, by electronic request at the following
e-mail
address: publicinfo@sec.gov, or by writing the SECs Public
Reference Section, 100 F Street, N.E.,
Washington, D.C. 20549.
132
Triangle
Capital Corporation
INDEX TO
FINANCIAL STATEMENTS
Unaudited
Financial Statements
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|
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|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-10
|
|
|
|
|
F-13
|
|
Audited
Financial Statements
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
F-23
|
|
|
|
|
F-24
|
|
|
|
|
F-25
|
|
|
|
|
F-26
|
|
|
|
|
F-27
|
|
|
|
|
F-33
|
|
|
|
|
F-37
|
|
F-1
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments (cost of $154,460,897
and $143,239,223 at March 31, 2010 and December 31,
2009, respectively)
|
|
$
|
149,994,248
|
|
|
$
|
138,281,894
|
|
Affiliate investments (cost of $44,331,959 and $47,934,280 at
March 31, 2010 and December 31, 2009, respectively)
|
|
|
39,467,209
|
|
|
|
45,735,905
|
|
Control investments (cost of $20,060,678 and $18,767,587 at
March 31, 2010 and December 31, 2009, respectively)
|
|
|
21,015,301
|
|
|
|
17,300,171
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
210,476,758
|
|
|
|
201,317,970
|
|
Cash and cash equivalents
|
|
|
43,272,690
|
|
|
|
55,200,421
|
|
Interest and fees receivable
|
|
|
1,240,315
|
|
|
|
676,961
|
|
Prepaid expenses and other current assets
|
|
|
349,163
|
|
|
|
286,790
|
|
Deferred financing fees
|
|
|
3,444,061
|
|
|
|
3,540,492
|
|
Property and equipment, net
|
|
|
23,188
|
|
|
|
28,666
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
258,806,175
|
|
|
$
|
261,051,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,030,064
|
|
|
$
|
2,222,177
|
|
Interest payable
|
|
|
595,868
|
|
|
|
2,333,952
|
|
Dividends payable
|
|
|
4,893,183
|
|
|
|
4,774,534
|
|
Taxes payable
|
|
|
31,933
|
|
|
|
59,178
|
|
Deferred revenue
|
|
|
37,500
|
|
|
|
75,000
|
|
Deferred income taxes
|
|
|
614,267
|
|
|
|
577,267
|
|
SBA guaranteed debentures payable
|
|
|
121,910,000
|
|
|
|
121,910,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
129,112,815
|
|
|
|
131,952,108
|
|
|
|
|
|
|
|
|
|
|
NET ASSETS
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 11,934,594 and
11,702,511 shares issued and outstanding as of
March 31, 2010 and December 31, 2009, respectively)
|
|
|
11,935
|
|
|
|
11,703
|
|
Additional paid-in capital
|
|
|
138,107,049
|
|
|
|
136,769,259
|
|
Investment income in excess of (less than) distributions
|
|
|
(81,945
|
)
|
|
|
1,070,452
|
|
Accumulated realized gains on investments
|
|
|
647,364
|
|
|
|
448,164
|
|
Net unrealized depreciation of investments
|
|
|
(8,991,043
|
)
|
|
|
(9,200,386
|
)
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
129,693,360
|
|
|
|
129,099,192
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
258,806,175
|
|
|
$
|
261,051,300
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
10.87
|
|
|
$
|
11.03
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-2
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments
|
|
$
|
4,801,642
|
|
|
$
|
4,191,620
|
|
Affiliate investments
|
|
|
1,030,596
|
|
|
|
931,836
|
|
Control investments
|
|
|
353,145
|
|
|
|
237,957
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
6,185,383
|
|
|
|
5,361,413
|
|
Payment-in-kind interest income:
|
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments
|
|
|
827,601
|
|
|
|
819,942
|
|
Affiliate investments
|
|
|
262,677
|
|
|
|
174,261
|
|
Control investments
|
|
|
125,948
|
|
|
|
81,123
|
|
|
|
|
|
|
|
|
|
|
Total payment-in-kind interest income
|
|
|
1,216,226
|
|
|
|
1,075,326
|
|
Interest income from cash and cash equivalent investments
|
|
|
83,298
|
|
|
|
67,761
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
7,484,907
|
|
|
|
6,504,500
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,739,980
|
|
|
|
1,656,991
|
|
Amortization of deferred financing fees
|
|
|
96,431
|
|
|
|
90,661
|
|
General and administrative expenses
|
|
|
1,854,812
|
|
|
|
1,719,266
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,691,223
|
|
|
|
3,466,918
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
3,793,684
|
|
|
|
3,037,582
|
|
Realized gain on investments
Non-Control/Non-Affiliate
|
|
|
199,200
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
209,343
|
|
|
|
(3,605,144
|
)
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments before income taxes
|
|
|
408,543
|
|
|
|
(3,605,144
|
)
|
Provision for taxes
|
|
|
52,898
|
|
|
|
15,795
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
4,149,329
|
|
|
$
|
(583,357
|
)
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
0.32
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
per share basic and diluted
|
|
$
|
0.35
|
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.41
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
Distributions of capital gains declared per common share
|
|
$
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
11,877,688
|
|
|
|
6,997,411
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
TRIANGLE
CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Unrealized
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Income
|
|
|
Realized
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
in Excess of
|
|
|
Gains on
|
|
|
(Depreciation) of
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
Balance, January 1, 2009
|
|
|
6,917,363
|
|
|
$
|
6,917
|
|
|
$
|
87,836,786
|
|
|
$
|
2,115,157
|
|
|
$
|
356,495
|
|
|
$
|
1,109,808
|
|
|
$
|
91,425,163
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,037,582
|
|
|
|
|
|
|
|
|
|
|
|
3,037,582
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
136,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,200
|
|
Net unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,605,144
|
)
|
|
|
(3,605,144
|
)
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,795
|
)
|
|
|
|
|
|
|
|
|
|
|
(15,795
|
)
|
Dividends/distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,816,900
|
)
|
|
|
(352,366
|
)
|
|
|
|
|
|
|
(3,169,266
|
)
|
Issuance of restricted stock
|
|
|
133,000
|
|
|
|
133
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock
|
|
|
(2,700
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
7,047,663
|
|
|
$
|
7,047
|
|
|
$
|
87,972,856
|
|
|
$
|
2,320,044
|
|
|
$
|
4,129
|
|
|
$
|
(2,495,336
|
)
|
|
$
|
87,808,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Income in
|
|
|
Realized
|
|
|
Unrealized
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
Excess of (less than)
|
|
|
Gains on
|
|
|
Depreciation of
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
Balance, January 1, 2010
|
|
|
11,702,511
|
|
|
$
|
11,703
|
|
|
$
|
136,769,259
|
|
|
$
|
1,070,452
|
|
|
$
|
448,164
|
|
|
$
|
(9,200,386
|
)
|
|
$
|
129,099,192
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,793,684
|
|
|
|
|
|
|
|
|
|
|
|
3,793,684
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
248,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
248,556
|
|
Net realized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,200
|
|
|
|
(179,200
|
)
|
|
|
20,000
|
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,543
|
|
|
|
388,543
|
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,898
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,898
|
)
|
Dividends/distributions declared
|
|
|
100,046
|
|
|
|
100
|
|
|
|
1,215,461
|
|
|
|
(4,893,183
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,677,622
|
)
|
Expenses related to public offerings of common stock
|
|
|
|
|
|
|
|
|
|
|
(2,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,255
|
)
|
Issuance of restricted stock
|
|
|
142,499
|
|
|
|
142
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(10,462
|
)
|
|
|
(10
|
)
|
|
|
(123,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(123,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
|
11,934,594
|
|
|
$
|
11,935
|
|
|
$
|
138,107,049
|
|
|
$
|
(81,945
|
)
|
|
$
|
647,364
|
|
|
$
|
(8,991,043
|
)
|
|
$
|
129,693,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
TRIANGLE
CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
4,149,329
|
|
|
$
|
(583,357
|
)
|
Adjustments to reconcile net increase (decrease) in net assets
resulting from operations to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(14,143,949
|
)
|
|
|
(9,193,735
|
)
|
Repayments received/sales of portfolio investments
|
|
|
6,520,580
|
|
|
|
2,246,284
|
|
Loan origination and other fees received
|
|
|
301,875
|
|
|
|
175,000
|
|
Net realized gain on investments
|
|
|
(199,200
|
)
|
|
|
|
|
Net unrealized depreciation (appreciation) of investments
|
|
|
(246,344
|
)
|
|
|
3,604,584
|
|
Deferred income taxes
|
|
|
37,000
|
|
|
|
560
|
|
Payment-in-kind interest accrued, net of payments received
|
|
|
(1,059,516
|
)
|
|
|
(648,221
|
)
|
Amortization of deferred financing fees
|
|
|
96,431
|
|
|
|
90,661
|
|
Recognition of loan origination and other fees
|
|
|
(215,033
|
)
|
|
|
(184,906
|
)
|
Accretion of loan discounts
|
|
|
(117,201
|
)
|
|
|
(104,626
|
)
|
Depreciation expense
|
|
|
5,478
|
|
|
|
5,571
|
|
Stock-based compensation
|
|
|
248,556
|
|
|
|
136,200
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(563,354
|
)
|
|
|
211,203
|
|
Prepaid expenses
|
|
|
(62,373
|
)
|
|
|
(199,720
|
)
|
Accounts payable and accrued liabilities
|
|
|
(1,192,113
|
)
|
|
|
(799,537
|
)
|
Interest payable
|
|
|
(1,738,084
|
)
|
|
|
(1,369,428
|
)
|
Deferred revenue
|
|
|
(37,500
|
)
|
|
|
|
|
Taxes payable
|
|
|
(27,245
|
)
|
|
|
(30,436
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(8,242,663
|
)
|
|
|
(6,643,903
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(3,558,973
|
)
|
|
|
(2,764,780
|
)
|
Cash distributions paid
|
|
|
|
|
|
|
(352,366
|
)
|
Expenses related to public offerings
|
|
|
(2,255
|
)
|
|
|
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(123,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(3,685,068
|
)
|
|
|
(3,117,146
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(11,927,731
|
)
|
|
|
(9,761,049
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
55,200,421
|
|
|
|
27,193,287
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
43,272,690
|
|
|
$
|
17,432,238
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,478,064
|
|
|
$
|
3,026,419
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
TRIANGLE
CAPITAL CORPORATION
March 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non-Control / Non-Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA) and Peaden-Hobbs
Mechanical, LLC (PHM) (5%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-AA
(12% Cash, 2% PIK,
Due 03/11)
|
|
$
|
3,236,386
|
|
|
$
|
3,185,018
|
|
|
$
|
3,185,018
|
|
|
|
|
|
Subordinated Note-AA
(14% Cash, 4% PIK,
Due 03/11)
|
|
|
1,982,791
|
|
|
|
1,968,934
|
|
|
|
1,968,934
|
|
|
|
|
|
Common Stock-PHM
(128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
105,100
|
|
|
|
|
|
Common Stock
Warrants-AA (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
643,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,219,177
|
|
|
|
5,424,884
|
|
|
|
5,902,452
|
|
American De-Rosa Lamparts, LLC
and Hallmark Lighting (3%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(11.5% Cash, 3.75% PIK,
Due 10/13)
|
|
|
9,203,983
|
|
|
|
8,251,190
|
|
|
|
3,985,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,203,983
|
|
|
|
8,251,190
|
|
|
|
3,985,700
|
|
American Direct Marketing Resources, LLC (3%)*
|
|
Direct Marketing
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 03/15)
|
|
|
4,188,639
|
|
|
|
4,122,062
|
|
|
|
4,122,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,188,639
|
|
|
|
4,122,062
|
|
|
|
4,122,062
|
|
Assurance Operations Corporation (2%)*
|
|
Auto Components /
Metal Fabrication
|
|
Senior Note
(6% Cash, 8% PIK,
Due 06/11)
|
|
|
2,533,680
|
|
|
|
2,083,680
|
|
|
|
2,083,680
|
|
|
|
|
|
Common Stock (300 shares)
|
|
|
|
|
|
|
300,000
|
|
|
|
166,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,533,680
|
|
|
|
2,383,680
|
|
|
|
2,249,780
|
|
Botanical Laboratories, Inc. (8%)*
|
|
Nutritional Supplement
Manufacturing and
Distribution
|
|
Senior Notes
(14% Cash,
Due 02/15)
|
|
|
10,500,000
|
|
|
|
9,762,900
|
|
|
|
9,762,900
|
|
|
|
|
|
Common Unit Warrants
(998,680 Units)
|
|
|
|
|
|
|
474,600
|
|
|
|
474,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500,000
|
|
|
|
10,237,500
|
|
|
|
10,237,500
|
|
CRS Reprocessing, LLC (4%)*
|
|
Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/14)
|
|
|
5,270,385
|
|
|
|
5,148,155
|
|
|
|
5,148,155
|
|
|
|
|
|
Common Unit Warrant
(150 Units)
|
|
|
|
|
|
|
33,187
|
|
|
|
33,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,270,385
|
|
|
|
5,181,342
|
|
|
|
5,181,342
|
|
CV Holdings, LLC (9%)*
|
|
Specialty Healthcare
Products
Manufacturer
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
|
11,334,261
|
|
|
|
10,548,870
|
|
|
|
10,548,870
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,334,261
|
|
|
|
11,423,270
|
|
|
|
11,498,170
|
|
Electronic Systems Protection, Inc. (3%)*
|
|
Power Protection
Systems
Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
|
3,136,518
|
|
|
|
3,113,089
|
|
|
|
2,888,901
|
|
|
|
|
|
Senior Note
(8.3% Cash, Due 01/14)
|
|
|
888,728
|
|
|
|
888,728
|
|
|
|
888,728
|
|
|
|
|
|
Common Stock (500 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
96,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,025,246
|
|
|
|
4,286,817
|
|
|
|
3,874,229
|
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units (4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
600,000
|
|
Fire Sprinkler Systems, Inc. (1%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(11%-12.5% PIK, Due 04/11)
|
|
|
2,765,917
|
|
|
|
2,373,242
|
|
|
|
750,000
|
|
|
|
|
|
Common Stock (370 shares)
|
|
|
|
|
|
|
369,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,765,917
|
|
|
|
2,742,866
|
|
|
|
750,000
|
|
Frozen Specialties, Inc. (6%)*
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
|
7,759,048
|
|
|
|
7,625,910
|
|
|
|
7,625,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,759,048
|
|
|
|
7,625,910
|
|
|
|
7,625,910
|
|
Garden Fresh Restaurant Corp. (3%)*
|
|
Restaurant
|
|
2nd Lien
Note
(7.8% Cash, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
778,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,778,800
|
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Gerli & Company (1%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(0.69% PIK, Due 08/11)
|
|
$
|
3,696,132
|
|
|
$
|
3,133,591
|
|
|
$
|
1,817,000
|
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75% PIK,
Due 08/11)
|
|
|
124,073
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,820,205
|
|
|
|
3,337,005
|
|
|
|
1,937,000
|
|
Grindmaster-Cecilware Corp. (4%)*
|
|
Food Services
Equipment
Manufacturer
|
|
Subordinated Note
(11% Cash, 3% PIK,
Due 03/15)
|
|
|
5,844,297
|
|
|
|
5,737,151
|
|
|
|
5,737,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,844,297
|
|
|
|
5,737,151
|
|
|
|
5,737,151
|
|
Inland Pipe Rehabilitation Holding Company LLC (11%)*
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(14% Cash, Due 01/14)
|
|
|
8,108,641
|
|
|
|
7,329,114
|
|
|
|
7,329,114
|
|
|
|
|
|
Subordinated Note
(18% Cash, Due 01/14)
|
|
|
3,750,000
|
|
|
|
3,693,060
|
|
|
|
3,693,060
|
|
|
|
|
|
Membership Interest
Purchase Warrant (2.9)%
|
|
|
|
|
|
|
853,500
|
|
|
|
3,742,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,858,641
|
|
|
|
11,875,674
|
|
|
|
14,765,074
|
|
Jenkins Service, LLC (7%)*
|
|
Restoration
Services
|
|
Subordinated Note
(10.25% Cash, 7.25% PIK,
Due 04/14)
|
|
|
7,651,434
|
|
|
|
7,534,406
|
|
|
|
7,534,406
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,375,000
|
|
|
|
1,344,342
|
|
|
|
1,344,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,026,434
|
|
|
|
8,878,748
|
|
|
|
8,878,748
|
|
Library Systems & Services, LLC (1%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12% Cash, Due 03/11)
|
|
|
1,000,000
|
|
|
|
979,277
|
|
|
|
979,277
|
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
839,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,038,272
|
|
|
|
1,818,877
|
|
Novolyte Technologies, Inc. (6%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5% PIK,
Due 04/15)
|
|
|
7,467,576
|
|
|
|
7,340,921
|
|
|
|
7,340,921
|
|
|
|
|
|
Preferred Units (641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
592,500
|
|
|
|
|
|
Common Units (24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,467,576
|
|
|
|
8,141,943
|
|
|
|
7,933,421
|
|
Syrgis Holdings, Inc. (3%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
3,230,583
|
|
|
|
3,209,611
|
|
|
|
3,209,611
|
|
|
|
|
|
Common Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
665,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,230,583
|
|
|
|
4,209,611
|
|
|
|
3,874,911
|
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician Management
Services
|
|
Senior Note
(14% Cash, Due 11/14)
|
|
|
8,000,000
|
|
|
|
7,595,281
|
|
|
|
7,595,281
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
281,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
|
|
7,871,381
|
|
|
|
7,876,681
|
|
TrustHouse Services Group, Inc. (4%)*
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
4,373,386
|
|
|
|
4,306,785
|
|
|
|
4,306,785
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
386,100
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,373,386
|
|
|
|
4,806,785
|
|
|
|
4,692,885
|
|
Tulsa Inspection Resources, Inc. (TIR) and Regent
TIR Partners, LLC (RTIR) (4%)*
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash, Due 03/14)
|
|
|
5,000,000
|
|
|
|
4,641,748
|
|
|
|
4,641,748
|
|
|
|
|
|
Common Units RTIR
(11 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Stock Warrants TIR
(7 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,162,748
|
|
|
|
4,641,748
|
|
Twin-Star International, Inc. (4%)*
|
|
Consumer Home
Furnishings
Manufacturer
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,452,967
|
|
|
|
4,420,000
|
|
|
|
|
|
Senior Note
(4.25%,
Due 04/13)
|
|
|
1,246,851
|
|
|
|
1,246,851
|
|
|
|
1,192,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,746,851
|
|
|
|
5,699,818
|
|
|
|
5,612,700
|
|
Wholesale Floors, Inc. (3%)*
|
|
Commercial
Services
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 06/14)
|
|
|
3,500,000
|
|
|
|
3,369,106
|
|
|
|
3,369,106
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
34,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
3,501,906
|
|
|
|
3,403,606
|
|
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Yellowstone Landscape Group, Inc. (9%)*
|
|
Landscaping
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
$
|
11,379,409
|
|
|
$
|
11,175,441
|
|
|
$
|
11,175,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,379,409
|
|
|
|
11,175,441
|
|
|
|
11,175,441
|
|
Zoom Systems (6%)*
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5 Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,032,711
|
|
|
|
7,840,060
|
|
|
|
7,840,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,032,711
|
|
|
|
7,840,060
|
|
|
|
7,840,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments
|
|
|
|
|
154,080,429
|
|
|
|
154,460,897
|
|
|
|
149,994,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (4%)*
|
|
Asset Management
Software Provider
|
|
Senior Note
(12% Cash, 7% PIK,
Due 03/13)
|
|
|
5,485,835
|
|
|
|
5,418,928
|
|
|
|
5,418,928
|
|
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,485,835
|
|
|
|
5,918,928
|
|
|
|
5,418,928
|
|
Axxiom Manufacturing, Inc. (1%)*
|
|
Industrial Equipment
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
635,800
|
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
18,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
654,400
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
Street)(4) (2%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation
(14% Cash,
Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,719,360
|
|
|
|
1,958,000
|
|
|
|
|
|
Common Unit Warrants
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
|
|
Preferred Units
Pine Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Unit Warrants
Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,952,960
|
|
|
|
1,958,000
|
|
Dyson Corporation (6%)*
|
|
Custom Forging and
Fastener Supplies
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 12/13)
|
|
|
6,000,000
|
|
|
|
5,904,530
|
|
|
|
5,904,530
|
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,394,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,904,530
|
|
|
|
8,298,730
|
|
Equisales, LLC (6%)*
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
|
6,613,204
|
|
|
|
6,551,866
|
|
|
|
6,551,866
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,440,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,613,204
|
|
|
|
7,051,866
|
|
|
|
7,992,366
|
|
Flint Acquisition Corporation (3%)*
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
3,350,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
3,350,600
|
|
Genapure Corporation (0%)*
|
|
Lab Testing Services
|
|
Genapure Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
641,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
641,400
|
|
Technology Crops International (4%)*
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
|
5,134,137
|
|
|
|
5,040,785
|
|
|
|
5,040,785
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,134,137
|
|
|
|
5,540,785
|
|
|
|
5,540,785
|
|
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Waste Recyclers Holdings, LLC (4%)*
|
|
Environmental and
Facilities Services
|
|
Subordinated Note
(8% Cash, 7.5% PIK,
Due 08/13)
|
|
$
|
4,276,511
|
|
|
$
|
4,053,730
|
|
|
$
|
4,053,730
|
|
|
|
|
|
Subordinated Note
(3% Cash, 12.5% PIK,
Due 08/13)
|
|
|
5,956,523
|
|
|
|
5,671,070
|
|
|
|
1,558,270
|
|
|
|
|
|
Class A Preferred Units
(300 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units
(985,372 Units)
|
|
|
|
|
|
|
985,372
|
|
|
|
|
|
|
|
|
|
Common Unit
Purchase Warrant
(1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,233,034
|
|
|
|
13,890,955
|
|
|
|
5,612,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
37,266,210
|
|
|
|
44,331,959
|
|
|
|
39,467,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (3%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
|
1,561,337
|
|
|
|
1,557,366
|
|
|
|
1,476,300
|
|
|
|
|
|
Senior Note
(7.76% Cash, 2% PIK,
Due 9/11)
|
|
|
2,014,241
|
|
|
|
2,009,067
|
|
|
|
1,905,800
|
|
|
|
|
|
2nd Lien
Note
(2.76% Cash, 8% PIK,
Due 12/11)
|
|
|
3,265,134
|
|
|
|
2,994,804
|
|
|
|
1,065,000
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,840,712
|
|
|
|
6,561,237
|
|
|
|
4,447,100
|
|
Fischbein, LLC (12%)*
|
|
Packaging and
Materials Handling
Equipment
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
|
7,700,590
|
|
|
|
7,601,845
|
|
|
|
7,601,845
|
|
|
|
Manufacturer
|
|
Class A-1 Common Units
(52.5% of Units)
|
|
|
|
|
|
|
558,140
|
|
|
|
1,290,000
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
6,536,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,700,590
|
|
|
|
12,359,985
|
|
|
|
15,428,745
|
|
Weave Textiles, LLC (1%)*
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Senior Note
(12% PIK,
Due 01/11)
|
|
|
284,456
|
|
|
|
284,456
|
|
|
|
284,456
|
|
|
|
|
|
Membership Units
(425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
855,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284,456
|
|
|
|
1,139,456
|
|
|
|
1,139,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,825,758
|
|
|
|
20,060,678
|
|
|
|
21,015,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31, 2010(162%)*
|
|
|
|
$
|
206,172,397
|
|
|
$
|
218,853,534
|
|
|
$
|
210,476,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non income
producing. |
|
(2) |
|
Disclosures of interest rates on notes include cash interest
rates and payment -in-kind (PIK) interest rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
See accompanying notes.
