Filed pursuant to Rule 497
Registration Statement
No. 333-151930
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 4, 2011)
3,500,000 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 3,500,000 shares of our common stock.
Our common stock is listed on the New York Stock Exchange under
the symbol TCAP. The last reported sale price on
August 23, 2011 was $18.21 per share. Our net asset value
per share was $13.79 as of June 30, 2011.
Please read this prospectus supplement and the accompanying
prospectus before investing and keep them for future reference.
This prospectus supplement and the accompanying prospectus
contain important information about us that a prospective
investor should know before investing in our common stock. We
file annual, quarterly and current reports, proxy statements and
other information about us with the Securities and Exchange
Commission. This information is available free of charge by
contacting us at 3700 Glenwood Avenue, Suite 530, Raleigh,
North Carolina 27612, or by telephone by calling collect at
(919) 719-4770,
or on our website at www.tcap.com. The information on our
website is not incorporated by reference into this prospectus
supplement or the accompanying prospectus. The SEC also
maintains a website at www.sec.gov that contains such
information.
Investing in our common stock is speculative and involves
numerous risks, including the risk associated with the use of
leverage. For more information regarding these risks, please see
Risk Factors beginning on page S-6 of this
prospectus supplement and on page 16 of the accompanying
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission, nor any other regulatory body, has
approved or disapproved of these securities or determined if
either this prospectus supplement or the accompanying prospectus
is truthful or complete. Any representation to the contrary is a
criminal offense.
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Per Share
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Total
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Public offering price
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$
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17.15000
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$
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60,025,000
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Underwriting discount (4.50%)
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$
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0.77175
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$
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2,701,125
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Proceeds to us before expenses(1)
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$
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16.37825
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$
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57,323,875
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(1) |
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Before deducting estimated expenses payable by us of
approximately $300,000. |
The underwriters have the option to purchase up to an additional
525,000 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 $69,028,750, and
the total underwriting discount (4.50%) will be $3,106,294. The
proceeds to us would be $65,922,456, before deducting estimated
expenses payable by us of $300,000.
The underwriters expect to deliver the shares on or about
August 29, 2011.
Joint Bookrunning Managers
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Morgan
Stanley
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Morgan Keegan
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Baird
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BB&T Capital Markets
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A
division of Scott & Stringfellow, LLC
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JMP
Securities
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Sterne Agee
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The date of this prospectus supplement is August 23, 2011.
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-6
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S-8
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S-9
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S-10
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S-11
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S-13
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S-15
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S-28
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S-29
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S-32
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S-32
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S-32
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S-33
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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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12
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Selected Consolidated Financial and Other Data
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13
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Selected Quarterly Financial Data
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15
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Risk Factors
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16
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Special Note Regarding Forward-Looking Statements
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36
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Formation Transactions
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36
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Business Development Company and Regulated Investment Company
Elections
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37
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Use of Proceeds
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38
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Price Range of Common Stock and Distributions
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39
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Selected Consolidated Financial and Other Data
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41
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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44
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Senior Securities
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60
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Business
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Portfolio Companies
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71
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Management
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82
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Compensation of Directors and Executive Officers
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91
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Certain Relationships and Transactions
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103
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Control Persons and Principal Stockholders
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104
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Sales of Common Stock Below Net Asset Value
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105
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Dividend Reinvestment Plan
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110
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Description of Our Securities
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111
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Material U.S. Federal Income Tax Considerations
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117
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Regulation
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126
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Plan of Distribution
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131
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Custodian, Transfer and Dividend Paying Agent and Registrar
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133
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Brokerage Allocation and Other Practices
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133
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Legal Matters
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134
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Independent Registered Public Accounting Firm
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134
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Available Information
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134
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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 borrowings under our
credit facility and 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, 2011,
we had investments in 57 portfolio companies, with an aggregate
cost of $411.4 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 2011, we invested $13.8 million in subordinated
debt of Renew Life Formulas, Inc. (Renew), a
provider of branded nutritional supplements and wellness
products. Under the terms of the investment, Renew will pay
interest on the subordinated debt at a rate of 14% per annum.
In July 2011, we invested $1.9 million in 2nd Lien debt of
Aramsco Holdings, Inc. (Aramsco), a distributer of
environmental safety and emergency preparedness products. Under
the terms of the investment, Aramsco will pay interest on the
subordinated debt at a rate of LIBOR plus 12% per annum.
S-3
The
Offering
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Common stock offered by us |
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3,500,000 shares |
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Common stock outstanding prior to this offering |
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18,625,238 shares |
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Common stock to be outstanding after this
offering(1)
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22,125,238 shares |
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Over-allotment option |
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525,000 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 $300,000) will be $57,323,875. |
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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. 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
May 31, 2011, our Board of Directors declared a quarterly
dividend of $0.44 per share which was paid on June 29,
2011. 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 S-6 of this prospectus supplement and on page 16
of the accompanying prospectus. |
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New York Stock Exchange 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 18,625,238 shares outstanding as
of August 23, 2011 and, unless we indicate otherwise,
excludes (i) 387,485 shares of common stock reserved
for issuance under our amended and restated equity incentive
plan, and (ii) 525,000 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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4.50
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%(1)
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Offering expenses (as a percentage of offering price)
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0.50
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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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5.00
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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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4.59
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%(4)
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Other expenses
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5.18
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%(5)
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Total annual expenses
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9.77
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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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The offering expenses of this offering borne by us are estimated
to be approximately $300,000. 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 0.43%. |
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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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Represents estimated interest payments on borrowed funds for
2011. |
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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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(6) |
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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 4.85% 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 that our operating expenses would
remain at the levels set forth in the table above, and that you
would pay a sales load of 4.50% (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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145
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$
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331
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$
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498
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$
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848
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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 borrowings under our credit facility that we may 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.
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks described below,
together with all of the other information included in this
prospectus supplement and in the accompanying prospectus, before
you decide whether to make an investment in our common stock.
The risks set forth below and on page 16 of the
accompanying prospectus are not the only risks we face. If any
of the adverse events or conditions described below occurs, our
business, financial condition and results of operations could be
materially adversely affected. In such case, our net asset value
(NAV) and the trading price of our common stock
could decline; we could reduce or eliminate our dividend; and
you could lose all or part of your investment.
Because
of the limited amount of committed funding under our credit
facility, we will have limited ability to fund new investments
if we are unable to expand the facility.
On May 9, 2011, we entered into a credit agreement
providing for a revolving line of credit, which we refer to as
the Credit Facility. Initial committed funding under the Credit
Facility is $50.0 million. The Credit Facility has an
accordion feature which allows for an increase in the total loan
size up to $90.0 million. However, if we are unable to meet
the terms of the accordion feature, we will be unable to expand
the Credit Facility and thus will continue to have limited
availability to finance new investments under our line of
credit. The Credit Facility matures on May 8, 2014, with
two one-year extension options bringing the total potential
commitment and funding period to five years from closing. If the
facility is not renewed or extended, all principal and interest
will be due and payable.
There can be no guarantee that we will be able to renew, extend
or replace the Credit Facility upon its maturity on terms that
are favorable to us, if at all. Our ability to expand the Credit
Facility, and to obtain replacement financing at the time of
maturity, will be constrained by then-current economic
conditions affecting the credit markets. In the event that we
are not able to expand the Credit Facility, or to renew, extend
or refinance the Credit Facility at the time of its maturity,
this could have a material adverse effect on our liquidity and
ability to fund new investments, our ability to make
distributions to our stockholders and our ability to qualify as
a RIC under the Code.
In
addition to regulatory limitations on our ability to raise
capital, our line of credit contains various covenants, which,
if not complied with, could accelerate our repayment obligations
under the facility, thereby materially and adversely affecting
our liquidity, financial condition, results of operations and
ability to pay distributions.
We will have a continuing need for capital to finance our loans.
We are party to the Credit Facility, which provides us with a
revolving credit line facility of up to $90.0 million, of
which $50.0 million was available for borrowings as of
June 30, 2011. The Credit Facility contains customary terms
and conditions, including, without limitation, affirmative and
negative covenants such as information reporting requirements,
minimum consolidated tangible net worth, minimum interest
coverage ratio, maintenance of RIC and BDC status, and minimum
liquidity. The Credit Facility also contains customary events of
default with customary cure and notice, including, without
limitation, nonpayment, misrepresentation of representations and
warranties in a
S-6
material respect, breach of covenant, cross-default to other
indebtedness, bankruptcy, change of control, and materially
adverse effect. The Credit Facility permits us to fund
additional loans and investments as long as we are within the
conditions set out in the credit agreement. Our continued
compliance with these covenants depends on many factors, some of
which are beyond our control, and there are no assurances that
we will continue to comply with these covenants. Our failure to
satisfy these covenants could result in foreclosure by our
lenders, which would accelerate our repayment obligations under
the facility and thereby have a material adverse effect on our
business, liquidity, financial condition, results of operations
and ability to pay distributions to our stockholders.
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 use leverage to
partially finance our investments, you will experience increased
risks associated with investing in our securities. Triangle SBIC
and Triangle SBIC II 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 Triangle SBIC and Triangle SBIC II that are superior
to the claims of our common stockholders. In addition, our
Credit Facility contains financial and operating covenants that
could restrict our business activities, including our ability to
declare dividends if we default under certain provisions. Breach
of any of those covenants could cause a default under those
instruments. Such a default, if not cured or waived, could have
a material adverse effect on us. 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.
On June 30, 2011, we had $224.1 million of outstanding
indebtedness guaranteed by the SBA, which had a weighted average
annualized interest cost of 4.64%. The calculation of this
weighted average interest rate includes i) the interim
rates charged on $19.1 million of SBA guaranteed debentures
that have not yet been pooled and ii) the fixed rates
charged on $205.0 million of pooled SBA guaranteed
debentures. The unpooled SBA-guaranteed debentures have a
weighted average interim interest rate of 1.17% and the pooled
SBA guaranteed debentures have a weighted average interest rate
of 4.97%.
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, by borrowing
from banks or insurance companies or by expanding our line of
credit, and there can be no assurance that such additional
leverage can in fact be achieved.
You
will experience dilution in your ownership percentage if you do
not participate in our dividend reinvestment plan.
Because all dividends payable to those stockholders that are
participants in our dividend reinvestment plan are automatically
reinvested in shares of our common stock, you will experience
dilution over time if you do not participate in the dividend
reinvestment plan.
S-7
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
or the accompanying prospectus.
S-8
USE OF
PROCEEDS
The net proceeds from the sale of 3,500,000 shares of our
common stock in this offering are estimated to be $57,023,875
(or $65,622,456 if the underwriters exercise their
over-allotment option in full), and after deducting underwriting
discounts of $2,701,125 (or $3,106,294 if the underwriters
exercise their over-allotment option in full) and estimated
offering expenses of approximately $300,000 payable by us.
We intend to use the net proceeds of this offering to invest in
lower middle market companies 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.
S-9
CAPITALIZATION
The following table sets forth our capitalization:
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on an actual basis as of June 30, 2011; and
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on an as-adjusted basis giving effect to the sale of
3,500,000 shares of our common stock in this offering at
the public offering price of $17.15 per share, less estimated
underwriting discounts and offering expenses payable by us.
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This table should be read in conjunction with our
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our financial
statements and notes thereto included in this prospectus
supplement and the accompanying prospectus.
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As of June 30, 2011(1)
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As-adjusted for
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Actual
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this Offering
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(Unaudited)
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Cash and cash equivalents
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$
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68,242,549
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$
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125,266,424
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Borrowings (SBA-guaranteed debentures payable)
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224,149,934
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224,149,934
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Stockholders equity:
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Common stock, par value $0.001 per share;
150,000,000 shares authorized, 18,625,238 shares
outstanding, actual; 22,125,238 shares outstanding, as
adjusted
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18,625
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22,125
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Additional paid-in capital
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248,967,897
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305,988,272
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Investment income in excess of distributions
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5,400,419
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5,400,419
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Accumulated realized gains on investments
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4,736,393
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4,736,393
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Net unrealized depreciation of investments
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(2,323,001
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)
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(2,323,001
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)
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Total stockholders equity
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256,800,333
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313,824,208
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Total capitalization
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$
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480,950,267
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$
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537,974,142
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(1) |
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This table does not reflect $15.4 million in borrowings
under our credit facility that were drawn down subsequent to
June 30, 2011. |
S-10
PRICE
RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the New York Stock Exchange under
the symbol TCAP. The following table sets forth, for
each fiscal quarter since our initial public offering, the range
of high and low sales prices of our common stock as reported on
the Nasdaq Global Market or the New York Stock Exchange, as
applicable, the sales price as a percentage of our net asset
value, or NAV, and the distributions declared by us for each
fiscal quarter. The stock quotations are inter-dealer quotations
and do not include
mark-ups,
mark-downs or commissions and as such do not necessarily
represent actual transactions.
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Premium/Discount
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Premium/Discount
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Cash
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Price Range
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of High Sales
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of Low Sales Price
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Distributions
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NAV(1)
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High
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Low
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Price to NAV(2)
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to NAV(2)
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per Share(3)
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Year ended
December 31, 2008
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First Quarter
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$
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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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$
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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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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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$
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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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$
|
12.38
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$
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7.50
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|
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109
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%
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66
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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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$
|
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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$
|
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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$
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14.53
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$
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11.45
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|
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134
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%
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105
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%
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|
$
|
0.41
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Second Quarter
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$
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11.08
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$
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16.38
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$
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12.16
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148
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%
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|
110
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%
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$
|
0.41
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Third Quarter
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$
|
11.99
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|
$
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16.81
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$
|
14.06
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|
140
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%
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117
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%
|
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$
|
0.41
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Fourth Quarter
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$
|
12.09
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$
|
20.97
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$
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15.90
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|
|
173
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%
|
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|
132
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%
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|
$
|
0.42
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|
Year ended
December 31, 2011
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|
First Quarter
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$
|
13.42
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|
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$
|
20.93
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$
|
16.23
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|
|
156
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%
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|
|
121
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%
|
|
$
|
0.42
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Second Quarter
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|
$
|
13.79
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|
$
|
19.27
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$
|
17.37
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|
|
140
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%
|
|
|
126
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%
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|
$
|
0.44
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Third Quarter (through August 23, 2011)
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*
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$
|
19.14
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$
|
15.01
|
|
|
|
*
|
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|
|
*
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|
|
*
|
|
|
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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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* |
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Not determinable at the time of filing. |
The last reported price for our common stock on August 23,
2011 was $18.21 per share. As of August 23, 2011, we
had 58 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
S-11
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 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) 98.2% 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, 2011:
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|
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(c)
|
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(d)
|
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|
|
Amount
|
|
Amount
|
|
|
|
|
Held by
|
|
Outstanding
|
|
|
|
|
Registrant
|
|
Exclusive of
|
(a)
|
|
(b)
|
|
or for its
|
|
Amount Shown
|
Title of Class
|
|
Amount Authorized
|
|
Account
|
|
Under(c)
|
|
Common stock
|
|
|
150,000,000
|
|
|
|
|
|
|
|
18,625,238
|
|
SBA-guaranteed debentures(1)
|
|
$
|
225,000,000
|
|
|
|
|
|
|
$
|
224,149,934
|
|
|
|
|
(1) |
|
As of June 30, 2011, Triangle SBIC had issued the statutory
maximum of $150.0 million of SBA-guaranteed debentures. As of
June 30, 2011, Triangle SBIC II had issued the
statutory maximum of $75.0 million of SBA-guaranteed
debentures. Amount outstanding represents cost of SBA guaranteed
debentures outstanding. For more information regarding our
limitations as to SBA guaranteed debenture issuances, see
Regulation Small Business Administration
Regulation in the accompanying prospectus. |
S-12
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, 2006, 2007, 2008, 2009 and 2010 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,
2011 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, 2011 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2011. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
|
$
|
21,056
|
|
|
$
|
27,149
|
|
|
$
|
35,641
|
|
|
$
|
28,652
|
|
Interest income from cash and cash equivalent investments
|
|
|
280
|
|
|
|
1,824
|
|
|
|
303
|
|
|
|
613
|
|
|
|
344
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
21,359
|
|
|
|
27,762
|
|
|
|
35,985
|
|
|
|
28,839
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
4,228
|
|
|
|
6,901
|
|
|
|
7,350
|
|
|
|
4,531
|
|
Amortization of deferred financing fees
|
|
|
100
|
|
|
|
113
|
|
|
|
255
|
|
|
|
363
|
|
|
|
797
|
|
|
|
522
|
|
Management fees
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
115
|
|
|
|
3,894
|
|
|
|
6,254
|
|
|
|
6,449
|
|
|
|
7,689
|
|
|
|
5,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
10,737
|
|
|
|
13,713
|
|
|
|
15,836
|
|
|
|
10,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
10,622
|
|
|
|
14,049
|
|
|
|
20,149
|
|
|
|
17,952
|
|
Net realized gain (loss) on
investments non-control/non-affiliate
|
|
|
6,027
|
|
|
|
(760
|
)
|
|
|
(1,393
|
)
|
|
|
448
|
|
|
|
(1,623
|
)
|
|
|
828
|
|
Net realized gain on investments affiliate
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
(3,856
|
)
|
|
|
|
|
Net realized gain on investments control
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
|
12,153
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
(4,286
|
)
|
|
|
(10,310
|
)
|
|
|
10,941
|
|
|
|
(4,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(2,850
|
)
|
|
|
(9,862
|
)
|
|
|
5,462
|
|
|
|
8,917
|
|
Provision for income taxes
|
|
|
|
|
|
|
(52
|
)
|
|
|
(133
|
)
|
|
|
(150
|
)
|
|
|
(220
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
7,639
|
|
|
$
|
4,037
|
|
|
$
|
25,391
|
|
|
$
|
26,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and
diluted
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
1.54
|
|
|
$
|
1.63
|
|
|
$
|
1.58
|
|
|
$
|
1.01
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.11
|
|
|
$
|
0.47
|
|
|
$
|
1.99
|
|
|
$
|
1.52
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.22
|
|
|
$
|
11.03
|
|
|
$
|
12.09
|
|
|
$
|
13.79
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
1.44
|
|
|
$
|
1.62
|
|
|
$
|
1.61
|
|
|
$
|
0.86
|
|
Capital gains distributions declared per common share
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
|
|
S-13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
182,105
|
|
|
$
|
201,318
|
|
|
$
|
325,991
|
|
|
$
|
409,400
|
|
Cash and cash equivalents
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
27,193
|
|
|
|
55,200
|
|
|
|
54,820
|
|
|
|
68,243
|
|
Interest and fees receivable
|
|
|
135
|
|
|
|
305
|
|
|
|
680
|
|
|
|
677
|
|
|
|
868
|
|
|
|
1,579
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
47
|
|
|
|
95
|
|
|
|
287
|
|
|
|
119
|
|
|
|
555
|
|
Deferred offering costs
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
29
|
|
|
|
47
|
|
|
|
51
|
|
Deferred financing fees
|
|
|
985
|
|
|
|
999
|
|
|
|
3,546
|
|
|
|
3,540
|
|
|
|
6,200
|
|
|
|
6,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
388,045
|
|
|
$
|
486,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital/net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
1,609
|
|
|
$
|
2,222
|
|
|
$
|
2,269
|
|
|
$
|
2,274
|
|
Interest payable
|
|
|
606
|
|
|
|
699
|
|
|
|
1,882
|
|
|
|
2,334
|
|
|
|
2,388
|
|
|
|
3,112
|
|
Distribution/dividends payable
|
|
|
532
|
|
|
|
2,041
|
|
|
|
2,767
|
|
|
|
4,775
|
|
|
|
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
52
|
|
|
|
30
|
|
|
|
59
|
|
|
|
198
|
|
|
|
6
|
|
Deferred revenue
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
75
|
|
|
|
37
|
|
|
|
38
|
|
Deferred income taxes
|
|
|
|
|
|
|
1,760
|
|
|
|
844
|
|
|
|
577
|
|
|
|
209
|
|
|
|
352
|
|
SBA-guaranteed debentures payable
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
115,110
|
|
|
|
121,910
|
|
|
|
202,465
|
|
|
|
224,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
122,242
|
|
|
|
131,952
|
|
|
|
207,566
|
|
|
|
229,932
|
|
Total partners capital/shareholders equity
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
91,425
|
|
|
|
129,099
|
|
|
|
180,479
|
|
|
|
256,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net assets
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
388,045
|
|
|
$
|
486,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
|
|
13.5
|
%
|
|
|
13.7
|
%
|
|
|
14.0
|
%
|
Number of portfolio companies
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
|
|
37
|
|
|
|
48
|
|
|
|
57
|
|
Expense ratios (annualized, as percentage of average net
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
5.3
|
%
|
|
|
5.1
|
%
|
Interest expense and deferred financing fees
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
5.6
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
11.3
|
%
|
|
|
14.0
|
%
|
|
|
10.9
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-14
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, 2011, 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, 2010 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 business development
company, or BDC, under the Investment Company Act of 1940, or
1940 Act. Our wholly owned subsidiaries, Triangle Mezzanine
Fund LLLP, or Triangle SBIC, and Triangle Mezzanine
Fund II LP, or Triangle SBIC II, are licensed as small
business investment companies, or SBICs, by the United States
Small Business Administration, or SBA. In addition, Triangle
SBIC has also elected to be treated as a BDC under the 1940 Act.
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 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 partner 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 is instead
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 June 30, 2011, and December 31, 2010, the
weighted average yield on our outstanding debt investments other
than non-accrual debt investments (including PIK interest) was
approximately 15.1%. The weighted average yield on all of our
outstanding investments (including equity and
S-15
equity-linked investments but excluding non-accrual debt
investments) was approximately 14.0% and 13.7% as of
June 30, 2011 and December 31, 2010, respectively. The
weighted average yield on all of our outstanding investments
(including equity and equity-linked investments and non-accrual
debt investments) was approximately 13.5% and 12.9% as of
June 30, 2011 and December 31, 2010, respectively.
Triangle SBIC and Triangle SBIC II 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 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
$409.4 million as of June 30, 2011, as compared to
$326.0 million as of December 31, 2010. As of
June 30, 2011, we had investments in 57 portfolio companies
with an aggregate cost of $411.4 million. As of
December 31, 2010, we had investments in 48 portfolio
companies with an aggregate cost of $324.0 million. As of
both June 30, 2011 and December 31, 2010, none of our
portfolio investments represented greater than 10% of the total
fair value of our investment portfolio.
As of June 30, 2011 and December 31, 2010, our
investment portfolio consisted of the following investments:
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Percentage of
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Total
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Percentage of
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Cost
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Portfolio
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Fair Value
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Total Portfolio
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June 30, 2011:
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Subordinated debt, Unitranche and
2nd lien
notes
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$
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365,763,772
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89
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%
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$
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358,205,291
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87
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%
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Senior debt
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7,995,008
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2
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6,901,690
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2
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Equity shares
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29,247,111
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7
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32,909,636
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8
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Equity warrants
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7,490,080
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2
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10,598,068
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3
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Royalty rights
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874,400
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785,000
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$
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411,370,371
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100
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%
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$
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409,399,685
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100
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%
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December 31, 2010:
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Subordinated debt, Unitranche and
2nd lien
notes
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$
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279,433,775
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86
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%
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$
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270,994,677
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83
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%
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Senior debt
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8,631,760
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3
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7,639,159
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3
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Equity shares
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29,115,890
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9
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38,719,699
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12
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Equity warrants
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5,985,882
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2
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7,902,458
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2
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Royalty rights
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874,400
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734,600
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$
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324,041,707
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100
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%
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$
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325,990,593
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100
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%
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Investment
Activity
During the six months ended June 30, 2011, we made ten new
investments totaling approximately $86.8 million, debt
investments in six existing portfolio companies totaling
approximately $49.3 million and three equity investments in
existing portfolio companies totaling approximately
$0.2 million. We had seven portfolio company loans repaid
at par totaling approximately $39.8 million and received
normal principal repayments and partial loan prepayments
totaling approximately $5.8 million in the six months ended
June 30, 2011. In addition, we sold one equity investment
in a portfolio company for total proceeds of approximately
$16.0 million, resulting in a realized gain totaling
approximately $12.2 million.
S-16
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
$4.4 million in the six months ended June 30, 2010.
Total portfolio investment activity for the six months ended
June 30, 2011 and 2010 was as follows:
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Six Months Ended June 30,
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2011
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2010
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Fair value of portfolio, beginning of period
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$
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325,990,593
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$
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201,317,970
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New investments
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136,291,889
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58,216,292
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Proceeds from sales of investments
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(15,995,056
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)
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(4,089,571
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)
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Loan origination fees received
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(2,689,172
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)
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(1,157,860
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)
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Principal repayments received
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(45,527,214
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)
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(17,613,050
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)
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Payment in kind interest earned
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4,432,022
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2,789,287
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Payment in kind interest payments received
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(3,394,264
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(1,305,422
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)
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Accretion of loan discounts
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518,337
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312,106
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Accretion of deferred loan origination revenue
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711,355
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418,082
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Realized gain on investments
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12,980,769
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707,653
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Unrealized gain on investments
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(3,919,574
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1,718,790
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Fair value of portfolio, end of period
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$
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409,399,685
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$
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241,314,277
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Weighted average yield on debt investments at end of period(1)
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15.1
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%
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15.4
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%
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Weighted average yield on total investments at end of period(1)
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14.0
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%
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14.0
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%
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Weighted average yield on total investments at end of period
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13.5
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%
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12.6
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%
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(1) |
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Excludes non-accrual debt investments. |
Non-Accrual
Assets
As of June 30, 2011, the fair value of our non-accrual
assets was approximately $7.3 million, which comprised 1.8%
of the total fair value of our portfolio, and the cost of our
non-accrual assets was approximately $14.0 million, which
comprised 3.4% of the total cost of our portfolio. As of
December 31, 2010, the fair value of our non-accrual assets
was approximately $9.6 million, which comprised 3.0% of the
total fair value of our portfolio, and the cost of our
non-accrual assets was approximately $17.4 million, which
comprised 5.4% of the total cost of our portfolio. Our
non-accrual assets as of June 30, 2011 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 year ended December 31, 2010, we recognized an
unrealized gain on our debt investment in Gerli of approximately
$0.7 million. During the first quarter of 2011, we
restructured our investment in Gerli. As a result of the
restructuring, we received a new note from Gerli with a face
amount of $3.0 million
S-17
and a fair value of approximately $2.3 million and
preferred stock with a liquidation preference of
$0.4 million. Under the terms of the new note, interest on
the note is payable only if Gerli meets certain covenants, which
they were not compliant with as of June 30, 2011. In the
six months ended June 30, 2011, we recognized an unrealized
loss on our new debt investment in Gerli of approximately
$0.8 million. As of June 30, 2011, the cost of our new
debt investment in Gerli was $3.0 million and the fair
value was $2.2 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 $1.3 million on our subordinated note
investment in Fire Sprinkler Systems. In each of the years ended
December 31, 2009 and 2010, we recognized additional
unrealized losses on our debt investment in Fire Sprinkler
Systems of $0.3 million. In the six months ended
June 30, 2011, we recorded an additional $0.4 million
unrealized loss on our debt investment. As of June 30,
2011, the cost of our debt investment in Fire Sprinkler Systems
was $2.8 million and the fair value of such investment was
$0.5 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, 2011,
the cost of our investment in ADL was approximately
$5.2 million and the fair value of such investment was
approximately $4.6 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, 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
year ended December 31, 2010, we recognized an unrealized
loss on our 2nd Lien note investment in FCL of
approximately $0.8 million. As of June 30, 2011, 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.
S-18
Results
of Operations
Comparison
of three months ended June 30, 2011 and June 30,
2010
Investment
Income
For the three months ended June 30, 2011, total investment
income was $16.4 million, a 98% increase from
$8.3 million of total investment income for the three
months ended June 30, 2010. This increase was primarily
attributable to a $8.1 million increase in total loan
interest, fee and dividend income (including PIK interest
income) due to a net increase in our portfolio investments from
June 30, 2010, to June 30, 2011 and an increase in
non-recurring fee income of approximately $1.7 million.
Non-recurring fee income was approximately $2.2 million for
the three months ended June 30, 2011 as compared to
$0.4 million for the three months ended June 30, 2010.
Expenses
For the three months ended June 30, 2011, expenses
increased by 66% to $6.2 million from $3.7 million for
the three months ended June 30, 2010. The increase in
expenses was primarily attributable to a $1.6 million
increase in general and administrative expenses resulting from
an increase in employee headcount, increased salary and
incentive compensation costs and increased non-cash compensation
expenses. In addition, the increase in expenses was also
partially attributable to a $0.1 million increase in
amortization of deferred financing fees and a $0.7 million
increase in interest expense related to higher average balances
of SBA-guaranteed debentures outstanding during the three months
ended June 30, 2011 than in the comparable period in 2010.
Net
Investment Income
As a result of the $8.1 million increase in total
investment income and the $2.5 million increase in
expenses, net investment income increased by 124% to
$10.2 million for the three months ended June 30, 2011
as compared to net investment income of $4.6 million for
the three months ended June 30, 2010.
Net
Increase/Decrease in Net Assets Resulting From
Operations
In the three months ended June 30, 2011, we realized a gain
on the sale of one control investment of approximately
$12.2 million, a loss on the disposal of one control
investment of $0.1 million, and gains on the repayments of
two non-control/non-affiliate investments totaling approximately
$0.8 million. In addition, during the three months ended
June 30, 2011, we recorded net unrealized depreciation of
investments totaling approximately $8.7 million, comprised
of unrealized appreciation on 20 investments totaling
approximately $4.7 million, unrealized depreciation on 13
investments totaling approximately $2.2 million and
unrealized depreciation reclassification adjustments related to
the realized gains noted above totaling $11.1 million.
In the three months ended June 30, 2010, we realized a gain
on the sale of one affiliate investment of approximately
$3.5 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 three
months ended June 30, 2010, we recorded net unrealized
appreciation of investments totaling approximately
$1.8 million, comprised of 1) unrealized appreciation
on 20 investments totaling approximately $6.6 million and
2) unrealized depreciation on 14 investments totaling
approximately $4.8 million.
As a result of these events, our net increase in net assets from
operations was $14.5 million for the three months ended
June 30, 2011 as compared to a net increase in net assets
from operations of $6.9 million for the three months ended
June 30, 2010.
Comparison
of six months ended June 30, 2011 and June 30,
2010
Investment
Income
For the six months ended June 30, 2011, total investment
income was $28.8 million, an 83% increase from
$15.8 million of total investment income for the six months
ended June 30, 2010. This increase was
S-19
primarily attributable to a $13.0 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, 2010, to June 30, 2011, and
2) an increase in non-recurring fee income of approximately
$1.7 million. Non-recurring fee income was approximately
$2.7 million for the six months ended June 30, 2011,
as compared to approximately $1.0 million for the six
months ended June 30, 2010.
Expenses
For the six months ended June 30, 2011, expenses increased
by 47% to $10.9 million from $7.4 million for the six
months ended June 30, 2010. The increase in expenses was
primarily attributable to a $1.0 million increase in
interest expense, a $0.3 million increase in amortization
of deferred financing fees and a $2.2 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,
2011 than in the comparable period in 2010. The increase in
amortization of deferred financing fees is associated with the
early repayment of certain SBA-guaranteed debentures in the
first quarter of 2011. The increase in general and
administrative costs in the first six months of 2011 was
primarily related to increased salary and incentive compensation
costs and increased non-cash compensation expenses.
Net
Investment Income
As a result of the $13.1 million increase in total
investment income and the $3.5 million increase in
expenses, net investment income for the six months ended
June 30, 2011 was $18.0 million compared to net
investment income of $8.4 million during the six months
ended June 30, 2010.
Net
Increase/Decrease in Net Assets Resulting From
Operations
In the six months ended June 30, 2011, we realized a gain
on the sale of one control investment of approximately
$12.2 million, a loss on the disposal of one control
investment of $0.1 million, and gains on the repayments of
two non-control/non-affiliate investments totaling approximately
$0.8 million. In addition, during the six months ended
June 30, 2011, we recorded net unrealized depreciation of
investments totaling approximately $4.1 million, comprised
of 1) unrealized appreciation on 21 investments totaling
approximately $11.0 million, 2) unrealized
depreciation on 17 investments totaling approximately
$3.9 million and 3) an $11.1 million unrealized
depreciation reclassification adjustment related to the realized
gains noted above.
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.
As a result of these events, our net increase in net assets from
operations was $26.9 million for the six months ended
June 30, 2011 as compared to a net increase in net assets
from operations of $11.0 million during the six months
ended June 30, 2010.
Liquidity
and Capital Resources
We believe that our current cash and cash equivalents on hand,
available leverage under our new line of credit 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
S-20
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 Regulated Investment Company, or
RIC.
Cash
Flows
For the six months ended June 30, 2011, we experienced a
net increase in cash and cash equivalents in the amount of
$13.4 million. During that period, our operating activities
used $55.4 million in cash, consisting primarily of new
portfolio investments of $136.3 million, partially offset
by repayments received from portfolio companies and proceeds
from the sale of investments totaling $61.5 million. In
addition, financing activities provided $68.9 million of
cash, consisting primarily of proceeds from a public stock
offering of $63.0 million, borrowings under SBA-guaranteed
debentures payable of $31.1 million, offset by cash
dividends paid in the amount of $13.8 million, repayments
of SBA-guaranteed debentures of $9.5 million and financing
fees paid in the amount of $1.2 million. At June 30,
2011, we had $68.2 million of cash and cash equivalents on
hand.
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.
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 up to two times (and
in certain cases, 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, 2011, Triangle SBIC has issued the maximum
$150.0 million of SBA-guaranteed debentures and Triangle
SBIC II has issued the maximum $75.0 million in face
amount of SBA-guaranteed debentures. In addition to the one-time
fee of 1.0% on the total commitment from the SBA, the Company
also pays a one-time fee of 2.425% on the amount of each
debenture issued (2.0% for SBA LMI debentures). 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, 2011 was 4.64%.
The weighted average interest rate as of June 30, 2011
included $205.0 million of pooled SBA-guaranteed debentures
with a weighted average fixed interest rate of 4.97% and
$19.1 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 1.17%.
In May 2011, the Company entered into a three-year senior
secured credit facility with an initial commitment of
$50.0 million (the Credit Facility). The
purpose of the Credit Facility is to provide additional
liquidity in support of future investment and operational
activities. The Credit Facility was arranged by BB&T
Capital Markets and Fifth Third Bank and has an accordion
feature which allows for an increase in the total loan size up
to $90.0 million and also contains two one-year extension
options, bringing the total potential commitment and funding
period to five years from the closing date. The Credit Facility,
which is
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structured to operate like a revolving credit facility, is
secured primarily by Triangle Capital Corporations assets,
excluding the assets of the SBIC Subsidiaries.
Borrowings under the Credit Facility bear interest, subject to
the Companys election, on a per annum basis equal to
(i) the applicable base rate plus 1.95% or ii) the
applicable LIBOR rate plus 2.95%. The applicable base rate is
equal to the greater of i) prime rate, ii) the federal
funds rate plus 0.5% or iii) the adjusted one-month LIBOR
plus 2.0%. The Company pays unused commitment fees of 0.375% per
annum. As of both June 30, 2011 and December 31, 2010,
the Company did not have any borrowings outstanding under the
Credit Facility.
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 2010, 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 each year at least 90% of
our investment company taxable income, or ICTI as defined by the
Code. 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
Beginning in 2008, the debt and equity capital markets in the
United States were 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, led to an economic
recession in the U.S. and abroad. Banks, investment
companies and others in the financial services industry reported
significant write-downs in the fair value of their assets, which
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, 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 (the Stimulus Bill) in
February 2009. These events significantly impacted the financial
and credit markets and reduced the availability of debt
S-22
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 reoccur in the
future and could then continue for a prolonged period of time.
Although we have been able to secure access to additional
liquidity, including our recent public stock offering, increased
leverage available through the SBIC program as a result of the
Stimulus Bill and our new $50 million credit facility,
there is no assurance that debt or equity capital will be
available to us in the future on favorable terms, or at all.
Recent
Developments
In July 2011, we invested $13.8 million in subordinated
debt of Renew Life Formulas, Inc. (Renew), a
provider of branded nutritional supplements and wellness
products. Under the terms of the investment, Renew will pay
interest on the subordinated debt at a rate of 14% per annum.
In July 2011, we invested $1.9 million in
2nd Lien
debt of Aramsco Holdings, Inc. (Aramsco), a
distributer of environmental safety and emergency preparedness
products. Under the terms of the investment, Aramsco will pay
interest on the subordinated debt at a rate of LIBOR plus 12%
per annum.
Critical
Accounting Policies and Use of Estimates
The preparation of our unaudited 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.
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
in accordance with FASB ASC Topic 820, Fair Value
Measurements and Disclosures, or ASC Topic 820. ASC Topic
820 defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value
measurements. As discussed below, we have engaged an independent
valuation firm to assist us in our valuation process.
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.
S-23
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;
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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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S-24
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 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,
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,
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 comparable companies that are
publicly traded, a review of these publicly traded companies and
the market multiple of their equity securities.
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 addition, we generally request
Duff & Phelps to perform the procedures on a portfolio
company when there has been a significant change in the fair
value of the 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.
The total number of investments and the percentage of our
portfolio on which we asked Duff & Phelps to perform
such procedures are summarized below by period:
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Percent of Total
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Total
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Investments at
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For the Quarter Ended:
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Companies
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Fair Value(1)
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June 30, 2010
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8
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29
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%
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September 30, 2010
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8
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26
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%
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December 31, 2010
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9
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29
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%
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March 31, 2011
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11
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34
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%
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June 30, 2011
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13
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26
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%
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(1) |
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Exclusive of the fair value of new investments made during the
quarter. |
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
appear reasonable. Our Board of Directors is ultimately and
solely responsible for determining the fair value of our
investments in good faith.
S-25
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
investment income over the term of the loan. Loan prepayment
penalties and loan amendment fees are recorded as investment
income when received. Any previously deferred fees are
recognized as a capital gain 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 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
PIK interest when it is determined that the PIK interest is no
longer collectible.
We may have to include in our taxable income, or ICTI, PIK
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. As a
result, 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.
