UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-33130
Triangle Capital
Corporation
(Exact name of registrant as
specified in its charter)
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Maryland
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06-1798488
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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3600 Glenwood Avenue, Suite 104
Raleigh, North Carolina
(Address and zip code of
principal executive offices)
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27612
(Zip
Code)
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Registrants telephone number, including area code:
(919) 719-4770
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share
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The NASDAQ Stock Market LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of June 30, 2007 was
approximately $84,734,191.
The number of shares outstanding of the registrants Common
Stock on March 12, 2008 was 6,803,863.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive Proxy Statement
relating to the 2008 Annual Meeting of Stockholders, to be filed
with the Securities and Exchange Commission, are incorporated by
reference in Part III of this Annual Report on
Form 10-K,
and certain exhibits previously filed with the Securities and
Exchange commission are incorporated by reference into
Part IV of this Annual Report.
TRIANGLE
CAPITAL CORPORATION
TABLE OF
CONTENTS
ANNUAL REPORT ON
FORM 10-K
For the Fiscal Year Ended December 31, 2007
1
FORWARD-LOOKING
STATEMENTS
This Annual Report contains forward-looking statements which
are subject to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Statements that are
not historical are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Some of
the statements in this Annual Report constitute forward-looking
statements because they relate to future events or our future
performance or financial condition. Forward-looking statements
may include, among other things, statements as to our future
operating results, our business prospects and the prospects of
our portfolio companies, the impact of the investments that we
expect to make, the ability of our portfolio companies to
achieve their objectives, our expected financings and
investments, the adequacy of our cash resources and working
capital, and the timing of cash flows, if any, from the
operations of our portfolio companies. Words such as
expect, anticipate, target,
goals, project, intend,
plan, believe, seek,
estimate, continue,
forecast, may, should,
potential, variations of such words, and similar
expressions indicate a forward-looking statement, although not
all forward-looking statements include these words. Readers are
cautioned that the forward-looking statements contained in this
Annual Report are only predictions, are not guarantees of future
performance, and are subject to risks, events, uncertainties and
assumptions that are difficult to predict. Our actual results
could differ materially from those implied or expressed in the
forward-looking statements for any reason, including the factors
discussed in Item 1A entitled Risk Factors in
Part I of this Annual Report and elsewhere in this Annual
Report. Other factors that could cause actual results to differ
materially include changes in the economy, risks associated with
possible disruption in our operations or the economy generally
due to terrorism, and future changes in laws or regulations and
conditions in our operating areas. These statements are based on
our current expectations, estimates, forecasts, information and
projections about the industry in which we operate and the
beliefs and assumptions of our management as of the date of this
Annual Report. We assume no obligation to update or revise any
forward-looking statements, whether as a result of new
information, future events or otherwise, unless we are required
to do so by law. 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 in the future may file with the
SEC, including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
2
PART I
Formation
of Our Company
We are a Maryland corporation incorporated on October 10,
2006, for the purposes of acquiring 100% of the equity interests
in Triangle Mezzanine Fund LLLP (the Fund) and
its general partner, Triangle Mezzanine LLC (TML),
raising capital in our initial public offering, which was
completed in February 2007 (the Offering) and
thereafter operating as an internally managed business
development company (BDC) under the Investment
Company Act of 1940 (the 1940 Act). Unless otherwise
noted, the terms we, us, our
and Triangle refer to the Fund prior to the Offering
and to Triangle Capital Corporation and its subsidiaries,
including the Fund, after the Offering. At the time of closing
of the Offering, we consummated the following formation
transactions (Formation Transactions):
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We acquired 100% of the limited partnership interests in the
Fund, which became our wholly owned subsidiary, retained its
license by the United States Small Business Administration (the
SBA) to operate as a small business investment
company (an SBIC), continued to hold its existing
investments and to make new investments with the net proceeds of
the Offering.
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We acquired 100% of the equity interests in TML, the general
partner of the Fund.
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The Offering consisted of the sale of 4,770,000 shares of
our common stock at a price of $15.00 per share, resulting in
net proceeds to us of approximately $64.7 million after
deducting offering costs. As a result of the Offering and the
Formation Transactions described above, we and the Fund are
closed-end, non-diversified investment companies that have
elected to be treated as BDCs under the 1940 Act.
The following chart reflects graphically our organizational
structure after the Offering and consummation of the Formation
Transactions:
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(1) |
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Based on 6,686,760 shares of common stock outstanding
immediately after the Offering and consummation of the Formation
Transactions. |
Our headquarters are in Raleigh, North Carolina, and our
Internet address is www.tcap.com. We are not including the
information contained on our website as a part of, or
incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge through our website our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and amendments to these reports, as soon as reasonably
practicable after we electronically file such material with, or
furnish such material to,
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the Securities and Exchange Commission. Copies of this Annual
Report and other reports are also available without charge upon
written request to us.
Overview
of our Business
We are 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 has annual
revenues between $20.0 and $75.0 million and annual
earnings before interest, taxes, depreciation and amortization
(EBITDA) between $2.0 and $10.0 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 the Fund as an SBIC 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, 2007, we had investments in 26 portfolio
companies, with an aggregate cost of $107.2 million.
Our
Business Strategy
We seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments by:
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Focusing on Underserved Markets. We believe
that broad-based consolidation in the financial services
industry coupled with operating margin and growth pressures have
caused financial institutions to de-emphasize services to lower
middle market companies in favor of larger corporate clients and
capital market transactions. We believe these dynamics have
resulted in the financing market for lower middle market
companies to be underserved, providing us with greater
investment opportunities.
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Providing Customized Financing Solutions. We
offer a variety of financing structures and have the flexibility
to structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt
securities, coupled with equity interests. We believe our
ability to customize financing arrangements makes us an
attractive partner to lower middle market companies.
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Leveraging the Experience of Our Management
Team. Our senior management team has 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 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,
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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 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 diversify across various industries. We monitor our
investment portfolio to ensure we have acceptable
diversification, using industry and market metrics as key
indicators. By monitoring our investment portfolio for
diversification 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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Investments
Debt
Investments
We tailor the terms of our debt investments to the facts and
circumstances of each transaction and prospective portfolio
company, negotiating a structure that seeks to protect our
rights and manage our risk while creating incentives for the
portfolio company to achieve its business plan. To that end, we
typically seek board observation rights with each of our
portfolio companies and offer managerial assistance. We also
seek to limit the downside risks of our investments by
negotiating covenants that are designed to protect our
investments while affording our portfolio companies as much
flexibility in managing their businesses as possible. Such
restrictions may include affirmative and negative covenants,
default penalties, lien protection, change of control provisions
and put rights. We typically add a prepayment penalty structure
to enhance our total return on our investments.
We typically invest in senior secured debt and subordinated
notes. Senior subordinated notes are junior to senior secured
debt but senior to other series of subordinated notes. Our
senior secured debt investments and subordinated note
investments generally have terms of three to seven years. Our
senior secured debt investments generally provide for variable
interest at rates ranging from LIBOR plus 300 basis points
to LIBOR plus 400 basis points and our subordinated debt
investments generally provide for fixed interest rates between
12.0% and 19.0% per annum. Our subordinated note investments
generally are secured by a second priority security interest in
the assets of the borrower and generally include an equity
component, such as warrants to purchase common stock in the
portfolio company. In addition, certain loan investments may
have a form of interest that is not paid currently but is
accrued and added to the loan balance and paid at the end of the
term, referred to as payment in kind, or PIK interest. In our
negotiations with potential portfolio companies, we generally
seek to minimize PIK interest as we have to pay out such accrued
interest as dividends to our stockholders, and we may have to
borrow money or raise additional capital in order to meet the
requirement of having to pay out at least 90.0% of our income to
continue to qualify as a Regulated
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Investment Company, or RIC, for federal tax purposes. At
December 31, 2007, the weighted average yield on all of our
outstanding debt investments was approximately 13.9%.
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
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 $2.0 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 a management team with these attributes is
more likely to manage the portfolio company in a manner that
enhances the value of our 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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Diversified Customer and Supplier Base. We
prefer to invest in companies that have a diversified customer
and supplier base. Companies with a diversified 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 embedded equity or
franchise value.
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Investment
Process
Our investment committee is responsible for all aspects of our
investment process. The members of our investment committee are
Messrs. Garland S. Tucker III, Brent P.W. Burgess, Steven
C. Lilly, Tarlton H. Long, and David F. Parker. Our investment
committee meets once a week but also meets on an as needed basis
depending on transaction volume. Our investment committee has
organized our investment process into five distinct stages:
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Origination
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Due Diligence and Underwriting
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Approval
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Documentation and Closing
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Portfolio Management and Investment Monitoring
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Our investment process is summarized in the following chart:
Origination
The origination process for our investments includes sourcing,
screening, preliminary due diligence, transaction structuring,
and negotiation. Our origination process ultimately leads to the
issuance of a non-binding term sheet. Investment origination is
conducted by our eight investment professionals who are
responsible for sourcing potential investment opportunities. Our
investment professionals utilize their extensive relationships
with various financial sponsors, entrepreneurs, attorneys,
accountants, investment bankers and other non-bank providers of
capital to source transactions with prospective portfolio
companies.
If a transaction meets our investment criteria, we perform
preliminary due diligence, taking into consideration some or all
of the following factors:
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A comprehensive financial model that we prepare based on
quantitative analysis of historical financial performance,
financial projections and pro forma financial ratios assuming
investment;
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Competitive landscape surrounding the potential investment;
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Strengths and weaknesses of the potential investments
business strategy and industry;
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Results of a broad qualitative analysis of the companys
products or services, market position, market dynamics and
customers and suppliers; and
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Potential investment structures, certain financing ratios and
investment pricing terms.
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If the results of our preliminary due diligence are
satisfactory, the origination team prepares a Summary
Transaction Memorandum which is presented to our investment
committee. If our investment committee recommends moving
forward, we issue a non-binding term sheet to the potential
portfolio company. Upon execution of a term sheet, we begin our
formal due diligence and underwriting process as we move toward
investment approval.
Due
Diligence and Underwriting
Our due diligence on a prospective investment is completed by a
minimum of two investment professionals, which we define as the
underwriting team. The members of the underwriting team work
together to conduct due diligence and to understand the
relationships among the prospective portfolio companys
business plan, operations and financial performance through
various methods, including, among others,
on-site
visits with management, in-depth review of historical and
projected financial data, interviews with customers and
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suppliers, management background checks, third-party accounting
reports and review of any material contracts.
In most circumstances, we utilize outside experts to review the
legal affairs, accounting systems and results, and, where
appropriate, we engage specialists to investigate issues like
environmental matters and general industry outlooks. During the
underwriting process, significant attention is given to
sensitivity analyses and how companies might be expected to
perform in a protracted downside operating
environment. In addition, we analyze key financing ratios and
other industry metrics, including total debt to EBITDA, EBITDA
to fixed charges, EBITDA to total interest expense, total debt
to total capitalization and total senior debt to total
capitalization.
Upon completion of a satisfactory due diligence review and as
part of our evaluation of a proposed investment, the
underwriting team prepares an Investment Memorandum for
presentation to our investment committee. The Investment
Memorandum includes information about the potential portfolio
company such as its history, business strategy, potential
strengths and risks involved, analysis of key customers and
suppliers, working capital analysis, third party consultant
findings, expected returns on investment structure, anticipated
sources of repayment and exit strategies, analysis of historical
financials, and potential capitalization and ownership.
Approval
The underwriting team for the proposed investment presents the
Investment Memorandum to our investment committee for
consideration and approval. After reviewing the Investment
Memorandum, members of the investment committee may request
additional due diligence or modify the proposed financing
structure or terms of the proposed investment. Before we proceed
with any investment, the investment committee must approve the
proposed investment. Upon receipt of transaction approval, the
involved investment professionals proceed to document and, upon
satisfaction of applicable closing conditions, fund the
investment.
Documentation
and Closing
The underwriting team is responsible for leading the negotiation
of all documentation related to investment closings. We also
rely on law firms with whom we have worked on multiple
transactions to help us complete the necessary documentation
associated with transaction closings. If a transaction changes
materially from what was originally approved by the investment
committee, the underwriting team requests a formal meeting of
the investment committee to communicate the contemplated
changes. The investment committee has the right to approve the
amended transaction structure, to suggest alternative structures
or not to approve the contemplated changes.
Portfolio
Management and Investment Monitoring
Our investment professionals generally employ several methods of
evaluating and monitoring the performance of our portfolio
companies, which, depending on the particular investment, may
include the following specific processes, procedures and reports:
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Monthly and quarterly review of actual financial performance
versus the corresponding period of the prior year and financial
projections;
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Monthly and quarterly monitoring of all financial and other
covenants;
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Review of senior lender loan compliance certificates, where
applicable;
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Quarterly review of operating results, and general business
performance, including the preparation of a portfolio monitoring
report which is distributed to members of our investment
committee;
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Periodic
face-to-face
meetings with management teams and financial sponsors of
portfolio companies;
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Attendance at portfolio company board meetings through board
seats or observation rights; and
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Application of our investment rating system to each investment.
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In the event that our investment committee determines that an
investment is underperforming, or circumstances suggest that the
risk associated with a particular investment has significantly
increased, we undertake more aggressive monitoring of the
affected portfolio company. The frequency of our monitoring of
an investment is determined by a number of factors, including,
but not limited to, the trends in the financial performance of
the portfolio company, the investment structure and the type of
collateral securing our investment, if any.
Investment
Rating System
We monitor a wide variety of key credit statistics that provide
information regarding our portfolio companies to help us assess
credit quality and portfolio performance. We generally require
our portfolio companies to provide annual audits in addition to
monthly and quarterly unaudited financial statements. Using
these statements, we calculate and evaluate certain financing
ratios. For purposes of analyzing the financial performance of
our portfolio companies, we may make certain adjustments to
their financial statements to reflect the pro forma results of a
company consistent with a change of control transaction, to
reflect anticipated cost savings resulting from a merger or
restructuring, costs related to new product development,
compensation to previous owners, and other acquisition or
restructuring related items.
As part of our valuation procedures we risk rate all of our
investments in debt securities. Our investment rating system
uses a scale of 0 to 10, with 10 being the lowest probability of
default and principal loss. This system is used to estimate the
probability of default on our debt securities and the
probability of loss if there is a default. The system is also
used to assist us in estimating the fair value of equity related
securities. These types of systems are referred to as risk
rating systems and are used by banks and rating agencies. Our
risk rating system covers both qualitative and quantitative
aspects of the business and the securities we hold.
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In connection with the monitoring of our portfolio companies,
each investment we hold is rated based upon the following
numeric investment rating system:
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Investment
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Rating
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Description
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10
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Investment is performing above original expectations and
possibly 30.0% or more above original projections provided by
the portfolio company. Investment has been positively influenced
by an unforeseen external event. Full return of principal and
interest is expected. Capital gain is expected.
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Investment is performing above original expectations and
possibly 30.0% or more above original projections provided by
the portfolio company. Investment may have been or is soon to be
positively influenced by an unforeseen external event. Full
return of principal and interest is expected. Capital gain is
expected.
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Investment is performing above original expectations and
possibly 21.0% to 30.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Capital gain is expected.
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Investment is performing above original expectations and
possibly 11.0% to 21.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Depending on age of transaction, potential for capital
gain exists.
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Investment is performing above original expectations and
possibly 5.0% to 11.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Depending on age of transaction, potential for capital
gain exists.
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5
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Investment is performing in line with expectations. Full return
of principal and interest is expected. Depending on age of
transaction, potential for nominal capital gain may be expected.
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4
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Investment is performing below expectations, but no covenant
defaults have occurred. Full return of principal and interest is
expected. Little to no capital gain is expected.
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3
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Investment is in default of transaction covenants but interest
payments are current. No loss of principal is expected.
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2
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Investment is in default of transaction covenants and interest
payments are not current. A principal loss of between 1.0% and
33.0% is expected.
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1
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Investment is in default of transaction covenants and interest
(and possibly principal) payments are not current. A principal
loss of between 34.0% and 67.0% is expected.
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0
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Investment is in default and a principal loss of between 68.0%
and 100.0% is expected.
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Valuation
Process and Determination of Net Asset Value
We determine the net asset value per share of our common stock
on a quarterly basis. 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.
Securities that are publicly traded, if any, are valued at the
closing price of the exchange or securities market on which they
are listed on the valuation date. Securities which are not
traded on a public exchange or securities market, but for which
a limited market exists, such as participations in syndicated
loans, are valued at the indicative bid price offered by the
syndication agent on the valuation date. As of December 31,
2007, none of the debt securities in our portfolio were publicly
traded or had a limited market, and there was a limited market
for one of the equity securities that we owned. Debt and equity
securities that are not publicly traded, for which a limited
market does not exist, or for which we have various degrees of
trading restrictions are valued at fair value as determined in
good faith by our board of directors.
Duff & Phelps, LLC (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. We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our shareholders best interest, to
request Duff & Phelps to perform the procedures on one
or
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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 included in
Item 7 of Part I of this Annual Report.
Determination of the fair value involves subjective judgments
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.
In making the good faith determination of the value of these
securities, we start with the cost basis of the security, which
includes the amortized original issue discount, and PIK
interest, if any. We prepare the valuations of our investments
in portfolio companies using the most recent portfolio company
financial statements and forecasts. We also consult with members
of the senior management team of each portfolio company to
obtain further updates on the portfolio companys
performance, including information such as industry trends, new
product development, and other operational issues. Due to the
uncertainty inherent in the valuation process, such estimates of
fair value may differ significantly from the values that would
have been obtained had a ready market for the securities
existed, and the differences could be material. Additionally,
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 debt securities that are not publicly traded or for which
there is no market, we begin with our investment rating of the
security as described under Investment Rating
System. Using this investment rating, we seek to determine
the value of the security as if we intended to sell the security
in a current sale. The factors that may be taken into account in
fairly valuing such security include, as relevant, the portfolio
companys ability to make payments, its estimated earnings
and projected discounted cash flows, the nature and realizable
value of any collateral, the financial environment in which the
portfolio company operates, comparisons to securities of similar
publicly traded companies, statistical ratios compared to
lending standards and to other similar securities and other
relevant factors.
For convertible debt, equity, success fees or other equity-like
securities that are not publicly traded or for which there is no
market, we use the same information we would use for a debt
security valuation described above, except risk-rating, as well
as valuation methodologies consistent with industry practices
used to value the equity securities of private companies. These
valuation methodologies consist of discounted cash flow of the
expected sale price in the future, valuation of the securities
based on recent sales in comparable transactions, and a review
of similar companies that are publicly traded and the market
multiple of their equity securities.
Due to the inherent uncertainty of determining the fair value of
investments that do not have a readily available market value,
the fair value of our investments may differ significantly from
the values that would have been used had a ready market existed
for such investments, and the differences could be material. 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 There may be
uncertainty as to the value of our portfolio investments.
Managerial
Assistance
As a BDC, we offer, and must provide upon request, managerial
assistance to certain of our portfolio companies. This
assistance typically involves, among other things, monitoring
the operations of our portfolio companies, participating in
board and management meetings, consulting with and advising
officers of portfolio companies and providing other
organizational and financial guidance. Our senior management
team provides such services. We believe, based on our management
teams combined experience at investment banks, specialty
finance companies, commercial banks, and operating in
executive-level capacities in various operating companies, we
offer this assistance effectively. We may receive fees for these
services.
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Competition
We compete for investments with a number of BDCs and investment
funds (including private equity funds, mezzanine funds and other
SBICs), as well as traditional financial services companies such
as commercial banks and other sources of financing. Many of
these entities have greater financial and managerial resources
than we do. We believe we compete with these entities primarily
on the basis of our willingness to make smaller investments, the
experience and contacts of our management team, our responsive
and efficient investment analysis and decision-making processes,
our comprehensive suite of customized financing solutions and
the investment terms we offer.
We believe that some of our competitors make senior secured
loans, junior secured loans and subordinated debt investments
with interest rates that are comparable to or lower than the
rates we offer. Therefore, we do not seek to compete primarily
on the interest rates we offer to potential portfolio companies.
Our competitors also do not always require equity components in
their investments. For additional information concerning the
competitive risks we face, see Risk Factors We
operate in a highly competitive market for investment
opportunities.
Brokerage
Allocation and Other Practices
Since we generally acquire and dispose of our investments in
privately negotiated transactions, we infrequently use brokers
in the normal course of our business. Our management team is
primarily responsible for the execution of the publicly traded
securities portion of our portfolio transactions and the
allocation of brokerage commissions. We do not expect to execute
transactions through any particular broker or dealer, but will
seek to obtain the best net results for us, taking into account
such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of
execution, and operational facilities of the firm and the
firms risk and skill in positioning blocks of securities.
While we will generally seek reasonably competitive trade
execution costs, we will not necessarily pay the lowest spread
or commission available. Subject to applicable legal
requirements, we may select a broker based partly upon brokerage
or research services provided to us. In return for such
services, we may pay a higher commission than other brokers
would charge if we determine in good faith that such commission
is reasonable in relation to the services provided. We did not
pay any brokerage commissions during the year ended
December 31, 2007.
Dividend
Reinvestment Plan
We have adopted a dividend reinvestment plan that provides for
reinvestment of our distributions on behalf of our stockholders,
unless a stockholder elects to receive cash as provided below.
As a result, if our board of directors authorizes, and we
declare, a cash dividend, then our stockholders who have not
opted out of our dividend reinvestment plan will
have their cash dividends automatically reinvested in additional
shares of our common stock, rather than receiving the cash
dividends.
No action will be required on the part of a registered
stockholder to have their cash dividend reinvested in shares of
our common stock. A registered stockholder may elect to receive
an entire dividend in cash by notifying The Bank of New York
Mellon, the Plan Administrator and our transfer
agent and registrar, in writing so that such notice is received
by the plan administrator no later than the record date for
dividends to stockholders. The plan administrator will set up an
account for shares acquired through the plan for each
stockholder who has not elected to receive dividends in cash and
hold such shares in non-certificated form. Upon request by a
stockholder participating in the plan, received in writing not
less than 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.
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We intend to use primarily newly issued shares to implement the
plan, so long as our shares are trading at or above net asset
value. If our shares are trading below net asset value, we
intend to purchase shares in the open market in connection with
our implementation of the plan. If we use newly issued shares to
implement the plan, the number of shares to be issued to a
stockholder is determined by dividing the total dollar amount of
the dividend payable to such stockholder by the market price per
share of our common stock at the close of regular trading on the
Nasdaq Global Market on the dividend payment date. Market price
per share on that date will be the closing price for such shares
on the Nasdaq Global Market or, if no sale is reported for such
day, at the average of their reported bid and asked prices. If
we purchase shares in the open market to implement the plan, the
number of shares to be issued to a stockholder is determined by
dividing the total dollar amount of the dividend payable to such
stockholder by the average price per share for all shares
purchased by the Plan Administrator in the open market in
connection with the dividend. The number of shares of our common
stock to be outstanding after giving effect to payment of the
dividend cannot be established until the value per share at
which additional shares will be issued has been determined and
elections of our stockholders have been tabulated.