F-9
TRIANGLE
CAPITAL CORPORATION
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
.Non-Control / Non-Affiliate Investments:
|
Ambient Air Corporation (AA)
and Peaden-Hobbs Mechanical,
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-AA (12% Cash, 2% PIK, Due 03/11)
|
|
$
|
3,236,386
|
|
|
$
|
3,173,098
|
|
|
$
|
3,173,098
|
|
LLC (PHM) (5%)*
|
|
|
|
Subordinated Note-AA
(14% Cash, 4% PIK, Due 03/11)
|
|
|
1,982,791
|
|
|
|
1,965,757
|
|
|
|
1,965,757
|
|
|
|
|
|
Common Stock-PHM (128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
106,900
|
|
|
|
|
|
Common Stock Warrants-AA (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
656,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,219,177
|
|
|
|
5,409,787
|
|
|
|
5,902,455
|
|
American De-Rosa Lamparts,
LLC and Hallmark Lighting (3%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note (11.5% Cash, 3.75% PIK, Due 10/13)
|
|
|
8,861,819
|
|
|
|
8,244,709
|
|
|
|
3,893,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,861,819
|
|
|
|
8,244,709
|
|
|
|
3,893,299
|
|
American Direct Marketing
Resources, LLC (3%)*
|
|
Direct Marketing
Services
|
|
Subordinated Note (12% Cash, 3% PIK, Due 03/15)
|
|
|
4,157,458
|
|
|
|
4,088,475
|
|
|
|
4,088,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,157,458
|
|
|
|
4,088,475
|
|
|
|
4,088,475
|
|
Art Headquarters, LLC (2%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note (12% Cash, 2% PIK, Due 01/10)
|
|
|
2,116,822
|
|
|
|
2,116,822
|
|
|
|
2,116,822
|
|
|
|
|
|
Membership unit warrants (15% of units (150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,116,822
|
|
|
|
2,157,622
|
|
|
|
2,336,822
|
|
Assurance Operations
Corporation (2%)*
|
|
Auto Components /
Metal Fabrication
|
|
Senior Note
(6% Cash, Due 06/11)
|
|
|
2,484,000
|
|
|
|
2,034,000
|
|
|
|
2,034,000
|
|
|
|
|
|
Common Stock (300 shares)
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,484,000
|
|
|
|
2,334,000
|
|
|
|
2,034,000
|
|
CRS Reprocessing, LLC (2%)*
|
|
Fluid Reprocessing
Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 11/14)
|
|
|
3,005,333
|
|
|
|
2,929,233
|
|
|
|
2,929,233
|
|
|
|
|
|
Common Unit Warrant (107 Units)
|
|
|
|
|
|
|
23,600
|
|
|
|
23,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,005,333
|
|
|
|
2,952,833
|
|
|
|
2,952,833
|
|
CV Holdings, LLC (9%)*
|
|
Specialty
Healthcare Products
|
|
Subordinated Note (12% Cash, 4% PIK, Due 09/13)
|
|
|
11,221,670
|
|
|
|
10,391,652
|
|
|
|
10,391,652
|
|
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,221,670
|
|
|
|
11,266,052
|
|
|
|
11,340,952
|
|
Electronic Systems Protection,
Inc. (3%)*
|
|
Power Protection Systems
Manufacturing
|
|
Subordinated Note (12% Cash, 2% PIK, Due 12/15)
|
|
|
3,120,913
|
|
|
|
3,096,783
|
|
|
|
2,869,000
|
|
|
|
|
|
Senior Note (8.3% Cash, Due 01/14)
|
|
|
895,953
|
|
|
|
895,953
|
|
|
|
895,953
|
|
|
|
|
|
Common Stock (500 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
31,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,016,866
|
|
|
|
4,277,736
|
|
|
|
3,796,253
|
|
Energy Hardware Holdings,
LLC (0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
572,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
572,300
|
|
Fire Sprinkler Systems, Inc. (1%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes (11%-12.5% PIK, Due 04/11)
|
|
|
2,765,917
|
|
|
|
2,369,744
|
|
|
|
750,000
|
|
|
|
|
|
Common Stock (295 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,765,917
|
|
|
|
2,664,368
|
|
|
|
750,000
|
|
Frozen Specialties, Inc. (6%)*
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note (13% Cash, 5% PIK, Due 07/14)
|
|
|
7,662,863
|
|
|
|
7,523,924
|
|
|
|
7,523,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,662,863
|
|
|
|
7,523,924
|
|
|
|
7,523,924
|
|
Garden Fresh Restaurant Corp. (3%)*
|
|
Restaurant
|
|
2nd Lien Note (7.8% Cash, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units (5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
811,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,811,300
|
|
Gerli & Company (1%)*
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Subordinated Note (0.69% PIK, Due 08/11)
|
|
|
3,630,774
|
|
|
|
3,124,893
|
|
|
|
1,442,000
|
|
|
|
|
|
Subordinated Note (6.25% Cash, 11.75% PIK, Due 08/11)
|
|
|
122,389
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Common Stock Warrants (56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,753,163
|
|
|
|
3,328,307
|
|
|
|
1,562,000
|
|
Grindmaster-Cecilware
Corp. (4%)*
|
|
Food Services Equipment
Manufacturer
|
|
Subordinated Note (11% Cash, 3% PIK, Due 03/15)
|
|
|
5,800,791
|
|
|
|
5,689,665
|
|
|
|
5,689,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,800,791
|
|
|
|
5,689,665
|
|
|
|
5,689,665
|
|
Inland Pipe Rehabilitation
Holding Company LLC (11%)*
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(14% Cash, Due 01/14)
|
|
|
8,108,641
|
|
|
|
7,279,341
|
|
|
|
7,279,341
|
|
|
|
|
|
Subordinated Note
(18% Cash, Due 01/14)
|
|
|
3,750,000
|
|
|
|
3,699,679
|
|
|
|
3,699,679
|
|
|
|
|
|
Membership Interest Purchase
Warrant (2.9)%
|
|
|
|
|
|
|
853,500
|
|
|
|
3,742,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,858,641
|
|
|
|
11,832,520
|
|
|
|
14,721,920
|
|
F-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Jenkins Service, LLC (7%)*
|
|
Restoration
Services
|
|
Subordinated Note (10.25% Cash, 7.25% PIK, Due 04/14)
|
|
$
|
7,515,221
|
|
|
$
|
7,392,334
|
|
|
$
|
7,392,334
|
|
|
|
|
|
Convertible Note (10%, Due 04/14)
|
|
|
1,375,000
|
|
|
|
1,342,799
|
|
|
|
1,342,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,890,221
|
|
|
|
8,735,133
|
|
|
|
8,735,133
|
|
Library Systems & Services,
LLC (2%)*
|
|
Municipal Business
Services
|
|
Subordinated Note (12% Cash, Due 03/11)
|
|
|
1,000,000
|
|
|
|
972,768
|
|
|
|
972,768
|
|
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
1,242,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,031,763
|
|
|
|
2,215,568
|
|
Novolyte Technologies,
Inc.(6%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note (12% Cash, 5.5% PIK, Due 04/15)
|
|
|
7,366,289
|
|
|
|
7,230,970
|
|
|
|
7,230,970
|
|
|
|
|
|
Preferred Units (600 units)
|
|
|
|
|
|
|
600,000
|
|
|
|
545,900
|
|
|
|
|
|
Common Units (22,960 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,366,289
|
|
|
|
7,980,970
|
|
|
|
7,776,870
|
|
Syrgis Holdings, Inc. (3%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes (7.75%-10.75% Cash, Due 08/12-02/14)
|
|
|
3,337,740
|
|
|
|
3,314,933
|
|
|
|
3,314,933
|
|
|
|
|
|
Common Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
447,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,337,740
|
|
|
|
4,314,933
|
|
|
|
3,762,733
|
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician Management Services
|
|
Senior Note (14% Cash, Due 11/14)
|
|
|
8,000,000
|
|
|
|
7,579,320
|
|
|
|
7,579,320
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
276,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
|
|
7,855,420
|
|
|
|
7,855,420
|
|
TrustHouse Services Group, Inc. (4%)*
|
|
Food Management Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15)
|
|
|
4,351,628
|
|
|
|
4,282,621
|
|
|
|
4,282,621
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
409,700
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,351,628
|
|
|
|
4,782,621
|
|
|
|
4,692,321
|
|
Tulsa Inspection Resources,
Inc. (TIR) and Regent TIR
Partners, LLC (RTIR) (4%)*
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash,
Due 03/14)
|
|
|
5,000,000
|
|
|
|
4,625,242
|
|
|
|
4,625,242
|
|
|
|
|
|
Common Units RTIR
(11 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
8,000
|
|
|
|
|
|
Common Stock Warrants - TIR (7 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
34,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,146,242
|
|
|
|
4,667,942
|
|
Twin-Star International,
Inc. (4%)*
|
|
Consumer Home
Furnishings Manufacturer
|
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,450,037
|
|
|
|
4,168,000
|
|
|
|
|
|
Senior Note (4.29%, Due 04/13)
|
|
|
1,287,564
|
|
|
|
1,287,564
|
|
|
|
1,145,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,787,564
|
|
|
|
5,737,601
|
|
|
|
5,313,000
|
|
Wholesale Floors, Inc. (3%)*
|
|
Commercial
Services
|
|
Subordinated Note (12.5%Cash, 1.5% PIK, Due 06/14)
|
|
|
3,500,000
|
|
|
|
3,363,335
|
|
|
|
3,363,335
|
|
|
|
|
|
Membership Interest Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
39,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
3,496,135
|
|
|
|
3,403,135
|
|
Yellowstone Landscape Group,
Inc. (9%)*
|
|
Landscaping
Services
|
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14)
|
|
|
11,294,699
|
|
|
|
11,080,907
|
|
|
|
11,080,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,294,699
|
|
|
|
11,080,907
|
|
|
|
11,080,907
|
|
Zoom Systems (6%)*
|
|
Retail Kiosk
Operator
|
|
Subordinated Note (12.5 Cash, 1.5% PIK, Due 12/14)
|
|
|
8,002,667
|
|
|
|
7,802,667
|
|
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,002,667
|
|
|
|
7,802,667
|
|
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments
|
|
|
|
|
|
|
142,455,328
|
|
|
|
143,239,223
|
|
|
|
138,281,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (4%)*
|
|
Asset Management
Software Provider
|
|
Subordinated Note (12% Cash, 7% PIK, Due 03/13)
|
|
|
5,417,830
|
|
|
|
5,346,346
|
|
|
|
5,346,346
|
|
|
|
|
|
Membership Units (10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
173,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,417,830
|
|
|
|
5,846,346
|
|
|
|
5,519,946
|
|
Axxiom Manufacturing,
Inc. (0%)*
|
|
Industrial Equipment
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
542,400
|
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
556,400
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
Street)(4) (1%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note -- Brantley Transportation
(14% Cash, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,713,247
|
|
|
|
1,400,000
|
|
|
|
|
|
Common Unit Warrants - Brantley Transportation (4,560 common
units)
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
|
|
Preferred Units - Pine Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Unit Warrants - Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,946,847
|
|
|
|
1,400,000
|
|
F-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Dyson Corporation (10%)*
|
|
Custom Forging and
Fastener Supplies
|
|
Subordinated Note (12% Cash,
3% PIK, Due 12/13)
|
|
$
|
10,000,000
|
|
|
$
|
9,833,080
|
|
|
$
|
9,833,080
|
|
|
|
|
|
Class A Units (1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,634,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
10,833,080
|
|
|
|
12,467,780
|
|
Equisales, LLC (6%)*
|
|
Energy Products
and Services
|
|
Subordinated Note (13% Cash, 4% PIK, Due 04/12)
|
|
|
6,547,511
|
|
|
|
6,479,476
|
|
|
|
6,479,476
|
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,375,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,547,511
|
|
|
|
6,979,476
|
|
|
|
7,855,176
|
|
Flint Acquisition
Corporation (2%)*
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
2,571,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
2,571,600
|
|
Genapure Corporation (0%)*
|
|
Lab Testing Services
|
|
Genapure Common Stock (5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
641,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
641,300
|
|
Technology Crops
International (4%)*
|
|
Supply Chain Management
Services
|
|
Subordinated Note (12% Cash, 5% PIK, Due 03/15)
|
|
|
5,070,492
|
|
|
|
4,973,767
|
|
|
|
4,973,767
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,070,492
|
|
|
|
5,473,767
|
|
|
|
5,473,767
|
|
Waste Recyclers Holdings,
LLC (7%)*
|
|
Environmental and
Facilities Services
|
|
Subordinated Note (8% Cash, 7.5% PIK, Due 08/13)
|
|
|
4,116,978
|
|
|
|
4,048,936
|
|
|
|
4,048,936
|
|
|
|
|
|
Subordinated Note (3% Cash, 12.5% PIK, Due 08/13)
|
|
|
5,734,318
|
|
|
|
5,666,275
|
|
|
|
4,920,000
|
|
|
|
|
|
Class A Preferred Units (300 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units (886,835 Units)
|
|
|
|
|
|
|
886,835
|
|
|
|
281,000
|
|
|
|
|
|
Common Unit Purchase Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,851,296
|
|
|
|
13,782,829
|
|
|
|
9,249,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
40,687,129
|
|
|
|
47,934,280
|
|
|
|
45,735,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (3%)*
|
|
Commercial Printing
Services
|
|
Senior Note (3.76% Cash, 2% PIK, Due 9/11)
|
|
|
1,562,891
|
|
|
|
1,558,472
|
|
|
|
1,514,200
|
|
|
|
|
|
Senior Note (7.76% Cash, 2% PIK, Due 9/11)
|
|
|
2,005,114
|
|
|
|
1,999,592
|
|
|
|
1,943,800
|
|
|
|
|
|
2nd Lien
Note (2.76% Cash, 8% PIK, Due 12/11)
|
|
|
3,200,672
|
|
|
|
2,994,352
|
|
|
|
823,000
|
|
|
|
|
|
Preferred Shares (35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares (4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests (3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,768,677
|
|
|
|
6,552,416
|
|
|
|
4,281,000
|
|
Fischbein, LLC (10%)*
|
|
Packaging and Materials
Handling Equipment
|
|
Subordinated Note (12% Cash, 6.5% PIK, Due 05/13)
|
|
|
7,595,671
|
|
|
|
7,490,171
|
|
|
|
7,490,171
|
|
|
|
Manufacturer
|
|
Class A-1 Common Units (52.5% of Units)
|
|
|
|
|
|
|
525,000
|
|
|
|
1,122,300
|
|
|
|
|
|
Class A Common Units (4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
4,406,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,595,671
|
|
|
|
12,215,171
|
|
|
|
13,019,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,364,348
|
|
|
|
18,767,587
|
|
|
|
17,300,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2009(156%)*
|
|
|
|
|
|
$
|
197,506,805
|
|
|
$
|
209,941,090
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non-income producing. |
|
(2) |
|
Disclosures of interest rates on subordinated notes include cash
interest rates and payment-in-kind (PIK) interest
rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
See accompanying notes.