Off-Balance
Sheet Arrangements
We currently have no off-balance sheet arrangements.
Quantitative
and Qualitative Disclosures About Market Risk.
During the first half of 2011, the United States economy
continued to show modest improvement and leading economic
indicators suggest that the modest economic recovery may
continue during the remainder of 2011. Although the economy has
not yet recovered to pre-recession levels, we are cautiously
optimistic of the potential for future economic growth. However,
the recent economic recession may continue to impact the broader
financial and credit markets and may continue to reduce 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-26
During 2009, we experienced write-downs in our portfolio,
several of which were due to declines in the operating
performance of certain portfolio companies. During 2010, we
experienced a $10.9 million increase in the fair value of
our investment portfolio related to unrealized appreciation of
investments and in the first half of 2011, we experienced a
$7.1 million increase in the fair value of our investment
portfolio related to unrealized appreciation of investments,
exclusive of an $11.1 million unrealized depreciation
reclassification adjustment related to certain realized gains
discussed above under Results of Operations.
As of June 30, 2011, the fair value of our non-accrual
assets was approximately $7.3 million, which comprised
approximately 1.8% of the total fair value of our portfolio, and
the cost of our non-accrual assets was approximately
$14.0 million, or 3.4% of the total cost of our portfolio.
In addition to these non-accrual assets, as of June 30,
2011, we had, on a fair value basis, approximately
$16.3 million of debt investments, or 4.0% 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, 2011 was approximately $18.3 million, or 4.4%
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 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, 2011, we were not a party to any hedging
arrangements.
As of June 30, 2011, approximately 97.1%, or
$362.8 million of our debt portfolio investments bore
interest at fixed rates and approximately 2.9%, or
$11.0 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.
Our credit facility bears interest at LIBOR plus 2.95%.
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-27
ADDITIONAL
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain material U.S. federal
income tax considerations supplements the discussion set forth
under the heading Material U.S. Federal Income Tax
Considerations in the accompanying prospectus, is for
general information purposes only and is not tax advice. This
discussion does not purport to deal with all aspects of taxation
that may be relevant to particular holders of our common stock
in light of their personal investment or tax circumstances.
We urge you to consult your own tax advisor regarding the
specific tax consequences to you of acquisition, ownership and
disposition of our common stock and of our election to be taxed
as a RIC. Specifically, you should consult your own tax advisor
regarding the U.S. federal, state, local, foreign, and
other tax consequences of such acquisition, ownership,
disposition and election, and regarding potential changes in
applicable tax laws.
The current U.S. federal income tax treatment of RICs may
be modified, possibly with retroactive effect, by legislative,
judicial or administrative action at any time. The RIC rules are
under review constantly by persons involved in the legislative
process and by the Internal Revenue Service and the
U.S. Treasury Department which may result in statutory
changes as well as revisions to regulations and interpretations.
Recently
Enacted Legislation
The recently enacted Tax Relief, Unemployment Insurance
Reauthorization and Job Creation Act of 2010, or the 2010 Tax
Relief Act, postponed the sunset of the provisions referred to
in Material U.S. Federal Income Tax
Considerations Sunset of Reduced Tax Rate
Provisions in the accompanying prospectus. The 2010 Tax
Relief Act extended the 2001 and 2003 U.S. federal income
tax rates through 2012 for taxpayers that are taxable as
individuals, trusts or estates, including the maximum 35% tax
rate on ordinary income and the maximum 15% tax rate for
long-term capital gains and qualified dividend income. As noted
in the accompanying prospectus, dividends paid by us will
generally not constitute qualified dividend income eligible for
the 15% tax rate for stockholders that are taxable as
individuals, trusts and estates and generally will be taxable at
the higher ordinary income tax rates. In addition, the 2010 Tax
Relief Act extended the reduced 28% backup withholding rate
through 2012.
The 2010 Tax Relief Act also extended the provision of the Code
that exempts certain distributions of interest and net
short-term capital gains to
Non-U.S. stockholders
from U.S. federal withholding tax. For taxable years
beginning before 2012, we generally will not be required to
withhold any amounts with respect to distributions of
(i) U.S.-source
interest income that would not have been subject to withholding
of U.S. federal income tax if they had been earned directly
by a
Non-U.S. stockholder,
and (ii) net short-term capital gains in excess of net
long-term capital losses that would not have been subject to
withholding of U.S. federal income tax if they had been
earned directly by a
Non-U.S. stockholder,
in each case only to the extent that such distributions are
properly reported by us as interest-related
dividends or short-term capital gain
dividends, as the case may be, and certain other
requirements are met.
The recently enacted RIC Modernization Act of 2010 increased the
amount by which a RIC is required to distribute to its
stockholders to avoid a nondeductible 4% U.S. federal
excise tax on certain undistributed income. Beginning with our
2011 taxable year, we will be subject to such excise tax on
certain undistributed income unless we distribute to our
shareholders during each calendar year an amount at least equal
to the sum of (1) 98% of our ordinary income for the
calendar year and (2) 98.2% of our capital gain net income
for the one-year period ending October 31 in that calendar year.
In addition, the minimum amounts that must be distributed in any
year to avoid such excise tax will be increased or decreased to
reflect any under-distribution or over-distribution, as the case
may be, from the previous year.
S-28
UNDERWRITING
Morgan Stanley 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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Number of Shares
|
|
|
Morgan Stanley & Co. LLC
|
|
|
1,400,000
|
|
Morgan Keegan & Company, Inc.
|
|
|
805,000
|
|
Robert W. Baird & Co. Incorporated
|
|
|
560,000
|
|
BB&T Capital Markets, a division of Scott &
Stringfellow, LLC
|
|
|
560,000
|
|
JMP Securities LLC
|
|
|
87,500
|
|
Sterne, Agee & Leach, Inc.
|
|
|
87,500
|
|
|
|
|
|
|
Total
|
|
|
3,500,000
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
No
|
|
Full
|
|
|
Exercise
|
|
Exercise
|
|
Per share
|
|
$
|
0.77175
|
|
|
$
|
0.77175
|
|
Total
|
|
$
|
2,701,125
|
|
|
$
|
3,106,294
|
|
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 $300,000.
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 $0.46305 per share. 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 525,000 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-29
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 Stanley 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
45 days after the date of this prospectus supplement. The
restrictions described in this paragraph do not apply to:
|
|
|
|
|
The sale of shares to the underwriters; or
|
|
|
|
Restricted shares issued by us under the long-term incentive
plan or upon the exercise of options issued under the long-term
incentive plan.
|
The 45-day
restricted period described in the preceding paragraphs will be
extended if:
|
|
|
|
|
During the last 17 days of the
45-day
restricted period we issue an earnings release or material news
or a material event relating to us occurs; or
|
|
|
|
Prior to the expiration of the
45-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
45-day
period;
|
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 Stanley, 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 Stanley 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 the
applicable provisions of the Securities Exchange Act of 1934.
|
|
|
|
|
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
|
|
|
|
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 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.
|
S-30
|
|
|
|
|
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.
|
|
|
|
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.
|
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 New York Stock Exchange 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.
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 FINRA Rule 2310. 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, 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.
S-31
The principal address of Morgan Stanley & Co. LLC is
1585 Broadway, New York, NY 10036. The principal business
address of Morgan Keegan & Company, Inc. is
50 N. Front Street, 19th Floor, Memphis,
TN 38103. The principal business address of Robert W.
Baird & Co. Incorporated is 777 East Wisconsin Avenue,
Milwaukee, WI 53202. 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 JMP Securities LLC is 600
Montgomery Street, 11th Floor, San Francisco, CA
94111. The principal business address of Sterne,
Agee & Leach, Inc. is 800 Shades Creek Parkway,
Birmingham, AL 35209.
LEGAL
MATTERS
Certain legal matters will be passed upon for us by Bass,
Berry & Sims PLC, Memphis, TN, and Venable LLP,
Baltimore, MD, 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, NC, 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-32
TRIANGLE
CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate investments (cost of $306,487,844 and
$244,197,828 at June 30, 2011 and December 31, 2010,
respectively)
|
|
$
|
310,837,398
|
|
|
$
|
245,392,144
|
|
Affiliate investments (cost of $90,621,782 and $60,196,084 at
June 30, 2011 and December 31, 2010, respectively)
|
|
|
90,921,038
|
|
|
|
55,661,878
|
|
Control investments (cost of $14,260,745 and $19,647,795 at
June 30, 2011 and December 31, 2010, respectively)
|
|
|
7,641,249
|
|
|
|
24,936,571
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
409,399,685
|
|
|
|
325,990,593
|
|
Cash and cash equivalents
|
|
|
68,242,549
|
|
|
|
54,820,222
|
|
Interest and fees receivable
|
|
|
1,579,634
|
|
|
|
867,627
|
|
Prepaid expenses and other current assets
|
|
|
554,905
|
|
|
|
119,151
|
|
Deferred financing fees
|
|
|
6,904,285
|
|
|
|
6,200,254
|
|
Property and equipment, net
|
|
|
51,285
|
|
|
|
47,647
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
486,732,343
|
|
|
$
|
388,045,494
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued liabilities
|
|
$
|
2,273,598
|
|
|
$
|
2,268,898
|
|
Interest payable
|
|
|
3,112,355
|
|
|
|
2,388,505
|
|
Taxes payable
|
|
|
6,307
|
|
|
|
197,979
|
|
Deferred revenue
|
|
|
37,500
|
|
|
|
37,500
|
|
Deferred income taxes
|
|
|
352,316
|
|
|
|
208,587
|
|
SBA-guaranteed debentures payable
|
|
|
224,149,934
|
|
|
|
202,464,866
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
229,932,010
|
|
|
|
207,566,335
|
|
Net Assets
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 18,625,238 and
14,928,987 shares issued and outstanding as of
June 30, 2011 and December 31, 2010, respectively)
|
|
|
18,625
|
|
|
|
14,929
|
|
Additional
paid-in-capital
|
|
|
248,967,897
|
|
|
|
183,602,755
|
|
Investment income in excess of distributions
|
|
|
5,400,419
|
|
|
|
3,365,548
|
|
Accumulated realized gain (loss) on investments
|
|
|
4,736,393
|
|
|
|
(8,244,376
|
)
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(2,323,001
|
)
|
|
|
1,740,303
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
256,800,333
|
|
|
|
180,479,159
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
486,732,343
|
|
|
$
|
388,045,494
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
13.79
|
|
|
$
|
12.09
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
S-34
TRIANGLE
CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate investments
|
|
$
|
11,224,891
|
|
|
$
|
5,217,203
|
|
|
$
|
19,974,340
|
|
|
$
|
10,018,845
|
|
Affiliate investments
|
|
|
1,724,555
|
|
|
|
1,078,074
|
|
|
|
3,098,798
|
|
|
|
2,108,670
|
|
Control investments
|
|
|
888,593
|
|
|
|
369,325
|
|
|
|
1,146,861
|
|
|
|
722,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
13,838,039
|
|
|
|
6,664,602
|
|
|
|
24,219,999
|
|
|
|
12,849,985
|
|
Paid-in-kind interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate investments
|
|
|
1,886,506
|
|
|
|
1,135,906
|
|
|
|
3,368,326
|
|
|
|
1,963,507
|
|
Affiliate investments
|
|
|
549,724
|
|
|
|
303,246
|
|
|
|
944,895
|
|
|
|
565,923
|
|
Control investments
|
|
|
53,504
|
|
|
|
133,909
|
|
|
|
118,801
|
|
|
|
259,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid-in-kind interest income
|
|
|
2,489,734
|
|
|
|
1,573,061
|
|
|
|
4,432,022
|
|
|
|
2,789,287
|
|
Interest income from cash and cash equivalent investments
|
|
|
85,973
|
|
|
|
56,484
|
|
|
|
187,122
|
|
|
|
139,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
16,413,746
|
|
|
|
8,294,147
|
|
|
|
28,839,143
|
|
|
|
15,779,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,541,369
|
|
|
|
1,838,004
|
|
|
|
4,531,353
|
|
|
|
3,577,984
|
|
Amortization of deferred financing fees
|
|
|
212,382
|
|
|
|
99,630
|
|
|
|
522,145
|
|
|
|
196,061
|
|
General and administrative expenses
|
|
|
3,436,474
|
|
|
|
1,797,889
|
|
|
|
5,833,997
|
|
|
|
3,652,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
6,190,225
|
|
|
|
3,735,523
|
|
|
|
10,887,495
|
|
|
|
7,426,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
10,223,521
|
|
|
|
4,558,624
|
|
|
|
17,951,648
|
|
|
|
8,352,308
|
|
Net realized gain (loss) on investments Non
Control/Non-Affiliate
|
|
|
827,599
|
|
|
|
(3,032,785
|
)
|
|
|
827,599
|
|
|
|
(2,833,585
|
)
|
Net realized gain on investments Control
|
|
|
12,153,170
|
|
|
|
|
|
|
|
12,153,170
|
|
|
|
|
|
Net realized gain on investments Affiliate
|
|
|
|
|
|
|
3,541,238
|
|
|
|
|
|
|
|
3,541,238
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(8,659,059
|
)
|
|
|
1,840,049
|
|
|
|
(4,063,304
|
)
|
|
|
2,049,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain on investments before income taxes
|
|
|
4,321,710
|
|
|
|
2,348,502
|
|
|
|
8,917,465
|
|
|
|
2,757,045
|
|
Income tax benefit (provision)
|
|
|
|
|
|
|
(39,846
|
)
|
|
|
27,359
|
|
|
|
(92,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
14,545,231
|
|
|
$
|
6,867,280
|
|
|
$
|
26,896,472
|
|
|
$
|
11,016,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
0.55
|
|
|
$
|
0.38
|
|
|
$
|
1.01
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
$
|
0.78
|
|
|
$
|
0.57
|
|
|
$
|
1.52
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.44
|
|
|
$
|
0.41
|
|
|
$
|
0.86
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
18,570,929
|
|
|
|
12,003,068
|
|
|
|
17,714,507
|
|
|
|
11,940,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
S-35
TRIANGLE
CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation)
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
of 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 gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707,653
|
|
|
|
(188,682
|
)
|
|
|
518,971
|
|
Net unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,238,074
|
|
|
|
2,238,074
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,744
|
)
|
|
|
|
|
|
|
|
|
|
|
(92,744
|
)
|
Dividends/distributions declared
|
|
|
237,346
|
|
|
|
237
|
|
|
|
3,220,614
|
|
|
|
(9,817,051
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,596,200
|
)
|
Expenses related to public offering 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation)
|
|
|
Net
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
of Investments
|
|
|
Assets
|
|
|
Balance, January 1, 2011
|
|
|
14,928,987
|
|
|
$
|
14,929
|
|
|
$
|
183,602,755
|
|
|
$
|
3,365,548
|
|
|
$
|
(8,244,376
|
)
|
|
$
|
1,740,303
|
|
|
$
|
180,479,159
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,951,648
|
|
|
|
|
|
|
|
|
|
|
|
17,951,648
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
909,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
909,500
|
|
Net realized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,980,769
|
|
|
|
(11,137,330
|
)
|
|
|
1,843,439
|
|
Net unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,074,026
|
|
|
|
7,074,026
|
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,359
|
|
|
|
|
|
|
|
|
|
|
|
27,359
|
|
Dividends/distributions declared
|
|
|
117,142
|
|
|
|
117
|
|
|
|
2,109,433
|
|
|
|
(15,944,136
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,834,586
|
)
|
Public offering of common stock
|
|
|
3,450,000
|
|
|
|
3,450
|
|
|
|
62,989,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,993,096
|
|
Issuance of restricted stock
|
|
|
161,174
|
|
|
|
161
|
|
|
|
(161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(32,065
|
)
|
|
|
(32
|
)
|
|
|
(643,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(643,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011
|
|
|
18,625,238
|
|
|
$
|
18,625
|
|
|
$
|
248,967,897
|
|
|
$
|
5,400,419
|
|
|
$
|
4,736,393
|
|
|
$
|
(2,323,001
|
)
|
|
$
|
256,800,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
S-36
TRIANGLE
CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
26,896,472
|
|
|
$
|
11,016,609
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(136,291,889
|
)
|
|
|
(58,216,292
|
)
|
Repayments received/sales of portfolio investments
|
|
|
61,522,270
|
|
|
|
21,702,621
|
|
Loan origination and other fees received
|
|
|
2,689,172
|
|
|
|
1,157,860
|
|
Net realized gain on investments
|
|
|
(12,980,769
|
)
|
|
|
(707,653
|
)
|
Net unrealized depreciation (appreciation) of investments
|
|
|
3,919,574
|
|
|
|
(1,718,790
|
)
|
Deferred income taxes
|
|
|
143,729
|
|
|
|
(330,600
|
)
|
Payment-in-kind interest accrued, net of payments received
|
|
|
(1,037,758
|
)
|
|
|
(1,483,865
|
)
|
Amortization of deferred financing fees
|
|
|
522,145
|
|
|
|
196,061
|
|
Accretion of loan origination and other fees
|
|
|
(711,355
|
)
|
|
|
(418,082
|
)
|
Accretion of loan discounts
|
|
|
(518,337
|
)
|
|
|
(312,106
|
)
|
Accretion of discount on SBA-guaranteed debentures payable
|
|
|
85,068
|
|
|
|
|
|
Depreciation expense
|
|
|
14,477
|
|
|
|
9,609
|
|
Stock-based compensation
|
|
|
909,500
|
|
|
|
545,670
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(712,007
|
)
|
|
|
(374,704
|
)
|
Prepaid expenses
|
|
|
(435,754
|
)
|
|
|
25,041
|
|
Accounts payable and accrued liabilities
|
|
|
4,700
|
|
|
|
(1,080,809
|
)
|
Interest payable
|
|
|
723,850
|
|
|
|
99,921
|
|
Deferred revenue
|
|
|
|
|
|
|
(37,500
|
)
|
Taxes payable
|
|
|
(191,672
|
)
|
|
|
(6,830
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(55,448,584
|
)
|
|
|
(29,933,839
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(18,115
|
)
|
|
|
(20,155
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(18,115
|
)
|
|
|
(20,155
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under SBA-guaranteed debentures payable
|
|
|
31,100,000
|
|
|
|
32,590,000
|
|
Repayments of SBA-guaranteed debentures payable
|
|
|
(9,500,000
|
)
|
|
|
|
|
Financing fees paid
|
|
|
(1,226,176
|
)
|
|
|
(1,324,307
|
)
|
Proceeds from public stock offerings, net of expenses
|
|
|
62,993,096
|
|
|
|
(21,001
|
)
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(643,308
|
)
|
|
|
(234,912
|
)
|
Cash dividends paid
|
|
|
(13,834,586
|
)
|
|
|
(11,370,734
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
68,889,026
|
|
|
|
19,639,046
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
13,422,327
|
|
|
|
(10,314,948
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
54,820,222
|
|
|
|
55,200,421
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
68,242,549
|
|
|
$
|
44,885,473
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,722,435
|
|
|
$
|
3,478,064
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
S-37
TRIANGLE
CAPITAL CORPORATION
June 30,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of 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 (15% Cash, 3% PIK, Due 06/13)
|
|
$
|
4,065,043
|
|
|
$
|
4,033,531
|
|
|
$
|
4,033,531
|
|
LLC (PHM) (2)%*
|
|
|
|
Common Stock-PHM (128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
128,571
|
|
|
|
|
|
Common Stock Warrants-AA (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
1,622,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,065,043
|
|
|
|
4,304,463
|
|
|
|
5,784,102
|
|
Anns House of Nuts, Inc. (4)%*
|
|
Trail Mixes and Nut Producers
|
|
Subordinated Note (12% Cash, 1% PIK, Due 11/17)
|
|
|
7,045,180
|
|
|
|
6,659,527
|
|
|
|
6,659,527
|
|
|
|
|
|
Preferred A Units (22,368 units)
|
|
|
|
|
|
|
2,124,957
|
|
|
|
2,124,957
|
|
|
|
|
|
Preferred B Units (10,380 units)
|
|
|
|
|
|
|
986,059
|
|
|
|
986,059
|
|
|
|
|
|
Common Units (190,935 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
Common Stock Warrants (14,558 shares)
|
|
|
|
|
|
|
14,558
|
|
|
|
14,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,045,180
|
|
|
|
9,935,101
|
|
|
|
9,935,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations Corporation (0)%*
|
|
Metal Fabrication
|
|
Common Stock (517 Shares)
|
|
|
|
|
|
|
516,867
|
|
|
|
511,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,867
|
|
|
|
511,000
|
|
BioSan Laboratories, Inc. (2)%*
|
|
Nutritional Supplement Manufacturing and Distribution
|
|
Subordinated Note (12% Cash, 3.8% PIK, Due 10/16)
|
|
|
5,175,000
|
|
|
|
5,071,500
|
|
|
|
5,071,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,175,000
|
|
|
|
5,071,500
|
|
|
|
5,071,500
|
|
Botanical Laboratories, Inc. (4)%*
|
|
Nutritional Supplement Manufacturing and Distribution
|
|
Senior Notes (14% Cash, 1% PIK, Due 02/15)
|
|
|
10,324,703
|
|
|
|
9,727,374
|
|
|
|
9,208,000
|
|
|
|
|
|
Common Unit Warrants (998,680 Units)
|
|
|
|
|
|
|
474,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,324,703
|
|
|
|
10,201,974
|
|
|
|
9,208,000
|
|
Capital Contractors, Inc. (3)%*
|
|
Janitorial and Facilities Maintenance Services
|
|
Subordinated Notes (12% Cash, 2% PIK, Due 12/15)
|
|
|
9,091,889
|
|
|
|
8,470,658
|
|
|
|
8,470,658
|
|
|
|
|
|
Common Stock Warrants (20 shares)
|
|
|
|
|
|
|
492,000
|
|
|
|
409,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,091,889
|
|
|
|
8,962,658
|
|
|
|
8,879,658
|
|
Carolina Beer and Beverage, LLC (5)%*
|
|
Beverage Manufacturing and Packaging
|
|
Subordinated Note (12% Cash, 4% PIK, Due 02/16)
|
|
|
12,993,885
|
|
|
|
12,769,510
|
|
|
|
12,769,510
|
|
|
|
|
|
Class A Units (11,974 Units)
|
|
|
|
|
|
|
1,077,615
|
|
|
|
926,000
|
|
|
|
|
|
Class B Units (11,974 Units)
|
|
|
|
|
|
|
119,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,993,885
|
|
|
|
13,966,860
|
|
|
|
13,695,510
|
|
CRS Reprocessing, LLC (9)%*
|
|
Fluid Reprocessing Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 11/15)
|
|
|
11,241,853
|
|
|
|
10,861,396
|
|
|
|
10,861,396
|
|
|
|
|
|
Subordinated Note (10% Cash, 4% PIK, Due 11/15)
|
|
|
10,794,017
|
|
|
|
9,701,608
|
|
|
|
9,701,608
|
|
|
|
|
|
Series C Preferred Units (13 Units)
|
|
|
|
|
|
|
122,377
|
|
|
|
155,000
|
|
|
|
|
|
Common Unit Warrant (550 Units)
|
|
|
|
|
|
|
1,253,556
|
|
|
|
2,267,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,035,870
|
|
|
|
21,938,937
|
|
|
|
22,985,004
|
|
CV Holdings, LLC (6)%*
|
|
Specialty Healthcare Products Manufacturer
|
|
Subordinated Note (12% Cash, 4% PIK, Due 09/13)
|
|
|
9,091,591
|
|
|
|
8,550,239
|
|
|
|
8,550,239
|
|
|
|
|
|
Subordinated Note (12% Cash, Due 09/13)
|
|
|
6,000,000
|
|
|
|
5,890,468
|
|
|
|
5,890,468
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
785,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,091,591
|
|
|
|
15,315,107
|
|
|
|
15,225,707
|
|
DLR Restaurants, LLC (3)%*
|
|
Restaurant
|
|
Subordinated Note (12% Cash, 2% PIK, Due 03/16)
|
|
|
9,056,130
|
|
|
|
8,825,062
|
|
|
|
8,825,062
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,056,130
|
|
|
|
8,825,062
|
|
|
|
8,825,062
|
|
S-38
TRIANGLE
CAPITAL CORPORATION
Unaudited
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Electronic Systems Protection, Inc. (2)%*
|
|
Power Protection Systems Manufacturing
|
|
Subordinated Note (12% Cash, 2% PIK, Due 12/15)
|
|
$
|
3,215,720
|
|
|
$
|
3,196,124
|
|
|
$
|
3,196,124
|
|
|
|
|
|
Senior Note (8.3% Cash, Due 01/14)
|
|
|
801,417
|
|
|
|
801,417
|
|
|
|
801,417
|
|
|
|
|
|
Common Stock (570 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
187,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,017,137
|
|
|
|
4,282,541
|
|
|
|
4,184,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC (0)%*
|
|
Machined Parts Distribution
|
|
Voting Units (4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
1,115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
1,115,000
|
|
Frozen Specialties, Inc. (3)%*
|
|
Frozen Foods Manufacturer
|
|
Subordinated Note (13% Cash, 5% PIK, Due 07/14)
|
|
|
8,265,246
|
|
|
|
8,164,068
|
|
|
|
8,164,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,265,246
|
|
|
|
8,164,068
|
|
|
|
8,164,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. (0)%*
|
|
Restaurant
|
|
Membership Units (5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
762,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
762,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Great Expressions Group Holdings,
|
|
Dental Practice Management
|
|
Class A Units (225 Units)
|
|
|
|
|
|
|
450,000
|
|
|
|
680,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LLC (0)%*
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
680,000
|
|
Grindmaster-Cecilware Corp. (2)%*
|
|
Food Services Equipment Manufacturer
|
|
Subordinated Note (12% Cash, 4.5% PIK, Due 04/16)
|
|
|
6,131,957
|
|
|
|
6,046,419
|
|
|
|
6,046,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,131,957
|
|
|
|
6,046,419
|
|
|
|
6,046,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hatch Chile Co., LLC (2)%*
|
|
Food Products Distributer
|
|
Senior Note (19% Cash, Due 07/15)
|
|
|
4,500,000
|
|
|
|
4,402,500
|
|
|
|
4,402,500
|
|
|
|
|
|
Subordinated Note (14% Cash, Due 07/15)
|
|
|
1,000,000
|
|
|
|
851,253
|
|
|
|
851,253
|
|
|
|
|
|
Unit Purchase Warrant (5,265 Units)
|
|
|
|
|
|
|
149,800
|
|
|
|
132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500,000
|
|
|
|
5,403,553
|
|
|
|
5,385,753
|
|
Home Physicians, LLC (HP) and Home Physicians
Holdings, LP
|
|
In-home Primary Care Physician Services
|
|
Subordinated Note-HP (12% Cash, 5% PIK, Due 03/16)
|
|
|
10,385,839
|
|
|
|
10,169,213
|
|
|
|
10,169,213
|
|
(HPH) (4)%*
|
|
|
|
Subordinated Note-HPH (4% Cash, 6% PIK, Due 03/16)
|
|
|
1,245,116
|
|
|
|
1,245,116
|
|
|
|
1,245,116
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,630,955
|
|
|
|
11,414,329
|
|
|
|
11,414,329
|
|
Infrastructure Corporation of America, Inc. (4)%*
|
|
Roadway Maintenance, Repair and Engineering Services
|
|
Subordinated Note (12% Cash, 1% PIK, Due 10/15)
|
|
|
10,823,378
|
|
|
|
9,718,271
|
|
|
|
9,718,271
|
|
|
|
|
|
Common Stock Purchase Warrant (199,526 shares)
|
|
|
|
|
|
|
980,000
|
|
|
|
980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,823,378
|
|
|
|
10,698,271
|
|
|
|
10,698,271
|
|
Inland Pipe Rehabilitation Holding Company LLC (8)%*
|
|
Cleaning and Repair Services
|
|
Subordinated Note (13% Cash, 2.5% PIK, Due 12/16)
|
|
|
20,020,834
|
|
|
|
19,720,834
|
|
|
|
19,720,834
|
|
|
|
|
|
Membership Interest Purchase Warrant (3.0)%
|
|
|
|
|
|
|
853,500
|
|
|
|
2,138,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,020,834
|
|
|
|
20,574,334
|
|
|
|
21,858,834
|
|
Library Systems & Services, LLC (2)%*
|
|
Municipal Business Services
|
|
Subordinated Note (12.5% Cash, 4.5% PIK, Due 06/15)
|
|
|
5,368,782
|
|
|
|
5,235,539
|
|
|
|
5,235,539
|
|
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
516,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,368,782
|
|
|
|
5,294,534
|
|
|
|
5,751,539
|
|
McKenzie Sports Products, LLC (2)%*
|
|
Taxidermy Manufacturer
|
|
Subordinated Note (13% Cash, 1% PIK, Due 10/17)
|
|
|
6,040,926
|
|
|
|
5,929,267
|
|
|
|
5,929,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,040,926
|
|
|
|
5,929,267
|
|
|
|
5,929,267
|
|
Media Temple, Inc. (5)%*
|
|
Web Hosting Services
|
|
Subordinated Note (12% Cash, 5.5% PIK, Due 04/15)
|
|
|
8,800,000
|
|
|
|
8,641,122
|
|
|
|
8,641,122
|
|
|
|
|
|
Convertible Note (8% Cash, 6% PIK, Due 04/15)
|
|
|
3,200,000
|
|
|
|
2,722,222
|
|
|
|
2,722,222
|
|
|
|
|
|
Common Stock Purchase Warrant (28,000 Shares)
|
|
|
|
|
|
|
536,000
|
|
|
|
1,363,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
|
|
11,899,344
|
|
|
|
12,726,344
|
|
S-39
TRIANGLE
CAPITAL CORPORATION
Unaudited
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Minco Technology Labs, LLC (2)%*
|
|
Semiconductor Distribution
|
|
Subordinated Note (13% Cash, 3.25% PIK, Due 05/16)
|
|
$
|
5,185,928
|
|
|
$
|
5,075,704
|
|
|
$
|
5,075,704
|
|
|
|
|
|
Class A Units (5,000 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,185,928
|
|
|
|
5,575,704
|
|
|
|
5,189,704
|
|
National Investment Managers Inc. (5)%*
|
|
Retirement Plan Administrator
|
|
Subordinated Note (11% Cash, 5% PIK, Due 09/16)
|
|
|
11,409,593
|
|
|
|
11,137,817
|
|
|
|
11,137,817
|
|
|
|
|
|
Preferred A Units (90,000 Units)
|
|
|
|
|
|
|
900,000
|
|
|
|
900,000
|
|
|
|
|
|
Common Units (10,000 Units)
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,409,593
|
|
|
|
12,137,817
|
|
|
|
12,137,817
|
|
Novolyte Technologies, Inc. (4)%*
|
|
Specialty Manufacturing
|
|
Subordinated Note (12% Cash, 4% PIK, Due 07/16)
|
|
|
7,117,916
|
|
|
|
6,987,222
|
|
|
|
6,987,222
|
|
|
|
|
|
Subordinated Note (12% Cash, 4% PIK, Due 07/16)
|
|
|
2,287,902
|
|
|
|
2,245,894
|
|
|
|
2,245,894
|
|
|
|
|
|
Preferred Units (641 units)
|
|
|
|
|
|
|
661,227
|
|
|
|
664,600
|
|
|
|
|
|
Common Units (24,522 units)
|
|
|
|
|
|
|
165,306
|
|
|
|
370,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,405,818
|
|
|
|
10,059,649
|
|
|
|
10,267,916
|
|
Pomeroy IT Solutions (4)%*
|
|
Information Technology Outsourcing Services
|
|
Subordinated Notes (13% Cash, 2% PIK, Due 02/16)
|
|
|
10,077,915
|
|
|
|
9,830,910
|
|
|
|
9,830,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,077,915
|
|
|
|
9,830,910
|
|
|
|
9,830,910
|
|
PowerDirect Marketing, LLC (3)%*
|
|
Marketing Services
|
|
Subordinated Note (13% Cash, 2% PIK, Due 05/16)
|
|
|
8,018,675
|
|
|
|
7,456,675
|
|
|
|
7,456,675
|
|
|
|
|
|
Common Unit Purchase Warrants
|
|
|
|
|
|
|
402,000
|
|
|
|
402,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,018,675
|
|
|
|
7,858,675
|
|
|
|
7,858,675
|
|
SRC, Inc. (3)%*
|
|
Specialty Chemical Manufacturer
|
|
Subordinated Notes (12% Cash, 2% PIK, Due 09/14)
|
|
|
8,791,384
|
|
|
|
8,518,660
|
|
|
|
8,518,660
|
|
|
|
|
|
Common Stock Purchase Warrants
|
|
|
|
|
|
|
123,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,791,384
|
|
|
|
8,642,460
|
|
|
|
8,518,660
|
|
Syrgis Holdings, Inc. (2)%*
|
|
Specialty Chemical Manufacturer
|
|
Senior Notes (7.75%-10.75% Cash, Due 08/12-02/14)
|
|
|
2,587,642
|
|
|
|
2,576,533
|
|
|
|
2,576,533
|
|
|
|
|
|
Class C Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,314,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,587,642
|
|
|
|
3,576,533
|
|
|
|
3,890,533
|
|
TBG Anesthesia Management, LLC (4)%*
|
|
Physician Management Services
|
|
Senior Note (13.5% Cash, Due 11/14)
|
|
|
11,000,000
|
|
|
|
10,652,503
|
|
|
|
10,652,503
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
218,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000,000
|
|
|
|
10,928,603
|
|
|
|
10,870,503
|
|
TMR Automotive Service Supply, LLC (2)%
|
|
Automotive Supplies
|
|
Subordinated Note (12% Cash, 1% PIK, Due 03/16)
|
|
|
5,000,000
|
|
|
|
4,715,978
|
|
|
|
4,715,978
|
|
|
|
|
|
Unit Purchase Warrant (329,518 units)
|
|
|
|
|
|
|
195,000
|
|
|
|
195,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
|
|
|
|
4,910,978
|
|
|
|
4,910,978
|
|
Top Knobs USA, Inc. (4)%
|
|
Hardware Designer and Distributor
|
|
Subordinated Note (12% Cash, 4.5% PIK, Due 05/17)
|
|
|
10,133,315
|
|
|
|
9,954,692
|
|
|
|
9,954,692
|
|
|
|
|
|
Common Stock (26,593 shares)
|
|
|
|
|
|
|
750,000
|
|
|
|
534,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,133,315
|
|
|
|
10,704,692
|
|
|
|
10,488,692
|
|
TrustHouse Services Group, Inc. (2)%*
|
|
Food Management Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15)
|
|
|
4,485,308
|
|
|
|
4,431,866
|
|
|
|
4,431,866
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
602,000
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,485,308
|
|
|
|
4,931,866
|
|
|
|
5,042,866
|
|
Tulsa Inspection Resources, Inc. (2)%*
|
|
Pipeline Inspection Services
|
|
Subordinated Note (14%-17.5% Cash, Due 03/14)
|
|
|
5,810,588
|
|
|
|
5,531,094
|
|
|
|
5,531,094
|
|
|
|
|
|
Common Unit (1 unit)
|
|
|
|
|
|
|
200,000
|
|
|
|
3,000
|
|
|
|
|
|
Common Stock Warrants (8 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,810,588
|
|
|
|
6,052,094
|
|
|
|
5,548,094
|
|
S-40
TRIANGLE
CAPITAL CORPORATION
Unaudited
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Twin-Star International, Inc. (2)%*
|
|
Consumer Home Furnishings Manufacturer
|
|
Subordinated Note (12% Cash, 1% PIK, Due 04/14)
|
|
$
|
4,500,000
|
|
|
$
|
4,468,976
|
|
|
$
|
4,468,976
|
|
|
|
|
|
Senior Note (4.3%, Due 04/13)
|
|
|
1,057,740
|
|
|
|
1,057,740
|
|
|
|
1,057,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,557,740
|
|
|
|
5,526,716
|
|
|
|
5,526,716
|
|
Wholesale Floors, Inc. (1)%*
|
|
Commercial Services
|
|
Subordinated Note (12.5% Cash, 3.5% PIK, Due 06/14)
|
|
|
3,845,088
|
|
|
|
3,456,370
|
|
|
|
3,456,370
|
|
|
|
|
|
Membership Interest Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,845,088
|
|
|
|
3,589,170
|
|
|
|
3,456,370
|
|
Yellowstone Landscape Group, Inc. (5)%*
|
|
Landscaping Services
|
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14)
|
|
|
12,626,120
|
|
|
|
12,461,955
|
|
|
|
12,461,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,626,120
|
|
|
|
12,461,955
|
|
|
|
12,461,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
298,613,620
|
|
|
|
306,487,844
|
|
|
|
310,837,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (2)%*
|
|
Wholesale and Distribution
|
|
Subordinated Note (10% PIK, Due 10/13)
|
|
|
5,756,249
|
|
|
|
5,182,781
|
|
|
|
4,625,000
|
|
|
|
|
|
Membership Units (6,516 Units)
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,756,249
|
|
|
|
5,532,781
|
|
|
|
4,625,000
|
|
AP Services, Inc. (3)%*
|
|
Fluid Sealing Supplies and Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15)
|
|
|
5,893,796
|
|
|
|
5,791,139
|
|
|
|
5,791,139
|
|
|
|
|
|
Class A Units (933 units)
|
|
|
|
|
|
|
933,333
|
|
|
|
1,003,000
|
|
|
|
|
|
Class B Units (496 units)
|
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,893,796
|
|
|
|
6,724,472
|
|
|
|
6,879,139
|
|
Asset Point, LLC (2)%*
|
|
Asset Management Software Provider
|
|
Senior Note (12% Cash, 5% PIK, Due 03/13)
|
|
|
5,902,491
|
|
|
|
5,860,612
|
|
|
|
5,612,000
|
|
|
|
|
|
Senior Note (12% Cash, 2% PIK, Due 07/15)
|
|
|
611,296
|
|
|
|
611,296
|
|
|
|
506,000
|
|
|
|
|
|
Options to Purchase Membership Units (342,407 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Membership Unit Warrants (356,506 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,513,787
|
|
|
|
6,971,908
|
|
|
|
6,118,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (0)%*
|
|
Industrial Equipment Manufacturer
|
|
Common Stock (136,400 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
877,000
|
|
|
|
|
|
Common Stock Warrant (4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
903,000
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
|
|
Oil and Gas Services
|
|
Subordinated Note Brantley Transportation (14% Cash,
5% PIK, Due 12/12)
|
|
|
3,848,230
|
|
|
|
3,801,017
|
|
|
|
3,801,017
|
|
Street)(4) (1)%*
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,848,230
|
|
|
|
4,034,617
|
|
|
|
3,801,017
|
|
Captek Softgel International, Inc. (3)%*
|
|
Nutraceutical Manufacturer
|
|
Subordinated Note (12% Cash, 4% PIK, Due 08/16)
|
|
|
8,109,895
|
|
|
|
7,955,135
|
|
|
|
7,955,135
|
|
|
|
|
|
Class A Units (80,000 units)
|
|
|
|
|
|
|
800,000
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,109,895
|
|
|
|
8,755,135
|
|
|
|
8,755,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (1)%*
|
|
Custom Forging and Fastener Supplies
|
|
Class A Units (1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
3,456,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
3,456,000
|
|
S-41
TRIANGLE
CAPITAL CORPORATION
Unaudited
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Equisales, LLC (2)%*
|
|
Energy Products and Services
|
|
Subordinated Note (13% Cash, 4% PIK, Due 04/12)
|
|
$
|
3,061,666
|
|
|
$
|
3,036,950
|
|
|
$
|
3,036,950
|
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
|
|
|
480,900
|
|
|
|
870,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,061,666
|
|
|
|
3,517,850
|
|
|
|
3,906,950
|
|
Fischbein Partners, LLC (3)%*
|
|
Packaging and Materials Handling Equipment Manufacturer
|
|
Subordinated Note (12% Cash, 2% PIK, Due 10/16)
|
|
|
6,687,867
|
|
|
|
6,558,912
|
|
|
|
6,558,912
|
|
|
|
|
|
Class A Units (1,750,000 units)
|
|
|
|
|
|
|
417,088
|
|
|
|
1,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,687,867
|
|
|
|
6,976,000
|
|
|
|
8,308,912
|
|
Main Street Gourmet, LLC (2)%*
|
|
Baked Goods Provider
|
|
Subordinated Notes (12% Cash, 4.5% PIK, Due 10/16)
|
|
|
4,042,000
|
|
|
|
3,964,620
|
|
|
|
3,964,620
|
|
|
|
|
|
Jr. Subordinated Notes (8% Cash, 2% PIK, Due 04/17)
|
|
|
1,004,667
|
|
|
|
985,324
|
|
|
|
985,324
|
|
|
|
|
|
Preferred Units (233 units)
|
|
|
|
|
|
|
233,478
|
|
|
|
233,478
|
|
|
|
|
|
Common Units (1,652 units)
|
|
|
|
|
|
|
16,522
|
|
|
|
16,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,046,667
|
|
|
|
5,199,944
|
|
|
|
5,199,944
|
|
Plantation Products, LLC (6)%*
|
|
Seed Manufacturing
|
|
Subordinated Notes (13% Cash, 4.5% PIK, Due 06/16)
|
|
|
14,858,871
|
|
|
|
14,519,822
|
|
|
|
14,519,822
|
|
|
|
|
|
Preferred Units (1,127 units)
|
|
|
|
|
|
|
1,127,000
|
|
|
|
1,127,000
|
|
|
|
|
|
Common Units (92,000 units)
|
|
|
|
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,858,871
|
|
|
|
15,669,822
|
|
|
|
15,669,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QC Holdings, Inc. (0)%*
|
|
Lab Testing Services
|
|
Common Stock (5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
477,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
477,000
|
|
Technology Crops International (2)%*
|
|
Supply Chain Management Services
|
|
Subordinated Note (12% Cash, 5% PIK, Due 03/15)
|
|
|
5,469,088
|
|
|
|
5,394,179
|
|
|
|
5,394,179
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
588,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,469,088
|
|
|
|
5,894,179
|
|
|
|
5,982,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waste Recyclers Holdings, LLC (2)%*
|
|
Environmental and Facilities Services
|
|
Class A Preferred Units (280 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units (985,372 Units)
|
|
|
|
|
|
|
3,304,218
|
|
|
|
3,696,000
|
|
|
|
|
|
Class C Preferred Units (1,444,475 Units)
|
|
|
|
|
|
|
1,499,531
|
|
|
|
1,546,000
|
|
|
|
|
|
Common Unit Purchase Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,984,532
|
|
|
|
5,242,000
|
|
Wythe Will Tzetzo, LLC (5)%*
|
|
Confectionary Goods Distributor
|
|
Subordinated Notes (12% Cash, 2% PIK, Due 10/16)
|
|
|
10,303,000
|
|
|
|
9,795,430
|
|
|
|
9,795,430
|
|
|
|
|
|
Series A Preferred Units (74,764 units)
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
|
|
|
|
Common Unit Purchase Warrants (25,065 units)
|
|
|
|
|
|
|
301,510
|
|
|
|
301,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,303,000
|
|
|
|
11,596,940
|
|
|
|
11,596,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
75,549,116
|
|
|
|
90,621,782
|
|
|
|
90,921,038
|
|
S-42
TRIANGLE
CAPITAL CORPORATION
Unaudited
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (1)%*
|
|
Commercial Printing Services
|
|
Senior Note (3.8% Cash, 2% PIK, Due 9/11)
|
|
$
|
1,498,266
|
|
|
$
|
1,496,693
|
|
|
$
|
1,496,693
|
|
|
|
|
|
Senior Note (7.8% Cash, 2% PIK, Due 9/11)
|
|
|
2,065,882
|
|
|
|
2,062,625
|
|
|
|
969,307
|
|
|
|
|
|
2nd Lien Note (2.8% Cash, 8% PIK, Due 12/11)
|
|
|
3,612,244
|
|
|
|
2,997,390
|
|
|
|
|
|
|
|
|
|
Preferred Shares (35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares (4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests (3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,176,392
|
|
|
|
6,556,708
|
|
|
|
2,466,000
|
|
Fire Sprinkler Systems, Inc. (0)%*
|
|
Specialty Trade Contractors
|
|
Subordinated Notes (2% PIK, Due 04/12)
|
|
|
3,247,948
|
|
|
|
2,780,028
|
|
|
|
494,000
|
|
|
|
|
|
Common Stock (2,978 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,247,948
|
|
|
|
3,074,652
|
|
|
|
494,000
|
|
Fischbein, LLC (1)%*
|
|
Packaging and Materials Handling Equipment Manufacturer
|
|
Class A-1 Common Units (501,984 units)
|
|
|
|
|
|
|
59,315
|
|
|
|
283,816
|
|
|
|
|
|
Class A Common Units (3,839,068 units)
|
|
|
|
|
|
|
453,630
|
|
|
|
1,859,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
512,945
|
|
|
|
2,143,249
|
|
Gerli & Company (1)%*
|
|
Specialty Woven Fabrics Manufacturer
|
|
Subordinated Note (8.5% Cash, Due 03/15)
|
|
|
3,064,458
|
|
|
|
3,000,000
|
|
|
|
2,156,000
|
|
|
|
|
|
Class A Preferred Shares (1,211 shares)
|
|
|
|
|
|
|
855,000
|
|
|
|
382,000
|
|
|
|
|
|
Class E Preferred Shares (400 shares)
|
|
|
|
|
|
|
161,440
|
|
|
|
|
|
|
|
|
|
Common Stock (300 shares)
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,064,458
|
|
|
|
4,116,440
|
|
|
|
2,538,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
13,488,798
|
|
|
|
14,260,745
|
|
|
|
7,641,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, June 30, 2011(159)%*
|
|
|
|
$
|
387,651,534
|
|
|
$
|
411,370,371
|
|
|
$
|
409,399,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
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.