There will be no brokerage charges or other charges to
stockholders who participate in the plan. We will pay the plan
administrators fees under the plan. If a participant
elects by written notice to the plan administrator to have the
plan administrator sell part or all of the shares held by the
plan administrator in the participants account and remit
the proceeds to the participant, the plan administrator is
authorized to deduct a $15.00 transaction fee plus a $0.10 per
share brokerage commissions from the proceeds.
Stockholders who receive dividends in the form of stock
generally are subject to the same federal, state and local tax
consequences as are stockholders who elect to receive their
dividends in cash. A stockholders basis for determining
gain or loss upon the sale of stock received in a dividend from
us will be equal to the total dollar amount of the dividend
payable to the stockholder. Any stock received in a dividend
will have a holding period for 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.
Employees
At December 31, 2007, we employed eleven 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.
Election
to be Regulated as a Business Development Company and Regulated
Investment Company
In connection with the Offering, both we and the Fund filed
elections to be regulated as BDCs under the 1940 Act. In
addition, we intend to elect to be treated as a RIC under
Subchapter M of the Internal Revenue Code of 1986, as amended
(the Code). Our election to be regulated as a BDC
and our election to be treated as a RIC will have a significant
impact on our future operations. Some of the most important
effects on our
13
future operations of our election to be regulated as a BDC and
our election to be treated as a RIC are outlined below.
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We report our investments at market value or fair value with
changes in value reported through our statement of
operations.
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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 by our board of directors. Changes in these values
are reported through our statement of operations under the
caption of net unrealized appreciation (depreciation) of
investments. See Valuation Process and Determination
of Net Asset Value above.
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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).
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We intend to elect to be treated as a RIC under Subchapter M of
the Code. As a RIC, so long as we meet certain minimum
distribution,
source-of-income
and asset diversification requirements, we generally are
required to pay income taxes only on the portion of our taxable
income and gains we do not distribute (actually or
constructively) and certain built-in gains. Any capital gains we
recognized prior to the effective date of our election to be
taxed as a RIC will, when distributed to our shareholders, be
taxed as ordinary income and not as capital gains, as would have
been the case had we been taxed as a RIC as of the date of the
Offering. However, such distribution may qualify for taxation at
reduced rates applicable to qualifying dividend income.
In addition, we have certain wholly owned taxable subsidiaries
(the Taxable Subsidiaries), each of which holds one
or more of our portfolio investments that are listed on the
Consolidated Schedule of Investments. The Taxable Subsidiaries
are consolidated for GAAP purposes, such that our consolidated
financial statements reflect our investments in the portfolio
companies owned by the Taxable Subsidiaries. The purpose of the
Taxable Subsidiaries is to permit us to hold 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 our ability to qualify as a RIC and therefore cause
us to incur significant amounts of federal income taxes. Where
the LLCs (or other pass-through entities) are owned by the
Taxable Subsidiaries, however, their income 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
income tax purposes and may generate income tax expense as a
result of their ownership of the portfolio companies. This
income tax expense, if any, is reflected in our Statement of
Operations.
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Our ability to use leverage as a means of financing our
portfolio of investments will be limited.
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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 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 will be limited by this asset
coverage test.
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We intend to distribute substantially all of our income to
our stockholders.
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As a RIC, we intend to distribute to our stockholders
substantially all of our income, except for certain net
long-term capital gains. We may make deemed distributions to our
stockholders of any retained net long-term capital gains. If
this happens, our shareholders will be treated as if they
received an actual distribution of the capital gains and
reinvested the net after-tax proceeds in us. Our shareholders
also may be eligible to claim a tax credit (or, in certain
circumstances, a tax refund) equal to their allocable
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share of the tax we pay on the deemed distribution. See
Material U.S. Federal Income Tax Considerations.
Exemptive
Relief
We have filed a request with the SEC for exemptive relief to
allow us to engage in certain transactions with the Fund that
otherwise would be permitted if we and the Fund were one
company. In addition, we have requested that the SEC allow us to
exclude any indebtedness guaranteed by the SBA and issued by the
Fund from the 200.0% asset coverage requirements applicable to
us. While the SEC has granted exemptive relief in substantially
similar circumstances in the past, no assurance can be given
that an exemptive order will be granted.
Under current SEC rules and regulations, BDCs may not grant
options or restricted stock to directors who are not officers or
employees of the business development company. We have applied
for exemptive relief from the SEC to permit us to grant
restricted stock to our independent directors as a portion of
their compensation for service on our Board of Directors.
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. As a
result, we have applied for exemptive relief from the SEC to
permit us to grant restricted stock in exchange for or in
recognition of services by our executive officers and employees.
We cannot provide any assurance that we will receive the
exemptive relief from the SEC in either case.
Regulation
of Business Development Companies
The following is a general summary of the material regulatory
provisions affecting BDCs generally. It does not purport to be a
complete description of all of the laws and regulations
affecting BDCs.
Both we and the Fund have elected to be regulated as BDCs under
the 1940 Act. The 1940 Act contains prohibitions and
restrictions relating to transactions between BDCs and their
affiliates, principal underwriters and affiliates of those
affiliates or underwriters. The 1940 Act requires that a
majority of the directors be persons other than interested
persons, as that term is defined in the 1940 Act. In
addition, the 1940 Act provides that we may not change the
nature of our business so as to cease to be, or to withdraw our
election as, a BDC unless approved by a majority of our
outstanding voting securities.
The 1940 Act defines a majority of the outstanding voting
securities as the lesser of (i) 67.0% or more of the
voting securities present at a meeting if the holders of more
than 50.0% of our outstanding voting securities are present or
represented by proxy, or (ii) 50.0% of our voting
securities.
Qualifying
Assets
Under the 1940 Act, a BDC may not acquire any asset other than
assets of the type listed in Section 55(a) of the 1940 Act,
which are referred to as qualifying assets, unless, at the time
the acquisition is made, qualifying assets represent at least
70.0% of the companys total assets. The principal
categories of qualifying assets relevant to our business are any
of the following:
(1) Securities purchased in transactions not involving any
public offering from the issuer of such securities, which issuer
(subject to certain limited exceptions) is an eligible portfolio
company, or from any person who is, or has been during the
preceding 13 months, an affiliated person of an eligible
portfolio company, or from any other person, subject to such
rules as may be prescribed by the SEC. An eligible portfolio
company is defined in the 1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal
place of business in, the United States;
(b) is not an investment company (other than a small
business investment company wholly owned by the BDC) or a
company that would be an investment company but for certain
exclusions under the 1940 Act; and
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(c) satisfies any of the following:
(i) does not have any class of securities that is traded on
a national securities exchange;
(ii) is controlled by a BDC or a group of companies
including a BDC and the BDC has an affiliated person who is a
director of the eligible portfolio company; or
(iii) is a small and solvent company having total assets of
not more than $4.0 million and capital and surplus of not
less than $2.0 million.
(2) Securities of any eligible portfolio company that we
control.
(3) Securities purchased in a private transaction from a
U.S. issuer that is not an investment company or from an
affiliated person of the issuer, or in transactions incident
thereto, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the
purchase of its securities was unable to meet its obligations as
they came due without material assistance other than
conventional lending or financing arrangements.
(4) Securities of an eligible portfolio company purchased
from any person in a private transaction if there is no ready
market for such securities and we already own 60.0% of the
outstanding equity of the eligible portfolio company.
(5) Securities received in exchange for or distributed on
or with respect to securities described in (1) through
(4) above, or pursuant to the exercise of warrants or
rights relating to such securities.
(6) Cash, cash equivalents, U.S. government securities
or high-quality debt securities maturing in one year or less
from the time of investment.
In addition, a BDC must have been organized and have its
principal place of business in the United States and must be
operated for the purpose of making investments in the types of
securities described in (1), (2) or (3) above.
Managerial
Assistance to Portfolio Companies
In order to count portfolio securities as qualifying assets for
the purpose of the 70.0% test, we must either control the issuer
of the securities or must offer to make available to the issuer
of the securities (other than small and solvent companies
described above) significant managerial assistance; except that,
where we purchase such securities in conjunction with one or
more other persons acting together, one of the other persons in
the group may make available such managerial assistance. Making
available managerial assistance means, among other things, any
arrangement whereby the BDC, through its directors, officers or
employees, offers to provide, and, if accepted, does so provide,
significant guidance and counsel concerning the management,
operations or business objectives and policies of a portfolio
company.
Temporary
Investments
Pending investment in other types of qualifying
assets, as described above, our investments may consist of
cash, cash equivalents, U.S. government securities or
high-quality debt securities maturing in one year or less from
the time of investment, which we refer to, collectively, as
temporary investments, so that 70.0% of our assets are
qualifying assets. Typically, we will invest in
U.S. Treasury bills or in repurchase agreements, provided
that such agreements are fully collateralized by cash or
securities issued by the U.S. Government or its agencies. A
repurchase agreement involves the purchase by an investor, such
as us, of a specified security and the simultaneous agreement by
the seller to repurchase it at an
agreed-upon
future date and at a price that is greater than the purchase
price by an amount that reflects an
agreed-upon
interest rate. There is no 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.
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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 upon our
election to be treated as a RIC, we will continue to need
additional capital to finance our growth, and regulations
governing our operation as a business development company will
affect our ability to, and the way in which we, raise additional
capital.
Code
of Ethics
We have adopted the Code of Conduct for Triangle Capital
Corporation and Triangle Mezzanine Fund LLLP, a code of
ethics pursuant to
Rule 17j-1
under the 1940 Act, that establishes procedures for personal
investments and restricts certain personal securities
transactions. Personnel subject to the code may invest in
securities for their personal investment accounts, including
securities that may be purchased or held by us, so long as such
investments are made in accordance with the codes
requirements. For information on how to obtain a copy of the
code of ethics, see Available Information.
Proxy
Voting Policies and Procedures
We vote proxies relating to our portfolio securities in the best
interest of our stockholders. We review on a
case-by-case
basis each proposal submitted to a stockholder vote to determine
its impact on the portfolio securities held by us. Although we
generally vote against proposals that may have a negative impact
on our portfolio securities, we may vote for such a proposal if
there exists compelling long-term reasons to do so.
Our proxy voting decisions are made by the investment
professionals who are responsible for monitoring each of our
investments. To ensure that our vote is not the product of a
conflict of interest, we require that: (i) anyone involved
in the decision making process disclose to our chief compliance
officer any potential conflict that he or she is aware of and
any contact that he or she has had with any interested party
regarding a proxy vote; and (ii) employees involved in the
decision making process or vote administration are prohibited
from revealing how we intend to vote on a proposal in order to
reduce any attempted influence from interested parties.
Stockholders may 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, 3600 Glenwood Avenue, Suite 104,
Raleigh, North Carolina 27612.
Other
We may also be prohibited under the 1940 Act from knowingly
participating in certain transactions with our affiliates
without the prior approval of our board of directors who are not
interested persons and, in some cases, prior approval by the SEC.
We will be periodically examined by the SEC for compliance with
the 1940 Act.
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.
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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
The Fund is licensed by the Small Business Administration to
operate as a Small Business Investment Company under
Section 301(c) of the Small Business Investment Act of
1958. The Fund is a wholly-owned subsidiary of us, holds its
SBIC license and has also elected to be a BDC. The Fund
initially obtained its SBIC license on September 11, 2003.
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. The Fund has typically
invested in senior and subordinated debt, acquired warrants
and/or made
equity investments in qualifying small businesses.
Under present SBA regulations, eligible small businesses
generally include businesses that (together with their
affiliates) have a tangible net worth not exceeding
$18.0 million and have average annual net income after
Federal income taxes not exceeding $6.0 million (average
net income to be computed without benefit of any carryover loss)
for the two most recent fiscal years. In addition, an SBIC must
devote 20.0% of its investment activity to smaller
concerns as defined by the SBA. A smaller concern generally
includes businesses that have a tangible net worth not exceeding
$6.0 million and have average annual net income after
Federal income taxes not exceeding $2.0 million (average
net income to be computed without benefit of any net carryover
loss) for the two most recent fiscal years. SBA regulations also
provide alternative size standard criteria to determine
eligibility for designation as an eligible small business or
smaller concern, which criteria depend on the industry in which
the business is engaged and are based on such factors as the
number of employees and gross revenue. However, once an SBIC has
invested in a company, it may continue to make follow on
investments in the company, regardless of the size of the
portfolio company at the time of the follow on investment, up to
the time of the portfolio companys initial public offering.
The SBA prohibits an SBIC from providing funds to small
businesses for certain purposes, such as relending and
investment outside the United States, to businesses engaged in a
few prohibited industries, and to certain passive
(non-operating) companies. In addition, without prior SBA
approval, an SBIC may not invest an amount equal to more than
20.0% of the SBICs regulatory capital in any one portfolio
company.
The SBA places certain limitations on the financing terms of
investments by SBICs in portfolio companies (such as limiting
the permissible interest rate on debt securities held by an SBIC
in a portfolio company). Although prior regulations prohibited
an SBIC from controlling a small business concern except in
limited circumstances, regulations adopted by the SBA in 2002
now allow an SBIC to exercise control over a small business for
a period of seven years from the date on which the SBIC
initially acquires its control position. This control period may
be extended for an additional period of time with the SBAs
prior written approval.
The SBA restricts the ability of an SBIC to lend money to any of
its officers, directors and employees or to invest in affiliates
thereof. The SBA also prohibits, without prior SBA approval, a
change of control of an SBIC or transfers that would
result in any person (or a group of persons acting in concert)
owning 10.0% or more of a class of capital stock of a licensed
SBIC. A change of control is any event which would
result in the transfer of the power, direct or indirect, to
direct the management and policies of an SBIC, whether through
ownership, contractual arrangements or otherwise.
An SBIC (or group of SBICs under common control) may generally
have outstanding debentures guaranteed by the SBA in amounts up
to twice 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, 2007, we had issued
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$37.0 million of SBA-guaranteed debentures, which had an
annual weighted average interest rate of 5.83%. As of
December 31, 2007, SBA regulations limited the dollar
amount of outstanding SBA-guaranteed debentures that may be
issued by any one SBIC (or group of SBICs under common control)
to $130.6 million (which amount is subject to increase on
an annual basis based on cost of living increases). With
$63.3 million of regulatory capital as of December 31,
2007, we have the current capacity to issue up to a total of
$126.5 million of SBA-guaranteed debentures.
SBICs must invest idle funds that are not being used to make
loans in investments permitted under SBA regulations in the
following limited types of securities: (i) direct
obligations of, or obligations guaranteed as to principal and
interest by, the United States government, which mature within
15 months from the date of the investment;
(ii) repurchase agreements with federally insured
institutions with a maturity of seven days or less (and the
securities underlying the repurchase obligations must be direct
obligations of or guaranteed by the federal government);
(iii) certificates of deposit with a maturity of one year
or less, issued by a federally insured institution; (iv) a
deposit account in a federally insured institution that is
subject to a withdrawal restriction of one year or less;
(v) a checking account in a federally insured institution;
or (vi) a reasonable petty cash fund.
SBICs are periodically examined and audited by the SBAs
staff to determine its compliance with SBIC regulations and are
periodically required to file certain forms with the SBA.
Neither the SBA nor the U.S. government or any of its
agencies or officers has approved any ownership interest to be
issued by us or any obligation that we or any of our
subsidiaries may incur.
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 such an investment. For example, we have not
described tax consequences 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, and
financial institutions. This summary assumes that investors hold
our common stock as capital assets (within the meaning of the
Code). This discussion is based upon the Code, Treasury
regulations, and administrative and judicial interpretations,
each as of the date of this Annual Report on
Form 10-K
and all of which are subject to change, possibly retroactively,
which could affect the continuing validity of this discussion.
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.
A U.S. stockholder generally is a beneficial
owner of shares of our common stock who 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 political
subdivision thereof;
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A trust if a court within the United States is asked to exercise
primary supervision over the administration of the trust and one
or more United States persons have the authority to control all
substantive decisions of the trust; or
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A trust or an estate, the income of which is subject to
U.S. federal income taxation regardless of its source.
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A
Non-U.S. stockholder
is a beneficial owner of shares of our common stock that is not
a U.S. stockholder.
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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 in the partnership
will generally depend upon the status of the partner and the
activities of the partnership. A prospective stockholder that is
a partner of 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 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
As a BDC, we intend to elect to be treated as a RIC under
Subchapter M of the Code effective January 1, 2007. As a
RIC, we generally will not have to pay corporate-level federal
income taxes on any income that we distribute to our
stockholders as dividends. 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
90.0% of our investment company taxable income,
which is generally our net ordinary income plus the excess of
realized net short-term capital gains over realized net
long-term capital losses (the Annual Distribution
Requirement).
Taxation
as a RIC
If we qualify as a RIC and satisfy the Annual Distribution
Requirement, then we will not be subject to federal income tax
on the portion of our income we distribute (or are deemed to
distribute) to stockholders. We will be subject to
U.S. federal income tax at the regular corporate rates on
any income or capital gains not distributed (or deemed
distributed) to our stockholders.
We will be subject to a 4.0% nondeductible federal excise tax on
certain undistributed income unless we distribute in a timely
manner an amount at least equal to the sum of (1) 98.0% of
our net ordinary income for each calendar year, (2) 98.0%
of our capital gain net income for the one-year period ending
October 31 in that calendar year and (3) any income
recognized, but not distributed, in preceding years (the
Excise Tax Avoidance Requirement). 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 federal income tax purposes, we
must, among other things:
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continue to qualify as a BDC under the 1940 Act at all times
during each taxable year;
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derive in each taxable year at least 90.0% of our gross income
from dividends, interest, payments with respect to certain
securities, loans, gains from the sale of stock or other
securities, or other income derived with respect to our business
of investing in such stock or securities (the 90.0% 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 50.0% 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 5.0% of the value of our
assets or more than 10.0% of the outstanding voting securities
of the issuer; and
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no more than 25.0% of the value of our assets is invested in the
securities, other than U.S. government securities or
securities of other RICs, of one issuer or of two or more
issuers that are controlled, as determined under applicable
Internal Revenue Code rules, by us and that are engaged in the
same or similar or related trades or businesses (the
Diversification Tests).
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We may be required to recognize taxable income in 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 with
PIK 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 PIK interest and deferred loan
origination fees that are paid after origination of the loan or
are paid in non-cash compensation such as warrants or stock.
Because any original issue discount or other amounts accrued
will be included in our investment company taxable income for
the year of 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.
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 of Business Development Companies
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 the Excise
Tax Avoidance Requirement, we may make such dispositions at
times that, from an investment standpoint, are not advantageous.
The remainder of this discussion assumes that we qualify as a
RIC and have satisfied the Annual Distribution Requirement.
Taxation
of U.S. Stockholders
Distributions by us generally are taxable to
U.S. stockholders as ordinary income or capital gains.
Distributions of our investment company taxable
income (which is, generally, our net ordinary income plus
realized net short-term capital gains in excess of realized net
long-term capital losses) 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 non-corporate stockholders
(including individuals) are attributable to dividends from
U.S. corporations and certain qualified foreign
corporations, such distributions (Qualifying
Dividends) may be eligible for a maximum tax rate of
15.0%. In this regard, it is anticipated that distributions paid
by us will generally not be attributable to dividends and,
therefore, generally will not qualify for the 15.0% maximum rate
applicable to Qualifying Dividends. Distributions of our net
capital gains (which is generally our realized net long-term
capital gains in excess of realized net short-term capital
losses) properly designated by us as capital gain
dividends will be taxable to a U.S. stockholder as
long-term capital gains that are currently taxable at a maximum
rate of 15.0% in the case of individuals, trusts or estates,
regardless of the U.S. stockholders holding period
for his, her or its common stock and regardless of whether paid
in cash or reinvested in additional common stock. Distributions
in excess of our 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 gains to such
U.S. stockholder.
We may retain some or all of any future realized net long-term
capital gains in excess of realized net short-term capital
losses, but elect to designate such retained net capital gains
as deemed distributions. 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 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. Because we expect to pay tax on any retained capital gains
at our regular corporate tax rate, and because that rate is in
excess of the maximum rate currently payable by individuals on
long-term capital gains, the amount of tax that individual
U.S. stockholders will be treated as having paid will
exceed the tax they owe on the capital gain distribution and
such excess generally may be refunded or claimed as a credit
against the U.S. stockholders other U.S. federal
income tax obligations. The
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amount of the deemed distribution net of such tax will be added
to the U.S. stockholders cost basis for his, her or
its common stock. 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.
In any fiscal year, we may elect to make distributions to our
shareholders in excess of our taxable earnings for that fiscal
year. As a result, a portion of those distributions may be
deemed a return of capital to our shareholders.
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 such a 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.
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
economically it may represent a return of his, her or its
investment.
A 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 shares of our common
stock are purchased (whether through reinvestment of
distributions or otherwise) within 30 days before or after
the disposition.
In general, individual U.S. stockholders currently are
subject to a maximum federal income tax rate of 15.0% on their
net capital gain (i.e., the excess of realized net long-term
capital gains over realized net short-term capital losses),
recognized prior to January 1, 2011, including any
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 federal income
tax on net capital gain at the maximum 35.0% rate also applied
to ordinary income. Non-corporate stockholders with net capital
losses for a year (i.e., capital losses in excess of capital
gains) generally may deduct up to $3,000 of such losses against
their ordinary income each year; any net capital losses of a
non-corporate 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 losses for a year, but may carryback such losses for
three years or carryforward such losses for five years.
We will send to each of our U.S. stockholders, as promptly
as possible after the end of each calendar year, a notice
detailing, on a per share and per distribution basis, the
amounts includible in such U.S. stockholders taxable
income for such year as ordinary income and as long-term capital
gain. In addition, the federal tax status of each years
distributions generally will be reported to the Internal Revenue
Service (including the amount of dividends, if any, eligible for
the 15.0% maximum rate). Dividends paid by us generally will not
be eligible for the dividends-received deduction or the
preferential tax rate applicable to Qualifying Dividends because
our income generally will not consist of 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 federal income tax (backup
withholding) currently at a rate of 28.0% from all taxable
distributions to any non-corporate 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. Any
amount withheld under backup withholding is allowed as a credit
against the U.S. stockholders federal income tax
liability, provided that proper information is provided to the
IRS.
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
(including interest income and realized net short-term capital
gains in excess of realized long-term capital losses, which
generally would be free of withholding if paid to
Non-U.S. stockholders
directly) will be subject to withholding of federal tax at a
30.0% rate (or lower rate provided by an applicable treaty) to
the extent of our current and accumulated earnings and profits
unless an applicable exception applies. If the distributions are
effectively connected with a U.S. trade or business of the
Non-U.S. stockholder,
and, if an income tax treaty applies, attributable to a
permanent establishment in the United States, we will not be
required to withhold federal tax if the
Non-U.S. stockholder
complies with applicable certification and disclosure
requirements, although the distributions will be subject to
federal income tax at the rates applicable to U.S. persons.
(Special certification requirements apply to a
Non-U.S. stockholder
that is a foreign partnership or a foreign trust, and such
entities are urged to consult their own tax advisors.)
