As
filed with the Securities and Exchange Commission on June 25, 2008
Securities Act File No. 333-[ ]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No.
TRIANGLE CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
3600 Glenwood Avenue, Suite 104
Raleigh, North Carolina 27612
(Address of Principal Executive Offices)
Registrants Telephone Number, Including Area Code: (919) 719-4770
Garland S. Tucker III
President and Chief Executive Officer
3600 Glenwood Avenue, Suite 104
Raleigh, North Carolina 27612
(Name and Address of Agent For Service)
COPIES TO:
John A. Good, Esq.
Bass, Berry & Sims PLC
100 Peabody Place, Suite 900
Memphis, Tennessee 38103-3672
Tel: (901) 543-5901
Fax: (888) 543-4644
Approximate Date of Proposed Public Offering: From time to time after the effective date of the
Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous
basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in
connection with a dividend reinvestment plan, check the following box. þ
It is proposed that this filing will become effective (check appropriate box):
o when declared effective pursuant to section 8(c).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed Maximum |
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Aggregate Offering |
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Amount of |
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Title of Securities Being Registered |
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Price |
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Registration Fee |
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Common Stock, $0.001 par value per
share |
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$300,000,000 |
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$11,790
(1) |
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(1)
Pursuant to Rule 457(p) under the Securities Act of 1933, all of the
$11,790 registration fee will be offset by the $11,790 registration
fee paid by the Registrant in connection with its registration
statement filed on June 11, 2008, file number 333-151606.
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration
Statement shall become effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and is not soliciting an offer
to buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED JUNE 25, 2008
PROSPECTUS
$300,000,000
Common Stock
We may offer, from time to time, up to $300,000,000 worth of our common stock, $0.001 par
value per share in one or more offerings. Our common stock may be offered at prices and on terms to be
disclosed in one or more supplements to this prospectus. The
offering price per share of our common stock, less any underwriting commissions or discounts, will not be less
than the net asset value per share of our common stock at the time of the offering except (i) with the consent of the
majority of our common stockholders or (ii) under such other circumstances as the Securities and
Exchange Commission may permit. Our common stockholders recently
voted to allow us to issue common stock at a price below net asset
value per share for a period of one year. You should read this prospectus and the applicable prospectus
supplement carefully before you invest in our common stock.
Our common stock may be offered directly to one or more purchasers through agents designated from time to time by us, or to or
through underwriters or dealers. The prospectus supplement relating to the offering will identify
any agents or underwriters involved in the sale of our common stock, and will disclose any applicable
purchase price, fee, commission or discount arrangement between us and our agents or underwriters
or among our underwriters or the basis upon which such amount may be calculated. See Plan of
Distribution. We may not sell any of our common stock through agents, underwriters or dealers
without delivery of a prospectus supplement describing the method and terms of the offering of such
common stock.
We are a specialty finance company that provides customized financing solutions to lower
middle market companies located throughout the United States, with an emphasis on the Southeast.
Our investment objective is to seek attractive returns by generating current income from our debt
investments and capital appreciation from our equity related investments. We are an internally
managed, closed-end, non-diversified management investment company that has elected to be treated
as a business development company under the Investment Company Act of 1940.
Our
common stock is listed on the Nasdaq Global Market under the symbol
TCAP. On June 19,
2008, the last reported sale price of our common stock on the Nasdaq
Global Market was $11.40 per
share.
Investing in our common stock is speculative and involves numerous risks, and you could lose
your entire investment if any of the risks occurs. Among these risks is the risk associated with
the use of leverage. For more information regarding these risks, please see Risk Factors
beginning on page 13.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
Please read this prospectus and the accompanying prospectus supplement, if any, before
investing, and keep it for future reference. It concisely sets forth important information about us
that a prospective investor ought to know before investing in our common stock. We file annual,
quarterly and current reports, proxy statements and other information about us with the Securities
and Exchange Commission. This information is available free of charge by
contacting us at 3600 Glenwood Avenue, Suite 104, Raleigh, North Carolina 27612, or by
telephone at (919) 719-4770 or on our website at www.tcap.com. The Securities and Exchange
Commission also maintains a website at www.sec.gov that contains such information.
The date of this prospectus is , 2008.
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with the Securities and
Exchange Commission, or SEC, using the shelf registration process. Under the shelf registration
process, we may offer, from time to time, up to $300,000,000 worth of
our common stock on terms to be determined at the time of the offering. This prospectus provides you
with a general description of the common stock that we may offer. Each time we use this prospectus to
offer common stock, we will provide a prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. Please carefully read this prospectus and any
accompanying prospectus supplement together with the additional information described under
Additional Information and Risk Factors before you make an investment decision.
No dealer, salesperson or other person is authorized to give any information or to represent
anything not contained in this prospectus or any accompanying supplement to this prospectus. You
must not rely on any unauthorized information or representations not contained in this prospectus
or any accompanying prospectus supplement as if we had authorized it. This prospectus and any
accompanying prospectus supplement do not constitute an offer to sell or a solicitation of any
offer to buy any security other than the registered securities to which they relate, nor do they
constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction
to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction.
The information contained in this prospectus and any accompanying prospectus supplement is accurate
as of the dates on their covers.
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It is not complete and may
not contain all of the information that you may want to consider. You should read the entire
prospectus and any prospectus supplement carefully, including Risk Factors, Selected
Consolidated Financial and Other Data, Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements contained elsewhere in this
prospectus.
Triangle Capital Corporation is a Maryland corporation incorporated on October 10, 2006, for
the purpose of acquiring Triangle Mezzanine Fund LLLP, or Triangle SBIC, and its general partner,
Triangle Mezzanine LLC, or TML, raising capital in its Initial Public Offering, or IPO, which
closed on February 21, 2007 and, thereafter, operating as an internally managed business
development company under the Investment Company Act of 1940, as amended, or the 1940 Act. Triangle
SBIC is licensed as a small business investment company, or SBIC, by the United States Small
Business Administration, or SBA. Simultaneously with the consummation of our IPO, we acquired all
of the equity interests in Triangle SBIC and TML as described elsewhere in this prospectus under
Formation Transactions, whereby Triangle SBIC became our wholly owned subsidiary. Unless
otherwise noted in this prospectus or any accompanying prospectus supplement, the terms we, us,
our and Triangle refer to Triangle SBIC prior to the IPO and to Triangle Capital Corporation
and its subsidiaries currently existing.
Triangle Capital Corporation
Triangle Capital Corporation is a specialty finance company that provides customized financing
solutions to lower middle market companies located throughout the United States. We define lower
middle market companies as those having annual revenues between $10.0 and $100.0 million. Our
investment objective is to seek attractive returns by generating current income from our debt
investments and capital appreciation from our equity related investments. Our investment philosophy
is to partner with business owners, management teams and financial sponsors to provide flexible
financing solutions to fund growth, changes of control, or other corporate events. We invest
primarily in senior and subordinated debt securities secured by first and second lien security
interests in portfolio company assets, coupled with equity interests.
We focus on investments in companies with a history of generating revenues and positive cash
flows, an established market position and a proven management team with a strong operating
discipline. Our target portfolio company 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 Triangle SBIC 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 March 31, 2008, we had investments in 29 portfolio companies, with an aggregate cost of
$121.4 million. After giving effect to investment transactions
occurring subsequent to March 31, 2008, we have investments in
34 portfolio companies, with an aggregate cost of $159.6 million.
Our principal executive offices are located at 3600 Glenwood Avenue, Suite 104, Raleigh, North
Carolina 27612, and our telephone number is 919-719-4770. We maintain a website on the Internet at
www.tcap.com. Information contained on our website is not incorporated by reference into this
prospectus or any prospectus supplement, and you should not consider that information to be part of
this prospectus.
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 |
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management team have diverse investment backgrounds, with prior experience at investment banks,
specialty finance companies, commercial banks, and privately and publicly held companies in the
capacity of executive officers. We believe this diverse experience provides us with an in depth
understanding of the strategic, financial and operational
opportunities associated with lower
middle market companies. We believe this understanding allows us to select and structure better
investments and to efficiently monitor and provide managerial assistance to our portfolio
companies. |
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Applying Rigorous Underwriting Policies and Active Portfolio Management. Our senior
management team has implemented rigorous underwriting policies that are followed in each
transaction. These policies include a thorough analysis of each potential portfolio companys
competitive position, financial performance, management team operating discipline, growth
potential and industry attractiveness, allowing us to better assess the companys prospects.
After investing in a company, we monitor the investment closely, typically receiving monthly,
quarterly and annual financial statements. We analyze and discuss in detail the companys
financial performance with management in addition to attending regular board of directors
meetings. We believe that our initial and ongoing portfolio review process allows us to
monitor effectively the performance and prospects of our portfolio companies. |
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Taking Advantage of Low Cost Debentures Guaranteed by the SBA. Our license to do business
as an SBIC allows us to issue 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. |
Our Investment Criteria
We utilize the following criteria and guidelines in evaluating investment opportunities.
However, not all of these criteria and guidelines have been, or will be, met in connection with
each of our investments.
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Established Companies With Positive Cash Flow. We seek to invest in established companies
with a history of generating revenues and positive cash flows. We typically focus on companies
with a history of profitability and minimum trailing twelve month EBITDA of $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 management teams with these attributes are more
likely to manage the companies in a manner that protects our debt investment and enhances the
value of our equity investment. |
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Strong Competitive Position. We seek to invest in companies that have developed strong
positions within their respective markets, are well positioned to capitalize on growth
opportunities and compete in industries with barriers to entry. We also seek to invest in
companies that exhibit a competitive advantage, which may help to protect their market
position and profitability. |
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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 value beyond the layer of the capital structure in which we invest. |
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Our Investment Portfolio
As of March 31, 2008, we had investments in 29 portfolio companies with an aggregate cost of
approximately $121.4 million. Our investment in Fischbein, LLC is our only investment which
represents more than 10% of the total fair value of our investment portfolio. As of March 31, 2008,
the weighted average yield on all of our outstanding debt investments (including payment-in-kind,
or PIK, interest) was approximately 13.7%. The weighted average yield on all of our outstanding
investments (including equity and equity-linked investments) was approximately 12.5% as of March
31, 2008. There is no assurance that the portfolio yields will remain at these levels after the
offering. The following table sets forth certain unaudited information as of March 31, 2008 for
each portfolio company in which we had a debt or equity investment.
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Type of Investment |
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Principal |
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Fair |
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Cost |
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Value (3) |
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Non-Control / Non-Affiliate
Investments: |
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Ambient Air Corporation (6%)* |
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Specialty Trade |
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Subordinated Note |
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620 West Baldwin Road |
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Contractors |
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(12%, Due 03/11) |
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$ |
3,144,654 |
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$ |
3,049,405 |
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$ |
3,049,405 |
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Panama City, FL 32405 |
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Subordinated Note |
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(14%, Due 03/11) |
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1,872,075 |
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1,872,075 |
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1,872,075 |
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Common Stock Warrants |
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(455 shares) |
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142,361 |
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882,800 |
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5,016,729 |
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5,063,841 |
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5,804,280 |
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APO Newco, LLC (5%)* |
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Commercial and |
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Subordinated Note |
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3080 Bartlett Corporate Drive |
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Consumer |
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(14%, Due 03/13) |
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4,337,078 |
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4,314,941 |
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4,314,941 |
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Bartlett, TN 38133 |
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Marketing Products |
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Unit purchase warrant |
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(87,302 Class C units) |
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25,200 |
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273,900 |
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4,337,078 |
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4,340,141 |
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4,588,841 |
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ARC Industries, LLC (3%)* |
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Remediation Services |
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Subordinated Note |
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221 Dalton Avenue |
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(19%, Due 11/10) |
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2,434,027 |
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2,434,027 |
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2,434,027 |
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Charlotte, NC 28225 |
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2,434,027 |
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2,434,027 |
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2,434,027 |
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Art Headquarters, LLC (3%)* |
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Retail, Wholesale |
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Subordinated Note |
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11885 44th Street |
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and Distribution |
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(14%, Due 01/10) |
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2,376,823 |
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2,359,270 |
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2,359,270 |
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Clearwater, FL 33762 |
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Membership unit |
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warrants (15% of units |
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(150 units)) |
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40,800 |
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2,376,823 |
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2,400,070 |
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2,359,270 |
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Assurance
Operations Corp. (4%)* |
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Auto Components / |
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Subordinated Note |
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9341 Highway 43 |
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Metal Fabrication |
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(17%, Due 03/12) |
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3,876,915 |
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3,876,915 |
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3,643,115 |
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Killen, AL 35645 |
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Common Stock (57 shares) |
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257,143 |
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48,500 |
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3,876,915 |
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4,134,058 |
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3,691,615 |
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Bruce Plastics, Inc. (1%)* |
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Plastic Component |
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Subordinated Note |
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4100 Steubenville Pike |
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Manufacturing |
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(14%, Due 10/11) |
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1,500,000 |
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1,416,604 |
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538,404 |
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Pittsburgh, PA 15205 |
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Common Stock Warrants |
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(12% of common stock) |
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108,534 |
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1,500,000 |
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1,525,138 |
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538,404 |
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CV Holdings, LLC (6%)* |
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Specialty |
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Subordinated Note |
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1030 Riverfront Center |
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Healthcare Products |
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(16%, Due 03/10) |
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5,052,217 |
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5,052,217 |
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5,052,217 |
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Amsterdam, NY 12010 |
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Manufacturer |
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Royalty rights |
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274,600 |
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5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,326,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
4201 Southwest Freeway |
|
Services Provider |
|
(8%, Due 07/13) |
|
|
4,595,208 |
|
|
|
4,595,208 |
|
|
|
4,595,208 |
|
Houston, TX 77027 |
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11%, Due 01/14) |
|
|
980,428 |
|
|
|
980,428 |
|
|
|
980,428 |
|
|
|
|
|
|
|
Revolving Line of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit (8%) |
|
|
70,880 |
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (1%)* |
|
Satellite |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350 Technology Pkwy., Suite 400 |
|
Communication |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Norcross, GA 30092 |
|
Manufacturer |
|
(210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Eastern Shore Ambulance, Inc. |
|
Specialty Health |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(1%)* |
|
Care Services |
|
(13%, Due 03/11) |
|
$ |
1,000,000 |
|
|
$ |
961,318 |
|
|
$ |
961,318 |
|
3303 Airline Blvd., Building 5A |
|
|
|
|
|
Common Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
Portsmouth, VA 23701 |
|
|
|
|
|
(6% of common stock) |
|
|
|
|
|
|
55,268 |
|
|
|
11,200 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 shares) |
|
|
|
|
|
|
30,000 |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,046,586 |
|
|
|
975,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Systems Protection, |
|
Power Protection |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
Inc. (5%)* |
|
Systems |
|
(14%, Due 12/15) |
|
|
3,013,833 |
|
|
|
3,013,833 |
|
|
|
3,013,833 |
|
517 North Industrial Drive |
|
|
Manufacturing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
Zebulon, NC 27577 |
|
|
|
(7%, Due 01/14) |
|
|
997,110 |
|
|
|
997,110 |
|
|
|
997,110 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010,943 |
|
|
|
4,260,943 |
|
|
|
4,260,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC |
|
Machined Parts |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(4%)* |
|
Distribution |
|
(14.5%, Due 10/12) |
|
|
3,285,819 |
|
|
|
3,285,819 |
|
|
|
3,285,819 |
|
2730 E. Phillips Road |
|
|
|
|
|
Junior Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
Greer, SC 29650 |
|
|
|
|
|
(8%, Due 10/12) |
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (8%)* |
|
Commercial Printing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
4600 N. Olcott Ave. |
|
Services |
|
(7%, Due 10/12) |
|
|
1,880,000 |
|
|
|
1,880,000 |
|
|
|
1,880,000 |
|
Harwood Heights, IL 60706 |
|
|
|
|
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12%, Due 10/13) |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18%, Due 4/14) |
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc.
(3%)* |
|
Specialty Trade |
|
Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
|
|
705 E.
Harrison Street,Suite 200 |
|
Contractors |
|
(13%-17.5%, Due 04/11) |
|
|
2,441,060 |
|
|
|
2,441,060 |
|
|
|
2,441,060 |
|
Corona, CA 92879 |
|
|
|
|
|
Common Stock (250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,060 |
|
|
|
2,691,060 |
|
|
|
2,441,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flint Acquisition Corporation |
|
Specialty Chemical |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(5%)* |
|
Manufacturer |
|
(12.5%, Due 09/09) |
|
|
3,750,000 |
|
|
|
3,750,000 |
|
|
|
3,750,000 |
|
115 Todd Court |
|
|
|
|
|
Preferred Stock (9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
Thomasville, NC 27360 |
|
|
|
|
|
shares) |
|
|
|
|
|
|
308,333 |
|
|
|
1,097,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,847,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. |
|
|
Restaurant |
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
(4%)* |
|
|
|
(13%, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
15822 Bernardo Center Drive |
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
San Diego, CA 92127 |
|
|
|
|
|
(5,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (3%)* |
|
Specialty Woven |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
75 Stark Street |
|
Fabrics |
|
(14%, Due 08/11) |
|
|
3,129,726 |
|
|
|
3,076,896 |
|
|
|
3,076,896 |
|
Plains, PA 18705 |
|
Manufacturer |
|
Common Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
29,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,129,726 |
|
|
|
3,160,310 |
|
|
|
3,106,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC |
|
Municipal Business |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(3%)* |
|
Services |
|
(12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,963,309 |
|
|
|
1,963,309 |
|
12850 Middlebrook Road |
|
|
|
|
|
Common Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
Germantown, MD 20874 |
|
|
|
|
|
(112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
560,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,022,304 |
|
|
|
2,523,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical |
|
Senior Note (9%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
1025 Mary Laidley Drive |
|
Manufacturer |
|
|
08/12-02/14) |
|
|
4,865,000 |
|
|
|
4,865,000 |
|
|
|
4,865,000 |
|
Covington, KY 41017 |
|
|
|
|
|
Common Units (2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,865,000 |
|
|
|
5,865,000 |
|
|
|
5,865,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
TrustHouse Services Group, Inc. |
|
Food Management |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(5%)* |
|
Services |
|
(14%, Due 03/15) |
|
$ |
4,200,000 |
|
|
$ |
4,200,000 |
|
|
$ |
4,200,000 |
|
21 Armory Drive |
|
|
|
|
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
Wheeling, WV 26003 |
|
|
|
|
|
(1,495 units) |
|
|
|
|
|
|
475,000 |
|
|
|
475,000 |
|
|
|
|
|
|
|
Class B Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 units) |
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200,000 |
|
|
|
4,700,000 |
|
|
|
4,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twin-Star International, Inc.
(6%)* |
|
Consumer Home |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
115 S.E. 4th Avenue |
|
Furnishings |
|
(13%, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
4,500,000 |
|
Delray Beach, FL 33483 |
|
Manufacturer |
|
Senior Note (8%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/13) |
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control /
Non-Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
75,204,762 |
|
|
|
78,569,772 |
|
|
|
79,704,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (5%)* |
|
Asset Management |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
770 Pelham Road, Suite 200 |
|
Software Provider |
|
(15%, Due 03/13) |
|
|
4,309,151 |
|
|
|
4,309,151 |
|
|
|
4,309,151 |
|
Greenville, SC 29615 |
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309,151 |
|
|
|
4,809,151 |
|
|
|
4,809,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc.(3%)* |
|
Equipment |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
11927 South Highway 6 |
|
Manufacturer |
|
(14%, Due 01/11) |
|
|
2,091,861 |
|
|
|
2,091,861 |
|
|
|
2,091,861 |
|
Fresno, TX 77545 |
|
|
|
|
|
Common Stock (34,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
200,000 |
|
|
|
428,000 |
|
|
|
|
|
|
|
Common Stock Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 shares) |
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,091,861 |
|
|
|
2,291,861 |
|
|
|
2,529,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brantley Transportation, LLC |
|
Oil and Gas Services |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(Brantley Transportation) and |
|
|
|
|
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street
Holdings, LLC |
|
|
|
|
|
(14%, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,771,580 |
|
|
|
3,771,580 |
|
(Pine Street) (4) (4%)* |
|
|
|
|
|
Common Unit Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
808 N. Ruth Street |
|
|
|
|
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
Monahans, TX 79756 |
|
|
|
|
|
(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 |
|
|
|
4,005,180 |
|
|
|
4,005,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (12%)* |
|
Custom Forging and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
53 Freedom Road |
|
Fastener |
|
(15%, Due 12/13) |
|
|
10,085,262 |
|
|
|
10,085,262 |
|
|
|
10,085,262 |
|
Painesville, OH 44077 |
|
Supplies |
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,085,262 |
|
|
|
11,085,262 |
|
|
|
11,085,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisales, LLC (7%)* |
|
Energy Products and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
13811 Cullen Blvd. |
|
Services |
|
(15%, Due 04/12) |
|
|
6,176,325 |
|
|
|
6,176,325 |
|
|
|
6,176,325 |
|
Houston, TX 77047 |
|
|
|
|
|
Class A Units (500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,176,325 |
|
|
|
6,676,325 |
|
|
|
6,676,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation |
|
Lab Testing Services |
|
Genapure Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
(Genapure) and Genpref, LLC |
|
|
|
|
|
(4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
(Genpref) (5) (1%)*
|
|
|
|
|
|
Genpref Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
1205
Industrial Blvd. |
|
|
|
|
|
(455 shares) |
|
|
|
|
|
|
63,602 |
|
|
|
85,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southampton, PA 18966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
761,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
26,462,599 |
|
|
|
29,431,381 |
|
|
|
29,866,379 |
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)* |
|
Packaging and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
151 Walker Road |
|
Materials Handling |
|
(16.5%, Due 05/13) |
|
$ |
8,759,613 |
|
|
$ |
8,759,613 |
|
|
$ |
8,759,613 |
|
Statesville, NC 28625 |
|
Equipment |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
4,626,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
12,959,613 |
|
|
|
13,385,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Porters Group, LLC (5%)* |
|
Metal Fabrication |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
1111 Oates Road |
|
|
|
(4,730 units) |
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bessemer City, NC 28016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
13,430,867 |
|
|
|
17,821,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31,
2008 (135%)* |
|
|
|
|
|
|
|
|
|
$ |
110,426,974 |
|
|
$ |
121,432,020 |
|
|
$ |
127,392,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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 our board of directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC, and its
sole business purpose is its ownership of Brantley Transportation, LLC. |
|
(5) |
|
Genpref is the sole owner of Genapures preferred stock, and its sole business purpose is its
ownership of Genapures preferred stock. |
Recent Developments
On April 17, 2008, the Companys loan to Flint Acquisition Corporation of approximately $3.8
million was repaid in full. In connection with the repayment, the Company recognized a prepayment
fee of $37,500.
On April 25, 2008, we invested $9.4 million in Jenkins Restoration, Inc. (Jenkins)
consisting of $8.0 million in subordinated debt and $1.4 million in convertible debt. Jenkins,
headquartered in Sterling, Virginia, is a provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and commercial buildings caused by fire, wind,
storm, vandalism or burglary.
On April 29, 2008, the Company made an $8.0 million subordinated debt investment in American
De-Rosa Lamparts, LLC and Hallmark Lighting (ADL/Hallmark). ADL/Hallmark, headquartered in
California, markets a wide variety of lighting products, including fixtures, bulbs, electrical
components, glass and hardware, to maintenance and repair organizations, lighting wholesalers,
retailers and original equipment manufacturers.
On April 30, 2008, the Company invested $13.0 million in subordinated debt in Yellowstone
Landscape Group, Inc. (Yellowstone). Yellowstone, headquartered in Dallas, Texas, is a
full-service lawn care provider focused primarily on the commercial market with services including
lawn and landscape maintenance, construction/installation, irrigation, turf management and tree
care throughout Texas and the Southeast.
On June 2, 2008, we invested $8.0 million in subordinated debt in Inland Pipe Rehabilitation,
LLC (IPR). IPR, headquartered in Detroit, Michigan, provides maintenance, inspection, cleaning, and
repair services relating to piping, sewers, drains, and storm lines. In addition, we received a
warrant to purchase a 2.5% membership interest in IPR.
On
June 12, 2008, we invested $3.5 million in subordinated
debt in Wholesale Floors, Inc. (WFI). WFI, headquartered
near Phoenix, Arizona, provides commercial flooring design and
installation services for institutional and corporate clients. In
addition, we received a warrant to purchase a 4.0% interest in WFI.
Formation
Triangle Capital Corporation is a Maryland corporation formed on October 10, 2006, for the
purpose of acquiring 100% of the equity interests in Triangle SBIC and TML, raising capital in our
IPO and thereafter operating as an internally managed BDC under the 1940
Act. Triangle SBIC is our wholly owned subsidiary and is licensed to do business as an SBIC.
We are a closed-end, non-diversified management investment company that has elected to be
treated as a BDC under the 1940 Act. In addition, Triangle SBIC has elected to be treated as a BDC.
We are internally managed by our executive officers under the supervision of our board of
directors. As a result, we do not pay any external investment advisory fees, but instead we incur
the operating costs associated with employing investment and portfolio management professionals.
As a BDC, we are required to comply with numerous regulatory requirements. We are permitted
to, and expect to, finance our investments using debt and equity. However, our ability to use debt
is limited in certain significant respects. See Regulations. We intend to file an application to
be treated for federal income tax purposes as a regulated investment company, or RIC, under the
6
Internal Revenue Code of 1986, as amended, or the Code. See Material U.S. Federal Income Tax
Considerations. As a RIC, we generally do not have to pay corporate-level federal income taxes on
any net ordinary income or capital gains that we distribute to our stockholders as dividends if we
meet certain source-of-income and asset diversification requirements.
The Offering
We
may offer, from time to time, up to $300,000,000 worth of our common stock, on terms to be
determined at the time of the offering. Our common stock may be offered at prices and on terms to be
disclosed in one or more prospectus supplements. The offering price
per share of our common stock, less any underwriting commissions or discounts, will not be
less than the net asset value per share of our common stock at the
time of the offering except (i) with the consent of the
majority of our common stockholders (which we received from our
stockholders at our May 7, 2008 Annual Meeting, for a period of
one year) or (ii) under such other circumstances as the SEC may permit.