S-43
TRIANGLE
CAPITAL CORPORATION
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non-Control/Non-Affiliate Investments:
|
Ambient Air Corporation (AA) and Peaden-Hobbs
Mechanical, LLC
|
|
Specialty Trade Contractors
|
|
Subordinated Note-AA (15% Cash, 3% PIK, Due 06/13)
|
|
$
|
4,325,151
|
|
|
$
|
4,287,109
|
|
|
$
|
4,287,109
|
|
(PHM) (3)%*
|
|
|
|
Common Stock-PHM (128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
68,500
|
|
|
|
|
|
Common Stock Warrants-AA (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
852,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,325,151
|
|
|
|
4,558,041
|
|
|
|
5,207,609
|
|
Anns House of Nuts, Inc. (5)%*
|
|
Trail Mixes and Nut Producers
|
|
Subordinated Note (12% Cash, 1% PIK, Due 11/17)
|
|
|
7,009,722
|
|
|
|
6,603,828
|
|
|
|
6,603,828
|
|
|
|
|
|
Preferred A Units (22,368 units)
|
|
|
|
|
|
|
2,124,957
|
|
|
|
2,124,957
|
|
|
|
|
|
Preferred B Units (10,380 units)
|
|
|
|
|
|
|
986,059
|
|
|
|
986,059
|
|
|
|
|
|
Common Units (190,935 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
Common Stock Warrants (14,558 shares)
|
|
|
|
|
|
|
14,558
|
|
|
|
14,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,009,722
|
|
|
|
9,879,402
|
|
|
|
9,879,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations Corporation (0)%*
|
|
Metal Fabrication
|
|
Common Stock (517 Shares)
|
|
|
|
|
|
|
516,867
|
|
|
|
528,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,867
|
|
|
|
528,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Botanical Laboratories, Inc. (5)%*
|
|
Nutritional Supplement Manufacturing
|
|
Senior Notes (14% Cash, Due 02/15)
|
|
|
10,500,000
|
|
|
|
9,843,861
|
|
|
|
9,843,861
|
|
|
|
and Distribution
|
|
Common Unit Warrants (998,680)
|
|
|
|
|
|
|
474,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500,000
|
|
|
|
10,318,461
|
|
|
|
9,843,861
|
|
Capital Contractors, Inc. (5)%*
|
|
Janitorial and Facilities Maintenance Services
|
|
Subordinated Notes (12% Cash, 2% PIK, Due 12/15)
|
|
|
9,001,001
|
|
|
|
8,329,001
|
|
|
|
8,329,001
|
|
|
|
|
|
Common Stock Warrants (20 shares)
|
|
|
|
|
|
|
492,000
|
|
|
|
492,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,001,001
|
|
|
|
8,821,001
|
|
|
|
8,821,001
|
|
Carolina Beer and Beverage, LLC (8)%*
|
|
Beverage Manufacturing and Packaging
|
|
Subordinated Note (12% Cash , 4% PIK, Due 02/16)
|
|
|
12,865,233
|
|
|
|
12,622,521
|
|
|
|
12,622,521
|
|
|
|
|
|
Class A Units (11,974 Units)
|
|
|
|
|
|
|
1,077,615
|
|
|
|
1,077,615
|
|
|
|
|
|
Class B Units (11,974 Units)
|
|
|
|
|
|
|
119,735
|
|
|
|
119,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,865,233
|
|
|
|
13,819,871
|
|
|
|
13,819,871
|
|
CRS Reprocessing, LLC (8)%*
|
|
Fluid Reprocessing Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 11/15)
|
|
|
11,129,470
|
|
|
|
10,706,406
|
|
|
|
10,706,406
|
|
|
|
|
|
Subordinated Note (10% Cash, 4% PIK, Due 11/15)
|
|
|
3,403,211
|
|
|
|
3,052,570
|
|
|
|
3,052,570
|
|
|
|
|
|
Common Unit Warrant (340 Units)
|
|
|
|
|
|
|
564,454
|
|
|
|
1,043,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,532,681
|
|
|
|
14,323,430
|
|
|
|
14,801,976
|
|
CV Holdings, LLC (6)%*
|
|
Specialty Healthcare Products Manufacturer
|
|
Subordinated Note (12% Cash, 4% PIK, Due 09/13)
|
|
|
11,685,326
|
|
|
|
11,042,011
|
|
|
|
11,042,011
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
622,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,685,326
|
|
|
|
11,916,411
|
|
|
|
11,664,511
|
|
Electronic Systems Protection, Inc. (2)%*
|
|
Power Protection Systems Manufacturing
|
|
Subordinated Note (12% Cash, 2% PIK, Due 12/15)
|
|
|
3,183,802
|
|
|
|
3,162,604
|
|
|
|
3,162,604
|
|
|
|
|
|
Senior Note (8.3% Cash, Due 01/14)
|
|
|
835,261
|
|
|
|
835,261
|
|
|
|
835,261
|
|
|
|
|
|
Common Stock (570 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,019,063
|
|
|
|
4,282,865
|
|
|
|
4,107,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC (0)%*
|
|
Machined Parts Distribution
|
|
Voting Units (4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
414,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
414,100
|
|
Frozen Specialties, Inc. (4)%*
|
|
Frozen Foods Manufacturer
|
|
Subordinated Note (13% Cash, 5% PIK, Due 07/14)
|
|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. (0)%*
|
|
Restaurant
|
|
Membership Units (5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (1)%*
|
|
Specialty Woven Fabrics Manufacturer
|
|
Subordinated Note (0.69% PIK, Due 08/11)
|
|
|
3,799,359
|
|
|
|
3,161,442
|
|
|
|
2,156,500
|
|
|
|
|
|
Subordinated Note (6.25% Cash, 11.75% PIK, Due 08/11)
|
|
|
137,233
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
112,100
|
|
|
|
|
|
Common Stock Warrants (56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,936,592
|
|
|
|
3,364,856
|
|
|
|
2,388,600
|
|
S-44
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Great Expressions Group Holdings, LLC (3)%*
|
|
Dental Practice Management
|
|
Subordinated Note (12% Cash, 4% PIK, Due 08/15)
|
|
$
|
4,561,311
|
|
|
$
|
4,498,589
|
|
|
$
|
4,498,589
|
|
|
|
|
|
Class A Units (225 Units)
|
|
|
|
|
|
|
450,000
|
|
|
|
678,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,561,311
|
|
|
|
4,948,589
|
|
|
|
5,176,989
|
|
Grindmaster-Cecilware Corp. (3)%*
|
|
Food Services Equipment Manufacturer
|
|
Subordinated Note (12% Cash, 4.5% PIK, Due 04/16)
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hatch Chile Co., LLC (3)%*
|
|
Food Products Distributer
|
|
Senior Note (19% Cash, Due 07/15)
|
|
|
4,500,000
|
|
|
|
4,394,652
|
|
|
|
4,394,652
|
|
|
|
|
|
Subordinated Note (14% Cash, Due 07/15)
|
|
|
1,000,000
|
|
|
|
837,779
|
|
|
|
837,779
|
|
|
|
|
|
Unit Purchase Warrant (5,265 Units)
|
|
|
|
|
|
|
149,800
|
|
|
|
149,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500,000
|
|
|
|
5,382,231
|
|
|
|
5,382,231
|
|
Infrastructure Corporation of America, Inc. (6)%*
|
|
Roadway Maintenance, Repair and Engineering Services
|
|
Subordinated Note (12% Cash, 1% PIK, Due 10/15)
|
|
|
10,769,120
|
|
|
|
9,566,843
|
|
|
|
9,566,843
|
|
|
|
|
|
Common Stock Purchase Warrant (199,526 shares)
|
|
|
|
|
|
|
980,000
|
|
|
|
980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,769,120
|
|
|
|
10,546,843
|
|
|
|
10,546,843
|
|
Inland Pipe Rehabilitation Holding Company LLC (10)%*
|
|
Cleaning and Repair Services
|
|
Subordinated Note (14% Cash, Due 01/14)
|
|
|
8,274,920
|
|
|
|
7,621,285
|
|
|
|
7,621,285
|
|
|
|
|
|
Subordinated Note (18% Cash, Due 01/14)
|
|
|
3,905,108
|
|
|
|
3,861,073
|
|
|
|
3,861,073
|
|
|
|
|
|
Subordinated Note (15% Cash, Due 01/14)
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
|
|
Subordinated Note (15.3% Cash, Due 01/14)
|
|
|
3,500,000
|
|
|
|
3,465,000
|
|
|
|
3,465,000
|
|
|
|
|
|
Membership Interest Purchase Warrant (3.0)%
|
|
|
|
|
|
|
853,500
|
|
|
|
2,982,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,986,330
|
|
|
|
16,107,160
|
|
|
|
18,236,260
|
|
Library Systems & Services, LLC (3)%*
|
|
Municipal Business Services
|
|
Subordinated Note (12.5% Cash, 4.5% PIK, Due 06/15)
|
|
|
5,250,000
|
|
|
|
5,104,255
|
|
|
|
5,104,255
|
|
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,250,000
|
|
|
|
5,163,250
|
|
|
|
5,639,255
|
|
McKenzie Sports Products, LLC (3)%*
|
|
Taxidermy Manufacturer
|
|
Subordinated Note (13% Cash, 1% PIK, Due 10/17)
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
Media Temple, Inc. (7)%*
|
|
Web Hosting Services
|
|
Subordinated Note (12% Cash, 4% PIK, Due 04/15)
|
|
|
8,800,000
|
|
|
|
8,624,776
|
|
|
|
8,624,776
|
|
|
|
|
|
Convertible Note (8% Cash, 4% PIK, Due 04/15)
|
|
|
3,200,000
|
|
|
|
2,668,581
|
|
|
|
2,668,581
|
|
|
|
|
|
Common Stock Purchase Warrant (28,000 Shares)
|
|
|
|
|
|
|
536,000
|
|
|
|
536,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
|
|
11,829,357
|
|
|
|
11,829,357
|
|
Minco Technology Labs, LLC (3)%*
|
|
Semiconductor Distribution
|
|
Subordinated Note (13% Cash, 3.25% PIK, Due 05/16)
|
|
|
5,102,216
|
|
|
|
4,984,368
|
|
|
|
4,984,368
|
|
|
|
|
|
Class A Units (5,000 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
296,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,102,216
|
|
|
|
5,484,368
|
|
|
|
5,281,168
|
|
Novolyte Technologies, Inc. (5)%*
|
|
Specialty Manufacturing
|
|
Subordinated Note (12% Cash, 5.5% PIK, Due 04/15)
|
|
|
7,785,733
|
|
|
|
7,686,662
|
|
|
|
7,686,662
|
|
|
|
|
|
Preferred Units (641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
664,600
|
|
|
|
|
|
Common Units (24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
370,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,785,733
|
|
|
|
8,487,684
|
|
|
|
8,721,462
|
|
SRC, Inc. (5)%*
|
|
Specialty Chemical Manufacturer
|
|
Subordinated Notes (12% Cash, 2% PIK, Due 09/14)
|
|
|
9,001,000
|
|
|
|
8,697,200
|
|
|
|
8,697,200
|
|
|
|
|
|
Common Stock Purchase Warrants
|
|
|
|
|
|
|
123,800
|
|
|
|
123,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,001,000
|
|
|
|
8,821,000
|
|
|
|
8,821,000
|
|
Syrgis Holdings, Inc. (2)%*
|
|
Specialty Chemical Manufacturer
|
|
Senior Notes (7.75%-10.75% Cash, Due 08/12-02/14)
|
|
|
2,873,393
|
|
|
|
2,858,198
|
|
|
|
2,858,198
|
|
|
|
|
|
Class C Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
962,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,873,393
|
|
|
|
3,858,198
|
|
|
|
3,820,398
|
|
S-45
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
TBG Anesthesia Management, LLC (6)%*
|
|
Physician Management Services
|
|
Senior Note (13.5% Cash, Due 11/14)
|
|
$
|
11,000,000
|
|
|
$
|
10,612,766
|
|
|
$
|
10,612,766
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000,000
|
|
|
|
10,888,866
|
|
|
|
10,777,766
|
|
Top Knobs USA, Inc. (6)%*
|
|
Hardware Designer and Distributor
|
|
Subordinated Note (12% Cash, 4.5% PIK, Due 05/17)
|
|
|
9,910,331
|
|
|
|
9,713,331
|
|
|
|
9,713,331
|
|
|
|
|
|
Common Stock (26,593 shares)
|
|
|
|
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,910,331
|
|
|
|
10,463,331
|
|
|
|
10,463,331
|
|
TrustHouse Services Group, Inc. (3)%*
|
|
Food Management Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15)
|
|
|
4,440,543
|
|
|
|
4,381,604
|
|
|
|
4,381,604
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
492,900
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,440,543
|
|
|
|
4,881,604
|
|
|
|
4,874,504
|
|
Tulsa Inspection Resources, Inc. (3)%*
|
|
Pipeline Inspection Services
|
|
Subordinated Note (14%-17.5% Cash, Due 03/14)
|
|
|
5,810,588
|
|
|
|
5,490,797
|
|
|
|
5,490,797
|
|
|
|
|
|
Common Unit (1 unit)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Stock Warrants (8 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,810,588
|
|
|
|
6,011,797
|
|
|
|
5,490,797
|
|
Twin-Star International, Inc. (3)%*
|
|
Consumer Home Furnishings Manufacturer
|
|
Subordinated Note (12% Cash, 1% PIK, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,462,290
|
|
|
|
4,462,290
|
|
|
|
|
|
Senior Note (4.53%, Due 04/13)
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,588,962
|
|
|
|
5,551,252
|
|
|
|
5,551,252
|
|
Wholesale Floors, Inc. (1)%*
|
|
Commercial Services
|
|
Subordinated Note (12.5% Cash, 1.5% PIK, Due 06/14)
|
|
|
3,739,639
|
|
|
|
3,387,525
|
|
|
|
2,632,100
|
|
|
|
|
|
Membership Interest Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739,639
|
|
|
|
3,520,325
|
|
|
|
2,632,100
|
|
Yellowstone Landscape Group, Inc. (7)%*
|
|
Landscaping Services
|
|
Subordinated Note (12% Cash, 3% PIK, Due 04/14)
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
Zoom Systems (4)%*
|
|
Retail Kiosk Operator
|
|
Subordinated Note (12.5% Cash, 1.5% PIK, Due 12/14)
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
237,824,178
|
|
|
|
244,197,828
|
|
|
|
245,392,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American De-Rosa Lamparts, LLC and
|
|
Wholesale and Distribution
|
|
Subordinated Note (5% PIK, Due 10/13)
|
|
|
5,475,141
|
|
|
|
5,153,341
|
|
|
|
3,985,700
|
|
Hallmark Lighting (2)%*
|
|
|
|
Membership Units (6,516 Units)
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,475,141
|
|
|
|
5,503,341
|
|
|
|
3,985,700
|
|
AP Services, Inc. (4)%*
|
|
Fluid Sealing Supplies and Services
|
|
Subordinated Note (12% Cash, 2% PIK, Due 09/15)
|
|
|
5,834,877
|
|
|
|
5,723,194
|
|
|
|
5,723,194
|
|
|
|
|
|
Class A Units (933 units)
|
|
|
|
|
|
|
933,333
|
|
|
|
933,333
|
|
|
|
|
|
Class B Units (496 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,834,877
|
|
|
|
6,656,527
|
|
|
|
6,656,527
|
|
Asset Point, LLC (3)%*
|
|
Asset Management Software Provider
|
|
Senior Note (12% Cash, 5% PIK, Due 03/13)
|
|
|
5,756,261
|
|
|
|
5,703,925
|
|
|
|
5,384,500
|
|
|
|
|
|
Senior Note (12% Cash, 2% PIK, Due 07/15)
|
|
|
605,185
|
|
|
|
605,185
|
|
|
|
478,100
|
|
|
|
|
|
Options to Purchase Membership Units (342,407 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Membership Unit Warrants (356,506 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,361,446
|
|
|
|
6,809,110
|
|
|
|
5,862,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (1)%*
|
|
Industrial Equipment Manufacturer
|
|
Common Stock (136,400 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
978,700
|
|
|
|
|
|
Common Stock Warrant (4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
28,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
1,007,400
|
|
S-46
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street
|
|
Oil and Gas Services
|
|
Subordinated Note Brantley Transportation (14% Cash,
Due 12/12)
|
|
$
|
3,800,000
|
|
|
$
|
3,738,821
|
|
|
$
|
3,546,600
|
|
Holdings, LLC (Pine 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
|
|
|
|
3,972,421
|
|
|
|
3,546,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (1)%*
|
|
Custom Forging and Fastener Supplies
|
|
Class A Units (1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
Equisales, LLC (4)%*
|
|
Energy Products and Services
|
|
Subordinated Note (13% Cash, 4% PIK, Due 04/12)
|
|
|
6,000,000
|
|
|
|
5,959,983
|
|
|
|
5,959,983
|
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
|
|
|
480,900
|
|
|
|
569,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,440,883
|
|
|
|
6,529,283
|
|
Plantation Products, LLC (8)%*
|
|
Seed Manufacturing
|
|
Subordinated Notes (13% Cash, 4.5% PIK, Due 06/16)
|
|
|
14,527,188
|
|
|
|
14,164,688
|
|
|
|
14,164,688
|
|
|
|
|
|
Preferred Units (1,127 units)
|
|
|
|
|
|
|
1,127,000
|
|
|
|
1,127,000
|
|
|
|
|
|
Common Units (92,000 units)
|
|
|
|
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,527,188
|
|
|
|
15,314,688
|
|
|
|
15,314,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QC Holdings, Inc.(0)%*
|
|
Lab Testing Services
|
|
Common Stock (5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
Technology Crops International (3)%*
|
|
Supply Chain Management Services
|
|
Subordinated Note (12% Cash, 5% PIK, Due 03/15)
|
|
|
5,333,595
|
|
|
|
5,250,980
|
|
|
|
5,250,980
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
612,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,333,595
|
|
|
|
5,750,980
|
|
|
|
5,863,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waste Recyclers Holdings, LLC (2)%*
|
|
Environmental and Facilities Services
|
|
Class A Preferred Units (280 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units (985,372 Units)
|
|
|
|
|
|
|
3,304,218
|
|
|
|
2,384,100
|
|
|
|
|
|
Class C Preferred Units (1,444,475 Units)
|
|
|
|
|
|
|
1,499,531
|
|
|
|
1,530,300
|
|
|
|
|
|
Common Unit Purchase Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,984,532
|
|
|
|
3,914,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
47,332,247
|
|
|
|
60,196,084
|
|
|
|
55,661,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (1)%*
|
|
Commercial Printing Services
|
|
Senior Note (3.76% Cash, 2% PIK, Due 9/11)
|
|
|
1,500,498
|
|
|
|
1,497,934
|
|
|
|
1,465,400
|
|
|
|
|
|
Senior Note (7.79% Cash, 2% PIK, Due 9/11)
|
|
|
2,045,228
|
|
|
|
2,041,167
|
|
|
|
1,081,100
|
|
|
|
|
|
2nd Lien Note (2.79% Cash, 8% PIK, Due 12/11)
|
|
|
3,470,254
|
|
|
|
2,996,287
|
|
|
|
|
|
|
|
|
|
Preferred Shares (35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares (4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests (3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,015,980
|
|
|
|
6,535,388
|
|
|
|
2,546,500
|
|
Fire Sprinkler Systems, Inc. (0)%*
|
|
Specialty Trade Contractors
|
|
Subordinated Notes (2% PIK, Due 04/11)
|
|
|
3,065,981
|
|
|
|
2,626,072
|
|
|
|
750,000
|
|
|
|
|
|
Common Stock (2,978 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,065,981
|
|
|
|
2,920,696
|
|
|
|
750,000
|
|
Fischbein, LLC (11)%*
|
|
Packaging and Materials Handling Equipment Manufacturer
|
|
Subordinated Note (13% Cash, 5.5% PIK, Due 05/13)
|
|
|
4,345,573
|
|
|
|
4,268,333
|
|
|
|
4,268,333
|
|
|
|
|
|
Class A-1 Common Units (558,140 units)
|
|
|
|
|
|
|
558,140
|
|
|
|
2,200,600
|
|
|
|
|
|
Class A Common Units (4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
13,649,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,345,573
|
|
|
|
9,026,473
|
|
|
|
20,118,533
|
|
S-47
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Weave Textiles, LLC (1)%*
|
|
Specialty Woven Fabrics Manufacturer
|
|
Senior Note (12% PIK, Due 01/11)
|
|
$
|
310,238
|
|
|
$
|
310,238
|
|
|
$
|
310,238
|
|
|
|
|
|
Membership Units (425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
1,211,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,238
|
|
|
|
1,165,238
|
|
|
|
1,521,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,737,772
|
|
|
|
19,647,795
|
|
|
|
24,936,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2010 (181)%*
|
|
|
|
$
|
299,894,197
|
|
|
$
|
324,041,707
|
|
|
$
|
325,990,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
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.
S-48
TRIANGLE
CAPITAL CORPORATION
|
|
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), operates 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 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
Triangle Capital Corporation 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 adjustments
necessary for the fair presentation of financial statements for
the interim period, have been reflected in the unaudited
consolidated financial statements. 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 thereto should be read
in conjunction with the audited financial statements and notes
thereto for the period ended December 31, 2010. 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.
S-49
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
Summaries of the composition of the Companys investment
portfolio at cost and fair value, and as a percentage of total
investments, are shown in the following tables:
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Percentage of
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Total
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Percentage of
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Cost
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Portfolio
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Fair Value
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Total Portfolio
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June 30, 2011:
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Subordinated debt, Unitranche and
2nd lien
notes
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$
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365,763,772
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89
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%
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$
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358,205,291
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87
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%
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Senior debt
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7,995,008
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2
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6,901,690
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2
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Equity shares
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29,247,111
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7
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32,909,636
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8
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Equity warrants
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7,490,080
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2
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10,598,068
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3
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Royalty rights
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874,400
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785,000
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$
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411,370,371
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100
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%
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$
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409,399,685
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100
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%
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December 31, 2010:
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Subordinated debt, Unitranche and
2nd lien
notes
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$
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279,433,775
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86
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%
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$
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270,994,677
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83
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%
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Senior debt
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8,631,760
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3
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7,639,159
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3
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Equity shares
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29,115,890
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9
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38,719,699
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12
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Equity warrants
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5,985,882
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2
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7,902,458
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2
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Royalty rights
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874,400
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734,600
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$
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324,041,707
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100
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%
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$
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325,990,593
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100
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%
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During the three months ended June 30, 2011, the Company
made five new investments totaling approximately
$35.2 million and four investments in existing portfolio
companies totaling approximately $32.8 million. During the
six months ended June 30, 2011, the Company made ten new
investments totaling approximately $86.8 million and
investments in seven existing portfolio companies totaling
approximately $49.5 million.
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.
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.
S-50
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
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, using 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,
(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 comparable companies that are
publicly traded, a review of these publicly traded companies and
the market multiple of their equity securities.
S-51
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
The following table presents the Companys financial
instruments carried at fair value as of June 30, 2011 and
December 31, 2010, on the consolidated balance sheet by ASC
Topic 820 valuation hierarchy, as previously described:
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Fair Value at June 30, 2011
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Level 1
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Level 2
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Level 3
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Total
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Portfolio company investments
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$
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$
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$
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409,399,685
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$
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409,399,685
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$
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$
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$
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409,399,685
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$
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409,399,685
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Fair Value at December 31, 2010
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Level 1
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Level 2
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Level 3
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Total
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Portfolio company investments
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$
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$
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$
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325,990,593
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$
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325,990,593
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$
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$
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$
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325,990,593
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$
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325,990,593
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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, 2011
and 2010:
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Six Months Ended June 30,
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2011
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2010
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Fair value of portfolio, beginning of period
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$
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325,990,593
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$
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201,317,970
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New investments
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136,291,889
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58,216,292
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Proceeds from sales of investments
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(15,995,056
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)
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(4,089,571
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)
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Loan origination fees received
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(2,689,172
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)
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(1,157,860
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)
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Principal repayments received
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(45,527,214
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(17,613,050
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)
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Payment in kind interest earned
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4,432,022
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2,789,287
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Payment in kind interest payments received
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(3,394,264
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)
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(1,305,422
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Accretion of loan discounts
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518,337
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312,106
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Accretion of deferred loan origination revenue
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711,355
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418,082
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Realized gain on investments
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12,980,769
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707,653
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Unrealized gain (loss) on investments
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(3,919,574
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)
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1,718,790
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Fair value of portfolio, end of period
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$
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409,399,685
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$
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241,314,277
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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 gains on investments of $2.4 million
and $7.2 million, respectively, during the three and six
months ended June 30, 2011 are related to portfolio company
investments that were still held by the Company as of
June 30, 2011. Pre-tax net unrealized gains on investments
of $1.5 million and $1.1 million, 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.
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 addition, we
generally request Duff & Phelps to perform the
procedures on a portfolio company when there
S-52
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
has been a significant change in the fair value of the
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.
The total number of investments and the percentage of our
portfolio on which we asked Duff & Phelps to perform
such procedures are summarized below by period:
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Percent of Total
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Total
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Investments at
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For the Quarter Ended:
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Companies
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Fair Value(1)
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June 30, 2010
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8
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29
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%
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September 30, 2010
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8
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26
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%
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December 31, 2010
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9
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29
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%
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March 31, 2011
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11
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34
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%
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June 30, 2011
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13
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26
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%
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(1) |
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Exclusive of the fair value of new investments made during the
quarter |
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
appear reasonable. Our Board of Directors is ultimately and
solely responsible for determining the fair value of our
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 are 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.
S-53
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
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 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 investment income
over the term of the loan. Loan prepayment penalties and loan
amendment fees are generally recorded as investment income when
the respective prepayment or loan amendment occurs. Any
previously deferred fees are recognized as a capital gain upon
prepayment of the related loan.
Payment-in-Kind
Interest
The Company currently holds, and expects to hold in the future,
some loans in its 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 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 have been brought current
through payment or 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 Company generally invests in lower middle-market companies
in a variety of industries. At both June 30, 2011 and
December 31, 2010, 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 limited operating histories 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.
S-54
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
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 pass-through
entities) while satisfying 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.
For federal income tax purposes, the cost of investments owned
at June 30, 2011 was approximately $413.6 million.
S-55
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
The Company reported the following borrowings outstanding on its
Consolidated Balance Sheet as of June 30, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized Return
|
|
|
June 30,
|
|
|
December 31,
|
|
Issuance/Pooling Date
|
|
Maturity Date
|
|
(Interest) Rate
|
|
|
2011
|
|
|
2010
|
|
|
SBA Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796
|
%
|
|
$
|
|
|
|
$
|
9,500,000
|
|
March 28, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.214
|
%
|
|
|
6,410,000
|
|
|
|
6,410,000
|
|
September 24, 2008
|
|
September 1, 2018
|
|
|
6.455
|
%
|
|
|
50,900,000
|
|
|
|
50,900,000
|
|
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
|
|
September 22, 2010
|
|
September 1, 2020
|
|
|
3.687
|
%
|
|
|
32,590,000
|
|
|
|
32,590,000
|
|
March 29, 2011
|
|
March 1, 2021
|
|
|
4.474
|
%
|
|
|
75,400,000
|
|
|
|
63,400,000
|
|
March 11, 2011
|
|
September 1, 2021
|
|
|
1.293
|
%
|
|
|
9,600,000
|
|
|
|
|
|
June 30, 2011
|
|
September 1, 2021
|
|
|
1.053
|
%
|
|
|
9,500,000
|
|
|
|
|
|
SBA LMI Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 14, 2010
|
|
March 1, 2016
|
|
|
2.508
|
%
|
|
|
6,949,934
|
|
|
|
6,864,866
|
|
Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 9, 2011
|
|
May 8, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224,149,934
|
|
|
$
|
202,464,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA
and SBA LMI Debentures
Interest payments on SBA debentures 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. The Companys SBA Low or
Moderate Income (LMI) debentures are five-year
deferred interest debentures that are issued at a discount to
par. The accretion of discount on SBA LMI debentures is included
in interest expense in the Companys consolidated financial
statements.
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 two times (and in certain cases, up to three
times) the amount of its regulatory capital. As of June 30,
2011, 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, 2011,
the Fund has issued the maximum $150.0 million of
SBA-guaranteed debentures and Fund II has issued the
maximum $75.0 million in face amount 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 SBA debenture issued and a one-time
2.0% fee on the amount of each SBA LMI 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, 2011 and
December 31, 2010 were 4.64% and 3.95%, respectively. The
weighted average interest rate as of June 30, 2011 included
$205.0 million of pooled SBA-guaranteed debentures with a
weighted average fixed interest rate of 4.97% and
$19.1 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 1.17%. The weighted
average interest
S-56
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
rate as of December 31, 2010 included $139.1 million
of pooled SBA-guaranteed debentures with a weighted average
fixed interest rate of 5.29% and $63.4 million of unpooled
SBA-guaranteed debentures with a weighted average interim
interest rate of 1.00%.
Credit
Facility
In May 2011, the Company entered into a three-year senior
secured credit facility with an initial commitment of
$50.0 million (the Credit Facility). The
purpose of the Credit Facility is to provide additional
liquidity in support of future investment and operational
activities. The Credit Facility was arranged by BB&T
Capital Markets and Fifth Third Bank and has an accordion
feature which allows for an increase in the total loan size up
to $90.0 million and also contains two one-year extension
options, bringing the total potential commitment and funding
period to five years from closing. The Credit Facility, which is
structured to operate like a revolving credit facility, is
secured primarily by Triangle Capital Corporations assets,
excluding the assets of the Fund and Fund II.
Borrowings under the Credit Facility bear interest, subject to
the Companys election, on a per annum basis equal to
(i) the applicable base rate plus 1.95% or ii) the
applicable LIBOR rate plus 2.95%. The applicable base rate is
equal to the greater of i) prime rate, ii) the federal
funds rate plus 0.5% or iii) the adjusted one-month LIBOR
plus 2.0%. The Company pays unused commitment fees of 0.375% per
annum. As of June 30, 2011, the Company did not have any
borrowings outstanding under the Credit Facility.
The Credit Facility contains certain affirmative and negative
covenants, including but not limited to i) maintaining an
interest coverage ratio of at least 2.0 to 1.0,
ii) maintaining a minimum liquidity, and
iii) maintaining a minimum consolidated tangible net worth.