F-12
Triangle
Capital Corporation
|
|
1.
|
Organization,
Basis of Presentation and Business
|
Organization
Triangle Capital Corporation and its wholly owned subsidiary,
Triangle Mezzanine Fund LLLP (the Fund)
(collectively, the Company) operate as a Business
Development Company (BDC) under the Investment
Company Act of 1940 (the 1940 Act). The Fund is a
specialty finance limited liability limited partnership formed
to make investments primarily in middle market companies located
throughout the United States. The Funds term is ten
years from the date of formation (August 14,
2002) unless terminated earlier or extended in accordance
with provisions of the limited partnership agreement. On
September 11, 2003, the Fund was licensed to operate as a
Small Business Investment Company (SBIC) under the
authority of the United States Small Business Administration
(SBA). As an SBIC, the Fund is subject to a variety
of regulations concerning, among other things, the size and
nature of the companies in which it may invest and the structure
of those investments.
The Company currently operates as a closed-end, non-diversified
investment company and has elected to be treated as a BDC under
the 1940 Act. The Company is internally managed by its executive
officers under the supervision of its board of directors. The
Company does not pay management or advisory fees, but instead
incurs the operating costs associated with employing executive
management and investment and portfolio management professionals.
Basis of
Presentation
The financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries, including the
Fund. The Fund does not consolidate portfolio company
investments. The effects of all intercompany transactions
between the Company and its subsidiaries have been eliminated in
consolidation.
The accompanying unaudited financial statements are presented in
conformity with United States generally accepted accounting
principles (U.S. GAAP) for interim financial
information and pursuant to the requirements for reporting on
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, certain disclosures accompanying annual
consolidated financial statements prepared in accordance with
U.S. GAAP are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals
considered necessary for the fair presentation of financial
statements for the interim period, have been included. The
current periods results of operations are not necessarily
indicative of results that ultimately may be achieved for the
year. Therefore, the unaudited financial statements and notes
should be read in conjunction with the audited financial
statements and notes thereto for the period ended
December 31, 2009. Financial statements prepared on a
U.S. GAAP basis require management to make estimates and
assumptions that affect the amounts and disclosures reported in
the consolidated financial statements and accompanying notes.
Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts
reported and disclosed herein.
Recently
Issued Accounting Standards
In January 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820). This
update improves disclosure requirements related to Fair Value
Measurements and Disclosures-Overall Subtopic (Subtopic
820-10) of
the FASB Standards Codification, originally issued as FASB
Statement No. 157, Fair Value Measurements. These
improved disclosure requirements will provide a greater level of
disaggregated information and more robust disclosures about
valuation techniques and inputs to fair value measurements. The
Company adopted these changes beginning with its financial
statements for the quarter ended March 31, 2010. The
adoption of these changes did not have a material impact on the
Companys financial position or results of operations.
F-13
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
Summaries of the composition of the Companys investment
portfolio at cost and fair value as a percentage of total
investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
186,649,538
|
|
|
|
85
|
%
|
|
$
|
171,383,096
|
|
|
|
82
|
%
|
Senior debt
|
|
|
11,279,759
|
|
|
|
5
|
|
|
|
11,041,275
|
|
|
|
5
|
|
Equity shares
|
|
|
16,891,380
|
|
|
|
8
|
|
|
|
21,034,900
|
|
|
|
10
|
|
Equity warrants
|
|
|
3,158,457
|
|
|
|
2
|
|
|
|
6,068,187
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
218,853,534
|
|
|
|
100
|
%
|
|
$
|
210,476,758
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
179,482,425
|
|
|
|
86
|
%
|
|
$
|
166,087,684
|
|
|
|
83
|
%
|
Senior debt
|
|
|
11,090,514
|
|
|
|
5
|
|
|
|
10,847,886
|
|
|
|
5
|
|
Equity shares
|
|
|
15,778,681
|
|
|
|
8
|
|
|
|
17,182,500
|
|
|
|
9
|
|
Equity warrants
|
|
|
2,715,070
|
|
|
|
1
|
|
|
|
6,250,600
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,941,090
|
|
|
|
100
|
%
|
|
$
|
201,317,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2010, the Company
made two new investments totaling approximately
$11.6 million and five investments in existing portfolio
companies totaling approximately $2.5 million. During the
three months ended March 31, 2009, the Company made one new
investment totaling $5.2 million and five investments in
existing portfolio companies totaling approximately
$4.0 million.
Valuation
of Investments
The Company has established and documented processes and
methodologies for determining the fair values of portfolio
company investments on a recurring basis in accordance with FASB
ASC Topic 820, Fair Value Measurements and Disclosures
(ASC Topic 820). Under ASC Topic 820, a
financial instruments categorization within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of
valuation hierarchy established by ASC TOPIC 820 are defined as
follows:
Level 1 - inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 - inputs to the valuation methodology
include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 3 - inputs to the valuation methodology
are unobservable and significant to the fair value measurement.
The Companys investment portfolio is comprised of debt and
equity instruments of privately held companies for which quoted
prices falling within the categories of Level 1 and
Level 2 inputs are not available. Therefore, the Company
values all of its investments at fair value, as determined in
good faith by
F-14
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
the Board of Directors (Level 3 inputs, as further
described below). Due to the inherent uncertainty in the
valuation process, the Board of Directors estimate of fair
value may differ significantly from the values that would have
been used had a ready market for the securities existed, and the
differences could be material. In addition, changes in the
market environment and other events that may occur over the life
of the investments may cause the gains or losses ultimately
realized on these investments to be different than the
valuations currently assigned.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the
security.
Management evaluates the investments in portfolio companies
using the most recent portfolio company financial statements and
forecasts. Management also consults with the portfolio
companys senior management to obtain further updates on
the portfolio companys performance, including information
such as industry trends, new product development and other
operational issues.
In making the good faith determination of the value of debt
securities, the Company starts with the cost basis of the
security, which includes the amortized original issue discount,
and payment-in-kind (PIK) interest, if any. The Company also
uses a risk rating system to estimate the probability of default
on the debt securities and the probability of loss if there is a
default. The risk rating system covers both qualitative and
quantitative aspects of the business and the securities held. In
valuing debt securities, management utilizes an income
approach model that considers factors including, but not
limited to, (i) the portfolio investments current
risk rating, (ii) the portfolio companys current
trailing twelve months (TTM) results of
operations as compared to the portfolio companys TTM
results of operations as of the date the investment was made and
the portfolio companys anticipated results for the next
twelve months of operations, (iii) the portfolio
companys current leverage as compared to its leverage as
of the date the investment was made, and (iv) current
pricing and credit metrics for similar proposed and executed
investment transactions. In valuing equity securities of private
companies, the Company considers valuation methodologies
consistent with industry practice, including but not limited to
(i) valuation using a valuation model based on original
transaction multiples and the portfolio companys recent
financial performance, (ii) valuation of the securities
based on recent sales in comparable transactions, and
(iii) a review of similar companies that are publicly
traded and the market multiple of their equity securities.
The following table presents the Companys financial
instruments carried at fair value as of March 31, 2010 and
December 31, 2009, on the consolidated balance sheet by ASC
Topic 820 valuation hierarchy, as previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at March 31, 2010
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Portfolio company investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
210,476,758
|
|
|
$
|
210,476,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
210,476,758
|
|
|
$
|
210,476,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Portfolio company investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,317,970
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,317,970
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
The following table reconciles the beginning and ending balances
of our portfolio company investments measured at fair value on a
recurring basis using significant unobservable inputs
(Level 3) for the three months ended March 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
Fair value of portfolio, Beginning of Period
|
|
$
|
201,317,970
|
|
|
$
|
182,105,291
|
|
New investments
|
|
|
14,143,949
|
|
|
|
9,193,735
|
|
Loan origination fees received
|
|
|
(301,875
|
)
|
|
|
(175,000
|
)
|
Proceeds from sale of investment
|
|
|
(240,000
|
)
|
|
|
|
|
Gain on sale of investment
|
|
|
199,200
|
|
|
|
|
|
Principal repayments received
|
|
|
(6,280,580
|
)
|
|
|
(2,246,284
|
)
|
Payment-in-kind interest earned
|
|
|
1,216,226
|
|
|
|
1,075,326
|
|
Payment-in-kind interest received
|
|
|
(156,710
|
)
|
|
|
(427,105
|
)
|
Accretion of loan discounts
|
|
|
117,201
|
|
|
|
104,626
|
|
Accretion of deferred loan origination revenue
|
|
|
215,033
|
|
|
|
184,906
|
|
Unrealized gains (losses) on investments
|
|
|
246,344
|
|
|
|
(3,604,584
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, End of Period
|
|
$
|
210,476,758
|
|
|
$
|
186,210,911
|
|
|
|
|
|
|
|
|
|
|
All realized and unrealized gains and losses are included in
earnings (changes in net assets) and are reported on separate
line items within the Companys statements of operations.
Unrealized gains on investments of $425,544 during the three
months ended March 31, 2010 are related to portfolio
company investments that were still held by the Company as of
March 31, 2010. Unrealized losses on investments of
$3,604,584 during the three months ended March 31, 2009 are
related to portfolio company investments that are still held by
the Company as of March 31, 2009.
Duff & Phelps, LLC (Duff &
Phelps), an independent valuation firm, provides third
party valuation consulting services to the Company which consist
of certain limited procedures that the Company identified and
requested Duff & Phelps to perform (hereinafter
referred to as the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one
or more portfolio companies. Such instances include, but are not
limited to, situations where the fair value of our investment in
the portfolio company is determined to be insignificant relative
to our total investment portfolio.
For the quarter ended March 31, 2010, the Company asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 25% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2010. For the quarter ended March 31, 2009, the Company
asked Duff & Phelps to perform the procedures on
investments in seven portfolio companies comprising
approximately 26% of the total investments at fair value
(exclusive of the fair value of new investments made during the
quarter) as of March 31, 2009. Upon completion of the
procedures, Duff & Phelps concluded that the fair
value, as determined by the Board of Directors, of those
investments subjected to the procedures did not appear to be
unreasonable. The Board of Directors of Triangle Capital
Corporation is ultimately and solely responsible for determining
the fair value of the Companys investments in good faith.
F-16
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
Warrants
When originating a debt security, the Company will sometimes
receive warrants or other equity related securities
from the borrower. The Company determines the cost basis of the
warrants or other equity related securities received
based upon their respective fair values on the date of receipt
in proportion to the total fair value of the debt and warrants
or other equity related securities received. Any
resulting difference between the face amount of the debt and its
recorded fair value resulting from the assignment of value to
the warrant or other equity instruments is treated as original
issue discount and accreted into interest income over the life
of the loan.
Realized
Gain or Loss and Unrealized Appreciation or Depreciation of
Portfolio Investments
Realized gains or losses are recorded upon the sale or
liquidation of investments and calculated as the difference
between the net proceeds from the sale or liquidation, if any,
and the cost basis of the investment using the specific
identification method. Unrealized appreciation or depreciation
reflects the difference between the fair value of the
investments and the cost basis of the investments.
Investment
Classification
In accordance with the provisions of the 1940 Act, the Company
classifies investments by level of control. As defined in the
1940 Act, Control Investments are investments in
those companies that the Company is deemed to
Control. Affiliate Investments are
investments in those companies that are Affiliated
Companies of the Company, as defined in the 1940 Act,
other than Control Investments. Non
Control/Non Affiliate Investments are those
that are neither Control Investments nor Affiliate Investments.
Generally, under the 1940 Act, the Company is deemed to control
a company in which it has invested if the Company owns more than
25.0% of the voting securities of such company or has greater
than 50.0% representation on its board. The Company is deemed to
be an affiliate of a company in which the Company has invested
if it owns between 5.0% and 25.0% of the voting securities of
such company.
Investment
Income
Interest income, adjusted for amortization of premium and
accretion of original issue discount, is recorded on the accrual
basis to the extent that such amounts are expected to be
collected. Generally, when interest
and/or
principal payments on a loan become past due, or if the Company
otherwise does not expect the borrower to be able to service its
debt and other obligations, the Company will place the loan on
non-accrual status and will generally cease recognizing interest
income on that loan until all principal and interest has been
brought current through payment or due to a restructuring such
that the interest income is deemed to be collectible. The
Company writes off any previously accrued and uncollected
interest when it is determined that interest is no longer
considered collectible. Dividend income is recorded on the
ex dividend date.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with loan agreements are
recorded as deferred income and recognized as income over the
term of the loan. Loan prepayment penalties and loan amendment
fees are recorded into income when the respective prepayment or
loan amendment occurs. Any previously deferred fees are
immediately recorded into income upon prepayment of the related
loan.
Payment-in-Kind
Interest
The Company holds loans in its portfolio that contain a
payment in kind (PIK)
interest provision. The PIK interest, computed at the
contractual rate specified in each loan agreement, is added to
the principal
F-17
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
balance of the loan and is recorded as interest income. Thus,
the actual collection of PIK interest may be deferred until the
time of debt principal repayment.
To maintain the Companys status as a Regulated Investment
Company (RIC) under Subchapter M of the Internal
Revenue Code of 1986, as Amended (the Code), this
non-cash source of income must be paid out to stockholders in
the form of dividends, even though the Company has not yet
collected the cash. Generally, when current cash interest
and/or
principal payments on a loan become past due, or if the Company
otherwise does not expect the borrower to be able to service its
debt and other obligations, the Company will place the loan on
non-accrual status and will generally cease recognizing PIK
interest income on that loan for financial reporting purposes
until all principal and interest has been brought current
through payment or due to a restructuring such that the interest
income is deemed to be collectible. The Company writes off any
accrued and uncollected PIK interest when it is determined that
the PIK interest is no longer collectible.
Concentration
of Credit Risk
The Companys investees are generally lower
middle market companies in a variety of industries.
At both March 31, 2010, and December 31, 2009, there
were no individual investments greater than 10% of the fair
value of the Companys portfolio. Income, consisting of
interest, dividends, fees, other investment income, and
realization of gains or losses on equity interests, can
fluctuate dramatically upon repayment of an investment or sale
of an equity interest and in any given year can be highly
concentrated among several investees.
The Companys investments carry a number of risks
including, but not limited to: 1) investing in lower middle
market companies which have a limited operating history and
financial resources; 2) investing in senior subordinated
debt which ranks equal to or lower than debt held by other
investors; 3) holding investments that are not publicly
traded and are subject to legal and other restrictions on resale
and other risks common to investing in below investment grade
debt and equity instruments.
The Company has elected to be treated as a RIC under Subchapter
M of the Code. As a RIC, so long as the Company meets certain
minimum distribution,
source-of-income
and asset diversification requirements, it generally is required
to pay income taxes only on the portion of its taxable income
and gains it does not distribute (actually or constructively)
and certain built-in gains.
In addition, the Company has certain wholly owned taxable
subsidiaries (the Taxable Subsidiaries), each of
which holds one or more of its portfolio investments that are
listed on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for financial reporting purposes,
such that the Companys consolidated financial statements
reflect the Companys investments in the portfolio
companies owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit the Company to hold certain
portfolio companies that are organized as limited liability
companies (LLCs) (or other forms of pass
through entities) and still satisfy the RIC tax requirement that
at least 90% of the RICs gross revenue for income tax
purposes must consist of qualifying investment income. Absent
the Taxable Subsidiaries, a proportionate amount of any gross
income of an LLC (or other pass through entity)
portfolio investment would flow through directly to the RIC. To
the extent that such income did not consist of qualifying
investment income, it could jeopardize the Companys
ability to qualify as a RIC and therefore cause the Company to
incur significant amounts of federal income taxes. When LLCs (or
other pass-through entities) are owned by the Taxable
Subsidiaries, their income is taxed to the Taxable Subsidiaries
and does not flow through to the RIC, thereby helping the
Company preserve its RIC status and resultant tax advantages.
The Taxable Subsidiaries are not consolidated for income tax
purposes and may generate income tax expense as a result of
their ownership of the portfolio companies. This income tax
expense is reflected in the Companys Statements of
Operations.
F-18
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
For federal income tax purposes, the cost of investments owned
at March 31, 2010 was approximately $220.6 million.
At both March 31, 2010 and December 31, 2009, the
Company has the following debentures outstanding guaranteed by
the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized
|
|
|
|
|
|
|
|
|
Return
|
|
|
|
|
Issuance/Pooling Date
|
|
Maturity Date
|
|
(Interest) Rate
|
|
|
|
|
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539
|
%
|
|
$
|
8,700,000
|
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893
|
%
|
|
|
13,600,000
|
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796
|
%
|
|
|
9,500,000
|
|
March 28, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.191
|
%
|
|
|
6,410,000
|
|
September 24, 2008
|
|
September 1, 2018
|
|
|
6.580
|
%
|
|
|
4,840,000
|
|
September 24, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
46,060,000
|
|
March 25, 2009
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
22,000,000
|
|
March 24, 2010
|
|
March 1, 2020
|
|
|
4.825
|
%
|
|
|
6,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
121,910,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semi annually. There
are no principal payments required on these issues prior to
maturity. Debentures issued prior to September 2006 were subject
to prepayment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after
September 1, 2006.