Our common stock may be offered directly to one or more purchasers by us or through agents designated from time to time by us, or
to or through underwriters or dealers. The prospectus supplement relating to the offering will
disclose the terms of the offering, including the name or names of any agents or underwriters
involved in the sale of our common stock by us, the purchase price, and any fee, commission or
discount arrangement between us and our agents or underwriters or among our underwriters or the
basis upon which such amount may be calculated. See Plan of Distribution. We may not sell any of
our common stock through agents, underwriters or dealers without delivery of a prospectus supplement
describing the method and terms of the offering of our common stock.
Set forth below is additional information regarding the offering of our common stock:
|
|
|
Nasdaq Global Market symbol
|
|
TCAP |
|
|
|
Use of proceeds
|
|
We intend to use the net proceeds from selling
our common stock to make investments in lower
middle market companies in accordance with our
investment objective and strategies and for
working capital and general corporate
purposes. |
|
|
|
Dividends and distributions
|
|
We pay quarterly dividends to our stockholders
out of assets legally available for
distribution. Our dividends, if any, will be
determined by our board of directors. |
|
|
|
Taxation
|
|
We intend to elect to be treated as a RIC for
federal income tax purposes with the filing of
our 2007 corporate income tax return, which
will be effective as of January 1, 2007.
Accordingly, we generally will not pay
corporate-level federal income taxes on any
net ordinary income or capital gains that we
distribute to our stockholders as dividends.
To maintain our RIC tax treatment, we must
meet specified source-of-income and asset
diversification requirements and distribute
annually at least 90.0% of our net ordinary
income and realized net short-term capital
gains in excess of realized net long-term
capital losses, if any. |
|
|
|
Dividend reinvestment plan
|
|
We have a dividend reinvestment plan for our
stockholders. The dividend reinvestment plan
is an opt out dividend reinvestment plan. As
a result, if we declare a dividend, then
stockholders cash dividends will be
automatically reinvested in additional shares
of our common stock, unless they specifically
opt out of the dividend reinvestment plan so
as to receive cash dividends. Stockholders who
receive distributions in the form of stock
will be subject to the same federal, state and
local tax consequences as stockholders who
elect to receive their distributions in cash.
See Dividend Reinvestment Plan. |
|
|
|
Trading at a discount
|
|
Shares of closed-end investment companies
frequently trade at a discount to their net
asset value. This risk is separate and
distinct from the risk that our net asset
value per share may decline. We cannot predict
whether our common stock will trade above, at or
below net asset value. |
|
|
|
Risk factors
|
|
See Risk Factors beginning on page 13 and
the other information included in this
prospectus, or any prospectus supplement, for
a discussion of factors you should carefully
consider before deciding to invest in our
common stock. |
|
|
|
Available information
|
|
We are required to file periodic reports,
current reports, proxy statements and other
information with the SEC. This information is
available at the SECs public reference room
in Washington, D.C. and on the SECs Internet
website at www.sec.gov. We intend to provide
much of the same information on our website at
www.tcap.com. Information contained on our
website is not part of this prospectus or any
prospectus supplement and should not be relied
upon as such. |
7
FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an
investor in this offering will bear directly or indirectly. We caution you that some of the
percentages indicated in the table below are estimates and may vary. Except where the context
suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by
you, us or Triangle, or that we will pay fees or expenses, stockholders will indirectly
bear such fees or expenses as investors in us.
|
|
|
|
|
Stockholder Transaction Expenses: |
|
|
|
|
Sales load (as a percentage of offering price) |
|
|
|
(1)
|
Dividend reinvestment plan expenses |
|
|
|
(2)
|
Total stockholder transaction expenses (as a percentage of offering price) |
|
|
|
(3)
|
|
Annual Expenses (as a percentage of net assets attributable to common stock): |
|
|
|
|
Operating expenses |
|
|
0.9 |
% (4)
|
Acquired fund fees and expenses |
|
|
5.9 |
% (5)
|
Interest payments on borrowed funds |
|
|
|
(6)
|
Total annual expenses |
|
|
6.8 |
% (7)
|
|
|
|
(1) |
|
In the event that our common stock is sold to or through underwriters, a corresponding
prospectus supplement will disclose the applicable sales load. |
|
(2) |
|
The expenses of administering our dividend reinvestment plan are included in operating
expenses. |
|
(3) |
|
Total stockholder transaction expenses may include sales load and will be disclosed in a
future prospectus supplement, if any. |
|
(4) |
|
Operating expenses represent our estimated annual operating expenses, excluding interest
payments on borrowed funds. We do not have an investment adviser and are internally managed
by our executive officers under the supervision of our board of directors. As a result, we do
not pay investment advisory fees, but instead we pay the operating costs associated with
employing investment management professionals. We have allocated such operating costs
associated with paying investment management professionals to both Triangle Capital
Corporation and Triangle SBIC in the fees and expenses table. |
|
(5) |
|
Acquired fund fees and expenses include both direct expenses of Triangle SBIC, as well as
operating costs associated with paying investment management professionals which are incurred
by Triangle Capital Corporation and allocated to Triangle SBIC, which is wholly owned by
Triangle Capital Corporation, for purposes of this fees and expenses table. You will incur
these fees and expenses indirectly through Triangle Capital Corporations investment in
Triangle SBIC. Triangle Capital Corporation deploys a significant amount of its investment
capital through Triangle SBIC in order to take advantage of Triangle SBICs ability as an SBIC
to borrow money by issuing fixed-rate, low interest debentures guaranteed by the SBA.
Therefore, the acquired fund fees and expenses account for a significant portion of Triangle
Capital Corporations total annual fees so long as Triangle Capital Corporation invests a
significant amount of its capital through Triangle SBIC. However, since, as of March 31, 2008,
SBA regulations limit the dollar amount of SBA guaranteed debentures that may be issued by any
one SBIC to $130.6 million (which amount is subject to increase by the SBA on an annual basis
based on cost of living increases), Triangle Capital Corporation intends to invest its capital
through Triangle SBIC only until it has utilized the maximum amount of SBA guaranteed
debentures. Upon Triangle SBICs reaching such maximum dollar amount, Triangle Capital
Corporation will begin to deploy capital independently from Triangle SBIC. |
|
(6) |
|
Interest payments on borrowed funds equal 0.0% in this particular line item because all
interest payments on borrowed funds are considered expenses of Triangle SBIC, and,
accordingly, such interest expenses are fully accounted for in the line item entitled,
Acquired fund fees and expenses. |
|
(7) |
|
The total annual expenses are the sum of operating expenses, acquired fund fees and expenses
and interest payments on borrowed funds. Total annual expenses as a percentage of average
net assets attributable to common stock are higher than the total annual expenses percentage
would be for a company that is not leveraged. The SEC requires that the Total annual
expenses percentage be calculated as a percentage of average net assets, rather than average
total assets, which includes assets that have been funded with borrowed money. If the Total
annual expenses percentage were calculated instead as a percentage of average total assets,
we estimate that our Total annual expenses would be approximately 5.4% of average total
assets. |
8
Example
The following example is required by the Securities and Exchange Commission and demonstrates
the projected dollar amount of total cumulative expenses that would be incurred over various
periods with respect to a hypothetical investment in us. In calculating the following expense
amounts, we assumed we would have no additional leverage and that our operating expenses would
remain at the levels set forth in the table above. In the event that shares to which this
prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will
restate this example to reflect the applicable sales load.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
You would pay the following
expenses on a $1,000
investment, assuming a 5.0%
annual return |
|
$ |
70 |
|
|
$ |
205 |
|
|
$ |
335 |
|
|
$ |
638 |
|
The example and the expenses in the tables above should not be considered a representation of
our future expenses, and actual expenses may be greater or lesser than those shown. While the
example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may
result in a return greater or less than 5.0%. The table above does not reflect additional SBA
leverage that we intend to employ in the future. Other expenses are based on estimated amounts
for the current fiscal year. In addition, while the example assumes reinvestment of all dividends
at net asset value, participants in our dividend reinvestment plan will receive a number of shares
of our common stock, determined by dividing the total dollar amount of the dividend payable to a
participant by the market price per share of our common stock at the close of trading on the
dividend payment date, which may be at, above or below net asset value. See Dividend Reinvestment
Plan for additional information regarding our dividend reinvestment plan.
9
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical financial and other data below reflects the operations of Triangle
Capital Corporation and Triangle SBIC. 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. The
selected financial data at and for the three month period ended March 31, 2008 have been derived
from unaudited financial data, and in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) that are necessary to present fairly the results
for such interim period. Interim results at and for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2008.
You should read this selected financial and other data in conjunction with our Managements
Discussion and Analysis of Financial Condition and Results of Operations and the financial
statements and notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
Year Ended December 31, |
|
|
March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
Income statement data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and
dividend income |
|
$ |
26 |
|
|
$ |
1,969 |
|
|
$ |
5,855 |
|
|
$ |
6,443 |
|
|
$ |
10,912 |
|
|
$ |
3,727 |
|
Interest income from cash
and cash equivalent
investments |
|
|
15 |
|
|
|
18 |
|
|
|
108 |
|
|
|
280 |
|
|
|
1,824 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
|
41 |
|
|
|
1,987 |
|
|
|
5,963 |
|
|
|
6,723 |
|
|
|
12,736 |
|
|
|
3,864 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
339 |
|
|
|
1,543 |
|
|
|
1,834 |
|
|
|
2,073 |
|
|
|
562 |
|
Amortization of deferred
financing fees |
|
|
|
|
|
|
38 |
|
|
|
90 |
|
|
|
100 |
|
|
|
113 |
|
|
|
40 |
|
Management fees |
|
|
1,048 |
|
|
|
1,564 |
|
|
|
1,574 |
|
|
|
1,589 |
|
|
|
233 |
|
|
|
|
|
General and administrative
expenses |
|
|
165 |
|
|
|
83 |
|
|
|
58 |
|
|
|
115 |
|
|
|
3,894 |
|
|
|
1,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,213 |
|
|
|
2,024 |
|
|
|
3,265 |
|
|
|
3,638 |
|
|
|
6,313 |
|
|
|
1,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
|
(1,172 |
) |
|
|
(37 |
) |
|
|
2,698 |
|
|
|
3,085 |
|
|
|
6,423 |
|
|
|
1,914 |
|
Net realized gain (loss) on
investments
non-control/non-affiliate |
|
|
|
|
|
|
|
|
|
|
(3,500 |
) |
|
|
6,027 |
|
|
|
(760 |
) |
|
|
|
|
Net realized gain on
investments affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
Net unrealized appreciation
(depreciation) of
investments |
|
|
|
|
|
|
(1,225 |
) |
|
|
3,975 |
|
|
|
(415 |
) |
|
|
3,061 |
|
|
|
(1,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on
investments |
|
|
|
|
|
|
(1,225 |
) |
|
|
475 |
|
|
|
5,612 |
|
|
|
2,442 |
|
|
|
(1,022 |
) |
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net
assets resulting from
operations |
|
$ |
(1,172 |
) |
|
$ |
(1,262 |
) |
|
$ |
3,173 |
|
|
$ |
8,697 |
|
|
$ |
8,813 |
|
|
$ |
765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per
share basic and diluted |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.95 |
|
|
$ |
0.28 |
|
Net increase in net assets
resulting from operations
per share basic and
diluted |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
1.31 |
|
|
$ |
0.11 |
|
Net asset value per common
share |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
13.74 |
|
|
$ |
13.85 |
|
Dividends declared per
common share |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.98 |
|
|
$ |
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value |
|
$ |
|
|
|
$ |
19,701 |
|
|
$ |
37,144 |
|
|
$ |
54,996 |
|
|
$ |
114,374 |
|
|
$ |
127,392 |
|
Deferred loan origination
revenue |
|
|
(35 |
) |
|
|
(537 |
) |
|
|
(602 |
) |
|
|
(774 |
) |
|
|
(1,368 |
) |
|
|
(1,572 |
) |
Cash and cash equivalents |
|
|
2,973 |
|
|
|
2,849 |
|
|
|
6,067 |
|
|
|
2,556 |
|
|
|
21,788 |
|
|
|
15,611 |
|
Interest and fees receivable |
|
|
|
|
|
|
98 |
|
|
|
50 |
|
|
|
135 |
|
|
|
305 |
|
|
|
404 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
178 |
|
Deferred offering costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021 |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
33 |
|
Deferred financing fees |
|
|
|
|
|
|
823 |
|
|
|
1,085 |
|
|
|
985 |
|
|
|
999 |
|
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,938 |
|
|
$ |
22,934 |
|
|
$ |
43,744 |
|
|
$ |
58,919 |
|
|
$ |
136,179 |
|
|
$ |
143,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners
capital / net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
|
$ |
10 |
|
|
$ |
|
|
|
$ |
13 |
|
|
$ |
825 |
|
|
$ |
1,144 |
|
|
$ |
644 |
|
Interest payable |
|
|
|
|
|
|
230 |
|
|
|
566 |
|
|
|
606 |
|
|
|
699 |
|
|
|
186 |
|
Distribution / dividends
payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532 |
|
|
|
2,041 |
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
95 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,760 |
|
|
|
1,586 |
|
SBA-guaranteed debentures
payable |
|
|
|
|
|
|
17,700 |
|
|
|
31,800 |
|
|
|
31,800 |
|
|
|
37,010 |
|
|
|
47,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
10 |
|
|
|
17,930 |
|
|
|
32,379 |
|
|
|
33,763 |
|
|
|
42,706 |
|
|
|
49,561 |
|
Total partners capital /
shareholders equity |
|
|
2,928 |
|
|
|
5,004 |
|
|
|
11,365 |
|
|
|
25,156 |
|
|
|
93,473 |
|
|
|
94,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners
capital / net assets |
|
$ |
2,938 |
|
|
$ |
22,934 |
|
|
$ |
43,744 |
|
|
$ |
58,919 |
|
|
$ |
136,179 |
|
|
$ |
143,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on
investments |
|
|
|
|
|
|
15.5 |
% |
|
|
14.2 |
% |
|
|
13.3 |
% |
|
|
12.6 |
% |
|
|
12.5 |
% |
Number of portfolio companies |
|
|
|
|
|
|
6 |
|
|
|
12 |
|
|
|
19 |
|
|
|
26 |
|
|
|
29 |
|
Expense ratios (annualized, as
percentage of average net
assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
107.4 |
% |
|
|
32.2 |
% |
|
|
21.3 |
% |
|
|
8.3 |
% |
|
|
4.4 |
% |
|
|
5.7 |
% |
Interest expense and
deferred financing fees |
|
|
|
|
|
|
7.4 |
|
|
|
21.4 |
|
|
|
9.5 |
|
|
|
2.4 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
107.4 |
% |
|
|
39.6 |
% |
|
|
42.7 |
% |
|
|
17.8 |
% |
|
|
6.8 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
SELECTED QUARTERLY FINANCIAL DATA
The following tables set forth certain quarterly financial information for the quarter ended
March 31, 2008 and for each of the eight quarters ended with the quarter ended December 31, 2007.
This information was derived from our unaudited consolidated financial statements. Results for any
quarter are not necessarily indicative of results for the past fiscal year or for any future
quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
March 31, |
|
|
2008 |
Total investment income |
|
$ |
3,863,984 |
|
Net investment income |
|
|
1,913,695 |
|
Net increase in net assets resulting from operations |
|
|
765,391 |
|
Net investment income per share |
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
12
RISK FACTORS
Investing in our common stock involves a number of significant risks. In addition to the other
information contained in this prospectus and any accompanying prospectus supplement, you should
consider carefully the following information before making an investment in our common stock. The
risks set out below are not the only risks we face. Additional risks and uncertainties not
presently known to us or not presently deemed material by us might also impair our operations and
performance. If any of the following events occur, our business, financial condition and results of
operations could be materially and adversely affected. In such case, our net asset value and the
trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Business and Structure
Our financial condition and results of operations will depend on our ability to manage and deploy
capital effectively.
Our ability to 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 an 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 prospectus, or any prospectus supplement, it could negatively impact our ability to pay
dividends and cause you to lose all or part of your investment.
Our investment portfolio is and will continue to be recorded at fair value as determined in good
faith by our board of directors and, as a result, there is and will continue to be uncertainty as
to the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if
there is no readily available market value, at fair value as determined by our board of directors.
Typically there is not a public market for the securities of the privately held companies in which
we have invested and will generally continue to invest. As a result, we value these securities
quarterly at fair value as determined in good faith by our board of directors based on input from
management, a third party independent valuation firm and our audit committee.
Our board of directors utilizes the services of an independent valuation firm, presently Duff
& Phelps, LLC, to assist in determining the fair value of any securities. The determination of fair
value and consequently, the amount of unrealized gains and losses in our portfolio, is to a certain
degree subjective and dependent on the judgment of our board. Certain factors that may be
considered in determining the fair value of our investments include the nature and realizable value
of any collateral, the portfolio companys earnings and its ability to make payments on its
indebtedness, the markets in which the portfolio company does business, comparison to comparable
publicly-traded companies, discounted cash flows and other relevant factors. Because such
valuations, and particularly valuations of private securities and private companies, are inherently
uncertain, may fluctuate over short periods of time and may be based on estimates, our
determinations of fair value may differ materially from the values that would have been used if a
ready market for these securities existed. Due to this uncertainty, our fair value determinations
may cause our net asset value on a given date to materially understate or overstate the value that
we may ultimately realize upon one or more of our investments. As a result, investors purchasing
our common stock based on an overstated net asset value would pay a higher price than the value of
our investments might warrant. Conversely, investors selling shares during a period in which the
net asset value understates the value of our investments will receive a lower price for their
shares than the value of our investments might warrant.
We may face increasing competition 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. Moreover, alternative investment vehicles, such as hedge funds,
have begun to invest in areas they have not traditionally invested in, including making investments
in lower middle market companies. As a result of these new entrants, competition for investment
opportunities in lower middle market companies may intensify. Many of our competitors are
substantially larger and have considerably greater financial,
13
technical and marketing resources
than we do. For example, some competitors may have a lower cost of capital and access to funding
sources that are not available to us. In addition, some of our competitors may have higher
risk tolerances or different risk assessments than we have. These characteristics could allow our
competitors to consider a wider variety of investments, establish more relationships and offer
better pricing and more flexible structuring than we are able to do. We may lose investment
opportunities if we do not match our competitors pricing, terms and structure. If we are forced to
match our competitors pricing, terms and structure, we may not be able to achieve acceptable
returns on our investments or may bear substantial risk of capital loss. A significant part of our
competitive advantage stems from the fact that the market for investments in lower middle market
companies is underserved by traditional commercial banks and other financing sources. A
significant increase in the number and/or the size of our competitors in this target market could
force us to accept less attractive investment terms. Furthermore, many of our competitors have
greater experience operating under, or are not subject to, the regulatory restrictions that the
1940 Act imposes on us as a BDC.
We are dependent upon our key investment personnel for our future success.
We depend on the members of our senior management team, particularly Garland S. Tucker III,
Brent P.W. Burgess and Steven C. Lilly, for the identification, final selection, structuring,
closing and monitoring of our investments. 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 entered into employment
agreements with Messrs. Tucker, Burgess and Lilly upon consummation of our initial public offering.
Our success depends on attracting and retaining qualified personnel in a competitive environment.
We have recently experienced increased competition in attracting and retaining qualified
personnel, particularly investment professionals, and we may be unable to maintain or grow our
business if we cannot attract and retain such personnel. Our ability to attract and retain
personnel with the requisite credentials, experience and skills depends on several factors
including, but not limited to, our ability to offer competitive wages, benefits and professional
growth opportunities. Many of the entities, including investment funds (such as private equity
funds and mezzanine funds) and traditional financial services companies, with which we compete for
experienced personnel have greater resources than we have.
The competitive environment for qualified personnel may require us to take certain measures to
ensure that we are able to attract and retain experienced personnel. Such measures may include
increasing the attractiveness of our overall compensation packages, altering the structure of our
compensation packages through the use of additional forms of compensation, or other steps. The
inability to attract and retain experienced personnel could have a material adverse effect on our
business.
Our business model depends to a significant extent upon strong referral relationships, and our
inability to maintain or develop these relationships, as well as the failure of these relationships
to generate investment opportunities, could adversely affect our business.
We expect that members of our management team will maintain their relationships with financial
institutions, private equity and other non-bank investors, investment bankers, commercial bankers,
attorneys, accountants and consultants, and we will rely to a significant extent upon these
relationships to provide us with potential investment opportunities. If our management team fails
to maintain its existing relationships or develop new relationships with other sponsors or sources
of investment opportunities, we will not be able to grow our investment portfolio. In addition,
individuals with whom members of our management team have relationships are not obligated to
provide us with investment opportunities, and, therefore, there is no assurance that such
relationships will generate investment opportunities for us.
We have limited operating history as a business development company and as a regulated investment
company, which may impair your ability to assess our prospects.
The 1940 Act imposes numerous constraints on the operations of BDCs. Prior to the consummation
of our initial public offering in February 2007, we had not operated, and our management team had
no experience operating, as a BDC under the 1940 Act or as a RIC under Subchapter M of the Code. As
a result, we have limited operating results under these regulatory frameworks that can demonstrate
to you either their effect on our business or our ability to manage our business under these
frameworks. Our management teams limited experience in managing a portfolio of assets under such
constraints may hinder our ability to take advantage of attractive investment opportunities and, as
a result, achieve our investment objective. Furthermore, any failure to comply with the
requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action
against us. If we do not remain a BDC, we might be regulated as a closed-end investment company
under the 1940 Act, which would further decrease our operating flexibility.
14
Regulations governing our operation as a business development company will affect our ability to,
and the way in which we raise additional capital.
Our business will require capital to operate and grow. We may acquire such additional capital
from the following sources:
Senior Securities. Currently we, through Triangle SBIC, issue debt securities guaranteed by
the SBA. In the future, we may issue debt securities or preferred stock and/or borrow money from
banks or other financial institutions, which we refer collectively as senior securities. As a
result of issuing senior securities, we will be exposed to additional risks, including the
following:
|
|
|
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior
securities only in amounts such that our asset coverage, as defined in the 1940 Act,
equals at least 200% after each issuance of senior securities. If the value of our
assets declines, we may be unable to satisfy this test. If that happens, we may be
required to sell a portion of our investments and, depending on the nature of our
leverage, repay a portion of our debt at a time when such sales and/or repayments may be
disadvantageous. |
|
|
|
|
Any amounts that we use to service our debt or make payments on preferred stock will
not be available for dividends to our common stockholders. |
|
|
|
|
It is likely that any senior securities or other indebtedness we issue will be
governed by an indenture or other instrument containing covenants restricting our
operating flexibility. Additionally, some of these securities or other indebtedness may
be rated by rating agencies, and in obtaining a rating for such securities and other
indebtedness, we may be required to abide by operating and investment guidelines that
further restrict operating and financial flexibility. |
|
|
|
|
We and, indirectly, our stockholders will bear the cost of issuing and servicing such
securities and other indebtedness. |
|
|
|
|
Preferred stock or any convertible or exchangeable securities that we issue in the
future may have rights, preferences and privileges more favorable than those of our
common stock, including separate voting rights and could delay or prevent a transaction
or a change in control to the detriment of the holders of our common stock. |
Additional Common Stock. We are not generally able to issue and sell our common stock at a
price below net asset value per share. We may, however, sell our common stock, warrants, options or
rights to acquire our common stock, at a price below the current net asset value of the common
stock if our board of directors determines that such sale is in the best interests of our
stockholders, and our stockholders approve such sale. At our Annual Stockholders Meeting on May 7,
2008, our stockholders voted to allow us to issue common stock at a price below net asset value per
share for a period of one year. In any such case, however, the price at which our common stock are
to be issued and sold may not be less than a price which, in the determination of our board of
directors, closely approximates the market value of such securities (less any distributing
commission or discount). We may also make rights offerings to our
stockholders (though not in conjunction with this prospectus) at prices per share
less than the net asset value per share, subject to applicable requirements of the 1940 Act. If we
raise additional funds by issuing more common stock or senior securities convertible into, or
exchangeable for, our common stock, the percentage ownership of our stockholders at that time would
decrease, and they may experience dilution. Moreover, we can offer no assurance that we will be
able to issue and sell additional equity securities in the future, on favorable terms or at all.
Our wholly-owned subsidiary, Triangle SBIC, is licensed by the SBA, and therefore subject to SBA
regulations.
Triangle SBIC, our wholly-owned subsidiary, 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
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 Triangle SBIC 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 Triangle SBIC fails to comply with applicable SBA regulations, the SBA
could, depending on the severity of the violation, limit or prohibit Triangle SBICs use of
debentures, declare outstanding debentures immediately due and payable, and/or limit Triangle SBIC
from making new investments. In addition, the SBA can revoke or suspend a license for willful or
repeated violation of, or willful or repeated failure to observe, any provision of the Small
Business Investment Act of 1958 or any rule or
15
regulation promulgated thereunder. Such actions by the SBA would, in turn, negatively affect
us because Triangle SBIC 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 invested equity
capital. As we intend to use leverage to partially finance our investments, you will experience
increased risks of investing in our common stock. We, through Triangle SBIC, issue debt securities
guaranteed by the SBA and sold in the capital markets. As a result of its guarantee of the debt
securities, the SBA has fixed dollar claims on Triangle SBICs 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 investment income to increase
more than it would without the leverage, while any decrease in our income would cause net
investment income to decline more sharply than it would have had we not borrowed. Such a decline
could negatively affect our ability to make common stock dividend payments. Leverage is generally
considered a speculative investment technique.
As a BDC, we are generally required to meet a coverage ratio of total assets to total
borrowings and other senior securities, which include all of our borrowings and any preferred stock
we may issue in the future, of at least 200%. If this ratio declines below 200%, we may not be able
to incur additional debt and may need to sell a portion of our investments to repay some debt when
it is disadvantageous to do so, and we may not be able to make distributions.
On March 31, 2008, we, through Triangle SBIC, had $47.1 million of outstanding indebtedness
guaranteed by the SBA, which had a weighted average annualized interest cost of approximately 5.7%.