As of June 30, 2011, the Company was in compliance with all
financial covenants of the Credit Facility.
|
|
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.
S-57
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
The following table presents information with respect to the
Plan for the six months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2011
|
|
|
June 30, 2010
|
|
|
|
|
|
|
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
|
|
|
302,698
|
|
|
$
|
11.40
|
|
|
|
219,813
|
|
|
$
|
10.76
|
|
Shares granted during the period
|
|
|
161,174
|
|
|
$
|
20.37
|
|
|
|
152,944
|
|
|
$
|
12.01
|
|
Shares vested during the period
|
|
|
(104,317
|
)
|
|
$
|
11.53
|
|
|
|
(70,059
|
)
|
|
$
|
10.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
359,555
|
|
|
$
|
15.39
|
|
|
|
302,698
|
|
|
$
|
11.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the three and six months ended June 30, 2011, the
Company recognized equity-based compensation expense of
approximately $0.5 million and $0.9 million,
respectively. 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. This expense is included in general and
administrative expenses in the Companys consolidated
statements of operations.
As of June 30, 2011, there was approximately
$4.8 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 2.3 years.
S-58
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Consolidated Financial Statements
(Continued)
The following is a schedule of financial highlights for the six
months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
12.09
|
|
|
$
|
11.03
|
|
Net investment income(1)
|
|
|
1.01
|
|
|
|
0.70
|
|
Net realized gain (loss) on investments(1)
|
|
|
0.73
|
|
|
|
0.06
|
|
Net unrealized appreciation on investments(1)
|
|
|
(0.23
|
)
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
Total increase from investment operations(1)
|
|
|
1.51
|
|
|
|
0.93
|
|
Cash dividends/distributions declared
|
|
|
(0.86
|
)
|
|
|
(0.82
|
)
|
Shares issued pursuant to Dividend Reinvestment Plan
|
|
|
0.02
|
|
|
|
0.05
|
|
Common stock offerings
|
|
|
1.16
|
|
|
|
|
|
Stock-based compensation
|
|
|
(0.09
|
)
|
|
|
(0.09
|
)
|
Income tax provision(1)
|
|
|
|
|
|
|
(0.01
|
)
|
Other(2)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
13.79
|
|
|
$
|
11.08
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(3)
|
|
$
|
18.46
|
|
|
$
|
14.22
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
18,625,238
|
|
|
|
12,074,184
|
|
Net assets at end of period
|
|
$
|
256,800,333
|
|
|
$
|
133,809,358
|
|
Average net assets
|
|
$
|
229,874,789
|
|
|
$
|
132,201,696
|
|
Ratio of total expenses to average net assets (annualized)
|
|
|
9
|
%
|
|
|
11
|
%
|
Ratio of net investment income to average net assets (annualized)
|
|
|
16
|
%
|
|
|
13
|
%
|
Portfolio turnover ratio
|
|
|
13
|
%
|
|
|
11
|
%
|
Total Return(4)
|
|
|
2
|
%
|
|
|
24
|
%
|
|
|
|
(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 2011, the Company invested $13.8 million in
subordinated debt of Renew Life Formulas, Inc.
(Renew), a provider of branded nutritional
supplements and wellness products. Under the terms of the
investment, Renew will pay interest on the subordinated debt at
a rate of 14% per annum.
In July 2011, the Company invested $1.9 million in 2nd Lien
debt of Aramsco Holdings, Inc. (Aramsco), a
distributer of environmental safety and emergency preparedness
products. Under the terms of the investment, Aramsco will pay
interest on the subordinated debt at a rate of LIBOR plus 12%
per annum.
S-59
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 New York Stock Exchange under
the symbol TCAP. On March 31, 2011, the last
reported sale price of our common stock on the New York Stock
Exchange was $18.06 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 16.
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 May 4, 2011.
TABLE OF
CONTENTS
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1
|
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12
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13
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15
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16
|
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36
|
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|
36
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37
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38
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39
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41
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44
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60
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61
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71
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82
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|
91
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|
103
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|
104
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|
105
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|
110
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111
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117
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126
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131
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133
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133
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134
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134
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134
|
|
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 to lower middle market companies
located throughout the United States. 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
subordinated debt securities secured by second lien security
interests in portfolio company assets, coupled with equity
interests. On a more limited basis, we also invest in senior
debt securities secured by first lien security interests in
portfolio companies.
We focus on investments in companies with a history of
generating revenues and positive cash flow, an established
market position and a proven management team with a strong
operating discipline. Our target portfolio company 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 are
continuing to operate Triangle SBIC and Triangle SBIC II as
SBICs and to utilize the proceeds of the sale of SBA guaranteed
debentures, referred to herein as SBA leverage, to enhance
returns to our stockholders. As of December 31, 2010, we
had investments in 48 portfolio companies, with an aggregate
cost of $324.0 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:
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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 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, 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, which we believe
allows 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
participating in 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.
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Taking Advantage of Low Cost Debentures Guaranteed by the
SBA. The licenses of Triangle SBIC and Triangle
SBIC II to do business as SBICs allow them (subject to
availability and continued regulatory compliance) 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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Maintaining Portfolio Diversification. 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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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 generally 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.
|
Our
Investment Portfolio
As of December 31, 2010, we had investments in 48 portfolio
companies with an aggregate cost of approximately
$324.0 million. As of December 31, 2010, we had no
investments that represented more than 10% of the total fair
value of our investment portfolio. As of December 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 15.1%. The
weighted average yield on all of our outstanding investments
(including equity and equity-linked investments but excluding
non-accrual debt investments) was approximately 13.7% as of
December 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
12.9% as of December 31, 2010. There is no assurance that
the portfolio yields will remain at these levels after the
offering. The following table sets forth certain audited
information as of December 31, 2010 for each portfolio
company in which we had a debt or equity investment.
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Type of
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Principal
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Fair
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Portfolio Company
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Industry
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Investment(1)(2)
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Amount
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Cost
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Value(3)
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Non-Control / Non-Affiliate Investments:
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Ambient Air Corporation (AA) and
Peaden-Hobbs Mechanical, LLC (PHM) (3%)*
620 West Baldwin Road
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Specialty Trade
Contractors
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Subordinated Note-AA
(15% Cash, 3% PIK,
Due 06/13)
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$
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4,325,151
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$
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4,287,109
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$
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4,287,109
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Panama City, FL 32405
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Common Stock-PHM
(128,571 shares)
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128,571
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68,500
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Common Stock
Warrants-AA (455 shares)
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142,361
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852,000
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4,325,151
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4,558,041
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5,207,609
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3
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Type of
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Principal
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Fair
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Portfolio Company
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Industry
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Investment(1)(2)
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Amount
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Cost
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Value(3)
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Anns House of Nuts, Inc. (5%)*
1 Market Plaza
24th Floor
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Trail Mixes and
Nut Producers
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Subordinated Note
(12% Cash, 1% PIK,
Due 11/17)
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$
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7,009,722
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$
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6,603,828
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$
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6,603,828
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San Francisco, CA 94105
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Preferred A Units
(22,368 units)
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2,124,957
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2,124,957
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Preferred B Units
(10,380 units)
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|
|
|
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|
986,059
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986,059
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Common Units
(190,935 units)
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150,000
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150,000
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Common Stock Warrants
(14,558 shares)
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14,558
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14,558
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7,009,722
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9,879,402
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9,879,402
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Assurance Operations Corporation (0%)*
9341 Highway 43
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Metal Fabrication
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Common Stock
(517 Shares)
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516,867
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528,900
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Killen, AL 35645
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516,867
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528,900
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Botanical Laboratories, Inc. (5%)*
1441 West Smith Road
Ferndale, WA 98248
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Nutritional Supplement
Manufacturing and
Distribution
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Senior Notes
(14% Cash,
Due 02/15)
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10,500,000
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9,843,861
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9,843,861
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Common Unit
Warrants (998,680)
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474,600
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10,500,000
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10,318,461
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9,843,861
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Capital Contractors, Inc. (5%)*
88 Duryea Rd.
Melville, NY 11747
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Janitorial and Facilities
Maintenance Services
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Subordinated Notes
(12% Cash, 2% PIK,
Due 12/15)
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9,001,001
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8,329,001
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8,329,001
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Common Stock
Warrants (20 shares)
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492,000
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492,000
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9,001,001
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8,821,001
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8,821,001
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Carolina Beer and Beverage, LLC (8%)*
110 Barley Park Lane
Mooresville, NC 28115
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Beverage Manufacturing
and Packaging
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Subordinated Note
(12% Cash , 4% PIK,
Due 02/16)
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12,865,233
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|
|
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12,622,521
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12,622,521
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Class A Units
(11,974 Units)
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1,077,615
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1,077,615
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Class B Units
(11,974 Units)
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119,735
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119,735
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12,865,233
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13,819,871
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13,819,871
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CRS Reprocessing, LLC (8%)*
13551 Triton Park Blvd.
Louisville, KY 40223
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Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/15)
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11,129,470
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10,706,406
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10,706,406
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Subordinated Note
(10% Cash, 4% PIK,
Due 11/15)
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3,403,211
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|
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3,052,570
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|
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3,052,570
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|
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Common Unit
Warrant (340 Units)
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|
|
|
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564,454
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|
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1,043,000
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14,532,681
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14,323,430
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|
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14,801,976
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CV Holdings, LLC (6%)*
1030 Riverfront Center
Amsterdam, NY 12010
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Specialty Healthcare
Products Manufacturer
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|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
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|
|
11,685,326
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|
|
|
11,042,011
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|
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|
11,042,011
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|
|
|
|
|
Royalty rights
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|
|
|
|
|
|
874,400
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|
|
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622,500
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|
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11,685,326
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|
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11,916,411
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|
|
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11,664,511
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Electronic Systems Protection, Inc. (2%)*
517 North Industrial Drive
Zebulon, NC 27577
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Power Protection
Systems Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
|
3,183,802
|
|
|
|
3,162,604
|
|
|
|
3,162,604
|
|
|
|
|
|
Senior Note (8.3% Cash,
Due 01/14)
|
|
|
835,261
|
|
|
|
835,261
|
|
|
|
835,261
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|
|
|
|
|
Common Stock
(570 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
110,000
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
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|
4,019,063
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|
|
|
4,282,865
|
|
|
|
4,107,865
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Energy Hardware Holdings, LLC (0%)*
2730 E. Phillips Road
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
414,100
|
|
|
|
|
|
|
|
|
|
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|
Greer, SC 29650
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4,833
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|
|
|
414,100
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|
4
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|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Frozen Specialties, Inc. (4%)*
1465 Timberwolf Dr.
Holland, OH 43258
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
$
|
8,060,481
|
|
|
$
|
7,945,904
|
|
|
$
|
7,945,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
Garden Fresh Restaurant Corp. (0%)*
15822 Bernardo Center Drive
|
|
Restaurant
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
|
|
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|
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|
|
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|
San Diego, CA 92127
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
Gerli & Company (1%)*
75 Stark Street
Plains, PA 18705
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Subordinated Note
(0.69% PIK,
Due 08/11)
|
|
|
3,799,359
|
|
|
|
3,161,442
|
|
|
|
2,156,500
|
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75% PIK,
Due 08/11)
|
|
|
137,233
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
112,100
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
3,936,592
|
|
|
|
3,364,856
|
|
|
|
2,388,600
|
|
Great Expressions Group Holdings, LLC (3%)*
300 E. Long Lake Rd.
Bloomfield Hills, MI 48304
|
|
Dental Practice
Management
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 08/15)
|
|
|
4,561,311
|
|
|
|
4,498,589
|
|
|
|
4,498,589
|
|
|
|
|
|
Class A Units (225 Units)
|
|
|
|
|
|
|
450,000
|
|
|
|
678,400
|
|
|
|
|
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|
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|
|
|
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|
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|
|
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|
|
|
|
|
|
|
|
4,561,311
|
|
|
|
4,948,589
|
|
|
|
5,176,989
|
|
Grindmaster-Cecilware Corp. (3%)*
43-05
20th
Ave
Long Island City, NY 11105
|
|
Food Services
Equipment
Manufacturer
|
|
Subordinated Note
(12% Cash, 4.5% PIK,
Due 04/16)
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
Hatch Chile Co., LLC (3%)*
2003 S. Commercial Dr.
|
|
Food Products
Distributor
|
|
Senior Note (19% Cash,
Due 07/15)
|
|
|
4,500,000
|
|
|
|
4,394,652
|
|
|
|
4,394,652
|
|
Brunswick, GA 31525
|
|
|
|
Subordinated Note
(14% Cash,
Due 07/15)
|
|
|
1,000,000
|
|
|
|
837,779
|
|
|
|
837,779
|
|
|
|
|
|
Unit Purchase
Warrant (5,265 Units)
|
|
|
|
|
|
|
149,800
|
|
|
|
149,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500,000
|
|
|
|
5,382,231
|
|
|
|
5,382,231
|
|
Infrastructure Corporation of America, Inc. (6%)*
5110 Maryland Way
Suite 280
|
|
Roadway Maintenance,
Repair and
Engineering Services
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 10/15)
|
|
|
10,769,120
|
|
|
|
9,566,843
|
|
|
|
9,566,843
|
|
Brentwood, TN 37207
|
|
|
|
Common Stock Purchase
Warrant (199,526 shares)
|
|
|
|
|
|
|
980,000
|
|
|
|
980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,769,120
|
|
|
|
10,546,843
|
|
|
|
10,546,843
|
|
Inland Pipe Rehabilitation Holding Company, LLC (10%)*
350 N. Old Woodward, Ste. 100
Birmingham, MI 48009
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(14% Cash,
Due 01/14)
|
|
|
8,274,920
|
|
|
|
7,621,285
|
|
|
|
7,621,285
|
|
|
|
|
|
Subordinated Note
(18% Cash,
Due 01/14)
|
|
|
3,905,108
|
|
|
|
3,861,073
|
|
|
|
3,861,073
|
|
|
|
|
|
Subordinated Note
(15% Cash,
Due 01/14)
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
|
|
Subordinated Note
(15.3% Cash,
Due 01/14)
|
|
|
3,500,000
|
|
|
|
3,465,000
|
|
|
|
3,465,000
|
|
|
|
|
|
Membership Interest
Purchase Warrant (3.0%)
|
|
|
|
|
|
|
853,500
|
|
|
|
2,982,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,986,330
|
|
|
|
16,107,160
|
|
|
|
18,236,260
|
|
Library Systems & Services, LLC (3%)*
12850 Middlebrook Road
Germantown, MD 20874
|
|
Municipal Business
Services
|
|
Subordinated Note
(12.5% Cash, 4.5% PIK,
Due 06/15)
|
|
|
5,250,000
|
|
|
|
5,104,255
|
|
|
|
5,104,255
|
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,250,000
|
|
|
|
5,163,250
|
|
|
|
5,639,255
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
McKenzie Sports Products, LLC (3%)*
1910 St. Lukes Church Road
Salisbury, NC 28146
|
|
Taxidermy
Manufacturer
|
|
Subordinated Note
(13% Cash, 1% PIK,
Due 10/17)
|
|
$
|
6,010,667
|
|
|
$
|
5,893,359
|
|
|
$
|
5,893,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
Media Temple, Inc. (7%)*
8520 National Blvd., Building A
Culver City, CA 90232
|
|
Web Hosting Services
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 04/15)
|
|
|
8,800,000
|
|
|
|
8,624,776
|
|
|
|
8,624,776
|
|
|
|
|
|
Convertible Note
(8% Cash, 4% PIK,
Due 04/15)
|
|
|
3,200,000
|
|
|
|
2,668,581
|
|
|
|
2,668,581
|
|
|
|
|
|
Common Stock Purchase
Warrant (28,000 Shares)
|
|
|
|
|
|
|
536,000
|
|
|
|
536,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
|
|
11,829,357
|
|
|
|
11,829,357
|
|
Minco Technology Labs, LLC (3%)*
1805 Rutherford Lane
Austin, TX 78754
|
|
Semiconductor
Distribution
|
|
Subordinated Note
(13% Cash, 3.25% PIK,
Due 05/16)
|
|
|
5,102,216
|
|
|
|
4,984,368
|
|
|
|
4,984,368
|
|
|
|
|
|
Class A Units (5,000 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
296,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,102,216
|
|
|
|
5,484,368
|
|
|
|
5,281,168
|
|
Novolyte Technologies, Inc. (5%)*
111 West Irene Road
Zachory, LA 70791
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5% PIK,
Due 04/15)
|
|
|
7,785,733
|
|
|
|
7,686,662
|
|
|
|
7,686,662
|
|
|
|
|
|
Preferred Units (641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
664,600
|
|
|
|
|
|
Common Units (24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
370,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,785,733
|
|
|
|
8,487,684
|
|
|
|
8,721,462
|
|
SRC, Inc. (5%)*
950 3rd Ave.,
19th
Floor
New York, NY 10022
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Notes
(12% Cash, 2% PIK,
Due 09/14)
|
|
|
9,001,000
|
|
|
|
8,697,200
|
|
|
|
8,697,200
|
|
|
|
|
|
Common Stock
Purchase Warrants
|
|
|
|
|
|
|
123,800
|
|
|
|
123,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,001,000
|
|
|
|
8,821,000
|
|
|
|
8,821,000
|
|
Syrgis Holdings, Inc. (2%)*
1025 Mary Laidley Drive
Covington, KY 41017
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
2,873,393
|
|
|
|
2,858,198
|
|
|
|
2,858,198
|
|
|
|
|
|
Class C Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
962,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,873,393
|
|
|
|
3,858,198
|
|
|
|
3,820,398
|
|
TBG Anesthesia Management, LLC (6%)*
1770 1st St., Suite 703
Highland Park, IL 60035
|
|
Physician
Management Services
|
|
Senior Note
(13.5% Cash,
Due 11/14)
|
|
|
11,000,000
|
|
|
|
10,612,766
|
|
|
|
10,612,766
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000,000
|
|
|
|
10,888,866
|
|
|
|
10,777,766
|
|
Top Knobs USA, Inc. (6%)
7701 Forsyth Blvd., Suite 600
St. Louis, MO 63105
|
|
Hardware Designer
and Distributor
|
|
Subordinated Note
(12% Cash, 4.5% PIK,
Due 05/17)
|
|
|
9,910,331
|
|
|
|
9,713,331
|
|
|
|
9,713,331
|
|
|
|
|
|
Common Stock (26,593 shares)
|
|
|
|
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,910,331
|
|
|
|
10,463,331
|
|
|
|
10,463,331
|
|
TrustHouse Services Group, Inc. (3%)*
21 Armory Drive
Wheeling, WV 26003
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
4,440,543
|
|
|
|
4,381,604
|
|
|
|
4,381,604
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
492,900
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,440,543
|
|
|
|
4,881,604
|
|
|
|
4,874,504
|
|
Tulsa Inspection Resources, Inc. (3%)*
4111 S. Darlington Ave, Suite 1000
Tulsa, OK 74135,
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14%-17.5% Cash,
Due 03/14)
|
|
|
5,810,588
|
|
|
|
5,490,797
|
|
|
|
5,490,797
|
|
|
|
|
|
Common Unit(1 unit)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Stock Warrants
(8 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,810,588
|
|
|
|
6,011,797
|
|
|
|
5,490,797
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Twin-Star International, Inc. (3%)*
115 S.E.
4th Avenue
Delray Beach, FL 33483
|
|
Consumer Home
Furnishings
Manufacturer
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 04/14)
|
|
$
|
4,500,000
|
|
|
$
|
4,462,290
|
|
|
$
|
4,462,290
|
|
|
|
|
|
Senior Note (4.53%,
Due 04/13)
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,588,962
|
|
|
|
5,551,252
|
|
|
|
5,551,252
|
|
Wholesale Floors, Inc. (1%)*
8855 N. Black Canyon Highway
Phoenix, AZ 85021
|
|
Commercial Services
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 06/14)
|
|
|
3,739,639
|
|
|
|
3,387,525
|
|
|
|
2,632,100
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0%)
|
|
|
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739,639
|
|
|
|
3,520,325
|
|
|
|
2,632,100
|
|
Yellowstone Landscape Group, Inc. (7%)*
220 Elm Street
New Canaan, CT 06840
|
|
Landscaping Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
Zoom Systems (4%)*
22 Fourth Street., Floor 16
San Francisco, CA 94103
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments
|
|
|
|
|
|
|
237,824,178
|
|
|
|
244,197,828
|
|
|
|
245,392,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American De-Rosa Lamparts, LLC and
Hallmark Lighting (2%)*
1945 S. Tubeway Ave.
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(5% PIK,
Due 10/13)
|
|
|
5,475,141
|
|
|
|
5,153,341
|
|
|
|
3,985,700
|
|
Commerce, CA 90040
|
|
|
|
Membership Units
(6,516 Units)
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,475,141
|
|
|
|
5,503,341
|
|
|
|
3,985,700
|
|
AP Services, Inc. (4%)*
203 Armstrong Dr.
Freeport, PA 16229
|
|
Fluid Sealing Supplies
and Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
5,834,877
|
|
|
|
5,723,194
|
|
|
|
5,723,194
|
|
|
|
|
|
Class A Units (933 units)
|
|
|
|
|
|
|
933,333
|
|
|
|
933,333
|
|
|
|
|
|
Class B Units (496 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,834,877
|
|
|
|
6,656,527
|
|
|
|
6,656,527
|
|
Asset Point, LLC (3%)*
770 Pelham Road, Suite 200
Greenville, SC 29615
|
|
Asset Management
Software Provider
|
|
Senior Note
(12% Cash, 5% PIK,
Due 03/13)
|
|
|
5,756,261
|
|
|
|
5,703,925
|
|
|
|
5,384,500
|
|
|
|
|
|
Senior Note
(12% Cash, 2% PIK,
Due 07/15)
|
|
|
605,185
|
|
|
|
605,185
|
|
|
|
478,100
|
|
|
|
|
|
Options to
Purchase Membership
Units (342,407 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Membership Unit Warrants
(356,506 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,361,446
|
|
|
|
6,809,110
|
|
|
|
5,862,600
|
|
Axxiom Manufacturing, Inc. (1%)*
11927 South Highway 6
Fresno, TX 77545
|
|
Industrial Equipment
Manufacturer
|
|
Common Stock
(136,400 shares)
Common Stock Warrant
|
|
|
|
|
|
|
200,000
|
|
|
|
978,700
|
|
|
|
|
|
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
28,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
1,007,400
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Street)(4)(2%)*
|
|
Oil and Gas Services
|
|
Subordinated Note
Brantley Transportation
(14% Cash, Due 12/12)
|
|
$
|
3,800,000
|
|
|
$
|
3,738,821
|
|
|
$
|
3,546,600
|
|
808 N. Ruth Street
Monahans, TX 79756
|
|
|
|
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
|
|
|
|
3,972,421
|
|
|
|
3,546,600
|
|
Dyson Corporation (1%)*
53 Freedom Road
|
|
Custom Forging
and Fastener Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Painesville, OH 44077
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
Equisales, LLC (4%)*
13811 Cullen Blvd.
Houston, TX 77047
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
|
6,000,000
|
|
|
|
5,959,983
|
|
|
|
5,959,983
|
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
|
|
|
480,900
|
|
|
|
569,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,440,883
|
|
|
|
6,529,283
|
|
Plantation Products, LLC (8%)*
202 S. Washington St.
Norton, MA 02766
|
|
Seed Manufacturing
|
|
Subordinated Notes
(13% Cash, 4.5% PIK,
Due 06/16)
|
|
|
14,527,188
|
|
|
|
14,164,688
|
|
|
|
14,164,688
|
|
|
|
|
|
Preferred Units (1,127 units)
|
|
|
|
|
|
|
1,127,000
|
|
|
|
1,127,000
|
|
|
|
|
|
Common Units (92,000 units)
|
|
|
|
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,527,188
|
|
|
|
15,314,688
|
|
|
|
15,314,688
|
|
QC Holdings, Inc.(0%)*
1205 Industrial Blvd.
|
|
Lab Testing Services
|
|
Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southampton, PA 18966
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
Technology Crops International (3%)*
7996 North Point Blvd.
Winston-Salem NC 27106
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
|
5,333,595
|
|
|
|
5,250,980
|
|
|
|
5,250,980
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
612,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,333,595
|
|
|
|
5,750,980
|
|
|
|
5,863,180
|
|
Waste Recyclers Holdings, LLC (2%)*
261 Highway 20 East, Suites A, B & D
|
|
Environmental
and Facilities Services
|
|
Class A Preferred Units
(280 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
Freeport, FL 32439
|
|
|
|
Class B Preferred Units
(11,484,867 Units)
|
|
|
|
|
|
|
3,304,218
|
|
|
|
2,384,100
|
|
|
|
|
|
Class C Preferred Units
(1,444,475 Units)
|
|
|
|
|
|
|
1,499,531
|
|
|
|
1,530,300
|
|
|
|
|
|
Common Unit Purchase
Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,984,532
|
|
|
|
3,914,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
47,332,247
|
|
|
|
60,196,084
|
|
|
|
55,661,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (1%)*
4600 North Olcott Avenue
Harwood Heights, IL 60706
|
|
Commercial Printing
Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
|
1,500,498
|
|
|
|
1,497,934
|
|
|
|
1,465,400
|
|
|
|
|
|
Senior Note
(7.79% Cash, 2% PIK,
Due 9/11)
|
|
|
2,045,228
|
|
|
|
2,041,167
|
|
|
|
1,081,100
|
|
|
|
|
|
2nd Lien Note
(2.79% Cash, 8% PIK,
Due 12/11)
|
|
|
3,470,254
|
|
|
|
2,996,287
|
|
|
|
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,015,980
|
|
|
|
6,535,388
|
|
|
|
2,546,500
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Fire Sprinkler Systems, Inc. (0%)*
705 E. Harrison Street, Suite 200
Corona, CA 92879
|
|
Specialty
Trade Contractors
|
|
Subordinated Notes
(2% PIK,
Due 04/11)
|
|
$
|
3,065,981
|
|
|
$
|
2,626,072
|
|
|
$
|
750,000
|
|
|
|
|
|
Common Stock (2,978 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,065,981
|
|
|
|
2,920,696
|
|
|
|
750,000
|
|
Fischbein, LLC (11%)*
151 Walker Road
Statesville, NC 28625
|
|
Packaging and
Materials Handling
Equipment Manufacturer
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
|
4,345,573
|
|
|
|
4,268,333
|
|
|
|
4,268,333
|
|
|
|
|
|
Class A-1 Common Units
(558,140 units)
|
|
|
|
|
|
|
558,140
|
|
|
|
2,200,600
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
13,649,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,345,573
|
|
|
|
9,026,473
|
|
|
|
20,118,533
|
|
Weave Textiles, LLC (1%)*
3700 Glenwood Avenue, Suite 530
Raleigh, North Carolina, 27612
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Senior Note
(12% PIK,
Due 01/11)
|
|
|
310,238
|
|
|
|
310,238
|
|
|
|
310,238
|
|
|
|
|
|
Membership Units
(425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
1,211,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,238
|
|
|
|
1,165,238
|
|
|
|
1,521,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,737,772
|
|
|
|
19,647,795
|
|
|
|
24,936,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2010(181%)*
|
|
|
|
|
|
$
|
299,894,197
|
|
|
$
|
324,041,707
|
|
|
$
|
325,990,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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. |
Regulation
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.
9
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 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.
10
Set forth below is additional information regarding the offering
of our common stock:
|
|
|
New York Stock Exchange 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 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. |
11
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
|
|
|
5.60
|
%
|
Other expenses
|
|
|
5.29
|
%(5)
|
Total annual expenses
|
|
|
10.89
|
%(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 5.21% 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
|
|
$
|
112
|
|
|
$
|
315
|
|
|
$
|
494
|
|
|
$
|
853
|
|
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.
12
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, 2006, 2007, 2008, 2009 and 2010 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. Results for the
year ended December 31, 2010 are not necessarily indicative
of the results that may be expected for the current fiscal year.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
|
$
|
21,056
|
|
|
$
|
27,149
|
|
|
$
|
35,641
|
|
Interest income from cash and cash equivalent investments
|
|
|
280
|
|
|
|
1,824
|
|
|
|
303
|
|
|
|
613
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
21,359
|
|
|
|
27,762
|
|
|
|
35,985
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
4,228
|
|
|
|
6,900
|
|
|
|
7,350
|
|
Amortization of deferred financing fees
|
|
|
100
|
|
|
|
113
|
|
|
|
255
|
|
|
|
364
|
|
|
|
797
|
|
Management fees
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
115
|
|
|
|
3,894
|
|
|
|
6,254
|
|
|
|
6,449
|
|
|
|
7,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
10,737
|
|
|
|
13,713
|
|
|
|
15,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
10,622
|
|
|
|
14,049
|
|
|
|
20,149
|
|
Net realized gain (loss) on investments
Non-Control/Non-Affiliate
|
|
|
6,027
|
|
|
|
(760
|
)
|
|
|
(1,393
|
)
|
|
|
448
|
|
|
|
(1,623
|
)
|
Net realized gain (loss) on investments Affiliate
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
(3,856
|
)
|
Net realized gain on investments Control
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
(4,286
|
)
|
|
|
(10,310
|
)
|
|
|
10,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(2,850
|
)
|
|
|
(9,862
|
)
|
|
|
5,462
|
|
Provision for income taxes
|
|
|
|
|
|
|
(52
|
)
|
|
|
(133
|
)
|
|
|
(150
|
)
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
7,639
|
|
|
$
|
4,037
|
|
|
$
|
25,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
1.54
|
|
|
$
|
1.63
|
|
|
$
|
1.58
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.11
|
|
|
$
|
0.47
|
|
|
$
|
1.99
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.22
|
|
|
$
|
11.03
|
|
|
$
|
12.09
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
1.44
|
|
|
$
|
1.62
|
|
|
$
|
1.61
|
|
Capital gains distributions declared per common share
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
182,105
|
|
|
$
|
201,318
|
|
|
$
|
325,991
|
|
Cash and cash equivalents
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
27,193
|
|
|
|
55,200
|
|
|
|
54,820
|
|
Interest and fees receivable
|
|
|
135
|
|
|
|
305
|
|
|
|
680
|
|
|
|
677
|
|
|
|
868
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
47
|
|
|
|
95
|
|
|
|
287
|
|
|
|
119
|
|
Deferred offering costs
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
29
|
|
|
|
47
|
|
Deferred financing fees
|
|
|
985
|
|
|
|
999
|
|
|
|
3,546
|
|
|
|
3,540
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
388,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
1,609
|
|
|
$
|
2,222
|
|
|
$
|
2,269
|
|
Interest payable
|
|
|
606
|
|
|
|
699
|
|
|
|
1,882
|
|
|
|
2,334
|
|
|
|
2,388
|
|
Distribution / dividends payable
|
|
|
532
|
|
|
|
2,041
|
|
|
|
2,767
|
|
|
|
4,775
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
52
|
|
|
|
30
|
|
|
|
59
|
|
|
|
198
|
|
Deferred revenue
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
75
|
|
|
|
37
|
|
Deferred income taxes
|
|
|
|
|
|
|
1,760
|
|
|
|
844
|
|
|
|
577
|
|
|
|
209
|
|
SBA-guaranteed debentures payable
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
115,110
|
|
|
|
121,910
|
|
|
|
202,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
122,242
|
|
|
|
131,952
|
|
|
|
207,566
|
|
Total partners capital / stockholders equity
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
91,425
|
|
|
|
129,099
|
|
|
|
180,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital /
stockholders equity
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
388,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on total investments(1)
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
|
|
13.5
|
%
|
|
|
13.7
|
%
|
Number of portfolio companies
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
|
|
37
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratios (as percentage of average net assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
5.3
|
%
|
Interest expense and deferred financing fees
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
11.3
|
%
|
|
|
14.0
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes non-accrual debt investments |
14
SELECTED
QUARTERLY FINANCIAL DATA
The following tables set forth certain quarterly financial
information for each of the eight quarters ended with the
quarter ended December 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,
|
|
|
|
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,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Total investment income
|
|
$
|
7,484,907
|
|
|
$
|
8,294,147
|
|
|
$
|
9,787,085
|
|
|
$
|
10,419,355
|
|
Net investment income
|
|
|
3,793,684
|
|
|
|
4,558,624
|
|
|
|
5,612,455
|
|
|
|
6,184,710
|
|
Net increase in net assets resulting from operations
|
|
|
4,149,329
|
|
|
|
6,867,280
|
|
|
|
7,183,182
|
|
|
|
7,190,758
|
|
Net investment income per share
|
|
$
|
0.32
|
|
|
$
|
0.38
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
15
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 part or all of your
investment.
Recent
market conditions have impacted debt and equity capital markets
in the United States, and we do not know if these conditions
will improve in the near future.
Beginning in 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 was negatively
impacted by significant write-offs as the value of the assets
held by financial firms 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 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 and
many public market indices have experienced positive total
returns. Concentrated policy initiatives undertaken by central
banks and
16
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. However, while
financial conditions have improved, domestic unemployment rates
remain high, and economic activity remains subdued. In addition,
there are early signs that many businesses and industries are
experiencing inflationary pressures, both internationally and
domestically. 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
17
in the number
and/or the
size of our competitors in this target market could force us to
accept less attractive 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 executives 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
18
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.
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.
19
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 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.
The
impact of recent financial reform legislation on us is
uncertain.
In light of current conditions in the U.S. and global financial
markets and the U.S. and global economy, legislators, the
presidential administration and regulators have increased their
focus on the regulation of the financial services industry. The
Dodd-Frank Reform Act became effective on July 21, 2010,
although many provisions of the Dodd-Frank Reform Act have
delayed effectiveness or will not become effective until the
relevant federal agencies issue new rules to implement the
Dodd-Frank Reform Act. Nevertheless, the Dodd-Frank Reform Act
may have a material adverse impact on the financial services
industry as a whole and on our business, results of operations
and financial condition. Accordingly, we cannot predict the
effect the Dodd-Frank Reform Act or its implementing regulations
will have on our business, results of operations or financial
condition.
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
provide financing in the form of debt, debt with equity features
and/or equity 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 remove the general partners of our SBIC subsidiaries
and have a receiver appointed, or 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, as amended, 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 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
20
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.
On December 31, 2010, we had $202.5 million of
outstanding indebtedness guaranteed by the SBA, which had a
weighted average annualized interest cost of 3.95%. The
calculation of this weighted average interest rate includes
i) the interim rates charged on $63.4 million of SBA
guaranteed debentures that have not yet been pooled and
ii) the fixed rates charged on $139.1 million of
pooled SBA guaranteed debentures. The unpooled SBA-guaranteed
debentures have a weighted average interim interest rate of
1.00% and the pooled SBA guaranteed debentures have a weighted
average interest rate of 5.29%.
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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|
|
|
|
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|
|
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|
|
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|
|
|
|
|
|
Assumed Return on our Portfolio
|
|
|
(Net of Expenses)
|
|
|
|
|
(10.0
|
)%
|
|
|
(5.0
|
)%
|
|
|
0.0
|
%
|
|
|
5.0
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Corresponding net return to stockholder(1)
|
|
|
(25.9
|
)%
|
|
|
(15.2
|
)%
|
|
|
(4.4
|
)%
|
|
|
6.3
|
%
|
|
|
17.1
|
%
|
|
|
|
(1) |
|
Assumes $388.0 million in total assets, $202.5 million
in debt outstanding, $180.5 million in net assets and an
average cost of funds of 3.95%, which was the weighted average
borrowing cost on our borrowings at December 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
December 31, 2010, Triangle SBIC had issued the maximum
$150.0 million of SBA guaranteed debentures. As of
December 31, 2010, Triangle SBIC II had issued
$53.4 million in face amount of SBA guaranteed debentures
and has a leverage commitment from the SBA to issue the
remaining $21.6 million of the $75.0 million statutory
maximum of SBA guaranteed debentures. 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.
21
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 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.
22
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 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.
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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, in the future, 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, our SBIC subsidiaries
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
23
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 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.
24
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 by 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.
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
25
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 $8.00 per
share after offering expenses and commissions (a 20% discount
from net asset value). The acronym NAV stands for
net asset value.
In any offering of common stock, we will present the actual
dilution to stockholders in tabular form in the prospectus
supplement specific to that offering.
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Example 1
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Example 2
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Example 3
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5% Offering
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10% Offering
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20% Offering
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at 5% Discount
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at 10% Discount
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at 20% Discount
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Prior to Sale
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Following
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%
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Following
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%
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Following
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Below NAV
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Sale
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Change
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Sale
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Change
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Sale
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% Change
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Offering Price
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Price per Share to Public
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$
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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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$
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(3,333
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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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(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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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.
26
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 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.
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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
27
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.
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
28
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 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).
29
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 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
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.
Beginning in the third quarter of 2007, global credit and other
financial markets 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 was negatively
impacted by significant write-offs as the value of the assets
held by financial firms 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 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 and
many public stock market indices have experienced positive total
returns. 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. However, while
financial conditions have improved, domestic unemployment rates
remain high, and economic activity remains subdued. In addition,
there are early signs that many businesses and industries are
experiencing inflationary pressures both internationally and
domestically.
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, during such
slowdowns or recessions, our non-performing assets are likely to
increase, and the value of our portfolio is likely to decrease.
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
30
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.
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.
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 December 31, 2010, the fair value of our non-accrual
assets was approximately $9.6 million, which comprised
approximately 3.0% of the total fair value of our portfolio. The
fair value of these non-accrual assets was less than cost as of
December 31, 2010. In addition, as of December 31,
2010, we had, on a fair value basis, approximately
$12.0 million of debt investments or 3.7% 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
31
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 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.
32
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, 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
dividends or distributions that we pay during such period may be
substantially lower than the dividends or 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 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
conditions may increase the risks associated with our business
and an investment in us.
Beginning in the third quarter of 2007, the U.S. economy
and financial markets began 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 entered a
recession, which was severe and prolonged. Similar conditions
occurred in the financial markets and economies of numerous
other countries and could worsen, both in the U.S. and
globally. These conditions raised the level of many of the risks
described herein and, if repeated or continued, 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 has 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.
33
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, 2010. 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, 2011 is less than the fair value at the time
of an offering during 2011, 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, 2011 is greater
than the fair value at the time of an offering during 2011, we
may 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,
2011, 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 earnings or variations in 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 December 31, 2010, we had 14,928,987 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.