Under the Small Business Investment Act and current SBA policy
applicable to SBICs, an SBIC (or group of SBICs under common
control) can have outstanding at any time SBA guaranteed
debentures up to three times the amount of its regulatory
capital. As of March 31, 2010, the maximum statutory limit
on the dollar amount of outstanding SBA guaranteed debentures
issued by a single SBIC is $150.0 million. With
$65.3 million of regulatory capital as of March 31,
2010, the Fund has the current capacity to issue up to the
statutory maximum of $150.0 million of SBA guaranteed
debentures. In addition, the Company has applied for a second
SBIC license which application is currently being reviewed by
the SBA. If approved, this license would provide the Company
with the capability to issue an additional $75.0 million of
SBA guaranteed debentures. In addition to a one time
1.0% fee on the total commitment from the SBA, the Company also
pays a one time 2.425% fee on the amount of each
debenture issued. These fees are capitalized as deferred
financing costs and are amortized over the term of the debt
agreements using the effective interest method. The weighted
average interest rates for all SBA guaranteed debentures as of
March 31, 2010, and December 31, 2009 were 5.963% and
5.772%, respectively. The weighted average interest rate as of
December 31, 2009, included $115.1 million of pooled
SBA-guaranteed debentures with a weighted average fixed interest
rate of 6.03% and $6.8 million of unpooled SBA-guaranteed
debentures with a weighted average interim interest rate of
1.41%. As of March 31, 2010, all SBA-guaranteed debentures
have been pooled and assigned fixed rates.
|
|
5.
|
Equity-Based
Compensation
|
The Companys Board of Directors and stockholders have
approved the Triangle Capital Corporation Amended and Restated
2007 Equity Incentive Plan (the Plan), under which
there are 900,000 shares of the Companys Common Stock
authorized for issuance. Under the Plan, the Board of Directors
(or compensation committee, if delegated administrative
authority by the Board of Directors) may award stock options,
restricted
F-19
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
stock or other stock based incentive awards to executive
officers, employees and directors. Equity-based awards granted
under the Plan to independent directors generally will vest over
a one-year period and equity-based awards granted under the Plan
to executive officers and employees generally will vest ratably
over a four-year period.
The Company accounts for its equity-based compensation plan
using the fair value method, as prescribed by ASC Topic 718,
Stock Compensation. Accordingly, for restricted stock
awards, we measure the grant date fair value based upon the
market price of our common stock on the date of the grant and
amortize this fair value to compensation expense over the
requisite service period or vesting term.
The following table presents information with respect to the
Plan for the three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number of
|
|
|
Grant-Date Fair
|
|
|
Number of
|
|
|
Grant-Date Fair
|
|
|
|
Shares
|
|
|
Value per Share
|
|
|
Shares
|
|
|
Value per Share
|
|
|
|
|
|
|
|
|
|
Unvested shares, beginning of period
|
|
|
219,813
|
|
|
$
|
10.76
|
|
|
|
110,800
|
|
|
$
|
11.11
|
|
Shares granted during the period
|
|
|
142,499
|
|
|
$
|
11.84
|
|
|
|
133,000
|
|
|
$
|
10.62
|
|
Shares vested during the period
|
|
|
(33,247
|
)
|
|
$
|
10.62
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
329,065
|
|
|
$
|
11.24
|
|
|
|
243,800
|
|
|
$
|
10.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three months ended March 31, 2010 and 2009, the
Company recognized equity-based compensation expense of
approximately $0.2 million and $0.1 million,
respectively. This expense is included in general and
administrative expenses in the Companys consolidated
statements of operations.
As of March 31, 2010, there was approximately
$3.2 million of total unrecognized compensation cost,
related to the Companys non-vested restricted shares. This
cost is expected to be recognized over a weighted-average period
of approximately 2.9 years.
F-20
Triangle
Capital Corporation
Notes to
Unaudited Consolidated Financial
Statements (Continued)
The following is a schedule of financial highlights for the
three months ended March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
11.03
|
|
|
$
|
13.22
|
|
Net investment income(1)
|
|
|
0.32
|
|
|
|
0.43
|
|
Net realized gain on investments(1)
|
|
|
0.02
|
|
|
|
|
|
Net unrealized appreciation (depreciation) on investments(1)
|
|
|
0.02
|
|
|
|
(0.51
|
)
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) from investment operations(1)
|
|
|
0.36
|
|
|
|
(0.08
|
)
|
Cash dividends/distributions declared
|
|
|
(0.41
|
)
|
|
|
(0.45
|
)
|
Shares issued pursuant to Dividend Reinvestment Plan
|
|
|
0.10
|
|
|
|
|
|
Stock-based compensation
|
|
|
0.02
|
|
|
|
0.02
|
|
Income tax provision(1)
|
|
|
(0.01
|
)
|
|
|
|
|
Grant of restricted shares
|
|
|
(0.13
|
)
|
|
|
(0.24
|
)
|
Other(2)
|
|
|
(0.09
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
10.87
|
|
|
$
|
12.46
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(3)
|
|
$
|
14.04
|
|
|
$
|
7.68
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
11,934,594
|
|
|
|
7,047,663
|
|
Net assets at end of period
|
|
$
|
129,693,360
|
|
|
$
|
87,808,740
|
|
Average net assets
|
|
$
|
131,333,496
|
|
|
$
|
91,158,655
|
|
Ratio of operating expenses to average net assets (annualized)
|
|
|
11
|
%
|
|
|
15
|
%
|
Ratio of net investment income to average net assets (annualized)
|
|
|
12
|
%
|
|
|
13
|
%
|
Portfolio turnover ratio
|
|
|
3
|
%
|
|
|
1
|
%
|
Total Return(4)
|
|
|
20
|
%
|
|
|
(20
|
%)
|
|
|
|
(1) |
|
Weighted average basic per share data. |
|
(2) |
|
Represents the impact of the different share amounts used in
calculating per share data as a result of calculating certain
per share data based upon the weighted average basic shares
outstanding during the period and certain per share data based
on the shares outstanding as of a period end or transaction date. |
|
(3) |
|
Represents the closing price of the Companys common stock
on the last day of the period. |
|
(4) |
|
Total return equals the change in the ending market value of the
Companys common stock during the period, plus dividends
declared per share during the period, divided by the market
value of the Companys common stock on the first day of the
period. Total return is not annualized. |
In April 2010, the Company invested $12.0 million in
subordinated debt, convertible debt and warrants of Media
Temple, Inc., a privately held, web hosting and virtualization
service provider. Under the terms of the investments, Media
Temple, Inc. will pay interest on the subordinated debt at a
rate of 16% per annum and will pay interest on the convertible
debt at a rate of 12% per annum.
F-21
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Triangle Capital Corporation
We have audited the accompanying consolidated balance sheets of
Triangle Capital Corporation (the Company), including the
consolidated schedules of investments, as of December 31,
2009 and 2008, and the related consolidated statements of
operations, changes in net assets, and cash flows, and the
consolidated financial highlights for each of the three years in
the period ended December 31, 2009. We have also audited
the accompanying combined financial highlights for each of the
two years in the period ended December 31, 2006. These
financial statements and financial highlights are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements and
financial highlights. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2009 and 2008 by
correspondence with the custodian. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the consolidated financial position of Triangle
Capital Corporation at December 31, 2009 and 2008, the
consolidated results of its operations, changes in net assets,
and its cash flows, and the consolidated financial highlights
for each of the three years in the period ended
December 31, 2009, and the combined financial highlights
for each of the two years in the period ended December 31,
2006, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Triangle Capital Corporations internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 10, 2010
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 10, 2010
F-22
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Non Control / Non Affiliate investments
(cost of $143,239,223 and $138,413,589 at December 31, 2009
and 2008, respectively)
|
|
$
|
138,281,894
|
|
|
$
|
135,712,877
|
|
Affiliate investments (cost of $47,934,280 and $30,484,491 at
December 31, 2009 and 2008, respectively)
|
|
|
45,735,905
|
|
|
|
33,894,556
|
|
Control investments (cost of $18,767,587 and $11,253,458 at
December 31, 2009 and 2008, respectively)
|
|
|
17,300,171
|
|
|
|
12,497,858
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
201,317,970
|
|
|
|
182,105,291
|
|
Cash and cash equivalents
|
|
|
55,200,421
|
|
|
|
27,193,287
|
|
Interest and fees receivable
|
|
|
676,961
|
|
|
|
679,828
|
|
Prepaid expenses and other current assets
|
|
|
286,790
|
|
|
|
95,325
|
|
Deferred financing fees
|
|
|
3,540,492
|
|
|
|
3,545,410
|
|
Property and equipment, net
|
|
|
28,666
|
|
|
|
48,020
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
261,051,300
|
|
|
$
|
213,667,161
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET ASSETS
|
Accounts payable and accrued liabilities
|
|
$
|
2,222,177
|
|
|
$
|
1,608,909
|
|
Interest payable
|
|
|
2,333,952
|
|
|
|
1,881,761
|
|
Dividends payable
|
|
|
4,774,534
|
|
|
|
2,766,945
|
|
Taxes payable
|
|
|
59,178
|
|
|
|
30,436
|
|
Deferred revenue
|
|
|
75,000
|
|
|
|
|
|
Deferred income taxes
|
|
|
577,267
|
|
|
|
843,947
|
|
SBA guaranteed debentures payable
|
|
|
121,910,000
|
|
|
|
115,110,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
131,952,108
|
|
|
|
122,241,998
|
|
|
|
|
|
|
|
|
|
|
Net assets:
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 11,702,511 and
6,917,363 shares issued and outstanding as of
December 31, 2009 and 2008, respectively)
|
|
|
11,703
|
|
|
|
6,917
|
|
Additional
paid-in-capital
|
|
|
136,769,259
|
|
|
|
87,836,786
|
|
Investment income in excess of distributions
|
|
|
1,070,452
|
|
|
|
2,115,157
|
|
Accumulated realized gains on investments
|
|
|
448,164
|
|
|
|
356,495
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(9,200,386
|
)
|
|
|
1,109,808
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
129,099,192
|
|
|
|
91,425,163
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
261,051,300
|
|
|
$
|
213,667,161
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
11.03
|
|
|
$
|
13.22
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-23
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non - Control / Non - Affiliate investments
|
|
$
|
16,489,943
|
|
|
$
|
12,381,411
|
|
|
$
|
6,258,670
|
|
Affiliate investments
|
|
|
4,441,399
|
|
|
|
3,478,644
|
|
|
|
1,808,664
|
|
Control investments
|
|
|
1,142,764
|
|
|
|
1,434,687
|
|
|
|
1,323,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
22,074,106
|
|
|
|
17,294,742
|
|
|
|
9,391,210
|
|
Paid - in - kind interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non - Control / Non - Affiliate investments
|
|
|
3,114,325
|
|
|
|
2,657,281
|
|
|
|
871,184
|
|
Affiliate investments
|
|
|
1,539,776
|
|
|
|
665,817
|
|
|
|
225,622
|
|
Control investments
|
|
|
420,718
|
|
|
|
438,688
|
|
|
|
424,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid - in - kind interest income
|
|
|
5,074,819
|
|
|
|
3,761,786
|
|
|
|
1,521,114
|
|
Interest income from cash and cash equivalent investments
|
|
|
613,057
|
|
|
|
302,970
|
|
|
|
1,823,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
27,761,982
|
|
|
|
21,359,498
|
|
|
|
12,735,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
6,900,591
|
|
|
|
4,227,851
|
|
|
|
2,073,311
|
|
Amortization of deferred financing fees
|
|
|
363,818
|
|
|
|
255,273
|
|
|
|
112,660
|
|
Management fees
|
|
|
|
|
|
|
|
|
|
|
232,423
|
|
General and administrative expenses
|
|
|
6,448,999
|
|
|
|
6,254,096
|
|
|
|
3,894,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
13,713,408
|
|
|
|
10,737,220
|
|
|
|
6,312,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
14,048,574
|
|
|
|
10,622,278
|
|
|
|
6,423,209
|
|
Net realized gain (loss) on investments Non
Control / Non -Affiliate
|
|
|
448,164
|
|
|
|
(1,393,139
|
)
|
|
|
(759,634
|
)
|
Net realized gain on investment Affiliate
|
|
|
|
|
|
|
|
|
|
|
141,014
|
|
Net realized gain on investment Control
|
|
|
|
|
|
|
2,828,747
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(10,310,194
|
)
|
|
|
(4,286,375
|
)
|
|
|
3,061,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments before income taxes
|
|
|
(9,862,030
|
)
|
|
|
(2,850,767
|
)
|
|
|
2,442,487
|
|
Provision for taxes
|
|
|
149,841
|
|
|
|
133,010
|
|
|
|
52,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
4,036,703
|
|
|
$
|
7,638,501
|
|
|
$
|
8,813,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
1.63
|
|
|
$
|
1.54
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
$
|
0.47
|
|
|
$
|
1.11
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
1.62
|
|
|
$
|
1.44
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital gains distributions declared per common share
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
8,593,143
|
|
|
|
6,877,669
|
|
|
|
6,728,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-24
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
General
|
|
|
Limited
|
|
|
Contribution
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Partners
|
|
|
Partners
|
|
|
Commitment
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation) of
|
|
|
Net
|
|
|
|
Capital
|
|
|
Capital
|
|
|
Receivable
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
Balance, January 1, 2007
|
|
$
|
100
|
|
|
$
|
21,250,000
|
|
|
$
|
|
|
|
|
100
|
|
|
$
|
|
|
|
$
|
1,500
|
|
|
$
|
1,570,135
|
|
|
$
|
|
|
|
$
|
2,335,076
|
|
|
$
|
25,156,811
|
|
Public offering of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,770,000
|
|
|
|
4,770
|
|
|
|
64,723,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,728,037
|
|
Formation transactions
|
|
|
(100
|
)
|
|
|
(21,250,000
|
)
|
|
|
|
|
|
|
1,916,660
|
|
|
|
1,917
|
|
|
|
21,248,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,423,209
|
|
|
|
|
|
|
|
|
|
|
|
6,423,209
|
|
Realized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(618,620
|
)
|
|
|
1,111,306
|
|
|
|
492,686
|
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,949,801
|
|
|
|
1,949,801
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,598
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,598
|
)
|
Return of capital and other tax related adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(649,856
|
)
|
|
|
649,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,103
|
|
|
|
117
|
|
|
|
1,626,095
|
|
|
|
(6,631,758
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,005,546
|
)
|
Tax distribution to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047
|
)
|
|
|
|
|
|
|
|
|
|
|
(220,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6,803,863
|
|
|
$
|
6,804
|
|
|
$
|
86,949,189
|
|
|
$
|
1,738,797
|
|
|
$
|
(618,620
|
)
|
|
$
|
5,396,183
|
|
|
$
|
93,472,353
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,622,278
|
|
|
|
|
|
|
|
|
|
|
|
10,622,278
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,311
|
|
Realized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,435,608
|
|
|
|
(1,269,437
|
)
|
|
|
166,171
|
|
Net unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,016,938
|
)
|
|
|
(3,016,938
|
)
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(133,010
|
)
|
|
|
|
|
|
|
|
|
|
|
(133,010
|
)
|
Return of capital and other tax related adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
612,399
|
|
|
|
(151,906
|
)
|
|
|
(460,493
|
)
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,961,002
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,961,002
|
)
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,500
|
|
|
|
113
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6,917,363
|
|
|
$
|
6,917
|
|
|
$
|
87,836,786
|
|
|
$
|
2,115,157
|
|
|
$
|
356,495
|
|
|
$
|
1,109,808
|
|
|
$
|
91,425,163
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,048,574
|
|
|
|
|
|
|
|
|
|
|
|
14,048,574
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
701,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
701,601
|
|
Realized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448,164
|
|
|
|
(157,316
|
)
|
|
|
290,848
|
|
Net unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,152,878
|
)
|
|
|
(10,152,878
|
)
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149,841
|
)
|
|
|
|
|
|
|
|
|
|
|
(149,841
|
)
|
Return of capital and other tax related adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,996
|
)
|
|
|
34,125
|
|
|
|
(4,129
|
)
|
|
|
|
|
|
|
|
|
Dividends/distributions declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,569
|
|
|
|
81
|
|
|
|
999,791
|
|
|
|
(14,977,563
|
)
|
|
|
(352,366
|
)
|
|
|
|
|
|
|
(14,330,057
|
)
|