In addition, with respect to certain distributions made to
Non-U.S. stockholders
in our taxable years beginning after December 31, 2004 and
before January 1, 2008, no withholding was required and the
distributions generally were not subject to federal income tax
if (i) the distributions were properly designated in a
notice timely delivered to our stockholders as
interest-related dividends or short-term
capital gain dividends, (ii) the distributions were
derived from sources specified in the Code for such dividends
and (iii) certain other requirements were satisfied. None
of our distributions were designated as eligible for this
exemption from withholding.
Actual or deemed distributions of our net capital gains to a
Non-U.S. stockholder,
and gains realized by a
Non-U.S. stockholder
upon the sale of our common stock, will not be subject to
federal withholding tax and generally will not be subject to
federal income tax unless the distributions or gains, as the
case may be, are effectively connected with a U.S. trade or
business of the
Non-U.S. stockholder
and, if an income tax treaty applies, are attributable to a
permanent establishment maintained by the
Non-U.S. stockholder
in the United States.
If we distribute our net capital gains in the form of deemed
rather than actual distributions, a
Non-U.S. stockholder
will be entitled to a federal income tax credit or tax refund
equal to the stockholders allocable share of the tax we
pay on the capital gains 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 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 federal income tax return. For a
corporate
Non-U.S. stockholder,
distributions (both actual and deemed), and gains realized upon
the sale of our common stock that are effectively connected to a
U.S. trade or business may, under certain circumstances, be
subject to an additional branch profits tax at a
30.0% rate (or at a lower rate if provided for by an applicable
treaty). Accordingly, investment in the shares may not be
appropriate for a Non-U.S. stockholder.
A
Non-U.S. stockholder
who is a non-resident alien individual, and who is otherwise
subject to withholding of federal tax, may be subject to
information reporting and backup withholding of federal income
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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.
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 Qualify as a RIC
If we are unable to qualify for treatment as a RIC, we would be
subject to tax on all of our taxable income at regular corporate
rates, regardless of whether we make any distributions to our
stockholders. Distributions would not be required, and any
distributions would be taxable to our stockholders as ordinary
dividend income eligible for the 15.0% maximum rate to the
extent of our current and accumulated earnings and profits.
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.
Available
Information
We intend to make this Annual Report, as well as our quarterly
reports on
Form 10-Q,
our current reports on
Form 8-K
and, if applicable, amendments to those reports filed or
furnished pursuant to Section 13(a) of the Exchange Act,
publicly available on our website (www.tcap.com) without charge
as soon as reasonably practicable following our filing of such
reports with the Securities and Exchange Commission
(SEC). Our SEC reports can be accessed through the
investor relations section of our website. The information found
on our website is not part of this or any other report we file
with or furnish to the SEC. We assume no obligation to update or
revise any forward looking statements in this Annual Report or
in other reports filed with the SEC, whether as a result of new
information, future events or otherwise, unless we are required
to do so by law. A copy of this Annual Report and our other
reports is available without charge upon written request to
Investor Relations, Triangle Capital Corporation, 3600 Glenwood
Avenue, Suite 104, Raleigh, North Carolina 27612.
Further, a copy of this Annual Report is obtainable from the
SECs Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Information on the operation
of the Public Reference Room can be obtained by calling the SEC
at
1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy
and information statements and our other filings at www.sec.gov.
We have adopted the Code of Conduct for Triangle Capital
Corporation and Triangle Mezzanine Fund LLLP, a code of
ethics, which every employee is expected to observe. The Code of
Conduct for Triangle Capital Corporation and Triangle Mezzanine
Fund LLLP is publicly available on our website under
Corporate Governance at the following URL:
http://ir.tcap.com/governance.cfm and is included in this
Annual Report as Exhibit 14.1 attached hereto.
As indicated above in this Annual Report under
Forward-Looking Statements, those statements in this
Annual Report that are not historical facts may be
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Investing in our
common stock involves a number of significant risks. 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.
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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 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
identify, evaluate and monitor, and our ability to finance and
invest in, companies that meet our investment criteria. We
cannot assure you that we will 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 our recent Offering, 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 Annual Report, it could
negatively impact our ability to pay dividends and cause you to
lose all or part of your investment.
There
may be uncertainty as to the value of our portfolio
investments.
Under the 1940 Act, we will be 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
will value these securities quarterly at fair value as
determined in good faith by our board of directors based on
input from management. Our board of directors utilizes
Duff & Phelps, LLC (Duff &
Phelps), an independent valuation firm, to provide
third-party valuation consulting services to us, which consist
of certain limited procedures that we identify and request
Duff & Phelps to perform. 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 included in
Item 7 of Part I of this Annual Report.
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 flow 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
determination may cause our net asset value on a given date to
materially understate or overstate the value that we may
ultimately realize upon 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 investment
portfolio might warrant.
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In addition, we are currently analyzing the effect of the
adoption of SFAS No. 157
(SFAS No. 157), Fair Value
Measurements on our consolidated financial position,
including our net asset value, and results of operations. We
will adopt this statement on a prospective basis effective
January 1, 2008. Adoption of this statement could have a
material effect on our consolidated financial statements,
including our net asset value. However, the actual impact on our
consolidated financial statements in the period of adoption and
subsequent to the period of adoption cannot be determined at
this time as it will be influenced by the estimates of fair
value for that period and the number and amount of investments
we originate, acquire or exit. See Note 1 to our
consolidated financial statements.
We
operate in a highly competitive market for investment
opportunities.
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
banks and other sources of funding. 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 funds 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. 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. 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 lower middle market is underserved by traditional
commercial and investment banks, and generally has less access
to capital. A significant increase 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
will impose on us as a BDC.
We are
dependent upon our key investment personnel for our future
success.
We depend on the members of our senior management team,
particularly Garland S. Tucker III, Brent P.W. Burgess and
Steven C. Lilly. These employees 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. We have entered into employment
agreements with each of our executive officers.
Additionally, the increase in available capital for investment
resulting from our recent Offering requires that we seek out and
retain new investment and administrative personnel. We believe
our future success will depend, in part, on our ability to
identify, attract and retain sufficient numbers of highly
skilled employees. If we do not succeed in identifying,
attracting and retaining these personnel, we may not be able to
operate our business as we expect.
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.
26
We
have limited operating history as a business development company
or as a regulated investment company, which may impair your
ability to assess our prospects.
The Fund was formed in 2003 by certain members of our senior
management team. Prior to the Offering, however, we have not
operated, and our management team has no experience operating,
as a BDC under the 1940 Act or as a regulated investment company
under Subchapter M of the Code. As a result, we have no
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. If we
fail to operate our business so as to maintain our status as a
BDC or a RIC, our operating flexibility will be significantly
reduced.
The
Fund is licensed by the SBA, and therefore subject to SBA
regulations.
The Fund is licensed to act as a small business investment
company and is regulated by the SBA. Under current SBA
regulations, a licensed SBIC can provide capital to those
entities that have a tangible net worth not exceeding
$18.0 million and an average annual net income after
Federal income taxes not exceeding $6.0 million for the two
most recent fiscal years. In addition, a licensed SBIC must
devote 20.0% of its investment activity to those entities that
have a tangible net worth not exceeding $6.0 million and an
average annual net income after Federal income taxes not
exceeding $2.0 million for the two most recent fiscal
years. The SBA regulations also provide alternative size
standard criteria to determine eligibility, which depend on the
industry in which the business is engaged and are based on
factors such as the number of employees and gross sales. The SBA
regulations permit licensed SBICs to make long term loans to
small businesses, invest in the equity securities of such
businesses and provide them with consulting and advisory
services. 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. Compliance with
SBA requirements may cause the Fund, and us, as its 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 the Fund fails to comply
with applicable SBA regulations, the SBA could, depending on the
severity of the violation, limit or prohibit the Funds use
of debentures, declare outstanding debentures immediately due
and payable,
and/or limit
the Fund from making new investments. Such actions by the SBA
would, in turn, negatively affect us because the Fund is our
wholly owned subsidiary.
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 amounts invested and, therefore, increases the
risks associated with investing in us. The Fund issues 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 Funds assets 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 income to increase more than
it would without the leverage, while any decrease in our income
would cause net income to decline more sharply than it would
have had we not borrowed. Such a decline could negatively affect
our ability to make common stock dividend payments. Leverage is
generally considered a speculative investment technique.
On December 31, 2007, we had $37.0 million of
outstanding indebtedness guaranteed by the SBA, which had a
weighted average annualized interest cost of 5.83%.
27
Our ability to achieve our investment objectives 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 or
group of SBICs under common control to $130.6 million
(which amount is subject to increase on an annual basis based on
cost of living increases). Moreover, an SBIC may not borrow an
amount in excess of two times its regulatory capital. As of
December 31, 2007, the Fund had issued $37.0 million
in debentures guaranteed by the SBA. With $63.3 million of
regulatory capital as of December 31, 2007, we have the
current capacity to issue up to a total of $126.5 million
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.
Moreover, the Funds current status as an SBIC does not
automatically assure that the Fund will continue to receive
SBA-guaranteed debenture funding. Receipt of SBA leverage
funding is dependent upon the Fund continuing to be in
compliance with SBA regulations and policies and there being
funding available. 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
the Fund.
The debentures guaranteed by the SBA have a maturity of ten
years and require semi-annual payments of interest. The Fund
will need to generate sufficient cash flow to make required
interest payments on the debentures. If the Fund is unable to
meet its financial obligations under the debentures, the SBA, as
a creditor, will have a superior claim to the Funds assets
over our stockholders in the event we liquidate the Fund or the
SBA exercises its remedies under such debentures as the result
of a default by us.
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 will be our affiliate
for purposes of the 1940 Act and we will generally be 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.
28
We
have filed two applications with the SEC requesting exemptive
relief from certain provisions of the 1940 Act and the
Securities and Exchange Act of 1934.
The 1940 Act prohibits certain transactions between us, the Fund
and any affiliates without first obtaining an exemptive order
from the SEC. We have filed a request with the SEC for exemptive
relief to allow us to engage in certain transactions with the
Fund that otherwise would be permitted if we and the Fund were
one company. In addition, we have requested that the SEC allow
us to exclude any indebtedness guaranteed by the SBA and issued
by the Fund from the 200.0% asset coverage requirements
applicable to us. While the SEC has granted exemptive relief in
substantially similar circumstances in the past, no assurance
can be given that an exemptive order will be granted. Delays and
costs involved in obtaining necessary approvals may make certain
transactions impracticable or impossible to consummate, and
there is no assurance that the application for exemptive relief
will be granted by the SEC.
In addition, under current SEC rules and regulations, BDCs may
not grant options or restricted stock to directors who are not
officers or employees of the BDC. We have applied for exemptive
relief from the SEC to permit us to grant restricted stock to
our independent directors as a portion of their compensation for
service on our board of directors. 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. As a result, we have applied for
exemptive relief from the SEC to permit us to grant restricted
stock in exchange for or in recognition of services by our
executive officers and employees. We cannot provide any
assurance that we will receive the exemptive relief from the SEC
in either case.
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 and strategies
would have on our business, operating results and value of our
stock. However, the effects might be adverse, which could
negatively impact our ability to pay you dividends and cause you
to lose all or part of your investment. Moreover, we will have
significant flexibility in investing the net proceeds from our
recent Offering and may use the net proceeds from such Offering
in ways with which investors may not agree or for purposes other
than those currently contemplated.
We
will be subject to corporate-level income tax if we are unable
to qualify as a RIC under Subchapter M of the Code, which will
adversely affect our results of operations and financial
condition.
We intend to elect to be treated as a RIC under the Code, which
generally will allow us to avoid being subject to an
entity-level tax. To obtain and maintain RIC tax treatment under
the Code, we must meet the following annual distribution, income
source and asset diversification requirements.
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 realized net short-term
capital gains in excess of realized net long-term capital
losses, if any. We will be subject to a 4.0% nondeductible
federal excise tax, however, to the extent that we do not
satisfy certain additional minimum distribution requirements on
a calendar year basis. See Material U.S. Federal
Income Tax Considerations. 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 income tax.
The income source requirement will be satisfied if we obtain at
least 90.0% of our income for each year from dividends,
interest, gains from the sale of stock or securities or similar
sources. The asset diversification requirement will be satisfied
if we meet certain asset diversification requirements at the end
of each quarter of our taxable year. Failure to meet those
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
29
companies, and therefore will be relatively illiquid, any such
dispositions could be made at disadvantageous prices and could
result in substantial losses.
The diversification requirement will be satisfied if, at the end
of each quarter of the taxable year:
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at least 50.0% 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 5.0% of the value of our
assets or more than 10.0% of the outstanding voting securities
of the issuer; and
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no more than 25.0% of the value of our assets is invested in the
securities, other than U.S. government securities or
securities of other RICs, of one issuer or of two or more
issuers that are controlled, as determined under applicable
Internal Revenue Code rules, by us and that are engaged in the
same or similar or related trades or businesses.
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If we fail to qualify for or maintain RIC tax treatment for any
reason and are subject to corporate 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
not be able to pay you dividends, and our dividends may not grow
over time.
We have and intend to continue to pay quarterly dividends 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 dividends
or
year-to-year
increases in cash dividends. Our ability to pay dividends might
be harmed by, among other things, the risk factors described in
this Annual Report. In addition, the inability to satisfy the
asset coverage test applicable to us as a BDC can limit our
ability to pay dividends. All dividends 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, the
Funds 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 dividends to
our stockholders in the future.
We may
have difficulty paying our required distributions if we
recognize income before or without receiving cash representing
such income.
For federal income tax purposes, we will include in income
certain amounts that we have not yet received in cash, such as
original issue discount, which may arise if we receive warrants
in connection with the origination of a loan or possibly in
other circumstances, or contractual PIK interest, which
represents contractual interest added to the loan balance and
due at the end of the loan term. Such original issue discounts
or increases in loan balances as a result of contractual PIK
arrangements will be included in income before we receive any
corresponding cash payments. We also may be required to include
in income certain other amounts that we will not receive in cash.
Since, in certain cases, we may recognize income before or
without receiving cash representing such income, we may have
difficulty meeting the annual distribution requirement necessary
to obtain and maintain RIC tax treatment under the Code.
Accordingly, 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 reduce new investment originations 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. For additional
discussion regarding the tax implications of a RIC, please see
Material U.S. Federal Income Tax
Considerations Taxation as a Regulated Investment
Company.
The
Fund, as an SBIC, may be unable to make distributions to us that
may harm our ability to meet registered 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 the Fund. As all of
30
our investments are initially being made by the Fund, we will be
substantially dependent on the Fund for cash distributions to
enable us to meet the RIC distribution requirements. The Fund
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 the Fund to make certain
distributions to maintain our status as a RIC. We cannot assure
you that the SBA will grant such waiver and if the Fund is
unable to obtain a waiver, compliance with the SBA regulations
may result in loss of RIC status and a consequent imposition of
an entity-level tax on us.
Because
we intend to distribute substantially all of our income to our
stockholders upon our election to be treated as a RIC, 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 excise taxes, 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 become a RIC, which we may retain, pay
applicable 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
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 shares of 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. We have filed a request with the SEC for
exemptive relief to allow us to exclude any indebtedness
guaranteed by the SBA and issued by the Fund from the 200.0%
asset coverage requirements applicable to us. While the SEC has
granted exemptive relief in substantially similar circumstances
in the past, no assurance can be given that an exemptive order
will be granted. 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. In addition, as a BDC, we generally will not be
permitted to issue equity securities priced below net asset
value without stockholder approval. 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.
Changes
in laws or regulations governing our operations may adversely
affect our business or cause us to alter our business
strategy.
We 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 low-cost
leverage and, therefore, our competitive advantage over other
funds.
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 Annual Report 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.
31
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
Related 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 and may be unable to 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;
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may have shorter operating histories, narrower product lines,
smaller market shares
and/or
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. 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 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
32
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 may
not have the funds to make additional investments in our
portfolio companies.
We may not have the funds 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 subordinated debt 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, including
the extent to which we actually provided managerial assistance
to that portfolio company, a bankruptcy court might
recharacterize our debt investment and subordinate all or a
portion of our claim to that of other creditors. 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.
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 to portfolio companies will be
secured on a second priority basis by the same collateral
securing senior secured debt of such companies. The first
priority liens on the collateral will secure the portfolio
companys obligations under any outstanding senior debt and
may secure certain other future debt that may be permitted to be
incurred by the company under the agreements governing the
loans. The holders of obligations secured by the first priority
liens on the collateral will be entitled to receive proceeds
from any realization of the collateral to repay their
obligations in full before us. In addition, the value of the
collateral in the event of liquidation will depend on market and
economic conditions, the availability of buyers and other
factors. 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 the second
priority liens after payment in full of
33
all obligations secured by the first priority liens on the
collateral. Further, there is 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 the 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.
The rights we may have with respect to the collateral securing
the loans we make to our portfolio companies with senior debt
outstanding may also be limited pursuant to the terms of one or
more intercreditor agreements that we enter into with the
holders of senior debt. Under such an intercreditor agreement,
at any time that obligations that have the benefit of the first
priority liens are outstanding, any of the following actions
that may be taken in respect of the collateral will be at the
direction of the holders of the obligations secured by the first
priority liens: the ability to cause the commencement of
enforcement proceedings against the collateral; the ability to
control the conduct of such proceedings; the approval of
amendments to collateral documents; releases of liens on the
collateral; and waivers of past defaults under collateral
documents. We may not have the ability to control or direct such
actions, even if our rights are adversely affected.
We
generally will not control our portfolio
companies.
We do not, and do not expect to, control many 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.
Many of our portfolio companies may be susceptible to economic
slowdowns or recessions and may be unable to repay our debt
investments during these periods. Therefore, our non-performing
assets are likely to increase, and the value of our portfolio is
likely to decrease during these periods. Adverse economic
conditions also may decrease the value of collateral securing
some of our debt investments and the value of our equity
investments. Economic slowdowns or recessions could lead to
financial losses in our portfolio and a decrease in revenues,
net income and assets. 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. These events could prevent us from increasing
investments and harm our operating results.
Any
unrealized losses we experience on our loan portfolio may be an
indication of future realized losses, which could reduce our
income available for distribution.
As a BDC, we are required to carry our investments at market
value or, if no market value is ascertainable, at the fair value
as determined in good faith by our Board of Directors. Decreases
in the market values or fair values of our investments will be
recorded as unrealized depreciation. Any unrealized losses in
our loan portfolio could be an indication of a portfolio
companys inability to meet its repayment obligations to us
with respect to the affected loans. This could result in
realized losses in the future and ultimately in reductions of
our income available for distribution in future periods.
Defaults
by our portfolio companies will harm our operating
results.
A portfolio companys failure to satisfy financial or
operating covenants imposed by us or other lenders could lead to
defaults and, potentially, termination of its loans and
foreclosure on its secured assets, which could trigger
cross-defaults under other agreements and jeopardize a portfolio
companys ability to meet its obligations under the debt or
equity securities that we hold. We may incur expenses to the
extent necessary to
34
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 dividend rate which could reduce the value of our
common stock. Conversely, a decrease in interest rates may have
an adverse impact on our returns by requiring us to seek lower
yields on our debt investments and by increasing the risk that
our portfolio companies will prepay our debt investments,
resulting in the need to redeploy capital at potentially lower
rates.
We may
not realize gains from our equity investments.
Certain investments that we have made in the past and may make
in the future include warrants or other equity securities.
Investments in equity securities involve a number of significant
risks, including the risk of further dilution as a result of
additional issuances, inability to access additional capital and
failure to pay current distributions. Investments in preferred
securities involve special risks, such as the risk of deferred
distributions, credit risk, illiquidity and limited voting
rights. In addition, we may from time to time make non-control,
equity co-investments in companies in conjunction with private
equity sponsors. Our goal is ultimately to realize gains upon
our disposition of such equity interests. However, the equity
interests we receive may not appreciate in value and, in fact,
may decline in value. Accordingly, we may not be able to realize
gains from our equity interests, and any gains that we do
realize on the disposition of any equity interests may not be
sufficient to offset any other losses we experience. We also may
be unable to realize any value if a portfolio company does not
have a liquidity event, such as a sale of the business,
recapitalization or public offering, which would allow us to
sell the underlying equity interests. We often seek puts or
similar rights to give us the right to sell our equity
securities back to the portfolio company issuer. We may be
unable to exercise these puts rights for the consideration
provided in our investment documents if the issuer is in
financial distress.
Risks
Relating to Our Common Stock
Shares
of closed-end investment companies, including BDCs, may trade at
a discount to their net asset value.
Shares of closed-end investment companies, including BDCs, may
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 always
trade at, above or below net asset value. In addition, if our
common stock trades below its net asset value, we will
35
generally not be able to issue additional shares of our common
stock at its market price without first obtaining the approval
of our stockholders and our independent directors.
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.
The market price and liquidity of the market for shares of 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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loss of RIC status or the Funds 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 revenue or net income or any increase in losses
from levels expected by investors or securities analysts;
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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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Provisions
of the Maryland General Corporation Law and our articles of
incorporation 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 articles of
incorporation 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 articles of incorporation provide 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
articles of incorporation permit 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.
Subject to compliance with the 1940 Act, our board of directors
may, without stockholder action, amend our articles of
incorporation 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
36
uncertainties and have contributed to global economic
instability. Future terrorist activities, military or security
operations, or natural disasters could further weaken the
domestic/global economies and create additional uncertainties,
which may negatively impact the businesses in which we invest
directly or indirectly and, in turn, could have a material
adverse impact on our business, operating results and financial
condition. Losses from terrorist attacks and natural disasters
are generally uninsurable.
We
could face losses and potential liability if intrusion, viruses
or similar disruptions to our technology jeopardize our
confidential information or that of users of our
technology.
Although we have implemented, and will continue to implement,
security measures, our technology platform is and will continue
to be vulnerable to intrusion, computer viruses or similar
disruptive problems caused by transmission from unauthorized
users. The misappropriation of proprietary information could
expose us to a risk of loss or litigation.
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Item 1B.
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Unresolved
Staff Comments.
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Not applicable.
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
5,850 square feet of office space located at 3600 Glenwood
Avenue, Suite 104, Raleigh, North Carolina 27612. We
believe that our current facilities are adequate for our
business as we intend to conduct it.
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Item 3.
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Legal
Proceedings.
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Neither Triangle Capital Corporation nor any of its subsidiaries
are a party to any pending legal proceedings.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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None.
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Common
Stock and Holders
Our common stock began trading on the Nasdaq Global Market under
the symbol TCAP on February 15, 2007. Prior to
that date, there was no established public trading market for
our common stock. The following table sets forth the range of
high and low sales prices per share of our common stock as
reported on the Nasdaq Global Market for the periods indicated.
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High
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Low
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February 15, 2007 to March 31, 2007
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$
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16.00
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$
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13.45
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Second Quarter of 2007
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15.79
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13.58
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Third Quarter of 2007
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14.99
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11.95
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Fourth Quarter of 2007
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14.50
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10.75
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As of March 3, 2008, there were approximately 65 holders of
record of the common stock. This number does not include
shareholders for whom shares are held in nominee or
street name.
37
Dividends
Declared
We intend to make distributions on a quarterly basis to our
stockholders of substantially all of our income. We may make
deemed distributions of certain net capital gains to our
stockholders.