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
35
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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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.
36
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
its SBIC license became effective on May 26, 2010. We have
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.
We
report our investments at market value or fair value with
changes in value reported through our statements of
operations.
In accordance with the requirements of Article 6 of
Regulation S-X,
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 statements 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 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 gains. If
this happens, our stockholders will be treated as if they
received an actual distribution of the net capital gains 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 the minimum annual
distribution requirements for 2008, 2009 and 2010 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, so that our
consolidated financial statements reflect our investments in the
portfolio companies owned by the Taxable Subsidiaries. The
37
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 90.0% of the RICs gross income
for federal 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 our ability to qualify as a RIC and
therefore cause us to incur significant amounts of
corporate-level U.S. federal income taxes. 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 is 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 may be limited by this asset
coverage test. Our SBIC subsidiaries cannot have outstanding
more than an aggregate of $225.0 million of debenture
leverage guaranteed by the SBA.
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 bonding and investment
custody arrangements. See Regulation below.
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.
38
PRICE
RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the New York Stock Exchange, or
NYSE, 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 NYSE, 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 of
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Discount of
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High Sales
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Low Sales
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Price to
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Price to
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Cash
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Net Asset
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Sales Price
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Net Asset
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Net Asset
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Distributions
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Value(1)
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High
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Low
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Value(2)
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Value(2)
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per Share(3)
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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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103.7
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%
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41.8
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%
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$
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0.45
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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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109.5
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%
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66.3
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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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120.5
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%
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96.8
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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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120.4
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%
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99.3
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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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133.7
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%
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|
105.3
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%
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$
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0.41
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Second Quarter
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$
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11.08
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$
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16.38
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$
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12.16
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|
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147.8
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%
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|
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109.7
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%
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$
|
0.41
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Third Quarter
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$
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11.99
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|
$
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16.81
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$
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14.06
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|
|
140.2
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%
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117.3
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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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12.09
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$
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20.97
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$
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15.90
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|
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173.4
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%
|
|
|
131.5
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%
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|
$
|
0.42
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Year ended December 31, 2011
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First Quarter
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*
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$
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20.93
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$
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16.23
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*
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*
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$
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0.42
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* |
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Net asset value has not yet been calculated for this period |
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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. |
The last reported price for our common stock on March 31,
2011 was $18.06 per share. As of March 31, 2011, we had
60 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.
We intend to pay 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
39
calendar year an amount at least equal to the sum of
(1) 98.2% 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.
40
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, 2006, 2007, 2008, 2009 and 2010 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. Results for the
year ended December 31, 2010 are not necessarily indicative
of the results that may be expected for the current fiscal year.
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.
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|
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Year Ended December 31,
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|
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2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
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(Dollars in thousands)
|
|
|
Income statement data:
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|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
|
$
|
21,056
|
|
|
$
|
27,149
|
|
|
$
|
35,641
|
|
Interest income from cash and cash equivalent investments
|
|
|
280
|
|
|
|
1,824
|
|
|
|
303
|
|
|
|
613
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
21,359
|
|
|
|
27,762
|
|
|
|
35,985
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
4,228
|
|
|
|
6,900
|
|
|
|
7,350
|
|
Amortization of deferred financing fees
|
|
|
100
|
|
|
|
113
|
|
|
|
255
|
|
|
|
364
|
|
|
|
797
|
|
Management fees
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
115
|
|
|
|
3,894
|
|
|
|
6,254
|
|
|
|
6,449
|
|
|
|
7,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
10,737
|
|
|
|
13,713
|
|
|
|
15,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
10,622
|
|
|
|
14,049
|
|
|
|
20,149
|
|
Net realized gain (loss) on investments
Non-Control/Non-Affiliate
|
|
|
6,027
|
|
|
|
(760
|
)
|
|
|
(1,393
|
)
|
|
|
448
|
|
|
|
(1,623
|
)
|
Net realized gain (loss) on investments Affiliate
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
(3,856
|
)
|
Net realized gain on investments Control
|
|
|
|
|
|
|
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
(4,286
|
)
|
|
|
(10,310
|
)
|
|
|
10,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(2,850
|
)
|
|
|
(9,862
|
)
|
|
|
5,462
|
|
Provision for income taxes
|
|
|
|
|
|
|
(52
|
)
|
|
|
(133
|
)
|
|
|
(150
|
)
|
|
|
(220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
7,639
|
|
|
$
|
4,037
|
|
|
$
|
25,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
1.54
|
|
|
$
|
1.63
|
|
|
$
|
1.58
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
1.11
|
|
|
$
|
0.47
|
|
|
$
|
1.99
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.22
|
|
|
$
|
11.03
|
|
|
$
|
12.09
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
1.44
|
|
|
$
|
1.62
|
|
|
$
|
1.61
|
|
Capital gains distributions declared per common share
|
|
|
N/A
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.05
|
|
|
$
|
0.04
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
182,105
|
|
|
$
|
201,318
|
|
|
$
|
325,991
|
|
Cash and cash equivalents
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
27,193
|
|
|
|
55,200
|
|
|
|
54,820
|
|
Interest and fees receivable
|
|
|
135
|
|
|
|
305
|
|
|
|
680
|
|
|
|
677
|
|
|
|
868
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
47
|
|
|
|
95
|
|
|
|
287
|
|
|
|
119
|
|
Deferred offering costs
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
34
|
|
|
|
48
|
|
|
|
29
|
|
|
|
47
|
|
Deferred financing fees
|
|
|
985
|
|
|
|
999
|
|
|
|
3,546
|
|
|
|
3,540
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
388,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
1,609
|
|
|
$
|
2,222
|
|
|
$
|
2,269
|
|
Interest payable
|
|
|
606
|
|
|
|
699
|
|
|
|
1,882
|
|
|
|
2,334
|
|
|
|
2,388
|
|
Distribution / dividends payable
|
|
|
532
|
|
|
|
2,041
|
|
|
|
2,767
|
|
|
|
4,775
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
52
|
|
|
|
30
|
|
|
|
59
|
|
|
|
198
|
|
Deferred revenue
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
|
|
75
|
|
|
|
37
|
|
Deferred income taxes
|
|
|
|
|
|
|
1,760
|
|
|
|
844
|
|
|
|
577
|
|
|
|
209
|
|
SBA-guaranteed debentures payable
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
115,110
|
|
|
|
121,910
|
|
|
|
202,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
122,242
|
|
|
|
131,952
|
|
|
|
207,566
|
|
Total partners capital / stockholders equity
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
91,425
|
|
|
|
129,099
|
|
|
|
180,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital /
stockholders equity
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
213,667
|
|
|
$
|
261,051
|
|
|
$
|
388,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on total investments(1)
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.2
|
%
|
|
|
13.5
|
%
|
|
|
13.7
|
%
|
Number of portfolio companies
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
|
|
37
|
|
|
|
48
|
|
Expense ratios (as percentage of average net assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.6
|
%
|
|
|
6.6
|
%
|
|
|
5.3
|
%
|
Interest expense and deferred financing fees
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
4.7
|
|
|
|
7.4
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
11.3
|
%
|
|
|
14.0
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes non-accrual debt investments |
42
SELECTED
QUARTERLY FINANCIAL DATA
The following tables set forth certain quarterly financial
information for each of the eight quarters ended with the
quarter ended December 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,
|
|
|
|
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,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Total investment income
|
|
$
|
7,484,907
|
|
|
$
|
8,294,147
|
|
|
$
|
9,787,085
|
|
|
$
|
10,419,355
|
|
Net investment income
|
|
|
3,793,684
|
|
|
|
4,558,624
|
|
|
|
5,612,455
|
|
|
|
6,184,710
|
|
Net increase in net assets resulting from operations
|
|
|
4,149,329
|
|
|
|
6,867,280
|
|
|
|
7,183,182
|
|
|
|
7,190,758
|
|
Net investment income per share
|
|
$
|
0.32
|
|
|
$
|
0.38
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
43
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 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.
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 subsidiaries, Triangle SBIC and Triangle
SBIC II, are licensed as small business investment
companies, or SBICs, by the United States Small Business
Administration, or SBA. In addition, Triangle SBIC has also
elected to be treated as a BDC under the 1940 Act. 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 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 has annual revenues between $20.0 million
and $100.0 million and annual earnings before interest,
taxes, depreciation and amortization, or EBITDA, between
$3.0 million and $20.0 million.
We invest primarily in subordinated debt securities secured by
second lien security interests in portfolio company assets,
coupled with equity interests. On a more limited basis, we also
invest in senior debt securities secured by first lien security
interests in portfolio companies. Our investments generally
range from $5.0 million 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 December 31, 2010, the weighted average yield on our
outstanding debt investments other than non-accrual debt
investments (including PIK interest) was approximately 15.1%.
The weighted average yield on all of our outstanding investments
(including equity and equity-linked investments but excluding
non-accrual debt investments) was approximately 13.7% as of
December 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
12.9% as of December 31, 2010.
Our two SBIC subsidiaries are eligible to issue debentures to
the SBA, which pools these with debentures of other SBICs and
sells them in the capital markets at favorable interest rates,
in part as a result of the
44
guarantee of payment from the SBA. Our two SBIC subsidiaries
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 from the issuance
of 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
$326.0 million as of December 31, 2010, as compared to
$201.3 million as of December 31, 2009 and
$182.1 million as of December 31, 2008. As of
December 31, 2010, we had investments in 48 portfolio
companies with an aggregate cost of $324.0 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, 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, 2010, 2009 and 2008, our investment
portfolio consisted of the following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and 2nd lien notes
|
|
$
|
279,433,775
|
|
|
|
86
|
%
|
|
$
|
270,994,677
|
|
|
|
83
|
%
|
Senior debt
|
|
|
8,631,760
|
|
|
|
3
|
|
|
|
7,639,159
|
|
|
|
3
|
|
Equity shares
|
|
|
29,115,890
|
|
|
|
9
|
|
|
|
38,719,699
|
|
|
|
12
|
|
Equity warrants
|
|
|
5,985,882
|
|
|
|
2
|
|
|
|
7,902,458
|
|
|
|
2
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
734,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
324,041,707
|
|
|
|
100
|
%
|
|
$
|
325,990,593
|
|
|
|
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
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activity
During the year ended December 31, 2010, we made sixteen
new investments totaling $140.7 million, additional debt
investments in ten existing portfolio companies totaling
$32.3 million and five additional equity investments in
existing portfolio companies totaling approximately
$0.6 million. In addition, we sold three equity investments
in portfolio companies for total proceeds of approximately
$5.4 million, resulting in realized gains totaling
approximately $4.1 million, and converted subordinated debt
investments in two portfolio companies to equity, resulting in
realized losses totaling approximately $10.4 million. We
also sold a convertible note investment in a portfolio company
for proceeds of approximately $2.3 million, resulting in a
realized gain of approximately $0.9 million. We had nine
portfolio company loans repaid at par totaling
45
approximately $43.0 million and received normal principal
repayments, partial loan prepayments and PIK interest repayments
totaling approximately $7.9 million in the year ended
December 31, 2010.
Total portfolio investment activity for the year ended
December 31, 2010 was as follows:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
Fair value of portfolio, beginning of period
|
|
$
|
201,317,970
|
|
New investments
|
|
|
173,581,930
|
|
Proceeds from sales of investments
|
|
|
(5,433,709
|
)
|
Loan origination fees received
|
|
|
(3,351,568
|
)
|
Principal repayments received
|
|
|
(49,481,126
|
|
Payment in kind interest earned
|
|
|
5,979,858
|
|
Payment in kind interest payments received
|
|
|
(3,710,551
|
)
|
Accretion/writeoff of loan discounts
|
|
|
701,268
|
|
Accretion of deferred loan origination revenue
|
|
|
1,268,839
|
|
Net realized gain (loss) on investments
|
|
|
(5,454,327
|
)
|
Net unrealized gain (loss) on investments
|
|
|
10,572,009
|
|
|
|
|
|
|
Fair value of portfolio, end of period
|
|
$
|
325,990,593
|
|
|
|
|
|
|
Weighted average yield on debt investments as of end of period(1)
|
|
|
15.1
|
%
|
|
|
|
|
|
Weighted average yield on total investments as of end of
period(1)
|
|
|
13.7
|
%
|
|
|
|
|
|
Weighted average yield on total investments at end of period
|
|
|
12.9
|
%
|
|
|
|
|
|
|
|
|
(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, or PIK, interest
repayments totaling approximately $9.2 million in the year
ended December 31, 2009.
46
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
|
%
|
|
|
|
|
|
47
Non-Accrual
Assets
As of December 31, 2010, the fair value of our non-accrual
assets was approximately $9.6 million, which comprised 3.0%
of the total fair value of our portfolio, and the cost of our
non-accrual assets was approximately $17.4 million, which
comprised 5.4% of the total cost of our portfolio. Our
non-accrual assets as of December 31, 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 year ended December 31, 2010, we recognized an
unrealized gain on our debt investment in Gerli of approximately
$0.7 million. As of December 31, 2010, the cost of our
debt investment in Gerli was $3.3 million and the fair
value of such investment was $2.3 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 Sprinkler Systems of
$0.3 million and in the year ended December 31, 2010,
we recognized an additional unrealized loss on our debt
investment in Fire Sprinkler Systems of $0.3 million. As of
December 31, 2010, the cost of our debt investment in Fire
Sprinkler Systems was $2.6 million and the fair value of
such investment was $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 December 31,
2010, the cost of our investment in ADL was approximately
$5.2 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
48
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
year ended December 31, 2010, we recognized an unrealized
loss on our 2nd Lien note investment in FCL of
approximately $0.8 million. As of December 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 zero.
Wholesale
Floors, Inc.
During the first seven months of 2010, we received cash and PIK
interest on our subordinated note investment in Wholesale
Floors, Inc., or Wholesale Floors. We did not receive scheduled
interest payments from Wholesale Floors in August and September
2010 and in October 2010, we received notification from
Wholesale Floors senior lender that Wholesale Floors was
blocked from making interest payments to us. As a result, we
placed our debt investments in Wholesale Floors on non-accrual
status and under U.S. GAAP, we no longer recognize interest
income on our debt investments in Wholesale Floors for financial
reporting purposes. For the year ended December 31, 2010,
we recognized an unrealized loss on our subordinated note
investment in Wholesale Floors of approximately
$0.8 million. As of December 31, 2010, the cost of our
debt investment in Wholesale Floors was approximately
$3.4 million and the fair value of our debt investment in
Wholesale Floors was approximately $2.6 million.
We are currently involved in discussions with the Wholesale
Floors investor group regarding various restructuring
alternatives. While there can be no assurance that these
discussions will result in terms that are acceptable to us, the
Wholesale Floors investor group is working diligently toward an
acceptable restructuring.
Results
of Operations
Comparison
of year ended December 31, 2010 and December 31,
2009
Investment
Income
For the year ended December 31, 2010, total investment
income was $36.0 million, a 30% increase from
$27.8 million of total investment income for the year ended
December 31, 2009. This increase was primarily attributable
to a $7.6 million increase in total loan interest, fee and
dividend income and a $0.9 million increase in total PIK
interest income due to a net increase in our portfolio
investments from December 31, 2009 to December 31,
2010, partially offset by a $0.3 million decrease in
interest income from cash and cash equivalent investments due to
a decrease in average cash balances in 2010 over 2009 due to the
increased deployment of cash for purchases of portfolio
investments. Non-recurring fee income was $2.6 million for
the year ended December 31, 2010 as compared to
$0.8 million for the year ended December 31, 2009.
Expenses
For the year ended December 31, 2010, expenses increased by
15% to $15.8 million from $13.7 million for the year
ended December 31, 2009. The increase in expenses was
primarily attributable to a $1.2 million increase in
general and administrative expenses as a result of higher salary
expenses during 2010 due to an increase in employees and
non-cash compensation expenses. The increase in expenses was
also attributable to a $0.4 million increase in
amortization of deferred financing fees associated with the
early repayment of certain SBA guaranteed debentures in the
third quarter of 2010 and a $0.4 million increase in
interest expense as a result of higher average balances of
SBA-guaranteed debentures outstanding during the year ended
December 31, 2010 than in the same period in 2009.
49
Net
Investment Income
As a result of the $8.2 million increase in total
investment income and the $2.1 million increase in
expenses, net investment income for the year ended
December 31, 2010 was $20.1 million compared to net
investment income of $14.0 million during the year ended
December 31, 2009.
Net
Increase in Net Assets Resulting From Operations
For the year ended December 31, 2010, we realized a gain on
the sale of one affiliate investment of approximately
$3.6 million, gains on the sales of two
non-control/non-affiliate investments totaling approximately
$0.5 million, a realized loss on the partial conversion of
one non-control/non-affiliate debt investment to equity of
approximately $3.0 million, a realized loss on the
conversion of one affiliate debt investment to equity of
approximately $7.4 million, and a realized gain of
$0.9 million on the repayment of a convertible note from
another non-control/non-affiliate investment. In addition,
during the year ended December 31, 2010, we recorded net
unrealized appreciation of investments totaling approximately
$10.9 million, comprised of 1) unrealized appreciation
on 19 investments totaling approximately $18.6 million,
2) unrealized depreciation on 18 investments totaling
approximately $13.9 million and 3) $6.2 million
in net unrealized appreciation reclassification adjustments
related to the realized gains and realized loss noted above.
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. In addition, 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 1) unrealized
depreciation on 15 investments totaling approximately
$17.4 million, 2) unrealized appreciation, net of tax,
on 13 other investments totaling approximately
$7.3 million, and 3) net unrealized depreciation
reclassification adjustments of approximately $0.2 million
related to the realized losses on non-control/non-affiliate
investments.
As a result of these events, our net increase in net assets from
operations during the year ended December 31, 2010 was
$25.4 million as compared to $4.0 million for the year
ended December 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 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.
50
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.
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 year ended December 31, 2010, we experienced a net
decrease in cash and cash equivalents in the amount of
$0.4 million. During that period, our operating activities
used $97.5 million in cash, consisting primarily of new
portfolio investments of $173.6 million, partially offset
by repayments of loans received and proceeds from sales of
investments of $54.9 million. In addition, financing
activities provided $97.1 million of cash, consisting
primarily of proceeds from a public stock offering of
$41.2 million, borrowings under SBA guaranteed debentures
payable of $102.8 million, offset by cash dividends paid in
the amount of $20.9 million, repayments of SBA guaranteed
debentures of $22.3 million and financing fees paid in the
amount of $3.5 million. At December 31, 2010, we had
$54.8 million of cash and cash equivalents on hand.
51
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.
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 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 two times (and in certain cases, 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 December 31, 2010, Triangle SBIC has issued the
maximum $150.0 million of SBA guaranteed debentures. As of
December 31, 2010, Triangle SBIC II has issued
$53.4 million in face amount of SBA guaranteed debentures
and has a leverage commitment from the SBA to issue the
remaining $21.6 million of the $75.0 million statutory
maximum of SBA guaranteed debentures. In addition to a 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 SBA debenture issued
(2.0% for SBA LMI debentures). 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 December 31, 2010 was 3.95%. The weighted average
interest rate as of December 31, 2010 included
$139.1 million of pooled SBA-guaranteed debentures with a
weighted average fixed interest rate of 5.29% and
$63.4 million of unpooled SBA-guaranteed debentures with a
weighted average interim interest rate of 1.0%.
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 2010, 2009 and 2008
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, or ICTI, as defined by the
Code, each year. Depending
52
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 4.0% U.S. federal 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. 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
Beginning in 2008, the debt and equity capital markets in the
United States were 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, led to an economic
recession in the U.S. and abroad. Banks, investment
companies and others in the financial services industry reported
significant write-downs in the fair value of their assets, which
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, 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, or the Stimulus Bill, in February
2009. These events significantly impacted the financial and
credit markets and 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. Although we have been
able to secure access to additional liquidity, including our
recent public stock offering, and increased leverage available
through the SBIC program as a result of the Stimulus Bill, there
is no assurance that debt or equity capital will be available to
us in the future on favorable terms, or at all.
Recent
Developments
In February 2011, our Board of Directors granted 152,779
restricted shares of our common stock to certain employees.
These restricted shares had a total grant date fair value of
approximately $3.1 million, which will be expensed on a
straight-line basis over each respective awards vesting
period.
In February 2011, we filed a prospectus supplement pursuant to
which 3,000,000 shares of common stock were offered for
sale at a price to the public of $19.25 per share. In addition,
the underwriters involved were granted an overallotment option
to purchase an additional 450,000 shares of our common
stock at the same public offering price. Pursuant to this
offering, all shares (including the overallotment option shares)
were sold and delivered on February 11, 2011 resulting in
net proceeds to us, after underwriting discounts and offering
expenses, of approximately $63.0 million.
In February 2011, we invested $10.0 million in subordinated
debt of Pomeroy IT Solutions, Inc., a provider of information
technology infrastructure outsourcing services. Under the terms
of the investment, Pomeroy IT Solutions, Inc. will pay interest
on the subordinated debt at a rate of 15% per annum.
53
In February 2011, we amended the terms of our senior debt
investment in Botanical Laboratories, Inc. Among other things,
the amendment to the loan agreement included modifications to
certain loan covenants, an increase in the interest rate on the
investment from 14.0% per annum to 15.0% per annum and required
monthly amortization of principal.
In February 2011, we invested $8.8 million in subordinated
debt and equity of Captek Softgel International, Inc., a
contract manufacturer of softgel capsules. Under the terms of
the investment, Captek Softgel International, Inc. will pay
interest on the subordinated debt at a rate of 16% per annum.
In March 2011, we prepaid $9.5 million in SBA guaranteed
debentures with a fixed rate of 5.796%.
In March 2011, we invested $9.0 million in subordinated
debt of DLR Restaurants, LLC, a restaurant with multiple
locations throughout the United States. Under the terms of the
investment, DLR Restaurants, LLC will pay interest on the
subordinated debt at a rate of 14% per annum.
In March 2011, we invested $12.3 million in subordinated
debt and equity of National Investment Managers, Inc., a
provider of third-party retirement plan administration services.
Under the terms of the investment, National Investment Managers,
Inc. will pay interest on the subordinated debt at a rate of
16.5% per annum.
In March 2011, we invested $11.5 million in subordinated
debt and unsecured debt of Home Physicians Management, LLC, a
provider of in-home primary care medical services. Under the
terms of the investment, Home Physicians Management, LLC will
pay interest on the subordinated debt at a rate of 17.0% per
annum and will pay interest on the unsecured debt at a rate of
10.0% per annum.
In April 2011, we invested $5.0 million in subordinated
debt of The Main Resource, a distributor of aftermarket
automotive products. Under the terms of the investment, The Main
Resource will pay interest on the subordinated debt at a rate of
13.0% 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.
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
in accordance with FASB Accounting Standards Codification, or
ASC, Topic 820, Fair Value Measurements and Disclosures,
or ASC Topic 820. ASC Topic 820 defines fair value,
establishes a framework for measuring fair value in accordance
with generally accepted accounting principles and expands
disclosures about fair value measurements. As discussed below,
we have engaged an independent valuation firm to assist us in
our valuation process.
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
54
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;
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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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55
|
|
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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.
|
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 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,
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,
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 comparable companies that are publicly
traded, a review of these publicly traded companies and the
market multiple of their equity securities.
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 addition, we generally request
Duff & Phelps to perform the procedures on a portfolio
company when there has been a significant change in the fair
value of the 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.
56
The total number of investments and the percentage of our
portfolio that we asked Duff & Phelps to perform such
procedures on are summarized below by period:
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Percent of Total
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|
Total
|
|
Investments at
|
For the Quarter Ended:
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Companies
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|
Fair Value(1)
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|
March 31, 2008
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|
6
|
|
|
|
35
|
%
|
June 30, 2008
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|
5
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|
|
|
18
|
%
|
September 30, 2008
|
|
|
8
|
|
|
|
29
|
%
|
December 31, 2008
|
|
|
8
|
|
|
|
34
|
%
|
March 31, 2009
|
|
|
7
|
|
|
|
26
|
%
|
June 30, 2009
|
|
|
6
|
|
|
|
20
|
%
|
September 30, 2009
|
|
|
7
|
|
|
|
24
|
%
|
December 31, 2009
|
|
|
8
|
|
|
|
40
|
%
|
March 31, 2010
|
|
|
7
|
|
|
|
25
|
%
|
June 30, 2010
|
|
|
8
|
|
|
|
29
|
%
|
September 30, 2010
|
|
|
8
|
|
|
|
26
|
%
|
December 31, 2010
|
|
|
9
|
|
|
|
29
|
%
|
(1) Exclusive of the fair value of new investments made
during the quarter.
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.
57
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, or Topic 820.
This update improves disclosure requirements related to Fair
Value Measurements and Disclosures-Overall Subtopic, or Subtopic
820-10, of
the FASB Standards Codification. 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.
The recent economic recession may continue to impact the broader
financial and credit markets and may continue to reduce 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. During 2010 we
experienced a $10.9 million increase in the fair value of
our investment portfolio related to unrealized appreciation of
investments.
As of December 31, 2010, the fair value of our non-accrual
assets was approximately $9.6 million, which comprised
approximately 3.0% of the total fair value of our portfolio, and
the cost of our non-accrual assets was approximately
$17.4 million, or 5.4% of the total cost of our portfolio.
In addition to these non-accrual assets, as of December 31,
2010, we had, on a fair value basis, approximately
$12.0 million of debt investments, or 3.7% 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
December 31, 2010 was approximately $13.6 million, or
4.2% 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 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
58
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 December 31, 2010, we were not a party to any hedging
arrangements.
As of December 31, 2010, approximately 96.1%, or
$276.7 million of our debt portfolio investments bore
interest at fixed rates and approximately 3.9%, or
$11.3 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.
Related
Party Transactions
During the three years ending December 31, 2010 there were
no related party transactions between Triangle Capital
Corporation and any of its subsidiaries.
Contractual
Obligations
As of December 31, 2010, our future fixed commitments for
cash payments are as follows:
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|
|
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|
|
|
|
|
|
|
|
2012 to
|
|
|
2014 to
|
|
|
2016 and
|
|
|
|
Total
|
|
|
2011
|
|
|
2013
|
|
|
2015
|
|
|
Thereafter
|
|
|
SBA guaranteed debentures payable
|
|
$
|
202,464,866
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,500,000
|
|
|
$
|
192,964,866
|
|
Interest due on SBA guaranteed debentures payable(1)
|
|
|
58,922,193
|
|
|
|
7,317,093
|
|
|
|
14,395,178
|
|
|
|
14,375,485
|
|
|
|
22,834,437
|
|
Unused commitments to extend credit(2)
|
|
|
5,100,000
|
|
|
|
5,100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease payments(3)
|
|
|
883,704
|
|
|
|
287,805
|
|
|
|
595,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
267,370,763
|
|
|
$
|
12,704,898
|
|
|
$
|
14,991,077
|
|
|
$
|
23,875,485
|
|
|
$
|
215,799,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010 we had $63.4 million of
un-pooled SBA guaranteed debentures payable. Because these
debentures are un-pooled we do not have a fixed interest rate on
the debentures at this time. As a result, we have not included
any estimated interest for the $63.4 million in un-pooled
debentures as interest due on the SBA guaranteed debentures
payable in this table. |
|
(2) |
|
We have a commitment to extend credit, in the form of loans and
additional equity contributions, to one of our portfolio
companies which is undrawn as of December 31, 2010. 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. |
|
(3) |
|
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 2011, and that we will be able to obtain additional
space when, where and as needed on acceptable terms. |
59
SENIOR
SECURITIES
Information about our senior securities is shown in the
following table as of December 31, 2010 and for the years
indicated in the table, unless otherwise noted.
Ernst &Young LLPs report on the senior
securities table as of December 31, 2010 is attached as an
exhibit to the registration statement of which this prospectus
is a part.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
Involuntary
|
|
|
|
|
|
|
Exclusive of
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|
|
Asset
|
|
|
Liquidating
|
|
|
Average Market
|
|
|
|
Treasury
|
|
|
Coverage per
|
|
|
Preference per
|
|
|
Value per
|
|
Class and Year
|
|
Securities(a)
|
|
|
Unit(b)
|
|
|
Unit(c)
|
|
|
Unit(d)
|
|
|
|
(Dollars in
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
2010
|
|
|
202,465
|
|
|
|
1,891
|
|
|
|
|
|
|
|
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. |
60
BUSINESS
Triangle Capital Corporation is a specialty finance company that
provides customized financing to lower middle market companies
located throughout the United States. 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
subordinated debt securities secured by second lien security
interests in portfolio company assets, coupled with equity
interests. On a more limited basis, we also invest in senior
debt securities secured by first lien security interests in
portfolio companies.
We focus on investments in companies with a history of
generating revenues and positive cash flow, an established
market position and a proven management team with a strong
operating discipline. Our target portfolio company 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 are
continuing to operate Triangle SBIC and Triangle SBIC II as
SBICs and to utilize the proceeds of the sale of SBA guaranteed
debentures, referred to herein as SBA leverage, to enhance
returns to our stockholders. As of December 31, 2010, we
had investments in 48 portfolio companies, with an aggregate
cost of $324.0 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 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, 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, which we believe
allows 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
participating in regular board of directors meetings. We believe
that our initial and ongoing
|
61
|
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|
portfolio review process allows us to monitor effectively the
performance and prospects of our portfolio companies.
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|
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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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|
Maintaining Portfolio Diversification. 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.
|
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 generally 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.
|
62
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 primarily invest in subordinated notes and invest in senior
secured debt on a more limited basis. Subordinated notes are
junior to senior secured debt. Our subordinated debt investments
and senior secured debt investments generally have terms of
three to seven years. Our subordinated debt investments
generally provide for fixed interest rates between 12.0% and
17.0% per annum and 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 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 taxable income to continue to
qualify as a Regulated Investment Company, or RIC, for U.S.
federal income tax purposes. At December 31, 2010, the
weighted average yield on our outstanding debt investments other
than non-accrual debt investments (including PIK interest) was
approximately 15.1%. The weighted average yield on all of our
outstanding investments (including equity and equity-linked
investments but excluding non-accrual debt investments) was
approximately 13.7% as of December 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 12.9% as of December 31,
2010.
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
and Triangle SBIC II. 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, Cary B. Nordan 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, Cary B. Nordan and David F. Parker.
Triangle SBIC II has an investment committee that is
responsible for all
63
aspects of our investment process relating to investments made
by Triangle SBIC II. The members of Triangle
SBIC IIs investment committee are
Messrs. Garland S. Tucker, III, Brent P.W. Burgess,
Steven C. Lilly, Jeffrey A. Dombcik, Douglas A.
Vaughn, and Cary B. Nordan. For purposes of the discussion
herein, any reference to the investment committee
refers to the investment committee of Triangle Capital
Corporation, the investment committee of Triangle SBIC and the
investment committee of Triangle SBIC II. 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
|
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 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:
|
|
|
|
|
A comprehensive financial model that we prepare based on
quantitative analysis of historical financial performance,
financial projections and pro forma financial ratios assuming
investment;
|
64
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|
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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;
|
|
|
|
Results of a broad qualitative analysis of the companys
products or services, market position, market dynamics and
customers and suppliers; and
|
|
|
|
Potential investment structures, certain financing ratios and
investment pricing terms.
|
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, 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, 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
underwriting team proceeds to document the transaction.
Documentation
and Closing
The underwriting team is responsible for all documentation
related to investment closings. In addition, we 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 has the right to
65
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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|
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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.
|
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 level of 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 have annual financial 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 the portfolio 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 assign an investment
rating to 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 also used by
banks and rating agencies. Our risk rating system covers both
qualitative and quantitative aspects of the business and the
securities we hold.
66
Each portfolio company debt investment is rated based upon the
following numeric investment rating system:
|
|
|
Investment
|
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|
Rating
|
|
Description
|
|
10
|
|
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.
|
9
|
|
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.
|
8
|
|
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.
|
7
|
|
Investment is performing above original expectations and
possibly 11.0% to 20.0% 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.
|
6
|
|
Investment is performing above original expectations and
possibly 5.0% to 10.0% 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.
|
5
|
|
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.
|
4
|
|
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.
|
3
|
|
Investment is in default of transaction covenants but interest
payments are current. No loss of principal is expected.
|
2
|
|
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.
|
1
|
|
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.
|
0
|
|
Investment is in default and a principal loss of between 68.0%
and 100.0% is expected.
|
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. We have established and documented processes and
methodologies for determining the fair values of portfolio
company investments on a recurring (quarterly) basis in
accordance with FASB ASC Topic 820, Fair Value
Measurements and Disclosures. ASC Topic 820 defines
fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and
expands disclosures about fair value measurements. As discussed
below, we have engaged an independent valuation firm to assist
us in our valuation process.
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
67
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:
|
|
|
|
|
financial standing of the issuer of the security;
|
|
|
|
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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68
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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 securing the investment;
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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.
|
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, 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) valuation of the securities based on publicly
available information regarding recent sales in comparable
transactions of private companies and (iii) when management
believes there are comparable 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.
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 addition, we
generally request Duff & Phelps to perform the
procedures on a portfolio company when there has been a
significant change in the fair value of the 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 a
further discussion of Duff & Phelps procedures,
see the section entitled Investment Valuation
included in Managements Discussion and Analysis of
Financial Condition and Results of Operations.
69
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, 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 investment funds
(including private equity funds, mezzanine funds and other
SBICs) and BDCs, 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 December 31, 2010, we employed seventeen 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.
70
PORTFOLIO
COMPANIES
The following table sets forth certain information as of
December 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.