Public offerings of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,569,000
|
|
|
|
4,569
|
|
|
|
47,328,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,332,682
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,812
|
|
|
|
145
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,533
|
)
|
|
|
(6
|
)
|
|
|
(66,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,900
|
)
|
Forfeiture of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,700
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
11,702,511
|
|
|
$
|
11,703
|
|
|
$
|
136,769,259
|
|
|
$
|
1,070,452
|
|
|
$
|
448,164
|
|
|
$
|
(9,200,386
|
)
|
|
$
|
129,099,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-25
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
4,036,703
|
|
|
$
|
7,638,501
|
|
|
$
|
8,813,098
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(48,475,570
|
)
|
|
|
(93,054,022
|
)
|
|
|
(64,159,172
|
)
|
Repayments received/sales of portfolio investments
|
|
|
21,431,698
|
|
|
|
20,968,397
|
|
|
|
10,470,803
|
|
Loan origination and other fees received
|
|
|
952,500
|
|
|
|
1,686,996
|
|
|
|
1,272,002
|
|
Net realized (gain) loss on investments
|
|
|
(448,164
|
)
|
|
|
(1,435,608
|
)
|
|
|
618,620
|
|
Net unrealized (appreciation) depreciation on investments
|
|
|
10,576,873
|
|
|
|
3,516,855
|
|
|
|
(4,821,366
|
)
|
Deferred income taxes
|
|
|
(266,680
|
)
|
|
|
769,519
|
|
|
|
1,760,259
|
|
Paid - in - kind interest accrued, net of payments received
|
|
|
(2,165,015
|
)
|
|
|
(1,783,288
|
)
|
|
|
(1,280,950
|
)
|
Amortization of deferred financing fees
|
|
|
363,818
|
|
|
|
255,273
|
|
|
|
112,660
|
|
Recognition of loan origination and other fees
|
|
|
(663,506
|
)
|
|
|
(515,289
|
)
|
|
|
(677,615
|
)
|
Accretion of loan discounts
|
|
|
(421,495
|
)
|
|
|
(169,548
|
)
|
|
|
(205,725
|
)
|
Depreciation
|
|
|
22,548
|
|
|
|
16,681
|
|
|
|
7,814
|
|
Stock-based compensation
|
|
|
701,601
|
|
|
|
275,311
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
2,867
|
|
|
|
(374,669
|
)
|
|
|
(170,340
|
)
|
Prepaid expenses and other current assets
|
|
|
(191,465
|
)
|
|
|
(47,848
|
)
|
|
|
(47,477
|
)
|
Accounts payable and accrued liabilities
|
|
|
688,268
|
|
|
|
464,687
|
|
|
|
349,239
|
|
Interest payable
|
|
|
452,191
|
|
|
|
1,183,026
|
|
|
|
92,439
|
|
Taxes payable
|
|
|
28,742
|
|
|
|
(22,162
|
)
|
|
|
52,598
|
|
Payable to Triangle Capital Partners, LLC
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(13,374,086
|
)
|
|
|
(60,627,188
|
)
|
|
|
(47,843,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(3,194
|
)
|
|
|
(30,535
|
)
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,194
|
)
|
|
|
(30,535
|
)
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable
|
|
|
6,800,000
|
|
|
|
78,100,000
|
|
|
|
5,210,000
|
|
Financing fees paid
|
|
|
(358,900
|
)
|
|
|
(2,801,524
|
)
|
|
|
(126,342
|
)
|
Proceeds from public offerings, net of expenses
|
|
|
47,332,682
|
|
|
|
|
|
|
|
64,728,037
|
|
Change in deferred offering costs
|
|
|
|
|
|
|
|
|
|
|
1,020,646
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(66,900
|
)
|
|
|
|
|
|
|
|
|
Cash dividends/distributions paid
|
|
|
(12,322,468
|
)
|
|
|
(9,235,216
|
)
|
|
|
(2,964,387
|
)
|
Distribution to partners
|
|
|
|
|
|
|
|
|
|
|
(751,613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
41,384,414
|
|
|
|
66,063,260
|
|
|
|
67,116,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
28,007,134
|
|
|
|
5,405,537
|
|
|
|
19,231,248
|
|
Cash and cash equivalents, beginning of year
|
|
|
27,193,287
|
|
|
|
21,787,750
|
|
|
|
2,556,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
55,200,421
|
|
|
$
|
27,193,287
|
|
|
$
|
21,787,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
6,448,400
|
|
|
$
|
3,044,825
|
|
|
$
|
1,980,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of non-cash financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared but not paid
|
|
$
|
4,774,534
|
|
|
$
|
2,766,945
|
|
|
$
|
2,041,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-26
TRIANGLE
CAPITAL CORPORATION
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non - Control / Non - Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AA) and Peaden-Hobbs
Mechanical, LLC (PHM) (5%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-AA
(12% Cash,
2% PIK, Due 03/11)
|
|
$
|
3,236,386
|
|
|
$
|
3,173,098
|
|
|
$
|
3,173,098
|
|
|
|
|
|
Subordinated Note-AA
(14% Cash,
4% PIK, Due 03/11)
|
|
|
1,982,791
|
|
|
|
1,965,757
|
|
|
|
1,965,757
|
|
|
|
|
|
Common Stock-PHM
(128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
106,900
|
|
|
|
|
|
Common Stock
Warrants-AA
(455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
656,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,219,177
|
|
|
|
5,409,787
|
|
|
|
5,902,455
|
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (3%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(11.5% Cash,
3.75% PIK, Due 10/13)
|
|
|
8,861,819
|
|
|
|
8,244,709
|
|
|
|
3,893,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,861,819
|
|
|
|
8,244,709
|
|
|
|
3,893,299
|
|
American Direct Marketing Resources, LLC (3%)*
|
|
Direct Marketing
Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 03/15)
|
|
|
4,157,458
|
|
|
|
4,088,475
|
|
|
|
4,088,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,157,458
|
|
|
|
4,088,475
|
|
|
|
4,088,475
|
|
Art Headquarters, LLC (2%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(12% Cash,
2% PIK, Due 01/10)
|
|
|
2,116,822
|
|
|
|
2,116,822
|
|
|
|
2,116,822
|
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,116,822
|
|
|
|
2,157,622
|
|
|
|
2,336,822
|
|
Assurance Operations Corporation (2%)*
|
|
Auto Components /
Metal Fabrication
|
|
Senior Note
(6% Cash, Due 06/11)
|
|
|
2,484,000
|
|
|
|
2,034,000
|
|
|
|
2,034,000
|
|
|
|
|
|
Common Stock
(300 shares)
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,484,000
|
|
|
|
2,334,000
|
|
|
|
2,034,000
|
|
CRS Reprocessing, LLC (2%)*
|
|
Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/14)
|
|
|
3,005,333
|
|
|
|
2,929,233
|
|
|
|
2,929,233
|
|
|
|
|
|
Common Unit Warrant
(107 Units)
|
|
|
|
|
|
|
23,600
|
|
|
|
23,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,005,333
|
|
|
|
2,952,833
|
|
|
|
2,952,833
|
|
CV Holdings, LLC (9%)*
|
|
Specialty
Healthcare Products
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
|
11,221,670
|
|
|
|
10,391,652
|
|
|
|
10,391,652
|
|
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,221,670
|
|
|
|
11,266,052
|
|
|
|
11,340,952
|
|
F-27
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Electronic Systems Protection, Inc. (3%)*
|
|
Power Protection
Systems
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
$
|
3,120,913
|
|
|
$
|
3,096,783
|
|
|
$
|
2,869,000
|
|
|
|
Manufacturing
|
|
Senior Note
(8.3% Cash,
Due 01/14)
|
|
|
895,953
|
|
|
|
895,953
|
|
|
|
895,953
|
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
31,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,016,866
|
|
|
|
4,277,736
|
|
|
|
3,796,253
|
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
572,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
572,300
|
|
Fire Sprinkler Systems, Inc. (1%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(11%-12.5% PIK,
Due 04/11)
|
|
|
2,765,917
|
|
|
|
2,369,744
|
|
|
|
750,000
|
|
|
|
|
|
Common Stock
(295 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,765,917
|
|
|
|
2,664,368
|
|
|
|
750,000
|
|
Frozen Specialties, Inc. (6%)*
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
|
7,662,863
|
|
|
|
7,523,924
|
|
|
|
7,523,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,662,863
|
|
|
|
7,523,924
|
|
|
|
7,523,924
|
|
Garden Fresh Restaurant Corp. (3%)*
|
|
Restaurant
|
|
2nd Lien Note
(7.8% Cash,
Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
811,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,811,300
|
|
Gerli & Company (1%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(0.69% PIK,
Due 08/11)
|
|
|
3,630,774
|
|
|
|
3,124,893
|
|
|
|
1,442,000
|
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75%
PIK, Due 08/11)
|
|
|
122,389
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,753,163
|
|
|
|
3,328,307
|
|
|
|
1,562,000
|
|
Grindmaster-Cecilware Corp. (4%)*
|
|
Food Services
Equipment
Manufacturer
|
|
Subordinated Note
(11% Cash, 3% PIK,
Due 03/15)
|
|
|
5,800,791
|
|
|
|
5,689,665
|
|
|
|
5,689,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,800,791
|
|
|
|
5,689,665
|
|
|
|
5,689,665
|
|
Inland Pipe Rehabilitation Holding Company LLC (11%)*
|
|
Cleaning and Repair
Services
|
|
Subordinated Note
(14% Cash, Due 01/14)
|
|
|
8,108,641
|
|
|
|
7,279,341
|
|
|
|
7,279,341
|
|
|
|
|
|
Subordinated Note
(18% Cash,
Due 01/14)
|
|
|
3,750,000
|
|
|
|
3,699,679
|
|
|
|
3,699,679
|
|
|
|
|
|
Membership Interest
Purchase Warrant (2.9)%
|
|
|
|
|
|
|
853,500
|
|
|
|
3,742,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,858,641
|
|
|
|
11,832,520
|
|
|
|
14,721,920
|
|
F-28
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Jenkins Service, LLC (7%)*
|
|
Restoration Services
|
|
Subordinated Note
(10.25% Cash, 7.25%
PIK, Due 04/14)
|
|
$
|
7,515,221
|
|
|
$
|
7,392,334
|
|
|
$
|
7,392,334
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,375,000
|
|
|
|
1,342,799
|
|
|
|
1,342,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,890,221
|
|
|
|
8,735,133
|
|
|
|
8,735,133
|
|
Library Systems & Services, LLC (2%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12% Cash, Due 03/11)
|
|
|
1,000,000
|
|
|
|
972,768
|
|
|
|
972,768
|
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
1,242,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,031,763
|
|
|
|
2,215,568
|
|
Novolyte Technologies, Inc. (6%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5% PIK,
Due 04/15)
|
|
|
7,366,289
|
|
|
|
7,230,970
|
|
|
|
7,230,970
|
|
|
|
|
|
Preferred Units
(600 units)
|
|
|
|
|
|
|
600,000
|
|
|
|
545,900
|
|
|
|
|
|
Common Units
(22,960 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,366,289
|
|
|
|
7,980,970
|
|
|
|
7,776,870
|
|
Syrgis Holdings, Inc. (3%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
3,337,740
|
|
|
|
3,314,933
|
|
|
|
3,314,933
|
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
447,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,337,740
|
|
|
|
4,314,933
|
|
|
|
3,762,733
|
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician
Management Services
|
|
Senior Note
(14% Cash, Due 11/14)
|
|
|
8,000,000
|
|
|
|
7,579,320
|
|
|
|
7,579,320
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
276,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000,000
|
|
|
|
7,855,420
|
|
|
|
7,855,420
|
|
TrustHouse Services Group, Inc. (4%)*
|
|
Food Management Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
4,351,628
|
|
|
|
4,282,621
|
|
|
|
4,282,621
|
|
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
409,700
|
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,351,628
|
|
|
|
4,782,621
|
|
|
|
4,692,321
|
|
Tulsa Inspection Resources, Inc. (TIR) and Regent
TIR Partners, LLC (RTIR) (4%)*
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14% Cash,
Due 03/14)
|
|
|
5,000,000
|
|
|
|
4,625,242
|
|
|
|
4,625,242
|
|
|
|
|
|
Common Units-
RTIR (11 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
8,000
|
|
|
|
|
|
Common Stock Warrants-
TIR (7 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
34,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,146,242
|
|
|
|
4,667,942
|
|
Twin-Star International, Inc. (4%)*
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,450,037
|
|
|
|
4,168,000
|
|
|
|
Manufacturer
|
|
Senior Note
(4.29%, Due 04/13)
|
|
|
1,287,564
|
|
|
|
1,287,564
|
|
|
|
1,145,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,787,564
|
|
|
|
5,737,601
|
|
|
|
5,313,000
|
|
F-29
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Wholesale Floors, Inc. (3%)*
|
|
Commercial Services
|
|
Subordinated Note
(12.5%Cash, 1.5% PIK,
Due 06/14)
|
|
$
|
3,500,000
|
|
|
$
|
3,363,335
|
|
|
$
|
3,363,335
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
39,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
3,496,135
|
|
|
|
3,403,135
|
|
Yellowstone Landscape Group, Inc. (9%)*
|
|
Landscaping Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
11,294,699
|
|
|
|
11,080,907
|
|
|
|
11,080,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,294,699
|
|
|
|
11,080,907
|
|
|
|
11,080,907
|
|
Zoom Systems (6%)*
|
|
Retail Kiosk Operator
|
|
Subordinated Note
(12.5 Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,002,667
|
|
|
|
7,802,667
|
|
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,002,667
|
|
|
|
7,802,667
|
|
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non Control / Non Affiliate
Investments
|
|
|
|
|
|
|
142,455,328
|
|
|
|
143,239,223
|
|
|
|
138,281,894
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (4%)*
|
|
Asset Management
Software Provider
|
|
Subordinated Note
(12% Cash, 7% PIK,
Due 03/13)
|
|
|
5,417,830
|
|
|
|
5,346,346
|
|
|
|
5,346,346
|
|
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
173,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,417,830
|
|
|
|
5,846,346
|
|
|
|
5,519,946
|
|
Axxiom Manufacturing, Inc. (0%)*
|
|
Industrial Equipment
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
542,400
|
|
|
|
Manufacturer
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
556,400
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
Street)(4) (1%)*
|
|
Oil and Gas Services
|
|
Subordinated Note-
Brantley Transportation
(14% Cash, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,713,247
|
|
|
|
1,400,000
|
|
|
|
|
|
Common Unit Warrants-
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
|
|
|
|
|
|
Preferred Units-Pine
Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Unit Warrants-
Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,946,847
|
|
|
|
1,400,000
|
|
Dyson Corporation (10%)*
|
|
Custom Forging and
Fastener
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 12/13)
|
|
|
10,000,000
|
|
|
|
9,833,080
|
|
|
|
9,833,080
|
|
|
|
Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,634,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
10,833,080
|
|
|
|
12,467,780
|
|
F-30
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Equisales, LLC (6%)*
|
|
Energy Products and
Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
$
|
6,547,511
|
|
|
$
|
6,479,476
|
|
|
$
|
6,479,476
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,375,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,547,511
|
|
|
|
6,979,476
|
|
|
|
7,855,176
|
|
Flint Acquisition Corporation (2%)*
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
2,571,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
2,571,600
|
|
Genapure Corporation (0%)*
|
|
Lab Testing Services
|
|
Genapure Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
641,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
641,300
|
|
Technology Crops International (4%)*
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
|
5,070,492
|
|
|
|
4,973,767
|
|
|
|
4,973,767
|
|
|
|
|
|
Common Units
(50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,070,492
|
|
|
|
5,473,767
|
|
|
|
5,473,767
|
|
Waste Recyclers Holdings, LLC (7%)*
|
|
Environmental and
Facilities Services
|
|
Subordinated Note
(8% Cash, 7.5% PIK,
Due 08/13)
|
|
|
4,116,978
|
|
|
|
4,048,936
|
|
|
|
4,048,936
|
|
|
|
|
|
Subordinated Note
(3% Cash, 12.5% PIK,
Due 08/13)
|
|
|
5,734,318
|
|
|
|
5,666,275
|
|
|
|
4,920,000
|
|
|
|
|
|
Class A Preferred Units
(300 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units
(886,835 Units)
|
|
|
|
|
|
|
886,835
|
|
|
|
281,000
|
|
|
|
|
|
Common Unit Purchase
Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,851,296
|
|
|
|
13,782,829
|
|
|
|
9,249,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
40,687,129
|
|
|
|
47,934,280
|
|
|
|
45,735,905
|
|
F-31
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (3%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
$
|
1,562,891
|
|
|
$
|
1,558,472
|
|
|
$
|
1,514,200
|
|
|
|
|
|
Senior Note
(7.76% Cash, 2% PIK,
Due 9/11)
|
|
|
2,005,114
|
|
|
|
1,999,592
|
|
|
|
1,943,800
|
|
|
|
|
|
2nd Lien Note
(2.76% Cash, 8% PIK,
Due 12/11)
|
|
|
3,200,672
|
|
|
|
2,994,352
|
|
|
|
823,000
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,768,677
|
|
|
|
6,552,416
|
|
|
|
4,281,000
|
|
Fischbein, LLC (10%)*
|
|
Packaging and
Materials Handling
Equipment
|
|
Subordinated Note
(12% Cash, 6.5% PIK,
Due 05/13)
|
|
|
7,595,671
|
|
|
|
7,490,171
|
|
|
|
7,490,171
|
|
|
|
Manufacturer
|
|
Class A-1 Common Units
(52.5% of Units)
|
|
|
|
|
|
|
525,000
|
|
|
|
1,122,300
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
4,406,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,595,671
|
|
|
|
12,215,171
|
|
|
|
13,019,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,364,348
|
|
|
|
18,767,587
|
|
|
|
17,300,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2009(156%)*
|
|
|
|
|
|
$
|
197,506,805
|
|
|
$
|
209,941,090
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non income
producing. |
|
(2) |
|
Disclosures of interest rates on subordinated notes include cash
interest rates and paid in kind
(PIK) interest rates. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
See accompanying notes.