The following table summarizes our distributions declared since
February 21, 2007, the date of our Offering:
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Record
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Payment
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Date Declared
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Date
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Date
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Amount
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May 9, 2007
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May 31, 2007
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June 28, 2007
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$
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0.15
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August 8, 2007
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August 30, 2007
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September 27, 2007
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0.26
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November 7, 2007
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November 29, 2007
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December 27, 2007
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0.27
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December 14, 2007
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December 31, 2007
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January 28, 2008
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0.30
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Each year, a statement on
Form 1099-DIV
identifying the source of the distribution (i.e., paid from
ordinary income, paid form net capital gains on the sale of
securities,
and/or a
return of
paid-in-capital
surplus which is a nontaxable distribution) is mailed to our
stockholders. To the extent that our taxable earnings fall below
the total amount of our distributions for that fiscal year, a
portion of those distributions may be deemed a tax return of
capital to our stockholders.
The table below shows the detail of our distributions for the
year ended December 31, 2007:
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Ordinary income
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$
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0.89
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90.4
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%
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Return of capital
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0.09
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9.6
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%
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Total reported on tax
Form 1099-DIV
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$
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0.98
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100.0
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%
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(a) |
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Ordinary income is reported on
Form 1099-DIV
as either qualified or non-qualified and capital gains are
reported on
Form 1099-DIV
in various subcategories which have differing tax treatments to
shareholders. Those subcategories are not presented herein. |
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(b) |
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Return of capital refers to those amounts reported as nontaxable
distributions on
Form 1099-DIV.
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Dividend
Policy
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% of our ordinary
income for the calendar year, (2) 98% of our capital gains
in excess of capital losses for the calendar year, and
(3) any ordinary income and net capital gains for the
preceding year that were not distributed during such year. We
will not be subject to excise taxes on amounts on which we are
required to pay corporate income tax (such as retained net
capital gains). In order to obtain the tax benefits applicable
to RICs, we will be required to distribute to our stockholders
with respect to each taxable year at least 90% of our ordinary
income and realized net short-term capital gains in excess of
realized net long-term capital losses. We currently intend to
retain for investment realized net long-term capital gains in
excess of realized net short-term capital losses. We may make
deemed distributions to our stockholders of any retained net
capital gains. If this happens, our stockholders will be treated
as if they received an actual distribution of the capital gains
we retain and then reinvested the net after-tax proceeds in our
common stock. 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 tax we paid on the capital gains
deemed distributed to them. Please refer to Material
U.S. Federal Income Tax Considerations for further
information regarding the consequences of our retention of net
capital gains. We may, in the future, make actual distributions
to our stockholders of some or all realized net long-term
capital gains in excess of realized net short-term capital
losses. 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.
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.
38
No action will be required on the part of a registered
stockholder to have their cash dividend reinvested in shares of
our common stock. A registered stockholder may elect to receive
an entire dividend in cash by notifying The Bank of New York
Mellon, the Plan Administrator and our transfer
agent and registrar, in writing so that such notice is received
by the plan administrator no later than the record date for
dividends to stockholders. The plan administrator will set up an
account for shares acquired through the plan for each
stockholder who has not elected to receive dividends in cash and
hold such shares in non-certificated form. Upon request by a
stockholder participating in the plan, received in writing not
less than 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
Nasdaq Global Market on the dividend payment date. Market price
per share on that date will be the closing price for such shares
on the Nasdaq Global Market or, if no sale is reported for such
day, at the average of their reported bid and asked prices. If
we purchase shares in the open market to implement the plan, the
number of shares to be issued to a stockholder is determined by
dividing the total dollar amount of the dividend payable to such
stockholder by the average price per share for all shares
purchased by the Plan Administrator in the open market in
connection with the dividend. The number of shares of our common
stock to be outstanding after giving effect to payment of the
dividend cannot be established until the value per share at
which additional shares will be issued has been determined and
elections of our stockholders have been tabulated.
There are no brokerage charges or other charges to stockholders
who participate in the plan. We 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.
Our ability to make distributions will be limited by the asset
coverage requirements under the 1940 Act. For a more detailed
discussion, see Regulation.
Equity
Compensation Plans
Our equity compensation plan information required to be provided
in this Annual Report on
Form 10-K
is incorporated by reference to the section of our definitive
Proxy Statement for our 2008 Annual Meeting of Shareholders,
entitled Securities Authorized for Issuance Under Equity
Compensation Plans, to be filed with the Commission.
39
Performance
Graph
The following graph compares the cumulative total return on our
common stock with the cumulative total return of the Triangle
Capital Corporation Peer Group Index and the Nasdaq Composite
Index for the year ended December 31, 2007. This comparison
assumes $100.00 was invested at the closing price of our common
stock on February 15, 2007 (the date our common stock began
to trade on the Nasdaq Global Market in connection with our
initial public offering) in our common stock and in the
comparison groups and assumes the reinvestment of all cash
dividends on the ex-dividend date prior to any tax effect. The
stock price performance shown on the graph below is not
necessarily indicative of future price performance.
Comparison
of Ten Month Cumulative Total Return(1)
among Triangle Capital Corporation, the Triangle Capital
Corporation Peer
Group Index, and the Nasdaq Composite Index
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2/15/07
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3/31/07
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6/30/07
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9/30/07
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12/31/07
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Triangle Capital Corporation
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100.00
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91.00
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95.43
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93.44
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89.40
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Triangle Capital Corporation Peer Group Index(2)
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100.00
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96.03
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97.44
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96.63
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76.06
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Nasdaq Composite Index
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100.00
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100.27
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107.82
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111.83
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109.88
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(1) |
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From February 15, 2007, the date our common stock began to
trade on the Nasdaq Global Market in connection with our initial
public offering to December 31, 2007. |
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(2) |
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The Triangle Capital Corporation Peer Group consists of the
following internally-managed closed-end investment companies
that have elected to be regulated as BDCs under the 1940 Act:
Allied Capital Corporation, American Capital Strategies Ltd.,
Harris & Harris Group, Inc., Hercules Technology
Growth Capital, Inc., Kohlberg Capital Corporation, MCG Capital
Corporation and Patriot Capital Funding, Inc. |
Sales of
Unregistered Securities
During the year ended December 31, 2007, we issued a total
of 117,103 shares of common stock under our dividend
reinvestment plan pursuant to an exemption from the registration
requirements of the Securities Act of 1933. The aggregate
offering price for the shares of common stock sold under the
dividend reinvestment plan was approximately $1,626,212.
Also during the year ended December 31, 2007, we acquired
100% of the equity interests in TML, the general partner of the
Fund. We issued to the members of TML 500,000 shares of our
common stock, having
40
an aggregate value based on the initial public offering price of
$7,500,000, in exchange for their equity interests in TML. Under
the then-current agreement of limited partnership, or
partnership agreement, of the Fund, TML was entitled to 20.0% of
the Funds profits and capital after the limited partners
had received distributions of their entire investment and a 7.0%
compound annual return on their investment. TML did not make a
capital contribution to the Fund, but rather received this
interest in exchange for performing the function of and assuming
the risks as general partner of the Fund. These securities were
issued to United States investors in reliance upon the exemption
from the registration requirements of the Securities Act, as set
forth in Section 4(2) under the Securities Act and
rule 506 of Regulation D promulgated thereunder
relative to sales by an issuer not involving any public
offering. All recipients of common units described above
represented to us in connection with their receipt of common
units that they were acquiring the shares for investment and not
with a view to distribution in violation of applicable
securities laws, that they could bear the risks of the
investment and could hold the securities for an indefinite
period of time. The recipients received written disclosures that
the securities had not been registered under the Securities Act
and that any resale must be made pursuant to a registration
statement or an available exemption from such registration
requirement.
Issuer
Purchases of Equity Securities
We did not repurchase any shares of our common stock during the
three months ended December 31, 2007.
Use of
Proceeds from Registered Securities
On February 13, 2007, the SEC declared effective our first
registration statement, filed on
Form N-2
(File
No. 333-138418)
under the Securities Act of 1933 in connection with the recent
Offering of our common stock. Morgan Keegan & Company,
Inc., BB&T Capital Markets, Avondale Partners, and Sterne,
Agee & Leach, Inc. acted as the underwriters for the
Offering.
Our common stock began trading on The Nasdaq Global Market under
the trading symbol TCAP on February 15, 2007.
We sold 4,770,000 shares of common stock in our initial
public offering at $15.00 per share. The Offering terminated
after the sale of all of the securities registered on the
registration statement and the expiration of the
underwriters over-allotment option. The aggregate gross
proceeds from the shares of common stock sold were
$71.6 million. We paid the underwriters a commission of
$4.9 million and incurred offering expenses of
$2.0 million. After deducting the underwriters
commission and the estimated offering expenses, we received net
proceeds of approximately $64.7 million.
Subsequent to the Offering, we contributed approximately
$42.0 million of the net proceeds from the Offering to the
Fund and during the period from February 15, 2007 through
December 31, 2007, we invested all of these funds in lower
middle market companies in accordance with our investment
objective and strategies described in this Annual Report. In
addition, we have the ability to use SBA-guaranteed leverage to
make additional investments, subject to the limitations
described elsewhere in this Annual Report.
We will retain the balance of the net proceeds from the Offering
to pay certain expenses, dividends required in order to maintain
our status as a RIC, amounts needed to implement our dividend
reinvestment plan, and for general corporate purposes. We have
and will continue to invest retained cash in short-term
securities consistent with our BDC election and our election to
be taxed as a RIC, but could use all or a portion of these funds
for portfolio investments in the future.
None of the expenses, or application of the net proceeds, were
paid, directly or indirectly, to directors, officers or persons
owning 10% or more of our common stock or to their associates,
or to our affiliates.
|
|
Item 6.
|
Selected
Financial Data.
|
As discussed further in Note 1 to our financial statements
included in Item 8 of this Annual Report on
Form 10-K,
on February 21, 2007, concurrent with the closing of our
initial public offering (the Offering), we acquired
the Fund and TML (the Funds General Partner) in exchange
for shares of our common stock.
41
These acquisitions constituted an exchange of shares between
entities under common control. In accordance with the guidance
on exchanges of shares between entities under common control
contained in Statement of Financial Accounting Standards
No. 141, Business Combinations, the selected
historical financial and other data below for the year ended
December 31, 2007 are presented as if the acquisition had
occurred as of January 1, 2007. In addition, the selected
historical financial and other data below for the years ended
December 31, 2003, 2004, 2005 and 2006 are presented on a
combined basis in order to provide comparative information with
respect to prior periods. The selected financial data at and for
the fiscal years ended December 31, 2003, 2004, 2005, 2006
and 2007 have been derived from our financial statements that
have been audited by Ernst & Young LLP, an independent
registered public accounting firm. 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,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and dividend income
|
|
$
|
26
|
|
|
$
|
1,969
|
|
|
$
|
5,855
|
|
|
$
|
6,443
|
|
|
$
|
10,912
|
|
Interest income from cash and cash equivalent investments
|
|
|
15
|
|
|
|
18
|
|
|
|
108
|
|
|
|
280
|
|
|
|
1,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
41
|
|
|
|
1,987
|
|
|
|
5,963
|
|
|
|
6,723
|
|
|
|
12,736
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
339
|
|
|
|
1,543
|
|
|
|
1,834
|
|
|
|
2,073
|
|
Amortization of deferred financing fees
|
|
|
|
|
|
|
38
|
|
|
|
90
|
|
|
|
100
|
|
|
|
113
|
|
Management fees
|
|
|
1,048
|
|
|
|
1,564
|
|
|
|
1,574
|
|
|
|
1,589
|
|
|
|
233
|
|
General and administrative expenses
|
|
|
165
|
|
|
|
83
|
|
|
|
58
|
|
|
|
115
|
|
|
|
3,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,213
|
|
|
|
2,024
|
|
|
|
3,265
|
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(1,172
|
)
|
|
|
(37
|
)
|
|
|
2,698
|
|
|
|
3,085
|
|
|
|
6,423
|
|
Net realized gain (loss) on investments
non-control/non-affiliate
|
|
|
|
|
|
|
|
|
|
|
(3,500
|
)
|
|
|
6,027
|
|
|
|
(760
|
)
|
Net realized gain (loss) on investments affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
3,975
|
|
|
|
(415
|
)
|
|
|
3,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
475
|
|
|
|
5,612
|
|
|
|
2,442
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
(1,172
|
)
|
|
$
|
(1,262
|
)
|
|
$
|
3,173
|
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13.74
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.98
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
|
|
|
$
|
19,701
|
|
|
$
|
37,144
|
|
|
$
|
54,996
|
|
|
$
|
114,374
|
|
Deferred loan origination revenue
|
|
|
(35
|
)
|
|
|
(537
|
)
|
|
|
(602
|
)
|
|
|
(774
|
)
|
|
|
(1,368
|
)
|
Cash and cash equivalents
|
|
|
2,973
|
|
|
|
2,849
|
|
|
|
6,067
|
|
|
|
2,556
|
|
|
|
21,788
|
|
Interest and fees receivable
|
|
|
|
|
|
|
98
|
|
|
|
50
|
|
|
|
135
|
|
|
|
305
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Deferred offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Deferred financing fees
|
|
|
|
|
|
|
823
|
|
|
|
1,085
|
|
|
|
985
|
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,938
|
|
|
$
|
22,934
|
|
|
$
|
43,744
|
|
|
$
|
58,919
|
|
|
$
|
136,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
13
|
|
|
$
|
825
|
|
|
$
|
1,144
|
|
Interest payable
|
|
|
|
|
|
|
230
|
|
|
|
566
|
|
|
|
606
|
|
|
|
699
|
|
Distribution/dividends payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
2,041
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
SBA-guaranteed debentures payable
|
|
|
|
|
|
|
17,700
|
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
10
|
|
|
|
17,930
|
|
|
|
32,379
|
|
|
|
33,763
|
|
|
|
42,706
|
|
Total partners capital/shareholders equity
|
|
|
2,928
|
|
|
|
5,004
|
|
|
|
11,365
|
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
2,938
|
|
|
$
|
22,934
|
|
|
$
|
43,744
|
|
|
$
|
58,919
|
|
|
$
|
136,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
|
|
|
|
15.5
|
%
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
Number of portfolio companies
|
|
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
19
|
|
|
|
26
|
|
Expense ratios (as percentage of average net assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
107.4
|
%
|
|
|
32.2
|
%
|
|
|
21.3
|
%
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
Interest expense and deferred financing fees
|
|
|
|
|
|
|
7.4
|
|
|
|
21.4
|
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
107.4
|
%
|
|
|
39.6
|
%
|
|
|
42.7
|
%
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
The information in this section contains forward-looking
statements that involve risks and uncertainties. Please see
Risk Factors and Special Note Regarding
Forward-Looking Statements for a discussion of the
uncertainties, risks and assumptions associated with these
statements. You should read the following discussion in
conjunction with the combined financial statements and related
notes and other financial information appearing elsewhere in
this Annual Report.
The following discussion is designed to provide a better
understanding of our financial statements, including a brief
discussion of our business, key factors that impacted our
performance and a summary of our operating results. As discussed
further in Note 1 to our financial statements, on
February 21, 2007, concurrent with the closing of our
initial public offering (the Offering), we acquired
Triangle Mezzanine Fund LLLP (the Fund) and the
Funds General Partner, Triangle Mezzanine LLC
(TML) in exchange for shares of our common stock.
These acquisitions constituted an exchange of shares between
entities under common control.
43
In accordance with the guidance on exchanges of shares between
entities under common control contained in Statement of
Financial Accounting Standards No. 141, Business
Combinations, the financial data and information discussed
herein as of and for the year ended December 31, 2007 are
presented as if the acquisition had occurred as of
January 1, 2007. In addition, the results of our operations
and cash flows for the years ended December 31, 2006 and
2005 and our financial position as of December 31, 2006 are
presented on a combined basis in order to provide comparative
information with respect to prior periods. The following
discussion should be read in conjunction with the Financial
Statements and the notes thereto included in Item 8 of this
Annual Report on
Form 10-K.
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 incorporated on October 10,
2006, for the purpose of acquiring the Fund and TML, raising
capital in the Offering and thereafter operating as an
internally managed business development company, or BDC, under
the Investment Company Act of 1940. The Fund is licensed as a
small business investment company, or SBIC, by the United States
Small Business Administration, or SBA, and has also elected to
be treated as a BDC. The Fund has invested primarily in debt
instruments, equity investments, warrants and other securities
of lower middle market privately held companies located in the
United States. Upon the consummation of the Offering, we
completed the Formation Transactions described in Item 1 of
Part I of this Annual Report, at which time the Fund became
our wholly-owned subsidiary, and the former partners of the Fund
became our stockholders.
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 million 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 million and $75.0 million and annual earnings
before interest, taxes, depreciation and amortization, or
EBITDA, between $2.0 million and $10.0 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 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 11.0% and 15.0% 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, 2007 and December 31, 2006, the
weighted average yield on all of our outstanding debt
investments (including PIK interest) was approximately 13.9% and
14.0%, respectively. The weighted average yield on all of our
outstanding investments (including equity and equity-linked
investments) was approximately 12.6% and 13.3% as of
December 31, 2007 and December 31, 2006, respectively.
The Fund is eligible to sell debentures guaranteed by the SBA to
the capital markets at favorable interest rates and invest these
funds in portfolio companies. We intend to continue to operate
the Fund as an SBIC, 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.
44
Portfolio
Composition
The total value of our investment portfolio was
$114.4 million as of December 31, 2007, as compared to
$55.0 million as of December 31, 2006. As of
December 31, 2007, we had investments in 26 portfolio
companies with an aggregate cost of $107.2 million. As of
December 31, 2006, we had investments in 19 portfolio
companies with an aggregate cost of $52.7 million. As of
December 31, 2007, we had one portfolio investment that
individually represented greater than 10% of the total fair
value of our investment portfolio. This one investment
represented approximately 11% of the total fair value of our
investment portfolio as of December 31, 2007. As of
December 31, 2006, none of our portfolio investments
represented greater than 10% of the total fair value of our
investment portfolio.
As of December 31, 2007 and December 31, 2006, our
investment portfolio consisted of the following investments:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
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|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
December 31, 2007:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
82,171,781
|
|
|
|
76
|
%
|
|
$
|
82,171,781
|
|
|
|
72
|
%
|
Senior debt
|
|
|
14,798,137
|
|
|
|
14
|
|
|
|
14,798,137
|
|
|
|
13
|
|
Equity shares
|
|
|
9,699,689
|
|
|
|
9
|
|
|
|
15,335,900
|
|
|
|
13
|
|
Equity warrants
|
|
|
548,172
|
|
|
|
1
|
|
|
|
1,870,500
|
|
|
|
2
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,217,779
|
|
|
|
100
|
%
|
|
$
|
114,374,218
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
48,788,108
|
|
|
|
93
|
%
|
|
$
|
47,323,885
|
|
|
|
86
|
%
|
Equity shares
|
|
|
2,714,833
|
|
|
|
5
|
|
|
|
5,633,283
|
|
|
|
10
|
|
Equity warrants
|
|
|
1,158,411
|
|
|
|
2
|
|
|
|
1,789,260
|
|
|
|
3
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,661,352
|
|
|
|
100
|
%
|
|
$
|
54,996,428
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Activity
During the year ended December 31, 2007, we made nine new
investments totaling $62.2 million, one additional debt
investment in an existing portfolio company of $1.9 million
and one additional equity investment in an existing portfolio
company of approximately $0.1 million. In 2007, we sold one
investment in a portfolio company for approximately
$1.3 million, resulting in a realized loss of approximately
$1.4 million. We also received principal prepayments from
two portfolio companies totaling $3.2 million, which
resulted in a realized gain of approximately $0.1 million.
In the fourth quarter of 2007, we sold an equity investment in a
portfolio company for total proceeds of $0.9 million,
resulting in a realized gain of approximately $0.6 million
and we received a principal prepayment from this portfolio
company of $4.2 million, which resulted in a realized gain
of approximately $0.1 million. In addition, we received
normal principal repayments and PIK interest payments totaling
approximately $1.0 million in the year ended
December 31, 2007.
45
Total portfolio investment activity for the year ended
December 31, 2007 was as follows:
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|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2007
|
|
|
Fair value of portfolio, January 1, 2007
|
|
$
|
54,996,428
|
|
New investments
|
|
|
64,159,172
|
|
Proceeds from sale of investment
|
|
|
(2,227,124
|
)
|
Principal repayments and payment in kind interest payments
received
|
|
|
(8,483,843
|
)
|
Payment in kind interest earned
|
|
|
1,521,114
|
|
Accretion/writeoff of loan discounts
|
|
|
205,725
|
|
Net realized gain (loss) on investments
|
|
|
(618,620
|
)
|
Net unrealized gain on investments
|
|
|
4,821,366
|
|
|
|
|
|
|
Fair value of portfolio, December 31, 2007
|
|
$
|
114,374,218
|
|
|
|
|
|
|
Weighted average yield on debt investments as of
December 31, 2007
|
|
|
13.9
|
%
|
|
|
|
|
|
Weighted average yield on total investments as of
December 31, 2007
|
|
|
12.6
|
%
|
|
|
|
|
|
Results
of Operations
Comparison
of years ended December 31, 2007 and December 31,
2006
Investment
Income
For the year ended December 31, 2007, total investment
income was $12.7 million, an 89.4% increase from
$6.7 million of total investment income for the year ended
December 31, 2006. This increase was primarily attributable
to a $4.5 million increase in total loan interest, fee,
dividend income and PIK interest due to a net increase in our
portfolio investments from December 31, 2006 to
December 31, 2007. Fee income, consisting primarily of loan
prepayment fees, debt amendment fees and certain management and
advisory fees was approximately $0.5 million for the year
ended December 31, 2007 compared with $0.2 for the year
ended December 31, 2006. In addition, interest income from
cash and cash equivalent investments increased by
$1.5 million due to a significant increase in average cash
balances in 2007 over 2006 resulting from the receipt of
proceeds of $64.7 million from our Offering in February
2007.
Expenses
For the year ended December 31, 2007, expenses increased by
73.5% to $6.3 million from $3.6 million for the year
ended December 31, 2006. The increase in expenses was
primarily attributable to a $3.8 million increase in
general and administrative expenses and an increase in interest
expense of approximately $0.2 million. As a result of the
Offering and the Formation Transactions described in Note 1
to our financial statements, we are now an internally managed
investment company and, on February 21, 2007, we began
incurring general and administrative costs associated with
employing our executive officers, key investment personnel and
corporate professionals and other general corporate overhead
costs. In addition, we experienced an increase in general and
administrative costs associated with being a publicly-traded
company, such as increased insurance, accounting, corporate
governance and legal costs. These increases in general and
administrative costs were partially offset by a
$1.4 million decrease in management fees. We incurred a
full year of management fees in 2006 and only incurred
management fees through February 21, 2007 in 2007.
Net
Investment Income
As a result of the $6.0 million increase in total
investment income and the $2.7 million increase in
expenses, net investment income for the year ended
December 31, 2007 was $6.4 million compared to net
investment income of $3.1 million during the year ended
December 31, 2006.