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Type of
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Principal
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Fair
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Portfolio Company
|
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Industry
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Investment(1)(2)
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Amount
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Cost
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Value(3)
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Non-Control / Non-Affiliate Investments:
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Ambient Air Corporation (AA) and
Peaden-Hobbs Mechanical, LLC (PHM) (3%)*
620 West Baldwin Road
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Specialty Trade
Contractors
|
|
Subordinated Note-AA
(15% Cash, 3% PIK,
Due 06/13)
|
|
$
|
4,325,151
|
|
|
$
|
4,287,109
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$
|
4,287,109
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|
Panama City, FL 32405
|
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|
Common Stock-PHM
(128,571 shares)
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128,571
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68,500
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|
Common Stock
Warrants-AA (455 shares)
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142,361
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852,000
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4,325,151
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4,558,041
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5,207,609
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|
Anns House of Nuts, Inc. (5%)*
1 Market Plaza
24th Floor
|
|
Trail Mixes and
Nut Producers
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 11/17)
|
|
|
7,009,722
|
|
|
|
6,603,828
|
|
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|
6,603,828
|
|
San Francisco, CA 94105
|
|
|
|
Preferred A Units
(22,368 units)
|
|
|
|
|
|
|
2,124,957
|
|
|
|
2,124,957
|
|
|
|
|
|
Preferred B Units
(10,380 units)
|
|
|
|
|
|
|
986,059
|
|
|
|
986,059
|
|
|
|
|
|
Common Units
(190,935 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
Common Stock Warrants
(14,558 shares)
|
|
|
|
|
|
|
14,558
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|
14,558
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|
|
|
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|
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7,009,722
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9,879,402
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9,879,402
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Assurance Operations Corporation (0%)*
9341 Highway 43
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Metal Fabrication
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|
Common Stock
(517 Shares)
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516,867
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528,900
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Killen, AL 35645
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516,867
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528,900
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Botanical Laboratories, Inc. (5%)*
1441 West Smith Road
Ferndale, WA 98248
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Nutritional Supplement
Manufacturing and
Distribution
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|
Senior Notes
(14% Cash,
Due 02/15)
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10,500,000
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9,843,861
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9,843,861
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Common Unit
Warrants (998,680)
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474,600
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10,500,000
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10,318,461
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9,843,861
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Capital Contractors, Inc. (5%)*
88 Duryea Rd.
Melville, NY 11747
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Janitorial and Facilities
Maintenance Services
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|
Subordinated Notes
(12% Cash, 2% PIK,
Due 12/15)
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9,001,001
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8,329,001
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8,329,001
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Common Stock
Warrants (20 shares)
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492,000
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492,000
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9,001,001
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8,821,001
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8,821,001
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Carolina Beer and Beverage, LLC (8%)*
110 Barley Park Lane
Mooresville, NC 28115
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Beverage Manufacturing
and Packaging
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Subordinated Note
(12% Cash , 4% PIK,
Due 02/16)
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12,865,233
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|
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12,622,521
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12,622,521
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Class A Units
(11,974 Units)
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1,077,615
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1,077,615
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Class B Units
(11,974 Units)
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119,735
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119,735
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12,865,233
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13,819,871
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13,819,871
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CRS Reprocessing, LLC (8%)*
13551 Triton Park Blvd.
Louisville, KY 40223
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Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/15)
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11,129,470
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10,706,406
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10,706,406
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|
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Subordinated Note
(10% Cash, 4% PIK,
Due 11/15)
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3,403,211
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|
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3,052,570
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|
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3,052,570
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Common Unit
Warrant (340 Units)
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|
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564,454
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1,043,000
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14,532,681
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14,323,430
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14,801,976
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71
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Type of
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Principal
|
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Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
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|
Cost
|
|
|
Value(3)
|
|
|
CV Holdings, LLC (6%)*
1030 Riverfront Center
Amsterdam, NY 12010
|
|
Specialty Healthcare
Products Manufacturer
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
$
|
11,685,326
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|
|
$
|
11,042,011
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|
|
$
|
11,042,011
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
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|
|
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622,500
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|
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11,685,326
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|
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11,916,411
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|
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11,664,511
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|
Electronic Systems Protection, Inc. (2%)*
517 North Industrial Drive
Zebulon, NC 27577
|
|
Power Protection
Systems Manufacturing
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 12/15)
|
|
|
3,183,802
|
|
|
|
3,162,604
|
|
|
|
3,162,604
|
|
|
|
|
|
Senior Note (8.3% Cash,
Due 01/14)
|
|
|
835,261
|
|
|
|
835,261
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|
|
|
835,261
|
|
|
|
|
|
Common Stock
(570 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
110,000
|
|
|
|
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|
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|
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|
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|
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4,019,063
|
|
|
|
4,282,865
|
|
|
|
4,107,865
|
|
Energy Hardware Holdings, LLC (0%)*
2730 E. Phillips Road
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
414,100
|
|
|
|
|
|
|
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Greer, SC 29650
|
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4,833
|
|
|
|
414,100
|
|
Frozen Specialties, Inc. (4%)*
1465 Timberwolf Dr.
Holland, OH 43258
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash, 5% PIK,
Due 07/14)
|
|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
|
|
|
|
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|
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|
|
|
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|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
Garden Fresh Restaurant Corp. (0%)*
15822 Bernardo Center Drive
|
|
Restaurant
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
San Diego, CA 92127
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
Gerli & Company (1%)*
75 Stark Street
Plains, PA 18705
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Subordinated Note
(0.69% PIK,
Due 08/11)
|
|
|
3,799,359
|
|
|
|
3,161,442
|
|
|
|
2,156,500
|
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75% PIK,
Due 08/11)
|
|
|
137,233
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
112,100
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,936,592
|
|
|
|
3,364,856
|
|
|
|
2,388,600
|
|
Great Expressions Group Holdings, LLC (3%)*
300 E. Long Lake Rd.
Bloomfield Hills, MI 48304
|
|
Dental Practice
Management
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 08/15)
|
|
|
4,561,311
|
|
|
|
4,498,589
|
|
|
|
4,498,589
|
|
|
|
|
|
Class A Units (225 Units)
|
|
|
|
|
|
|
450,000
|
|
|
|
678,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,561,311
|
|
|
|
4,948,589
|
|
|
|
5,176,989
|
|
Grindmaster-Cecilware Corp. (3%)*
43-05
20th
Ave
Long Island City, NY 11105
|
|
Food Services
Equipment
Manufacturer
|
|
Subordinated Note
(12% Cash, 4.5% PIK,
Due 04/16)
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
Hatch Chile Co., LLC (3%)*
2003 S. Commercial Dr.
|
|
Food Products
Distributor
|
|
Senior Note (19% Cash,
Due 07/15)
|
|
|
4,500,000
|
|
|
|
4,394,652
|
|
|
|
4,394,652
|
|
Brunswick, GA 31525
|
|
|
|
Subordinated Note
(14% Cash,
Due 07/15)
|
|
|
1,000,000
|
|
|
|
837,779
|
|
|
|
837,779
|
|
|
|
|
|
Unit Purchase
Warrant (5,265 Units)
|
|
|
|
|
|
|
149,800
|
|
|
|
149,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500,000
|
|
|
|
5,382,231
|
|
|
|
5,382,231
|
|
Infrastructure Corporation of America, Inc. (6%)*
5110 Maryland Way
Suite 280
|
|
Roadway Maintenance,
Repair and
Engineering Services
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 10/15)
|
|
|
10,769,120
|
|
|
|
9,566,843
|
|
|
|
9,566,843
|
|
Brentwood, TN 37207
|
|
|
|
Common Stock Purchase
Warrant (199,526 shares)
|
|
|
|
|
|
|
980,000
|
|
|
|
980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,769,120
|
|
|
|
10,546,843
|
|
|
|
10,546,843
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Inland Pipe Rehabilitation Holding Company, LLC (11%)*
350 N. Old Woodward, Ste. 100
Birmingham, MI 48009
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(14% Cash,
Due 01/14)
|
|
$
|
8,274,920
|
|
|
$
|
7,621,285
|
|
|
$
|
7,621,285
|
|
|
|
|
|
Subordinated Note
(18% Cash,
Due 01/14)
|
|
|
3,905,108
|
|
|
|
3,861,073
|
|
|
|
3,861,073
|
|
|
|
|
|
Subordinated Note
(15% Cash,
Due 01/14)
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
|
|
Subordinated Note
(15.3% Cash,
Due 01/14)
|
|
|
3,500,000
|
|
|
|
3,465,000
|
|
|
|
3,465,000
|
|
|
|
|
|
Membership Interest
Purchase Warrant (3.0%)
|
|
|
|
|
|
|
853,500
|
|
|
|
2,982,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,986,330
|
|
|
|
16,107,160
|
|
|
|
18,236,260
|
|
Library Systems & Services, LLC (3%)*
12850 Middlebrook Road
Germantown, MD 20874
|
|
Municipal Business
Services
|
|
Subordinated Note
(12.5% Cash, 4.5% PIK,
Due 06/15)
|
|
|
5,250,000
|
|
|
|
5,104,255
|
|
|
|
5,104,255
|
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,250,000
|
|
|
|
5,163,250
|
|
|
|
5,639,255
|
|
McKenzie Sports Products, LLC (3%)*
1910 St. Lukes Church Road
Salisbury, NC 28146
|
|
Taxidermy
Manufacturer
|
|
Subordinated Note
(13% Cash, 1% PIK,
Due 10/17)
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
Media Temple, Inc. (7%)*
8520 National Blvd., Building A
Culver City, CA 90232
|
|
Web Hosting Services
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 04/15)
|
|
|
8,800,000
|
|
|
|
8,624,776
|
|
|
|
8,624,776
|
|
|
|
|
|
Convertible Note
(8% Cash, 4% PIK,
Due 04/15)
|
|
|
3,200,000
|
|
|
|
2,668,581
|
|
|
|
2,668,581
|
|
|
|
|
|
Common Stock Purchase
Warrant (28,000 Shares)
|
|
|
|
|
|
|
536,000
|
|
|
|
536,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
|
|
11,829,357
|
|
|
|
11,829,357
|
|
Minco Technology Labs, LLC (3%)*
1805 Rutherford Lane
Austin, TX 78754
|
|
Semiconductor
Distribution
|
|
Subordinated Note
(13% Cash, 3.25% PIK,
Due 05/16)
|
|
|
5,102,216
|
|
|
|
4,984,368
|
|
|
|
4,984,368
|
|
|
|
|
|
Class A Units (5,000 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
296,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,102,216
|
|
|
|
5,484,368
|
|
|
|
5,281,168
|
|
Novolyte Technologies, Inc. (5%)*
111 West Irene Road
Zachory, LA 70791
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5% PIK,
Due 04/15)
|
|
|
7,785,733
|
|
|
|
7,686,662
|
|
|
|
7,686,662
|
|
|
|
|
|
Preferred Units (641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
664,600
|
|
|
|
|
|
Common Units (24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
370,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,785,733
|
|
|
|
8,487,684
|
|
|
|
8,721,462
|
|
SRC, Inc. (5%)*
950 3rd Ave.,
19th
Floor
New York, NY 10022
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Notes
(12% Cash, 2% PIK,
Due 09/14)
|
|
|
9,001,000
|
|
|
|
8,697,200
|
|
|
|
8,697,200
|
|
|
|
|
|
Common Stock
Purchase Warrants
|
|
|
|
|
|
|
123,800
|
|
|
|
123,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,001,000
|
|
|
|
8,821,000
|
|
|
|
8,821,000
|
|
Syrgis Holdings, Inc. (2%)*
1025 Mary Laidley Drive
Covington, KY 41017
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
2,873,393
|
|
|
|
2,858,198
|
|
|
|
2,858,198
|
|
|
|
|
|
Class C Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
962,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,873,393
|
|
|
|
3,858,198
|
|
|
|
3,820,398
|
|
TBG Anesthesia Management, LLC (6%)*
1770 1st St., Suite 703
Highland Park, IL 60035
|
|
Physician
Management Services
|
|
Senior Note
(13.5% Cash,
Due 11/14)
|
|
|
11,000,000
|
|
|
|
10,612,766
|
|
|
|
10,612,766
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000,000
|
|
|
|
10,888,866
|
|
|
|
10,777,766
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Top Knobs USA, Inc. (6%)
7701 Forsyth Blvd., Suite 600
St. Louis, MO 63105
|
|
Hardware Designer
and Distributor
|
|
Subordinated Note
(12% Cash, 4.5% PIK,
Due 05/17)
|
|
$
|
9,910,331
|
|
|
$
|
9,713,331
|
|
|
$
|
9,713,331
|
|
|
|
|
|
Common Stock (26,593 shares)
|
|
|
|
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,910,331
|
|
|
|
10,463,331
|
|
|
|
10,463,331
|
|
TrustHouse Services Group, Inc. (3%)*
21 Armory Drive
Wheeling, WV 26003
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
4,440,543
|
|
|
|
4,381,604
|
|
|
|
4,381,604
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
492,900
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,440,543
|
|
|
|
4,881,604
|
|
|
|
4,874,504
|
|
Tulsa Inspection Resources, Inc. (3%)*
4111 S. Darlington Ave, Suite 1000
Tulsa, OK 74135,
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14%-17.5% Cash,
Due 03/14)
|
|
|
5,810,588
|
|
|
|
5,490,797
|
|
|
|
5,490,797
|
|
|
|
|
|
Common Unit(1 unit)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Stock Warrants
(8 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,810,588
|
|
|
|
6,011,797
|
|
|
|
5,490,797
|
|
Twin-Star International, Inc. (3%)*
115 S.E.
4th Avenue
Delray Beach, FL 33483
|
|
Consumer Home
Furnishings
Manufacturer
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,462,290
|
|
|
|
4,462,290
|
|
|
|
|
|
Senior Note (4.53%,
Due 04/13)
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,588,962
|
|
|
|
5,551,252
|
|
|
|
5,551,252
|
|
Wholesale Floors, Inc. (1%)*
8855 N. Black Canyon Highway
Phoenix, AZ 85021
|
|
Commercial Services
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 06/14)
|
|
|
3,739,639
|
|
|
|
3,387,525
|
|
|
|
2,632,100
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0%)
|
|
|
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739,639
|
|
|
|
3,520,325
|
|
|
|
2,632,100
|
|
Yellowstone Landscape Group, Inc. (7%)*
220 Elm Street
New Canaan, CT 06840
|
|
Landscaping Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
Zoom Systems (4%)*
22 Fourth Street., Floor 16
San Francisco, CA 94103
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments
|
|
|
|
|
|
|
237,824,178
|
|
|
|
244,197,828
|
|
|
|
245,392,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American De-Rosa Lamparts, LLC and
Hallmark Lighting (2%)*
1945 S. Tubeway Ave.
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(5% PIK,
Due 10/13)
|
|
|
5,475,141
|
|
|
|
5,153,341
|
|
|
|
3,985,700
|
|
Commerce, CA 90040
|
|
|
|
Membership Units
(6,516 Units)
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,475,141
|
|
|
|
5,503,341
|
|
|
|
3,985,700
|
|
AP Services, Inc. (4%)*
203 Armstrong Dr.
Freeport, PA 16229
|
|
Fluid Sealing Supplies
and Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
5,834,877
|
|
|
|
5,723,194
|
|
|
|
5,723,194
|
|
|
|
|
|
Class A Units (933 units)
|
|
|
|
|
|
|
933,333
|
|
|
|
933,333
|
|
|
|
|
|
Class B Units (496 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,834,877
|
|
|
|
6,656,527
|
|
|
|
6,656,527
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Asset Point, LLC (3%)*
770 Pelham Road, Suite 200
Greenville, SC 29615
|
|
Asset Management
Software Provider
|
|
Senior Note
(12% Cash, 5% PIK,
Due 03/13)
|
|
$
|
5,756,261
|
|
|
$
|
5,703,925
|
|
|
$
|
5,384,500
|
|
|
|
|
|
Senior Note
(12% Cash, 2% PIK,
Due 07/15)
|
|
|
605,185
|
|
|
|
605,185
|
|
|
|
478,100
|
|
|
|
|
|
Options to
Purchase Membership
Units (342,407 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Membership Unit Warrants
(356,506 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,361,446
|
|
|
|
6,809,110
|
|
|
|
5,862,600
|
|
Axxiom Manufacturing, Inc. (1%)*
11927 South Highway 6
Fresno, TX 77545
|
|
Industrial Equipment
Manufacturer
|
|
Common Stock
(136,400 shares)
Common Stock Warrant
|
|
|
|
|
|
|
200,000
|
|
|
|
978,700
|
|
|
|
|
|
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
28,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
1,007,400
|
|
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
|
|
|
|
3,738,821
|
|
|
|
3,546,600
|
|
808 N. Ruth Street
Monahans, TX 79756
|
|
|
|
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
|
|
|
|
3,972,421
|
|
|
|
3,546,600
|
|
Dyson Corporation (1%)*
53 Freedom Road
|
|
Custom Forging
and Fastener Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Painesville, OH 44077
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
Equisales, LLC (4%)*
13811 Cullen Blvd.
Houston, TX 77047
|
|
Energy Products
and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
|
6,000,000
|
|
|
|
5,959,983
|
|
|
|
5,959,983
|
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
|
|
|
480,900
|
|
|
|
569,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,440,883
|
|
|
|
6,529,283
|
|
Plantation Products, LLC (8%)*
202 S. Washington St.
Norton, MA 02766
|
|
Seed Manufacturing
|
|
Subordinated Notes
(13% Cash, 4.5% PIK,
Due 06/16)
|
|
|
14,527,188
|
|
|
|
14,164,688
|
|
|
|
14,164,688
|
|
|
|
|
|
Preferred Units (1,127 units)
|
|
|
|
|
|
|
1,127,000
|
|
|
|
1,127,000
|
|
|
|
|
|
Common Units (92,000 units)
|
|
|
|
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,527,188
|
|
|
|
15,314,688
|
|
|
|
15,314,688
|
|
QC Holdings, Inc.(0%)*
1205 Industrial Blvd.
|
|
Lab Testing Services
|
|
Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southampton, PA 18966
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
Technology Crops International (3%)*
7996 North Point Blvd.
Winston-Salem NC 27106
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
|
5,333,595
|
|
|
|
5,250,980
|
|
|
|
5,250,980
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
612,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,333,595
|
|
|
|
5,750,980
|
|
|
|
5,863,180
|
|
Waste Recyclers Holdings, LLC (2%)*
261 Highway 20 East, Suites A, B & D
|
|
Environmental
and Facilities Services
|
|
Class A Preferred Units
(280 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
Freeport, FL 32439
|
|
|
|
Class B Preferred Units
(11,484,867 Units)
|
|
|
|
|
|
|
3,304,218
|
|
|
|
2,384,100
|
|
|
|
|
|
Class C Preferred Units
(1,444,475 Units)
|
|
|
|
|
|
|
1,499,531
|
|
|
|
1,530,300
|
|
|
|
|
|
Common Unit Purchase
Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,984,532
|
|
|
|
3,914,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
47,332,247
|
|
|
|
60,196,084
|
|
|
|
55,661,878
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (1%)*
4600 North Olcott Avenue
Harwood Heights, IL 60706
|
|
Commercial Printing
Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
$
|
1,500,498
|
|
|
$
|
1,497,934
|
|
|
$
|
1,465,400
|
|
|
|
|
|
Senior Note
(7.79% Cash, 2% PIK,
Due 9/11)
|
|
|
2,045,228
|
|
|
|
2,041,167
|
|
|
|
1,081,100
|
|
|
|
|
|
2nd Lien Note
(2.79% Cash, 8% PIK,
Due 12/11)
|
|
|
3,470,254
|
|
|
|
2,996,287
|
|
|
|
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,015,980
|
|
|
|
6,535,388
|
|
|
|
2,546,500
|
|
Fire Sprinkler Systems, Inc. (0%)*
705 E. Harrison Street, Suite 200
Corona, CA 92879
|
|
Specialty
Trade Contractors
|
|
Subordinated Notes
(2% PIK,
Due 04/11)
|
|
|
3,065,981
|
|
|
|
2,626,072
|
|
|
|
750,000
|
|
|
|
|
|
Common Stock (2,978 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,065,981
|
|
|
|
2,920,696
|
|
|
|
750,000
|
|
Fischbein, LLC (11%)*
151 Walker Road
Statesville, NC 28625
|
|
Packaging and
Materials Handling
Equipment Manufacturer
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
|
4,345,573
|
|
|
|
4,268,333
|
|
|
|
4,268,333
|
|
|
|
|
|
Class A-1 Common Units
(558,140 units)
|
|
|
|
|
|
|
558,140
|
|
|
|
2,200,600
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
13,649,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,345,573
|
|
|
|
9,026,473
|
|
|
|
20,118,533
|
|
Weave Textiles, LLC (1%)*
3700 Glenwood Avenue, Suite 530
Raleigh, North Carolina, 27612
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Senior Note
(12% PIK,
Due 01/11)
|
|
|
310,238
|
|
|
|
310,238
|
|
|
|
310,238
|
|
|
|
|
|
Membership Units
(425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
1,211,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,238
|
|
|
|
1,165,238
|
|
|
|
1,521,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,737,772
|
|
|
|
19,647,795
|
|
|
|
24,936,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2010(181%)*
|
|
|
|
|
|
$
|
299,894,197
|
|
|
$
|
324,041,707
|
|
|
$
|
325,990,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 December 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.
76
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.
Anns
House of Nuts, Inc.
Anns House of Nuts, Inc. is a manufacturer and marketer of
trail mixes and dried fruits in North America.
AP
Services, Inc.
AP Services, Inc. is a supplier of gaskets, packing, and other
fluid sealing technologies and services to power plants and
original equipment manufacturers.
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.
Capital
Contractors, Inc.
Capital Contractors, Inc. is a provider of outsourced
janitorial, repair and facilities maintenance services in the
U.S. and Canada.
Carolina
Beer and Beverage, LLC
Carolina Beer and Beverage, LLC performs beverage manufacturing
and co-packaging, as well as fee-based warehousing, logistics
and distribution services.
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.
77
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.
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.
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.
QC
Holdings, Inc.
QC Holdings, Inc. 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.
78
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.
Great
Expressions Group Holdings, LLC
Great Expressions Group Holdings, LLC is a dental practice
management company with locations in Florida, Michigan, Georgia,
Virginia, Massachusetts and Connecticut.
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.
Hatch
Chile Co., LLC
Hatch Chile Co., LLC is a food products company that distributes
branded, green chile based cooking sauces and related canned
chile and tomato products for retail customers, primarily in the
Southwestern U.S.
Infrastructure
Corporation of America, Inc.
Infrastructure Corporation of America, Inc. maintains public
transportation infrastructure, including roadways, bridges, toll
ways, rest areas and welcome centers.
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.
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.
McKenzie
Sports Products, LLC
McKenzie Sports Products, LLC is the largest designer and
manufacturer of taxidermy forms and supplies used to mount
hunting and fishing trophies in the U.S.
Media
Temple, Inc.
Media Temple, Inc. is a web hosting and virtualization service
provider based in California that provides businesses worldwide
with reliable, professional-class services to host websites,
email, business applications, and other rich internet content.
Minco
Technology Labs, LLC
Minco Technology Labs, LLC is a processor, packager, and
distributor of semi-conductors for use in military, space,
industrial, and other high temperature, harsh environments.
79
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.
Plantation
Products, LLC
Plantation Products, LLC is a provider of packaged vegetable,
wildflower and lawn seeds and seed starting products.
SRC,
Inc.
SRC, Inc. is a specialty chemical company that is the sole North
American producer of low-moisture anhydrous magnesium chloride
and fused magnesium flux and is also a provider of blended
magnesium flux and magnesium chloride solution.
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.
Top
Knobs USA, Inc.
Top Knobs USA, Inc. is a manufacturer of decorative hardware for
the professional market, and offers a line of premium quality
cabinet, drawer, and bath knobs, pulls and other hardware.
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.
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.
80
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.
81
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 NYSE 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
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Expiration of
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Name
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Age
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Director Since
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Current Term
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W. McComb Dunwoody
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66
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January 2007
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2011 Annual Meeting
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Mark M. Gambill
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60
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August 2009
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2011 Annual Meeting
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Benjamin S. Goldstein
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55
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January 2007
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2011 Annual Meeting
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Simon B. Rich, Jr.
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66
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January 2007
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2011 Annual Meeting
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Sherwood H. Smith, Jr.
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76
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January 2007
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2011 Annual Meeting
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Interested
Directors
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Expiration of
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Name
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Age
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Director Since
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Current Term
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Garland S. Tucker, III
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63
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October 2006
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2011 Annual Meeting
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Brent P. W. Burgess
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45
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October 2006
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2011 Annual Meeting
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Steven C. Lilly
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41
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October 2006
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2011 Annual Meeting
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82
Executive
Officers
The following persons serve as our executive officers in the
following capacities:
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Executive
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Name
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Age
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Position(s) Held with the Company
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Officer Since
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Garland S. Tucker, III
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63
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Chairman of the Board, Chief Executive Officer and President
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2006
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Brent P.W. Burgess
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45
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Director and Chief Investment Officer
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2006
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Steven C. Lilly
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41
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Director, Chief Financial Officer, Secretary, Treasurer and
Chief Compliance Officer (since 2007)
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2006
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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.
83
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. From 1997
to 2010, Mr. Goldstein was the President and co-founder of
The Advisory Group, LLC, a real estate advisory, development and
investment firm based in Raleigh, North Carolina. He is
currently the Chief Operating Officer for Captrust Financial
Advisors, a financial and fiduciary advisory firm based in
Raleigh, North Carolina. Neither the Advisory Group, LLC, nor
Captrust Financial Advisors is 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 all 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,
84
subsidiary or other affiliate of Triangle. He has been a member
of the Business Roundtable and The Business 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 NYSE, 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 joined Triangle Capital Partners, LLC in 2002.
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
85
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.
Cary B. Nordan. Mr. Nordan joined Triangle in 2004.
Prior to that, Mr. Nordan served as Vice President with
BB&T Asset Management (BB&T Funds), a $14 billion
mutual fund complex. He was responsible for research, valuation
and portfolio management with a specific focus on small-cap
equities. Preceding his employment with BB&T Asset
Management, he worked in corporate finance with Stanford Keene,
Inc., an investment bank specializing in the technology
industry, and Nuance Capital Group, LLC, an advisory firm to
private companies. Prior to that, Mr. Nordan served as an
Analyst and Associate in the corporate finance group of Trident
Securities, a subsidiary of McDonald Investments, where he
specialized in investment banking and advisory services to
lower- and middle-market financial institutions throughout the
United States. Mr. Nordan holds a BSBA, magna cum laude,
from Appalachian State University and an MBA from Duke
University. Mr. Nordan is a CFA charterholder and former
member of the Board of Directors for the CFA North Carolina
Society.
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.
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.
86
Meetings
of the Board of Directors and Committees
During 2010, 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 at least 98% 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. Seven of our eight
directors attended our 2010 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.
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 NYSE 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, NYSE 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 2010.
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
87
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. In 2010, the
compensation committee engaged McLagan, an independent
compensation consultant, to advise the compensation committee on
these matters. For more information regarding the role of
Triangles management in determining compensation, please
see the discussion in Compensation Discussion &
Analysis Establishing Compensation
Levels Role of the Compensation Committee and
Management.
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 NYSE corporate governance listing standards.
Mr. Smith serves as the chairman of the compensation
committee. Our compensation committee held two meetings during
2010.
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 NYSE 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 NYSE corporate governance listing standards.
Mr. Rich serves as the chairman of the nominating and
corporate governance committee. Our nominating and corporate
governance committee held one meeting during 2010.
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,
88
Douglas A. Vaughn, Cary B. Nordan 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 and Triangle SBIC II has an
investment committee that is responsible for all aspects of our
investment process relating to investments made by Triangle
SBIC II. The members of the Triangle SBIC investment
committee are also Messrs. Tucker, Burgess, Lilly, Dombcik,
Vaughn, Nordan and Parker. The members of the Triangle
SBIC II investment committee are Messrs. Tucker,
Burgess, Lilly, Dombcik, Vaughn and Nordan. For purposes of the
discussion herein, any reference to the investment
committee refers to the investment committees of Triangle
Capital Corporation, Triangle SBIC and Triangle SBIC II.
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 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
89
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
Business Conduct and Ethics and Corporate Governance
Guidelines
We have adopted a code of business conduct and ethics and
corporate governance guidelines covering ethics and business
conduct. These documents apply to our directors, officers and
employees. Our code of business conduct and ethics 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.
90
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, 2010. Our
interested directors are not compensated for their service as
Board members.
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Fees Earned
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or Paid
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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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in 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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2010
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$
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9,750
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$
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30,000
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$
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39,750
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Mark M. Gambill
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2010
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$
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11,000
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$
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30,000
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$
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41,000
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Benjamin S. Goldstein
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2010
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$
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30,000
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$
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30,000
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$
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60,000
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Simon B. Rich, Jr.
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2010
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$
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22,000
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$
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30,000
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$
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52,000
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Sherwood H. Smith, Jr.
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2010
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$
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26,000
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$
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30,000
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$
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56,000
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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 5, 2010. SEC disclosure rules
require reporting of the aggregate grant date fair value
computed in accordance with FASB ASC Topic 718. |
Director
Fees
In 2010, each of our directors 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 5, 2010, the date of grant.
Based on this calculation, each of our independent directors
received 2,089 shares of restricted stock, which will vest
on May 5, 2011.
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.
To continue our ability to attract and retain highly-qualified
individuals to serve as directors, the compensation committee
sought to make our director compensation more comparable to
director compensation paid by a peer group of internally managed
BDCs. To this end, at the January and February 2011 meetings of
the Board of Directors and its constituent committees, the
compensation committee approved an increase in the cash
component of the compensation paid to our non-employee
directors. Beginning in 2011, each of our non-employee directors
will receive an additional annual retainer of $20,000 in cash
for their service on the Board. This annual retainer will be in
addition to the compensation currently paid to our non-employee
directors.
91
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 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, 2010, we granted restricted share
awards to our officers, directors and key employees as
compensation related to performance in 2009.
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 2010 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
92
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.
On December 9, 2010, we began trading our common stock on
the NYSE. Accordingly, 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 NYSE. 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 NYSE and the exemptive order.
EXECUTIVE
COMPENSATION
General
In 2010, our senior management team consisted of Garland S.
Tucker, Brent P.W. Burgess and Steven C. Lilly. We refer to
these three officers in 2010 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 agreement 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 four years of operation as a publicly traded
business development company, or BDC, 2007, 2008, 2009 and 2010
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 2011.
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.
93
Executive
Compensation Policy
In 2010, 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.
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 2010, this comparative
group included the following: Capital Southwest Corporation;
Fifth Street Finance Corp.; Hercules Technology Growth Capital,
Inc.; Kohlberg Capital Corporation; Main
94
Street Capital Corporation; MCG Capital Corporation; Medallion
Financial Corp.; and Utek Corporation. The compensation
committee also reviewed relevant data for a group of externally
managed BDCs.
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 BDCs were
taking with regard to their compensation practices. Items we
reviewed included, but were not necessarily limited to, 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.
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, as
compared to a peer group of internally managed BDCs. Also, we
reviewed compensation practices of other externally managed
BDCs. The Company has performed very favorably based on such
comparisons.
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 2010 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 2009. 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.
95
Determination
of 2010 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 $317,500 as of
December 31, 2010. 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 $275,000 as
of December 31, 2010. 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 $250,000 as of
December 31, 2010. 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 2010,
NEOs were eligible for cash bonuses, ranging from 0% to up to
100.0% 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 2010
include individual performance and Company performance (based
upon a comparison of actual performance to budgeted performance).
Determination
of Annual Cash Bonuses
Cash bonuses for 2010 were paid in February of 2011 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 2010 are disclosed in the bonus column
of the Summary Compensation Table. All of our NEOs cash
bonuses earned during 2010 were determined based on performance
goals adopted by the compensation committee. The potential bonus
ranges for each of our NEOs are presented below, as well as the
actual percentage of bonuses paid as compared to salary paid in
2010 for each of our NEOs:
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Minimum
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Target
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Actual %
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Performance %
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Performance %
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of 2010 Salary
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NEO
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of 2010 Salary
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of 2010 Salary
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Awarded(1)
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Garland S. Tucker, III
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0
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%
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100.0
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%
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100.0
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%
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Brent P.W. Burgess
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0
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%
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100.0
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%
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100.0
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%
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Steven C. Lilly
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0
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%
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100.0
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%
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100.0
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%
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(1) Bonus calculations are based on each NEOs salary
as of December 31, 2010.
All of our NEOs cash bonuses for 2010 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.
96
Mr. Tucker was paid an annual cash bonus of $317,500
for 2010, which is a $52,500 decrease from his annual cash bonus
for 2009. Mr. Tuckers cash bonus reflects his overall
responsibility for the Company and his continued leadership in
2010, which enabled us to achieve the majority of our
operational and financial objectives.
Mr. Burgess was paid an annual cash bonus of
$275,000 for 2010, which is a $35,000 decrease from his annual
cash bonus for 2009. 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 2010 to a
successful closing on terms we believe will be favorable to the
Company.
Mr. Lilly was paid an annual cash bonus of $250,000
for 2010, which is a $10,000 decrease from his annual cash bonus
for 2009. 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 2010.
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 2010.
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 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
NYSE, 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 FASB ASC Topic 718, Stock
Compensation (formerly Statement of Accounting Standards
No. 123R, Share-Based Payment).
97
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 and 2010.
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
2010 included individual employee performance objectives such as
work ethic, proficiency and overall contribution to the Company
during our fiscal year ended December 31, 2009. 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 30,833 shares of
restricted stock in 2010, which is an increase of
1,651 shares of restricted stock from that which was
granted to him in 2009. This award reflects
Mr. Tuckers leadership during 2009, 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.
Mr. Burgess was awarded 26,667 shares of
restricted stock in 2010, which is an increase of
3,031 shares of restricted stock from that which was
granted to him in 2009. This award reflects
Mr. Burgess leadership in implementing our investment
strategy during 2009, 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 20,833 shares of
restricted stock in 2010, which is a decrease of 258 shares
of restricted stock from that which was granted to him in 2009.
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 restricted stock award
also reflected his service as our Chief Compliance Officer
during 2010.
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
98
$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 2010, 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 2010, 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.
EXECUTIVE
OFFICER COMPENSATION
The respective compensation of our named executive officers in
2008, 2009 and 2010 was as follows:
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Restricted
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Principal
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Base
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Stock
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All Other
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Name
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Position
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Year
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Salary
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Bonus
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Awards(1)
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Compensation
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Total
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Garland S. Tucker, III
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CEO
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2010
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$
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304,375
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$
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317,500
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$
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365,063
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(2)
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$
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140,097
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(3)
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$
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1,127,035
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2009
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$
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265,000
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$
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370,000
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$
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309,913
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(4)
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$
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109,254
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(5)
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$
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1,054,167
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2008
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$
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265,000
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$
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265,000
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$
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245,020
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(6)
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$
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60,389
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(7)
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$
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835,409
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Brent P.W. Burgess
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CIO(8)
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2010
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$
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266,250
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$
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275,000
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$
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315,737
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(2)
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$
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113,222
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(3)
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$
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970,209
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2009
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$
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240,000
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$
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310,000
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$
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251,014
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(4)
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$
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85,568
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(5)
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$
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886,582
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2008
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$
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240,000
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|
$
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240,000
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$
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221,900
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(6)
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$
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46,290
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(7)
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$
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748,190
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Steven C. Lilly
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CFO
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2010
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$
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247,500
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$
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250,000
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$
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246,663
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(2)
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$
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98,557
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(3)
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$
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842,720
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2009
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$
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240,000
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$
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260,000
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$
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223,986
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(4)
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$
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81,187
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(5)
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$
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805,173
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2008
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$
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240,000
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$
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240,000
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$
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221,900
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(6)
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$
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46,054
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(7)
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$
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747,954
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|
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(1) |
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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. |
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(2) |
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Grant date fair value of restricted stock awards granted during
2010. |
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(3) |
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Includes (i) value of benefits in the form of 401(k)
contributions, health, life and disability insurance premiums
paid by the Company in 2010 and (ii) value of dividends
received or earned in 2010 in respect of each executive
officers unvested restricted stock awards. |
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(4) |
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Grant date fair value of restricted stock awards granted during
2009. |
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(5) |
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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 2009 in respect of each executive
officers unvested restricted stock awards. |
99
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(6) |
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Grant date fair value of restricted stock awards granted during
2008. |
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(7) |
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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 2008 in respect of each executive
officers unvested restricted stock awards. |
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(8) |
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CIO stands for Chief Investment Officer. |
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 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 years ended December 31, 2008, 2009
and 2010, 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.
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
100
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
NYSE 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 NYSE. 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 NYSE 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 2010:
Grants of
Plan-Based Awards
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Stock Awards:
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Grant Date
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Number of
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Fair Value
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Name
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Grant Date
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Shares of Stock
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of Stock
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Garland S. Tucker, III
|
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February 4, 2010
|
|
|
30,833
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(1)
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$
|
365,063
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Brent P.W. Burgess
|
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February 4, 2010
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26,667
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(1)
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$
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315,737
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Steven C. Lilly
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February 4, 2010
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20,833
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(1)
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$
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246,663
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(1) Consists of restricted stock which vests ratably over
four years from the date of grant.
On February 4, 2010, 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 $11.84, the closing price of our common stock on the
Nasdaq Global Market on February 4, 2010, 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 2010
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|
|
|
|
|
|
|
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Number of
|
|
Market Value of
|
|
|
Shares of Stock
|
|
Shares of Stock
|
|
|
That Have Not
|
|
That Have Not
|
Name
|
|
Vested
|
|
Vested(1)
|
|
Garland S. Tucker, III
|
|
|
63,747
|
(2)
|
|
$
|
1,211,193
|
|
Brent P.W. Burgess
|
|
|
54,381
|
(3)
|
|
$
|
1,033,239
|
|
Steven C. Lilly
|
|
|
46,639
|
(4)
|
|
$
|
886,141
|
|
|
|
|
|
(1)
|
The values of the unvested common stock listed are based on a
$19.00 closing price of our common stock as reported on the NYSE
on December 31, 2010.
|
101
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(2)
|
11,027 of the shares listed will vest ratably on May 7 of each
year until May 7, 2012, 21,887 of the shares listed will
vest ratably on February 4 of each year until February 4,
2013 and 30,833 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.
|
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(3)
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9,987 of the shares listed will vest ratably on May 7 of each
year until May 7, 2012, 17,727 of the shares listed will
vest ratably on February 4 of each year until February 4,
2013 and 26,667 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.
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(4)
|
9,987 of the shares listed will vest ratably on May 7 of each
year until May 7, 2012, 15,819 of the shares listed will
vest ratably on February 4 of each year until February 4,
2013 and 20,833 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.
|
Potential
Payments upon Termination or Change in Control
This section describes and quantifies the estimated compensation
payments and benefits that would be paid to our NEOs upon the
occurrence of each of the following triggering events:
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|
termination upon death or disability (as defined in the Amended
and Restated Plan);
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|
|
occurrence of a change in control in the Company (as defined in
the Amended and Restated Plan).
|
Effective February 2009, as a result of 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 the Company. The information below
describes those limited instances in which our NEOs would be
entitled to payments or other benefits following a termination
of employment
and/or upon
a change in control of Triangle without employment agreements.
Our NEOs are at will employees and, except as
otherwise described below, they are only entitled to payment of
accrued salary and vacation time, on the same terms as provided
to our other employees, upon any resignation, retirement or
termination of employment, with or without cause. Except as
otherwise noted below, the calculations below do not include any
estimated payments for those benefits that we generally make
available on the same terms to our full-time, non-executive
employees in the United States.
The estimated payments below are calculated based on
compensation arrangements in effect as of December 31, 2010
and assume that the triggering event occurred on such date. The
estimated benefit amounts are based on a common stock price of
$19.00, which was the closing price per share of our common
stock on the NYSE on December 31, 2010. Our estimates of
potential benefits are further based on the additional
assumptions specifically set forth in the table below. Although
these calculations are intended to provide reasonable estimates
of potential compensation benefits, the estimated benefit
amounts may differ from the actual amount that any individual
would receive upon termination or the costs to Triangle
associated with continuing certain benefits following
termination of employment.
Stock
Awards
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Termination for Cause
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Termination from Death, from Disability or Occurrence of
Change in Control
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Number of
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Value
|
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Number of
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Value
|
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|
Shares
|
|
Realized on
|
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Shares
|
|
Realized on
|
|
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Acquired on
|
|
Vesting
|
|
Acquired on
|
|
Vesting
|
Name
|
|
Vesting (#)
|
|
($)
|
|
Vesting (#)
|
|
($)
|
|
Garland S. Tucker, III
|
|
|
|
|
|
|
|
|
|
|
63,747
|
|
|
$
|
1,211,193
|
|
Brent P.W. Burgess
|
|
|
|
|
|
|
|
|
|
|
54,381
|
|
|
$
|
1,033,239
|
|
Steven C. Lilly
|
|
|
|
|
|
|
|
|
|
|
46,639
|
|
|
$
|
886,141
|
|
102
401(k)
Plan
In 2010, 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 initially filed a joint exemptive application with
the SEC in 2007 and then received exemptive relief to our
amended exemptive application in 2008. In 2010, we jointly filed
with Triangle SBIC and Triangle SBIC II another amendment to the
exemptive application requesting relief under various sections
of the 1940 Act to permit us, as the BDC parent, Triangle SBIC,
as a BDC and our SBIC subsidiary, and Triangle SBIC II, as our
SBIC subsidiary, to operate effectively as one company for 1940
Act regulatory purposes. Specifically, the application requested
relief for us, Triangle SBIC and Triangle SBIC II 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 we, Triangle SBIC and Triangle
SBIC II were one company, (c) be subject to modified
consolidated asset coverage requirements for senior securities
issued by Triangle Capital Corporation along with Triangle SBIC
and Triangle SBIC II as SBIC subsidiaries and (d) allow
Triangle SBIC and Triangle SBIC II to file reports under the
Exchange Act on a consolidated basis with Triangle Capital
Corporation, the parent BDC. On October 22, 2010, the SEC
issued an exemptive relief order approving our requests.
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 (a) permits us to grant restricted
stock to our independent directors as a part of their
compensation for service on our Board and (b) 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.
103
CONTROL
PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock as of March 3,
2011, by each of our executive officers and independent
directors and all of our directors and executive officers as a
group. As of March 3, 2011, 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 is determined in accordance with the rules
of the SEC and includes voting or investment power with respect
to the securities. There is no common stock subject to options
or warrants that are currently exercisable or exercisable within
60 days of March 3, 2011. Percentage of beneficial
ownership is based on 18,508,090 shares of common stock
outstanding as of March 3, 2011. The business address of
each person below is 3700 Glenwood Avenue, Suite 530,
Raleigh, North Carolina 27612.