F-32
TRIANGLE
CAPITAL CORPORATION
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non - Control /
Non - Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (AAC) and Peaden-Hobbs
Mechanical, LLC (PHM) (6%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-
AAC (14%,
Due 03/11)
|
|
$
|
3,182,231
|
|
|
$
|
3,074,633
|
|
|
$
|
3,074,633
|
|
|
|
|
|
Subordinated Note-
AAC (18%, Due 03/11)
|
|
|
1,917,045
|
|
|
|
1,888,343
|
|
|
|
1,888,343
|
|
|
|
|
|
Common Stock-PHM
(126,634 shares)
|
|
|
|
|
|
|
126,634
|
|
|
|
126,634
|
|
|
|
|
|
Common Stock
Warrants-AAC
(455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
600,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,099,276
|
|
|
|
5,231,971
|
|
|
|
5,689,710
|
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (8%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(15.25%, Due 10/13)
|
|
|
8,208,166
|
|
|
|
8,064,571
|
|
|
|
6,894,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,208,166
|
|
|
|
8,064,571
|
|
|
|
6,894,500
|
|
American Direct Marketing Resources, LLC (4%)*
|
|
Direct Marketing
Services
|
|
Subordinated Note
(15%, Due 03/15)
|
|
|
4,035,038
|
|
|
|
3,957,113
|
|
|
|
3,957,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,035,038
|
|
|
|
3,957,113
|
|
|
|
3,957,113
|
|
APO Newco, LLC (3%)*
|
|
Commercial and
Consumer
|
|
Subordinated Note
(14%, Due 03/13)
|
|
|
1,993,336
|
|
|
|
1,907,664
|
|
|
|
1,907,664
|
|
|
|
Marketing Products
|
|
Unit purchase warrant
(87,302 Class C units)
|
|
|
|
|
|
|
25,200
|
|
|
|
1,033,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,993,336
|
|
|
|
1,932,864
|
|
|
|
2,941,064
|
|
ARC Industries, LLC (3%)*
|
|
Remediation Services
|
|
Subordinated Note
(19%, Due 11/10)
|
|
|
2,528,587
|
|
|
|
2,508,276
|
|
|
|
2,508,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,528,587
|
|
|
|
2,508,276
|
|
|
|
2,508,276
|
|
Art Headquarters, LLC (3%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(14%, Due 01/10)
|
|
|
2,333,488
|
|
|
|
2,309,951
|
|
|
|
2,309,951
|
|
|
|
|
|
Membership unit warrants
(15% of units (150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333,488
|
|
|
|
2,350,751
|
|
|
|
2,309,951
|
|
Assurance Operations Corporation (4%)*
|
|
Auto Components /
Metal Fabrication
|
|
Subordinated Note
(17%, Due 03/12)
|
|
|
4,026,884
|
|
|
|
3,985,742
|
|
|
|
3,261,800
|
|
|
|
|
|
Common Stock (57 shares)
|
|
|
|
|
|
|
257,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,026,884
|
|
|
|
4,242,885
|
|
|
|
3,261,800
|
|
CV Holdings, LLC (12%)*
|
|
Specialty Healthcare
Products
|
|
Subordinated Note
(16%, Due 09/13)
|
|
|
10,776,412
|
|
|
|
9,780,508
|
|
|
|
9,780,508
|
|
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
874,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,776,412
|
|
|
|
10,654,908
|
|
|
|
10,654,908
|
|
Cyrus Networks, LLC (8%)*
|
|
Data Center
Services Provider
|
|
Senior Note
(6%, Due 07/13)
|
|
|
5,539,867
|
|
|
|
5,524,881
|
|
|
|
5,524,881
|
|
|
|
|
|
2nd Lien Note
(9%, Due 01/14)
|
|
|
1,196,809
|
|
|
|
1,196,809
|
|
|
|
1,196,809
|
|
|
|
|
|
Revolving Line of
Credit (6)%
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,989,820
|
|
|
|
6,974,834
|
|
|
|
6,974,834
|
|
DataPath, Inc. (0%)*
|
|
Satellite Communication
Manufacturer
|
|
Common Stock
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
|
|
F-33
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Electronic Systems Protection, Inc. (5%)*
|
|
Power Protection
Systems
|
|
Subordinated Note
(14%, Due 12/15)
|
|
$
|
3,059,267
|
|
|
$
|
3,032,533
|
|
|
$
|
3,032,533
|
|
|
|
Manufacturing
|
|
Senior Note
(6%, Due 01/14)
|
|
|
930,635
|
|
|
|
930,635
|
|
|
|
930,635
|
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
285,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,989,902
|
|
|
|
4,248,168
|
|
|
|
4,248,168
|
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
292,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
292,300
|
|
FCL Graphics, Inc. (8%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(8%, Due 5/12)
|
|
|
1,669,200
|
|
|
|
1,663,083
|
|
|
|
1,663,083
|
|
|
|
|
|
Senior Note
(12%, Due 5/13)
|
|
|
2,000,000
|
|
|
|
1,993,191
|
|
|
|
1,993,191
|
|
|
|
|
|
2nd Lien Note
(18%, Due 11/13)
|
|
|
3,393,186
|
|
|
|
3,382,162
|
|
|
|
3,382,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,062,386
|
|
|
|
7,038,436
|
|
|
|
7,038,436
|
|
Fire Sprinkler Systems, Inc. (1%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(12%, Due 04/11)
|
|
|
2,388,362
|
|
|
|
2,356,781
|
|
|
|
1,000,000
|
|
|
|
|
|
Common Stock
(283 shares)
|
|
|
|
|
|
|
282,905
|
|
|
|
11,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,388,362
|
|
|
|
2,639,686
|
|
|
|
1,011,719
|
|
Garden Fresh Restaurant Corp. (4%)*
|
|
Restaurant
|
|
2nd Lien Note
(11%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
583,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,583,600
|
|
Gerli & Company (2%)*
|
|
Specialty Woven
Fabrics
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,161,439
|
|
|
|
3,092,786
|
|
|
|
1,865,000
|
|
|
|
Manufacturer
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,161,439
|
|
|
|
3,176,200
|
|
|
|
1,865,000
|
|
Inland Pipe Rehabilitation Holding Company LLC (10%)*
|
|
Cleaning and Repair
Services
|
|
Subordinated Note
(14%, Due 01/14)
|
|
|
8,095,149
|
|
|
|
7,422,265
|
|
|
|
7,422,265
|
|
|
|
|
|
Membership Interest
Purchase Warrant (2.5)%
|
|
|
|
|
|
|
563,300
|
|
|
|
1,407,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,095,149
|
|
|
|
7,985,565
|
|
|
|
8,829,565
|
|
Jenkins Service, LLC (10%)*
|
|
Restoration Services
|
|
Subordinated Note
(17.5%, Due 04/14)
|
|
|
8,411,172
|
|
|
|
8,266,277
|
|
|
|
8,266,277
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,375,000
|
|
|
|
1,336,993
|
|
|
|
1,336,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,786,172
|
|
|
|
9,603,270
|
|
|
|
9,603,270
|
|
Library Systems & Services, LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,948,573
|
|
|
|
1,948,573
|
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
802,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
2,007,568
|
|
|
|
2,751,073
|
|
F-34
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Novolyte Technologies, Inc. (8%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(16%, Due 04/15)
|
|
$
|
7,048,222
|
|
|
$
|
6,880,696
|
|
|
$
|
6,880,696
|
|
|
|
|
|
Preferred Units (600 units)
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
Common Units (22,960 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,048,222
|
|
|
|
7,630,696
|
|
|
|
7,630,696
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note (7%,
Due 08/12-02/14)
|
|
|
4,632,500
|
|
|
|
4,602,773
|
|
|
|
4,602,773
|
|
|
|
|
|
Common Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
532,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,632,500
|
|
|
|
5,602,773
|
|
|
|
5,135,473
|
|
TrustHouse Services Group, Inc. (5%)*
|
|
Food Management
Services
|
|
Subordinated Note
(14%, Due 09/15)
|
|
|
4,264,494
|
|
|
|
4,186,542
|
|
|
|
4,186,542
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
207,500
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,264,494
|
|
|
|
4,686,542
|
|
|
|
4,394,042
|
|
Twin-Star International, Inc. (6%)*
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(15%, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,439,137
|
|
|
|
4,439,137
|
|
|
|
Manufacturer
|
|
Senior Note (8%,
Due 04/13)
|
|
|
1,301,921
|
|
|
|
1,301,921
|
|
|
|
1,301,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,801,921
|
|
|
|
5,741,058
|
|
|
|
5,741,058
|
|
Waste Recyclers Holdings, LLC (13%)*
|
|
Environmental and
Facilities Services
|
|
Subordinated Note
(15.5%, Due 08/13)
|
|
|
9,106,995
|
|
|
|
8,935,266
|
|
|
|
8,935,266
|
|
|
|
|
|
Class A Preferred Units
(300 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
2,251,100
|
|
|
|
|
|
Common Unit Purchase
Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
748,900
|
|
|
|
|
|
Common Units
(153,219 Units)
|
|
|
|
|
|
|
153,219
|
|
|
|
153,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,106,995
|
|
|
|
12,088,485
|
|
|
|
12,088,485
|
|
Wholesale Floors, Inc. (4%)*
|
|
Commercial Services
|
|
Subordinated Note
(14%, Due 06/14)
|
|
|
3,500,000
|
|
|
|
3,341,947
|
|
|
|
3,341,947
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500,000
|
|
|
|
3,474,747
|
|
|
|
3,341,947
|
|
Yellowstone Landscape Group, Inc. (14%)*
|
|
Landscaping Services
|
|
Subordinated Note
(15%, Due 04/14)
|
|
|
13,261,710
|
|
|
|
12,965,889
|
|
|
|
12,965,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,261,710
|
|
|
|
12,965,889
|
|
|
|
12,965,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non Control / Non Affiliate
Investments
|
|
|
|
|
|
|
133,090,259
|
|
|
|
138,413,589
|
|
|
|
135,712,877
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (6%)*
|
|
Asset Management
Software Provider
|
|
Subordinated Note
(15%, Due 03/13)
|
|
|
5,123,925
|
|
|
|
5,035,428
|
|
|
|
5,035,428
|
|
|
|
|
|
Membership Units (10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
371,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,123,925
|
|
|
|
5,535,428
|
|
|
|
5,406,828
|
|
Axxiom Manufacturing, Inc. (3%)*
|
|
Industrial Equipment
|
|
Subordinated Note
(14%, Due 01/11)
|
|
|
2,124,037
|
|
|
|
2,103,277
|
|
|
|
2,103,277
|
|
|
|
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
408,900
|
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
10,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,124,037
|
|
|
|
2,303,277
|
|
|
|
2,522,777
|
|
F-35
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
|
|
Oil and Gas Services
|
|
Subordinated Note-
Brantley Transportation
(14%, Due 12/12)
|
|
$
|
3,800,000
|
|
|
$
|
3,690,525
|
|
|
$
|
3,690,525
|
|
Street)(4) (4%)*
|
|
|
|
Common Unit Warrants-
Brantley Transportation
(4,560 common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
41,800
|
|
|
|
|
|
Preferred Units-Pine
Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
139,200
|
|
|
|
|
|
Common Unit Warrants-
Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
3,924,125
|
|
|
|
3,871,525
|
|
Dyson Corporation (12%)*
|
|
Custom Forging and
Fastener
|
|
Subordinated Note
(15%, Due 12/13)
|
|
|
10,318,750
|
|
|
|
10,123,339
|
|
|
|
10,123,339
|
|
|
|
Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
964,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,318,750
|
|
|
|
11,123,339
|
|
|
|
11,088,039
|
|
Equisales, LLC (9%)*
|
|
Energy Products and
Services
|
|
Subordinated Note
(15%, Due 04/12)
|
|
|
6,319,315
|
|
|
|
6,226,387
|
|
|
|
6,226,387
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
2,322,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,319,315
|
|
|
|
6,726,387
|
|
|
|
8,548,787
|
|
Flint Acquisition Corporation (2%)*
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,984,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
1,984,500
|
|
Genapure Corporation (1%)*
|
|
Lab Testing Services
|
|
Genapure Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
472,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
472,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
27,686,027
|
|
|
|
30,484,491
|
|
|
|
33,894,556
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)*
|
|
Packaging and
Materials Handling
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
7,184,066
|
|
|
|
7,053,458
|
|
|
|
7,053,458
|
|
|
|
Equipment
Manufacturer
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
5,444,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,184,066
|
|
|
|
11,253,458
|
|
|
|
12,497,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
7,184,066
|
|
|
|
11,253,458
|
|
|
|
12,497,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2008 (199%)*
|
|
|
|
|
|
$
|
167,960,352
|
|
|
$
|
180,151,538
|
|
|
$
|
182,105,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non income
producing. |
|
(2) |
|
Interest rates on subordinated debt include cash interest rate
and, where applicable, paid in kind
interest rate. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
See accompanying notes.
F-36
Triangle
Capital Corporation
|
|
1.
|
Organization,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Organization
Triangle Capital Corporation (the Company), was
formed on October 10, 2006 for the purposes of acquiring
100% of the equity interest in Triangle Mezzanine Fund LLLP
(the Fund) and its general partner, Triangle
Mezzanine LLC (TML), raising capital in an initial
public offering, which was completed in February 2007 (the
IPO) and thereafter operating as an internally
managed Business Development Company (BDC) under the
Investment Company Act of 1940 (the 1940 Act).
The Fund is a specialty finance limited liability limited
partnership formed to make investments primarily in middle
market companies located throughout the United States. The
Funds term is ten years from the date of formation
(August 14, 2002) unless terminated earlier or
extended in accordance with provisions of the limited
partnership agreement. On September 11, 2003, the Fund was
licensed to operate as a Small Business Investment Company
(SBIC) under the authority of the United States Small Business
Administration (SBA). As a SBIC, the Fund is subject to a
variety of regulations concerning, among other things, the size
and nature of the companies in which it may invest and the
structure of those investments.
On February 21, 2007, concurrent with the closing of the
IPO, the following formation transactions were consummated (the
Formation Transactions):
|
|
|
|
|
The Company acquired 100% of the limited partnership interests
in the Fund in exchange for approximately 1.9 million
shares of the Companys common stock. The Fund became a
wholly owned subsidiary of the Company, retained its license
under the authority of the United States Small Business
Administrations (SBA) to operate as a Small Business
Investment Company (SBIC) and continues to hold its
existing investments and make new investments with the proceeds
of the IPO; and
|
|
|
|
The Company acquired 100% of the equity interests in TML, and
the management agreement between the Fund and Triangle Capital
Partners, LLC was terminated.
|
The IPO consisted of the sale of 4,770,000 shares of Common
Stock at a price of $15 per share, resulting in net proceeds of
approximately $64.7 million, after deducting offering costs
totaling approximately $6.8 million. Upon completion of the
IPO, the Company had 6,686,760 common shares outstanding.
As a result of completion of the IPO and formation transactions,
the Fund became a 100% wholly owned subsidiary of the Company.
The General partner of the Fund is the New General Partner
(which is wholly owned by the Company) and the limited partners
of the Fund are the Company (99.9%) and the New General Partner
(0.1%).
The Company currently operates as a closed - end, non -
diversified investment company and has elected to be treated as
a BDC under the 1940 Act. The Company is internally managed by
its executive officers under the supervision of its board of
directors. The Company does not pay management or advisory fees,
but instead incurs the operating costs associated with employing
executive management and investment and portfolio management
professionals.
Basis of
Presentation
The financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries, including the
Fund. The Fund does not consolidate portfolio company
investments.
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. The Formation Transactions discussed above
involved an exchange of shares of the Companys common
stock between companies under common control. In accordance with
the guidance on exchanges of shares between entities under
common control contained in Financial Accounting Standards Board
(FASB) Accounting Standards Codification
(ASC) Topic 805, Business Combinations
F-37
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
(formerly Statement of Financial Accounting Standards
(SFAS) No. 141, Business Combinations
(SFAS 141), the Companys results of
operations and cash flows for the year ended December 31,
2007 are presented as if the Formation Transactions had occurred
as of January 1, 2007. The effects of all intercompany
transactions between the Company and its subsidiaries have been
eliminated in consolidation/combination. All financial data and
information included in these financial statements have been
presented on the basis described above.
Significant
Accounting Policies
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Valuation
of Investments
The Company has established and documented processes and
methodologies for determining the fair values of portfolio
company investments on a recurring basis in accordance with FASB
ASC Topic 820, Fair Value Measurements and Disclosures
(formerly SFAS No. 157, Fair Value Measurements
(ASC Topic 820). Under ASC Topic 820, a
financial instruments categorization within the valuation
hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. The three levels of
valuation hierarchy established by ASC Topic 820 are defined as
follows:
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or liabilities
in active markets.
Level 2 - inputs to the valuation methodology
include quoted prices for similar assets and liabilities in
active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 3 - inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
The Companys investment portfolio is comprised of debt and
equity instruments of privately held companies for which quoted
prices falling within the categories of Level 1 and
Level 2 inputs are not available. Therefore, the Company
values all of its investments at fair value, as determined in
good faith by the Board of Directors (Level 3 inputs, as
further described below). Due to the inherent uncertainty in the
valuation process, the Board of Directors estimate of fair
value may differ significantly from the values that would have
been used had a ready market for the securities existed, and the
differences could be material. In addition, changes in the
market environment and other events that may occur over the life
of the investments may cause the gains or losses ultimately
realized on these investments to be different than the
valuations currently assigned.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the
security.
Management evaluates the investments in portfolio companies
using the most recent portfolio company financial statements and
forecasts. Management also consults with the portfolio
companys senior management to obtain further updates on
the portfolio companys performance, including information
such as industry trends, new product development and other
operational issues.
F-38
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
In making the good faith determination of the value of debt
securities, the Company starts with the cost basis of the
security, which includes the amortized original issue discount,
and payment in kind (PIK) interest, if
any. The Company also uses a risk rating system to estimate the
probability of default on the debt securities and the
probability of loss if there is a default. The risk rating
system covers both qualitative and quantitative aspects of the
business and the securities held. In valuing debt securities,
management utilizes an income approach model that
considers factors including, but not limited to, (i) the
portfolio investments current risk rating (discussed
below), (ii) the portfolio companys current trailing
twelve months (TTM) results of operations as
compared to the portfolio companys TTM results of
operations as of the date the investment was made and the
portfolio companys anticipated results for the next twelve
months of operations, (iii) the portfolio companys
current leverage as compared to its leverage as of the date the
investment was made, and (iv) current pricing and credit
metrics for similar proposed and executed investment
transactions. In valuing equity securities of private companies,
the Company considers valuation methodologies consistent with
industry practice, including (i) valuation using a
valuation model based on original transaction multiples and the
portfolio companys recent financial performance,
(ii) valuation of the securities based on recent sales in
comparable transactions, and (iii) a review of similar
companies that are publicly traded and the market multiple of
their equity securities.
Duff & Phelps, LLC (Duff &
Phelps), an independent valuation firm, provides third
party valuation consulting services to the Company which consist
of certain limited procedures that the Company identified and
requested Duff & Phelps to perform (hereinafter
referred to as the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our stockholders best interest, to
request Duff & Phelps to perform the procedures on one
or more portfolio companies. Such instances include, but are not
limited to, situations where the fair value of our investment in
the portfolio company is determined to be insignificant relative
to our total investment portfolio.
For the quarter ended March 31, 2007, the Company asked
Duff & Phelps to perform the procedures on investments
in five portfolio companies comprising approximately 26% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2007. For the quarter ended June 30, 2007, the Company
asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately
28% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2007. For the quarter ended September 30,
2007, the Company asked Duff & Phelps to perform the
procedures on investments in five portfolio companies comprising
approximately 29% of the total investments at fair value
(exclusive of the fair value of new investments made during the
quarter) as of September 30, 2007. For the quarter ended
December 31, 2007, the Company asked Duff &
Phelps to perform the procedures on investments in six portfolio
companies comprising approximately 23% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2007.
For the quarter ended March 31, 2008, the Company asked
Duff & Phelps to perform the procedures on investments
in six portfolio companies comprising approximately 35% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2008. For the quarter ended June 30, 2008, the Company
asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately
18% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2008. For the quarter ended September 30,
2008, the Company asked Duff & Phelps to perform the
procedures on investments in eight portfolio companies
comprising approximately 29% of the total investments at fair
value (exclusive of the fair value of new investments made
during the quarter) as of September 30, 2008. For the
quarter ended December 31, 2008, the Company asked
Duff & Phelps to perform the procedures on investments
in eight portfolio
F-39
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
companies comprising approximately 34% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2008.
For the quarter ended March 31, 2009, the Company asked
Duff & Phelps to perform the procedures on investments
in seven portfolio companies comprising approximately 26% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2009. For the quarter ended June 30, 2009, the Company
asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately
20% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2009. For the quarter ended September 30,
2009, the Company asked Duff & Phelps to perform the
procedures on investments in seven portfolio companies
comprising approximately 24% of the total investments at fair
value (exclusive of the fair value of new investments made
during the quarter) as of September 30, 2009. For the
quarter ended December 31, 2009, the Company asked
Duff & Phelps to perform the procedures on investments
in eight portfolio companies comprising approximately 40% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of December 31,
2009.
Upon completion of the procedures, Duff & Phelps
concluded that the fair value, as determined by the Board of
Directors, of those investments subjected to the procedures did
not appear to be unreasonable. The Board of Directors of
Triangle Capital Corporation is ultimately and solely
responsible for determining the fair value of the Companys
investments in good faith.
Warrants
When originating a debt security, the Company will sometimes
receive warrants or other equity related securities
from the borrower. The Company determines the cost basis of the
warrants or other equity related securities received
based upon their respective fair values on the date of receipt
in proportion to the total fair value of the debt and warrants
or other equity related securities received. Any
resulting difference between the face amount of the debt and its
recorded fair value resulting from the assignment of value to
the warrant or other equity instruments is treated as original
issue discount and accreted into interest income over the life
of the loan.
Realized
Gain or Loss and Unrealized Appreciation or Depreciation of
Portfolio Investments
Realized gains or losses are recorded upon the sale or
liquidation of investments and calculated as the difference
between the net proceeds from the sale or liquidation, if any,
and the cost basis of the investment using the specific
identification method. Unrealized appreciation or depreciation
reflects the difference between the valuation of the investments
and the cost basis of the investments.
Investment
Classification
In accordance with the provisions of the 1940 Act, the Company
classifies investments by level of control. As defined in the
1940 Act, Control Investments are investments in
those companies that the Company is deemed to
Control. Affiliate Investments are
investments in those companies that are Affiliated
Companies of the Company, as defined in the 1940 Act,
other than Control Investments. Non
Control/Non Affiliate Investments are those
that are neither Control Investments nor Affiliate Investments.
Generally, under the 1940 Act, the Company is deemed to control
a company in which it has invested if the Company owns more than
25.0% of the voting securities of such company or has greater
than 50.0% representation on its board. The Company is deemed to
be an affiliate of a company in which the Company has invested
if it owns between 5.0% and 25.0% of the voting securities of
such company.
F-40
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
Cash
and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less at the date of
purchase to be cash equivalents.