Illustration. The following table illustrates the effect of leverage on returns from an
investment in our common stock assuming various annual returns, net of expenses. The calculations in
the table below are hypothetical and actual returns may be higher or lower than those appearing
below.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed Return on Our Portfolio |
|
|
(net of expenses) |
|
|
|
|
|
|
(10.0 |
)% |
|
|
(5.0 |
)% |
|
|
0.0 |
% |
|
|
5.0 |
% |
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corresponding net return to stockholder (1)
|
|
|
(18.1 |
)% |
|
|
(10.5 |
)% |
|
|
(2.8 |
)% |
|
|
4.8 |
% |
|
|
12.4 |
% |
|
|
|
(1) |
|
Assumes $143.8 million in total assets, $47.1 million in debt outstanding, $94.2 million in net assets and an
average cost of funds of 5.66%, which was our weighted average borrowing cost at March 31, 2008. |
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 (such amount being
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 March 31, 2008, Triangle
SBIC had issued $47.1 million in debentures guaranteed by the SBA. With $65.3 million of regulatory
capital as of March 31, 2008, Triangle SBIC has the current capacity to issue up to a total of
$130.6 million of SBA guaranteed debentures, subject to the payment of a 1% commitment fee to the
SBA on the amount of the commitment. 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, Triangle SBICs current status as an SBIC does not automatically assure that
Triangle SBIC will continue to receive SBA guaranteed debenture funding. Receipt of SBA leverage
funding is dependent upon Triangle SBIC 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 Triangle SBIC.
16
The debentures guaranteed by the SBA have a maturity of ten years and require semi-annual
payments of interest. Triangle SBIC will need to generate sufficient cash flow to make required
interest payments on the debentures. If Triangle SBIC is unable to meet its financial obligations
under the debentures, the SBA, as a creditor, will have a superior claim to Triangle SBICs assets
over our stockholders in the event we liquidate Triangle SBIC or the SBA exercises its remedies
under such debentures as the result of a default by us. In addition, the SBA must approve our
independent directors before Triangle SBIC will be permitted to issue additional debentures
guaranteed by the SBA.
We may experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating results due to a number of
factors, including our ability or inability to make investments in companies that meet our
investment criteria, the interest rate payable on the debt securities we acquire, the level of our
expenses, variations in and the timing of the recognition of realized and unrealized gains or
losses, the degree to which we encounter competition in our markets and general economic
conditions. As a result of these factors, results for any period should not be relied upon as being
indicative of performance in future periods.
Our ability to enter into and exit investment transactions with our affiliates is restricted.
Except in those instances where we have received prior exemptive relief from the SEC, we are
prohibited under the 1940 Act from knowingly participating in certain transactions with our
affiliates without the prior approval of our independent directors. Any person that owns, directly
or indirectly, 5.0% or more of our outstanding voting securities is deemed our affiliate for
purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from
or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also
prohibits joint transactions with an affiliate, which could include investments in the same
portfolio company (whether at the same or different times), without prior approval of our
independent directors. If a person acquires more than 25.0% of our voting securities, we will be
prohibited from buying or selling any security from or to such person, or entering into joint
transactions with such person, absent the prior approval of the SEC. These restrictions could limit
or prohibit us from making certain attractive investments that we might otherwise make absent such
restrictions.
We have filed an application 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, Triangle SBIC and their affiliates
without first obtaining an exemptive order from the SEC. We have filed an application with the SEC
requesting an order exempting Triangle SBIC and us from certain provisions of the 1940 Act and from
certain reporting requirements mandated by the Securities and Exchange Act of 1934, or the Exchange
Act. This application is currently under review by the SEC. 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.
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,
investment criteria and strategies without prior notice and without stockholder approval. We cannot
predict the effect any changes to our current operating policies, investment criteria and
strategies would have on our business, net asset value, operating results and value of our stock.
However, the effects might be adverse, which could negatively impact our ability to pay you
dividends and cause you to lose all or part of your investment. Moreover, we will have significant
flexibility in investing the net proceeds of the offering and may use the net proceeds from an
offering in ways with which investors may not agree or for purposes other than those contemplated
at the time of the offering.
We will be subject to corporate-level income tax if we are unable to qualify as a regulated
investment company under Subchapter M of the Code, which will adversely affect our results of
operations and financial condition.
To obtain and maintain RIC tax treatment under the Code, we must meet the following annual
distribution, income source and asset diversification requirements.
|
|
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 |
17
|
|
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 distributions, 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. To satisfy this
requirement, at least 50.0% of the value of our assets must consist of cash, cash equivalents,
U.S. Government securities, securities of other RICs, and other acceptable securities; and no
more than 25.0% of the value of our assets can be invested in the securities, other than U.S.
government securities or securities of other RICs, of one issuer, of two or more issuers that
are controlled, as determined under applicable Code rules, by us and that are engaged in the
same or similar or related trades or businesses or of certain qualified publicly traded
partnerships. Failure to meet these requirements may result in our having to dispose of
certain investments quickly in order to prevent the loss of RIC status. Because most of our
investments will be in private companies, and therefore will be relatively illiquid, any such
dispositions could be made at disadvantageous prices and could result in substantial losses. |
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, our dividends may not grow over time, and a portion of
dividends paid to you may be a return of capital.
We intend 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
prospectus. 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, Triangle SBICs 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.
When we make quarterly distributions, we will be required to determine the extent to which
such distributions are paid out of current or accumulated earnings, recognized capital gains or
capital. To the extent there is a return of capital, investors will be required to reduce their
basis in our stock for federal tax purposes.
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 RIC.
Triangle SBIC, as an SBIC, may be unable to make distributions to us that will enable us to meet
regulated investment company requirements, which could result in the imposition of an entity-level
tax.
In order for us to continue to qualify as a RIC, we will be required to distribute on an
annual basis substantially all of our taxable income, including income from our subsidiaries,
including Triangle
18
SBIC. As all of our investments will initially be made by Triangle SBIC, we will
be substantially dependent on Triangle SBIC for cash distributions to enable us to meet the RIC
distribution requirements. Triangle SBIC 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 Triangle SBIC to make certain distributions to maintain our status
as a RIC. We cannot assure you that the SBA will grant such waiver and if Triangle SBIC 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 to maintain our
status as a regulated investment company, we will continue to need additional capital to finance
our growth and regulations governing our operation as a business development company will affect
our ability to, and the way in which we, raise additional capital.
In order to satisfy the requirements applicable to a RIC and to avoid payment of 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, some or all of 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 common stock and, depending on the nature of our leverage, to repay a portion of our
indebtedness at a time when such sales may be disadvantageous. In addition, issuance of additional
securities could dilute the percentage ownership of our current stockholders in us.
While we expect to be able to borrow and to issue additional debt and equity securities, we
cannot assure you that debt and equity financing will be available to us on favorable terms, or at
all. In addition, as a BDC, we generally are not 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, Triangle SBIC, and our portfolio companies will be subject to regulation at the local,
state and federal level. New legislation may be enacted or new interpretations, rulings or
regulations could be adopted, including those governing the types of investments we are permitted
to make, any of which could harm us and our stockholders, potentially with retroactive effect. In
addition, any change to the SBAs current debenture program could have a significant impact on our
ability to obtain lower-cost leverage and, therefore, our competitive advantage over other finance
companies.
Additionally, any changes to the laws and regulations governing our operations relating to
permitted investments may cause us to alter our investment strategy in order to avail ourselves of
new or different opportunities. Such changes could result in material differences to the strategies
and plans set forth in this prospectus and may result in our investment focus shifting from the
areas of expertise of our management team to other types of investments in which our management
team may have less expertise or little or no experience. Thus, any such changes, if they occur,
could have a material adverse effect on our results of operations and the value of your investment.
Efforts to comply with the Sarbanes-Oxley Act will involve significant expenditures, and
non-compliance with the Sarbanes-Oxley Act may adversely affect us.
We are subject to the Sarbanes-Oxley Act of 2002, and the related rules and regulations
promulgated by the SEC. Among other requirements, under Section 404 of the Sarbanes-Oxley Act and
rules and regulations of the SEC thereunder, our management is required to report on our internal
controls over financial reporting. We are required to review on an annual basis our internal
controls over financial reporting, and on a quarterly and annual basis to evaluate and disclose
significant changes in our internal controls over financial reporting. We have and expect to
continue to incur significant expenses related to compliance with the Sarbanes-Oxley Act, which
will negatively impact our financial performance and our ability to make distributions. In
addition, this process results in a diversion of managements time and attention. Since we have a
limited operating history as a company subject to the Sarbanes-Oxley Act, we cannot assure you that
our internal controls over financial reporting will continue to be effective. In the event that we
are unable to maintain compliance with the Sarbanes-Oxley Act and related rules, we may be
adversely affected.
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Risks Related to Our Investments
Our investments in portfolio companies may be risky, and we could lose all or part of our
investment.
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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, as well as a corresponding decrease in the value of the equity components
of our investments; |
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may have shorter operating histories, narrower product lines, smaller market shares and/or
significant customer concentrations than larger businesses, which tend to render them more
vulnerable to competitors actions and market conditions, as well as general economic
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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
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generally have less publicly available information about their businesses, operations and
financial condition. We are required to rely on the ability of our management team and
investment professionals to obtain adequate information to evaluate the potential returns from
investing in these companies. If we are unable to uncover all material information about these
companies, we may not make a fully informed investment decision, and may lose all or part of
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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
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 or ability to make additional investments in our portfolio companies.
We may not have the funds or ability to make additional investments in our portfolio
companies. After our initial investment in a portfolio company, we may be called upon from time to
time to provide additional funds to such company or have the opportunity to increase our investment
through the exercise of a warrant to purchase common stock. There is no assurance that we will
make, or will have sufficient funds to make, follow-on investments. Any decisions not to make a
follow-on investment or any inability on our part to make such an investment may have a negative
impact on a portfolio company in need of such an investment, may result in a missed opportunity for
us to increase our participation in a successful operation or may reduce the expected yield on the
investment.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in
such companies.
We invest primarily in senior 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
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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 re-characterize 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 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.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to
qualify as a business development company or be precluded from investing according to our current
business strategy.
As a BDC, we may not acquire any assets other than qualifying assets unless, at the time of
and after giving effect to such acquisition, at least 70.0% of our total assets are qualifying
assets. For further detail, see Regulation.
We believe that substantially all of our investments will constitute qualifying assets.
However, we may be precluded from investing in what we believe are attractive investments if such
investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a
sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which
would have a material adverse effect on our business, financial condition and results of
operations. Similarly, these rules could prevent us from making follow-on investments in existing
portfolio companies (which could result in the dilution of our position).
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we
are not limited with respect to the proportion of our assets that may be invested in securities of
a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act,
which means that we are not limited by the 1940 Act with respect to the proportion of our assets
that we may invest in securities of a single issuer. To the extent that we assume large positions
in the securities of a small number of issuers, our net asset value may fluctuate to a greater
extent than that of a diversified investment company as a result of changes in the financial
condition or the markets assessment of the issuer. We
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may also be more susceptible to any single
economic or regulatory occurrence than a diversified investment company. Beyond our
RIC asset diversification requirements, we do not have fixed guidelines for diversification,
and our investments could be concentrated in relatively few portfolio companies.
We generally will not control our portfolio companies.
We do not, and do not expect to, control most of our portfolio companies, even though we may
have board representation or board observation rights, and our debt agreements may contain certain
restrictive covenants. As a result, we are subject to the risk that a portfolio company in which we
invest may make business decisions with which we disagree and the management of such company, as
representatives of the holders of their common equity, may take risks or otherwise act in ways that
do not serve our interests as debt investors. Due to the lack of liquidity for our investments in
non-traded companies, we may not be able to dispose of our interests in our portfolio companies as
readily as we would like or at an appropriate valuation. As a result, a portfolio company may make
decisions that could decrease the value of our portfolio holdings.
Economic recessions or downturns could impair our portfolio companies and harm our operating
results.
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 investment income, net investment 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.
An economic downturn could disproportionately impact the industries in which we invest,
causing us to be more vulnerable to losses in our portfolio, which could negatively impact our
financial results. 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 our loan originations and investments and negatively impact
our financial results.
Defaults by our portfolio companies will harm our operating results.
A portfolio companys failure to satisfy financial or operating covenants imposed by us or
other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on
its secured assets, which could trigger cross-defaults under other agreements and jeopardize a
portfolio companys ability to meet its obligations under the debt or equity securities that we
hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate
new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio
company.
As of March 31, 2008, our investment in Fischbein, LLC constitutes greater than 10% of our
investment portfolios total fair value, and its default or underperformance may significantly
adversely affect our overall financial condition.
As of March 31, 2008, our investment in Fischbein, LLC (Fischbein) constitutes more than 10%
of our investment portfolios total fair value. If Fischbein were to default on its debt
obligations to us, or if Fischbeins value were to significantly decline, our operating results and
overall financial condition may be adversely affected, as we have significant debt and equity
investments committed in Fischbein as of the date of this prospectus.
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.
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
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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, a situation which
could reduce the value of our common stock. Conversely, a decrease in interest rates may have an
adverse impact on our returns by requiring us to seek lower yields on our debt investments and by
increasing the risk that our portfolio companies will prepay our debt investments, resulting in the
need to redeploy capital at potentially lower rates.
We may not realize gains from our equity investments.
Certain investments that we have made in the past and may make in the future include warrants
or other equity securities. Investments in equity securities involve a number of significant risks,
including the risk of further dilution as a result of additional issuances, inability to access
additional capital and failure to pay current distributions. Investments in preferred securities
involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and
limited voting rights. In addition, we may from time to time make non-control, equity
co-investments in companies in conjunction with private equity sponsors. Our goal is ultimately to
realize gains upon our disposition of such equity interests. However, the equity interests we
receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be
able to realize gains from our equity interests, and any gains that we do realize on the
disposition of any equity interests may not be sufficient to offset any other losses we experience.
We also may be unable to realize any value if a portfolio company does not have a liquidity event,
such as a sale of the business, recapitalization or public offering, which would allow us to sell
the underlying equity interests. We often seek puts or similar rights to give us the right to sell
our equity securities back to the portfolio company issuer. We may be unable to exercise these puts
rights for the consideration provided in our investment documents if the issuer is in financial
distress.
Risks
Relating to an Offering of Our Common Stock
We may be unable to invest a significant portion of the net proceeds raised from an offering on
acceptable terms, which would harm our financial condition and operating results.
Delays in investing the net proceeds raised in an offering may cause our performance to be
worse than that of other fully invested business development companies or other lenders or
investors pursuing comparable investment strategies. We cannot assure you that we will be able to
identify any investments that meet our investment objective or that any investment that we make
will produce a positive return. We may be unable to invest the net proceeds of any offering on
acceptable terms within the time period that we anticipate or at all, which could harm our
financial condition and operating results.
We anticipate that, depending on market conditions and the amount of any particular offering,
it may take a substantial period of time to invest substantially all of the net proceeds of any
offering in securities meeting our investment objective. During this period, we will invest the net
proceeds of any offering primarily in cash, cash equivalents, U.S. government securities,
repurchase agreements and high-quality debt instruments maturing in one year or less from the time
of investment, which may produce returns that are significantly lower than the returns which we
expect to achieve when our portfolio is fully invested in securities meeting our investment
objective. As a result, any dividends that we pay during such period may be substantially lower
than the dividends that we may be able to pay when our portfolio is fully invested in securities
meeting our investment objective. In addition, until such time as the net proceeds of any offering
are invested in securities meeting our investment objective, the market price for our common stock
may decline. Thus, the initial return on your investment may be lower than when, if ever, our
portfolio is fully invested in securities meeting our investment objective.
Shares of closed-end investment companies, including business development companies, frequently
trade at a discount to their net asset value.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount from
net asset value. This characteristic of closed-end investment companies and BDCs is separate and
distinct from the risk that our net asset value per share may decline. We cannot predict whether
our common stock will trade at, above or below net asset value. In
addition, if our common stock trades
below net asset value, we will generally not be able to issue additional common stock at the market
price without first obtaining the approval of our stockholders and our independent directors. At
our Annual Stockholders Meeting on May 7, 2008, our stockholders
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voted to allow us to issue common
stock at a price below net asset value per share for a period of one year.
Investing in our common stock may involve an above average degree of risk.
The investments we make in accordance with our investment objective may result in a higher
amount of risk than alternative investment options and a higher risk of volatility or loss of
principal. Our investments in portfolio companies may be highly speculative, and therefore, an
investment in our shares may not be suitable for someone with lower risk tolerance.
The market price of our common stock may be volatile and fluctuate significantly.
Fluctuations in the trading prices of our shares may adversely affect the liquidity of the
trading market for our shares and, if we seek to raise capital through future equity financings,
our ability to raise such equity capital. The market price and liquidity of the market for our
common stock may be significantly affected by numerous factors, some of which are beyond our control
and may not be directly related to our operating performance. These factors include:
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significant volatility in the market price and trading volume of securities of BDCs
or other companies in our sector, which are not necessarily related to the operating
performance of these companies; |
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changes in regulatory policies or tax guidelines, particularly with respect to RICs,
BDCs or SBICs; |
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inability to obtain certain exemptive relief from the SEC; |
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loss of RIC status or Triangle SBICs status as an SBIC; |
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changes in our earnings or variations in our operating results; |
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changes in the value of our portfolio of investments; |
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any shortfall in investment income or net investment income or any increase in losses
from levels expected by investors or securities analysts; |
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loss of a major funding source; |
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fluctuations in interest rates; |
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the operating performance of companies comparable to us; |
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departure of our key personnel; |
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global or national credit market changes; and |
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general economic trends and other external factors. |
As illustrated by recent events in the market for subprime loans, and mortgage securities
generally, the market for any security is subject to volatility. The loans and securities
purchased by us and issued by us are no exception to this fundamental investment truism that prices
will fluctuate, although we lack any material exposure to the subprime and mortgage markets.
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If a substantial number of shares become available for sale and are sold in a short period of time,
the market price of our common stock could decline.
As of March 31, 2008, we had 6,803,863 shares of common stock outstanding. Sales of
substantial amounts of our common stock, or the availability of shares for sale, including those
offered hereby, could adversely affect the prevailing market price of our common stock.
If this occurs and continues, it could impair our ability to raise additional capital through
the sale of equity securities should we desire to do so.
Provisions of the Maryland General Corporation Law and our 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. See Description of Capital 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 our common stock.
Terrorist attacks, acts of war or national disasters may affect any market for our common stock,
impact the businesses in which we invest and harm our business, operating results and financial
condition.
Terrorist acts, acts of war or national disasters may disrupt our operations, as well as the
operations of the businesses in which we invest. Such acts have created, and continue to create,
economic and political uncertainties and have contributed to global economic instability. Future
terrorist activities, military or security operations, or natural disasters could further weaken
the domestic/global economies and create additional uncertainties, which may negatively impact the
businesses in which we invest directly or indirectly and, in turn, could have a material adverse
impact on our business, operating results and financial condition. Losses from terrorist attacks
and natural disasters are generally uninsurable.
We could face losses and potential liability if intrusion, viruses or similar disruptions to our
technology jeopardize our confidential information or that of users of our technology.
Although we have implemented, and will continue to implement, security measures, our
technology platform is and will continue to be vulnerable to intrusion, computer viruses or similar
disruptive problems caused by transmission from unauthorized users. The misappropriation of
proprietary information could expose us to a risk of loss or litigation.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and the accompanying prospectus supplement, if any,
constitute forward-looking statements because they relate to future events or our future
performance or financial condition. The forward-looking statements contained in this prospectus may
include statements as to:
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our future operating results; |
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our business prospects and the prospects of our portfolio companies; |
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the impact of the investments that we expect to make; |
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the ability of our portfolio companies to achieve their objectives; |
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our expected financings and investments; |
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the adequacy of our cash resources and working capital; and |
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the timing of cash flows, if any, from the operations of our portfolio companies. |
In addition, words such as anticipate, believe, expect and intend indicate a
forward-looking statement, although not all forward-looking statements include these words. The
forward-looking statements contained in this prospectus involve risks and uncertainties. Our actual
results could differ materially from those implied or expressed in the forward-looking statements
for any reason, including the factors set forth in Risk Factors and elsewhere in this prospectus
and the accompanying prospectus supplement, if any. Other factors that could cause actual results
to differ materially include:
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changes in the economy; |
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risks associated with possible disruption in our operations or the economy generally
due to terrorism; and |
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future changes in laws or regulations and conditions in our operating areas. |
You should not place undue reliance on these forward-looking statements, which apply only as
of the date of this prospectus or the accompanying prospectus supplement, if any. Although we
undertake no obligation to revise or update any forward-looking statements, whether as a result of
new information, future events or otherwise, you are advised to consult any additional disclosures
that we may make directly to you or through reports that we file with the SEC, including annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
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FORMATION TRANSACTIONS
Triangle Capital Corporation is a recently organized Maryland corporation, formed on October
10, 2006, for the purposes of acquiring 100% of the equity interests in Triangle SBIC and its
general partner, TML, raising capital in our IPO, which was completed in February 2007 and
thereafter operating as an internally managed business development company under the 1940 Act.
On February 21, 2007, concurrently with the closing of our IPO, we consummated the following
formation transactions:
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Triangle Capital Corporation acquired 100% of the limited partnership interests in Triangle
SBIC in exchange for approximately 1.4 million shares of Triangles common stock, having an
aggregate value of $21,250,000 based on the IPO price. Triangle SBIC became our wholly owned
subsidiary, retained its SBIC license, continues to hold its existing investments and will
make new investments with the proceeds from our IPO. |
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Triangle Capital Corporation acquired 100% of the equity interests in TML, the general
partner of Triangle SBIC, in exchange for 500,000 shares of Triangles common stock, having an
aggregate value of $7,500,000 based on the IPO price. |
The IPO 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. Triangle contributed approximately $44.0 million of the net proceeds of the IPO (after the
underwriters exercise of their over-allotment option) to Triangle SBIC, and Triangle SBIC has made
and will continue to make new investments with the net proceeds of the IPO and proceeds from SBA
guaranteed debentures issued from time to time by Triangle SBIC.
The
following diagram depicts our ownership structure immediately after the IPO and consummation of the
formation transactions:
|
|
|
(1) |
|
Based on 6,686,760 shares of common stock outstanding immediately after the IPO and
consummation of the Formation Transactions. |
27
BUSINESS DEVELOPMENT COMPANY AND REGULATED INVESTMENT COMPANY ELECTIONS
As a result of the IPO and the formation transactions described above, we and Triangle SBIC
are closed-end, non-diversified management investment companies that have elected to be treated as
BDCs under the 1940 Act. In addition, we intend to elect to be treated as a RIC under Subchapter M
of the Code with the filing of our 2007 corporate income tax return, which will be effective as of
January 1, 2007. 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
future operations of our election to be regulated as a BDC and our election to be treated as a RIC
are outlined below.
We report our investments at market value or fair value with changes in value reported through our
statement of operations.
We report all of our investments, including debt investments, at market value or, for
investments that do not have a readily available market value, at their fair value as determined
in good faith by our board of directors. Changes in these values will be reported through our
statement of operations under the caption of net unrealized appreciation (depreciation) of
investments. See Business Valuation Process and Determination of Net Asset Value.
We intend to distribute substantially all of our income to our stockholders. We generally will be
required to pay income taxes only on the portion of our taxable income we do not distribute to
stockholders (actually or constructively).
We intend to elect to be treated as a RIC under Subchapter M of the Code with the filing of
our 2007 corporate income tax return, which will be effective as of January 1, 2007. As a RIC, we
intend to distribute to our stockholders substantially all of our net taxable income and the excess
of realized net short-term capital gains over realized net long-term capital losses. In addition,
we may retain certain net long-term capital gains and elect to treat such net capital gains as
deemed distributed to our stockholders. If this happens, you will be treated as if you received an
actual distribution of the capital gains and reinvested the net after-tax proceeds in us. You also
may be eligible to claim a tax credit against your federal income tax liability (or, in certain
circumstances, a tax refund) equal to your allocable share of the tax we pay on the deemed
distribution. See Material U.S. Federal Income Tax Considerations.
Provided we qualify for tax treatment as a RIC, we generally are required to pay U.S. federal
income taxes only on the portion of our net taxable income and gains that we do not distribute
(actually or constructively). We may in the future form direct or indirect wholly-owned taxable
subsidiaries. Some of the wholly-owned subsidiaries may be treated as corporations for U.S. federal
income tax purposes, and as a result, such subsidiaries will be subject to tax at regular corporate
rates. Although, as a RIC, dividends and distributions of capital received by us from any taxable
subsidiary and distributed to our stockholders would not be subject to federal income taxes, the
taxable subsidiary would generally be subject to federal and state income taxes on its income. As a
result, the net return to us on such investments held by such subsidiaries would be reduced to the
extent that the subsidiaries are subject to income taxes.
Our ability to use leverage as a means of financing our portfolio of investments will be limited.
As a BDC, we are required to meet a coverage ratio of total assets to total senior securities
of at least 200.0%. For this purpose, senior securities include all borrowings and any preferred
stock we may issue in the future. Additionally, our ability to continue to utilize leverage as a
means of financing our portfolio of investments is limited by this asset coverage test.
We have filed a request with the SEC for exemptive relief to allow us to take certain actions
that would otherwise be prohibited by the 1940 Act, as applicable to BDCs. In addition, we have
requested that the SEC allow us to exclude any indebtedness guaranteed by the SBA and issued by
Triangle SBIC 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 our exemptive order will be granted.
We are required to comply with the provisions of the 1940 Act applicable to business development
companies.
As a BDC, we are required to have a majority of directors who are not interested persons
under the 1940 Act. In addition, we are required to comply with other applicable provisions of the
1940 Act, including those requiring the adoption of a code of ethics, fidelity bond and custody
arrangements. See also Regulation.
28
USE OF PROCEEDS
Unless otherwise specified in any prospectus supplement accompanying this prospectus, we
intend to use the net proceeds from the sale of our common stock for investment and general corporate
purposes. We intend to invest the net proceeds in lower middle market companies in accordance with
our investment objective and strategies and for working capital and general corporate purposes. We
plan to raise new equity when we have attractive investment opportunities available. Pending such
use, we will invest the net proceeds of any offering primarily in short-term securities consistent
with our BDC election and our election to be taxed as a RIC. See Regulation Temporary
Investments.