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|
|
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|
|
|
Number of
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|
|
|
|
Shares
|
|
|
|
Dollar Range of Equity
|
|
|
Beneficially
|
|
Percentage
|
|
Securities Beneficially
|
Name of Beneficial Owner
|
|
Owned(1)
|
|
of Class(2)
|
|
Owned(3)(4)
|
|
Executive Officers
|
|
|
|
|
|
|
|
|
|
|
Garland S. Tucker, III
|
|
|
215,805
|
(5)
|
|
|
1.2
|
%
|
|
over $100,000
|
Brent P.W. Burgess
|
|
|
199,343
|
(6)
|
|
|
1.1
|
%
|
|
over $100,000
|
Steven C. Lilly
|
|
|
141,086
|
(7)
|
|
|
*
|
|
|
over $100,000
|
Independent Directors:
|
|
|
|
|
|
|
|
|
|
|
W. McComb Dunwoody
|
|
|
140,833
|
(8)
|
|
|
*
|
|
|
over $100,000
|
Mark M. Gambill
|
|
|
2,206
|
(9)
|
|
|
*
|
|
|
$10,001 - $50,000
|
Benjamin S. Goldstein
|
|
|
18,827
|
(10)
|
|
|
*
|
|
|
over $100,000
|
Simon B. Rich, Jr.
|
|
|
31,279
|
(11)
|
|
|
*
|
|
|
over $100,000
|
Sherwood H. Smith, Jr.
|
|
|
66,645
|
(12)
|
|
|
*
|
|
|
over $100,000
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group
|
|
|
816,024
|
|
|
|
4.4
|
%
|
|
over $100,000
|
|
|
|
* |
|
Less than 1.0% |
|
(1) |
|
Beneficial ownership has been determined in accordance with
Rule 13d-3
of the Exchange Act. |
|
(2) |
|
Based on a total of 18,508,090 shares issued and
outstanding as of March 3, 2011. |
|
(3) |
|
Beneficial ownership has been determined in accordance with
Rule 16a-1(a)(2)
of the Exchange Act. |
|
(4) |
|
The dollar range of equity securities beneficially owned by our
directors is based on a stock price of $19.50 per share as of
March 3, 2011. |
|
(5) |
|
Includes 81,522 shares of restricted stock and
35,864 shares held by Mr. Tuckers wife. |
|
(6) |
|
Includes 70,139 shares of restricted stock. |
|
(7) |
|
Includes 58,937 shares of restricted stock. |
|
(8) |
|
Includes 2,206 shares of restricted stock. |
|
(9) |
|
Includes 2,206 shares of restricted stock. |
|
(10) |
|
Includes 2,206 shares of restricted stock. |
|
(11) |
|
Includes 2,206 shares of restricted stock,
3,500 shares held by Mr. Richs wife and
525 shares held by Rich Farms, Inc. |
|
(12) |
|
Includes 2,206 shares of restricted stock and
29,088 shares held by Mr. Smiths wife. |
104
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.
|
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;
|
|
|
|
existing stockholders who purchase a relative small amount of
shares in the offering or a relatively large amount of shares in
the offering;
|
|
|
|
new investors who become stockholders by purchasing shares in
the offering.
|
105
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
|
|
|
20% Offering
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|
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|
|
|
at 5% Discount
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|
|
at 10% Discount
|
|
|
at 20% Discount
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
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|
Following
|
|
|
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|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
Price per Share to Public
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
9.47
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
9.50
|
|
|
|
|
|
|
$
|
9.00
|
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
Decrease to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,050,000
|
|
|
|
5.00
|
%
|
|
|
1,100,000
|
|
|
|
10.00
|
%
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.98
|
|
|
|
(0.24
|
)%
|
|
$
|
9.91
|
|
|
|
(0.91
|
)%
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
Dilution to Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
Percentage Held by Stockholder A
|
|
|
1.0
|
%
|
|
|
0.95
|
%
|
|
|
(4.76
|
)%
|
|
|
0.91
|
%
|
|
|
(9.09
|
)%
|
|
|
0.83
|
%
|
|
|
(16.67
|
)%
|
Total Asset Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by Stockholder A
|
|
$
|
100,000
|
|
|
$
|
99,762
|
|
|
|
(0.24
|
)%
|
|
$
|
99,091
|
|
|
|
(0.91
|
)%
|
|
$
|
96,667
|
|
|
|
(3.33
|
)%
|
Total Investment by Stockholder A (Assumed to Be $10.00 per
Share)
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
100,000
|
|
|
|
|
|
|
$
|
100,000
|
|
|
|
|
|
Total Dilution to Stockholder A (Total NAV Less Total Investment)
|
|
|
|
|
|
$
|
(238
|
)
|
|
|
|
|
|
$
|
(909
|
)
|
|
|
|
|
|
$
|
(3,333
|
)
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example 1
|
|
|
Example 2
|
|
|
Example 3
|
|
|
|
|
|
|
5% Offering
|
|
|
10% Offering
|
|
|
20% Offering
|
|
|
|
|
|
|
at 5% Discount
|
|
|
at 10% Discount
|
|
|
at 20% Discount
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
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
|
)%
|
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
107
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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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
50% Participation
|
|
|
150% Participation
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
Decrease/Increase to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
Dilution/Accretion to Participating Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
10,000
|
|
|
|
11,000
|
|
|
|
10.00
|
%
|
|
|
13,000
|
|
|
|
30.00
|
%
|
Percentage Held by Stockholder A
|
|
|
1.0
|
%
|
|
|
0.92
|
%
|
|
|
(8.33
|
)%
|
|
|
1.08
|
%
|
|
|
8.33
|
%
|
Total Asset Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
$
|
125,263
|
|
|
|
|
|
Total Dilution/Accretion to Stockholder A (Total NAV Less
Total Investment)
|
|
|
|
|
|
$
|
(2,088
|
)
|
|
|
|
|
|
$
|
404
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Stockholder A
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
|
$
|
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
108
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example 1
|
|
|
Example 2
|
|
|
Example 3
|
|
|
|
|
|
|
5% Offering
|
|
|
10% Offering
|
|
|
20% Offering
|
|
|
|
|
|
|
at 5% Discount
|
|
|
at 10% Discount
|
|
|
at 20% Discount
|
|
|
|
Prior to Sale
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
Following
|
|
|
|
|
|
|
Below NAV
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Sale
|
|
|
% Change
|
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
9.47
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
9.50
|
|
|
|
|
|
|
$
|
9.00
|
|
|
|
|
|
|
$
|
8.00
|
|
|
|
|
|
Decrease/Increase to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
1,000,000
|
|
|
|
1,050,000
|
|
|
|
5.00
|
%
|
|
|
1,100,000
|
|
|
|
10.00
|
%
|
|
|
1,200,000
|
|
|
|
20.00
|
%
|
NAV per Share
|
|
$
|
10.00
|
|
|
$
|
9.98
|
|
|
|
(0.24
|
)%
|
|
$
|
9.91
|
|
|
|
(0.91
|
)%
|
|
$
|
9.67
|
|
|
|
(3.33
|
)%
|
Dilution/Accretion to New Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Investor A
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
Percentage Held by Investor A
|
|
|
|
|
|
|
0.05
|
%
|
|
|
|
|
|
|
0.09
|
%
|
|
|
|
|
|
|
0.17
|
%
|
|
|
|
|
Total Asset Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by Investor A
|
|
|
|
|
|
$
|
4,988
|
|
|
|
|
|
|
$
|
9,909
|
|
|
|
|
|
|
$
|
19,333
|
|
|
|
|
|
Total Investment by Investor A (At Price to Public)
|
|
|
|
|
|
$
|
5,000
|
|
|
|
|
|
|
$
|
9,474
|
|
|
|
|
|
|
$
|
16,842
|
|
|
|
|
|
Total Dilution/ Accretion to Investor A (Total NAV Less
Total Investment)
|
|
|
|
|
|
$
|
(12
|
)
|
|
|
|
|
|
$
|
435
|
|
|
|
|
|
|
$
|
2,491
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Investor A
|
|
|
|
|
|
$
|
9.98
|
|
|
|
|
|
|
$
|
9.91
|
|
|
|
|
|
|
$
|
9.67
|
|
|
|
|
|
Investment per Share Held by Investor A
|
|
|
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
9.47
|
|
|
|
|
|
|
$
|
8.42
|
|
|
|
|
|
Dilution/ Accretion per Share Held by Investor A (NAV per Share
Less Investment per Share)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
0.44
|
|
|
|
|
|
|
$
|
1.25
|
|
|
|
|
|
Percentage Dilution/ Accretion to Investor A (Dilution per Share
Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
|
|
(0.24
|
)%
|
|
|
|
|
|
|
4.60
|
%
|
|
|
|
|
|
|
14.79
|
%
|
109
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 his or her 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 10 days prior to the record date, 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
NYSE on the dividend payment date. Market price per share on
that date will be the closing price for such shares on the NYSE
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. However, certain
brokerage firms may charge brokerage charges or other charges to
their customers. 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 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.
110
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
14,928,987 shares were outstanding as of December 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.
111
Long-Term
Debt
Debentures issued by our SBIC subsidiaries and guaranteed by the
SBA generally 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 December 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. As of December 31, 2010,
Triangle SBIC has issued the maximum $150.0 million of SBA
guaranteed debentures. As of December 31, 2010, Triangle
SBIC II has issued $53.4 million in face amount of SBA
guaranteed debentures and has a commitment from the SBA to issue
an additional $21.6 million of debenture leverage. If this
commitment were drawn in full, Triangle SBIC II would have
outstanding $75.0 million of debenture leverage, which is
the maximum amount it can have so long as Triangle SBIC has
$150 million of outstanding debenture leverage. The
weighted average interest rate for all SBA guaranteed debentures
as of December 31, 2010 was 3.95%.
Outstanding
Securities
Set forth below are our outstanding classes of securities as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount held by
|
|
|
|
|
Amount
|
|
Company
|
|
Amount
|
Title of Class
|
|
Authorized
|
|
or for its Account
|
|
Outstanding
|
|
Common Stock
|
|
|
150,000,000
|
|
|
|
|
|
|
|
14,928,987
|
|
SBA-Guaranteed Debentures
|
|
$
|
225,000,000
|
(1)
|
|
|
|
|
|
$
|
202,464,866
|
|
|
|
|
|
(1)
|
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.
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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 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,
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,
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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.
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
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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 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
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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 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 of five 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) 98.2% of our ordinary income for each calendar
year, (2) 98.0% 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, we 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 RIC, 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 a RIC to carry forward
(i) the excess of its net short-term capital loss over its
net long-term capital gain for a given year as a short-term
capital loss arising on the first day of the following year and
(ii) the excess of its net long-term capital loss over its
net short-term capital gain for a given year as a long-
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term capital loss arising on the first day of the following
year. 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 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 2012) provided that we
properly report such distribution as qualified dividend
income in a written statement furnished to our
stockholders 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 2012 in the case
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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 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.
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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.
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 written
statement 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.
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We may be required to withhold U.S. federal income tax, or
backup withholding, at a rate of 28% (currently through 2012),
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 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.
For taxable years beginning before 2012, however, we generally
will not be required to withhold any amounts with respect to
distributions of (i) U.S.-source interest income that would
not have been subject to withholding of U.S. federal income tax
if they had been earned directly by a Non-U.S. stockholder, and
(ii) net short-term capital gains in excess of net
long-term capital losses that would not have been subject to
withholding of U.S. federal income tax if they had been earned
directly by a Non-U.S. stockholder, in each case only to the
extent that such distributions are properly reported by us as
interest-related dividends or short-term
capital gain dividends, as the case may be, and certain
other requirements are met.
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
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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.
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
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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 2012). 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 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, 2012, 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
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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 and rules adopted pursuant
thereto, as any issuer which:
(a) is organized under the laws of, and has its principal
place of business in, the United States;
(b) is not an investment company (other than an SBIC wholly
owned by the BDC) or a company that would be an investment
company but for exclusions under the 1940 Act for certain
financial companies such as banks, brokers, commercial finance
companies, mortgage companies and insurance companies; and
(c) satisfies any of the following:
(i) does not have any class of securities with respect to
which a broker or dealer may extend margin credit;
(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;
(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;
(iv) does not have any class of securities listed on a
national securities exchange; or
(v) has a class of securities listed on a national
securities exchange, but has an aggregate value of outstanding
voting and non-voting common equity of less than
$250.0 million.
(2) Securities in companies that were eligible portfolio
companies when we made our initial investment if certain other
requirements are satisfied.
(3) Securities of any eligible portfolio company that we
control.
(4) 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).
(5) 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.
(6) Securities received in exchange for or distributed on
or with respect to securities described in (1) through
(5) above, or pursuant to the exercise of warrants or
rights relating to such securities.
(7) 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), (3) or (4) above.
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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 significant managerial assistance means,
among other things, any arrangement whereby we, through our
directors, officers or employees, offer to provide, and, if
accepted, do 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. We may 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 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 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
Business Conduct and Ethics and Corporate Governance
Guidelines
We have adopted a code of ethics, which we call our Code
of Business Conduct and Ethics and corporate governance
guidelines, which collectively covers ethics and business
conduct. These documents apply to our directors, officers and
employees. Our Code of Business Conduct and 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 Business Conduct and Ethics and
corporate governance guidelines on our website or in a Current
Report on
Form 8-K.
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Proxy
Voting Policies and Procedures
We vote proxies relating to our portfolio securities in a manner
which we believe will be 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 are periodically examined by the SEC for compliance with the
1940 Act.
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 BDC, 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
Triangle SBIC and Triangle SBIC II, our wholly-owned
subsidiaries, are each licensed by the SBA to operate as a Small
Business Investment Company under Section 301(c) of the
Small Business Investment Act of 1958. Triangle SBICs
license to operate as an SBIC became effective on
September 11, 2003 and Triangle SBIC IIs license to
operate as an SBIC became effective on May 26, 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 and Triangle
SBIC II have typically invested in senior and subordinated debt,
acquired warrants
and/or made
equity investments in qualifying small businesses.
Under current 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
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 between 20.0% and 25.0% of its investment activity to
smaller concerns as defined by the SBA. The exact
percentage depends upon, among other factors, the date that the
SBIC was licensed, when it obtained leverage commitments, the
amount of leverage drawn and when financings occur. A smaller
concern generally includes businesses that
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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
primarily engaged and are based on either the number of
employees or annual receipts. 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, project
financing 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 30.0% 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.
An SBIC (or group of SBICs under common control) may generally
have outstanding debentures guaranteed by the SBA in amounts up
to two times (and in certain cases, 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 December 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. As of December 31, 2010,
Triangle SBIC has issued the maximum $150.0 million of SBA
guaranteed debentures. As of December 31, 2010, Triangle
SBIC II has issued $53.4 million in face amount of SBA
guaranteed debentures and has a leverage commitment from the SBA
for an additional $21.6 million. If this commitment were
drawn in full, Triangle SBIC II would have outstanding
$75.0 million of debenture leverage, which is the maximum
amount it can have so long as Triangle SBIC has
$150 million of outstanding debenture leverage. If an SBIC
invests in smaller concerns located in low-income geographic
areas, these limits can be increased. The weighted average
interest rate for all SBA guaranteed debentures as of
December 31, 2010 was 3.95%. The weighted average interest
rate as of December 31, 2010 included $139.1 million
of pooled SBA-guaranteed debentures with a weighted average
fixed interest rate of 5.29% and $63.4 million of unpooled
SBA-guaranteed debentures with a weighted average interim
interest rate of 1.00%.
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 as to principal and interest by,
the United States 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
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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 their compliance with SBIC regulations and
are periodically required to file certain forms with the SBA.
Triangle SBIC was audited by the SBA during 2010, and no
regulatory violations were disclosed as a result of the audit.
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 of 1934 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:
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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;
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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;
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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 separately,
by our independent registered public accounting firm; and
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pursuant to Item 308 of Regulation S-K and
Rule 13a-15 of the Exchange Act, our periodic reports must
disclose whether there were significant changes in our internal
control over financial reporting or in other factors that could
significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions without
regard to significant deficiencies and material weaknesses.
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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 New
York Stock Exchange Corporate Governance Regulations
The NYSE 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
stay in compliance therewith.
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
131
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. At
our 2011 annual meeting of stockholders, we also intend to seek
stockholder approval 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 3, 2012 or the date of our
2012 annual meeting of stockholders. We will report the results
of this proposal on a Current Report on
Form 8-K
within four business days of our 2011 annual meeting.
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 NYSE, or another exchange on which our
common stock is traded.
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
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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, including 0.5% for due diligence.
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 any 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, 2010, 2009 or 2008 in connection with the
acquisition and/or disposal of our investments.
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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, 2010
and 2009, and for each of the three years in the period ended
December 31, 2010, 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.
134
Triangle
Capital Corporation
INDEX TO
FINANCIAL STATEMENTS
Audited
Financial Statements
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F-1
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F-3
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F-4
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F-5
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F-6
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F-7
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F-14
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F-19
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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,
2010 and 2009, 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, 2010. We have also audited
the accompanying consolidated financial highlights for the year
ended December 31, 2007 and the combined financial
highlights for the year 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, 2010 and 2009 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, 2010 and 2009, 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, 2010, and the consolidated financial
highlights for the year ended December 31, 2007 and the
combined financial highlights for the year 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, 2010, 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 9, 2011
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 9, 2011
F-1
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Triangle Capital Corporation
We have audited Triangle Capital Corporations internal
control over financial reporting as of December 31, 2010,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Triangle Capital Corporations management is responsible
for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit 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 effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Triangle Capital Corporation maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Triangle Capital Corporation (the
Company), including the consolidated schedules of investments,
as of December 31, 2010 and 2009, 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,
2010. We have also audited the accompanying consolidated
financial highlights for the year ended December 31, 2007
and the combined financial highlights for the year ended
December 31, 2006 and our report dated March 9, 2011
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 9, 2011
F-2
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Non Control / Non Affiliate investments
(cost of $244,197,828 and $143,239,223 at December 31, 2010
and 2009, respectively)
|
|
$
|
245,392,144
|
|
|
$
|
138,281,894
|
|
Affiliate investments (cost of $60,196,084 and $47,934,280 at
December 31, 2010 and 2009, respectively)
|
|
|
55,661,878
|
|
|
|
45,735,905
|
|
Control investments (cost of $19,647,795 and $18,767,587 at
December 31, 2010 and 2009, respectively)
|
|
|
24,936,571
|
|
|
|
17,300,171
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
325,990,593
|
|
|
|
201,317,970
|
|
Cash and cash equivalents
|
|
|
54,820,222
|
|
|
|
55,200,421
|
|
Interest and fees receivable
|
|
|
867,627
|
|
|
|
676,961
|
|
Prepaid expenses and other current assets
|
|
|
119,151
|
|
|
|
286,790
|
|
Deferred financing fees
|
|
|
6,200,254
|
|
|
|
3,540,492
|
|
Property and equipment, net
|
|
|
47,647
|
|
|
|
28,666
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
388,045,494
|
|
|
$
|
261,051,300
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued liabilities
|
|
$
|
2,268,898
|
|
|
$
|
2,222,177
|
|
Interest payable
|
|
|
2,388,505
|
|
|
|
2,333,952
|
|
Dividends payable
|
|
|
|
|
|
|
4,774,534
|
|
Taxes payable
|
|
|
197,979
|
|
|
|
59,178
|
|
Deferred revenue
|
|
|
37,500
|
|
|
|
75,000
|
|
Deferred income taxes
|
|
|
208,587
|
|
|
|
577,267
|
|
SBA guaranteed debentures payable
|
|
|
202,464,866
|
|
|
|
121,910,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
207,566,335
|
|
|
|
131,952,108
|
|
Net Assets
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 14,928,987 and
11,702,511 shares issued and outstanding as of
December 31, 2010 and 2009, respectively)
|
|
|
14,929
|
|
|
|
11,703
|
|
Additional
paid-in-capital
|
|
|
183,602,755
|
|
|
|
136,769,259
|
|
Investment income in excess of distributions
|
|
|
3,365,548
|
|
|
|
1,070,452
|
|
Accumulated realized gains (losses) on investments
|
|
|
(8,244,376
|
)
|
|
|
448,164
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
1,740,303
|
|
|
|
(9,200,386
|
)
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
180,479,159
|
|
|
|
129,099,192
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
388,045,494
|
|
|
$
|
261,051,300
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
12.09
|
|
|
$
|
11.03
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Control / Non Affiliate investments
|
|
$
|
24,187,140
|
|
|
$
|
16,489,943
|
|
|
$
|
12,381,411
|
|
Affiliate investments
|
|
|
4,140,469
|
|
|
|
4,441,399
|
|
|
|
3,478,644
|
|
Control investments
|
|
|
1,333,385
|
|
|
|
1,142,764
|
|
|
|
1,434,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
29,660,994
|
|
|
|
22,074,106
|
|
|
|
17,294,742
|
|
Paid in kind interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Control / Non Affiliate investments
|
|
|
4,449,358
|
|
|
|
3,114,325
|
|
|
|
2,657,281
|
|
Affiliate investments
|
|
|
1,059,069
|
|
|
|
1,539,776
|
|
|
|
665,817
|
|
Control investments
|
|
|
471,431
|
|
|
|
420,718
|
|
|
|
438,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid in kind interest income
|
|
|
5,979,858
|
|
|
|
5,074,819
|
|
|
|
3,761,786
|
|
Interest income from cash and cash equivalent investments
|
|
|
344,642
|
|
|
|
613,057
|
|
|
|
302,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
35,985,494
|
|
|
|
27,761,982
|
|
|
|
21,359,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,350,012
|
|
|
|
6,900,591
|
|
|
|
4,227,851
|
|
Amortization of deferred financing fees
|
|
|
796,994
|
|
|
|
363,818
|
|
|
|
255,273
|
|
General and administrative expenses
|
|
|
7,689,015
|
|
|
|
6,448,999
|
|
|
|
6,254,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
15,836,021
|
|
|
|
13,713,408
|
|
|
|
10,737,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
20,149,473
|
|
|
|
14,048,574
|
|
|
|
10,622,278
|
|
Net realized gain (loss) on investments Non Control
/ Non Affiliate
|
|
|
(1,623,104
|
)
|
|
|
448,164
|
|
|
|
(1,393,139
|
)
|
Net realized loss on investment Affiliate
|
|
|
(3,855,769
|
)
|
|
|
|
|
|
|
|
|
Net realized gain on investment Control
|
|
|
|
|
|
|
|
|
|
|
2,828,747
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
10,940,689
|
|
|
|
(10,310,194
|
)
|
|
|
(4,286,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments before income taxes
|
|
|
5,461,816
|
|
|
|
(9,862,030
|
)
|
|
|
(2,850,767
|
)
|
Provision for taxes
|
|
|
220,740
|
|
|
|
149,841
|
|
|
|
133,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
25,390,549
|
|
|
$
|
4,036,703
|
|
|
$
|
7,638,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
1.58
|
|
|
$
|
1.63
|
|
|
$
|
1.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
$
|
1.99
|
|
|
$
|
0.47
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
1.61
|
|
|
$
|
1.62
|
|
|
$
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital gains distributions declared per common share
|
|
$
|
0.04
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
12,763,243
|
|
|
|
8,593,143
|
|
|
|
6,877,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid In
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation)
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
of Investments
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2008
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,149,473
|
|
|
|
|
|
|
|
|
|
|
|
20,149,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,151,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,151,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,478,873
|
)
|
|
|
6,423,467
|
|
|
|
944,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,517,222
|
|
|
|
4,517,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,740
|
)
|
|
|
|
|
|
|
|
|
|
|
(220,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of capital and other tax related adjustments
|
|
|
|
|
|
|
|
|
|
|
(171,918
|
)
|
|
|
3,385,585
|
|
|
|
(3,213,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends/distributions declared
|
|
|
332,149
|
|
|
|
332
|
|
|
|
4,878,676
|
|
|
|
(21,019,222
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,140,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Public offerings of common stock
|
|
|
2,760,000
|
|
|
|
2,760
|
|
|
|
41,210,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,212,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, December 31, 2010
|
|
|
14,928,987
|
|
|
$
|
14,929
|
|
|
$
|
183,602,755
|
|
|
$
|
3,365,548
|
|
|
$
|
(8,244,376
|
)
|
|
$
|
1,740,303
|
|
|
$
|
180,479,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
25,390,549
|
|
|
$
|
4,036,703
|
|
|
$
|
7,638,501
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(173,581,930
|
)
|
|
|
(48,475,570
|
)
|
|
|
(93,054,022
|
)
|
Repayments received/sales of portfolio investments
|
|
|
54,914,835
|
|
|
|
21,431,698
|
|
|
|
20,968,397
|
|
Loan origination and other fees received
|
|
|
3,351,568
|
|
|
|
952,500
|
|
|
|
1,686,996
|
|
Net realized (gain) loss on investments
|
|
|
5,478,873
|
|
|
|
(448,164
|
)
|
|
|
(1,435,608
|
)
|
Net unrealized (appreciation) depreciation on investments
|
|
|
(10,572,009
|
)
|
|
|
10,576,873
|
|
|
|
3,516,855
|
|
Deferred income taxes
|
|
|
(368,680
|
)
|
|
|
(266,680
|
)
|
|
|
769,519
|
|
Paid in kind interest accrued, net of
payments received
|
|
|
(2,269,307
|
)
|
|
|
(2,165,015
|
)
|
|
|
(1,783,288
|
)
|
Amortization of deferred financing fees
|
|
|
796,994
|
|
|
|
363,818
|
|
|
|
255,273
|
|
Accretion of loan origination and other fees
|
|
|
(1,268,839
|
)
|
|
|
(663,506
|
)
|
|
|
(515,289
|
)
|
Accretion of loan discounts
|
|
|
(701,268
|
)
|
|
|
(421,495
|
)
|
|
|
(169,548
|
)
|
Accretion of discount on SBA guaranteed debentures payable
|
|
|
50,948
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
19,554
|
|
|
|
22,548
|
|
|
|
16,681
|
|
Stock-based compensation
|
|
|
1,151,576
|
|
|
|
701,601
|
|
|
|
275,311
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(215,212
|
)
|
|
|
2,867
|
|
|
|
(374,669
|
)
|
Prepaid expenses
|
|
|
167,639
|
|
|
|
(191,465
|
)
|
|
|
(47,848
|
)
|
Accounts payable and accrued liabilities
|
|
|
46,721
|
|
|
|
613,268
|
|
|
|
464,687
|
|
Interest payable
|
|
|
54,553
|
|
|
|
452,191
|
|
|
|
1,183,026
|
|
Deferred revenue
|
|
|
(37,500
|
)
|
|
|
75,000
|
|
|
|
|
|
Taxes payable
|
|
|
138,801
|
|
|
|
28,742
|
|
|
|
(22,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(97,452,134
|
)
|
|
|
(13,374,086
|
)
|
|
|
(60,627,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(38,535
|
)
|
|
|
(3,194
|
)
|
|
|
(30,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(38,535
|
)
|
|
|
(3,194
|
)
|
|
|
(30,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable
|
|
|
102,803,918
|
|
|
|
6,800,000
|
|
|
|
78,100,000
|
|
Repayments of SBA guaranteed debentures payable
|
|
|
(22,300,000
|
)
|
|
|
|
|
|
|
|
|
Financing fees paid
|
|
|
(3,456,756
|
)
|
|
|
(358,900
|
)
|
|
|
(2,801,524
|
)
|
Proceeds from public stock offerings, net of expenses
|
|
|
41,212,968
|
|
|
|
47,332,682
|
|
|
|
|
|
Common stock withheld for payroll taxes upon vesting of
restricted stock
|
|
|
(234,912
|
)
|
|
|
(66,900
|
)
|
|
|
|
|
Cash dividends paid
|
|
|
(20,466,584
|
)
|
|
|
(11,970,102
|
)
|
|
|
(9,235,216
|
)
|
Cash distributions paid
|
|
|
(448,164
|
)
|
|
|
(352,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
97,110,470
|
|
|
|
41,384,414
|
|
|
|
66,063,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(380,199
|
)
|
|
|
28,007,134
|
|
|
|
5,405,537
|
|
Cash and cash equivalents, beginning of year
|
|
|
55,200,421
|
|
|
|
27,193,287
|
|
|
|
21,787,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
54,820,222
|
|
|
$
|
55,200,421
|
|
|
$
|
27,193,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
7,244,511
|
|
|
$
|
6,448,400
|
|
|
$
|
3,044,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of non-cash financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared but not paid
|
|
$
|
|
|
|
$
|
4,774,534
|
|
|
$
|
2,766,945
|
|
See accompanying notes.