Deferred
Financing Fees
Costs incurred to obtain long term debt are
capitalized and are amortized over the term of the debt
agreements using the effective interest method.
Depreciation
Furniture, fixtures and equipment are depreciated on a
straight-line basis over an estimated useful life of five years.
Software and computer equipment are depreciated over an
estimated useful life of three years.
Investment
Income
Interest income, adjusted for amortization of premium and
accretion of original issue discount, is recorded on the accrual
basis to the extent that such amounts are expected to be
collected. Generally, when interest
and/or
principal payments on a loan become past due, or if the Company
otherwise does not expect the borrower to be able to service its
debt and other obligations, the Company will place the loan on
non-accrual status and will generally cease recognizing interest
income on that loan for financial reporting purposes, until all
principal and interest has been brought current through payment
or due to a restructuring such that the interest income is
deemed to be collectible. The Company writes off any previously
accrued and uncollected interest when it is determined that
interest is no longer considered collectible. Dividend income is
recorded on the ex dividend date.
Payment
in Kind Interest
The Company holds loans in its portfolio that contain a payment
- in - kind (PIK) interest provision. The PIK
interest, computed at the contractual rate specified in each
loan agreement, is added to the principal balance of the loan
and is recorded as interest income. Thus, the actual collection
of PIK interest may be deferred until the time of debt principal
repayment.
To maintain the Companys status as a Regulated Investment
Company, this non-cash source of income must be paid out to
stockholders in the form of dividends, even though the Company
has not yet collected the cash. Generally, when current cash
interest
and/or
principal payments on a loan become past due, or if the Company
otherwise does not expect the borrower to be able to service its
debt and other obligations, the Company will place the loan on
non-accrual status and will generally cease recognizing PIK
interest income on that loan for financial reporting purposes
until all principal and interest has been brought current
through payment or due to a restructuring such that the interest
income is deemed to be collectible. The Company writes off any
accrued and uncollected PIK interest when it is determined that
the PIK interest is no longer collectible.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with the origination of a
loan are recorded as deferred income and recognized as income
over the term of the loan. Loan prepayment penalties and loan
amendment fees are recorded into income when received. Any
previously deferred fees are immediately recorded into income
upon prepayment of the related loan.
F-41
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
Management
Fee
Prior to the consummation of the Formation Transactions, the
Fund was managed by Triangle Capital Partners, LLC, a related
party that was majority-owned by three members of the
Companys management, including the Companys Chief
Executive Officer. Triangle Capital Partners, LLC was entitled
to a quarterly management fee, which was payable at an annual
rate of 2.5% of total aggregate subscriptions of all
institutional partners and capital available from the SBA.
Payments of the management fee were made quarterly in advance.
Certain direct expenses such as legal, audit, tax and limited
partner expense were the responsibility of the Fund. The
management fee for the year ended December 31, 2007 was
$232,423. In conjunction with the consummation of the Formation
Transactions in February 2007, the management agreement was
terminated.
Income
Taxes
The Company has elected to be treated as a Regulated Investment
Company (RIC) under Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). As a
RIC, so long as the Company meets certain minimum distribution,
source-of-income
and asset diversification requirements, it generally is required
to pay income taxes only on the portion of its taxable income
and gains it does not distribute (actually or constructively)
and certain built-in gains.
In addition, the company has certain wholly owned taxable
subsidiaries (the Taxable Subsidiaries), each of
which holds one or more of its portfolio investments that are
listed on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for financial reporting purposes,
such that the companys consolidated financial statements
reflect the Companys investments in the portfolio
companies owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit the Company to hold portfolio
companies that are organized as limited liability companies
(LLCs) (or other forms of pass - through entities)
and still satisfy the RIC tax requirement that at least 90% of
the RICs gross revenue for income tax purposes must
consist of investment income. Absent the Taxable Subsidiaries, a
proportionate amount of any gross income of an LLC (or other
pass - through entity) portfolio investment would flow through
directly to the RIC. To the extent that such income did not
consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause
the Company to incur significant amounts of federal income
taxes. When LLCs (or other pass-through entities) are owned by
the Taxable Subsidiaries, their income is taxed to the Taxable
Subsidiaries and does not flow through to the RIC, thereby
helping the Company preserve its RIC status and resultant tax
advantages. The Taxable Subsidiaries are not consolidated for
income tax purposes and may generate income tax expense as a
result of their ownership of the portfolio companies. This
income tax expense is reflected in the Companys Statements
of Operations.
Segments
The Company lends to and invests in customers in various
industries. The Company separately evaluates the performance of
each of its lending and investment relationships. However,
because each of these loan and investment relationships has
similar business and economic characteristics, they have been
aggregated into a single lending and investment segment. All
applicable segment disclosures are included in or can be derived
from the Companys financial statements.
Concentration
of Credit Risk
The Companys investees are generally lower middle - market
companies in a variety of industries. At both December 31,
2009 and 2008, there were no individual investments greater than
10% of the fair value of the Companys portfolio. Income,
consisting of interest, dividends, fees, other investment
income, and realization of gains or losses on equity interests,
can fluctuate dramatically upon repayment of an investment or
sale of an equity interest and in any given year can be highly
concentrated among several investees.
F-42
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The Companys investments carry a number of risks
including, but not limited to: 1) investing in lower middle
market companies which have a limited operating history and
financial resources; 2) investing in senior subordinated
debt which ranks equal to or lower than debt held by other
investors; 3) holding investments that are not publicly
traded and are subject to legal and other restrictions on resale
and other risks common to investing in below investment grade
debt and equity instruments.
Public
Offerings of Common Stock
On April 23, 2009, the Company filed a prospectus
supplement pursuant to which 1,200,000 shares of common
stock were offered for sale at a price to the public of $10.75
per share. Pursuant to this offering, all shares were sold and
delivered on April 27, 2009 resulting in net proceeds to
the Company, after underwriting discounts and offering expenses,
of approximately $11,700,000. On May 27, 2009, pursuant to
the exercise of an overallotment option granted in connection
with the offering, the underwriters involved purchased an
additional 80,000 shares of the Companys common stock
at the same public offering price, less underwriting discounts
and commissions, resulting in net proceeds to the Company of
approximately $800,000.
On August 7, 2009, the Company filed a prospectus
supplement pursuant to which 1,300,000 shares of common
stock were offered for sale at a price to the public of $10.42
per share. In addition, the underwriters involved were granted
an overallotment option to purchase an additional
195,000 shares of the Companys common stock at the
same public offering price. Pursuant to this offering, all
shares (including the overallotment option shares) were sold and
delivered on August 12, 2009 resulting in net proceeds to
the Company, after underwriting discounts and offering expenses,
of approximately $14,600,000.
On December 8, 2009, the Company filed a prospectus
supplement pursuant to which 1,560,000 shares of common
stock were offered for sale at a price to the public of $12.00
per share. In addition, the underwriters involved were granted
an overallotment option to purchase an additional
234,000 shares of the Companys common stock at the
same public offering price. Pursuant to this offering, all
shares (including the overallotment option shares) were sold and
delivered on December 11, 2009 resulting in net proceeds to
the Company, after underwriting discounts and offering expenses,
of approximately $20,200,000.
Dividends
and Distributions
Dividends and distributions to common stockholders are approved
by the Companys Board of Directors and the dividend
payable is recorded on the ex-dividend date.
The Company has adopted a dividend reinvestment plan
(DRIP) that provides for reinvestment of dividends
on behalf of its stockholders, unless a stockholder elects to
receive cash. As a result, when the Company declares a dividend,
stockholders who have not opted out of the DRIP will have their
dividends automatically reinvested in shares of the
Companys common stock, rather than receiving cash
dividends.
On May 9, 2007, the Company declared a dividend of $0.15
per common share, payable on June 28, 2007 to stockholders
of record on May 31, 2007. The total amount of the dividend
was approximately $1.0 million, of which approximately
$358,000 was paid in cash and approximately $645,000 was
reinvested in new shares of the Companys common stock. On
August 8, 2007, the Company declared a dividend of $0.26
per common share, payable on September 27, 2007 to
stockholders of record on August 30, 2007. The total amount
of the dividend was approximately $1.75 million, of which
approximately $769,000 was paid in cash and approximately
$981,000 was reinvested in new shares of the Companys
common stock. On November 7, 2007, the Company declared a
dividend of $0.27 per common share, payable on December 27,
2007 to stockholders of record on November 29, 2007. The
total amount of the dividend was approximately
$1.84 million, all of which was paid in cash. On
December 14, 2007, the Company declared a dividend of $0.30
per common share, payable on January 28, 2008 to
stockholders of record on December 31, 2007. The
F-43
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
total amount of the dividend was approximately
$2.04 million and is reflected as dividends payable in the
Companys financial statements as of December 31, 2007.
On May 7, 2008, the Company declared a dividend of $0.31
per common share, payable on June 26, 2008 to stockholders
of record on June 5, 2008. The total amount of the dividend
was approximately $2.14 million, all of which was paid in
cash. On July 21, 2008, the Company declared a dividend of
$0.35 per common share, payable on September 4, 2008 to
stockholders of record on August 14, 2008. The total amount
of the dividend was approximately $2.42 million, all of
which was paid in cash. On October 9, 2008, the Company
declared a dividend of $0.38 per common share, payable on
November 20, 2008 to stockholders of record on
October 30, 2008. The total amount of the dividend was
approximately $2.63 million, all of which was paid in cash.
On December 7, 2008, the Company declared a dividend of
$0.40 per common share, payable on January 6, 2009 to
stockholders of record on December 23, 2008. The total
amount of the dividend was approximately $2.77 million and
is reflected as dividends payable in the Companys
financial statements as of December 31, 2008.
On February 1, 2009, the Company declared a capital gains
distribution of $0.05 per common share, payable on
March 13, 2009 to stockholders of record on
February 27, 2009. The total amount of the distribution was
approximately $0.35 million, all of which was paid in cash.
On March 11, 2009, the Company declared a dividend of $0.40
per common share, payable on April 8, 2009 to stockholders
of record on March 25, 2009. The total amount of the
distribution was approximately $2.82 million, all of which
was paid in cash. On June 16, 2009, the Company declared a
dividend of $0.40 per common share, payable on July 23,
2009 to stockholders of record on July 9, 2009. The total
amount of the distribution was approximately $3.33 million,
all of which was paid in cash. On September 23, 2009, the
Company declared a dividend of $0.41 per common share, payable
on October 22, 2009 to stockholders of record on
October 8, 2009. The total amount of the distribution was
approximately $4.03 million, of which approximately
$3.03 million was paid in cash and approximately
$1.0 million was reinvested in new shares of the
Companys common stock. On December 1, 2009, the
Company declared a dividend of $0.41 per common share, payable
on January 5, 2010 to stockholders of record on
December 22, 2009. The total amount of the distribution was
approximately $4.80 million and is reflected as dividends
payable in the Companys financial statements as of
December 31, 2009.
Allocations
and Distributions of the Fund
During 2006, the Fund recorded a partners distribution payable
of $531,566 to the former General Partner, which was distributed
in the first quarter of 2007. In addition, in the second quarter
of 2007, the Fund distributed $220,047 in cash to the former
General Partner and former limited partners of the Fund.
Per
Share Amounts
Per share amounts included in the Statements of Operations are
computed by dividing net investment income and net increase in
net assets resulting from operations by the weighted average
number of shares of common stock outstanding for the period. As
the Company has no common stock equivalents outstanding, diluted
per share amounts are the same as basic per share amounts. Net
asset value per share is computed by dividing total net assets
by the number of common shares outstanding as of the end of the
period.
Recently
Issued Accounting Standards
In June 2008, the Financial Accounting Standards Board
(FASB) issued FASB Staff Position
EITF 03-06-1,
Determining Whether Instruments Granted in Share-based
Payment Transactions are Participating Securities,
which was subsequently incorporated into ASC Topic 260 -
Earnings Per Share. The June 2008 guidance requires
companies to include unvested share-based payment awards that
contain non-forfeitable rights to dividends in the computation
of earnings per share pursuant to the two-class method. In
F-44
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
effect, this standard requires companies to report basic and
diluted earnings per share in two broad categories. First,
companies must report basic and diluted earnings per share
associated with the unvested share-based payments with
non-forfeitable dividend rights. Second, companies must report
separately basic and diluted earnings per share for their
remaining common stock. This standard was effective for
financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years.
The Company adopted this standard beginning with its financial
statements for the quarter ended March 31, 2009. As
required, the Company applied this standard retroactively to all
reported periods. The Companys adoption of this standard
did not have a material impact on its financial position or
results of operations.
In May 2009, the FASB issued Statement of Financial Accounting
Standards No. 165, Subsequent Events, which was
later codified as FASB ASC Topic 855, Subsequent Events
(ASC Topic 855). ASC Topic 855 establishes
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. ASC Topic
855 is effective for interim periods or fiscal years ending
after June 15, 2009. The Companys adoption of ASC
Topic 855 did not have a material effect on its financial
position or results of operations.
In June 2009, the FASB issued Statement of Financial Accounting
Standards No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles -a replacement of FASB Statement No. 162
(SFAS 168). The Codification will become
the source of authoritative GAAP recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive
releases of the SEC under authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. On
the effective date of SFAS 168, the Codification will
supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification will become
non-authoritative. SFAS 168 is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. The adoption of SFAS 168 only
impacted the Companys disclosures regarding Codification
references.
F-45
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
Summaries of the composition of the Companys investment
portfolio at cost and fair value as a percentage of total
investments are shown in the following tables:
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Percentage of
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Percentage of
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Cost
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Total Portfolio
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Fair Value
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Total Portfolio
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December 31, 2009:
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|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
179,482,425
|
|
|
|
86
|
%
|
|
$
|
166,087,684
|
|
|
|
83
|
%
|
Senior debt
|
|
|
11,090,514
|
|
|
|
5
|
|
|
|
10,847,886
|
|
|
|
5
|
|
Equity shares
|
|
|
15,778,681
|
|
|
|
8
|
|
|
|
17,182,500
|
|
|
|
9
|
|
Equity warrants
|
|
|
2,715,070
|
|
|
|
1
|
|
|
|
6,250,600
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
949,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
209,941,090
|
|
|
|
100
|
%
|
|
$
|
201,317,970
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
147,493,871
|
|
|
|
82
|
%
|
|
$
|
143,015,291
|
|
|
|
79
|
%
|
Senior debt
|
|
|
16,269,628
|
|
|
|
9
|
|
|
|
16,269,628
|
|
|
|
9
|
|
Equity shares
|
|
|
13,684,269
|
|
|
|
8
|
|
|
|
17,301,372
|
|
|
|
9
|
|
Equity warrants
|
|
|
1,829,370
|
|
|
|
1
|
|
|
|
4,644,600
|
|
|
|
3
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
874,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
180,151,538
|
|
|
|
100
|
%
|
|
$
|
182,105,291
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2009, the Company made
seven new investments totaling $43.0 million, additional
debt investments in three existing portfolio companies totaling
$4.1 million and five additional equity investments in
existing portfolio companies totaling approximately
$1.4 million. During the year ended December 31, 2008,
the Company made twelve new investments totaling
$91.0 million, additional debt investments in an existing
portfolio company of $1.9 million and four additional
equity investments in existing portfolio companies totaling
approximately $0.2 million. During the year ended
December 31, 2007, the Company made nine new investments
totaling $62.2 million, one additional debt investment in
an existing portfolio company of $1.9 million and one
additional equity investment in an existing portfolio company of
approximately $0.1 million.
The following table presents the Companys financial
instruments carried at fair value as of December 31, 2009
and 2008, on the consolidated balance sheet by ASC Topic 820
valuation hierarchy, as previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Portfolio company investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,317,970
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
201,317,970
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Portfolio company investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
182,105,291
|
|
|
$
|
182,105,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
182,105,291
|
|
|
$
|
182,105,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The following table reconciles the beginning and ending balances
of our portfolio company investments measured at fair value on a
recurring basis using significant unobservable inputs
(Level 3) for the years ended December 31, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Fair value of portfolio, beginning of period
|
|
$
|
182,105,291
|
|
|
$
|
113,036,240
|
|
New investments
|
|
|
48,475,570
|
|
|
|
93,054,022
|
|
Proceeds from sales of investments
|
|
|
(1,888,384
|
)
|
|
|
(3,631,876
|
)
|
Loan origination fees received
|
|
|
(952,500
|
)
|
|
|
(1,686,996
|
)
|
Principal repayments received
|
|
|
(19,543,314
|
)
|
|
|
(17,336,521
|
)
|
Payment in kind interest earned
|
|
|
5,074,819
|
|
|
|
3,761,786
|
|
Payment in kind interest payments received
|
|
|
(2,909,804
|
)
|
|
|
(1,978,498
|
)
|
Accretion of loan discounts
|
|
|
421,495
|
|
|
|
169,548
|
|
Accretion of deferred loan origination revenue
|
|
|
663,506
|
|
|
|
484,664
|
|
Realized gains on investments
|
|
|
448,164
|
|
|
|
1,435,608
|
|
Unrealized losses on investments
|
|
|
(10,576,873
|
)
|
|
|
(5,202,686
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, end of period
|
|
$
|
201,317,970
|
|
|
$
|
182,105,291
|
|
|
|
|
|
|
|
|
|
|
All realized and unrealized gains and losses are included in
earnings (changes in net assets) and are reported on separate
line items within the Companys statements of operations.
Pre-tax net unrealized losses on investments of
$10.7 million during the year ended December 31, 2009
are related to portfolio company investments that are still held
by the Company as of December 31, 2009. Pre-tax net
unrealized losses on investments of $0.8 million during the
year ended December 31, 2008 are related to portfolio
company investments that are still held by the Company as of
December 31, 2008.
F-47
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The Company has the following debentures outstanding guaranteed
by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Issuance/Pooling Date
|
|
Maturity Date
|
|
Interest Rate
|
|
|
2009
|
|
|
2008
|
|
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539
|
%
|
|
$
|
8,700,000
|
|
|
$
|
8,700,000
|
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893
|
%
|
|
|
13,600,000
|
|
|
|
13,600,000
|
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796
|
%
|
|
|
9,500,000
|
|
|
|
9,500,000
|
|
February 1, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.191
|
%
|
|
|
6,410,000
|
|
|
|
6,410,000
|
|
March 27, 2008
|
|
September 1, 2018
|
|
|
6.580
|
%
|
|
|
4,840,000
|
|
|
|
4,840,000
|
|
April 11, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
9,400,000
|
|
|
|
9,400,000
|
|
April 28, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
15,160,000
|
|
|
|
15,160,000
|
|
May 29, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
May 29, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
June 11, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
June 24, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
2,500,000
|
|
|
|
2,500,000
|
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
August 28, 2008
|
|
September 1, 2018
|
|
|
6.442
|
%
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
October 24, 2008
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
October 28, 2008
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
October 31, 2008
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
October 31, 2008
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
November 4, 2008
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
November 4, 2008
|
|
March 1, 2019
|
|
|
5.337
|
%
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
November 9, 2009
|
|
March 1, 2020
|
|
|
1.409
|
%
|
|
|
4,000,000
|
|
|
|
|
|
November 9, 2009
|
|
March 1, 2020
|
|
|
1.409
|
%
|
|
|
2,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
121,910,000
|
|
|
$
|
115,110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semi annually. There
are no principal payments required on these issues prior to
maturity. Debentures issued prior to September 2006 were subject
to prepayment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after
September 1, 2006.