Our ability to achieve our investment objective may be limited to the extent that the net
proceeds from an offering, pending full investment, are held in interest-bearing deposits or other
short-term instruments. The supplement to this prospectus relating to an offering will more fully
identify the use of proceeds from such an offering.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on the Nasdaq Global Market under the symbol TCAP. The following
table sets forth, for each fiscal quarter since our initial public offering, the range of high and
low sales prices of our common stock as reported on the Nasdaq Global Market, the sales price as a
percentage of our net asset value (NAV) and the dividends declared by us for each fiscal quarter.
The stock quotations are inter-dealer quotations and do not include mark-ups, mark-downs or
commissions and as such do not necessarily represent actual transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price Range |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium/Discount |
|
Premium/Discount |
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of High Sales |
|
of Low Sales Price |
|
Dividend |
|
|
|
NAV(1) |
|
|
High |
|
|
Low |
|
|
Price to NAV(2) |
|
to NAV(2) |
|
Per Share(3) |
|
Year ended December
31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 15, 2007
to March 31,
2007(4) |
|
$ |
13.57 |
|
|
$ |
16.00 |
|
|
$ |
13.45 |
|
|
|
118 |
% |
|
|
99 |
% |
|
$ 0.00 |
|
Second Quarter |
|
$ |
13.75 |
|
|
$ |
15.79 |
|
|
$ |
13.58 |
|
|
|
115 |
% |
|
|
99 |
% |
|
$ 0.15 |
|
Third Quarter |
|
$ |
13.99 |
|
|
$ |
14.99 |
|
|
$ |
11.95 |
|
|
|
107 |
% |
|
|
85 |
% |
|
$ 0.26 |
|
Fourth Quarter |
|
$ |
13.74 |
|
|
$ |
14.50 |
|
|
$ |
10.75 |
|
|
|
106 |
% |
|
|
78 |
% |
|
$ 0.57 |
|
Year ended December
31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
13.85 |
|
|
$ |
13.40 |
|
|
$ |
10.50 |
|
|
|
97 |
% |
|
|
76 |
% |
|
$ |
|
|
|
|
(1) |
|
Net asset value per share is determined as of the last day in the relevant quarter and
therefore may not reflect the net asset value per share on the date of the high and low sales
prices. The net asset values shown are based on outstanding shares at the end of each period. |
|
(2) |
|
Calculated as the respective high or low sales price divided by net asset value. |
|
(3) |
|
Represents the dividend declared in the specified quarter. We have adopted an opt out
dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend,
then stockholders cash dividends will be automatically reinvested in additional shares of our
common stock, unless they specifically opt out of the dividend reinvestment plan so as to
receive cash dividends. See Dividend Reinvestment Plan. |
|
(4) |
|
Our stock began trading on the Nasdaq Global Market on February 15, 2007. |
The last reported price for our common stock on May 30, 2008 was $11.78 per share. As of May
30, 2008, we had 70 stockholders of record.
Shares of BDCs may trade at a market price that is less than the value of the net assets
attributable to those shares. The possibilities that our shares of common stock will trade at a
discount from net asset value or at premiums that are unsustainable over the long term are separate
and distinct from the risk that our net asset value will decrease. It is not possible to predict
whether the common stock offered hereby will trade at, above, or below net asset value. Since our IPO
in February 2007, our shares of common stock have traded for amounts both less than and exceeding
our net asset value.
We intend to distribute quarterly dividends to our stockholders. Our quarterly dividends, if
any, are determined by our board of directors. We intend to elect to be taxed as a RIC under
Subchapter M of the Code, with the filing of our 2007 corporate income tax return, which will be
effective as of January 1, 2007. As long as we qualify as a RIC, we will not be taxed on our
investment company taxable income or realized net capital gains, to the extent that such taxable
income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.
29
To obtain and maintain RIC tax treatment, we must, among other things, distribute at least
90.0% of our net ordinary income and realized net short-term capital gains in excess of realized
net long-term capital losses, if any. In order to avoid certain excise taxes
imposed on RICs, we currently intend to distribute during each calendar year an amount at
least equal to the sum of (1) 98.0% of our net ordinary income for the calendar year, (2) 98.0% of
our capital gains in excess of capital losses for the one-year period ending on October 31 of the
calendar year and (3) any net ordinary income and net capital gains for preceding years that were
not distributed during such years. We currently intend to retain for investment some or all of our
net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term
capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this,
you will be treated as if you received an actual distribution of the capital gains we retain and
then reinvested the net after-tax proceeds in our common stock. You also may be eligible to claim a
tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we
paid on the capital gains deemed distributed to you. Please refer to Material U.S. Federal Income
Tax Considerations for further information regarding the consequences of our retention of net
capital gains. We may, in the future, make actual distributions to our stockholders of our net
capital gains. We can offer no assurance that we will achieve results that will permit the payment
of any cash distributions and, if we issue senior securities, we will be prohibited from making
distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the
1940 Act or if distributions are limited by the terms of any of our borrowings. See Regulation
and Material U.S. Federal Income Tax Considerations.
30
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical financial and other data below reflects the operations of Triangle
Capital Corporation and Triangle SBIC. 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. The
selected financial data at and for the three month period ended March 31, 2008 have been derived
from unaudited financial data, and in the opinion of management, reflect all adjustments
(consisting only of normal recurring adjustments) that are necessary to present fairly the results
for such interim period. Interim results at and for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2008.
You should read this selected financial and other data in conjunction with our Managements
Discussion and Analysis of Financial Condition and Results of Operations and the financial
statements and notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
|
Year Ended December 31, |
|
|
March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Income statement data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest, fee and
dividend income |
|
$ |
26 |
|
|
$ |
1,969 |
|
|
$ |
5,855 |
|
|
$ |
6,443 |
|
|
$ |
10,912 |
|
|
$ |
3,727 |
|
Interest income from cash
and cash equivalent
investments |
|
|
15 |
|
|
|
18 |
|
|
|
108 |
|
|
|
280 |
|
|
|
1,824 |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income |
|
|
41 |
|
|
|
1,987 |
|
|
|
5,963 |
|
|
|
6,723 |
|
|
|
12,736 |
|
|
|
3,864 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
339 |
|
|
|
1,543 |
|
|
|
1,834 |
|
|
|
2,073 |
|
|
|
562 |
|
Amortization of deferred
financing fees |
|
|
|
|
|
|
38 |
|
|
|
90 |
|
|
|
100 |
|
|
|
113 |
|
|
|
40 |
|
Management fees |
|
|
1,048 |
|
|
|
1,564 |
|
|
|
1,574 |
|
|
|
1,589 |
|
|
|
233 |
|
|
|
|
|
General and administrative
expenses |
|
|
165 |
|
|
|
83 |
|
|
|
58 |
|
|
|
115 |
|
|
|
3,894 |
|
|
|
1,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,213 |
|
|
|
2,024 |
|
|
|
3,265 |
|
|
|
3,638 |
|
|
|
6,313 |
|
|
|
1,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss) |
|
|
(1,172 |
) |
|
|
(37 |
) |
|
|
2,698 |
|
|
|
3,085 |
|
|
|
6,423 |
|
|
|
1,914 |
|
Net realized gain (loss) on
investments
non-control/non-affiliate |
|
|
|
|
|
|
|
|
|
|
(3,500 |
) |
|
|
6,027 |
|
|
|
(760 |
) |
|
|
|
|
Net realized gain on
investments affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141 |
|
|
|
|
|
Net unrealized appreciation
(depreciation) of
investments |
|
|
|
|
|
|
(1,225 |
) |
|
|
3,975 |
|
|
|
(415 |
) |
|
|
3,061 |
|
|
|
(1,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on
investments |
|
|
|
|
|
|
(1,225 |
) |
|
|
475 |
|
|
|
5,612 |
|
|
|
2,442 |
|
|
|
(1,022 |
) |
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net
assets resulting from
operations |
|
$ |
(1,172 |
) |
|
$ |
(1,262 |
) |
|
$ |
3,173 |
|
|
$ |
8,697 |
|
|
$ |
8,813 |
|
|
$ |
765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per
share basic and diluted |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.95 |
|
|
$ |
0.28 |
|
Net increase in net assets
resulting from operations
per share basic and
diluted |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
1.31 |
|
|
$ |
0.11 |
|
Net asset value per common
share |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
13.74 |
|
|
$ |
13.85 |
|
Dividends declared per
common share |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
0.98 |
|
|
$ |
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value |
|
$ |
|
|
|
$ |
19,701 |
|
|
$ |
37,144 |
|
|
$ |
54,996 |
|
|
$ |
114,374 |
|
|
$ |
127,392 |
|
Deferred loan origination
revenue |
|
|
(35 |
) |
|
|
(537 |
) |
|
|
(602 |
) |
|
|
(774 |
) |
|
|
(1,368 |
) |
|
|
(1,572 |
) |
Cash and cash equivalents |
|
|
2,973 |
|
|
|
2,849 |
|
|
|
6,067 |
|
|
|
2,556 |
|
|
|
21,788 |
|
|
|
15,611 |
|
Interest and fees receivable |
|
|
|
|
|
|
98 |
|
|
|
50 |
|
|
|
135 |
|
|
|
305 |
|
|
|
404 |
|
Prepaid expenses and other
current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
178 |
|
Deferred offering costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021 |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
33 |
|
Deferred financing fees |
|
|
|
|
|
|
823 |
|
|
|
1,085 |
|
|
|
985 |
|
|
|
999 |
|
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,938 |
|
|
$ |
22,934 |
|
|
$ |
43,744 |
|
|
$ |
58,919 |
|
|
$ |
136,179 |
|
|
$ |
143,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners
capital / net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
|
$ |
10 |
|
|
$ |
|
|
|
$ |
13 |
|
|
$ |
825 |
|
|
$ |
1,144 |
|
|
$ |
644 |
|
Interest payable |
|
|
|
|
|
|
230 |
|
|
|
566 |
|
|
|
606 |
|
|
|
699 |
|
|
|
186 |
|
Distribution / dividends
payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532 |
|
|
|
2,041 |
|
|
|
|
|
Income taxes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
95 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,760 |
|
|
|
1,586 |
|
SBA-guaranteed debentures
payable |
|
|
|
|
|
|
17,700 |
|
|
|
31,800 |
|
|
|
31,800 |
|
|
|
37,010 |
|
|
|
47,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
10 |
|
|
|
17,930 |
|
|
|
32,379 |
|
|
|
33,763 |
|
|
|
42,706 |
|
|
|
49,561 |
|
Total partners capital /
shareholders equity |
|
|
2,928 |
|
|
|
5,004 |
|
|
|
11,365 |
|
|
|
25,156 |
|
|
|
93,473 |
|
|
|
94,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners
capital / net assets |
|
$ |
2,938 |
|
|
$ |
22,934 |
|
|
$ |
43,744 |
|
|
$ |
58,919 |
|
|
$ |
136,179 |
|
|
$ |
143,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on
investments |
|
|
|
|
|
|
15.5 |
% |
|
|
14.2 |
% |
|
|
13.3 |
% |
|
|
12.6 |
% |
|
|
12.5 |
% |
Number of portfolio companies |
|
|
|
|
|
|
6 |
|
|
|
12 |
|
|
|
19 |
|
|
|
26 |
|
|
|
29 |
|
Expense ratios (annualized, as
percentage of average net
assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
107.4 |
% |
|
|
32.2 |
% |
|
|
21.3 |
% |
|
|
8.3 |
% |
|
|
4.4 |
% |
|
|
5.7 |
% |
Interest expense and
deferred financing fees |
|
|
|
|
|
|
7.4 |
|
|
|
21.4 |
|
|
|
9.5 |
|
|
|
2.4 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
107.4 |
% |
|
|
39.6 |
% |
|
|
42.7 |
% |
|
|
17.8 |
% |
|
|
6.8 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this section contains forward-looking statements that involve risks and
uncertainties. Please see Risk Factors and Special Note Regarding Forward-Looking Statements
for a discussion of the uncertainties, risks and assumptions associated with these statements. You
should read the following discussion in conjunction with the combined financial statements and
related notes and other financial information appearing elsewhere in this prospectus.
The following discussion is designed to provide a better understanding of our
consolidated financial statements, including a brief discussion of our business, key factors that
impacted our performance and a summary of our operating results. As discussed further in Note 1 to
our unaudited financial statements, on February 21, 2007, concurrent with the closing of our
initial public offering (the IPO), we acquired Triangle Mezzanine Fund LLLP (Triangle SBIC) and
Triangle SBICs 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. In accordance with the guidance on exchanges of shares between entities under common
control contained in Statement of Financial Accounting Standards No. 141, Business Combinations,
the financial data and information discussed herein for the three months ended March 31, 2007 are
presented as if the acquisition had occurred as of January 1, 2007.
The following discussion should be read in conjunction with the financial statements and the
notes thereto included herein. Historical results and percentage relationships among any amounts
in the financial statements are not necessarily indicative of trends in operating results for any
future periods.
Overview of our Business
We are a Maryland corporation incorporated on October 10, 2006, for the purposes of acquiring
Triangle SBIC and TML, raising capital in the IPO and thereafter operating as an internally managed
business development company, or BDC, under the Investment Company Act of 1940, or 1940 Act.
Triangle SBIC is licensed as a small business investment company, or SBIC, by the United States
Small Business Administration, or SBA, and has also elected to be treated as a BDC. Triangle SBIC
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 IPO, we completed the Formation Transactions described herein this prospectus, at which time
Triangle SBIC became our wholly-owned subsidiary, and the former partners of Triangle SBIC 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 and $100.0
million. We focus on investments in companies with a history of generating revenues and positive
cash flows, an established market position and a proven management team with a strong operating
discipline. Our target portfolio company has annual revenues between $20.0 and $75.0 million and
annual earnings before interest, taxes, depreciation and amortization, or EBITDA, between $2.0 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 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 interest, or PIK, 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 March 31, 2008 and December 31, 2007, the
weighted average yield on all of our outstanding debt investments (including PIK interest) was
approximately 13.7% and 13.9%, respectively. The weighted average yield on all of our outstanding
investments (including equity and equity-linked investments) was approximately 12.5% and 12.6% as
of March 31, 2008 and December 31, 2007, respectively.
Triangle SBIC 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 Triangle SBIC as an SBIC and to utilize the proceeds of the sale of SBA guaranteed
debentures, referred to herein as SBA leverage, to make additional investments and thus enhance
returns to our stockholders.
33
Portfolio Composition
The total value of our investment portfolio was $127.4 million as of March 31, 2008, as
compared to $114.4 million as of December 31, 2007 and $55.0 million as of December 31, 2006. As of
March 31, 2008, we had investments in 29 portfolio companies with an aggregate cost of $121.4
million. 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 both March 31, 2008 and December 31, 2007, we had one
portfolio investment that represented greater than 10% of the total fair value of our investment
portfolio. 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 March 31, 2008 and December 31, 2007 and 2006, our investment portfolio consisted of the
following investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes |
|
$ |
94,155,068 |
|
|
|
78 |
% |
|
$ |
93,043,068 |
|
|
|
73 |
% |
Senior debt |
|
|
15,896,948 |
|
|
|
13 |
|
|
|
15,896,948 |
|
|
|
12 |
|
Equity shares |
|
|
10,831,832 |
|
|
|
9 |
|
|
|
16,376,800 |
|
|
|
13 |
|
Equity warrants |
|
|
548,172 |
|
|
|
|
|
|
|
1,800,800 |
|
|
|
2 |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
$ |
121,432,020 |
|
|
|
100 |
% |
|
$ |
127,392,216 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
34
Investment Activity
During the quarter ended March 31, 2008, we made three new investments totaling $13.8 million,
one additional debt investment in an existing portfolio company of $0.3 million and one additional
equity investment in an existing portfolio company of approximately $0.1 million. We also sold one
investment in a portfolio company for approximately $0.2 million, resulting in no realized gain or
loss as the proceeds from the sale equaled the cost basis of the investment. In addition, we
received normal principal repayments and PIK interest repayments totaling approximately $0.3
million in the three months ended March 31, 2008. Total portfolio investment activity for the three
months ended March 31, 2008 was as follows:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, 2008 |
|
Fair value of portfolio, January 1, 2008 |
|
$ |
114,374,218 |
|
New investments |
|
|
14,123,791 |
|
Proceeds from sale of investment |
|
|
(175,000 |
) |
Principal repayments and payment-in-kind interest payments received |
|
|
(327,553 |
) |
Payment-in-kind interest earned |
|
|
568,583 |
|
Accretion of loan discounts |
|
|
24,420 |
|
Unrealized loss on investments |
|
|
(1,196,243 |
) |
|
|
|
|
|
|
|
|
|
Fair value of portfolio, March 31, 2008 |
|
$ |
127,392,216 |
|
|
|
|
|
Weighted average yield on debt investments as of March 31, 2008 |
|
|
13.7 |
% |
|
|
|
|
Weighted average yield on total investments as of March 31, 2008 |
|
|
12.5 |
% |
|
|
|
|
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.
Total portfolio investment activity for the year ended December 31, 2007 was as follows:
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, 2007 |
|
Fair value of portfolio, January 1, 2007 |
|
$ |
54,996,428 |
|
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 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 |
% |
|
|
|
|
35
Results of Operations
Comparison of three months ended March 31, 2008 and March 31, 2007
Investment Income
For the three months ended March 31, 2008, total investment income was $3.9 million, an 83%
increase from $2.1 million of total investment income for the three months ended March 31, 2007.
This increase was primarily attributable to a $2.0 million increase in total loan interest, fee and
dividend income due to net increase in our portfolio investments from March 31, 2007 to March 31,
2008 offset by a $0.2 million decrease in interest income from cash and cash equivalent investments
due to (i) a significant decrease in average cash balances in the first quarter of 2008 over the
comparable period in 2007 and (ii) a decrease in overall interest rates.
Expenses
For the three months ended March 31, 2008, expenses increased by 49% to $2.0 million from $1.3
million for the three months ended March 31, 2007. The increase in expenses was primarily
attributable to a $0.8 million increase in general and administrative expenses. As a result of the
IPO and the Formation Transactions described in Note 1 to our unaudited financial statements, we
are an internally managed investment company and on February 21, 2007, we began incurring general
and administrative costs associated with employing our executive officers, key investment personnel
and corporate professionals and other general corporate overhead costs. As of March 31, 2008, we
had twelve full-time employees, as compared to nine full-time employees as of March 31, 2007. In
addition, we experienced an increase in general and administrative costs in 2008 associated with
being a publicly-traded company, such as increased insurance, accounting, corporate governance and
legal costs. These increases in general and administrative costs were partially offset by a $0.2
million decrease in management fees. We incurred no management fees in the first quarter of 2008
compared to $0.2 million in management fees in the first quarter of 2007.
Net Investment Income
As a result of the $1.8 million increase in total investment income and the $0.6 million
increase in expenses, net investment income for the three months ended March 31, 2008 was $1.9
million compared to net investment income of $0.8 million during the three months ended March 31,
2007.
Net Increase in Net Assets Resulting From Operations
We recorded no realized gains or losses on investments in the three months ended March 31,
2008. For the three months ended March 31, 2007, net realized loss on investments was $1.5 million,
all of which related to one investment.
In the three months ended March 31, 2008, we recorded net unrealized depreciation of
investments in the amount of $1.0 million, comprised of unrealized gains on seven investments
totaling $0.7 million and unrealized losses on nine investments totaling $1.7 million. During the
three months ended March 31, 2007, we recorded net unrealized appreciation of investments in the
amount of $1.7 million, comprised primarily of an unrealized gain reclassification adjustment of
approximately $1.5 million related to the realized loss noted above. In addition, in the three
months ended March 31, 2007, we recorded unrealized gains on eleven other investments totaling $0.9
million and unrealized losses on five investments totaling $0.6 million.
As a result of these events, our net increase in net assets from operations during the three
months ended March 31, 2008 was $0.8 million as compared to $1.1 million for the three months ended
March 31, 2007.
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.
36
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.
Net Increase 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.
37
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 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 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 three months ended March 31, 2008, we experienced a net decrease in cash and cash
equivalents in the amount of $6.2 million. During that period, our operating activities used $13.4
million in cash, consisting primarily of new portfolio investments of $14.1 million, and we
generated $7.2 million of cash from financing activities, consisting of proceeds from borrowings
under SBA guaranteed debentures payable of $10.0 million, partially offset by financing fees paid
to the SBA of $0.8 million and cash dividends paid of $2.0 million. At March 31, 2008, we had $15.6
million of cash and cash equivalents on hand.
For the three months ended March 31, 2007, we experienced a net increase in cash and cash
equivalents in the amount of $70.2 million. During that period, our operating activities provided
$1.1 million in cash, and we generated $69.1 million of cash from financing activities, consisting
primarily of (i) proceeds from our IPO of $64.7 million, (ii) proceeds from borrowings under SBA
guaranteed debentures payable of $4.0 million and (iii) a decrease in deferred offering costs of
$1.0 million, partially offset by financing fees paid to the SBA of $0.1 million. At March 31,
2007, we had $72.8 million of cash and cash equivalents on hand.
For the year ended December 31, 2007, we experienced a net increase in cash and cash
equivalents in the amount of $19.2 million. During that period, our operating activities used $47.8
million in cash, and we generated $67.1 million of cash from financing activities, consisting of
(i) proceeds from our 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
$2.6 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.
38
Financing Transactions
Due to Triangle SBICs status as a licensed SBIC, Triangle SBIC 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 March 31, 2008 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. 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 $65.3 million of regulatory capital as of March 31, 2008, Triangle SBIC has the current
capacity to issue up to a total of $130.6 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 March 31, 2008,
Triangle SBIC had paid commitment fees for and had a commitment from the SBA to issue a total of
$96.9 million of SBA guaranteed debentures, of which $47.1 million are outstanding as of March 31,
2008. In order to access the remaining $33.7 million in borrowing capacity for which Triangle SBIC
is currently eligible, Triangle SBIC would incur non-refundable commitment fees of $337,000. In
addition to the one-time 1.0% fee on the total commitment from the SBA, we also pay a one-time
2.425% fee on the amount of each debenture issued. These fees are capitalized as deferred financing
costs and are amortized over the term of the debt agreements using the effective interest method.
The weighted average interest rate for all SBA guaranteed debentures as of March 31, 2008 was
5.661%.
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 have established and documented processes and methodologies for
determining the fair values of portfolio company investments on a recurring (quarterly) basis. As
discussed below, we have engaged an independent valuation firm to assist us in our valuation
process.
On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures about fair value
measurements.
39
SFAS 157 clarifies that the exchange price is the price in an orderly transaction between
market participants to sell an asset or transfer a liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most
advantageous market for the asset or liability. The transaction to sell the asset or transfer
the liability is a hypothetical transaction at the measurement date, considered from the
perspective of a market participant that holds the asset or owes the liability. SFAS 157 provides a
consistent definition of fair value which focuses on exit price and prioritizes, within a
measurement of fair value, the use of market-based inputs over entity-specific inputs. In addition,
SFAS 157 provides a framework for measuring fair value, and establishes a three-level hierarchy for
fair value measurements based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date. The three levels of valuation hierarchy established by SFAS
157 are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the
financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the
fair value measurement.
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. We invest primarily in
debt and equity of privately held companies for which quoted prices falling within the categories
of Level 1 and Level 2 inputs are not available. Therefore, we value all of our investments at fair
value, as determined in good faith by our Board of Directors, using Level 3 inputs, as further
described below. Due to the inherent uncertainty in the valuation process, our Board of Directors
estimate of fair value may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material. In addition,
changes in the market environment and other events that may occur over the life of the investments
may cause the gains or losses ultimately realized on these investments to be different than the
valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that we might
reasonably expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the most recent portfolio company
financial statements and forecasts. We also consult with the portfolio companys senior management
to obtain further updates on the portfolio companys performance, including information such as
industry trends, new product development and other operational issues. Additionally, we consider
some or all of the following factors:
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financial standing of the issuer of the security; |
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comparison of the business and financial plan of the issuer with actual results; |
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the size of the security held as it relates to the liquidity of the market for such
security; |
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pending public offering of common stock by the issuer of the security; |
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pending reorganization activity affecting the issuer, such as merger or debt
restructuring; |
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ability of the issuer to obtain needed financing; |
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changes in the economy affecting the issuer; |
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financial statements and reports from portfolio company senior management and
ownership; |
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the type of security, the securitys cost at the date of purchase and any
contractual restrictions on the disposition of the security; |
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discount from market value of unrestricted securities of the same class at the time
of purchase; |
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special reports prepared by analysts; |
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information as to any transactions or offers with respect to the security and/or
sales to third parties of similar securities; |
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the issuers ability to make payments and the type of collateral; |
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the current and forecasted earnings of the issuer; |
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statistical ratios compared to lending standards and to other similar securities;
and |
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other pertinent factors. |
In making the good faith determination of the value of debt securities, we start with the cost
basis of the security, which includes the amortized original issue discount, and PIK interest, if
any. We also use a risk rating system to estimate the probability of default on the debt securities
and the probability of loss if there is a default. The risk rating system covers both qualitative
and quantitative aspects of the business and the securities held. In valuing debt securities, we
utilize an income approach model that considers factors including, but not limited to, (i) the
portfolio investments current risk rating (discussed below), (ii) the portfolio companys current
40
trailing twelve months (TTM) results of operations as compared to the portfolio companys TTM
results of operations as of the date the investment was made, (iii) the portfolio companys current
leverage as compared to its leverage as of the date the investment was made, and (iv) current
pricing and credit metrics for similar proposed and executed investment transactions. In valuing
equity
securities of private companies, we consider valuation methodologies consistent with industry
practice, including (i) valuation using a valuation model based on original transaction multiples
and the portfolio companys recent financial performance, (ii) valuation of the securities based on
recent sales in comparable transactions, and (iii) a review of similar companies that are publicly
traded and the market multiple of their equity securities.
Unrealized appreciation or depreciation on portfolio investments are recorded as increases or
decreases in investments on the balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets resulting from operations.
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 stockholders best interest, to request Duff & Phelps to perform the
procedures on one or more portfolio companies. Such instances include, but are not limited to,
situations where the fair value of our investment in the portfolio company is determined to be
insignificant relative to our total investment portfolio.
For the quarter ended March 31, 2008, we asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately 35% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of March 31,
2008. 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.