46
Net
Increase (Decrease) in Net Assets Resulting From
Operations
For the year ended December 31, 2007, net realized loss on
non-control/non-affiliate investments was $0.8 million
which related to a realized loss on one investment of
$1.4 million, offset by a realized gain on a second
investment of $0.6 million. In addition, we recognized a
realized gain of $0.1 million on an affiliate investment
during the year ended December 31, 2007. This realized gain
resulted from the writeoff of original issue discount related to
the prepayment of the portfolio companys outstanding
subordinated note. During the year ended December 31, 2007,
we recorded net unrealized appreciation of investments, net of
income taxes, in the amount of $3.1 million, comprised
partially of net unrealized appreciation/depreciation
reclassification adjustments of approximately $1.1 million
related to the realized gain and loss noted above. In addition,
in the year ended December 31, 2007, we recorded unrealized
appreciation, net of tax, on nine other investments totaling
$4.3 million and unrealized depreciation on 11 investments
totaling $2.3 million.
For the year ended December 31, 2006, net realized gain on
non-control/non-affiliate investments was $6.0 million
which related to realized gains on two investments. During the
year ended December 31, 2006, we recorded net unrealized
depreciation of investments in the amount of $0.4 million,
consisting of (i) unrealized depreciation on three
investments totaling $1.6 million, (ii) an unrealized
depreciation reclassification adjustment of approximately
$0.7 million related to the realized gains noted above and
(iii) unrealized appreciation on ten investments totaling
$1.9 million.
In the year ended December 31, 2007, we recognized an
income tax provision related to an investment held in one of our
Taxable Subsidiaries, as discussed in Note 1 to our
Financial Statements under Income Taxes.
As a result of these events, our net increase in net assets from
operations during the year ended December 31, 2007 was
$8.8 million as compared to $8.7 million for the year
ended December 31, 2006.
Comparison
of years ended December 31, 2006 and December 31,
2005
Investment
Income
For the year ended December 31, 2006, total investment
income was $6.7 million, a 12.7%, increase from
$6.0 million of total investment income for the year ended
December 31, 2005. The increase was primarily attributable
to a $0.8 million increase in total loan interest, fee and
dividend income due to the addition of 11 new investments
totaling $25.0 million which were closed during the year
ended December 31, 2006.
Expenses
For the year ended December 31, 2006, expenses increased by
11.4% to $3.6 million from $3.3 million for the year
ended December 31, 2005. The increase in expenses was
primarily attributable to a $0.3 million increase in
interest expense relating to our SBA-guaranteed debentures, of
which there were $31.8 million outstanding for the entire
year ended December 31, 2006, and which had an average
balance outstanding substantially less than that amount during
the year ended December 31, 2005. During May 2005, the Fund
increased its SBA-guaranteed debentures by $9.5 million to
a total of $31.8 million.
Net
Investment Income
As a result of the $0.8 million increase in total
investment income and the $0.4 million increase in
expenses, net investment income for the year ended
December 31, 2006, was $3.1 million compared to net
investment income of $2.7 million during the year ended
December 31, 2005.
Net
Increase (Decrease) in Net Assets Resulting From
Operations
For the year ended December 31, 2006, net realized gain on
non-control/non-affiliate investments was $6.0 million
which related to realized gains on two investments. During the
year ended December 31, 2006, we recorded net unrealized
depreciation of investments in the amount of $0.4 million,
consisting of (i) unrealized depreciation on three
investments totaling $1.6 million, (ii) an unrealized
depreciation
47
reclassification adjustment of approximately $0.7 million
related to the realized gains noted above and
(iii) unrealized appreciation on ten investments totaling
$1.9 million.
For the year ended December 31, 2005, net realized loss on
investments was $3.5 million which related to a loss on one
investment. During the year ended December 31, 2005, we
recorded net unrealized appreciation in the amount of
$4.0 million, comprised of $2.8 million of unrealized
appreciation on two of our portfolio companies and the
reclassification of an unrealized loss to a realized loss in the
amount of $1.2 million.
As a result of these events, our net increase in net assets from
operations during the year ended December 31, 2006 was
$8.7 million as compared to $3.2 million for the year
ended December 31, 2005.
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.
Cash
Flows
For the year ended December 31, 2007, we experienced a net
increase in cash and cash equivalents in the amount of
$19.2 million. During that period, our operating activities
used $47.8 million in cash, and we generated
$67.1 million of cash from financing activities, consisting
of (i) proceeds from our Offering of $64.7 million,
(ii) proceeds from the issuance of SBA guaranteed
debentures of $5.2 million and (iii) a decrease in
deferred offering costs of $1.0 million, partially offset
by cash dividends paid of $3.0 million, tax distributions
to partners of $0.7 million and financing fees paid to the
SBA of $0.1 million. At December 31, 2007, we had
$21.8 million of cash and cash equivalents on hand.
For the year ended December 31, 2006, we experienced a net
decrease in cash and cash equivalents in the amount of
$3.5 million. During that period, we used $8.1 million
in cash to fund operating activities and we generated
$4.6 million of cash from financing activities, consisting
of limited partner capital contributions in the amount of
$10.6 million offset by a cash distribution to limited
partners in the amount of $5.0 million and an increase in
deferred offering costs of $1.0 million. We invested the
entire $10.6 million of cash from the limited partner
capital contributions in new subordinated debt investments
during 2006. As of December 31, 2006, all limited partners
in the Fund had fully funded their committed capital. At
December 31, 2006, we had $2.5 million of cash on hand.
For the year ended December 31, 2005, we experienced a net
increase in cash and cash equivalents in the amount of
$3.2 million. During that period, we used
$13.7 million in cash to fund operating activities and we
generated $16.9 million of cash from financing activities,
consisting of borrowings under SBA-guaranteed debentures in the
amount of $14.1 million and limited partner capital
contributions in the amount of $3.2 million. These amounts
were offset by financing fees paid by us in the amount of
$0.4 million. We invested the entire $16.9 million of
cash from financing activities in ten new investments during
2005.
Financing
Transactions
Due to the Funds status as a licensed SBIC, the Fund has
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 twice 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 as of December 31, 2007 is
currently $130.6 million (which amount is subject to
increase on an annual basis based on cost of living increases).
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.
48
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.
With $63.3 million of regulatory capital as of
December 31, 2007, the Fund has the current capacity to
issue up to a total of $126.5 million of SBA guaranteed
debentures, subject to the payment of a 1% commitment fee to the
SBA on the amount of the commitment. As of December 31,
2007, the Fund had paid commitment fees for and had a commitment
from the SBA to issue a total of $41.9 million of SBA
guaranteed debentures, of which $37.0 million are
outstanding as of December 31, 2007. On January 8,
2008, the SBA approved an additional commitment to the Fund in
the amount of $55.0 million, bringing the total commitment
from the SBA to approximately $96.9 million. In order to
access the remaining $29.6 million in borrowing capacity
for which the Fund is currently eligible, the Fund would incur
non-refundable commitment fees of $296,000. In addition to the
one time 1.0% fee on the total commitment from the
SBA, the Company also pays a one time 2.425% fee on
the amount of each debenture issued. These fees are capitalized
as deferred financing costs and are amortized over the term of
the debt agreements using the effective interest method. The
weighted average interest rate for all SBA guaranteed debentures
as of December 31, 2007 was 5.83%.
Current
Market Conditions
The debt and equity capital markets in the United States have
been severely impacted by significant write-offs in the
financial services sector relating to subprime mortgages and the
re-pricing of credit risk in the broadly syndicated bank loan
market, among other things. These events, along with the
deterioration of the housing market, have led to worsening
general economic conditions which have impacted the broader
financial and credit markets and have reduced the availability
of debt and equity capital for the market as a whole and
financial firms in particular. While we have capacity to issue
additional SBA guaranteed debentures as discussed above, we may
not be able to access additional equity capital, which could
result in the slowing of our origination activity during 2009
and beyond.
In the event that the United States economy enters into a
protracted recession, it is possible that the results of some of
the middle market companies similar to those in which we invest
could experience deterioration, which could ultimately lead to
difficulty in meeting debt service requirements and an increase
in defaults. While we are not seeing signs of an overall, broad
deterioration in our portfolio company results at this time,
there can be no assurance that the performance of certain of our
portfolio companies will not be negatively impacted by economic
conditions which could have a negative impact on our future
results.
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 value our investment portfolio each
quarter. As discussed below, we have engaged an independent
valuation firm to assist us in our valuation process.
Securities that are publicly traded, if any, are valued at the
closing price of the exchange or securities market on which they
are listed on the valuation date. Securities that are not traded
on a public exchange or securities market but for which a
limited market exists are valued at the indicative bid price
offered on the
49
valuation date. As of December 31, 2007, none of the debt
securities in our portfolio were publicly traded or had a
limited market, and there was a limited market for one of the
equity securities we owned.
Debt and equity securities that are not publicly traded and for
which a 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 the facts and 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. In making the good faith determination of the value of
these securities, we start with the cost basis of the security,
which includes the amortized original issue discount, and PIK
interest, if any. Management evaluates our investments in
portfolio companies using the most recent portfolio company
financial statements and forecasts. Management also consults
with portfolio company 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 addition, when evaluating equity
securities of private companies, we consider valuation
methodologies consistent with industry practice, including
discounted cash flow of the expected sale price in the future,
valuation of the securities based on recent sales in comparable
transactions, and a review of similar companies that are
publicly traded and the market multiple of their equity
securities.
Unrealized appreciation or depreciation on portfolio investments
are recorded as increases or decreases in investments on the
balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets
resulting from operations.
We seek to determine the value of the security as if we intended
to sell the security at the time of the valuation. To estimate
the current sale price of the security, 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;
|
|
|
|
the size of the security held as it relates to the liquidity of
the market for such security;
|
|
|
|
pending public offering of common stock by the issuer of the
security;
|
|
|
|
pending reorganization activity affecting the issuer, such as
merger or debt restructuring;
|
|
|
|
ability of the issuer to obtain needed financing;
|
|
|
|
changes in the economy affecting the issuer;
|
|
|
|
financial statements and reports from portfolio company senior
management and ownership;
|
|
|
|
the type of security, the securitys cost at the date of
purchase and any contractual restrictions on the disposition of
the security;
|
|
|
|
discount from market value of unrestricted securities of the
same class at the time of purchase;
|
|
|
|
special reports prepared by analysts;
|
|
|
|
information as to any transactions or offers with respect to the
security
and/or sales
to third parties of similar securities;
|
|
|
|
the issuers ability to make payments and the type of
collateral;
|
|
|
|
the current and forecasted earnings of the issuer;
|
|
|
|
statistical ratios compared to lending standards and to other
similar securities; and
|
|
|
|
other pertinent factors.
|
Due to the uncertainty inherent in the valuation process, such
estimates of fair value may differ significantly from the values
that would have been obtained had a ready market for the
securities existed, and the differences could be material.
Additionally, 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.
50
Duff & Phelps, LLC (Duff &
Phelps), an independent valuation firm, provides third
party valuation consulting services to us, which consist of
certain limited procedures that we identified and requested
Duff & Phelps to perform (hereinafter referred to as
the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our shareholders 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.
As of September 30, 2006, we asked Duff & Phelps
to perform the procedures on investments in 17 portfolio
companies comprising 100% of the total investments at fair value
as of September 30, 2006. As of December 31, 2006, we
asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately
41% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
December 31, 2006. For the quarter ended March 31,
2007, we asked Duff & Phelps to perform the procedures
on investments in five portfolio companies comprising
approximately 26% of the total investments at fair value
(exclusive of the fair value of new investments made during the
quarter) as of March 31, 2007. For the quarter ended
June 30, 2007, we asked Duff & Phelps to perform
the procedures on investments in five portfolio companies
comprising approximately 28% of the total investments at fair
value (exclusive of the fair value of new investments made
during the quarter) as of June 30, 2007. For the quarter
ended September 30, 2007, we asked Duff & Phelps
to perform the procedures on investments in five portfolio
companies comprising approximately 29% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of September 30, 2007. For the
quarter ended December 31, 2007, we asked Duff &
Phelps to perform the procedures on investments in six portfolio
companies comprising approximately 23% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2007. 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. We stop accruing interest on investments and 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 by us on loan agreements or other
investments are recorded as deferred income and recognized as
income over the term of the 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 recorded as
interest income. 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. We
will stop accruing PIK interest and write off any accrued and
uncollected interest when it is determined that PIK interest is
no longer collectible.
51
Recently
Issued Accounting Standards
In February 2006, the FASB issued FASB Statement No. 155,
Accounting for Certain Hybrid Financial Instruments, an
amendment of FASB Statements No. 133 and 140. This
Statement was effective for all financial instruments acquired
or issued after the beginning of an entitys first fiscal
year that begins after September 15, 2006. The adoption of
this statement did not have a material impact on our financial
position, results of operations or cash flows.
In July 2006, the FASB released FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48
requires the evaluation of tax positions taken or expected to be
taken in the course of preparing the Companys tax returns
to determine whether the tax positions are
more-likely-than-not of being sustained by the
applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax
benefit or expense in the current year. Adoption of FIN 48
is required for fiscal years beginning after December 15,
2006 and is to be applied to all open tax years as of the
effective date. The adoption of this statement did not have a
material impact on our financial position, results of operations
or cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is
the relevant measurement attribute. SFAS 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. We are currently evaluating the impact on our financial
statements of the adoption of SFAS 157.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an amendment of FASB Statement No. 115
(SFAS 159), which permits entities to
choose to measure many financial instruments and certain other
items at fair value. The objective of SFAS 159 is to
improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term
measurement objectives for accounting for financial instruments.
Under SFAS 159, unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings (or another performance indicator if the business
entity does not report earnings) at each subsequent reporting
date. SFAS 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We are currently
evaluating the impact on our financial statements of the
adoption of SFAS 159.
Off-Balance
Sheet Arrangements
We currently have no off-balance sheet arrangements.
Quantitative
and Qualitative Disclosure About Market 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.
52
Our investment income is affected by fluctuations in various
interest rates, including LIBOR and prime rates. As of
December 31, 2007, approximately 80.7% of our investment
portfolio bore interest at fixed rates. All of our SBA leverage
is currently 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 floating rate assets in our
investment portfolio.
Related
Party Transactions
Effective concurrently with the closing of the Offering, TML,
the general partner of the Fund, merged into a wholly owned
subsidiary of Triangle Capital Corporation. A substantial
majority of the ownership interests of TML were owned by
Messrs. Tucker, Burgess, Lilly, Long and Parker. As a
result of such merger, Messrs. Tucker, Burgess, Lilly, Long
and Parker collectively received shares of our common stock
valued at approximately $6.7 million.
Prior to the closing of the Offering, certain members of our
management (Garland S. Tucker, III, Tarlton H. Long and
David F. Parker) collectively owned approximately 67% of
Triangle Capital Partners, LLC, an entity which provided
management and advisory services to the Fund pursuant to a
management services agreement dated as of February 3, 2003.
Under the terms of this management services agreement, Triangle
Capital Partners, LLC received $0.2 million in management
fees from the Fund in the year ended December 31, 2007 and
$1.6 million in management fees from the Fund during each
of the years ended December 31, 2006 and 2005. This
agreement terminated upon the closing of the Offering.
Contractual
Obligations
As of December 31, 2007, our future fixed commitments for
cash payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 to
|
|
|
2011 to
|
|
|
2013 and
|
|
|
|
Total
|
|
|
2008
|
|
|
2010
|
|
|
2012
|
|
|
Thereafter
|
|
|
SBA guaranteed debentures payable
|
|
$
|
37,010,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
37,010,000
|
|
Interest due on SBA guaranteed debentures payable
|
|
|
16,919,314
|
|
|
|
2,140,599
|
|
|
|
4,314,379
|
|
|
|
4,320,289
|
|
|
|
6,144,047
|
|
Unused commitments to extend credit(1)
|
|
|
2,139,200
|
|
|
|
2,139,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease payments(2)
|
|
|
114,672
|
|
|
|
114,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,183,186
|
|
|
$
|
4,394,471
|
|
|
$
|
4,314,379
|
|
|
$
|
4,320,289
|
|
|
$
|
43,154,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We have a commitment to extend credit, in the form of loans, to
one of our portfolio companies which is undrawn as of
December 31, 2007. Since this commitment may expire without
being drawn upon, the total commitment amount does not
necessarily represent future cash requirements, however we have
chosen to present the amount of this unused commitment as an
obligation in this table. |
|
(2) |
|
We lease our corporate office facility under an operating lease
that terminates on December 31, 2008. We believe that our
existing facilities will be adequate to meet our needs at least
through 2008, and that we will be able to obtain additional
space when, where and as needed on acceptable terms. |
Recent
Developments
SBA
Guaranteed Debentures Payable
On February 28, 2008, we borrowed an additional
$5.2 million under the SBA debenture commitment.
53
New
Portfolio Company Investments
On March 6, 2008, we invested $4.3 million and
$0.5 million in subordinated debt and in equity of
AssetPoint, LLC (AssetPoint), a provider of
integrated enterprise asset management and computerized
maintenance management software and services based in
Greenville, South Carolina. Under the terms of the investment,
AssetPoint will pay interest on the subordinated debt at a fixed
rate of 15.0% per annum.
On March 7, 2008, we invested $1.0 million and
$3.0 million in senior debt and subordinated debt,
respectively, of Electronic Systems Protection, Inc.
(ESP), a manufacturer of power protection technology
for the office technology industry based in Zebulon, North
Carolina. Under the terms of the investment, ESP will pay
interest on the senior debt at a floating rate of LIBOR plus
375 basis points per annum and will pay interest on the
subordinated debt at a fixed rate of 14.0% per annum.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
See the section entitled Quantitative and Qualitative
Disclosure About Market Risk included in
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in
Item 7 of Part I of this Annual Report and
incorporated by reference herein.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
See our Financial Statements included herein and listed in
Item 15(a) of this Annual Report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
Not applicable.
|
|
Item 9A(T).
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the
reports that we file or submit under the Securities Exchange Act
is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms and that
such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Our Chief Executive Officer and
Chief Financial Officer carried out an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by
this report. Based on the evaluation of these disclosure
controls and procedures, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures were effective. It should be noted that any system of
controls, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of
the system are met. In addition, the design of any control
system is based in part upon certain assumptions about the
likelihood of future events. Because of these and other inherent
limitations of control systems, there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
Managements
Annual Report on Internal Control over Financial
Reporting
Our management, including our Chief Executive Officer and Chief
Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting,
as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of our financial statements for external reporting
purposes in accordance with U.S. generally accepted
accounting principles (GAAP). Internal control over
financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with
54
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 (iii) 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 policies or
procedures may deteriorate.
Management (with the participation of our Chief Executive
Officer and Chief Financial Officer) conducted an evaluation of
the effectiveness of our internal control over financial
reporting based on the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that
our internal control over financial reporting was effective as
of December 31, 2007.
This Annual Report does not include an attestation report of our
registered public accounting firm regarding internal control
over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements
report in this Annual Report.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting during the fourth quarter of 2007 that have materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
The information required by this Item with respect to our
directors, executive officers and corporate governance matters
is contained in our definitive Proxy Statement for our 2008
Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under
the Securities Exchange Act of 1934 and is incorporated in this
Annual Report by reference in response to this Item. Our Proxy
Statement will be filed with the Commission within 120 days
after the date of our fiscal year-end which was
December 31, 2007.
The Company has adopted the Code of Conduct for Triangle Capital
Corporation and Triangle Mezzanine Fund LLLP, a code of
ethics, which every employee is expected to observe. The Code of
Conduct for Triangle Capital Corporation and Triangle Mezzanine
Fund LLLP is publicly available on our website under
Corporate Governance at the following URL:
http://ir.tcap.com/governance.cfm and is included in this
Annual Report as Exhibit 14.1 attached hereto.
We will provide any person, without charge, upon request, a copy
of our Code of Conduct. To receive a copy, please provide a
written request to: Triangle Capital Corporation; Attn: Chief
Compliance Officer, 3600 Glenwood Avenue, Suite 104;
Raleigh, North Carolina; 27612.
|
|
Item 11.
|
Executive
Compensation.
|
The information required by this Item with respect to
compensation of executive officers and directors is contained in
our definitive Proxy Statement for our 2008 Annual Meeting of
Stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934
55
and is incorporated in this Annual Report by reference in
response to this Item. Our Proxy Statement will be filed with
the Commission within 120 days after the date of our fiscal
year-end which was December 31, 2007.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this Item with respect to security
ownership of certain beneficial owners and management and equity
compensation plans is contained in our definitive Proxy
Statement for our 2008 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934
and is incorporated in this Annual Report by reference in
response to this Item. Our Proxy Statement will be filed with
the Commission within 120 days after the date of our fiscal
year-end which was December 31, 2007.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by this Item with respect to certain
relationships and related transactions and director independence
is contained in our definitive Proxy Statement for our 2008
Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under
the Securities Exchange Act of 1934 and is incorporated in this
Annual Report by reference in response to this Item. Our Proxy
Statement will be filed with the Commission within 120 days
after the date of our fiscal year-end which was
December 31, 2007.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item with respect to principal
accountant fees and services is contained in our definitive
Proxy Statement for our 2008 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934
and is incorporated in this Annual Report by reference in
response to this Item. Our Proxy Statement will be filed with
the Commission within 120 days after the date of our fiscal
year-end which was December 31, 2007.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The
following documents are filed as part of this Report:
(1) Financial Statements
Triangle Capital Corporation Financial Statements:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-1
|
|
Consolidated Balance Sheet as of December 31, 2007 and
Combined Balance Sheet as of December 31, 2006
|
|
|
F-2
|
|
Consolidated Statement of Operations for the year ended
December 31, 2007 and Combined Statements of Operations for
the years ended December 31, 2006 and 2005
|
|
|
F-3
|
|
Consolidated Statement of Changes in Net Assets for the year
ended December 31, 2007 and Combined Statements of Changes
in Net Assets for the years ended December 31, 2006 and 2005
|
|
|
F-4
|
|
Consolidated Statement of Cash Flows for the year ended
December 31, 2007 and Combined Statements of Cash Flows for
the years ended December 31, 2006 and 2005
|
|
|
F-5
|
|
Consolidated Schedule of Investments as of December 31, 2007
|
|
|
F-6
|
|
Combined Schedule of Investments as of December 31, 2006
|
|
|
F-10
|
|
Notes to Financial Statements
|
|
|
F-13
|
|
56
(2) Financial Statement Schedules
None.
Schedules that are not listed herein have been omitted because
they are not applicable or the information required to be set
forth therein is included in the Financial Statements or notes
thereto.