F-6
TRIANGLE
CAPITAL CORPORATION
December 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) (3%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note-AA
(15% Cash, 3% PIK,
Due 06/13)
|
|
$
|
4,325,151
|
|
|
$
|
4,287,109
|
|
|
$
|
4,287,109
|
|
|
|
|
|
Common Stock-PHM
(128,571 shares)
|
|
|
|
|
|
|
128,571
|
|
|
|
68,500
|
|
|
|
|
|
Common Stock
Warrants-AA
(455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
852,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,325,151
|
|
|
|
4,558,041
|
|
|
|
5,207,609
|
|
Anns House of Nuts, Inc. (5%)*
|
|
Trail Mixes and
Nut Producers
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 11/17)
|
|
|
7,009,722
|
|
|
|
6,603,828
|
|
|
|
6,603,828
|
|
|
|
|
|
Preferred A Units
(22,368 units)
|
|
|
|
|
|
|
2,124,957
|
|
|
|
2,124,957
|
|
|
|
|
|
Preferred B Units
(10,380 units)
|
|
|
|
|
|
|
986,059
|
|
|
|
986,059
|
|
|
|
|
|
Common Units
(190,935 units)
|
|
|
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
Common Stock Warrants
(14,558 shares)
|
|
|
|
|
|
|
14,558
|
|
|
|
14,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,009,722
|
|
|
|
9,879,402
|
|
|
|
9,879,402
|
|
Assurance Operations Corporation (0%)*
|
|
Metal Fabrication
|
|
Common Stock
(517 Shares)
|
|
|
|
|
|
|
516,867
|
|
|
|
528,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
516,867
|
|
|
|
528,900
|
|
Botanical Laboratories, Inc. (5%)*
|
|
Nutritional Supplement
Manufacturing and
Distribution
|
|
Senior Notes
(14% Cash,
Due 02/15)
|
|
|
10,500,000
|
|
|
|
9,843,861
|
|
|
|
9,843,861
|
|
|
|
|
|
Common Unit
Warrants (998,680)
|
|
|
|
|
|
|
474,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,500,000
|
|
|
|
10,318,461
|
|
|
|
9,843,861
|
|
Capital Contractors, Inc. (5%)*
|
|
Janitorial and Facilities
Maintenance Services
|
|
Subordinated Notes
(12% Cash, 2% PIK,
Due 12/15)
|
|
|
9,001,001
|
|
|
|
8,329,001
|
|
|
|
8,329,001
|
|
|
|
|
|
Common Stock
Warrants (20 shares)
|
|
|
|
|
|
|
492,000
|
|
|
|
492,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,001,001
|
|
|
|
8,821,001
|
|
|
|
8,821,001
|
|
Carolina Beer and Beverage, LLC (8%)*
|
|
Beverage Manufacturing
and Packaging
|
|
Subordinated Note
(12% Cash , 4% PIK,
Due 02/16)
|
|
|
12,865,233
|
|
|
|
12,622,521
|
|
|
|
12,622,521
|
|
|
|
|
|
Class A Units
(11,974 Units)
|
|
|
|
|
|
|
1,077,615
|
|
|
|
1,077,615
|
|
|
|
|
|
Class B Units
(11,974 Units)
|
|
|
|
|
|
|
119,735
|
|
|
|
119,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,865,233
|
|
|
|
13,819,871
|
|
|
|
13,819,871
|
|
F-7
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
CRS Reprocessing, LLC (8%)*
|
|
Fluid Reprocessing
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 11/15)
|
|
$
|
11,129,470
|
|
|
$
|
10,706,406
|
|
|
$
|
10,706,406
|
|
|
|
|
|
Subordinated Note
(10% Cash, 4% PIK,
Due 11/15)
|
|
|
3,403,211
|
|
|
|
3,052,570
|
|
|
|
3,052,570
|
|
|
|
|
|
Common Unit
Warrant (340 Units)
|
|
|
|
|
|
|
564,454
|
|
|
|
1,043,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,532,681
|
|
|
|
14,323,430
|
|
|
|
14,801,976
|
|
CV Holdings, LLC (6%)*
|
|
Specialty Healthcare
Products Manufacturer
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
|
11,685,326
|
|
|
|
11,042,011
|
|
|
|
11,042,011
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
874,400
|
|
|
|
622,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,685,326
|
|
|
|
11,916,411
|
|
|
|
11,664,511
|
|
Electronic Systems Protection, Inc. (2%)*
|
|
Power Protection
Systems Manufacturing
|
|
Subordinated Note
(12% Cash,
2% PIK,
Due 12/15)
|
|
|
3,183,802
|
|
|
|
3,162,604
|
|
|
|
3,162,604
|
|
|
|
|
|
Senior Note
(8.3% Cash,
Due 01/14)
|
|
|
835,261
|
|
|
|
835,261
|
|
|
|
835,261
|
|
|
|
|
|
Common Stock
(570 shares)
|
|
|
|
|
|
|
285,000
|
|
|
|
110,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,019,063
|
|
|
|
4,282,865
|
|
|
|
4,107,865
|
|
Energy Hardware Holdings, LLC (0%)*
|
|
Machined Parts
Distribution
|
|
Voting Units
(4,833 units)
|
|
|
|
|
|
|
4,833
|
|
|
|
414,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,833
|
|
|
|
414,100
|
|
Frozen Specialties, Inc. (4%)*
|
|
Frozen Foods
Manufacturer
|
|
Subordinated Note
(13% Cash,
5% PIK,
Due 07/14)
|
|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,060,481
|
|
|
|
7,945,904
|
|
|
|
7,945,904
|
|
Garden Fresh Restaurant Corp. (0%)*
|
|
Restaurant
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
723,800
|
|
Gerli & Company (1%)*
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Subordinated Note
(0.69% PIK,
Due 08/11)
|
|
|
3,799,359
|
|
|
|
3,161,442
|
|
|
|
2,156,500
|
|
|
|
|
|
Subordinated Note
(6.25% Cash, 11.75% PIK,
Due 08/11)
|
|
|
137,233
|
|
|
|
120,000
|
|
|
|
120,000
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
112,100
|
|
|
|
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,936,592
|
|
|
|
3,364,856
|
|
|
|
2,388,600
|
|
Great Expressions Group Holdings, LLC (3%)*
|
|
Dental Practice
Management
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 08/15)
|
|
|
4,561,311
|
|
|
|
4,498,589
|
|
|
|
4,498,589
|
|
|
|
|
|
Class A Units (225 Units)
|
|
|
|
|
|
|
450,000
|
|
|
|
678,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,561,311
|
|
|
|
4,948,589
|
|
|
|
5,176,989
|
|
F-8
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Grindmaster-Cecilware Corp. (3%)*
|
|
Food Services
Equipment Manufacturer
|
|
Subordinated Note
(12% Cash, 4.5% PIK,
Due 04/16)
|
|
$
|
5,995,035
|
|
|
$
|
5,900,500
|
|
|
$
|
5,900,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,995,035
|
|
|
|
5,900,500
|
|
|
|
5,900,500
|
|
Hatch Chile Co., LLC (3%)*
|
|
Food Products
Distributor
|
|
Senior Note
(19% Cash,
Due 07/15)
|
|
|
4,500,000
|
|
|
|
4,394,652
|
|
|
|
4,394,652
|
|
|
|
|
|
Subordinated Note
(14% Cash,
Due 07/15)
|
|
|
1,000,000
|
|
|
|
837,779
|
|
|
|
837,779
|
|
|
|
|
|
Unit Purchase
Warrant (5,265 Units)
|
|
|
|
|
|
|
149,800
|
|
|
|
149,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,500,000
|
|
|
|
5,382,231
|
|
|
|
5,382,231
|
|
Infrastructure Corporation of America, Inc. (6%)*
|
|
Roadway Maintenance,
Repair and
Engineering Services
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 10/15)
|
|
|
10,769,120
|
|
|
|
9,566,843
|
|
|
|
9,566,843
|
|
|
|
|
|
Common Stock Purchase
Warrant (199,526 shares)
|
|
|
|
|
|
|
980,000
|
|
|
|
980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,769,120
|
|
|
|
10,546,843
|
|
|
|
10,546,843
|
|
Inland Pipe Rehabilitation Holding Company LLC (10%)*
|
|
Cleaning and
Repair Services
|
|
Subordinated Note
(14% Cash,
Due 01/14)
|
|
|
8,274,920
|
|
|
|
7,621,285
|
|
|
|
7,621,285
|
|
|
|
|
|
Subordinated Note
(18% Cash,
Due 01/14)
|
|
|
3,905,108
|
|
|
|
3,861,073
|
|
|
|
3,861,073
|
|
|
|
|
|
Subordinated Note
(15% Cash,
Due 01/14)
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
306,302
|
|
|
|
|
|
Subordinated Note
(15.3% Cash,
Due 01/14)
|
|
|
3,500,000
|
|
|
|
3,465,000
|
|
|
|
3,465,000
|
|
|
|
|
|
Membership Interest
Purchase Warrant (3.0%)
|
|
|
|
|
|
|
853,500
|
|
|
|
2,982,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,986,330
|
|
|
|
16,107,160
|
|
|
|
18,236,260
|
|
Library Systems & Services, LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12.5% Cash, 4.5% PIK,
Due 06/15)
|
|
|
5,250,000
|
|
|
|
5,104,255
|
|
|
|
5,104,255
|
|
|
|
|
|
Common Stock Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,250,000
|
|
|
|
5,163,250
|
|
|
|
5,639,255
|
|
McKenzie Sports Products, LLC (3%)*
|
|
Taxidermy
Manufacturer
|
|
Subordinated Note
(13% Cash, 1% PIK,
Due 10/17)
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,010,667
|
|
|
|
5,893,359
|
|
|
|
5,893,359
|
|
Media Temple, Inc. (7%)*
|
|
Web Hosting Services
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 04/15)
|
|
|
8,800,000
|
|
|
|
8,624,776
|
|
|
|
8,624,776
|
|
|
|
|
|
Convertible Note
(8% Cash, 4% PIK,
Due 04/15)
|
|
|
3,200,000
|
|
|
|
2,668,581
|
|
|
|
2,668,581
|
|
|
|
|
|
Common Stock Purchase Warrant
(28,000 Shares)
|
|
|
|
|
|
|
536,000
|
|
|
|
536,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000,000
|
|
|
|
11,829,357
|
|
|
|
11,829,357
|
|
F-9
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of
Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Minco Technology Labs, LLC (3%)*
|
|
Semiconductor
Distribution
|
|
Subordinated Note
(13% Cash, 3.25% PIK,
Due 05/16)
|
|
$
|
5,102,216
|
|
|
$
|
4,984,368
|
|
|
$
|
4,984,368
|
|
|
|
|
|
Class A Units (5,000 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
296,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,102,216
|
|
|
|
5,484,368
|
|
|
|
5,281,168
|
|
Novolyte Technologies, Inc. (5%)*
|
|
Specialty
Manufacturing
|
|
Subordinated Note
(12% Cash, 5.5% PIK,
Due 04/15)
|
|
|
7,785,733
|
|
|
|
7,686,662
|
|
|
|
7,686,662
|
|
|
|
|
|
Preferred Units (641 units)
|
|
|
|
|
|
|
640,818
|
|
|
|
664,600
|
|
|
|
|
|
Common Units (24,522 units)
|
|
|
|
|
|
|
160,204
|
|
|
|
370,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,785,733
|
|
|
|
8,487,684
|
|
|
|
8,721,462
|
|
SRC, Inc. (5%)*
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Notes
(12% Cash, 2% PIK,
Due 09/14)
|
|
|
9,001,000
|
|
|
|
8,697,200
|
|
|
|
8,697,200
|
|
|
|
|
|
Common Stock Purchase Warrants
|
|
|
|
|
|
|
123,800
|
|
|
|
123,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,001,000
|
|
|
|
8,821,000
|
|
|
|
8,821,000
|
|
Syrgis Holdings, Inc. (2%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Notes
(7.75%-10.75% Cash,
Due 08/12-02/14)
|
|
|
2,873,393
|
|
|
|
2,858,198
|
|
|
|
2,858,198
|
|
|
|
|
|
Class C Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
962,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,873,393
|
|
|
|
3,858,198
|
|
|
|
3,820,398
|
|
TBG Anesthesia Management, LLC (6%)*
|
|
Physician
Management Services
|
|
Senior Note
(13.5% Cash,
Due 11/14)
|
|
|
11,000,000
|
|
|
|
10,612,766
|
|
|
|
10,612,766
|
|
|
|
|
|
Warrant (263 shares)
|
|
|
|
|
|
|
276,100
|
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,000,000
|
|
|
|
10,888,866
|
|
|
|
10,777,766
|
|
Top Knobs USA, Inc. (6%)
|
|
Hardware Designer
and Distributor
|
|
Subordinated Note
(12% Cash, 4.5% PIK,
Due 05/17)
|
|
|
9,910,331
|
|
|
|
9,713,331
|
|
|
|
9,713,331
|
|
|
|
|
|
Common Stock (26,593 shares)
|
|
|
|
|
|
|
750,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,910,331
|
|
|
|
10,463,331
|
|
|
|
10,463,331
|
|
TrustHouse Services Group, Inc. (3%)*
|
|
Food Management
Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
4,440,543
|
|
|
|
4,381,604
|
|
|
|
4,381,604
|
|
|
|
|
|
Class A Units (1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
492,900
|
|
|
|
|
|
Class B Units (79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,440,543
|
|
|
|
4,881,604
|
|
|
|
4,874,504
|
|
Tulsa Inspection Resources, Inc. (3%)*
|
|
Pipeline Inspection
Services
|
|
Subordinated Note
(14%-17.5% Cash,
Due 03/14)
|
|
|
5,810,588
|
|
|
|
5,490,797
|
|
|
|
5,490,797
|
|
|
|
|
|
Common Unit(1 unit)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
Common Stock Warrants (8 shares)
|
|
|
|
|
|
|
321,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,810,588
|
|
|
|
6,011,797
|
|
|
|
5,490,797
|
|
Twin-Star International, Inc. (3%)*
|
|
Consumer Home
Furnishings Manufacturer
|
|
Subordinated Note
(12% Cash, 1% PIK,
Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,462,290
|
|
|
|
4,462,290
|
|
|
|
|
|
Senior Note
(4.53%,
Due 04/13)
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
1,088,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,588,962
|
|
|
|
5,551,252
|
|
|
|
5,551,252
|
|
F-10
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. (1%)*
|
|
Commercial Services
|
|
Subordinated Note
(12.5%Cash, 1.5% PIK,
Due 06/14)
|
|
$
|
3,739,639
|
|
|
$
|
3,387,525
|
|
|
$
|
2,632,100
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0%)
|
|
|
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,739,639
|
|
|
|
3,520,325
|
|
|
|
2,632,100
|
|
Yellowstone Landscape Group, Inc. (7%)*
|
|
Landscaping Services
|
|
Subordinated Note
(12% Cash, 3% PIK,
Due 04/14)
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,438,838
|
|
|
|
12,250,147
|
|
|
|
12,250,147
|
|
Zoom Systems (4%)*
|
|
Retail Kiosk
Operator
|
|
Subordinated Note
(12.5% Cash, 1.5% PIK,
Due 12/14)
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,125,222
|
|
|
|
7,956,025
|
|
|
|
7,956,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non Control / Non Affiliate
Investments
|
|
|
|
|
|
|
237,824,178
|
|
|
|
244,197,828
|
|
|
|
245,392,144
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American De-Rosa Lamparts, LLC and Hallmark Lighting (2%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(5% PIK,
Due 10/13)
|
|
|
5,475,141
|
|
|
|
5,153,341
|
|
|
|
3,985,700
|
|
|
|
|
|
Membership
Units (6,516 Units)
|
|
|
|
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,475,141
|
|
|
|
5,503,341
|
|
|
|
3,985,700
|
|
AP Services, Inc. (4%)*
|
|
Fluid Sealing Supplies
and Services
|
|
Subordinated Note
(12% Cash, 2% PIK,
Due 09/15)
|
|
|
5,834,877
|
|
|
|
5,723,194
|
|
|
|
5,723,194
|
|
|
|
|
|
Class A Units (933 units)
|
|
|
|
|
|
|
933,333
|
|
|
|
933,333
|
|
|
|
|
|
Class B Units (496 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,834,877
|
|
|
|
6,656,527
|
|
|
|
6,656,527
|
|
Asset Point, LLC (3%)*
|
|
Asset Management
Software Provider
|
|
Senior Note
(12% Cash, 5% PIK,
Due 03/13)
|
|
|
5,756,261
|
|
|
|
5,703,925
|
|
|
|
5,384,500
|
|
|
|
|
|
Senior Note
(12% Cash, 2% PIK,
Due 07/15)
|
|
|
605,185
|
|
|
|
605,185
|
|
|
|
478,100
|
|
|
|
|
|
Options to
Purchase Membership
Units (342,407 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Membership Unit
Warrants
(356,506 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,361,446
|
|
|
|
6,809,110
|
|
|
|
5,862,600
|
|
Axxiom Manufacturing, Inc. (1%)*
|
|
Industrial Equipment
Manufacturer
|
|
Common Stock
(136,400 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
978,700
|
|
|
|
|
|
Common Stock Warrant
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
28,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
1,007,400
|
|
F-11
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
Street)(4)(2%)*
|
|
Oil and Gas Services
|
|
Subordinated Note Brantley
Transportation
(14% Cash,
Due 12/12)
|
|
$
|
3,800,000
|
|
|
$
|
3,738,821
|
|
|
$
|
3,546,600
|
|
|
|
|
|
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
|
|
|
|
3,972,421
|
|
|
|
3,546,600
|
|
Dyson Corporation (1%)*
|
|
Custom Forging
and Fastener Supplies
|
|
Class A Units (1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
2,476,000
|
|
Equisales, LLC (4%)*
|
|
Energy Products and Services
|
|
Subordinated Note
(13% Cash, 4% PIK,
Due 04/12)
|
|
|
6,000,000
|
|
|
|
5,959,983
|
|
|
|
5,959,983
|
|
|
|
|
|
Class A Units (500,000 units)
|
|
|
|
|
|
|
480,900
|
|
|
|
569,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000,000
|
|
|
|
6,440,883
|
|
|
|
6,529,283
|
|
Plantation Products, LLC (8%)*
|
|
Seed Manufacturing
|
|
Subordinated Notes
(13% Cash, 4.5% PIK,
Due 06/16)
|
|
|
14,527,188
|
|
|
|
14,164,688
|
|
|
|
14,164,688
|
|
|
|
|
|
Preferred Units (1,127 units)
|
|
|
|
|
|
|
1,127,000
|
|
|
|
1,127,000
|
|
|
|
|
|
Common Units (92,000 units)
|
|
|
|
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,527,188
|
|
|
|
15,314,688
|
|
|
|
15,314,688
|
|
QC Holdings, Inc.(0%)*
|
|
Lab Testing Services
|
|
Common Stock
(5,594 shares)
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
505,500
|
|
Technology Crops International (3%)*
|
|
Supply Chain
Management Services
|
|
Subordinated Note
(12% Cash, 5% PIK,
Due 03/15)
|
|
|
5,333,595
|
|
|
|
5,250,980
|
|
|
|
5,250,980
|
|
|
|
|
|
Common Units (50 Units)
|
|
|
|
|
|
|
500,000
|
|
|
|
612,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,333,595
|
|
|
|
5,750,980
|
|
|
|
5,863,180
|
|
Waste Recyclers Holdings, LLC (2%)*
|
|
Environmental
and Facilities Services
|
|
Class A Preferred Units
(280 Units)
|
|
|
|
|
|
|
2,251,100
|
|
|
|
|
|
|
|
|
|
Class B Preferred Units
(985,372 Units)
|
|
|
|
|
|
|
3,304,218
|
|
|
|
2,384,100
|
|
|
|
|
|
Class C Preferred Units
(1,444,475 Units)
|
|
|
|
|
|
|
1,499,531
|
|
|
|
1,530,300
|
|
|
|
|
|
Common Unit Purchase
Warrant (1,170,083 Units)
|
|
|
|
|
|
|
748,900
|
|
|
|
|
|
|
|
|
|
Common Units (153,219 Units)
|
|
|
|
|
|
|
180,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,984,532
|
|
|
|
3,914,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
47,332,247
|
|
|
|
60,196,084
|
|
|
|
55,661,878
|
|
F-12
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. (1%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(3.76% Cash, 2% PIK,
Due 9/11)
|
|
$
|
1,500,498
|
|
|
$
|
1,497,934
|
|
|
$
|
1,465,400
|
|
|
|
|
|
Senior Note
(7.79% Cash, 2% PIK,
Due 9/11)
|
|
|
2,045,228
|
|
|
|
2,041,167
|
|
|
|
1,081,100
|
|
|
|
|
|
2nd Lien Note
(2.79% Cash, 8% PIK,
Due 12/11)
|
|
|
3,470,254
|
|
|
|
2,996,287
|
|
|
|
|
|
|
|
|
|
Preferred Shares
(35,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
(4,000 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Members Interests
(3,839 Units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,015,980
|
|
|
|
6,535,388
|
|
|
|
2,546,500
|
|
Fire Sprinkler Systems, Inc. (0%)*
|
|
Specialty
Trade Contractors
|
|
Subordinated Notes (2% PIK,
Due 04/11)
|
|
|
3,065,981
|
|
|
|
2,626,072
|
|
|
|
750,000
|
|
|
|
|
|
Common Stock (2,978 shares)
|
|
|
|
|
|
|
294,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,065,981
|
|
|
|
2,920,696
|
|
|
|
750,000
|
|
Fischbein, LLC (11%)*
|
|
Packaging and
Materials Handling
Equipment Manufacturer
|
|
Subordinated Note
(13% Cash, 5.5% PIK,
Due 05/13)
|
|
|
4,345,573
|
|
|
|
4,268,333
|
|
|
|
4,268,333
|
|
|
|
|
|
Class A-1 Common Units
(558,140 units)
|
|
|
|
|
|
|
558,140
|
|
|
|
2,200,600
|
|
|
|
|
|
Class A Common Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
13,649,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,345,573
|
|
|
|
9,026,473
|
|
|
|
20,118,533
|
|
Weave Textiles, LLC (1%)*
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Senior Note
(12% PIK,
Due 01/11)
|
|
|
310,238
|
|
|
|
310,238
|
|
|
|
310,238
|
|
|
|
|
|
Membership Units
(425 units)
|
|
|
|
|
|
|
855,000
|
|
|
|
1,211,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310,238
|
|
|
|
1,165,238
|
|
|
|
1,521,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
14,737,772
|
|
|
|
19,647,795
|
|
|
|
24,936,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2010(181%)*
|
|
|
|
|
|
$
|
299,894,197
|
|
|
$
|
324,041,707
|
|
|
$
|
325,990,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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-13
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 Manufacturer
|
|
Subordinated Note
(12% Cash, 4% PIK,
Due 09/13)
|
|
|
11,221,670
|
|
|
|
10,391,652
|
|
|
|
10,391,652
|
|
|
|
|
|
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
|
|
F-14
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
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
|
|
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
|
|
F-15
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. (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,
|
|
Pipeline Inspection Services
|
|
Subordinated Note
(14% Cash, Due 03/14)
|
|
|
5,000,000
|
|
|
|
4,625,242
|
|
|
|
4,625,242
|
|
LLC (RTIR) (4%)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,002,667
|
|
|
|
7,802,667
|
|
|
|
7,802,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non Control / Non Affiliate
Investments
|
|
|
|
|
|
|
142,455,328
|
|
|
|
143,239,223
|
|
|
|
138,281,894
|
|
F-16
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
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,
|
|
Oil and Gas Services
|
|
Subordinated Note
Brantley Transportation (14% Cash, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,713,247
|
|
|
|
1,400,000
|
|
LLC (Pine Street)(4) (1%)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
F-17
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
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 Manufacturer
|
|
Subordinated Note
(12% Cash, 6.5% PIK, Due 05/13)
|
|
|
7,595,671
|
|
|
|
7,490,171
|
|
|
|
7,490,171
|
|
|
|
|
|
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-18
Triangle
Capital Corporation
|
|
1.
|
Organization,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Organization
Triangle Capital Corporation (the Company),
incorporated 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). On
December 15, 2009, Triangle Mezzanine Fund II, LP
(Fund II) was organized as a limited
partnership under the laws of the State of Delaware and received
its SBIC license on May 26, 2010. Unless otherwise noted,
the terms its or the Company refer to
the Fund prior to the IPO and to Triangle Capital Corporation
and its subsidiaries, including the Fund and Fund II, after
the IPO.
The Fund and Fund II are specialty finance limited
liability 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). 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.
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 SBA to operate as 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 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.
F-19
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States (U.S. GAAP). 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 (formerly Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations (SFAS 141), the Companys
financial highlights 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
U.S. GAAP 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
(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
F-20
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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) 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 comparable companies that are
publicly traded, a review of these publicly traded companies 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). The Company
generally requests 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
addition, the Company generally requests Duff & Phelps
to perform the procedures on a portfolio company when there has
been a significant change in the fair value of the investment.
In certain instances, the Company may determine that it is not
cost-effective, and as a result is not in the Companys
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 the Companys investment
in the portfolio company is determined to be insignificant
relative to the Companys total investment portfolio.
F-21
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The total number of investments and the percentage of the
Companys portfolio that the Company asked Duff &
Phelps to perform such procedures are summarized below by period:
|
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|
|
|
|
|
|
|
|
|
|
Percent of Total
|
|
|
Total
|
|
Investments at
|
For the Quarter Ended:
|
|
Companies
|
|
Fair Value(1)
|
|
March 31, 2008
|
|
|
6
|
|
|
|
35
|
%
|
June 30, 2008
|
|
|
5
|
|
|
|
18
|
%
|
September 30, 2008
|
|
|
8
|
|
|
|
29
|
%
|
December 31, 2008
|
|
|
8
|
|
|
|
34
|
%
|
March 31, 2009
|
|
|
7
|
|
|
|
26
|
%
|
June 30, 2009
|
|
|
6
|
|
|
|
20
|
%
|
September 30, 2009
|
|
|
7
|
|
|
|
24
|
%
|
December 31, 2009
|
|
|
8
|
|
|
|
40
|
%
|
March 31, 2010
|
|
|
7
|
|
|
|
25
|
%
|
June 30, 2010
|
|
|
8
|
|
|
|
29
|
%
|
September 30, 2010
|
|
|
8
|
|
|
|
26
|
%
|
December 31, 2010
|
|
|
9
|
|
|
|
29
|
%
|
|
|
|
(1) |
|
Exclusive of the fair value of new investments made during the
quarter |
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 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
F-22
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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.
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, loan
amendment fees and fees for certain other services are recorded
into income
F-23
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
when received. Any previously deferred fees are immediately
recorded into income upon prepayment of the related loan.
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 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.
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, 2010 and 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.
F-24
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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.
On September 21, 2010, the Company filed a prospectus
supplement pursuant to which 2,400,000 shares of common
stock were offered for sale at a price to the public of $15.80
per share. In addition, the underwriters involved were granted
an overallotment option to purchase an additional
360,000 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 September 24, 2010 resulting in net proceeds
to the Company, after underwriting discounts and offering
expenses, of approximately $41,200,000. See
Note 9 Subsequent Events for information on the
Companys February 2011 public offering of common stock.
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.
F-25
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The table below summarizes the Companys dividends and
distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
Paid in
|
|
|
|
|
|
|
|
Declared
|
|
Record
|
|
Payable
|
|
Amount
|
|
|
Cash
|
|
|
DRIP
|
|
|
Total
|
|
|
May 9, 2007
|
|
May 31, 2007
|
|
June 28, 2007
|
|
|
0.15
|
|
|
|
358,000
|
|
|
|
645,000
|
|
|
|
1,003,000
|
|
August 8, 2007
|
|
August 30, 2007
|
|
September 27, 2007
|
|
|
0.26
|
|
|
|
769,000
|
|
|
|
981,000
|
|
|
|
1,750,000
|
|
November 7, 2007
|
|
November 29, 2007
|
|
December 27, 2007
|
|
|
0.27
|
|
|
|
1,837,000
|
|
|
|
|
|
|
|
1,837,000
|
|
December 14, 2007
|
|
December 31, 2007
|
|
January 28, 2008
|
|
|
0.30
|
|
|
|
2,041,000
|
|
|
|
|
|
|
|
2,041,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions in 2007
|
|
|
0.98
|
|
|
|
5,005,000
|
|
|
|
1,626,000
|
|
|
|
6,631,000
|
|
May 7, 2008
|
|
June 5, 2008
|
|
June 26, 2008
|
|
|
0.31
|
|
|
|
2,144,000
|
|
|
|
|
|
|
|
2,144,000
|
|
July 21, 2008
|
|
August 14, 2008
|
|
September 4, 2008
|
|
|
0.35
|
|
|
|
2,421,000
|
|
|
|
|
|
|
|
2,421,000
|
|
October 9, 2008
|
|
October 30, 2008
|
|
November 20, 2008
|
|
|
0.38
|
|
|
|
2,629,000
|
|
|
|
|
|
|
|
2,629,000
|
|
December 7, 2008
|
|
December 23, 2008
|
|
January 6, 2009
|
|
|
0.40
|
|
|
|
2,767,000
|
|
|
|
|
|
|
|
2,767,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions in 2008
|
|
|
1.44
|
|
|
|
9,961,000
|
|
|
|
|
|
|
|
9,961,000
|
|
February 13, 2009
|
|
February 27, 2009
|
|
March, 13, 2009
|
|
|
0.05
|
|
|
|
352,000
|
|
|
|
|
|
|
|
352,000
|
|
March 11, 2009
|
|
March 25, 2009
|
|
April 8, 2009
|
|
|
0.40
|
|
|
|
2,817,000
|
|
|
|
|
|
|
|
2,817,000
|
|
June 16, 2009
|
|
July 9, 2009
|
|
July 23, 2009
|
|
|
0.40
|
|
|
|
3,333,000
|
|
|
|
|
|
|
|
3,333,000
|
|
September 23, 2009
|
|
October 8, 2009
|
|
October 22, 2009
|
|
|
0.41
|
|
|
|
4,030,000
|
|
|
|
|
|
|
|
4,030,000
|
|
December 1, 2009
|
|
December 22, 2009
|
|
January 5, 2010
|
|
|
0.41
|
|
|
|
3,798,000
|
|
|
|
1,000,000
|
|
|
|
4,798,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions in 2009
|
|
|
1.67
|
|
|
|
14,330,000
|
|
|
|
1,000,000
|
|
|
|
15,330,000
|
|
March 11, 2010
|
|
March 25, 2010
|
|
April 8, 2010
|
|
|
0.41
|
|
|
|
3,678,000
|
|
|
|
1,215,000
|
|
|
|
4,893,000
|
|
June 1, 2010
|
|
June 15, 2010
|
|
June 29, 2010
|
|
|
0.41
|
|
|
|
2,919,000
|
|
|
|
2,005,000
|
|
|
|
4,924,000
|
|
August 25, 2010
|
|
September 8, 2010
|
|
September 22, 2010
|
|
|
0.41
|
|
|
|
4,137,000
|
|
|
|
813,000
|
|
|
|
4,950,000
|
|
December 01, 2010
|
|
December 15, 2010
|
|
December 29, 2010
|
|
|
0.42
|
|
|
|
5,406,000
|
|
|
|
846,000
|
|
|
|
6,252,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions in 2010
|
|
|
1.65
|
|
|
|
16,140,000
|
|
|
|
4,879,000
|
|
|
|
21,019,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
|
|
5.74
|
|
|
|
45,436,000
|
|
|
|
7,505,000
|
|
|
|
52,941,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 January 2010, the 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. 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-26
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, Unitranche and
2nd lien
notes
|
|
$
|
279,433,775
|
|
|
|
86
|
%
|
|
$
|
270,994,677
|
|
|
|
83
|
%
|
Senior debt
|
|
|
8,631,760
|
|
|
|
3
|
|
|
|
7,639,159
|
|
|
|
3
|
|
Equity shares
|
|
|
29,115,890
|
|
|
|
9
|
|
|
|
38,719,699
|
|
|
|
12
|
|
Equity warrants
|
|
|
5,985,882
|
|
|
|
2
|
|
|
|
7,902,458
|
|
|
|
2
|
|
Royalty rights
|
|
|
874,400
|
|
|
|
|
|
|
|
734,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
324,041,707
|
|
|
|
100
|
%
|
|
$
|
325,990,593
|
|
|
|
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 year ended December 31, 2010, the Company made
sixteen new investments totaling $140.7 million, ten
additional debt investments in existing portfolio companies of
$32.3 million and five additional equity investments in
existing portfolio companies totaling approximately
$0.6 million. 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.
The following table presents the Companys financial
instruments carried at fair value as of December 31, 2010
and 2009, on the consolidated balance sheet by ASC Topic 820
valuation hierarchy, as previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2010
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Portfolio company investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
325,990,593
|
|
|
$
|
325,990,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
325,990,593
|
|
|
$
|
325,990,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-27
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
The following table reconciles the beginning and ending balances
of the Companys portfolio company investments measured at
fair value on a recurring basis using significant unobservable
inputs (Level 3) for the years ended December 31,
2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Fair value of portfolio, beginning of period
|
|
$
|
201,317,970
|
|
|
$
|
182,105,291
|
|
New investments
|
|
|
173,581,930
|
|
|
|
48,475,570
|
|
Proceeds from sales of investments
|
|
|
(5,433,709
|
)
|
|
|
(1,888,384
|
)
|
Loan origination fees received
|
|
|
(3,351,568
|
)
|
|
|
(952,500
|
)
|
Principal repayments received
|
|
|
(49,481,126
|
)
|
|
|
(19,543,314
|
)
|
Payment in kind interest earned
|
|
|
5,979,858
|
|
|
|
5,074,819
|
|
Payment in kind interest payments received
|
|
|
(3,710,551
|
)
|
|
|
(2,909,804
|
)
|
Accretion of loan discounts
|
|
|
701,268
|
|
|
|
421,495
|
|
Accretion of deferred loan origination revenue
|
|
|
1,268,839
|
|
|
|
663,506
|
|
Realized gain (loss) on investments
|
|
|
(5,454,327
|
)
|
|
|
448,164
|
|
Unrealized gain (loss) on investments
|
|
|
10,572,009
|
|
|
|
(10,576,873
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of portfolio, end of period
|
|
$
|
325,990,593
|
|
|
$
|
201,317,970
|
|
|
|
|
|
|
|
|
|
|
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 gains on investments of $9.2 million
during the year ended December 31, 2010 are related to
portfolio company investments that are still held by the Company
as of December 31, 2010. 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.
F-28
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
At December 31, 2010 and 2009, the Company had the
following debentures guaranteed by the SBA outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized Return
|
|
|
December 31,
|
|
|
December 31,
|
|
Issuance/Pooling Date
|
|
Maturity Date
|
|
(Interest) Rate
|
|
|
2010
|
|
|
2009
|
|
|
SBA Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
9,500,000
|
|
March 28, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.214
|
%
|
|
|
6,410,000
|
|
|
|
6,410,000
|
|
September 24, 2008
|
|
September 1, 2018
|
|
|
6.455
|
%
|
|
|
50,900,000
|
|
|
|
50,900,000
|
|
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
|
|
September 22, 2010
|
|
September 1, 2020
|
|
|
3.932
|
%
|
|
|
32,590,000
|
|
|
|
|
|
October 28, 2010
|
|
March 1, 2021
|
|
|
0.975
|
%
|
|
|
5,000,000
|
|
|
|
|
|
November 9, 2010
|
|
March 1, 2021
|
|
|
0.943
|
%
|
|
|
21,000,000
|
|
|
|
|
|
November 17, 2010
|
|
March 1, 2021
|
|
|
0.929
|
%
|
|
|
7,000,000
|
|
|
|
|
|
December 14, 2010
|
|
March 1, 2021
|
|
|
1.130
|
%
|
|
|
8,000,000
|
|
|
|
|
|
December 23, 2010
|
|
March 1, 2021
|
|
|
1.118
|
%
|
|
|
4,000,000
|
|
|
|
|
|
December 24, 2010
|
|
March 1, 2021
|
|
|
1.117
|
%
|
|
|
10,300,000
|
|
|
|
|
|
December 24, 2010
|
|
March 1, 2021
|
|
|
0.887
|
%
|
|
|
8,100,000
|
|
|
|
|
|
SBA LMI Debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 14, 2010
|
|
March 1, 2016
|
|
|
2.508
|
%
|
|
|
6,864,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
202,464,866
|
|
|
$
|
121,910,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on SBA debentures 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. The
Companys SBA Low or Moderate Income (LMI)
debentures are five-year deferred interest debentures that are
issued at a discount to par. The accretion of discount on SBA
LMI debentures is included in interest expense in the
Companys consolidated financial statements.
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 two times ( and in certain cases, up to three
times) the amount of its regulatory capital. As of
December 31, 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
December 31, 2010, the Fund has issued the maximum
$150.0 million of SBA guaranteed debentures. As of
December 31, 2010, Fund II has issued
$53.4 million in face amount of SBA guaranteed debentures
and has a leverage commitment from the SBA to issue the
remaining $21.6 million of the $75.0 million statutory
maximum 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 SBA debenture issued and a one-time 2.0% fee
on the amount of each SBA LMI 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, 2010 and 2009 were
3.95% and 5.77%, respectively. The weighted average interest
rate as of
F-29
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
December 31, 2010 included $139.1 million of pooled
SBA-guaranteed debentures with a weighted average fixed interest
rate of 5.29% and $63.4 million of unpooled SBA-guaranteed
debentures with a weighted average interim interest rate of
1.00% 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%.
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
2010, 2009 and 2008 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, 2010, 2009
and 2008, the Company reclassified for book purposes
F-30
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Additional paid-in capital
|
|
$
|
(171,918
|
)
|
|
$
|
(29,996
|
)
|
|
$
|
612,399
|
|
Investment income in excess of distributions
|
|
$
|
3,385,585
|
|
|
$
|
34,125
|
|
|
$
|
(151,906
|
)
|
Accumulated realized gains on investments
|
|
$
|
(3,213,667
|
)
|
|
$
|
(4,129
|
)
|
|
$
|
(460,493
|
)
|
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, 2010,
2009 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Ordinary income
|
|
$
|
20,078,591
|
|
|
$
|
14,614,821
|
|
|
$
|
9,817,002
|
|
Distributions of long-term capital gains
|
|
|
448,164
|
|
|
|
356,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on a Tax Basis
|
|
$
|
20,256,755
|
|
|
$
|
14,971,316
|
|
|
$
|
9,817,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For federal income tax purposes, the cost of investments owned
at December 31, 2010 and 2009 was approximately
$325.8 million and $211.2 million, respectively.
At December 31, 2010, 2009 and 2008, 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
F-31
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Undistributed net investment income
|
|
$
|
4,007,334
|
|
|
$
|
1,344,215
|
|
|
$
|
634,803
|
|
Accumulated Capital Gains
|
|
|
(8,244,376
|
)
|
|
|
448,164
|
|
|
|
356,495
|
|
Other permanent differences relating to the Companys
Formation
|
|
|
1,975,543
|
|
|
|
1,975,543
|
|
|
|
1,975,543
|
|
Other temporary differences
|
|
|
(892,961
|
)
|
|
|
(1,001,062
|
)
|
|
|
(317,111
|
)
|
Unrealized Appreciation (Depreciation)
|
|
|
15,935
|
|
|
|
(10,448,630
|
)
|
|
|
931,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of Distributable Earnings at Year End
|
|
$
|
(3,138,525
|
)
|
|
$
|
(7,681,770
|
)
|
|
$
|
3,581,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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, the Company measures the grant date fair value based
upon the market price of the Companys 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 years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number
|
|
|
Grant-Date Fair
|
|
|
Number
|
|
|
Grant-Date Fair
|
|
|
Number
|
|
|
Grant-Date Fair
|
|
|
|
of Shares
|
|
|
Value per Share
|
|
|
of Shares
|
|
|
Value per Share
|
|
|
of 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
|
|
|
|
113,500
|
|
|
$
|
11.11
|
|
Shares vested during the period
|
|
|
(70,059
|
)
|
|
$
|
10.72
|
|
|
|
(35,799
|
)
|
|
$
|
11.11
|
|
|
|
|
|
|
$
|
|
|
Shares forfeited during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,700
|
)
|
|
$
|
11.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested shares, end of period
|
|
|
302,698
|
|
|
$
|
11.40
|
|
|
|
219,813
|
|
|
$
|
10.76
|
|
|
|
110,800
|
|
|
$
|
11.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the years ended December 31, 2010, 2009 and 2008 the
Company recognized equity-based compensation expense of
approximately $1.2 million, $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, 2010, there was approximately
$2.5 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 2.2 years.
F-32
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
|
|
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, 2010
and 2009 was approximately $5.1 million and
$4.3 million, respectively. 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, 2010, 2009 and 2008 was
approximately $283,000, $282,000 and $122,000, respectively, and
the rent commitment for the three years ending December 31,
2013 are as follows:
|
|
|
|
|
Years Ending December 31,
|
|
Rent Commitment
|
|
|
2011
|
|
$
|
287,805
|
|
2012
|
|
|
294,531
|
|
2013
|
|
|
301,368
|
|
|
|
|
|
|
Total
|
|
$
|
883,704
|
|
|
|
|
|
|
F-33
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period
|
|
$
|
11.03
|
|
|
$
|
13.22
|
|
|
$
|
13.74
|
|
|
$
|
13.44
|
|
|
|
N/A
|
|
Net investment income(2)
|
|
|
1.58
|
|
|
|
1.63
|
|
|
|
1.54
|
|
|
|
0.96
|
|
|
|
N/A
|
|
Net realized gain (loss) on investments(2)
|
|
|
(0.43
|
)
|
|
|
0.05
|
|
|
|
0.21
|
|
|
|
(0.09
|
)
|
|
|
N/A
|
|
Net unrealized appreciation (depreciation) on investments(2)
|
|
|
0.86
|
|
|
|
(1.20
|
)
|
|
|
(0.62
|
)
|
|
|
0.45
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase from investment operations(2)
|
|
|
2.01
|
|
|
|
0.48
|
|
|
|
1.13
|
|
|
|
1.32
|
|
|
|
N/A
|
|
Cash dividends/distributions declared
|
|
|
(1.65
|
)
|
|
|
(1.67
|
)
|
|
|
(1.44
|
)
|
|
|
(0.98
|
)
|
|
|
N/A
|
|
Common stock offerings
|
|
|
0.67
|
|
|
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
Stock-based compensation(2)
|
|
|
(0.05
|
)
|
|
|
0.08
|
|
|
|
0.04
|
|
|
|
|
|
|
|
N/A
|
|
Shares issued pursuant to Dividend Reinvestment Plan
|
|
|
0.08
|
|
|
|
0.10
|
|
|
|
|
|
|
|
0.24
|
|
|
|
N/A
|
|
Distribution to partners(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
N/A
|
|
Income tax provision(2)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
N/A
|
|
Other(3)
|
|
|
0.02
|
|
|
|
(0.63
|
)
|
|
|
(0.23
|
)
|
|
|
(0.24
|
)
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
12.09
|
|
|
$
|
11.03
|
|
|
$
|
13.22
|
|
|
$
|
13.74
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(4)
|
|
$
|
19.00
|
|
|
$
|
12.09
|
|
|
$
|
10.20
|
|
|
$
|
12.40
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
14,928,987
|
|
|
|
11,702,511
|
|
|
|
6,917,363
|
|
|
|
6,803,863
|
|
|
|
N/A
|
|
Net assets at end of period
|
|
$
|
180,479,159
|
|
|
$
|
129,099,192
|
|
|
$
|
91,514,982
|
|
|
$
|
93,472,353
|
|
|
$
|
25,156,811
|
|
Average net assets(5)
|
|
$
|
145,386,905
|
|
|
$
|
98,085,844
|
|
|
$
|
94,584,281
|
|
|
$
|
92,765,399
|
|
|
$
|
20,447,456
|
|
Ratio of total operating expenses to average net assets
|
|
|
11
|
%
|
|
|
14
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
18
|
%
|
Ratio of net investment income to average net assets
|
|
|
14
|
%
|
|
|
14
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
15
|
%
|
Ratio of total capital called to total capital commitments
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
100
|
%
|
Portfolio turnover ratio
|
|
|
23
|
%
|
|
|
12
|
%
|
|
|
13
|
%
|
|
|
13
|
%
|
|
|
7
|
%
|
Total return(6)
|
|
|
71
|
%
|
|
|
35
|
%
|
|
|
(6
|
)%
|
|
|
(11
|
)%
|
|
|
18
|
%
|
|
|
|
(1) |
|
Per share data for the years ended December 31, 2006 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-34
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, 2010,
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, 2010. Results for any quarter are not
necessarily indicative of results for the full year or for any
future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Mach 31,
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
|
2010
|
|
2010
|
|
2010
|
|
2010
|
|
Total investment income
|
|
$
|
7,484,907
|
|
|
$
|
8,294,147
|
|
|
$
|
9,787,085
|
|
|
$
|
10,419,355
|
|
Net investment income
|
|
|
3,793,684
|
|
|
|
4,558,624
|
|
|
|
5,612,455
|
|
|
|
6,184,710
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
4,149,329
|
|
|
|
6,867,280
|
|
|
|
7,183,182
|
|
|
|
7,190,758
|
|
Net investment income per share
|
|
$
|
0.32
|
|
|
$
|
0.38
|
|
|
$
|
0.46
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
In February 2011, the Companys Board of Directors granted
152,779 restricted shares of the Companys common stock to
certain employees. These restricted shares had a total grant
date fair value of approximately $3.1 million, which will
be expensed on a straight-line basis over each respective
awards vesting period.
In February 2011, the Company filed a prospectus supplement
pursuant to which 3,000,000 shares of common stock were
offered for sale at a price to the public of $19.25 per share.
In addition, the underwriters involved were granted an
overallotment option to purchase an additional
450,000 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 February 11, 2011 resulting in net proceeds to
the Company, after underwriting discounts and offering expenses,
of approximately $63.0 million.
In February 2011, the Company invested $10.0 million in
subordinated debt of Pomeroy IT Solutions, Inc., a provider of
information technology infrastructure outsourcing services.
Under the terms of the investment, Pomeroy IT Solutions, Inc.
will pay interest on the subordinated debt at a rate of 15% per
annum.
F-35
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
In February 2011, the Company amended the terms of its senior
debt investment in Botanical Laboratories, Inc. Among other
things, the amendment to the loan agreement included
modifications to certain loan covenants, an increase in the
interest rate on the investment from 14.0% per annum to 15.0%
per annum and required monthly amortization of principal.
In February 2011, the Company invested $8.8 million in
subordinated debt and equity of Captek Softgel International,
Inc., a contract manufacturer of softgel capsules. Under the
terms of the investment, Captek Softgel International, Inc. will
pay interest on the subordinated debt at a rate of 16% per annum.
In March 2011, the Company prepaid $9.5 million in SBA
guaranteed debentures with a fixed rate of 5.796%.
F-36
3,500,000 Shares
Common
Stock
PROSPECTUS
Joint Bookrunning Managers
|
|
Morgan
Stanley
|
Morgan Keegan
|
|
|
Baird
|
BB&T Capital Markets
|
A
division of Scott & Stringfellow, LLC
|
|
JMP
Securities
|
Sterne Agee
|
The date of this prospectus supplement is August 23, 2011.