Recently Issued Accounting Standards
On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles (GAAP) and expands disclosures
about fair value measurements. The changes to previous practice resulting from the application of
SFAS 157 relate to the definition of fair value, the methods used to measure fair value, and the
expanded disclosures about fair value measurements. The definition of fair value retains the
exchange price notion used in earlier definitions of fair value. SFAS 157 clarifies that the
exchange price is the price in an orderly transaction between market participants to sell the asset
or transfer the liability in the market in which the reporting entity would transact for the asset
or liability, that is, the principal or most advantageous market for the asset or liability. The
transaction to sell the asset or transfer the liability is a hypothetical transaction at the
measurement date, considered from the perspective of a market participant that holds the asset or
owes the liability. SFAS 157 provides a consistent definition of fair value which focuses on exit
price and prioritizes, within a measurement of fair value, the use of market-based inputs over
entity-specific inputs. In addition, SFAS 157 provides a framework for measuring fair value, and
establishes
41
a three-level hierarchy for fair value measurements based upon the transparency of
inputs to the valuation of an asset or liability as of the measurement date. Our adoption of SFAS
157 resulted in additional unrealized depreciation of approximately $0.2 million. See Note 2 to our
unaudited financial statements for a further discussion of the impact of the adoption of SFAS 157
on our financial statements and for expanded disclosures about our fair value measurements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding 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. We did not adopt FAS
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.
Our investment income is affected by fluctuations in various interest rates, including LIBOR
and prime rates. As of March 31, 2008, approximately 81.8% 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 IPO, TML, the general partner of Triangle SBIC,
merged into a wholly-owned subsidiary of Triangle Capital Corporation. A substantial majority of
the ownership interests of TML at that time were owned by our Chief Executive Officer, Chief
Financial Officer, Chief Investment Officer and two of our Managing Directors. As a result of such
merger, these five individuals collectively received shares of our common stock valued at
approximately $6.7 million.
Three members of our management, including our Chief Executive Officer, collectively own
approximately 67% of Triangle Capital Partners, LLC. As of March 31, 2008, Triangle Capital
Partners, LLC does not own any shares of Triangle Capital Corporations common stock. Prior to the
closing of the IPO, Triangle Capital Partners, LLC provided management and advisory services to
Triangle SBIC 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 approximately
$0.2 million in management fees from Triangle SBIC during the three months ended March 31, 2007.
This agreement terminated upon the closing of the IPO.
42
Contractual Obligations
As of March 31, 2008, our future fixed commitments for cash payments are as follows:
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2009 to |
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2011 to |
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2013 and |
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Total |
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2008 |
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2010 |
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2012 |
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Thereafter |
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SBA guaranteed debentures payable |
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$ |
47,050,000 |
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$ |
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$ |
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$ |
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$ |
47,050,000 |
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Interest due
on SBA guaranteed debentures payable |
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|
22,195,918 |
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1,315,855 |
|
|
|
5,550,679 |
|
|
|
5,578,286 |
|
|
|
9,751,098 |
|
Unused
commitments to extend credit(1) |
|
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1,832,220 |
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|
1,832,220 |
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Operating lease payments(2) |
|
|
1,526,241 |
|
|
|
86,004 |
|
|
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556,533 |
|
|
|
582,336 |
|
|
|
301,368 |
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Total |
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$ |
72,604,379 |
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|
$ |
3,234,079 |
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$ |
6,107,212 |
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$ |
6,160,622 |
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$ |
57,102,466 |
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(1) |
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We have a commitment to extend credit, in the form of loans, to one of our portfolio
companies which is undrawn as of March 31, 2008. 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. |
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(2) |
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We lease our current corporate office facility under an operating lease that terminates
on December 31, 2008. We have entered into an operating lease agreement for a new corporate
office facility that begins January 1, 2009 and terminates on December 31, 2013. We
believe that our existing facilities and our new facilities will be adequate to meet our
needs at least through 2013, and that we will be able to obtain additional space when,
where and as needed on acceptable terms. |
SBA Guaranteed Debentures Payable subsequent to March 31, 2008
On April 11, 2008, we borrowed an additional $9.4 million under the SBA debenture commitment.
On April 28, 2008, we borrowed an additional $15.2 million under the SBA debenture commitment.
On May 29, 2008, we borrowed an additional $10.0 million under the SBA debenture commitment.
On
June 11, 2008, we borrowed an additional $5.0 million under
the SBA debenture commitment.
On
June 24, 2008, we borrowed an additional $2.5 million under
the SBA debenture commitment.
New Portfolio Company Investments
On April 25, 2008, we invested $9.4 million in Jenkins Restoration, Inc. (Jenkins)
consisting of $8.0 million in subordinated debt and $1.4 million in convertible debt. Jenkins,
headquartered in Sterling, Virginia, is a provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and commercial buildings caused by fire, wind,
storm, vandalism or burglary.
On April 29, 2008, the Company made an $8.0 million subordinated debt investment in American
De-Rosa Lamparts, LLC and Hallmark Lighting (ADL/Hallmark). ADL/Hallmark, headquartered in
California, markets a wide variety of lighting products, including fixtures, bulbs, electrical
components, glass and hardware, to maintenance and repair organizations, lighting wholesalers,
retailers and original equipment manufacturers.
On April 30, 2008, we invested $13.0 million in subordinated debt in Yellowstone Landscape
Group, Inc. (Yellowstone). Yellowstone, headquartered in Dallas, Texas, is a full-service lawn
care provider focused primarily on the commercial market with services including lawn and landscape
maintenance, construction/installation, irrigation, turf management and tree care throughout Texas
and the Southeast.
On June 2, 2008, we invested $8.0 million in subordinated debt in Inland Pipe Rehabilitation,
LLC (IPR). IPR, headquartered in Detroit, Michigan, provides maintenance, inspection, cleaning, and
repair services relating to piping, sewers, drains, and storm lines. In addition, we received a
warrant to purchase a 2.5% membership interest in IPR.
On
June 12, 2008, we invested $3.5 million in subordinated
debt in Wholesale Floors, Inc. (WFI). WFI, headquartered
near Phoenix, Arizona, provides commercial flooring design and
installation services for institutional and corporate clients. In
addition, we received a warrant to purchase a 4.0% interest in WFI.
43
SENIOR SECURITIES
Information about our senior securities is shown in the following table as of December 31,
2007 and for the years indicated in the table, unless otherwise noted. Ernst &Young LLPs report on
the senior securities table as of December 31, 2007 is attached as an exhibit to the registration
statement of which this prospectus is a part.
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Involuntary |
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Total Amount |
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Asset |
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Liquidating |
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Average Market |
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Outstanding Exclusive of |
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Coverage Per |
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Preference Per |
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Value Per |
Class and Year |
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Treasury Securities(a) |
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Unit(b) |
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Unit(c) |
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Unit(d) |
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(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
SBA guaranteed debentures payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
N/A |
|
2004 |
|
|
17,700 |
|
|
|
1,283 |
|
|
|
|
|
|
|
N/A |
|
2005 |
|
|
31,800 |
|
|
|
1,357 |
|
|
|
|
|
|
|
N/A |
|
2006 |
|
|
31,800 |
|
|
|
1,791 |
|
|
|
|
|
|
|
N/A |
|
2007 |
|
|
37,010 |
|
|
|
3,526 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
(a) |
|
Total amount of each class of senior securities outstanding at the end of the period
presented. |
|
(b) |
|
Asset coverage per unit is the ratio of the carrying value of our total consolidated assets,
less all liabilities and indebtedness not represented by senior securities, to the aggregate
amount of senior securities representing indebtedness. Asset coverage per unit is expressed in
terms of dollar amounts per $1,000 of indebtedness. |
|
(c) |
|
The amount to which such class of senior security would be entitled upon the involuntary
liquidation of the issuer in preference to any security junior to it. The indicates
information which the Securities and Exchange Commission expressly does not require to be
disclosed for certain types of senior securities. |
|
(d) |
|
Not applicable because senior securities are not registered for public trading. |
44
BUSINESS
Triangle Capital Corporation is a specialty finance company that provides customized financing
solutions to lower middle market companies located throughout the United States. We define lower
middle market companies as those having annual revenues between $10.0 and $100.0 million. Our
investment objective is to seek attractive returns by generating current income from our debt
investments and capital appreciation from our equity related investments. Our investment philosophy
is to partner with business owners, management teams and financial sponsors to provide flexible
financing solutions to fund growth, changes of control, or other corporate events. We invest
primarily in senior and subordinated debt securities secured by first and second lien security
interests in portfolio company assets, coupled with equity interests.
We focus on investments in companies with a history of generating revenues and positive cash
flows, an established market position and a proven management team with a strong operating
discipline. Our target portfolio company has annual revenues between $20.0 and $75.0 million and
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 Triangle SBIC 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 March 31, 2008, we had investments in 29 portfolio companies, with an aggregate cost of
$121.4 million. After giving effect to investment transactions
occurring subsequent to March 31, 2008, we have investments in
34 portfolio companies, with an aggregate cost of $159.6 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:
|
|
Focusing on Underserved Markets. We believe that broad-based consolidation in the
financial services industry coupled with operating margin and growth pressures have caused
financial institutions to de-emphasize services to lower middle market companies in favor of
larger corporate clients and capital market transactions. We believe these dynamics have
resulted in the financing market for lower middle market companies to be underserved,
providing us with greater investment opportunities. |
|
|
|
Providing Customized Financing Solutions. We offer a variety of financing structures and
have the flexibility to structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt securities, coupled with equity
interests. We believe our ability to customize financing arrangements makes us an attractive
partner to lower middle market companies. |
|
|
|
Leveraging the Experience of Our Management Team. Our senior management team has more than
100 years of combined experience advising, investing in, lending to and operating companies
across changing market cycles. The members of our management team have diverse investment
backgrounds, with prior experience at investment banks, specialty finance companies,
commercial banks, and privately and publicly held companies in the capacity of executive
officers. We believe this diverse experience provides us with an in depth understanding of the
strategic, financial and operational 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. |
|
|
|
Applying Rigorous Underwriting Policies and Active Portfolio Management. Our senior
management team has implemented rigorous underwriting policies that are followed in each
transaction. These policies include a thorough analysis of each potential portfolio companys
competitive position, financial performance, management team operating discipline, growth
potential and industry attractiveness, allowing us to better assess the companys prospects.
After investing in a company, we monitor the investment closely, typically receiving monthly,
quarterly and annual financial statements. We analyze and discuss in detail the companys
financial performance with management in addition to attending regular board of directors
meetings. We believe that our initial and ongoing portfolio review process allows us to
monitor effectively the performance and prospects of our portfolio companies. |
|
|
|
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. |
|
|
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 |
45
of
a single portfolio company that comprise
more than 5.0% of our total assets and/or more than 10.0% of the outstanding voting
securities of the portfolio company. For that reason, we are classified as a non-diversified
management investment company under the 1940 Act.
|
|
Utilizing Long-Standing Relationships to Source Deals. Our senior management team
maintains extensive relationships with entrepreneurs, financial sponsors, attorneys,
accountants, investment bankers, commercial bankers and other non-bank providers of capital
who refer prospective portfolio companies to us. These relationships historically have
generated significant investment opportunities. We believe that our network of relationships
will continue to produce attractive investment opportunities. |
Our Investment Criteria
We utilize the following criteria and guidelines in evaluating investment opportunities.
However, not all of these criteria and guidelines have been, or will be, met in connection with
each of our investments.
|
|
Established Companies With Positive Cash Flow. We seek to invest in established companies
with a history of generating revenues and positive cash flows. We typically focus on companies
with a history of profitability and minimum trailing twelve month EBITDA of $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. |
|
|
|
Experienced Management Teams With Meaningful Equity Ownership. Based on our prior
investment experience, we believe that a management team with significant experience with a
portfolio company or relevant industry experience and meaningful equity ownership is more
committed to a portfolio company. We believe management teams with these attributes are more
likely to manage the companies in a manner that protects our debt investment and enhances the
value of our equity investment. |
|
|
|
Strong Competitive Position. We seek to invest in companies that have developed strong
positions within their respective markets, are well positioned to capitalize on growth
opportunities and compete in industries with barriers to entry. We also seek to invest in
companies that exhibit a competitive advantage, which may help to protect their market
position and profitability. |
|
|
|
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. |
|
|
|
Significant Invested Capital. We believe the existence of significant underlying equity
value provides important support to investments. We will look for portfolio companies that we
believe have sufficient value beyond the layer of the capital structure in which we invest. |
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 Investment Company, or RIC, for federal tax purposes.
At March 31, 2008, the weighted average yield on all of our outstanding debt investments was
approximately 13.7%.
46
Equity Investments
When we provide financing, we may acquire equity interests in the portfolio company. We
generally seek to structure our equity investments as non-control investments to provide us with
minority rights and event-driven or time-driven puts. We also seek to obtain registration rights in
connection with these investments, which may include demand and piggyback registration rights,
board seats and board observation rights. Our investments have in the past and may in the future
contain a synthetic equity position pursuant to a formula typically setting forth royalty rights we
may exercise in accordance with such formula.
Investment Process
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:
|
|
|
Origination |
|
|
|
|
Due Diligence and Underwriting |
|
|
|
|
Approval |
|
|
|
|
Documentation and Closing |
|
|
|
|
Portfolio Management and Investment Monitoring |
Our investment process is summarized in the following chart:
Origination
The origination process for our investments includes sourcing, screening, preliminary due
diligence, transaction structuring, and negotiation. Our 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.
47
If a transaction meets our investment criteria, we perform preliminary due diligence, taking
into consideration some or all of the following factors:
|
|
|
A comprehensive financial model that we prepare based on quantitative analysis of
historical financial performance, financial projections and pro forma financial ratios
assuming investment; |
|
|
|
|
Competitive landscape surrounding the potential investment; |
|
|
|
|
Strengths and weaknesses of the potential investments business strategy and
industry; |
|
|
|
|
Results of a broad qualitative analysis of the companys products or services, market
position, market dynamics and customers and suppliers; and |
|
|
|
|
Potential investment structures, certain financing ratios and investment pricing
terms. |
If the results of our preliminary due diligence are satisfactory, the origination team
prepares a Summary Transaction Memorandum which is presented to our investment committee. If our
investment committee recommends moving forward, we issue a non-binding term sheet to the potential
portfolio company. Upon execution of a term sheet, we begin our formal due diligence and
underwriting process as we move toward investment approval.
Due Diligence and Underwriting
Our due diligence on a prospective investment is completed by a minimum of two investment
professionals, which we define as the underwriting team. The members of the underwriting team
work together to conduct due diligence and to understand the relationships among the prospective
portfolio companys business plan, operations and financial performance through various methods,
including, among others, on-site visits with management, in-depth review of historical and
projected financial data, interviews with customers and suppliers, management background checks,
third-party accounting reports and review of any material contracts.
In most circumstances, we utilize outside experts to review the legal affairs, accounting
systems and 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.
48
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:
|
|
|
Monthly and quarterly review of actual financial performance versus the corresponding
period of the prior year and financial projections; |
|
|
|
|
Monthly and quarterly monitoring of all financial and other covenants; |
|
|
|
|
Review of senior lender loan compliance certificates, where applicable; |
|
|
|
|
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; |
|
|
|
|
Periodic face-to-face meetings with management teams and financial sponsors of
portfolio companies; |
|
|
|
|
Attendance at portfolio company board meetings through board seats or observation
rights; and |
|
|
|
|
Application of our investment rating system to each investment. |
In the event that our investment committee determines that an investment is underperforming,
or circumstances suggest that the risk associated with a particular investment has significantly
increased, we undertake more aggressive monitoring of the affected portfolio company. The 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.
49
In connection with the monitoring of our portfolio companies, each investment we hold is rated
based upon the following ten-level numeric investment rating system:
|
|
|
Investment |
|
|
Rating |
|
Description |
10
|
|
Investment is performing above original expectations and possibly 30.0% or more above
original projections provided by the portfolio company. Investment has been
positively influenced by an unforeseen external event. Full return of principal and
interest is expected. Capital gain is expected. |
|
|
|
9
|
|
Investment is performing above original expectations and possibly 30.0% or more above
original projections provided by the portfolio company. Investment may have been or
is soon to be positively influenced by an unforeseen external event. Full return of
principal and interest is expected. Capital gain is expected. |
|
|
|
8
|
|
Investment is performing above original expectations and possibly 21.0% to 30.0%
above original projections provided by the portfolio company. Full return of
principal and interest is expected. Capital gain is expected. |
|
|
|
7
|
|
Investment is performing above original expectations and possibly 11.0% to 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. |
|
|
|
6
|
|
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. |
|
|
|
5
|
|
Investment is performing in line with expectations. Full return of principal and
interest is expected. Depending on age of transaction, potential for nominal capital
gain may be expected. |
|
|
|
4
|
|
Investment is performing below expectations, but no covenant defaults have occurred.
Full return of principal and interest is expected. Little to no capital gain is
expected. |
|
|
|
3
|
|
Investment is in default of transaction covenants but interest payments are current.
No loss of principal is expected. |
|
|
|
2
|
|
Investment is in default of transaction covenants and interest payments are not
current. A principal loss of between 1.0% and 33.0% is expected. |
|
|
|
1
|
|
Investment is in default of transaction covenants and interest (and possibly
principal) payments are not current. A principal loss of between 34.0% and 67.0% is
expected. |
|
|
|
0
|
|
Investment is in default and a principal loss of between 68.0% and 100.0% is expected. |
Valuation Process and Determination of Net Asset Value
Valuation Process
The most significant estimate inherent in the preparation of our financial statements is the
valuation of investments and the related amounts of unrealized appreciation and depreciation of
investments recorded. We have established and documented processes and methodologies for
determining the fair values of portfolio company investments on a recurring (quarterly) basis. As
discussed below, we have engaged an independent valuation firm to assist us in our valuation
process.
On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, which defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures about fair value
measurements.
SFAS 157 clarifies that the exchange price is the price in an orderly transaction between
market participants to sell an asset or transfer a liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a
hypothetical transaction at the measurement date, considered from the perspective of a market
participant that holds the asset or owes the liability. SFAS 157 provides a consistent definition
of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the
use of market-based inputs over entity-specific inputs. In addition, SFAS 157 provides a framework
for measuring fair value, and establishes a three-level hierarchy for fair value measurements based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. The three levels of valuation hierarchy established by SFAS 157 are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
50
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. We invest primarily in
debt and equity of privately held companies for which quoted prices falling within the categories
of Level 1 and Level 2 inputs are not available. Therefore, we value all of our investments at fair
value, as determined in good faith by our Board of Directors, using Level 3 inputs, as further
described below. Due to the inherent uncertainty in the valuation process, our Board of Directors
estimate of fair value may differ significantly from the values that would have been used had a
ready market for the securities existed, and the differences could be material. In addition,
changes in the market environment and other events that may occur over the life of the investments
may cause the gains or losses ultimately realized on these investments to be different than the
valuations currently assigned. For a discussion of the risks inherent in determining the value of
securities for which readily available market values do not exist, see Risk Factors Our
investment portfolio is and will continue to be recorded at fair value as determined in good faith
by our board of directors and, as a result, there is and will continue to be uncertainty as to the
value of our portfolio investments.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by our Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that we might
reasonably expect to receive upon the current sale of the security.
We evaluate the investments in portfolio companies using the most recent portfolio company
financial statements and forecasts. We also consult with the portfolio companys senior management
to obtain further updates on the portfolio companys performance, including information such as
industry trends, new product development and other operational issues. Additionally, we consider
some or all of the following factors:
|
|
|
financial standing of the issuer of the security; |
|
|
|
|
comparison of the business and financial plan of the issuer with actual results; |
|
|
|
|
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. |
In making the good faith determination of the value of debt securities, we start with the cost
basis of the security, which includes the amortized original issue discount, and paymentinkind
(PIK) interest, if any. We also use the risk rating system discussed above under Investment
Rating System to estimate the probability of default on the debt securities and the probability of
loss if there is a default. The risk rating system covers both qualitative and quantitative aspects
of the business and the securities held. In valuing debt securities, we utilize an income
approach model that considers factors including, but not limited to, (i) the portfolio
investments current risk rating (discussed below), (ii) the portfolio companys current trailing
twelve months (TTM) results of operations as compared to the portfolio companys TTM results of
operations as of the date the investment was made, (iii) the portfolio companys current leverage
as compared to its leverage as of the date the investment was made, and (iv) current pricing and
credit metrics for similar proposed and executed investment transactions. In valuing equity
securities of private companies, we consider valuation methodologies consistent with industry
practice, including (i) valuation using a valuation model based on original transaction multiples
and the portfolio companys recent financial performance, (ii) valuation of the securities based on
recent sales in comparable transactions, and (iii) a review of similar companies that are publicly
traded and the market multiple of their equity securities.
Unrealized appreciation or depreciation on portfolio investments are recorded as increases or
decreases in investments on the balance sheets and are separately reflected on the statements of
operations in determining net increase or decrease in net assets resulting from operations.
Duff & Phelps, LLC (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
51
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.
For the quarter ended March 31, 2008, we asked Duff & Phelps to perform the procedures on
investments in six portfolio companies comprising approximately 35% of the total investments at
fair value (exclusive of the fair value of new investments made during the quarter) as of March 31,
2008. 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.
Quarterly Net Asset Value Determination
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.
52
Managerial Assistance
As a BDC, we offer, and must provide upon request, managerial assistance to certain of our
portfolio companies. This assistance typically involves, among other things, monitoring the
operations of our portfolio companies, participating in board and management meetings, consulting
with and advising officers of portfolio companies and providing other organizational and financial
guidance. Our senior management team provides such services. We believe, based on our management
teams combined experience at investment banks, specialty finance companies, commercial banks, and
operating in executive-level capacities in various operating companies, we offer this assistance
effectively. We may receive fees for these services.
Competition
We compete for investments with a number of BDCs and investment funds (including private
equity funds, mezzanine funds and other SBICs), as well as traditional financial services companies
such as commercial banks and other sources of financing. Many of these entities have greater
financial and managerial resources than we do. We believe we compete with these entities primarily
on the basis of our willingness to make smaller investments, the experience and contacts of our
management team, our responsive and efficient investment analysis and decision-making processes,
our comprehensive suite of customized financing solutions and the investment terms we offer.
We believe that some of our competitors make senior secured loans, junior secured loans and
subordinated debt investments with interest rates that are comparable to or lower than the rates we
offer. Therefore, we do not seek to compete primarily on the interest rates we offer to potential
portfolio companies.
Our competitors also do not always require equity components in their investments. For
additional information concerning the competitive risks we face, see Risk Factors We may face
increasing competition for investment opportunities.
Employees
At March 31, 2008, we employed twelve individuals, including investment and portfolio
management professionals, operations professionals and administrative staff. We expect to expand
our management team and administrative staff in the future in proportion to our growth.
Properties
We do not own any real estate or other physical properties materially important to our
operation or any of our subsidiaries. Currently, we lease approximately 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 intent to conduct it.
Legal Proceedings
Although we may, from time to time, be involved in litigation arising out of our operations in
the normal course of business or otherwise, neither we nor any of our subsidiaries are currently
not a party to any pending material legal proceedings.