(3) List of Exhibits
The exhibits required by Item 601 of
Regulation S-K,
except as otherwise noted, have been filed with previous reports
by the registrant and are herein incorporated by reference.
|
|
|
|
|
Number
|
|
Exhibit
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of November 2, 2006,
by and among Triangle Capital Corporation, New Triangle GP, LLC,
and Triangle Mezzanine LLC (Filed as Exhibit (k)(7) to the
Registrants Registration Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
November 3, 2006 and incorporated herein by reference).
|
|
2
|
.2
|
|
Agreement and Plan of Merger, dated as of November 2, 2006,
by and among Triangle Capital Corporation, TCC Merger Sub, LLC
and Triangle Mezzanine Fund LLLP (Filed as Exhibit (k)(8)
to the Registrants Registration Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
November 3, 2006 and incorporated herein by reference).
|
|
3
|
.1
|
|
Articles of Amendment and Restatement of the Registrant (Filed
as Exhibit (a)(3) to the Registrants Registration
Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
December 29, 2006 and incorporated herein by reference).
|
|
3
|
.2
|
|
Certificate of Limited Partnership of Triangle Mezzanine
Fund LLLP (Filed as Exhibit (a)(4) to the Registrants
Registration Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
February 13, 2007 and incorporated herein by reference).
|
|
3
|
.3
|
|
Second Amended and Restated Agreement of Limited Partnership of
Triangle Mezzanine Fund LLLP (Filed as Exhibit 3.4 to
the Registrants Quarterly Report on
form 10-Q
filed with the Securities and Exchange Commission on
November 11, 2007 and incorporated herein by reference).
|
|
3
|
.4
|
|
Amended and Restated Bylaws of the Registrant (Filed as Exhibit
(b) to the Registrants Registration Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
December 29, 2006 and incorporated herein by reference).
|
|
4
|
.1
|
|
Form of Common Stock Certificate (Filed as Exhibit (d) to
the Registrants post -effective amendment to the
Registration Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
February 15, 2007 and incorporated herein by reference).
|
|
4
|
.2
|
|
Triangle Capital Corporation Dividend Reinvestment Plan.
|
|
10
|
.1
|
|
Employment Agreement between Triangle Capital Corporation and
Garland S. Tucker, III dated February 21, 2007 (Filed
as Exhibit 10.1 to the Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.2
|
|
Employment Agreement between Triangle Capital Corporation and
Brent P.W. Burgess dated February 21, 2007 (Filed as
Exhibit 10.2 to the Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.3
|
|
Employment Agreement between Triangle Capital Corporation and
Steven C. Lilly dated February 21, 2007 (Filed as
Exhibit 10.3 to the Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.4
|
|
Employment Agreement between Triangle Capital Corporation and
Tarlton H. Long dated February 21, 2007 (Filed as
Exhibit 10.4 to the Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
57
|
|
|
|
|
Number
|
|
Exhibit
|
|
|
10
|
.5
|
|
Employment Agreement between Triangle Capital Corporation and
David F. Parker dated February 21, 2007 (Filed as
Exhibit 10.5 to the Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.6
|
|
Triangle Capital Corporation 2007 Equity Incentive Plan (Filed
as Exhibit (i) to the Registrants pre-effective
amendment to the Registration Statement on
Form N-2/N-5
(File
No. 333-138418)
filed with the Securities and Exchange Commission on
February 13, 2007 and incorporated herein by reference).
|
|
10
|
.7
|
|
Form of Triangle Capital Corporation Amended and Restated 2007
Equity Incentive Plan.
|
|
10
|
.8
|
|
Custodian Agreement with U.S. Bank National Association (Filed
as Exhibit 10.7 to the Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.9
|
|
Amendment to Custody Agreement between the Registrant and U.S.
Bank National Association dated February 5, 2008.
|
|
10
|
.10
|
|
Sublease Assignment and Assumption of Assignors Interest
dated January 17, 2007 (Filed as Exhibit 10.8 to the
Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.11
|
|
Stock Transfer Agency Agreement between Triangle Capital
Corporation and The Bank of New York.
|
|
14
|
.1
|
|
Code of Conduct (Filed as Exhibit 14.1 to the
Registrants Annual Report on
Form 10-K
(File
No. 001-33130)
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1
|
|
Chief Executive Officer Certification Pursuant to
Rule 13a-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Chief Financial Officer Certification Pursuant to
Rule 13a-14
of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Chief Executive Officer Certification pursuant to
Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Chief Financial Officer Certification pursuant to
Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
Management contract or compensatory plan or arrangement. |
See Item 15(a)(3) above.
|
|
(c)
|
Financial
Statement Schedules
|
See Item 15(a)(2) above.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TRIANGLE CAPITAL CORPORATION
|
|
|
|
By:
|
/s/ Garland
S. Tucker, III
|
Name: Garland S. Tucker, III
|
|
|
|
Title:
|
President, Chief Executive Officer and Chairman of the Board of
Directors
|
Date: March 12, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Garland
S. Tucker, III
Garland
S. Tucker, III
|
|
President, Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
|
|
March 12, 2008
|
|
|
|
|
|
/s/ Steven
C. Lilly
Steven
C. Lilly
|
|
Chief Financial Officer, Treasurer, Secretary and Director
(Principal Financial Officer)
|
|
March 12, 2008
|
|
|
|
|
|
/s/ C.
Robert Knox, Jr.
C.
Robert Knox, Jr.
|
|
Controller (Principal Accounting Officer)
|
|
March 12, 2008
|
|
|
|
|
|
/s/ Brent
P. W. Burgess
Brent
P. W. Burgess
|
|
Chief Investment Officer and Director
|
|
March 12, 2008
|
|
|
|
|
|
/s/ W.
McComb Dunwoody
W.
McComb Dunwoody
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
/s/ Thomas
M. Garrott, III
Thomas
M. Garrott, III
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
/s/ Benjamin
S. Goldstein
Benjamin
S. Goldstein
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
/s/ Simon
B. Rich, Jr.
Simon
B. Rich, Jr.
|
|
Director
|
|
March 12, 2008
|
|
|
|
|
|
/s/ Sherwood
H. Smith, Jr.
Sherwood
H. Smith, Jr.
|
|
Director
|
|
March 12, 2008
|
59
Triangle
Capital Corporation
Index to
Financial Statements
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-10
|
|
|
|
|
F-13
|
|
Report of
Independent Registered Public Accounting Firm
To the Board of Directors
Triangle Capital Corporation
We have audited the accompanying consolidated balance sheet of
Triangle Capital Corporation (the Company), including the
schedule of investments, as of December 31, 2007, and the
related consolidated statements of operations, changes in net
assets, and cash flows for the year then ended, and the
consolidated financial highlights for the year then ended. We
have also audited the accompanying combined balance sheet of
Triangle Capital Corporation, including the schedule of
investments, as of December 31, 2006, and the related
combined statements of operations, changes in net assets, and
cash flows for each of the two years in the period then ended,
and the combined financial highlights for each of the four years
in the period then ended. These financial statements and
financial highlights are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated and combined 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. We were
not engaged to perform an audit of the Companys internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of
December 31, 2007 and 2006 by correspondence with the
portfolio companies. 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, 2007, the consolidated
results of its operations, changes in net assets, and its cash
flows for the year then ended, the financial highlights for the
year then ended, and the combined financial position of Triangle
Capital Corporation at December 31, 2006, the combined
results of its operations, changes in net assets, and its cash
flows for each of the two years in the period then ended, and
the combined financial highlights for the four years in the
period then ended, in conformity with U.S. generally
accepted accounting principles.
Raleigh, North Carolina
March 11, 2008
F-1
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Non - Control / Non - Affiliate investments (cost of
$66,819,386 and $40,592,972 at December 31, 2007 and 2006,
respectively)
|
|
$
|
69,078,281
|
|
|
$
|
42,370,348
|
|
Affiliate investments (cost of $24,487,895 and $9,453,445 at
December 31, 2007 and 2006, respectively)
|
|
|
25,041,093
|
|
|
|
10,011,145
|
|
Control investments (cost of $15,910,498 and $2,614,935 at
December 31, 2007 and 2006, respectively)
|
|
|
20,254,844
|
|
|
|
2,614,935
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
114,374,218
|
|
|
|
54,996,428
|
|
Deferred loan origination revenue
|
|
|
(1,368,603
|
)
|
|
|
(774,216
|
)
|
Cash and cash equivalents
|
|
|
21,787,750
|
|
|
|
2,556,502
|
|
Interest and fees receivable
|
|
|
305,159
|
|
|
|
134,819
|
|
Prepaid expenses and other current assets
|
|
|
47,477
|
|
|
|
|
|
Deferred offering costs
|
|
|
|
|
|
|
1,020,646
|
|
Deferred financing fees
|
|
|
999,159
|
|
|
|
985,477
|
|
Property and equipment, net
|
|
|
34,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
136,179,326
|
|
|
$
|
58,919,656
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET ASSETS
|
Accounts payable and accrued liabilities
|
|
$
|
1,144,222
|
|
|
$
|
794,983
|
|
Interest payable
|
|
|
698,735
|
|
|
|
606,296
|
|
Partners distribution payable
|
|
|
|
|
|
|
531,566
|
|
Dividends payable
|
|
|
2,041,159
|
|
|
|
|
|
Income taxes payable
|
|
|
52,598
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,760,259
|
|
|
|
|
|
Payable to Triangle Capital Partners, LLC
|
|
|
|
|
|
|
30,000
|
|
SBA guaranteed debentures payable
|
|
|
37,010,000
|
|
|
|
31,800,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
42,706,973
|
|
|
|
33,762,845
|
|
Net assets:
|
|
|
|
|
|
|
|
|
General partners capital
|
|
|
|
|
|
|
100
|
|
Limited partners capital
|
|
|
|
|
|
|
21,250,000
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 6,803,863 and
100 shares issued and outstanding as of December 31,
2007 and 2006, respectively)
|
|
|
6,804
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
86,949,189
|
|
|
|
1,500
|
|
Investment income in excess of distributions
|
|
|
1,738,797
|
|
|
|
1,570,135
|
|
Accumulated realized losses on investments
|
|
|
(618,620
|
)
|
|
|
|
|
Net unrealized appreciation of investments
|
|
|
5,396,183
|
|
|
|
2,335,076
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
93,472,353
|
|
|
|
25,156,811
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
136,179,326
|
|
|
$
|
58,919,656
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
13.74
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-2
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non - Control/Non - Affiliate investments
|
|
$
|
6,258,670
|
|
|
$
|
4,488,831
|
|
|
$
|
4,125,584
|
|
Affiliate investments
|
|
|
1,808,664
|
|
|
|
638,318
|
|
|
|
459,810
|
|
Control investments
|
|
|
1,323,876
|
|
|
|
293,532
|
|
|
|
39,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
9,391,210
|
|
|
|
5,420,681
|
|
|
|
4,625,244
|
|
Paid - in - kind interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non - Control/Non - Affiliate investments
|
|
|
871,184
|
|
|
|
815,408
|
|
|
|
962,121
|
|
Affiliate investments
|
|
|
225,622
|
|
|
|
40,208
|
|
|
|
243,663
|
|
Control investments
|
|
|
424,308
|
|
|
|
166,690
|
|
|
|
23,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid - in - kind interest income
|
|
|
1,521,114
|
|
|
|
1,022,306
|
|
|
|
1,229,426
|
|
Interest income from cash and cash equivalent investments
|
|
|
1,823,519
|
|
|
|
279,817
|
|
|
|
108,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
12,735,843
|
|
|
|
6,722,804
|
|
|
|
5,963,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,073,311
|
|
|
|
1,833,458
|
|
|
|
1,543,378
|
|
Amortization of deferred financing fees
|
|
|
112,660
|
|
|
|
99,920
|
|
|
|
89,970
|
|
Management fees
|
|
|
232,423
|
|
|
|
1,589,070
|
|
|
|
1,573,602
|
|
General and administrative expenses
|
|
|
3,894,240
|
|
|
|
115,040
|
|
|
|
57,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
6,312,634
|
|
|
|
3,637,488
|
|
|
|
3,264,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
6,423,209
|
|
|
|
3,085,316
|
|
|
|
2,698,222
|
|
Net realized gain (loss) on investments Non
Control/Non - Affiliate
|
|
|
(759,634
|
)
|
|
|
6,026,948
|
|
|
|
(3,500,000
|
)
|
Net realized gain on investment Affiliate
|
|
|
141,014
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
3,061,107
|
|
|
|
(414,924
|
)
|
|
|
3,975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain on investments before income taxes
|
|
|
2,442,487
|
|
|
|
5,612,024
|
|
|
|
475,000
|
|
Income tax expense
|
|
|
52,598
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,813,098
|
|
|
$
|
8,697,340
|
|
|
$
|
3,173,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
0.95
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
$
|
1.31
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.98
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
6,728,733
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net increase (decrease) in net assets resulting
from operations to:
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner
|
|
|
N/A
|
|
|
$
|
1,739,386
|
|
|
$
|
634,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
|
N/A
|
|
|
$
|
6,957,954
|
|
|
$
|
2,538,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Income in
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
General
|
|
|
Limited
|
|
|
Contribution
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Partners
|
|
|
Partners
|
|
|
Commitment
|
|
|
Number of
|
|
|
Par
|
|
|
Paid in
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation) of
|
|
|
Net
|
|
|
|
Capital
|
|
|
Capital
|
|
|
Receivable
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
Balance, January 1, 2005
|
|
$
|
100
|
|
|
$
|
21,250,000
|
|
|
$
|
(13,812,500
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,208,775
|
)
|
|
$
|
|
|
|
$
|
(1,225,000
|
)
|
|
$
|
5,003,825
|
|
Partners capital contributions
|
|
|
|
|
|
|
|
|
|
|
3,187,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,187,500
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,698,222
|
|
|
|
|
|
|
|
|
|
|
|
2,698,222
|
|
Realized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,500,000
|
)
|
|
|
|
|
|
|
(3,500,000
|
)
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,975,000
|
|
|
|
3,975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
$
|
100
|
|
|
$
|
21,250,000
|
|
|
$
|
(10,625,000
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,489,447
|
|
|
$
|
(3,500,000
|
)
|
|
$
|
2,750,000
|
|
|
$
|
11,364,547
|
|
Partners capital contributions
|
|
|
|
|
|
|
|
|
|
|
10,625,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,625,000
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,085,316
|
|
|
|
|
|
|
|
|
|
|
|
3,085,316
|
|
Realized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,026,948
|
|
|
|
|
|
|
|
6,026,948
|
|
Net unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(414,924
|
)
|
|
|
(414,924
|
)
|
Distributions to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,004,628
|
)
|
|
|
(2,526,948
|
)
|
|
|
|
|
|
|
(5,531,576
|
)
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
100
|
|
|
$
|
21,250,000
|
|
|
$
|
|
|
|
|
100
|
|
|
$
|
|
|
|
$
|
1,500
|
|
|
$
|
1,570,135
|
|
|
$
|
|
|
|
$
|
2,335,076
|
|
|
$
|
25,156,811
|
|
Public offering of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,770,000
|
|
|
|
4,770
|
|
|
|
64,723,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,728,037
|
|
Formation transactions
|
|
|
(100
|
)
|
|
|
(21,250,000
|
)
|
|
|
|
|
|
|
1,916,660
|
|
|
|
1,917
|
|
|
|
21,248,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,423,209
|
|
|
|
|
|
|
|
|
|
|
|
6,423,209
|
|
Realized gain (loss) on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(618,620
|
)
|
|
|
1,111,306
|
|
|
|
492,686
|
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,949,801
|
|
|
|
1,949,801
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,598
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,598
|
)
|
Return of capital and other tax related adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(649,856
|
)
|
|
|
649,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117,103
|
|
|
|
117
|
|
|
|
1,626,095
|
|
|
|
(6,631,758
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,005,546
|
)
|
Tax distribution to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047
|
)
|
|
|
|
|
|
|
|
|
|
|
(220,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
6,803,863
|
|
|
$
|
6,804
|
|
|
$
|
86,949,189
|
|
|
$
|
1,738,797
|
|
|
$
|
(618,620
|
)
|
|
$
|
5,396,183
|
|
|
$
|
93,472,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,813,098
|
|
|
$
|
8,697,340
|
|
|
$
|
3,173,222
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(64,159,172
|
)
|
|
|
(21,458,478
|
)
|
|
|
(29,125,000
|
)
|
Repayments received/sales of portfolio investments
|
|
|
10,470,803
|
|
|
|
9,965,446
|
|
|
|
12,202,510
|
|
Loan origination and other fees received
|
|
|
1,272,002
|
|
|
|
607,794
|
|
|
|
1,083,600
|
|
Net realized (gain) loss on investments
|
|
|
618,620
|
|
|
|
(6,026,948
|
)
|
|
|
3,500,000
|
|
Net unrealized (appreciation) depreciation on investments
|
|
|
(4,821,366
|
)
|
|
|
414,923
|
|
|
|
(3,975,000
|
)
|
Deferred income taxes
|
|
|
1,760,259
|
|
|
|
|
|
|
|
|
|
Paid - in - kind interest accrued, net of payments
received
|
|
|
(1,280,950
|
)
|
|
|
(578,724
|
)
|
|
|
47,748
|
|
Amortization of deferred financing fees
|
|
|
112,660
|
|
|
|
99,920
|
|
|
|
89,970
|
|
Recognition of loan origination and other fees
|
|
|
(677,615
|
)
|
|
|
(435,492
|
)
|
|
|
(1,018,965
|
)
|
Accretion of loan discounts
|
|
|
(205,725
|
)
|
|
|
(169,036
|
)
|
|
|
(93,272
|
)
|
Depreciation
|
|
|
7,814
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(170,340
|
)
|
|
|
(85,236
|
)
|
|
|
48,859
|
|
Prepaid expenses and other current assets
|
|
|
(47,477
|
)
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
349,239
|
|
|
|
781,757
|
|
|
|
13,226
|
|
Interest payable
|
|
|
92,439
|
|
|
|
40,228
|
|
|
|
335,696
|
|
Income taxes payable
|
|
|
52,598
|
|
|
|
|
|
|
|
|
|
Payable to Triangle Capital Partners, LLC
|
|
|
(30,000
|
)
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(47,843,113
|
)
|
|
|
(8,116,506
|
)
|
|
|
(13,717,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable
|
|
|
5,210,000
|
|
|
|
|
|
|
|
14,100,000
|
|
Financing fees paid
|
|
|
(126,342
|
)
|
|
|
|
|
|
|
(352,500
|
)
|
Issuance of common stock
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
Proceeds from initial public offering, net of expenses
|
|
|
64,728,037
|
|
|
|
|
|
|
|
|
|
Change in deferred offering costs
|
|
|
1,020,646
|
|
|
|
(1,020,646
|
)
|
|
|
|
|
Partners capital contributions
|
|
|
|
|
|
|
10,625,000
|
|
|
|
3,187,500
|
|
Cash dividends paid
|
|
|
(2,964,387
|
)
|
|
|
|
|
|
|
|
|
Distribution to partners
|
|
|
(751,613
|
)
|
|
|
(5,000,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
67,116,341
|
|
|
|
4,605,844
|
|
|
|
16,935,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
19,231,248
|
|
|
|
(3,510,662
|
)
|
|
|
3,217,594
|
|
Cash and cash equivalents, beginning of year
|
|
|
2,556,502
|
|
|
|
6,067,164
|
|
|
|
2,849,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
21,787,750
|
|
|
$
|
2,556,502
|
|
|
$
|
6,067,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,980,872
|
|
|
$
|
1,793,230
|
|
|
$
|
1,208,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of non-cash financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared but not paid
|
|
$
|
2,041,159
|
|
|
$
|
|
|
|
$
|
|
|
Accrued distribution to partners
|
|
$
|
|
|
|
$
|
531,566
|
|
|
$
|
|
|
See accompanying notes.