Under the Small Business Investment Act and current SBA policy
applicable to SBICs, an SBIC (or group of SBICs under common
control) can have outstanding at any time SBA guaranteed
debentures up to three times the amount of its regulatory
capital. As of December 31, 2009, the maximum statutory
limit on the dollar amount of outstanding SBA guaranteed
debentures issued by a single SBIC is $150.0 million. With
$65.3 million of regulatory capital as of December 31,
2009, the Fund has the current capacity to issue up to the
statutory maximum of $150.0 million of SBA guaranteed
debentures. In addition, the Company has applied for a second
SBIC license which application is currently being reviewed by
the SBA. If approved, this license would provide the Company
with the capability to issue an additional $75.0 million of
SBA-guaranteed debentures. In addition to the one
time 1.0% fee on the total commitment from the SBA, the Company
also pays a one time 2.425% fee on the amount of
each debenture issued. These fees are capitalized as deferred
financing costs and are amortized over the term of the debt
agreements using the effective interest method. The weighted
average interest rates for all SBA guaranteed debentures as of
December 31, 2009 and December 31, 2008 were 5.772%
and 5.811%, respectively. The weighted average
F-48
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
interest rate as of December 31, 2009 includes
$115.1 million of pooled SBA-guaranteed debentures with a
weighted average fixed interest rate of 6.03% and
$6.8 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 1.41%. The weighted
average interest rate as of December 31, 2008 includes
$93.1 million of pooled SBA-guaranteed debentures with a
weighted average fixed interest rate of 6.19% and
$22.0 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 4.19%.
The Company has elected to be treated as a RIC under Subchapter
M of the Internal Revenue Code of 1986, as amended (the
Code), and intends to make the required
distributions to its stockholders as specified therein. In order
to qualify as a RIC, the Company must meet certain minimum
distribution,
source-of-income
and asset diversification requirements. If such requirements are
met, then the Company is generally required to pay income taxes
only on the portion of its taxable income and gains it does not
distribute (actually or constructively) and certain built-in
gains. The Company met its minimum distribution requirements for
2009, 2008 and 2007 and continually monitors its distribution
requirements with the goal of ensuring compliance with the Code.
The minimum distribution requirements applicable to RICs require
the Company to distribute to its stockholders at least 90% of
its investment company taxable income (ICTI), as
defined by the Code, each year. Depending on the level of ICTI
earned in a tax year, the Company may choose to carry forward
ICTI in excess of current year distributions into the next tax
year and pay a 4% excise tax on such excess. Any such carryover
ICTI must be distributed before the end of that next tax year
through a dividend declared prior to filing the final tax return
related to the year which generated such ICTI.
ICTI generally differs from net investment income for financial
reporting purposes due to temporary and permanent differences in
the recognition of income and expenses. The Company may be
required to recognize ICTI in certain circumstances in which it
does not receive cash. For example, if the Company holds debt
obligations that are treated under applicable tax rules as
having original issue discount (such as debt instruments issued
with warrants), the Company must include in ICTI each year a
portion of the original issue discount that accrues over the
life of the obligation, regardless of whether cash representing
such income is received by the Company in the same taxable year.
The Company may also have to include in ICTI other amounts that
it has not yet received in cash, such as 1) PIK interest
income and 2) interest income from investments that have
been classified as non-accrual for financial reporting purposes.
Interest income on non-accrual investments is not recognized for
financial reporting purposes, but generally is recognized in
ICTI. Because any original issue discount or other amounts
accrued will be included in the Companys ICTI for the year
of accrual, the Company may be required to make a distribution
to its stockholders in order to satisfy the minimum distribution
requirements, even though the Company will not have received and
may not ever receive any corresponding cash amount. ICTI also
excludes net unrealized appreciation or depreciation, as
investment gains or losses are not included in taxable income
until they are realized.
Permanent differences between ICTI and net investment income for
financial reporting purposes are reclassified among capital
accounts in the financial statements to reflect their tax
character. Differences in classification may also result from
the treatment of short-term gains as ordinary income for tax
purposes. During the years ended December 31, 2009, 2008
and 2007, the Company reclassified for book purposes
F-49
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
amounts arising from permanent book/tax differences primarily
related to differences in the tax basis and book basis of
investments sold and non-deductible taxes paid during the year
as follows:
|
|
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
Additional paid-in capital
|
|
$
|
(29,996
|
)
|
Investment income in excess of distributions
|
|
$
|
34,125
|
|
Accumulated realized gains on investments
|
|
$
|
(4,129
|
)
|
Year Ended December 31, 2008:
|
|
|
|
|
Additional paid-in capital
|
|
$
|
612,399
|
|
Investment income in excess of distributions
|
|
$
|
(151,906
|
)
|
Accumulated realized gains on investments
|
|
$
|
(460,493
|
)
|
Year Ended December 31, 2007:
|
|
|
|
|
Investment income in excess of distributions
|
|
$
|
649,856
|
|
Additional paid-in capital
|
|
$
|
(649,856
|
)
|
In addition, the Company has certain wholly owned taxable
subsidiaries (the Taxable Subsidiaries), each of
which holds one or more of its portfolio investments that are
listed on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for financial reporting purposes,
such that the Companys consolidated financial statements
reflect the Companys investments in the portfolio
companies owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit the Company to hold certain
portfolio companies that are organized as limited liability
companies (LLCs) (or other forms of pass-through
entities) and still satisfy the RIC tax requirement that at
least 90% of the RICs gross revenue for income tax
purposes must consist of investment income. Absent the Taxable
Subsidiaries, a proportionate amount of any gross income of an
LLC (or other pass-through entity) portfolio investment would
flow through directly to the RIC. To the extent that such income
did not consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause
the Company to incur significant amounts of federal income
taxes. When LLCs (or other pass-through entities) are owned by
the Taxable Subsidiaries, their income is taxed to the Taxable
Subsidiaries and does not flow through to the RIC, thereby
helping the Company preserve its RIC status and resultant tax
advantages. The Taxable Subsidiaries are not consolidated for
income tax purposes and may generate income tax expense as a
result of their ownership of the portfolio companies. This
income tax expense is reflected in the Companys Statements
of Operations.
For income tax purposes, distributions paid to stockholders are
reported as ordinary income, return of capital, long term
capital gains or a combination thereof. The tax character of
distributions paid for the years ended December 31, 2009,
2008 and 2007 was as follows:
|
|
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
Ordinary income(a)
|
|
$
|
14,614,821
|
|
Distributions of long-term capital gains
|
|
|
356,495
|
|
|
|
|
|
|
Distributions on a Tax Basis
|
|
$
|
14,971,316
|
|
|
|
|
|
|
Year Ended December 31, 2008:
|
|
|
|
|
Ordinary income(a)
|
|
$
|
9,817,002
|
|
|
|
|
|
|
Distributions on a Tax Basis
|
|
$
|
9,817,002
|
|
|
|
|
|
|
Year Ended December 31, 2007:
|
|
|
|
|
Ordinary income(a)
|
|
$
|
5,993,469
|
|
|
|
|
|
|
Distributions on a Tax Basis
|
|
$
|
5,993,469
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ordinary income is reported on
form 1099-DIV
as non-qualified. |
F-50
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
For federal income tax purposes, the cost of investments owned
at December 31, 2009 and 2008 was approximately $211.2 and
$181.2 million, respectively.
At December 31, 2009, 2008 and 2007, the components of
distributable earnings on a tax basis detailed below differ from
the amounts reflected in the Companys Statement of Assets
and Liabilities by temporary and other book/tax differences,
primarily relating to depreciation expense, stock-based
compensation, accruals of defaulted debt investment interest and
the tax treatment of certain partnership investments, as follows:
|
|
|
|
|
|
|
|
|
|
December 31, 2009:
|
|
|
|
|
|
|
|
|
Undistributed net investment income
|
|
|
|
|
|
$
|
1,344,215
|
|
Accumulated Capital Gains
|
|
|
|
|
|
|
448,164
|
|
Other permanent differences relating to the Companys
Formation
|
|
|
|
|
|
|
1,975,543
|
|
Other temporary differences
|
|
|
|
|
|
|
(1,001,062
|
)
|
Unrealized Depreciation
|
|
|
|
|
|
|
(10,448,630
|
)
|
|
|
|
|
|
|
|
|
|
Components of Distributable Earnings at December, 31, 2009
|
|
|
|
|
|
$
|
(7,681,770
|
)
|
|
|
|
|
|
|
|
|
|
December 31, 2008:
|
|
|
|
|
|
|
|
|
Undistributed net investment income
|
|
|
|
|
|
$
|
634,803
|
|
Accumulated Capital Gains
|
|
|
|
|
|
|
356,495
|
|
Other permanent differences relating to the Companys
Formation
|
|
|
|
|
|
|
1,975,543
|
|
Other temporary differences
|
|
|
|
|
|
|
(317,111
|
)
|
Unrealized Appreciation
|
|
|
|
|
|
|
931,730
|
|
|
|
|
|
|
|
|
|
|
Components of Distributable Earnings at December, 31, 2008
|
|
|
|
|
|
$
|
3,581,460
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
Accumulated Capital Losses
|
|
|
|
|
|
$
|
(618,620
|
)
|
Other permanent differences relating to the Companys
Formation
|
|
|
|
|
|
|
1,834,692
|
|
Other temporary differences
|
|
|
|
|
|
|
34,166
|
|
Unrealized Appreciation
|
|
|
|
|
|
|
5,266,122
|
|
|
|
|
|
|
|
|
|
|
Components of Distributable Earnings at December, 31, 2007
|
|
|
|
|
|
$
|
6,516,360
|
|
|
|
|
|
|
|
|
|
|
During 2008, the Company utilized net capital loss carryforwards
of $618,620.
|
|
5.
|
Equity
Compensation Plan
|
The Companys Board of Directors and stockholders have
approved the Triangle Capital Corporation Amended and Restated
2007 Equity Incentive Plan (the Plan), under which
there are 900,000 shares of the Companys Common Stock
authorized for issuance. Under the Plan, the Board (or
compensation committee, if delegated administrative authority by
the Board) may award stock options, restricted stock or other
stock based incentive awards to executive officers, employees
and directors. The terms of equity-based awards granted under
the Plan generally will vest ratably over one- to four-year
periods.
The Company accounts for its equity-based compensation plan
using the fair value method, as prescribed by ASC Topic 718,
Stock Compensation (former Statement of Accounting
Standards No. 123R, Share-Based Payment).
Accordingly, for restricted stock awards, we measure the grant
date fair value based upon the market price of our common stock
on the date of the grant and amortize this fair value to
compensation expense over the requisite service period or
vesting term.
F-51
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
On May 7, 2008, the Companys Board of Directors
granted 113,500 restricted shares of our common stock to certain
employees and independent directors. These restricted shares had
a total grant date fair value of approximately
$1.3 million, which will be expensed on a straight-line
basis over each respective awards vesting period.
On February 4, 2009, the Companys Board of Directors
granted 133,000 restricted shares of our common stock to certain
employees. These restricted shares had a total grant date fair
value of approximately $1.4 million, which will be expensed
on a straight-line basis over each respective awards
vesting period. In addition, on May 6, 2009, the
Companys Board of Directors granted 11,812 restricted
shares of our common stock to its independent directors. These
restricted shares had a total grant date fair value of
approximately $0.1 million, which will be expensed on a
straight-line basis over a one-year period ending May 6,
2010.
In the years ended December 31, 2009 and 2008, the Company
recognized equity-based compensation expense of approximately
$0.7 million and $0.3 million, respectively. This
expense is included in general and administrative expenses in
the Companys consolidated statements of operations. As of
December 31, 2009, the Company has a total of 219,813
restricted shares outstanding.
As of December 31, 2009, there was approximately
$1.8 million of total unrecognized compensation cost,
related to the Companys non-vested restricted shares. This
cost is expected to be recognized over a weighted-average period
of approximately 2.7 years.
|
|
6.
|
Commitments
and Contingencies
|
In the normal course of business, the Company is party to
financial instruments with off-balance sheet risk, consisting
primarily of unused commitments to extend credit, in the form of
loans, to the Companys portfolio companies. The balance of
unused commitments to extend credit as of December 31, 2009
was approximately $4.3 million. Since these commitments may
expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
The Companys headquarters is leased under an agreement
that expires on December 31, 2013. Rent expense for the
years ended December 31, 2009, 2008 and 2007 was
approximately $282,000, $122,000 and $98,000, respectively, and
the rent commitment for the four years ending December 31,
2013 are as follows: 2010 - $281,409, 2011 - $287,805, 2012 -
$294,531, 2013 - $301,368.
F-52
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
13.22
|
|
|
$
|
13.74
|
|
|
$
|
13.44
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net investment income(2)
|
|
|
1.63
|
|
|
|
1.54
|
|
|
|
0.96
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net realized gain (loss) on investments(2)
|
|
|
0.05
|
|
|
|
0.21
|
|
|
|
(0.09
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Net unrealized appreciation (depreciation) on investments(2)
|
|
|
(1.20
|
)
|
|
|
(0.62
|
)
|
|
|
0.45
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase from investment operations(2)
|
|
|
0.48
|
|
|
|
1.13
|
|
|
|
1.32
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Cash dividends/distributions declared
|
|
|
(1.67
|
)
|
|
|
(1.44
|
)
|
|
|
(0.98
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Common stock offerings
|
|
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Stock-based compensation(2)
|
|
|
0.08
|
|
|
|
0.04
|
|
|
|
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Shares issued pursuant to Dividend Reinvestment Plan
|
|
|
0.10
|
|
|
|
|
|
|
|
0.24
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Distribution to partners(2)
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Income tax provision(2)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Other(3)
|
|
|
(0.63
|
)
|
|
|
(0.23
|
)
|
|
|
(0.24
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
11.03
|
|
|
$
|
13.22
|
|
|
$
|
13.74
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(4)
|
|
$
|
12.09
|
|
|
$
|
10.20
|
|
|
$
|
12.40
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
11,702,511
|
|
|
|
6,917,363
|
|
|
|
6,803,863
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net assets at end of period
|
|
$
|
129,099,192
|
|
|
$
|
91,514,982
|
|
|
$
|
93,472,353
|
|
|
$
|
25,156,811
|
|
|
$
|
11,364,547
|
|
Average net assets(5)
|
|
$
|
98,085,844
|
|
|
$
|
94,584,281
|
|
|
$
|
92,765,399
|
|
|
$
|
20,447,456
|
|
|
$
|
7,654,010
|
|
Ratio of total operating expenses to average net assets
|
|
|
14
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
18
|
%
|
|
|
43
|
%
|
Ratio of net investment income to average net assets
|
|
|
14
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
15
|
%
|
|
|
35
|
%
|
Ratio of total capital called to total capital commitments
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
100
|
%
|
|
|
50
|
%
|
Portfolio turnover ratio
|
|
|
12
|
%
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
7
|
%
|
|
|
39
|
%
|
Total return(6)
|
|
|
35
|
%
|
|
|
(6
|
)%
|
|
|
(11
|
)%
|
|
|
18
|
%
|
|
|
4
|
%
|
|
|
|
(1) |
|
Per share data for the years ended December 31, 2006 and
2005 is not presented as there were no shares of Triangle
Capital Corporation outstanding during the period. |
|
(2) |
|
Weighted average basic per share data. |
|
(3) |
|
Represents the impact of the different share amounts used in
calculating per share data as a result of calculating certain
per share data based upon the weighted average basic shares
outstanding during the period and certain per share data based
on the shares outstanding as of a period end or transaction date. |
|
(4) |
|
Represents the closing price of the Companys common stock
on the last day of the period. |
F-53
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
|
|
|
(5) |
|
Average net assets for the year ended December 31, 2007 are
presented as if the IPO and Formation Transactions had occurred
on January 1, 2007. See Note 1 for a further
description of the basis of presentation of the Companys
financial statements. |
|
(6) |
|
The total return for the years ended December 31, 2009 and
2008 equals the change in the market value of the Companys
common stock during the period, plus dividends declared per
share during the period, divided by the market value of the
Companys common stock at the beginning of the period. The
total return for the year ended December 31, 2007 equals
the change in the market value of the Companys common
stock from the IPO price of $15.00 per share plus dividends
declared per share during the period, divided by the IPO price.
Total return is not annualized. |
|
|
8.
|
Selected
Quarterly Financial Data (Unaudited)
|
The following tables set forth certain quarterly financial
information for each of the eight quarters in the two years
ended December 31, 2009. Results for any quarter are not
necessarily indicative of results for the full year or for any
future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Total investment income
|
|
$
|
6,504,500
|
|
|
$
|
6,576,403
|
|
|
$
|
7,096,643
|
|
|
$
|
7,584,436
|
|
Net investment income
|
|
|
3,037,582
|
|
|
|
3,249,297
|
|
|
|
3,717,857
|
|
|
|
4,043,838
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
(583,357
|
)
|
|
|
(2,851,857
|
)
|
|
|
(778,659
|
)
|
|
|
8,250,576
|
|
Net investment income per share
|
|
$
|
0.43
|
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
$
|
0.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Total investment income
|
|
$
|
3,863,984
|
|
|
$
|
5,020,091
|
|
|
$
|
5,869,637
|
|
|
$
|
6,605,786
|
|
Net investment income
|
|
|
1,913,695
|
|
|
|
2,542,442
|
|
|
|
3,211,706
|
|
|
|
2,954,435
|
|
Net increase in net assets resulting from operations
|
|
|
765,391
|
|
|
|
2,848,507
|
|
|
|
2,476,346
|
|
|
|
1,548,257
|
|
Net investment income per share
|
|
$
|
0.28
|
|
|
$
|
0.37
|
|
|
$
|
0.46
|
|
|
$
|
0.43
|
|
On February 4, 2010, the Companys Board of Directors
granted 142,499 restricted shares of our common stock to certain
employees. These restricted shares had a total grant date fair
value of approximately $1.7 million, which will be expensed
on a straight-line basis over each respective awards
vesting period.
On February 24, 2010, the Company invested
$10.5 million in subordinated debt and warrants of
Botanical Labs, a manufacturer of natural health supplements.
Under the terms of the investment, Botanical Labs will pay
interest on the subordinated debt at a rate of 14% per annum.
F-54
2,000,000 Shares
Common
Stock
PROSPECTUS
Morgan
Keegan & Company, Inc.
|
|
|
BB&T
Capital Markets
A
Division of Scott & Stringfellow, LLC
|
|
The date of this prospectus supplement is
September , 2010.