53
PORTFOLIO COMPANIES
The following table sets forth certain information as of March 31, 2008 for each portfolio
company in which we had a debt or equity investment. Other than these investments, our only
relationships with our portfolio companies involve the managerial assistance we may separately
provide to our portfolio companies, such services being to our investments, and the board observer
or participation rights we may receive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
NonControl / NonAffiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)* |
|
Specialty Trade |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
620 West Baldwin Road |
|
Contractors |
|
(12%, Due 03/11) |
|
$ |
3,144,654 |
|
|
$ |
3,049,405 |
|
|
$ |
3,049,405 |
|
Panama City, FL 32405 |
|
|
|
|
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14%, Due 03/11) |
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
|
|
|
|
Common Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
882,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729 |
|
|
|
5,063,841 |
|
|
|
5,804,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APO Newco, LLC (5%)* |
|
Commercial and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
3080 Bartlett Corporate Drive |
|
Consumer |
|
(14%, Due 03/13) |
|
|
4,337,078 |
|
|
|
4,314,941 |
|
|
|
4,314,941 |
|
Bartlett, TN 38133 |
|
Marketing Products |
|
Unit purchase warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,302 Class C units) |
|
|
|
|
|
|
25,200 |
|
|
|
273,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,337,078 |
|
|
|
4,340,141 |
|
|
|
4,588,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)* |
|
Remediation |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
221 Dalton Avenue |
|
Services |
|
(19%, Due 11/10) |
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charlotte, NC 28225 |
|
|
|
|
|
|
|
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art Headquarters, LLC (3%)* |
|
Retail, Wholesale |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
11885 44th Street |
|
and Distribution |
|
(14%, Due 01/10) |
|
|
2,376,823 |
|
|
|
2,359,270 |
|
|
|
2,359,270 |
|
Clearwater, FL 33762 |
|
|
|
|
|
Membership unit |
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
warrants (15% of units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,376,823 |
|
|
|
2,400,070 |
|
|
|
2,359,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations Corp. (4%)* |
|
Auto Components / |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
9341 Highway 43 |
|
Metal Fabrication |
|
(17%, Due 03/12) |
|
|
3,876,915 |
|
|
|
3,876,915 |
|
|
|
3,643,115 |
|
Killen, AL 35645 |
|
|
|
|
|
Common Stock (57 shares) |
|
|
|
|
|
|
257,143 |
|
|
|
48,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,876,915 |
|
|
|
4,134,058 |
|
|
|
3,691,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Plastics, Inc. (1%)* |
|
Plastic Component |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
4100 Steubenville Pike |
|
Manufacturing |
|
(14%, Due 10/11) |
|
|
1,500,000 |
|
|
|
1,416,604 |
|
|
|
538,404 |
|
Pittsburgh, PA 15205 |
|
|
|
|
|
Common Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12% of common stock) |
|
|
|
|
|
|
108,534 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,525,138 |
|
|
|
538,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CV Holdings, LLC (6%)* |
|
Specialty Healthcare |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
1030 Riverfront Center |
|
Products |
|
(16%, Due 03/10) |
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
Amsterdam, NY 12010 |
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,326,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
4201 Southwest Freeway |
|
Services Provider |
|
(8%, Due 07/13) |
|
|
4,595,208 |
|
|
|
4,595,208 |
|
|
|
4,595,208 |
|
Houston, TX 77027 |
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11%, Due 01/14) |
|
|
980,428 |
|
|
|
980,428 |
|
|
|
980,428 |
|
|
|
|
|
|
|
Revolving Line of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit (8%) |
|
|
70,880 |
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (1%)* |
|
Satellite |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
350 Technology Pkwy., Suite 400 |
|
Communication |
|
(210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norcross, GA 30092 |
|
Manufacturer |
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Eastern Shore Ambulance, Inc. |
|
Specialty Health |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(1%)* |
|
Care Services |
|
(13%, Due 03/11) |
|
$ |
1,000,000 |
|
|
$ |
961,318 |
|
|
$ |
961,318 |
|
3303 Airline Blvd., Building 5A |
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Portsmouth, VA 23701 |
|
|
|
|
|
Warrants (6% of common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock) |
|
|
|
|
|
|
55,268 |
|
|
|
11,200 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 shares) |
|
|
|
|
|
|
30,000 |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,046,586 |
|
|
|
975,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Systems Protection, |
|
Power Protection |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
Inc. (5%)* |
|
Systems |
|
(14%, Due 12/15) |
|
|
3,013,833 |
|
|
|
3,013,833 |
|
|
|
3,013,833 |
|
517 North Industrial Drive |
|
Manufacturing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
Zebulon, NC 27577 |
|
|
|
(7%, Due 01/14) |
|
|
997,110 |
|
|
|
997,110 |
|
|
|
997,110 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010,943 |
|
|
|
4,260,943 |
|
|
|
4,260,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC |
|
Machined Parts |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(4%)* |
|
Distribution |
|
(14.5%, Due 10/12) |
|
|
3,285,819 |
|
|
|
3,285,819 |
|
|
|
3,285,819 |
|
2730 E. Phillips Road |
|
|
|
|
|
Junior Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
Greer, SC 29650 |
|
|
|
|
|
(8%, Due 10/12) |
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (8%)* |
|
Commercial Printing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
4600 N. Olcott Ave. |
|
Services |
|
(7%, Due 10/12) |
|
|
1,880,000 |
|
|
|
1,880,000 |
|
|
|
1,880,000 |
|
Harwood Heights, IL 60706 |
|
|
|
|
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12%, Due 10/13) |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18%, Due 4/14) |
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc.(3%)* |
|
Specialty Trade |
|
Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
|
|
705 E. Harrison Street, Suite 200 |
|
Contractors |
|
(13%17.5%, Due 04/11) |
|
|
2,441,060 |
|
|
|
2,441,060 |
|
|
|
2,441,060 |
|
Corona, CA 92879 |
|
|
|
|
|
Common Stock (250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares) |
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,060 |
|
|
|
2,691,060 |
|
|
|
2,441,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flint Acquisition Corporation |
|
Specialty Chemical |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(5%)* |
|
Manufacturer |
|
(12.5%, Due 09/09) |
|
|
3,750,000 |
|
|
|
3,750,000 |
|
|
|
3,750,000 |
|
115 Todd Court |
|
|
|
|
|
Preferred Stock (9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
Thomasville, NC 27360 |
|
|
|
|
|
shares) |
|
|
|
|
|
|
308,333 |
|
|
|
1,097,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,847,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garden Fresh Restaurant Corp. |
|
Restaurant |
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
(4%)* |
|
|
|
|
|
(13%, Due 12/11) |
|
|
3,000,000 |
|
|
|
3,000,000 |
|
|
|
3,000,000 |
|
15822 Bernardo Center Drive |
|
|
|
|
|
Membership Units (5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
San Diego, CA 92127 |
|
|
|
|
|
units) |
|
|
|
|
|
|
500,000 |
|
|
|
450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (3%)* |
|
Specialty Woven |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
75 Stark Street |
|
Fabrics |
|
(14%, Due 08/11) |
|
|
3,129,726 |
|
|
|
3,076,896 |
|
|
|
3,076,896 |
|
Plains, PA 18705 |
|
Manufacturer |
|
Common Stock Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
29,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,129,726 |
|
|
|
3,160,310 |
|
|
|
3,106,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC |
|
Municipal Business |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(3%)* |
|
Services |
|
(12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,963,309 |
|
|
|
1,963,309 |
|
12850 Middlebrook Road |
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Germantown, MD 20874 |
|
|
|
|
|
Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
560,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,022,304 |
|
|
|
2,523,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical |
|
Senior Note (9%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
1025 Mary Laidley Drive |
|
Manufacturer |
|
|
|
08/12-02/14) |
|
|
4,865,000 |
|
|
|
4,865,000 |
|
|
|
4,865,000 |
|
Covington, KY 41017 |
|
|
|
|
|
Common Units (2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,865,000 |
|
|
|
5,865,000 |
|
|
|
5,865,000 |
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
TrustHouse Services Group, Inc. |
|
Food Management |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(5%)* |
|
Services |
|
(14%, Due 03/15) |
|
$ |
4,200,000 |
|
|
$ |
4,200,000 |
|
|
$ |
4,200,000 |
|
21 Armory Drive |
|
|
|
|
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
Wheeling, WV 26003 |
|
|
|
|
|
(1,495 units) |
|
|
|
|
|
|
475,000 |
|
|
|
475,000 |
|
|
|
|
|
|
|
Class B Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 units) |
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200,000 |
|
|
|
4,700,000 |
|
|
|
4,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twin-Star International, Inc.
(6%)* |
|
Consumer Home |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
115 S.E. 4th Avenue |
|
Furnishings |
|
(13%, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
4,500,000 |
|
Delray Beach, FL 33483 |
|
Manufacturer |
|
Senior Note (8%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
04/13) |
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal NonControl / NonAffiliate Investments |
|
|
|
|
|
|
75,204,762 |
|
|
|
78,569,772 |
|
|
|
79,704,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (5%)* |
|
Asset Management |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
770 Pelham Road, Suite 200 |
|
Software Provider |
|
(15%, Due 03/13) |
|
|
4,309,151 |
|
|
|
4,309,151 |
|
|
|
4,309,151 |
|
Greenville, SC 29615 |
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309,151 |
|
|
|
4,809,151 |
|
|
|
4,809,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (3%)* |
|
Industrial |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
11927 South Highway 6 |
|
Equipment |
|
(14%, Due 01/11) |
|
|
2,091,861 |
|
|
|
2,091,861 |
|
|
|
2,091,861 |
|
Fresno, TX 77545 |
|
Manufacturer |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
428,000 |
|
|
|
|
|
|
|
Common Stock Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 shares) |
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,091,861 |
|
|
|
2,291,861 |
|
|
|
2,529,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brantley Transportation, LLC |
|
Oil and Gas |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(Brantley Transportation) and |
|
Services |
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street Holdings, LLC (Pine |
|
|
|
|
|
(14%, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,771,580 |
|
|
|
3,771,580 |
|
Street) (4) (4%)* |
|
|
|
|
|
Common Unit Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
808 N. Ruth Street |
|
|
|
|
|
Brantley |
|
|
|
|
|
|
|
|
|
|
|
|
Monahans, TX 79756 |
|
|
|
|
|
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 |
|
|
|
4,005,180 |
|
|
|
4,005,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (12%)* |
|
Custom Forging |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
53 Freedom Road |
|
and Fastener |
|
(15%, Due 12/13) |
|
|
10,085,262 |
|
|
|
10,085,262 |
|
|
|
10,085,262 |
|
Painesville, OH 44077 |
|
Supplies |
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,085,262 |
|
|
|
11,085,262 |
|
|
|
11,085,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisales, LLC (7%)* |
|
Energy Products |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
13811 Cullen Blvd. |
|
and Services |
|
(15%, Due 04/12) |
|
|
6,176,325 |
|
|
|
6,176,325 |
|
|
|
6,176,325 |
|
Houston, TX 77047 |
|
|
|
|
|
Class A Units (500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,176,325 |
|
|
|
6,676,325 |
|
|
|
6,676,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation |
|
Lab Testing |
|
Genapure Common |
|
|
|
|
|
|
|
|
|
|
|
|
(Genapure) and Genpref, LLC |
|
Services |
|
Stock (4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
(Genpref) (5) (1%)*
1205 Industrial Blvd. |
|
|
|
|
|
Genpref Preferred |
|
|
|
|
|
|
|
|
|
|
|
|
Southampton, PA 18966 |
|
|
|
|
|
Stock (455 shares) |
|
|
|
|
|
|
63,602 |
|
|
|
85,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
761,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
26,462,599 |
|
|
|
29,431,381 |
|
|
|
29,866,379 |
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1)(2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)* |
|
Packaging and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
151 Walker Road |
|
Materials Handling |
|
(16.5%, Due 05/13) |
|
$ |
8,759,613 |
|
|
$ |
8,759,613 |
|
|
$ |
8,759,613 |
|
Statesville, NC 28625 |
|
Equipment |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
4,626,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
12,959,613 |
|
|
|
13,385,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Porters Group, LLC (5%)* |
|
Metal Fabrication |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
1111 Oates Road |
|
|
|
|
|
(4,730 units) |
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bessemer City, NC 28016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
13,430,867 |
|
|
|
17,821,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31, 2008 (135%)* |
|
|
|
|
|
$ |
110,426,974 |
|
|
$ |
121,432,020 |
|
|
$ |
127,392,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock, preferred stock and all warrants are
nonincome producing. |
|
(2) |
|
Interest rates on subordinated debt include cash interest rate and paidinkind interest
rate. |
|
(3) |
|
All investments are restricted as to resale and were valued at fair value as determined in
good faith by our board of directors. |
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC, and its
sole business purpose is its ownership of Brantley Transportation, LLC. |
|
(5) |
|
Genpref is the sole owner of Genapures preferred stock, and its sole business purpose is its
ownership of Genapures preferred stock. |
Recent Developments
On April 17, 2008, the Companys loan to Flint Acquisition Corporation of approximately $3.8
million was repaid in full. In connection with the repayment, the Company recognized a prepayment
fee of $37,500.
On April 25, 2008, we invested $9.4 million in Jenkins Restoration, Inc. (Jenkins)
consisting of $8.0 million in subordinated debt and $1.4 million in convertible debt. Jenkins,
headquartered in Sterling, Virginia, is a provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and commercial buildings caused by fire, wind,
storm, vandalism or burglary.
On April 29, 2008, the Company made an $8.0 million subordinated debt investment in American
De-Rosa Lamparts, LLC and Hallmark Lighting (ADL/Hallmark). ADL/Hallmark, headquartered in
California, markets a wide variety of lighting products, including fixtures, bulbs, electrical
components, glass and hardware, to maintenance and repair organizations, lighting wholesalers,
retailers and original equipment manufacturers.
On April 30, 2008, we invested $13.0 million in subordinated debt in Yellowstone Landscape
Group, Inc. (Yellowstone). Yellowstone, headquartered in Dallas, Texas, is a full-service lawn
care provider focused primarily on the commercial market with services including lawn and landscape
maintenance, construction/installation, irrigation, turf management and tree care throughout Texas
and the Southeast.
On June 2, 2008, we invested $8.0 million in subordinated debt in Inland Pipe Rehabilitation,
LLC (IPR). IPR, headquartered in Detroit, Michigan, provides maintenance, inspection, cleaning, and
repair services relating to piping, sewers, drains, and storm lines. In addition, we received a
warrant to purchase a 2.5% membership interest in IPR.
On
June 12, 2008, we invested $3.5 million in subordinated
debt in Wholesale Floors, Inc. (WFI). WFI, headquartered
near Phoenix, Arizona, provides commercial flooring design and
installation services for institutional and corporate clients. In
addition, we received a warrant to purchase a 4.0% interest in WFI.
Description of our Portfolio Companies
Set forth below is a brief description of each of our portfolio companies as of March 31,
2008.
Ambient Air Corporation (f/k/a JR Hobbs Acquisition Corp.)
Ambient Air Corporation is a leading design/build contractor for HVAC systems in the
multi-family housing industry with an emphasis on the Southeast.
American Paper Optics (APO Newco, LLC)
American Paper Optics is a leading manufacturer and marketer of 3-D glasses and 3-D products.
ARC Industries, LLC (d/b/a Haz-Mat)
57
ARC Industries, LLC provides environmental services through removal and disposal services of
industrial liquid wastes, including waste water, sludges and waste oils, to industrial customers
generally within a 200-mile radius of Charlotte, North Carolina.
Art Headquarters, LLC
Art Headquarters, LLC is a supplier of custom frame shop-quality, mid-priced framed art sold
throughout the eastern United States.
AssetPoint, LLC
AssetPoint, LLC is a supplier of integrated enterprise asset management and computerized
maintenance management software and services that improve profitability and productivity for the
process and manufacturing industries.
Assurance Operations Corporation
Assurance Operations Corp. designs and fabricates custom racking products for the automotive
industry and provides light to medium duty stamping for a variety of industries.
Axxiom Manufacturing, Inc.
Axxiom Manufacturing Inc., based in Fresno, Texas, is the exclusive provider of Axxiom and
Schmidt abrasive air blast equipment.
Brantley Transportation, LLC and Pine Street Holdings, LLC
Brantley
Transportation, LLC is an oil services company based in Monahans,
Texas, which provides oil and gas rig and associated heavy equipment intrastate hauling services primarily to
drilling companies operating in Texas and New Mexico, as well as oil and gas producing regions in
the Mid Continent. Pine Street Holdings, LLC is the majority owner of Brantley Transportation, LLC,
and its sole business purpose is its ownership of Brantley Transportation, LLC.
Bruce Plastics, Inc.
Bruce Plastics, Inc. is a supplier of both custom molded and standard components to original
equipment manufacturers in the electronics and consumer end markets.
CV Holdings, LLC
CV Holdings, LLC designs, manufactures and markets customized, high-performance polymer
products.
Cyrus Networks, LLC
CyrusOne, based in Houston, Texas, ensures the availability of mission-critical computing
systems for businesses through network neutral colocation and managed services. The company has
focused its business model around catering to the enterprise customer, particularly in those
industry segments where dense computing needs exist and will frame the future of information
technology outsourcing decisions.
DataPath, Inc.
DataPath, Inc. is an integrator and provider of ground based satellite communications systems
for government and commercial customers.
Dyson Corporation
Dyson Corporation is a supplier of custom fasteners and forgings to industrial markets,
including the high-growth wind energy industry.
Eastern Shore Ambulance, Inc.
Eastern Shore Ambulance, Inc. provides non-emergency, inter-facility transport services on a
pre-scheduled basis to patients requiring medical care.
58
Electronic Systems Protection, Inc.
Electronic Systems Protection, Inc. is a leading manufacturer of power protection technology
for the office technology industry.
Energy Hardware Holdings, LLC
Energy Hardware Holdings, LLC is a global distributor of fasteners, machined parts, seals and
gaskets to the power generation industry.
Equisales, LLC
Equisales,
LLC is a global provider of transformers, high voltage switch gear and power production
equipment.
FCL Graphics, Inc.
FCL Graphics, Inc. is a leading commercial printer which produces such items as direct
mailings, brochures, annual reports, posters, catalogs, sell sheets, newspaper inserts and labels.
Fire Sprinkler Systems, Inc.
Fire Sprinkler Systems, Inc. designs and installs sprinkler systems for residential
applications throughout southern California.
Fischbein, LLC
Fischbein,
LLC is a leading designer and manufacturer of flexible packaging and materials handling
equipment based in Statesville, North Carolina.
Flint Acquisition Corporation (d/b/a Flint Trading)
Flint Trading and related entities serve the traffic safety market with a focus on road
markings, street graphics and road warning markers.
Garden Fresh Restaurant Corp.
Garden Fresh Restaurant Corp. is a casual dining restaurant chain focused on serving fresh,
wholesome meals in an upscale, self-service format. The company operates approximately 100
restaurants in 15 states under the Sweet Tomatoes and Souplantation brand names.
Genapure (QC Labs) and Genpref, LLC
Genapure provides lab testing services for the environmental engineering, food and
pharmaceutical industries. Services include groundwater monitoring, stream surveys, soil testing,
swimming pool testing, and dairy product testing. Genpref is the sole owner of Genapures preferred
stock, and its sole business purpose is its ownership of Genapures preferred stock.
Gerli & Company
Gerli & Company markets high-end decorative fabrics to a diverse customer base focusing on
interior design. The company has dobby and jacquard manufacturing in Plains, Pennsylvania and
sources fabrics worldwide. It is best known for its color direction and design aesthetic in the
broad range of fabric types offered.
Library Systems & Services, LLC
Library Systems & Services, LLC is a provider of outsourced library management services in the
U.S., with customers including federal libraries such as the Library of Congress and the
Smithsonian.
Porters Group, LLC (d/b/a Porters Fabrications)
Porters Group, LLC is a supplier of high-quality custom fabricated metal parts to customers
in the transportation, industrial and commercial sectors.
59
Syrgis Holdings, Inc.
Syrgis Holdings, Inc., headquartered in Covington, Kentucky, is a holding company comprised of
four distinct specialty chemical subsidiaries. Through its operating subsidiaries, Syrgis
manufactures specialty chemicals critical to the performance of products in diverse industries,
including natural gas and oil refineries, cleaning solutions and supplies, and various lumber
products.
TrustHouse Services Group, Inc.
TrustHouse Services Group, Inc. provides outsourced food management services to educational
institutions, healthcare facilities and businesses primarily in the Northeast, Mid-Atlantic and
Midwestern regions of the United States.
Twin Star International, Inc.
Twin
Star International, Inc., based in Delray Beach, Florida, is a leading producer of high quality home
furnishings, including electric fireplaces and decorative bathroom vanities.
60
MANAGEMENT
Our business and affairs are managed under the direction of our board of directors. Our board
of directors elects our officers, who serve at the discretion of the board of directors. Day-to-day
management of our portfolio is the responsibility of our investment committee. As a result, our
investment committee must approve the acquisition and disposition of all of our investments.
Board of Directors and Executive Officers
Our board of directors consists of eight members, five of whom are classified under applicable
Nasdaq listing standards as independent directors. Pursuant to our articles of incorporation,
each member of our board of directors serves a one year term, with each current director serving
until the 2009 annual meeting of stockholders and until his respective successor is duly qualified
and elected. Our articles of incorporation permit the board of directors to elect directors to fill
vacancies that are created either through an increase in the number of directors or due to the
resignation, removal or death of any director.
Directors
Information regarding our board of directors is set forth below. We have divided the directors
into two groups independent directors and interested directors. Interested directors are
interested persons of Triangle Capital Corporation as defined in Section 2(a)(19) of the 1940
Act. Certain of our directors who are also officers of the Company may serve as directors of, or on
the boards of managers of, certain of our portfolio companies. In addition, the board of directors
of Triangle SBIC is composed of all of the Companys directors. The business address of each
director listed below is 3600 Glenwood Avenue, Suite 104, Raleigh, North Carolina 27612. For
information regarding our directors compensation, see Director Compensation below, and for
information regarding our directors ownership interest in our Companys stock, see Control
Persons and Principal Stockholders below.
Independent Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Director Since |
|
Expiration of Current Term |
W. McComb Dunwoody |
|
|
63 |
|
|
January 2007 |
|
2009 Annual Meeting |
Thomas M. Garrott, III |
|
|
70 |
|
|
January 2007 |
|
2009 Annual Meeting |
Benjamin S. Goldstein |
|
|
52 |
|
|
January 2007 |
|
2009 Annual Meeting |
Simon B. Rich, Jr. |
|
|
63 |
|
|
January 2007 |
|
2009 Annual Meeting |
Sherwood H. Smith, Jr. |
|
|
73 |
|
|
January 2007 |
|
2009 Annual Meeting |
Interested Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
Age |
|
Director Since |
|
Expiration of Current Term |
Garland S. Tucker, III |
|
|
61 |
|
|
October 2006 |
|
2009 Annual Meeting |
Brent P. W. Burgess |
|
|
42 |
|
|
October 2006 |
|
2009 Annual Meeting |
Steven C. Lilly |
|
|
39 |
|
|
October 2006 |
|
2009 Annual Meeting |
Executive Officers
The following persons serve as our executive officers in the following capacities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Officer |
Name |
|
Age |
|
Position(s) Held with the Company |
|
Since |
Garland S. Tucker, III
|
|
|
61 |
|
|
Chairman of the Board, Chief
Executive Officer and President
|
|
|
2007 |
|
Brent P.W. Burgess
|
|
|
42 |
|
|
Director and Chief Investment Officer
|
|
|
2007 |
|
Steven C. Lilly
|
|
|
39 |
|
|
Director, Chief Financial Officer,
Secretary, Treasurer and Chief
Compliance Officer
|
|
|
2007 |
|
In addition to the positions described above, each of our executive officers is a member of
our investment committee. The address for each executive officer is c/o Triangle Capital
Corporation, 3600 Glenwood Avenue, Suite 104, Raleigh, North Carolina, 27612. For information
regarding our executive officers compensation, see Executive Compensation below, and for
information regarding our executive officers ownership interest in our Companys stock, see
Control Persons and Principal Stockholders below.
61
Biographical Information
Independent Directors
W. McComb Dunwoody. Mr. Dunwoody currently serves on our Board of Directors and is a member
of our compensation committee. He is the founder of The Inverness Group Incorporated and a Managing
Member of Inverness Management LLC, a private equity investment firm that specializes in management
buyout transactions. Inverness is not a parent, subsidiary or other affiliate of Triangle. Prior to
Inverness, Mr. Dunwoody began the Corporate Finance Department of First City National Bank of
Houston as a Senior Vice President. From 1968 to 1975, he worked in New York as an investment
banker with The First Boston Corporation and Donaldson, Lufkin & Jenrette. Mr. Dunwoody currently
serves on various corporate boards of directors and was formerly the Chairman of the Executive
Committee of the Board of Directors of National-Oilwell, Inc. Mr. Dunwoodys community involvement
includes the co-founding of Imagine College, an education program serving over 5,000 inner-city
students. He received an undergraduate degree in Business Administration from the University of
Texas Honors Program.
Thomas M. Garrott, III. Mr. Garrott currently serves on our Board of Directors and is a
member of our audit committee and our nominating and corporate governance committee. Mr. Garrott is
the retired chairman and chief executive officer of National Commerce Financial, which has since
merged into SunTrust Banks. Under Mr. Garrotts leadership, NCF earned a national reputation for
inventiveness in retail banking delivery systems, having pioneered successfully large-scale,
in-store banking since the early 1980s. NCF was not, and Sun Trust is not, a parent, subsidiary or
other affiliate of Triangle. Active in business and civic activities, Mr. Garrott formerly served
on the Board of Directors of SunTrust Banks, Inc., as well as the Pension Benefit Guaranty
Corporation Advisory Committee. In addition, he has served as chairman of the Memphis Area Chamber
of Commerce and a member of the Wharton School executive board. Mr. Garrott has a strong interest
in education as well, having served on the boards of various schools, including St. Marys School,
The Hutchison School, Presbyterian Day School, The Baylor School and Rhodes College. He holds a
bachelors degree in economics from Vanderbilt University and a Masters in Business Administration
from the Wharton School of Finance at the University of Pennsylvania.
Benjamin S. Goldstein. Mr. Goldstein currently serves on our Board of Directors and is a
member of our audit committee and our compensation committee. He is currently the President and
co-founder of The Advisory Group, LLC, a real estate advisory, development and investment firm
based in Cary, North Carolina. The Advisory Group is not a parent, subsidiary or other affiliate of
Triangle. Mr. Goldstein is also active in his community, as he currently serves on the boards of
the Wake Education Partnership, based in Raleigh, North Carolina, as well as Paragon Commercial
Bank. Prior to co-founding The Advisory Group, Mr. Goldstein was President and Partner of Roanoke
Properties, the developer of a residential resort real estate community on the Outer Banks of North
Carolina, which had a build out value of over $300 million. He spent three years in the securities
business, having been the Chief Financial Officer of Carolina Securities Corporation for one year,
and later named to head the Carolina Securities Division of Thomson McKinnon Corporation, which had
acquired Carolina Securities. He began his career at KPMG, where he worked with audit and
consulting clients with an emphasis on the real estate industry. A native of North Carolina, Mr.
Goldstein graduated from UNC-Chapel Hill with a degree in business.
Simon B. Rich, Jr. Mr. Rich currently serves on our Board of Directors and is a member of
our audit committee and our nominating and corporate governance committee. He retired in 2001 from
his positions as Chief Executive Officer of Louis Dreyfus Holding Co. and Chairman and Chief
Executive Officer of Louis Dreyfus Natural Gas, two affiliated Delaware and Oklahoma companies,
respectively, neither of which was a parent, subsidiary or other affiliate of Triangle. As CEO, Mr.
Richs companies combined operations included roles such as oil refinery processing, petroleum
product storage and distribution, natural gas production and distribution and the merchandising and
distribution of electricity in North America and Europe, as well as the merchandising and
processing of agricultural products in North America, South America and Europe. During Mr. Richs
tenure, his companies successfully partnered with Electricite de France, creating EDF Trading, a
company that currently dispatches Frances electric generation system. His work experience, which
spans more than thirty years, includes all aspects of the energy and agriculture industries. His
expertise involves private equity investments with an emphasis on sustainability in energy and
agriculture. In addition to Mr. Richs career in the energy and agriculture industries, he
currently serves as a trustee of Warren Wilson College and serves on the Board of Directors of
Environmental Defense. Mr. Rich is also the former Chairman of the Board of Visitors of The
Nicholas School of the Environment and Earth Sciences at Duke University, where he is now Emeritus
and an adjunct instructor. Mr. Rich holds an undergraduate degree in Economics from Duke
University.
Sherwood H. Smith, Jr. Mr. Smith currently serves on our Board of Directors and is a member
of our compensation committee and our nominating and corporate governance committee. He currently
serves as a director of Franklin Street Partners, a privately held investment management firm in
Chapel Hill, North Carolina. Mr. Smith is also active in his community, as he currently serves as a
director and Vice Chairman of the Research Triangle Foundation and as a Trustee and Chairman of the
Triangle Universities Center for Advanced Studies, Inc. Until 2000 he served as a director of
Carolina Power & Light Company (now Progress Energy Corporation), a company for which he has also
served as Chairman, President and Chief Executive Officer. In addition, Mr. Smith has served as a
director of Wachovia Corporation, Nortel Networks, Springs Industries, and Northwestern Mutual Life
Insurance Company (Trustee). Other than his current position as director, Mr. Smith has never been
employed by a parent, subsidiary or other
62
affiliate of Triangle. He has been a member of the Business Roundtable and The Business
Council and has served as Chairman of the North Carolina Citizens for Business and Industry. Mr.