F-5
TRIANGLE
CAPITAL CORPORATION
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non - Control/Non - Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note
(12%, Due 03/11)
|
|
$
|
3,144,654
|
|
|
$
|
3,042,889
|
|
|
$
|
3,042,889
|
|
|
|
|
|
Subordinated Note
(14%, Due 03/11)
|
|
|
1,872,075
|
|
|
|
1,872,075
|
|
|
|
1,872,075
|
|
|
|
|
|
Common Stock
Warrants (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
929,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729
|
|
|
|
5,057,325
|
|
|
|
5,844,664
|
|
APO Newco, LLC (5%)*
|
|
Commercial and
Consumer
Marketing Products
|
|
Subordinated Note
(14%, Due 03/13)
|
|
|
4,315,262
|
|
|
|
4,292,325
|
|
|
|
4,292,325
|
|
|
|
|
|
Unit purchase warrant
(87,302 Class C units)
|
|
|
|
|
|
|
25,200
|
|
|
|
199,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,315,262
|
|
|
|
4,317,525
|
|
|
|
4,491,325
|
|
Art Headquarters, LLC (3%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(14%, Due 01/10)
|
|
|
2,441,824
|
|
|
|
2,422,091
|
|
|
|
2,422,091
|
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,824
|
|
|
|
2,462,891
|
|
|
|
2,431,891
|
|
Assurance Operations Corporation (4%)*
|
|
Auto Components/
Metal Fabrication
|
|
Subordinated Note
(17%, Due 03/12)
|
|
|
3,828,527
|
|
|
|
3,828,527
|
|
|
|
3,828,527
|
|
|
|
|
|
Common Stock
(200 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828,527
|
|
|
|
4,028,527
|
|
|
|
3,828,527
|
|
Bruce Plastics, Inc. (2%)*
|
|
Plastic Component
Manufacturing
|
|
Subordinated Note
(14%, Due 10/11)
|
|
|
1,500,000
|
|
|
|
1,412,046
|
|
|
|
1,412,046
|
|
|
|
|
|
Common Stock
Warrants (12% of
common stock)
|
|
|
|
|
|
|
108,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,520,580
|
|
|
|
1,412,046
|
|
CV Holdings, LLC (6%)*
|
|
Specialty Healthcare
Products Manufacturer
|
|
Subordinated Note
(16%, Due 03/10)
|
|
|
4,976,360
|
|
|
|
4,976,360
|
|
|
|
4,976,360
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,360
|
|
|
|
4,976,360
|
|
|
|
5,174,260
|
|
Cyrus Networks, LLC (6%)*
|
|
Data Center
Services Provider
|
|
Senior Note
(9%, Due 07/13)
|
|
|
4,382,257
|
|
|
|
4,382,257
|
|
|
|
4,382,257
|
|
|
|
|
|
2nd Lien Note
(12%, Due 01/14)
|
|
|
907,663
|
|
|
|
907,663
|
|
|
|
907,663
|
|
|
|
|
|
Revolving Line of
Credit (9)%
|
|
|
70,880
|
|
|
|
70,880
|
|
|
|
70,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,360,800
|
|
|
|
5,360,800
|
|
|
|
5,360,800
|
|
DataPath, Inc. (1%)*
|
|
Satellite
Communication
Manufacturer
|
|
Common Stock
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
576,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
576,400
|
|
F-6
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of Investments
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Eastern Shore Ambulance, Inc. (1%)*
|
|
Specialty Health
Care Services
|
|
Subordinated Note
(13%, Due 03/11)
|
|
$
|
1,000,000
|
|
|
$
|
958,715
|
|
|
$
|
958,715
|
|
|
|
|
|
Common Stock
Warrants (6% of
common stock)
|
|
|
|
|
|
|
55,268
|
|
|
|
7,400
|
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,043,983
|
|
|
|
968,015
|
|
Energy Hardware Holdings, LLC (4%)*
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
|
3,265,142
|
|
|
|
3,265,142
|
|
|
|
3,265,142
|
|
|
|
|
|
Junior Subordinated
Note (8%, Due 10/12)
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,472,809
|
|
|
|
3,472,809
|
|
|
|
3,472,809
|
|
FCL Graphics, Inc. (8%)*
|
|
Commercial Printing
Services
|
|
Senior Note
(9%, Due 10/12)
|
|
|
1,920,000
|
|
|
|
1,920,000
|
|
|
|
1,920,000
|
|
|
|
|
|
Senior Note
(13%, Due 10/13)
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
2nd Lien Note
(18%, Due 4/14)
|
|
|
3,145,481
|
|
|
|
3,145,481
|
|
|
|
3,145,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,065,481
|
|
|
|
7,065,481
|
|
|
|
7,065,481
|
|
Fire Sprinkler Systems, Inc. (3%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13% 17.5%, Due 04/11)
|
|
|
2,517,986
|
|
|
|
2,517,986
|
|
|
|
2,517,986
|
|
|
|
|
|
Common Stock
(250 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
41,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,986
|
|
|
|
2,767,986
|
|
|
|
2,559,686
|
|
Flint Acquisition Corporation (5%)*
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Note
(12.5%, Due 09/09)
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,074,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000
|
|
|
|
4,058,333
|
|
|
|
4,824,100
|
|
Garden Fresh Restaurant Corp. (4%)*
|
|
Restaurant
|
|
2nd Lien Note
(13%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
446,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,446,600
|
|
Gerli & Company (3%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,114,063
|
|
|
|
3,057,349
|
|
|
|
3,057,349
|
|
|
|
|
|
Common Stock
Warrants (56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
84,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,114,063
|
|
|
|
3,140,763
|
|
|
|
3,141,849
|
|
Library Systems & Services, LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,960,528
|
|
|
|
1,960,528
|
|
|
|
|
|
Common Stock
Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
594,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
2,019,523
|
|
|
|
2,554,828
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note
(9%, Due 08/12-02/14)
|
|
|
4,932,500
|
|
|
|
4,932,500
|
|
|
|
4,932,500
|
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,932,500
|
|
|
|
5,932,500
|
|
|
|
5,932,500
|
|
F-7
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of Investments
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Twin-Star International, Inc. (6%)*
|
|
Consumer Home
Furnishings
Manufacturer
|
|
Subordinated Note
(13%, Due 04/14)
|
|
$
|
4,500,000
|
|
|
$
|
4,500,000
|
|
|
$
|
4,500,000
|
|
|
|
|
|
Senior Note
(8%, Due 04/13)
|
|
|
1,492,500
|
|
|
|
1,492,500
|
|
|
|
1,492,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,992,500
|
|
|
|
5,992,500
|
|
|
|
5,992,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non - Control/Non - Affiliate Investments
|
|
|
|
|
64,284,841
|
|
|
|
66,819,386
|
|
|
|
69,078,281
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (3%)*
|
|
Industrial
Equipment
Manufacturer
|
|
Subordinated Note
(14%, Due 01/11)
|
|
|
2,081,321
|
|
|
|
2,081,321
|
|
|
|
2,081,321
|
|
|
|
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
543,600
|
|
|
|
|
|
Common Stock
Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,081,321
|
|
|
|
2,281,321
|
|
|
|
2,637,121
|
|
Brantley Transportation, LLC
(Brantley Transportation) and Pine
Street Holdings, LLC (Pine Street)(4) (4%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation
(14%, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,770,482
|
|
|
|
3,770,482
|
|
|
|
|
|
Common Unit
Warrants Brantley
Transportation (4,560
common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
33,600
|
|
|
|
|
|
Preferred Units Pine
Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
Common Unit
Warrants Pine Street
(2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
4,004,082
|
|
|
|
4,004,082
|
|
Dyson Corporation (12%)*
|
|
Custom Forging
and Fastener
Supplies
|
|
Subordinated Note
(15%, Due 12/13)
|
|
|
10,009,167
|
|
|
|
10,009,167
|
|
|
|
10,009,167
|
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,009,167
|
|
|
|
11,009,167
|
|
|
|
11,009,167
|
|
Equisales, LLC (7%)*
|
|
Energy Products
and Services
|
|
Subordinated Note
(15%, Due 04/12)
|
|
|
6,129,723
|
|
|
|
6,129,723
|
|
|
|
6,129,723
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,129,723
|
|
|
|
6,629,723
|
|
|
|
6,629,723
|
|
F-8
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of Investments
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Genapure Corporation (Genapure) and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genpref, LLC (Genpref)(5) (1%)*
|
|
Lab Testing
Services
|
|
Genapure Common
Stock (4,286 shares)
|
|
$
|
|
|
|
$
|
500,000
|
|
|
$
|
675,122
|
|
|
|
|
|
Genpref Preferred
Stock (455 shares)
|
|
|
|
|
|
|
63,602
|
|
|
|
85,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
761,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
22,020,211
|
|
|
|
24,487,895
|
|
|
|
25,041,093
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)*
|
|
Remediation
Services
|
|
Subordinated Note
(19%, Due 11/10)
|
|
|
2,403,521
|
|
|
|
2,403,521
|
|
|
|
2,403,521
|
|
|
|
|
|
Membership Units
(3,000 units)
|
|
|
|
|
|
|
175,000
|
|
|
|
118,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403,521
|
|
|
|
2,578,521
|
|
|
|
2,522,221
|
|
Fischbein, LLC (14%)*
|
|
Packaging and
Materials Handling
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
8,660,723
|
|
|
|
8,660,723
|
|
|
|
8,660,723
|
|
|
|
Equipment
Manufacturer
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
4,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,660,723
|
|
|
|
12,860,723
|
|
|
|
12,860,723
|
|
Porters Group, LLC (5%)*
|
|
Metal Fabrication
|
|
Membership Units
(4,730 units)
|
|
|
|
|
|
|
471,254
|
|
|
|
4,871,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254
|
|
|
|
4,871,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
11,064,244
|
|
|
|
15,910,498
|
|
|
|
20,254,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2007 (122%)*
|
|
|
|
|
|
$
|
97,369,296
|
|
|
$
|
107,217,779
|
|
|
$
|
114,374,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non income
producing. |
|
(2) |
|
Interest rates on subordinated debt include cash interest rate
and paid - in - kind interest rate. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
|
(5) |
|
Genpref is the sole owner of Genapures preferred stock and
its sole business purpose is its ownership of Genapures
preferred stock. |
See accompanying notes.
F-9
TRIANGLE
CAPITAL CORPORATION
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Non - Control/Non - Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirServ Corporation (18%)*
|
|
Airline Services
|
|
Subordinated Note
(12%, Due 06/09)
|
|
$
|
4,226,813
|
|
|
$
|
4,010,000
|
|
|
$
|
4,010,000
|
|
|
|
|
|
Common Stock
Warrants
(1,238,843 shares)
|
|
|
|
|
|
|
414,285
|
|
|
|
551,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,226,813
|
|
|
|
4,424,285
|
|
|
|
4,561,385
|
|
Ambient Air Corporation (16%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(12% 13%, Due
03/09 3/11)
|
|
|
4,000,000
|
|
|
|
3,874,015
|
|
|
|
3,874,015
|
|
|
|
|
|
Common Stock
Warrants
(455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
142,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
4,016,376
|
|
|
|
4,016,376
|
|
Art Headquarters, LLC (11%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(14%, Due 01/10)
|
|
|
2,680,155
|
|
|
|
2,652,414
|
|
|
|
2,652,414
|
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,680,155
|
|
|
|
2,693,214
|
|
|
|
2,693,214
|
|
Assurance Operations Corporation (15%)*
|
|
Auto Components/
Metal Fabrication
|
|
Subordinated Note
(17%, Due 03/12)
|
|
|
3,640,439
|
|
|
|
3,640,439
|
|
|
|
3,640,439
|
|
|
|
|
|
Common Stock
(200 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,640,439
|
|
|
|
3,840,439
|
|
|
|
3,840,439
|
|
Bruce Plastics, Inc. (6%)*
|
|
Plastic Component
Manufacturing
|
|
Subordinated Note
(14%, Due 10/11
|
|
|
1,500,000
|
|
|
|
1,395,305
|
|
|
|
1,395,305
|
|
|
|
|
|
Common Stock
Warrants (12% of
common stock)
|
|
|
|
|
|
|
108,534
|
|
|
|
108,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,503,839
|
|
|
|
1,503,839
|
|
CV Holdings, LLC (20%)*
|
|
Specialty Healthcare
Products
Manufacturer
|
|
Subordinated Note
(16%, Due 03/10)
|
|
|
4,683,376
|
|
|
|
4,683,376
|
|
|
|
4,683,376
|
|
|
|
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,683,376
|
|
|
|
4,683,376
|
|
|
|
4,933,376
|
|
DataPath, Inc. (8%)*
|
|
Satellite
Communication
Manufacturer
|
|
Common Stock
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
2,070,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
2,070,000
|
|
Eastern Shore Ambulance, Inc. (4%)*
|
|
Specialty Health
Care Services
|
|
Subordinated Note
(13%, Due 03/11)
|
|
|
1,000,000
|
|
|
|
949,099
|
|
|
|
949,099
|
|
|
|
|
|
Common Stock
Warrants (6% of
common stock)
|
|
|
|
|
|
|
55,268
|
|
|
|
94,267
|
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000
|
|
|
|
51,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,034,367
|
|
|
|
1,094,466
|
|
F-10
TRIANGLE
CAPITAL CORPORATION
Combined Schedule of Investments (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Fire Sprinkler Systems, Inc. (12%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13% 17.5%,
Due 04/11)
|
|
$
|
2,713,460
|
|
|
$
|
2,713,460
|
|
|
$
|
2,713,460
|
|
|
|
|
|
Common Stock
(250 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,713,460
|
|
|
|
2,963,460
|
|
|
|
2,963,460
|
|
Flint Acquisition Corporation (18%)*
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Note
(12.5%, Due 09/09)
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
829,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000
|
|
|
|
4,058,333
|
|
|
|
4,579,633
|
|
Garden Fresh Restaurant Corp. (15%)*
|
|
Restaurant
|
|
Subordinated Note
(12.8%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
673,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,673,700
|
|
Gerli & Company (12%)*
|
|
Specialty Woven
Fabrics
Manufacturer
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,052,167
|
|
|
|
2,981,184
|
|
|
|
2,981,184
|
|
|
|
|
|
Common Stock
Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052,167
|
|
|
|
3,064,598
|
|
|
|
3,064,598
|
|
Library Systems & Services, LLC (9%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,950,190
|
|
|
|
1,950,190
|
|
|
|
|
|
Common Stock
Warrants
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
189,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
2,009,185
|
|
|
|
2,140,085
|
|
Numo Manufacturing, Inc. (5%)*
|
|
Consumer Products
Manufacturer
|
|
Subordinated Note
(13%, Due 12/10)
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
1,235,777
|
|
|
|
|
|
Common Stock
Warrants
(238 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
1,235,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non - Control/Non - Affiliate Investments
|
|
|
|
|
|
|
38,946,410
|
|
|
|
40,592,972
|
|
|
|
42,370,348
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (4) (10%)*
|
|
Industrial Equipment
Manufacturer
|
|
Subordinated Note
(14%, Due 01/11)
|
|
|
2,039,575
|
|
|
|
2,039,575
|
|
|
|
2,039,575
|
|
|
|
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
541,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,039,575
|
|
|
|
2,239,575
|
|
|
|
2,581,275
|
|
F-11
TRIANGLE
CAPITAL CORPORATION
Combined 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) (5) (16%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation
(14%, Due 12/12)
|
|
$
|
3,800,633
|
|
|
$
|
3,767,033
|
|
|
$
|
3,767,033
|
|
|
|
|
|
Common Unit
Warrants Brantley
Transportation (4,560
common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
33,600
|
|
|
|
|
|
Preferred Units
Pine Street
(200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
Common Unit
Warrants Pine
Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,633
|
|
|
|
4,000,633
|
|
|
|
4,000,633
|
|
Genapure Corporation (2%)*
|
|
Lab Testing Services
|
|
Common Stock
(4,286 shares)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
Porters Group, LLC (12%)*
|
|
Metal Fabrication
|
|
Subordinated Note
(12%, Due 06/10)
|
|
|
2,410,000
|
|
|
|
2,242,083
|
|
|
|
2,242,083
|
|
|
|
|
|
Membership Units
(980 units)
|
|
|
|
|
|
|
250,000
|
|
|
|
142,150
|
|
|
|
|
|
Membership
Warrants
(3,750 Units)
|
|
|
|
|
|
|
221,154
|
|
|
|
545,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,410,000
|
|
|
|
2,713,237
|
|
|
|
2,929,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
8,250,208
|
|
|
|
9,453,445
|
|
|
|
10,011,145
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (10%)*
|
|
Remediation Services
|
|
Subordinated Note
(19%, Due 11/10)
|
|
|
2,439,935
|
|
|
|
2,439,935
|
|
|
|
2,439,935
|
|
|
|
|
|
Membership Units
(3,000 units)
|
|
|
|
|
|
|
175,000
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,439,935
|
|
|
|
2,614,935
|
|
|
|
2,614,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
2,439,935
|
|
|
|
2,614,935
|
|
|
|
2,614,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2006 (219%)*
|
|
|
|
|
|
$
|
49,636,553
|
|
|
$
|
52,661,352
|
|
|
$
|
54,996,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt and preferred stock investments are income producing.
Common stock and all warrants are non - income producing. |
|
(2) |
|
Interest rates on Subordinated debt include cash interest rate
and paid - in - kind interest rate. |
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
(4) |
|
Does not include a warrant to purchase 1,000 shares of
Axxiom Manufacturing, Inc.s common stock which was held by
the Fund upon completion of the formation transactions described
in Note 1. |
|
(5) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
See accompanying notes.
F-12
Triangle
Capital Corporation
|
|
1.
|
Organization,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Organization
Triangle Capital Corporation (the Company), was
formed on October 10, 2006 for the purposes of acquiring
100% of the equity interest in Triangle Mezzanine Fund LLLP
(the Fund) and its general partner, Triangle
Mezzanine LLC (TML), raising capital in an initial
public offering, which was completed in February 2007 (the
Offering) and thereafter operating as an internally
managed Business Development Company (BDC) under the
Investment Company Act of 1940 (the 1940 Act).
The Fund is a specialty finance limited liability limited
partnership formed to make investments primarily in middle
market companies located throughout the United States. The
Funds term is ten years from the date of formation
(August 14, 2002) unless terminated earlier or
extended in accordance with provisions of the limited
partnership agreement. On September 11, 2003, the Fund was
licensed to operate as a Small Business Investment Company
(SBIC) under the authority of the United States Small Business
Administration (SBA). As a SBIC, the Fund is subject to a
variety of regulations concerning, among other things, the size
and nature of the companies in which it may invest and the
structure of those investments.
On February 21, 2007, concurrent with the closing of the
Offering, the following formation transactions were consummated
(the Formation Transactions):
|
|
|
|
|
The Company acquired 100% of the limited partnership interests
in the Fund in exchange for approximately 1.9 million
shares of the Companys common stock. The Fund became a
wholly owned subsidiary of the Company, retained its license
under the authority of the United States Small Business
Administrations (SBA) to operate as a Small Business
Investment Company (SBIC) and continues to hold its
existing investments and make new investments with the proceeds
of the Offering; 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 Offering 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 Offering, the Company had 6,686,760 common
shares outstanding.
As a result of completion of the Offering 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 (previously employed by the
Funds external manager) under the supervision of its board
of directors. For all periods subsequent to the consummation of
the Offering and the Formation Transactions, the Company does
not pay management or advisory fees, but instead incurs the
operating costs associated with employing executive management
and investment and portfolio management professionals.
Basis of
Presentation
The financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries, including the
Fund. The Fund does not consolidate portfolio company
investments.
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. The Formation Transactions discussed above
involved an exchange of shares of the Companys common
stock between companies under common control. In accordance with
the guidance on exchanges of shares between entities under
common control contained in Statement of Financial
F-13
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
Accounting Standards No. 141, Business Combinations
(SFAS 141), the Companys financial
position as of December 31, 2007 and the results of
operations and cash flows for the year ended December 31,
2007 are presented as if the Formation Transactions had occurred
as of January 1, 2007. In addition, in accordance with
SFAS 141, the results of the Companys operations and
its cash flows for the years ended December 31, 2006 and
2005 and the Companys financial position as of
December 31, 2006 have been presented on a combined basis
in order to provide comparative information with respect to
prior periods. The effects of all intercompany transactions
between the Company and its subsidiaries have been eliminated in
consolidation/combination. All financial data and information
included in these financial statements have been presented on
the basis described above.
Significant
Accounting Policies
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Valuation
of Investments
The Company invests primarily in debt and equity of privately
held companies for which market prices are not available.
Therefore, the Company values all of its investments at fair
value, as determined in good faith by the Board of Directors.
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. In making the good faith determination of the value of
these 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.
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 addition, when evaluating equity
securities of private companies, the Company considers valuation
methodologies consistent with industry practice, including
(i) valuation using a valuation model based on original
transaction multiples and the portfolio companys recent
financial performance, (ii) valuation of the securities
based on recent sales in comparable transactions, and
(iii) a review of similar companies that are publicly
traded and the market multiple of their equity securities. 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.
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
F-14
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
or other equity instruments is treated as original issue
discount and accreted into interest income over the life of the
loan.
Duff & Phelps, LLC (Duff &
Phelps), an independent valuation firm, provides third
party valuation consulting services to the Company which consist
of certain limited procedures that the Company identified and
requested Duff & Phelps to perform (hereinafter
referred to as the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our shareholders 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.
As of September 30, 2006, the Company asked
Duff & Phelps to perform the procedures on investments
in 17 portfolio companies comprising 100% of the total
investments at fair value as of September 30, 2006. As of
December 31, 2006, the Company asked Duff &
Phelps to perform the procedures on investments in six portfolio
companies comprising approximately 41% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2006. For the
quarter ended March 31, 2007, the Company asked
Duff & Phelps to perform the procedures on investments
in five portfolio companies comprising approximately 26% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2007. For the quarter ended June 30, 2007, the Company
asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately
28% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2007. For the quarter ended September 30,
2007, the Company asked Duff & Phelps to perform the
procedures on investments in five portfolio companies comprising
approximately 29% of the total investments at fair value
(exclusive of the fair value of new investments made during the
quarter) as of September 30, 2007. For the quarter ended
December 31, 2007, the Company asked Duff &
Phelps to perform the procedures on investments in six portfolio
companies comprising approximately 23% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2007. 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.
Realized
Gain or Loss and Unrealized Appreciation or Depreciation of
Portfolio Investments
Realized gains or losses are recorded upon the sale or
liquidation of investments and calculated as the difference
between the net proceeds from the sale or liquidation, if any,
and the cost basis of the investment using the specific
identification method. Unrealized appreciation or depreciation
reflects the difference between the valuation of the investments
and the cost basis of the investments.
Investment
Classification
In accordance with the provisions of the 1940 Act, the Company
classifies investments by level of control. As defined in the
1940 Act, Control Investments are investments in
those companies that the Company is deemed to
Control. Affiliate Investments are
investments in those companies that are Affiliated
Companies of the Company, as defined in the 1940 Act,
other than Control Investments. Non -
Control/Non - Affiliate Investments are those that
are neither Control Investments nor Affiliate Investments.
Generally, under the 1940 Act, the Company is deemed to control
a company in which it has invested if the Company owns more than
25.0% of the voting securities of such company or has greater
than 50.0%
F-15
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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 and cash equivalents.
Deferred
Offering Costs
Deferred offering costs consist of costs incurred in connection
with the Offering completed in February 2007. The related
offering costs were reclassified to shareholders equity
and netted against the gross proceeds of the Offering in the
first quarter of 2007.
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. The Company will stop accruing interest on
investments and write off any previously accrued and uncollected
interest when it is determined that interest is no longer
collectible. Dividend income is recorded on the ex -
dividend date.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with loan agreements are
recorded as deferred income and recognized as income over the
term of the loan. Loan prepayment penalties and loan amendment
fees are recorded into income when received. Any previously
deferred fees are immediately recorded into income upon
prepayment of the related loan.
Payment
in Kind Interest
The Company holds loans in its portfolio that contain a
payment - in - kind (PIK) interest
provision. The PIK interest, computed at the contractual rate
specified in each loan agreement, is added to the principal
balance of the loan and is recorded as interest income. Thus,
the actual collection of this interest generally occurs at the
time of loan principal repayment. The Company will generally
cease accruing PIK interest if there is insufficient value to
support the accrual or if the investee is not expected to be
able to pay all principal and interest due.
Management
Fee
Prior to the consummation of the Formation Transactions, the
Fund was managed by Triangle Capital Partners, LLC, a related
party that is majority-owned by the Companys Chief
Executive Officer and two of the Companys managing
directors. Triangle Capital Partners, LLC was entitled to a
quarterly management fee, which was payable at an annual rate of
2.5% of total aggregate subscriptions of all institutional
partners
F-16
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
and capital available from the SBA. Payments of the management
fee were made quarterly in advance. Certain direct expenses such
as legal, audit, tax and limited partner expense were the
responsibility of the Fund. The management fee for the years
ended December 31, 2007, 2006 and 2005 was $232,423,
$1,589,070 and $1,573,602, respectively. In conjunction with the
consummation of the Formation Transactions in February 2007, the
management agreement was terminated.
Income
Taxes
From the date of its formation, October 10, 2006 through
December 31, 2006, Triangle Capital Corporation was taxed
under Subchapter C of the Internal Revenue Code. Prior to the
consummation of the Formation Transactions, Triangle Mezzanine
Fund LLLP recorded no provision for income taxes in its
financial statements because all income, deductions, gains,
losses, and credits were reported in the tax returns of the
partners.
For 2007, the Company intends to elect to be treated as a
Regulated Investment Company (RIC) under Subchapter
M of the Code. As a RIC, so long as the Company meets certain
minimum distribution, source-of-income and asset diversification
requirements, it generally is required to pay income taxes only
on the portion of its taxable income and gains it does not
distribute (actually or constructively) and certain built-in
gains.
In addition, the company has certain wholly owned taxable
subsidiaries (the Taxable Subsidiaries), each of
which holds one or more of its portfolio investments that are
listed on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for GAAP purposes, such that the
companys consolidated financial statements reflect the
Companys investments in the portfolio companies owned by
the Taxable Subsidiaries. The purpose of the Taxable
Subsidiaries is to permit the Company to hold portfolio
companies that are organized as limited liability companies
(LLCs) (or other forms of pass - through
entities) and still satisfy the RIC tax requirement that at
least 90% of the RICs gross revenue for income tax
purposes must consist of investment income. Absent the Taxable
Subsidiaries, a proportionate amount of any gross income of an
LLC (or other pass - through entity) portfolio investment
would flow through directly to the RIC. To the extent that such
income did not consist of investment income, it could jeopardize
the Companys ability to qualify as a RIC and therefore
cause the Company to incur significant amounts of federal income
taxes. Where the LLCs (or other pass-through entities) are owned
by the Taxable Subsidiaries, however, 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
December 31, 2007, the Company had one investment that was
individually greater than or equal to 10% of the total fair
value of its investment portfolio. This investment represented
approximately 11% of the total fair value of the Companys
investment portfolio. There were no individual investments
greater than 10% of the fair value of the Companys
portfolio at December 31, 2006. Income, consisting of
interest, dividends, fees, other investment income, and
realization of gains or losses on equity interests, can
fluctuate dramatically upon
F-17
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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.