Smith has both an undergraduate and law degree from the University of North Carolina at Chapel
Hill.
Interested Directors
Garland S. Tucker, III. Mr. Tucker currently serves as Chairman of our Board of Directors,
Chief Executive Officer, and President and is a member of our investment committee. Mr. Tucker was
a co-founder of Triangle Capital Partners LLC, the former external manager of Triangle Mezzanine
Fund prior to our IPO. Prior to co-founding Triangle Capital Partners, LLC in 2000, Mr. Tucker and
an outside investor group sold First Travelcorp, a corporate travel services company that he and
the investors founded in 1991. For the two years preceding the founding of First Travelcorp, Mr.
Tucker served as Group Vice President, Chemical Bank, New York, with responsibility for
southeastern corporate finance. Prior to Chemical Bank, Mr. Tucker spent a decade with Carolina
Securities Corporation, serving as President and Chief Executive Officer until 1988. During his
tenure, Carolina Securities Corporation was a member of the New York Stock Exchange, and Mr. Tucker
served a term as President of the Mid-Atlantic Securities Industry Association. Mr. Tucker entered
the securities business in 1975 with Investment Corporation of Virginia. He is a graduate of
Washington & Lee University and Harvard Business School.
Brent P. W. Burgess. Mr. Burgess currently serves as our Chief Investment Officer and is a
member of our Board of Directors and our investment committee. Mr. Burgess was a co-founder of
Triangle Capital Partners, LLC. Prior to joining Triangle, he was Vice President at
Oberlin Capital, an SBIC mezzanine fund. He began his private equity career in 1996 with Cherokee
International Management, a Raleigh based private equity firm, where he worked as an analyst and
associate. He previously served on the Board of Governors of the National Association of SBICs and
is a past president of the Southern Regional Association of SBICs. He is a graduate of the
University of Regina and Regent College, Vancouver.
Steven C. Lilly. Mr. Lilly currently serves as our Chief Financial Officer, Secretary,
Treasurer and Chief Compliance Officer and is a member of our Board of Directors and our investment
committee. Prior to joining Triangle Capital Partners in December, 2005, Mr. Lilly spent six and a
half years with SpectraSite, Inc., which prior to its sale in August, 2005, was the third largest
independent wireless tower company in the United States. At SpectraSite, Mr. Lilly served as Senior
Vice President-Finance & Treasurer and Interim Chief Financial Officer. Prior to SpectraSite, Mr.
Lilly was Vice President of the Media & Communications Group with First Union Capital Markets (now
Wachovia Securities), specializing in arranging financings for high growth, financial sponsor
driven companies across the media and telecommunications sector. Mr. Lilly is a graduate of
Davidson College and has completed the executive education program at the University of North
Carolinas Kenan-Flagler School of Business.
Other Members of Investment Committee
Tarlton H. Long. Mr. Long is a member of our investment committee. From 1990 to 2000, prior
to co-founding Triangle Capital Partners, LLC, he was with Banc of America Securities and its
predecessor organizations as they initiated development of a full service investment banking
platform. As a managing director with Banc of America Securities, he established and headed the
Industrial Growth Group. From 1979 to 1990, he was with The First Boston Corporation (now Credit
Suisse) becoming a Director in the Corporate Finance Department. He began his career in finance in
1976 with White Weld & Co., New York. He is a graduate of the University of North Carolina at
Chapel Hill and New York University.
David F. Parker. Mr. Parker is a member of our investment committee. Prior to joining us, Mr.
Parker was a partner in Crimson Capital Company, a Greensboro, North Carolina private investment
banking firm that specialized in management buyouts of middle market companies in a variety of
industries. Before joining Crimson, he was Vice-President and Treasurer at Marion Laboratories,
Inc., a Fortune 500 pharmaceutical company, where he was responsible for Marions public and
private financings, venture capital investments, divestitures, and investor communications. Before
working at Marion Laboratories, he worked six years as Vice-President and Director of Private
Placements at J. Henry Schroder Corp, a position that followed three years at Kidder, Peabody &
Co., on its private placement desk. Mr. Parker began his career in 1971 at Shearson, Hammill & Co.
in New York. He is a graduate of North Carolina State University and Harvard Business School.
Meetings of the Board of Directors and Committees
During 2007, our Board of Directors held five board meetings. Our Board of Directors has
established an audit committee, a compensation committee, a nominating and corporate governance
committee and an investment committee. Each of the audit committee, compensation committee and
nominating and corporate governance committee operates pursuant to a charter, each of which is
available under Corporate Governance on the Investor Relations section of our website at the
following URL: http://ir.tcap.com, and is also available in print to any stockholder who requests a
copy.
63
We
have designated Simon B. Rich, Jr. as the presiding director of all executive
sessions of non-employee directors. Executive sessions of non-employee directors are held at least
quarterly. Stockholders may communicate with Mr. Rich by writing to: Board of Directors, Triangle
Capital Corporation, 3600 Glenwood Avenue, Suite 104, Raleigh, North Carolina 27612.
Audit Committee
We have a separately-designated standing audit committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The audit committee is responsible for selecting our
independent registered public accounting firm, reviewing the plans, scope and results of the audit
engagement with our independent registered public accounting firm, approving professional services
provided by our independent registered public accounting firm, reviewing the independence of our
independent registered public accounting firm, reviewing the integrity of the audits of the
financial statements and reviewing the adequacy of our internal accounting controls.
Our Board of Directors adopted the Audit Committee Charter on January 31, 2007. The Audit
Committee Charter is publicly available under Corporate Governance on the Investor Relations
section of our website at the following URL: http://ir.tcap.com.
The members of the audit committee are Messrs. Garrott, Goldstein and Rich, each of whom is
independent for purposes of Section 2(a)(19) of the 1940 Act and the Nasdaq Global Market corporate
governance listing standards. Mr. Goldstein serves as the chairman of the audit committee. Our
Board of Directors has determined that Mr. Goldstein is an audit committee financial expert as
defined under Item 407(d)(5) of Regulation S-K of the Exchange Act. Mr. Goldstein meets the current
independence requirements of Rule 10A-3 of the Exchange Act, and, in addition, is not an
interested person of the Company, as defined in Section 2(a)(19) of the 1940 Act. Our audit
committee held four meetings during 2007.
Compensation Committee
The compensation committee is appointed by the Board to discharge its responsibilities
relating to the compensation of our executive officers. The compensation committee has the
responsibility for recommending appropriate compensation levels for our executive officers,
evaluating and approving executive officer compensation plans, policies and programs, reviewing
benefit plans for executive officers and other employees and producing an annual report on
executive compensation for inclusion in our proxy statement. The Compensation Committee Charter is
available under Corporate Governance on the Investor Relations section of our website at the
following URL: http://ir.tcap.com.
Members of our compensation committee review annually and approve goals and objectives
relevant to our executive officers compensation, including annual performance objectives. They
evaluate annually the performance of the chief executive officer and other executive officers, and
recommend to the independent directors of the Board the compensation level for each such person
based on this evaluation. They review on a periodic basis our executive compensation programs to
determine whether they are properly coordinated and achieve their intended purposes. They review
and recommend to the Board for approval any changes in incentive compensation plans and
equity-based compensation plans. The members of the compensation committee review and approve all
equity-based compensation plans of Triangle, whether or not final approval rests with the Companys
stockholders, and grant equity-based awards pursuant to such plans in compliance with the 1940 Act.
They review and approve employment agreements and any special supplemental benefits or perquisites
for our executive officers. They review broadly employee compensation strategies, including salary
levels and ranges and employee fringe benefits, in conjunction with compensation consultants.
In determining executive compensation levels for our executive officers, the compensation
committee meets at least annually with management, and may meet with compensation consultants, in
order to determine whether current methods of executive compensation are effective in achieving
Triangles short and long term strategies. The compensation committee, in conjunction with a
compensation consultant if necessary, will analyze the compensation of executive officers and
directors of other BDCs in order to establish competitive compensation levels to attract and retain
quality executive officers and investment professionals.
The members of the compensation committee are Messrs. Dunwoody, Goldstein and Smith, each of
whom is independent for purposes of Section 2(a)(19) the 1940 Act and the Nasdaq Global Market
corporate governance listing standards. Mr. Smith serves as the chairman of the compensation
committee. Our compensation committee held four meetings during 2007.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee is responsible for identifying, researching
and nominating directors for election by our stockholders, selecting nominees to fill vacancies on
our Board of Directors or a committee of the Board, developing and recommending to the Board of
Directors a set of corporate governance principles and overseeing the evaluation of the Board of
Directors and our management. The nominating and corporate governance committees policy is to
consider nominees properly recommended by our stockholders in accordance with our charter, bylaws
and applicable law. Pursuant to our bylaws, stockholders wishing to submit proposals or director
nominations that are not to be included in our annual proxy materials must have given timely notice
thereof in writing to our corporate secretary. For example, to be timely for the 2009 Annual
Meeting of Stockholders, a
64
stockholder must notify our corporate secretary, in writing, not later than the close of
business on December 28, 2008, nor earlier than the close of business on November 28, 2008. Our
bylaws also contain additional requirements about advance notice of stockholder proposals and
director nominations, including the different notice submission date requirements in the event that
we mail out the notice for our Annual Meeting of Stockholders more than thirty days before or after
the calendar date in which stockholders were mailed our proxy statement the immediately preceding
year.
In considering possible candidates for nomination, the nominating and corporate governance
committee will consider certain factors including whether the composition of the Board contains a
majority of independent directors as determined by the Nasdaq Global Market standards and the 1940
Act, the candidates character and integrity, whether the candidate possesses an inquiring mind,
vision and the ability to work well with others, conflicts of interest interfering with the proper
performance of the responsibilities of a director, a candidates experience, whether the candidate
has sufficient time to devote to the affairs of Triangle, including consistent attendance at Board
and committee meetings and advance review of materials and whether each candidate can be trusted to
act in the best interests of us and all of our stockholders.
Our Board of Directors adopted the Nominating and Corporate Governance Committee Charter on
January 31, 2007. The Nominating and Corporate Governance Committee Charter is publicly available
under Corporate Governance on the Investor Relations section of our website at the following URL:
http://ir.tcap.com.
The members of the nominating and corporate governance committee are Messrs. Garrott, Rich and
Smith, each of whom is independent for purposes of Section 2(a)(19) the 1940 Act and the Nasdaq
Global Market corporate governance listing standards. Mr. Rich serves as the chairman of the
nominating and corporate governance committee. Our nominating and corporate governance committee
held four meetings during 2007.
Investment Committee
Our investment committee is responsible for all aspects of our investment process. The members
of our investment committee are Garland S. Tucker, III, Brent P.W. Burgess, Steven C. Lilly,
Tarlton H. Long and David F. Parker. Our investment committee generally meets once a week but also
meets on an as needed basis depending on transaction volume. Members
of our investment committee are involved
in all significant stages of the investment process, including, origination, due diligence and
underwriting, approval, documentation and closing, and portfolio management and investment
monitoring.
Code of Ethics and Corporate Governance Guidelines
We have adopted a code of ethics and corporate governance guidelines covering ethics and
business conduct. These documents apply to our directors, officers and employees. Our code of
ethics and corporate governance guidelines are available on the Investor Relations section of our
website at the following URL: http://ir.tcap.com/governance.cfm. We will report any amendments to
or waivers of a required provision of our code of ethics and corporate governance guidelines on our
website or in a Current Report on Form 8-K.
65
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Our directors are divided into two groupsinterested directors and independent directors.
Interested directors are interested persons as defined in Section 2(a)(19) of the 1940 Act. The
compensation table below sets forth compensation that we paid during the year ended December 31,
2007, to our independent directors. Our interested directors are not compensated for their service
as Board members.
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Fees Earned |
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or Paid in |
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Name |
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Year |
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Cash($) |
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All other Compensation($) |
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Total($) |
W. McComb Dunwoody |
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2007 |
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$ |
28,000 |
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$ |
28,000 |
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Thomas M. Garrott, III |
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2007 |
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$ |
35,000 |
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$ |
35,000 |
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Benjamin S. Goldstein |
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2007 |
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$ |
38,000 |
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$ |
5,000 |
(1) |
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$ |
43,000 |
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Simon B. Rich, Jr. |
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2007 |
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$ |
38,000 |
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$ |
5,000 |
(2) |
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$ |
43,000 |
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Sherwood H. Smith, Jr. |
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2007 |
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$ |
38,000 |
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$ |
5,000 |
(3) |
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$ |
43,000 |
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(1) |
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Mr. Goldstein received $5,000 in 2007 for his services as our audit committee chairman. |
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(2) |
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Mr. Rich received $5,000 in 2007 for his services as our nominating and corporate governance
committee chairman. |
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(3) |
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Mr. Smith received $5,000 in 2007 for his services as our compensation committee chairman. |
Director Fees
In 2007, each of our directors who were not one of our employees or an employee of our
subsidiaries earned an annual fee of $20,000 for services as a director, payable quarterly.
Independent directors received a fee of $2,000 for each board meeting attended in person and $1,000
for each board meeting attended by conference telephone or similar communications equipment.
Independent directors receive a fee of $1,000 for each committee meeting attended in person and
$500 for each committee meeting attended by conference telephone or similar communication
equipment. In addition, each committee chairman received an annual fee of $5,000. We reimbursed our
independent directors for all reasonable direct out-of-pocket expenses incurred in connection with
their service on the Board. Directors who are also our employees or employees of our subsidiaries
did not receive compensation for their services as directors.
Non-Employee Director Equity Compensation
Our Board of Directors and sole stockholder approved Triangles 2007 Equity Incentive Plan, or
the Original Plan, effective February 13, 2007, for the purpose of attracting and retaining the
services of executive officers, directors and other key employees. During our fiscal year ended
December 31, 2007, no equity incentive awards were granted under the Original Plan, in part due to
certain 1940 Act restrictions which disallow the issuance of certain types of compensation to a
BDCs non-employee directors without having first obtained exemptive
relief.
In light of the aforementioned restrictions, we filed a request with the Securities and
Exchange Commission, or the SEC, in 2007 for exemptive relief with respect to our ability to issue
restricted stock to our employees and non-employee directors. On February 6, 2008, the Board voted
to approve the Triangle Capital Corporation Amended and Restated 2007 Equity Incentive Plan, or the
Amended and Restated Plan, and to recommend approval of the Amended and Restated Plan by
stockholders at the Annual Meeting, subject to an order from the SEC granting exemptive relief. On
March 18, 2008, we received an order from the SEC authorizing such issuance of restricted stock to
our employees and non-employee directors pursuant to the terms of the Amended and Restated Plan and
as otherwise set forth in the exemptive order, and finally, on May 7, 2008, our stockholders voted
to approve the Amended and Restated Plan.
The Amended and Restated Plan provides that our non-employee directors will each receive an
automatic grant of shares of restricted stock at the beginning of each one-year term of service on
the Board, for which forfeiture restrictions will lapse one year from the grant date (i.e. grant
after each annual meeting). The number of shares granted to each non-employee director will be the
equivalent of $30,000 worth of shares taken at the market value at the close of the exchange on the
date of grant. The grants of restricted stock to non-employee directors under the Amended and
Restated Plan will be automatic and will not be changed without SEC approval.
Pursuant to the terms of the Amended and Restated Plan and the conditions of the order, each
grant of restricted stock will be approved by the required majority of our independent directors.
In the event of a consolidation, merger, stock sale, a sale of all or substantially all of the
Companys assets, a dissolution or liquidation or other similar events (a Change in Control), all
or a portion
66
of the award will vest, become immediately exercisable or payable and have all restrictions
lifted upon a Change in Control, unless otherwise specified in the award agreement.
Our Board of Directors has delegated administration of the Amended and Restated Plan to our
compensation committee, which is comprised solely of the independent directors who are independent
pursuant to the listing requirements of the Nasdaq Global Market. Our Board may remove this
specific authority at any time and revest in our Board the administration of the Amended and
Restated Plan. Our Board will at all times administer the Amended and Restated Plan in a manner
that is consistent with the applicable requirements of the Nasdaq Global Market and the exemptive
order.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
General
In 2007, our senior management team consisted of Garland S. Tucker, Brent P.W. Burgess, Steven
C. Lilly, Tarlton H. Long and David F. Parker. Each of these executive officers entered into
employment agreements with us and was compensated according to the terms of such agreements, which
are described herein. We refer to these five officers in 2007 as the named executive officers, or
NEOs.
Our executive compensation program is designed to encourage our executive officers to think
and act like stockholders of the Company. The structure of the NEOs employment agreements and our
incentive compensation programs were designed to encourage and reward the following:
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sourcing and pursuing attractively priced investment opportunities in all types
of securities of lower middle market privately-held companies; |
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participating in comprehensive due diligence with respect to our investments; |
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ensuring we allocate capital in the most effective manner possible; and |
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working efficiently and developing relationships with other professionals. |
Our compensation committee reviewed and approved all of our compensation policies for 2007.
We completed our IPO in February 2007. As our first year of operation as a publicly traded
BDC, 2007 represented a period of constant development and growth for us, and we worked to create
an executive compensation program that would effectively achieve our desired objectives stated
above. We intend to continue the process of aligning executive compensation and our goals in 2008,
including awarding certain equity incentive awards to our executive officers in accordance with our
Amended and Restated 2007 Equity Incentive Plan, or Amended and Restated Plan, which our
stockholders approved on May 7, 2008.
Executive Compensation Policy
In 2007, we compensated our NEOs through a combination of base salary and cash bonuses. In
the future, we intend to compensate our NEOs with stock options and/or restricted shares of common
stock, compensation designed to be competitive with comparable employers and to align managements
incentives with the long-term interests of our stockholders. In allocating among these elements the
compensation committee believes that the compensation of our NEOs should be based predominately on
company and individual performance.
Overview
Our performance-driven compensation policy consists of the following three components:
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Base salary; |
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Annual cash bonuses; and |
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Long-term compensation pursuant to our equity incentive plan. |
We designed, and in the future will design, each NEOs compensation package to appropriately
reward the NEO for his or her contribution to the Company. Our compensation philosophy has not
historically been, and going forward will not be, a mechanical
67
process, and our compensation committee will use its judgment and experience, working in
conjunction with our chief executive officer, to determine the appropriate mix of compensation for
each individual. Cash compensation consisting of base salary and discretionary cash bonuses tied to
achievement of individual performance goals set by the compensation committee are intended to
incentivize NEOs to remain with us in their roles and work hard to achieve our goals. Stock-based
compensation in the form of stock options and/or restricted shares of common stock may be awarded
based on individual performance expectations set by the compensation committee and, over time, on
the NEOs performance against those expectations. The mix of short-term and long-term compensation
may be adjusted to reflect an individuals need for current cash compensation and desire to retain
his or her services.
Establishing Compensation Levels
Role of the Compensation Committee and Management
As set forth in the Compensation Committee Charter, our compensation committees primary
responsibility is to evaluate the compensation of our executive officers and assure that they are
compensated effectively and in a manner consistent with our stated compensation objectives. The
compensation committee also periodically reviews our corporate goals and objectives relevant to
executive compensation, our executive compensation structure to ensure that it is designed to
achieve the objectives of rewarding the companys executive officers appropriately for their
contributions to corporate growth and profitability and our other goals and objectives. At least
annually, the compensation committee will evaluate the compensation of our executive officers and
determine the amounts and individual elements of total compensation for executive officers
consistent with our corporate goals and objectives and will communicate to stockholders the factors
and criteria on which the executive officers compensation is based, including the relationship of
our performance to the executive officers compensation. With respect to the compensation of our
executive officers other than the chief executive officer, the committee works with the chief
executive officer to conduct these reviews. The committee will also periodically evaluate the terms
and administration of our annual and long-term incentive plans, including equity compensation
plans, to ensure that they are structured and administered in a manner consistent with our goals
and objectives as to participation in such plans, target annual incentive awards, corporate
financial goals, actual awards paid to executive officers, and total funds reserved for payment
under the compensation plans.
Assessment of Market Data
To assess the competitiveness of our executive compensation levels, we developed a comparative
group of BDCs and performed comprehensive analyses of competitive performance and compensation
levels. Our analysis centered around key elements of compensation practices within the BDC industry
in general and, more specifically, compensation practices at internally managed BDCs closer in
asset size, typical investment size, typical investment type, market capitalization, and general
business scope to our Company (however, as discussed in greater detail below, we determined that
our Company would be one of the smallest BDCs in terms of asset size and market capitalization
immediately after the consummation of our IPO). Items we reviewed included, but were not
necessarily limited to, base compensation, bonus compensation, option awards, restricted stock
awards, and other compensation as detailed in public filings. In addition to actual levels of
compensation, we also analyzed the approach other BDCs were taking with regard to their
compensation practices. Items we reviewed included, but were not necessarily limited to, the use of
employment agreements for certain employees, the targeted mix of cash and equity compensation, the
use of third party compensation consultants, and certain corporate and executive performance
measures established to achieve long term total return for stockholders.
At the time our analysis was conducted, we were not yet a publicly traded company, but we
compared our Company to others in our market based on our projected market capitalization post-IPO.
Using this benchmark, we ranked below the median of the comparative group in market capitalization,
below the median in net income, and in the lower quartile in assets and number of employees.
Although each of the comparative companies is not exactly comparable in size, scope and operations,
the compensation committee believes that they were the most relevant comparable companies available
with disclosed executive compensation data, and they provide a good representation of competitive
compensation levels for our executives. In general, our program was also more team-based than
comparable companies programs, with less difference between our chief executive officers pay and
the pay of our other executives.
Assessment of Company Performance
Alignment of a companys business plans, its stockholders expectations and its employee
compensation is an essential component of long term business success. Long term business success is
in the interest of our stockholders and employees. We typically make three to seven year
investments in privately held businesses. Our business plan involves taking on investment risk over
an extended period of time, and a premium is placed on our ability to maintain stability of net
asset values and continuity of earnings to pass through to stockholders in the form of recurring
dividends. Our strategy is to generate income and capital gains from our portfolio of investments
in the debt and equity securities of our customers. This income supports the payment of dividends
to our stockholders. Therefore, a key element of our return to stockholders is in the form of
current income through the payment of dividends. This recurring payout requires a methodical asset
acquisition approach and active monitoring and management of our
68
investment portfolio over time. A meaningful part of our employee base is dedicated to the
maintenance of asset values and expansion of this recurring revenue to support and grow dividends.
Compensation Determination
We analyzed the competitiveness of the previously described components of compensation
individually, as well as in total. Our comparative analysis indicated that in aggregate, our base
salaries plus target bonuses resulted in total annual cash compensation significantly below the
market median. We believe this is primarily due to the fact that our management team believed it
was in the best interest of stockholders for the Company to minimize cash compensation expense,
including cash compensation expense related to the service of our executive officers, during the
early stages of the Companys growth and development. As the Company grows and matures we would
expect our compensation levels would, over time, more closely approximate the median of our peer
group.
Classes of Executive Compensation
Base salary
Base salary is used to recognize particularly the experience, skills, knowledge and
responsibilities required of the executive officers in their roles. In establishing the 2007 base
salaries of the NEOs, the compensation committee and management considered a number of factors
including the seniority of the individual, the functional role of the position, the level of the
individuals responsibility, the ability to replace the individual, the base salary of the
individual prior to the formation of the Company, the assistance of each NEO in the IPO process and
the number of well-qualified candidates available in our area. In addition, we considered the base
salaries paid to comparably situated executive officers in other BDCs and other competitive market
practices. We did not use compensation consultants in connection with determining 2007 base
salaries or for any other purpose prior to the consummation of the IPO.
The salaries of the NEOs are reviewed on an annual basis, as well as at the time of promotion
or other changes in responsibilities. The leading factors in determining increases in salary level
are relative cost of living and competitive pressures. In connection with the compensation
committees review of base salary for 2008, the committee did not increase base salary or target
bonus for any of our NEOs.
On February 21, 2007, we entered into employment agreements with Messrs. Tucker, Burgess,
Lilly, Long and Parker. We believed these agreements were necessary to secure each executives
services to the Company for one or two years, depending on the circumstances surrounding each NEO.
In general, the agreements provide for the compensation of each NEO, as discussed above, payments
to each executive upon various termination scenarios and contain certain restrictive covenants on
competition and solicitation of our employees and clients.
Pursuant to these agreements, each executive will receive compensation for termination due to
death or disability, termination by us other than for cause, termination by the executive for good
reason or termination upon a change in control. See Employment Agreements and Potential Payments
upon Termination or Change in Control for additional information regarding the material terms of
these agreements.
Annual Cash Bonuses
We pay annual cash bonuses to reward corporate and individual achievements for the prior
fiscal year. We determined that annual cash bonuses will be based on the compensation committees
discretionary assessment of the Companys and the NEOs performance, with input from the chief
executive officer for NEOs other than himself. For 2007, NEOs were eligible for cash bonuses,
ranging from 0% to 100% of their highest annual rate of base salary. In addition, during 2007, NEOs
were eligible to receive bonus payments for certain tax gross-ups, expense reimbursements and other
similar payments approved by the compensation committee. Performance achievements which were
considered in the determination of cash bonuses for fiscal 2007 include individual performance and
Company performance (based upon a comparison of actual performance to budgeted performance).
Cash bonuses for 2007 were paid in February of 2008 and were typically determined as a
percentage of each employees salary, based on individual performance and each employees level
within the company. Our NEOs annual cash bonuses paid for performance in 2007 are disclosed in the
bonus column of the Summary Compensation Table. All of our NEOs cash bonuses earned during 2007
were determined based on performance goals adopted by the compensation committee. All of our NEOs
cash bonuses for 2007 were determined based on the compensation committees analysis of certain
individual performance-based elements including how efficiently capital was deployed and the
establishment of meaningful operational policies and procedures, including but not limited to,
Sarbanes-Oxley compliance, portfolio valuation, portfolio monitoring processes, asset management
processes and transaction monitoring processes.
69
Long Term Incentive Compensation
General
Our Board of Directors has adopted the Amended and Restated Plan to provide stock-based awards
as incentive compensation to our employees and non-employee directors, and our stockholders
approved the Amended and Restated Plan at our 2008 Annual Meeting. No stock options or restricted
shares were granted to NEOs during 2007.