Dividends
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 shareholders, unless a shareholder elects to
receive cash. As a result, when the Company declares a dividend,
shareholders who have not opted out of the DRIP will have their
dividends automatically reinvested in shares of the
Companys common stock, rather than receiving cash
dividends.
On May 9, 2007, the Company declared a dividend of $0.15
per common share, payable on June 28, 2007 to shareholders
of record on May 31, 2007. The total amount of the dividend
was approximately $1.0 million, of which approximately
$358,000 was paid in cash and approximately $645,000 was
reinvested in new shares of the Companys common stock.
On August 8, 2007, the Company declared a dividend of $0.26
per common share, payable on September 27, 2007 to
shareholders of record on August 30, 2007. The total amount
of the dividend was approximately $1.75 million, of which
approximately $769,000 was paid in cash and approximately
$981,000 was reinvested in new shares of the Companys
common stock.
On November 7, 2007, the Company declared a dividend of
$0.27 per common share, payable on December 27, 2007 to
shareholders of record on November 29, 2007. The total
amount of the dividend was approximately $1.84 million, all
of which was paid in cash.
On December 14, 2007, the Company declared a dividend of
$0.30 per common share, payable on January 28, 2008 to
shareholders of record on December 31, 2007. The total
amount of the dividend was approximately $2.04 million and
is reflected as dividends payable in the Companys
financial statements as of December 31, 2007.
Allocations
and Distributions of the Fund
Prior to the Offering, cumulative net increase in net assets
resulting from operations were allocated to the former General
Partner and limited partners in the following order: first to
the extent of the former limited partners preferred
return, second to the former General Partner until its
allocation equaled 20.0% of the former limited partners
preferred return divided by 80.0%, and third 80.0% to the former
limited partners and 20.0% to the former General Partner of any
remaining amounts. The former limited partners preferred
return was an amount equal to 7.0%, compounded annually, of the
partners net capital contribution. Cumulative net losses
were allocated to the former partners in proportion to their
capital contributions.
In addition, prior to the Offering, distributions were generally
allocated to the former partners in the following order: first
to the extent of the income taxes imposed on the former partner
with respect to income allocated to the former partner, second
to each former limited partner to the extent of the former
limited partners preferred return, third to each former
partner to the extent of contributed capital, fourth to the
former General Partner until its allocation equaled 20.0% of the
cumulative distributions, and fifth 80.0% to the former limited
partners and 20.0% to the former General Partner. Distributions
were at the discretion of the
F-18
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
former General Partner. During 2006, the Fund distributed
$5,000,010 in cash to the former limited partners of the Fund
and recorded a partners distribution payable of $531,566 to the
former General Partner, which was distributed in the first
quarter of 2007. In addition, in the second quarter of 2007, the
Fund distributed $220,047 in cash to the former General Partner
and former limited partners of the Fund.
In conjunction with the completion of the Offering in February
2007, as more fully described above, the Funds Limited
Partnership Agreement was amended. As a result, subsequent to
the Offering, allocations of profits and losses and
distributions of the Fund, generally, are allocated to the
partners in proportion to their respective partnership
percentages.
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 February 2006, the FASB issued FASB Statement No. 155,
Accounting for Certain Hybrid Financial Instruments an
amendment of FASB Statements No. 133 and 140. This
Statement is effective for all financial instruments acquired or
issued after the beginning of an entitys first fiscal year
that begins after September 15, 2006. The adoption of this
statement did not have a material impact on the Companys
financial position, results of operations of cash flows.
In July 2006, the FASB released FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48
requires the evaluation of tax positions taken or expected to be
taken in the course of preparing the Companys tax returns
to determine whether the tax positions are
more-likely-than-not of being sustained by the
applicable tax authority. Tax positions deemed to meet the
more-likely-than-not threshold would be recorded as a tax
benefit or expense in the current year. Adoption of FIN 48
is required for fiscal years beginning after December 15,
2006 and is to be applied to all open tax years as of the
effective date. The adoption of this statement did not have a
material impact on the Companys financial position,
results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is
the relevant measurement attribute. SFAS 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact on its
financial statements of adopting SFAS 157.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities - Including an
amendment of FASB Statement No. 115
(SFAS 159), which permits entities to
choose to measure many financial instruments and certain other
items at fair value. The objective of SFAS 159 is to
improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term
measurement
F-19
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
objectives for accounting for financial instruments. Under
SFAS 159, unrealized gains and losses on items for which
the fair value option has been elected are reported in earnings
(or another performance indicator if the business entity does
not report earnings) at each subsequent reporting date.
SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently
evaluating the impact on its financial statements of adopting
SFAS 159.
Summaries of the composition of the Companys investment
portfolio at cost and fair value as a percentage of total
investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
82,171,781
|
|
|
|
76
|
%
|
|
$
|
82,171,781
|
|
|
|
72
|
%
|
Senior debt
|
|
|
14,798,137
|
|
|
|
14
|
|
|
|
14,798,137
|
|
|
|
13
|
|
Equity shares
|
|
|
9,699,689
|
|
|
|
9
|
|
|
|
15,335,900
|
|
|
|
13
|
|
Equity warrants
|
|
|
548,172
|
|
|
|
1
|
|
|
|
1,870,500
|
|
|
|
2
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,217,779
|
|
|
|
100
|
%
|
|
$
|
114,374,218
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
48,788,108
|
|
|
|
93
|
%
|
|
$
|
47,323,885
|
|
|
|
86
|
%
|
Equity shares
|
|
|
2,714,833
|
|
|
|
5
|
|
|
|
5,633,283
|
|
|
|
10
|
|
Equity warrants
|
|
|
1,158,411
|
|
|
|
2
|
|
|
|
1,789,260
|
|
|
|
3
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,661,352
|
|
|
|
100
|
%
|
|
$
|
54,996,428
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2007, the Company made
nine new investments totaling $62.2 million, one additional
debt investment in an existing portfolio company of
$1.9 million and one additional equity investment in an
existing portfolio company of approximately $0.1 million.
During the year ended December 31, 2006, the Company made
nine new investments totaling $21.5 million.
The Company has the following debentures outstanding guaranteed
by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized
|
|
|
December 31,
|
|
|
December 31,
|
|
Issuance Date
|
|
Maturity Date
|
|
Return Rate
|
|
|
2007
|
|
|
2006
|
|
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539
|
%
|
|
$
|
8,700,000
|
|
|
$
|
8,700,000
|
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893
|
%
|
|
|
13,600,000
|
|
|
|
13,600,000
|
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796
|
%
|
|
|
9,500,000
|
|
|
|
9,500,000
|
|
February 1, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
|
|
|
|
December 20, 2007
|
|
March 1, 2018
|
|
|
6.031
|
%
|
|
|
1,210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,010,000
|
|
|
$
|
31,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semi - annually. There are no
principal payments required on these issues prior to maturity.
Debentures issued prior to September 2006 were subject to
prepayment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after
September 1, 2006.
F-20
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
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 twice the amount of its regulatory capital. As
of December 31, 2007, the maximum statutory limit on the
dollar amount of outstanding SBA guaranteed debentures issued by
a single SBIC is $130.6 million (which amount is subject to
increase on an annual basis based on cost of living increases).
With $63.3 million of regulatory capital as of
December 31, 2007, the Fund has the current capacity to
issue up to a total of $126.5 million of SBA guaranteed
debentures, subject to the payment of a 1% commitment fee to the
SBA on the amount of the commitment. As of December 31,
2007, the Fund had paid commitment fees for and had a commitment
from the SBA to issue a total of $41.9 million of SBA
guaranteed debentures, of which $37.0 million are
outstanding as of December 31, 2007. On January 8,
2008, the SBA approved an additional commitment to the Fund in
the amount of $55.0 million, bringing the total commitment
from the SBA to approximately $96.9 million. In order to
access the remaining $29.6 million in borrowing capacity
for which the Fund is currently eligible, the Fund would incur
non-refundable commitment fees of $296,000. In addition to the
one - time 1.0% fee on the total commitment from the SBA,
the Company also pays a one - time 2.425% fee on the amount
of each debenture issued. These fees are capitalized as deferred
financing costs and are amortized over the term of the debt
agreements using the effective interest method. The weighted
average interest rates for all SBA guaranteed debentures as of
December 31, 2007 and December 31, 2006 were 5.826%
and 5.767%, respectively.
From the date of its formation, October 10, 2006 up to
December 31, 2006, Triangle Capital Corporation was taxed
under Subchapter C of the Internal Revenue Code. Prior to the
consummation of the Formation Transactions, Triangle Mezzanine
Fund LLLP recorded no provision for income taxes in its
financial statements because all income, deductions, gains,
losses, and credits were reported in the tax returns of the
partners.
The Company intends to elect to be treated as a RIC under
Subchapter M of the Internal Revenue Code (the Code)
with the filing of its 2007 federal income tax return. The
election will be effective as of January 1, 2007. Provided
the Company continues to qualify as a RIC, its income generally
will not be subject to federal income or excise tax to the
extent it makes the requisite distributions to stockholders.
To qualify as a RIC, the Company is required to meet certain
income and asset diversification tests in addition to
distributing at least 90% of its investment company taxable
income, as defined by the Code. Because federal income tax
regulations differ from accounting principles generally accepted
in the United States, distributions in accordance with tax
regulations may differ from net investment income and realized
gains recognized for financial reporting purposes. Differences
may be permanent or temporary in nature. Permanent differences
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 year ended
December 31, 2007, the Company reclassified for book
purposes amounts arising from permanent book/tax differences
primarily related to return of capital distributions as follows:
|
|
|
|
|
Investment income in excess of distributions
|
|
$
|
649,856
|
|
Additional paid-in capital
|
|
$
|
(649,856
|
)
|
F-21
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
For income tax purposes, distributions paid to shareholders are
reported as ordinary income, return of capital, long term
capital gains or a combination thereof. The tax character of
distributions paid for the year ended December 31, 2007 was
as follows:
|
|
|
|
|
Ordinary income(a)
|
|
$
|
5,993,469
|
|
Return of capital
|
|
|
638,289
|
|
|
|
|
|
|
Distributions on a Tax Basis
|
|
$
|
6,631,758
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ordinary income is reported on
form 1099-DIV
as non-qualified. |
For federal income tax purposes, the cost of investments owned
at December 31, 2007 was approximately $107.3 million.
At December 31, 2007, the components of distributable
earnings on a tax basis detailed below differ from the amounts
reflected in the Companys Statement of Assets and
Liabilities by temporary and other book/tax differences,
primarily relating to depreciation expense and the tax treatment
of certain partnership investments.
|
|
|
|
|
Accumulated Capital Losses
|
|
$
|
(618,620
|
)
|
Other permanent differences relating to the Companys
Formation
|
|
|
1,834,692
|
|
Other temporary differences
|
|
|
34,166
|
|
Unrealized Appreciation
|
|
|
5,266,122
|
|
|
|
|
|
|
Components of Distributable Earnings at December, 31, 2007
|
|
$
|
6,516,360
|
|
|
|
|
|
|
At December 31, 2007, the Company had a capital loss
carryover of $618,620, which is available to offset future
capital gains through December 31, 2015.
|
|
5.
|
Equity
Compensation Plan
|
The Companys Board of Directors (the Board)
has adopted, effective upon approval of our stockholders at our
2008 Annual Meeting, the Triangle Capital Corporation Amended
and Restated 2007 Equity Incentive Plan (the Plan)
whereby 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; provided that,
until we receive exemptive relief from the SEC allowing
otherwise, the independent members of the Board shall each
receive exactly $30,000 of restricted stock annually as
compensation for their services on the Board, in addition to any
other cash compensation our compensation committee desires to
award to such independent directors. Up to 900,000 shares
are available for grant under the Plan. As of December 31,
2007, no awards under the plan had been granted or were
outstanding.
|
|
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, 2007
was approximately $2.1 million. Since these commitments may
expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
The Companys headquarters is leased under an agreement
that expires on December 31, 2008. Rent expense for the
year ended December 31, 2007 was approximately $98,000 and
the rent commitment for the year ended December 31, 2008 is
approximately $115,000.
F-22
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003(1)
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period(2)
|
|
$
|
13.44
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net investment income(3)
|
|
|
0.96
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net realized loss on investments(3)
|
|
|
(0.09
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net unrealized appreciation on investments(3)
|
|
|
0.45
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase from investment operations(3)
|
|
|
1.32
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Dividends declared
|
|
|
(0.98
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Shares issued pursuant to Dividend Reinvestment Plan
|
|
|
0.24
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Distribution to partners(3)
|
|
|
(0.03
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Income tax provision(3)
|
|
|
(0.01
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Other(4)
|
|
|
(0.24
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
13.74
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(5)
|
|
$
|
12.40
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
6,803,863
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Net assets at end of period
|
|
$
|
93,472,353
|
|
|
$
|
25,156,811
|
|
|
$
|
11,364,547
|
|
|
$
|
5,003,825
|
|
|
$
|
2,928,045
|
|
Average net assets(2)
|
|
$
|
92,765,399
|
|
|
$
|
20,447,456
|
|
|
$
|
7,654,010
|
|
|
$
|
5,104,796
|
|
|
$
|
1,129,026
|
|
Ratio of operating expenses to average net assets
|
|
|
7
|
%
|
|
|
18
|
%
|
|
|
43
|
%
|
|
|
40
|
%
|
|
|
107
|
%
|
Ratio of net investment income to average net assets
|
|
|
7
|
%
|
|
|
15
|
%
|
|
|
35
|
%
|
|
|
(1
|
)%
|
|
|
(104
|
)%
|
Ratio of total capital called to total capital commitments
|
|
|
N/A
|
|
|
|
100
|
%
|
|
|
50
|
%
|
|
|
35
|
%
|
|
|
20
|
%
|
Portfolio turnover ratio
|
|
|
13
|
%
|
|
|
7
|
%
|
|
|
39
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Total return(6)
|
|
|
(11
|
)%
|
|
|
18
|
%
|
|
|
4
|
%
|
|
|
(29
|
)%
|
|
|
57
|
%
|
|
|
|
(1) |
|
Per share data for the years ended December 31, 2006, 2005,
2004 and 2003 is not presented as there were no shares of
Triangle Capital Corporation outstanding during the period. |
|
(2) |
|
Net asset value as of January 1, 2007 and average net
assets for the year ended December 31, 2007 are presented
as if the Offering 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. |
|
(3) |
|
Weighted average basic per share data. |
|
(4) |
|
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. |
|
(5) |
|
Represents the closing price of the Companys common stock
on the last day of the period. |
|
(6) |
|
The total return for the year ended December 31, 2007
equals the change in the ending market value of the
Companys common stock from the Offering price of $15.00
per share plus dividends declared per share during the period,
divided by the Offering price. Total return is not annualized. |
F-23
Triangle
Capital Corporation
Notes to
Financial Statements (Continued)
|
|
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, 2007. Results for any quarter are not
necessarily indicative of results for the full year or for any
future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Total investment income
|
|
$
|
2,112,116
|
|
|
$
|
3,287,224
|
|
|
$
|
3,594,287
|
|
|
$
|
3,742,216
|
|
Net investment income
|
|
|
804,730
|
|
|
|
1,643,998
|
|
|
|
1,992,001
|
|
|
|
1,982,480
|
|
Net increase in net assets resulting from operations
|
|
|
1,065,835
|
|
|
|
2,230,084
|
|
|
|
3,366,681
|
|
|
|
2,150,498
|
|
Net investment income per share
|
|
$
|
0.12
|
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Total investment income
|
|
$
|
1,401,965
|
|
|
$
|
1,898,543
|
|
|
$
|
1,713,483
|
|
|
$
|
1,708,813
|
|
Net investment income
|
|
|
505,638
|
|
|
|
994,711
|
|
|
|
830,057
|
|
|
|
754,910
|
|
Net increase in net assets resulting from operations
|
|
|
505,638
|
|
|
|
4,190,320
|
|
|
|
1,058,757
|
|
|
|
2,942,626
|
|
SBA
Guaranteed Debentures Payable
On February 28, 2008, the Fund borrowed an additional
$5.2 million under the SBA debenture commitment.
New
Portfolio Company Investments
On March 6, 2008, the Company invested $4.3 million
and $0.5 million in subordinated debt and in equity of
AssetPoint, LLC (AssetPoint), a provider of
integrated enterprise asset management and computerized
maintenance management software and services based in
Greenville, South Carolina. Under the terms of the investment,
AssetPoint will pay interest on the subordinated debt at a fixed
rate of 15.0% per annum.
On March 7, 2008, the Company invested $1.0 million
and $3.0 million in senior debt and subordinated debt,
respectively, of Electronic Systems Protection, Inc.
(ESP), a manufacturer of power protection technology
for the office technology industry based in Zebulon, North
Carolina. Under the terms of the investment, ESP will pay
interest on the senior debt at a floating rate of LIBOR plus
375 basis points per annum and will pay interest on the
subordinated debt at a fixed rate of 14.0% per annum.
F-24
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated as of November 2, 2006, by
and among Triangle Capital Corporation, New Triangle GP, LLC,
and Triangle Mezzanine LLC (Filed as Exhibit (k)(7) to the
Registrants Registration Statement on Form N-2/N-5 (File
No. 333-138418) filed with the Securities and Exchange
Commission on November 3, 2006 and incorporated herein by
reference).
|
|
2
|
.2
|
|
Agreement and Plan of Merger, dated as of November 2, 2006, by
and among Triangle Capital Corporation, TCC Merger Sub, LLC and
Triangle Mezzanine Fund LLLP (Filed as Exhibit (k)(8) to the
Registrants Registration Statement on Form N-2/N-5 (File
No. 333-138418) filed with the Securities and Exchange
Commission on November 3, 2006 and incorporated herein by
reference).
|
|
3
|
.1
|
|
Articles of Amendment and Restatement of the Registrant (Filed
as Exhibit (a)(3) to the Registrants Registration
Statement on Form N-2/N-5 (File No. 333-138418) filed with the
Securities and Exchange Commission on December 29, 2006 and
incorporated herein by reference).
|
|
3
|
.2
|
|
Certificate of Limited Partnership of Triangle Mezzanine Fund
LLLP (Filed as Exhibit (a)(4) to the Registrants
Registration Statement on Form N-2/N-5 (File No. 333-138418)
filed with the Securities and Exchange Commission on February
13, 2007 and incorporated herein by reference).
|
|
3
|
.3
|
|
Second Amended and Restated Agreement of Limited Partnership of
Triangle Mezzanine Fund LLLP (Filed as Exhibit 3.4 to the
Registrants Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 11, 2007 and
incorporated herein by reference).
|
|
3
|
.4
|
|
Amended and Restated Bylaws of the Registrant (Filed as Exhibit
(b) to the Registrants Registration Statement on Form
N-2/N-5 (File No. 333-138418) filed with the Securities and
Exchange Commission on December 29, 2006 and incorporated herein
by reference).
|
|
4
|
.1
|
|
Form of Common Stock Certificate (Filed as Exhibit (d) to the
Registrants post -effective amendment to the Registration
Statement on Form N-2/N-5 (File No. 333-138418) filed with the
Securities and Exchange Commission on February 15, 2007 and
incorporated herein by reference).
|
|
4
|
.2
|
|
Triangle Capital Corporation Dividend Reinvestment Plan.
|
|
10
|
.1
|
|
Employment Agreement between Triangle Capital Corporation and
Garland S. Tucker, III dated February 21, 2007 (Filed as
Exhibit 10.1 to the Registrants Annual Report on Form 10-K
(File No. 001-33130) for the year ended December 31, 2006 filed
with the Securities and Exchange Commission on March 29, 2007
and incorporated herein by reference).
|
|
10
|
.2
|
|
Employment Agreement between Triangle Capital Corporation and
Brent P.W. Burgess dated February 21, 2007 (Filed as Exhibit
10.2 to the Registrants Annual Report on Form 10-K (File
No. 001-33130) for the year ended December 31, 2006 filed with
the Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.3
|
|
Employment Agreement between Triangle Capital Corporation and
Steven C. Lilly dated February 21, 2007 (Filed as Exhibit
10.3 to the Registrants Annual Report on Form 10-K (File
No. 001-33130) for the year ended December 31, 2006 filed with
the Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.4
|
|
Employment Agreement between Triangle Capital Corporation and
Tarlton H. Long dated February 21, 2007 (Filed as Exhibit
10.4 to the Registrants Annual Report on Form 10-K (File
No. 001-33130) for the year ended December 31, 2006 filed with
the Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.5
|
|
Employment Agreement between Triangle Capital Corporation and
David F. Parker dated February 21, 2007 (Filed as Exhibit 10.5
to the Registrants Annual Report on Form 10-K (File No.
001-33130)
for the year ended December 31, 2006 filed with the Securities
and Exchange Commission on March 29, 2007 and incorporated
herein by reference).
|
|
10
|
.6
|
|
Triangle Capital Corporation 2007 Equity Incentive Plan (Filed
as Exhibit (i) to the Registrants pre-effective amendment
to the Registration Statement on Form N-2/N-5 (File No.
333-138418) filed with the Securities and Exchange Commission on
February 13, 2007 and incorporated herein by reference).
|
|
10
|
.7
|
|
Form of Triangle Capital Corporation Amended and Restated 2007
Equity Incentive Plan.
|
|
10
|
.8
|
|
Custodian Agreement with U.S. Bank National Association (Filed
as Exhibit 10.7 to the Registrants Annual Report on Form
10-K (File No. 001-33130) for the year ended December 31, 2006
filed with the Securities and Exchange Commission on March 29,
2007 and incorporated herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit
|
|
|
10
|
.9
|
|
Amendment to Custody Agreement between the Registrant and U.S.
Bank National Association dated February 5, 2008.
|
|
10
|
.10
|
|
Sublease Assignment and Assumption of Assignors Interest
dated January 17, 2007 (Filed as Exhibit 10.8 to the
Registrants Annual Report on Form 10-K (File No.
001-33130) for the year ended December 31, 2006 filed with the
Securities and Exchange Commission on March 29, 2007 and
incorporated herein by reference).
|
|
10
|
.11
|
|
Stock Transfer Agency Agreement between Triangle Capital
Corporation and The Bank of New York.
|
|
14
|
.1
|
|
Code of Conduct (Filed as Exhibit 14.1 to the Registrants
Annual Report on Form 10-K (File No. 001-33130) for the year
ended December 31, 2006 filed with the Securities and Exchange
Commission on March 29, 2007 and incorporated herein by
reference).
|
|
21
|
.1
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Ernst & Young LLP.
|
|
31
|
.1
|
|
Chief Executive Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Chief Financial Officer Certification Pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Chief Executive Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Chief Financial Officer Certification pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
|
Management contract or compensatory plan or
arrangement.