We expect to use stock-based awards to (i) attract and retain key employees, (ii) motivate our
employees by means of performance-related incentives to achieve long-range performance goals, (iii)
enable our employees to participate in our long-term growth and (iv) link our employees
compensation to the long-term interests of our stockholders. The compensation committee has been
delegated exclusive authority by our Board of Directors to select the persons to receive
stock-based awards. At the time of each award granted to an employee, the compensation committee
will determine the terms of the award in its sole discretion, including any performance period (or
periods) and any performance objectives relating to the award.
Options
Our compensation committee may in its sole discretion (upon delegation by the Board) grant our
employees options to purchase our common stock (including incentive stock options and non-qualified
stock options). We expect that options granted by our compensation committee will represent a fixed
number of shares of our common stock, will have an exercise, or strike, price equal to the fair
market value of our common stock on the date of such grant, and will be exercisable, or vested,
at some later time after grant. Upon any stock option grant, its exercise price will not be changed
absent specific SEC approval that we may do so. The fair market value will be defined as either
(i) the closing sales price of the our common stock on the Nasdaq Global Market, or any other such
exchange on which the shares are traded, on such date, (ii) in the absence of reported sales on
such date, the closing sales price on the immediately preceding date on which sales were reported
or (iii) in the event there is no public market for the shares on such date, the fair market value
as determined, in good faith, by our Board in its sole discretion (which will in no event will be
less than the net asset value of such shares of common stock on such date), and for purposes of a
sale of a share of common stock as of any date, the actual sales price on that date. Some stock
options granted by our compensation committee may vest simply by the holder remaining with the
Company for a period of time, and some may vest based on meeting certain performance goals. We
anticipate that our options will be valued for financial reporting purposes using the Black Scholes
valuation method, and charges to earnings will be taken over the relevant service period pursuant
to FASB Statement No. 123R. We did not grant any stock options to our employees in 2007.
Specific performance factors that the compensation committee may consider in determining the
vesting of options may include individual employee performance objectives such as work ethic,
business development, proficiency and overall contribution to the Company.
Restricted Stock
Generally BDCs, such as us, may not grant shares of their stock for services without an
exemptive order from the SEC. In 2007, we filed a request with the SEC for exemptive relief with
respect to our ability to issue restricted stock to our employees and non-employee directors. On
February 6, 2008, the Board voted to approve the Amended and Restated Plan and to recommend
approval of the Amended and Restated Plan by stockholders, subject to an order from the SEC
granting exemptive relief. On March 18, 2008, we received an order from the SEC authorizing such
issuance of restricted stock to our employees and non-employee directors, subject to certain
restrictions, and finally, on May 7, 2008, our stockholders approved the Amended and Restated Plan.
We anticipate that, when restricted stock is granted, charges to earnings will be taken over the
relevant service period pursuant to FASB Statement No. 123R. Since we did not receive this relief
until March 18, 2008, however, we were unable to grant any restricted stock to our NEOs during
2007.
The Amended and Restated Plan allows our Board (and compensation committee, after delegation
of administrative duties) to grant shares of restricted stock to our employees. Each restricted
stock award will be for a fixed number of shares as set forth in an award agreement between the
grantee and us. Award agreements will set forth time and/or performance vesting schedules and other
appropriate terms and/or restrictions with respect to awards, including rights to dividends and
voting rights.
Specific performance factors that the compensation committee may consider in determining the
vesting of restricted stock may include individual employee performance objectives such as work
ethic, proficiency and overall contribution to the Company.
70
Change in Control and Severance
Change in Control
Upon termination of employment after a change of control, the NEOs may receive severance
payments pursuant to their employment agreements entered into in connection with our IPO.
Upon specified covered transactions involving a change of control (as defined in the Amended
and Restated Plan), all outstanding awards under the Amended and Restated Plan may either be
assumed or substituted for by the surviving entity. If the surviving entity does not assume or
substitute similar awards, the awards held by the participants will be accelerated in full and then
terminated to the extent not exercised prior to the covered transaction.
Severance
Under specified covered transactions involving a change in control (as defined in each NEOs
employment agreement), if an NEO terminates his employment with us within two years following such
change in control, or if we terminate or give the NEO notice of non-renewal of the NEOs employment
within the two years commencing with a change in control, he will receive a severance package
beginning on the date of termination. The severance package will include monthly payments equal to
one-twelfth of (i) the NEOs annual salary at that time plus (ii) the NEOs bonus compensation as
described in the employment agreement, and (iii) the Company will continue to provide the NEO with
all of the benefits provided to him immediately prior to the termination, as described in the
employment agreement. The severance package will continue to be in effect for either thirty-six
months or eighteen months, depending upon the NEOs position held in 2007. In the event that an
NEOs severance pay is triggered under his employment agreement, he will continue to receive his
respective severance package even if he is hired by another employer, including a competing
business development company or other fund; however, the Companys obligation to continue the NEOs
then-existing benefits under the severance package will terminate on the date the NEO becomes
eligible to receive such equal benefit from another employer.
Additionally, a separate severance package exists in the event the NEOs employment is
terminated as a result of death or disability, or in the event that the Company terminates the
NEOs employment outside of the two-year period after a specified covered transaction involving a
change in control. The same severance package referenced in the immediately preceding paragraph
will be provided to the NEO, except that the severance package will only continue to be in effect
for either twenty-four months or twelve months, depending upon the NEOs position.
Each NEOs employment agreement also includes a right to allow the executive officer the
opportunity to evaluate his position with the Company for a one month period beginning at the end
of one year after a change in control has occurred, in order to determine whether at that time it
would be in the best interests of the Company and the executive officer for the executive officer
to continue serving in his then current position. If the NEO is dissatisfied with his
responsibilities one year after the change in control has occurred, he may terminate his employment
with the Company without good reason and still receive a severance package. The severance package
will include monthly payments equal to one-twelfth of (i) the NEOs annual salary at that time plus
(ii) the NEOs bonus compensation as described in the employment agreement, and (iii) the Company
will continue to provide the NEO with all of the benefits provided to him immediately prior to the
termination, as described in the employment agreement. The severance package will continue to be in
effect for either thirty-six months or eighteen months, depending upon the NEOs position held in
2007.
Finally, if we fail to renew any NEOs employment agreement outside of the two-year period
after a specified covered transaction involving a change in control, any severance payment or
benefit will be payable at the absolute discretion of the Board.
The rationale behind providing a severance package in certain events was to attract talented
executives who would be assured that they would not be financially injured if they physically
relocated and/or left another job to join us but were forced out through no fault of their own and
to ensure that our business would be operated and governed for our stockholders by a management
team, and under the direction of a Board of Directors, who were not financially motivated to
frustrate the execution of a change in control transaction. For more discussion regarding executive
compensation in the event of a termination or change of control, please see the table entitled
2007 Potential Payments Upon Termination or Change in Control and accompanying discussion.
Tax and Accounting Considerations
Section 162(m) of the Internal Revenue Code of 1986 limits our deduction for federal income
tax purposes to not more than $1 million of compensation paid to certain executive officers in a
calendar year. Compensation above $1 million may be deducted if it is performance-based
compensation. Our compensation committee has not yet established a policy for determining which
forms of incentive compensation awarded to our executive officers should be designated to qualify
as performance-based compensation. To maintain flexibility in compensating our executive officers
in a manner designed to promote our objectives, the compensation committee has not adopted a policy
that requires all compensation to be deductible. However, the compensation committee intends to
71
evaluate the effects of the compensation limits of Section 162(m) on any compensation it
proposes to grant, and the compensation committee intends to provide future compensation in a
manner consistent with our best interests and those of our stockholders. In 2007, none of the named
executive officers received compensation that would exceed the $1 million limit on deductibility.
We intend to account for share-based awards under the provisions of Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment, or FAS 123(R). FAS 123(R) establishes
accounting for stock-based awards exchanged for goods or services. Accordingly, stock-based
compensation cost is measured at grant date, based on the fair value of the awards, and is
recognized as an expense ratably over the requisite service period. Accounting rules also require
us to record cash compensation as an expense at the time the obligation is incurred.
Conclusion
Our compensation policies are designed to retain and motivate our NEOs and to ultimately
reward them for outstanding performance. The retention and motivation of our NEOs should enable us
to grow strategically and position ourselves competitively in our market.
Executive Officer Compensation
Due to the fact that we consummated our initial public offering of common stock in February
2007, we did not compensate our executive officers in 2006, and we only have executive officer
compensation data for a portion of 2007. The respective compensation of our NEOs in 2007 was as
follows:
2007 Summary Compensation Table
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Base |
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All Other |
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Name and Principal Position |
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Year |
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Salary(1) |
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Bonus |
|
Compensation(2) |
|
Total |
Garland S. Tucker III
Chief Executive Officer |
|
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2007 |
|
|
$ |
231,875 |
|
|
$ |
265,000 |
|
|
$ |
18,277 |
|
|
$ |
515,152 |
|
Brent P.W. Burgess
Chief Investment Officer |
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2007 |
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|
$ |
210,000 |
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|
$ |
240,000 |
|
|
$ |
12,318 |
|
|
$ |
462,318 |
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Steven C. Lilly Chief
Financial Officer |
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2007 |
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|
$ |
210,000 |
|
|
$ |
280,416 |
(3) |
|
$ |
11,488 |
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|
$ |
501,904 |
|
Tarlton H. Long
Managing Director |
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2007 |
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$ |
175,000 |
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$ |
0 |
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$ |
16,886 |
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$ |
191,886 |
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David F. Parker
Managing Director |
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2007 |
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|
$ |
175,000 |
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|
$ |
0 |
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$ |
17,949 |
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$ |
192,949 |
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(1) |
|
Includes base salary paid from February 21, 2007 (date of consummation of our initial public
offering) through December 31, 2007. |
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(2) |
|
Includes benefits in the form of 401(k) contributions, health, life and disability insurance
premiums paid by the Company in 2007. |
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(3) |
|
Includes a tax gross-up bonus approved by the compensation committee. |
Employment Agreements
Upon consummation of our IPO, we entered into employment agreements with Messrs. Tucker,
Burgess, and Lilly that provide for a two year term. The initial base salary under the employment
agreements for Messrs. Tucker, Burgess, and Lilly is $265,000, $240,000, and $240,000,
respectively. Upon consummation of our IPO, we entered into employment agreements with Messrs. Long
and Parker that provided for a one year term. The base salary under the employment agreements for
Messrs. Long and Parker was $200,000. Under each employment agreement our Board of Directors has
the right to increase the base salary of each of our executive officers during the term of the
employment agreements and also to decrease it if certain conditions are satisfied. Messrs. Long and
Parkers one year agreements expired on February 21, 2008. Messrs. Long and Parker will continue to
be employed by us as investment professionals on an at-will basis.
In addition, in 2007, each executive officer was entitled to receive an annual bonus of up to
a maximum of 100% of the executive officers 2007 base salary for achieving certain performance
objectives, unless the compensation committee determines that special circumstances exist
warranting a greater amount. The compensation committee of the Board of Directors established such
performance objectives, as well as the bonus awarded to each executive officer.
72
Potential Payments upon Termination or Change in Control
Under their respective employment agreements, each NEO was entitled to certain payments upon
termination of employment or in the event of a change in control. The following table sets forth
those potential payments with respect to each NEO in 2007. In providing the estimated potential
payments, we have made the following general assumptions in all circumstances where applicable:
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a change in control event has occurred and the date of termination is December 31, 2007; |
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the annual salary at the time of termination is as follows: Garland S. Tucker,
III, $265,000; Brent P.W. Burgess, $240,000; Steven C. Lilly $240,000; Tarlton H. Long,
$200,000; and David F. Parker, $200,000; |
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there is no unpaid bonus for the prior year; |
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there is no accrued and unpaid salary; and |
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there is no unpaid reimbursement for expenses incurred prior to the date of termination. |
2007 Potential Payments upon Termination or Change in Control
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Within Two |
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Years |
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Thirteenth |
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Outside Of |
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After Change |
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Month After |
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Two Years |
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In Control; |
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Change in |
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After Change |
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Termination |
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Control; |
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In Control; |
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w/o Cause or |
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Termination |
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Termination |
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for Good |
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w/o Good |
Name |
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Benefit |
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w/o Cause(3) |
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Reason(4) |
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Death |
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Disability |
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Reason(5) |
Garland S. Tucker,III |
|
Severance Pay(1)
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$ |
530,000 |
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$ |
795,000 |
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$ |
530,000 |
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$ |
530,000 |
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$ |
795,000 |
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Bonus
Compensation(2)
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$ |
530,000 |
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$ |
795,000 |
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$ |
530,000 |
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$ |
530,000 |
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$ |
795,000 |
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Brent P. W. Burgess |
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Severance Pay(1)
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$ |
480,000 |
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$ |
720,000 |
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$ |
480,000 |
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$ |
480,000 |
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$ |
720,000 |
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Bonus
Compensation(2)
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$ |
480,000 |
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$ |
720,000 |
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$ |
480,000 |
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$ |
480,000 |
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$ |
720,000 |
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Steven C. Lilly |
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Severance Pay(1)
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$ |
480,000 |
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$ |
720,000 |
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$ |
480,000 |
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$ |
480,000 |
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$ |
720,000 |
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Bonus
Compensation(2)
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$ |
480,000 |
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$ |
720,000 |
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$ |
480,000 |
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$ |
480,000 |
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$ |
720,000 |
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Tarlton H. Long |
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Severance Pay(1)
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$ |
200,000 |
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$ |
300,000 |
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$ |
200,000 |
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$ |
200,000 |
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$ |
300,000 |
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Bonus
Compensation(2)
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$ |
200,000 |
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$ |
300,000 |
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$ |
200,000 |
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$ |
200,000 |
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$ |
300,000 |
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David F. Parker |
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Severance Pay(1)
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$ |
200,000 |
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$ |
300,000 |
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$ |
200,000 |
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$ |
200,000 |
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$ |
300,000 |
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Bonus
Compensation(2)
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$ |
200,000 |
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$ |
300,000 |
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$ |
200,000 |
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$ |
200,000 |
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$ |
300,000 |
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(1) |
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Severance pay includes an employees annual salary and applicable multiple thereof paid
monthly beginning at the time of termination, plus the employees benefits in the form of
medical, health or other employee welfare benefit plan adopted by us. |
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(2) |
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Bonus compensation will at most be equal to 100% of an employees annual salary, multiplied
by the number of years in which the employee is eligible to receive severance pay as defined
above. |
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(3) |
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Change in control is defined in each employees employment agreement. |
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(4) |
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Good Reason is defined in each employees employment agreement. |
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(5) |
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The intent of this particular provision in each of our 2007 executive officers employment
agreements was to allow the executive officer the opportunity to evaluate his position with
the Company one year after a change in control has occurred, in order to determine whether at
that time it would be in the best interests of the Company and the executive officer for the
executive officer to continue serving in his then current position. |
Under specified covered transactions involving a change in control, if an NEO terminates his
employment with us within two years following such change in control, or if we terminate or give
the NEO notice of non-renewal of the NEOs employment within the two years commencing with a change
in control, he will receive a severance package beginning on the date of termination. The severance
package will include monthly payments equal to one-twelfth of (i) the NEOs annual salary at that
time plus (ii) the NEOs
73
bonus compensation as described in the employment agreement, and (iii) the Company will
continue to provide the NEO with all of the benefits provided to him immediately prior to the
termination, as described in the employment agreement. The severance package will continue to be in
effect for either thirty-six months or eighteen months, depending upon the NEOs position held in
2007.
In addition, a separate severance package exists in the event the NEOs employment is
terminated as a result of death or disability, or in the event that the Company terminates the
NEOs employment outside of the two-year period after a specified covered transaction involving a
change in control. The same severance package referenced in the immediately preceding paragraph
will be provided to the NEO, except that the severance package will only continue to be in effect
for either twenty-four months or twelve months, depending upon the NEOs position.
Each NEOs employment agreement also includes a right to allow the executive officer the
opportunity to evaluate his position with the Company for a one month period beginning at the end
of one year after a change in control has occurred, in order to determine whether at that time it
would be in the best interests of the Company and the executive officer for the executive officer
to continue serving in his then current position. If the NEO is dissatisfied with his
responsibilities under the management after the change in control has occurred, he may terminate
his employment with the Company without good reason and still receive a severance package. The
severance package will include monthly payments equal to one-twelfth of (i) the NEOs annual salary
at that time plus (ii) the NEOs bonus compensation as described in the employment agreement, and
(iii) the Company will continue to provide the NEO with all of the benefits provided to him
immediately prior to the termination, as described in the employment agreement. The severance
package will continue to be in effect for either thirty-six months or eighteen months, depending
upon the NEOs position held in 2007.
Finally, if we fail to renew any NEOs employment agreement outside of the two-year period
after a specified covered transaction involving a change in control, any severance payment or
benefit will be payable at the absolute discretion of the Board.
Compensation Plans
Equity Incentive Plan
Our Board of Directors and sole stockholder approved Triangles 2007 Equity Incentive Plan
(the Original Plan) effective February 13, 2007, for the purpose of attracting and retaining the
services of executive officers, directors and other key employees. The Original Plan authorized the
issuance of up to 900,000 shares of Triangles common stock (subject to adjustment for certain
capital events such as stock splits, reverse stock splits, reorganizations, stock dividends, and
similar transactions). The Original Plan provided for awards to our officers, employees and
directors in the form of stock options, stock appreciation rights, shares of restricted stock,
restricted stock units, performance awards and other stock-based awards. The Original Plan was set
to terminate on February 13, 2017, unless terminated sooner by our Board of Directors. During our
fiscal year ended December 31, 2007, however, no options, restricted stock or other equity
incentive awards were granted under the Original Plan, in part due to certain 1940 Act restrictions
which disallow the issuance of certain types of compensation to a business development companys
employees and directors without having first obtained exemptive relief.
In light of the aforementioned restrictions, we filed a request with the SEC in 2007 for
exemptive relief with respect to our ability to issue restricted stock to our employees and
non-employee directors. On February 6, 2008, the Board voted to approve the Amended and Restated
Plan and to recommend approval of the Amended and Restated Plan by stockholders, subject to an
order from the SEC granting exemptive relief. On March 18, 2008, we received an order from the SEC
authorizing such issuance of restricted stock to our employees and directors, subject to the
conditions set forth in the order, and finally, on May 7, 2008, our stockholders voted to approve
the Amended and Restated Plan.
We may issue restricted stock to employees and non-employee directors consistent with such
terms and conditions as the Board shall deem appropriate. With respect to awards issued to
employees and officers, the Board will determine the time or times at which shares subject to an
award will become exercisable and the terms on which such shares will remain exercisable. Shares
granted pursuant to a restricted stock award will not be transferable until such shares have
vested, unless the transfer is by will or by the laws of descent and distribution.
The Amended and Restated Plan provides that we may grant options to our employees, which would
entitle the optionee, upon exercise, to purchase shares of our common stock at a specified exercise
price per share. Options must have a per share exercise price of no less than the fair market value
of a share of stock on the date of the grant, subject to forfeiture provisions as determined by the
Board. The exercise price of any option would remain fixed unless and until the SEC granted an
order providing relief for the Board to do so.
Our Board administers the Amended and Restated Plan and has the authority, subject to the
provisions of the Amended and Restated Plan and the exemptive order, to determine who will receive
awards under the Amended and Restated Plan and the terms of such awards. Each grant of restricted
stock will be approved by the required majority of our independent directors. In the event of a
74
consolidation, merger, stock sale, a sale of all or substantially all of the Companys assets,
a dissolution or liquidation or other similar events (a Change in Control), all or a portion of
the award will vest, become immediately exercisable or payable and have all restrictions lifted
upon a Change in Control, unless otherwise specified in the award agreement.
Our Board of Directors has delegated administration of the Amended and Restated Plan to our
compensation committee, which is comprised solely of the independent directors who are independent
pursuant to the listing requirements of the Nasdaq Global Market. Our Board may remove this
authority at any time and revest in our Board the administration of the Amended and Restated Plan.
In any event, our Board will administer the Amended and Restated Plan in a manner that is
consistent with the applicable requirements of the Nasdaq Global Market and the exemptive order.
401(k) Plan
In 2007, we maintained a 401(k) plan in which all full-time employees who were at least 21
years of age were eligible to participate. Effective in 2008, only full-time employees who are at
least 21 years of age and have 90 days of service are eligible to participate and receive certain
employer contributions. Eligible employees have the opportunity to contribute their compensation on
a pretax salary basis into the 401(k) plan up to $15,500 for the plan year, and to direct the
investment of these contributions. Plan participants who reach the age of 50 prior to or during the
plan year are eligible to defer up to an additional $5,000 for the plan year.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Effective
concurrently with the closing of our initial public offering, Triangle Mezzanine LLC, the general
partner of Triangle Mezzanine Fund LLLP, merged into a wholly owned subsidiary of Triangle Capital
Corporation. A substantial majority of the ownership interests of Triangle Mezzanine LLC were owned
by certain of our executive officers (Garland S. Tucker, III, Brent P.W. Burgess, Steven C. Lilly,
Tarlton H. Long and David F. 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 our IPO, certain employees (Messrs. Tucker, Long and Parker)
collectively owned approximately 67% of Triangle Capital Partners, LLC, an entity which provided
management and advisory services to Triangle Mezzanine Fund LLLP pursuant to a management services
agreement dated as of February 3, 2003. Under the terms of that management services agreement,
Triangle Capital Partners, LLC received $0.2 million in management fees from Triangle Mezzanine
Fund LLLP during the fiscal year ended December 31, 2007. This agreement was terminated upon the
closing of our initial public offering.
For additional information regarding the amount of common stock owned by members of
management, see Control Persons and Principal Stockholders below.
75
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our
common stock as of May 30, 2008, by each of our executive officers and independent directors and
all of our directors and executive officers as a group. As of May 30, 2008, we are not aware of any
5% beneficial owners of our common stock, nor are we aware of any person who controls us, control
being defined as the beneficial ownership of more than 25% of our common stock.
Beneficial ownership has been determined in accordance with rule 13d-3 of the Exchange Act.
There is no common stock subject to options or warrants that are currently exercisable or
exercisable within 60 days of May 30, 2008. Percentage of beneficial ownership is based on
6,917,363 shares of common stock outstanding as of May 30, 2008. The business address of each
person below is 3600 Glenwood Avenue, Suite 104, Raleigh, North Carolina 27612.
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Number of |
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Dollar Range of Equity |
|
|
Shares |
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Securities |
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|
Beneficially |
|
Percentage |
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Beneficially Owned by |
Name of Beneficial Owner |
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Owned |
|
of Class |
|
Directors(1) |
Executive Officers:
|
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|
|
|
|
|
|
|
|
|
|
|
Garland S. Tucker, III |
|
|
144,350 |
(2) |
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|
2.1 |
% |
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over $100,000 |
Brent P. W. Burgess |
|
|
136,957 |
(3) |
|
|
2.0 |
% |
|
over $100,000 |
Steven C. Lilly |
|
|
116,105 |
(4) |
|
|
1.7 |
% |
|
over $100,000 |
Independent Directors:
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|
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|
|
|
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|
|
|
|
|
W. McComb Dunwoody |
|
|
153,779 |
(5) |
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|
2.2 |
% |
|
over $100,000 |
Thomas M. Garrott, III |
|
|
96,428 |
(5) |
|
|
1.4 |
% |
|
over $100,000 |
Benjamin S. Goldstein |
|
|
9,050 |
(5) |
|
|
|
* |
|
over $100,000 |
Simon B. Rich, Jr. |
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|
23,700 |
(5) |
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|
|
* |
|
over $100,000 |
Sherwood H. Smith, Jr. |
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|
33,343 |
(5) |
|
|
|
* |
|
over $100,000 |
|
|
|
|
|
|
|
|
|
|
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|
|
All Directors and
Officers as a Group up
(10 persons) |
|
|
713,712 |
|
|
|
10.3 |
% |
|
over $100,000 |
|
|
|
* |
|
Less than 1.0% |
|
(1) |
|
The dollar range of equity securities beneficially owned are: none, $1-$10,000,
$10,001-$50,000, $50,001-$100,000, or over $100,000. The dollar ranges are based on the
price of our common stock on May 30, 2008. |
|
(2) |
|
Includes 22,054 shares of restricted stock that vest ratably over four years. |
|
(3) |
|
Includes 19,973 shares of restricted stock that vest ratably over four years. |
|
(4) |
|
Includes 19,973 shares of restricted stock that vest ratably over four years. |
|
(5) |
|
Includes 2,700 shares of restricted stock that become fully vested on May 7, 2009. |
DIVIDEND REINVESTMENT PLAN
We have adopted a dividend reinvestment plan that provides for reinvestment of our
distributions on behalf of our stockholders, unless a stockholder elects to receive cash as
provided below. As a result, if our board of directors authorizes, and we declare, a cash dividend,
then our stockholders who have not opted out of our dividend reinvestment plan will have their
cash dividends automatically reinvested in additional shares of our common stock, rather than
receiving the cash dividends.
No action will be required on the part of a registered stockholder to have their cash dividend
reinvested in shares of our common stock. A registered stockholder may elect to receive an entire
dividend in cash by notifying The Bank of New York Mellon, the Plan Administrator and our
transfer agent and registrar, in writing so that such notice is received by the plan administrator
no later than the record date for dividends to stockholders. The plan administrator will set up an
account for shares acquired through the plan for each stockholder who has not elected to receive
dividends in cash and hold such shares in non-certificated form. Upon request by a stockholder
participating in the plan, received in writing not less than three days prior to the payment date
fixed by the Board of Directors, the plan administrator will, instead of crediting shares to the
participants account, issue a certificate registered in the participants name for the number of
whole shares of our common stock and a check for any fractional share. Those stockholders whose
shares are held by a broker or other financial intermediary may receive dividends in cash by
notifying their broker or other financial intermediary of their election.
We intend to use primarily newly issued shares to implement the plan, so long as our shares
are trading at or above net asset value. If our shares are trading below net asset value, we intend
to purchase shares in the open market in connection with our implementation of the plan. If we use
newly issued shares to implement the plan, the number of shares to be issued to a stockholder is
determined by dividing the total dollar amount of the dividend payable to such stockholder by
the market price per share of our
76
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.
DESCRIPTION OF OUR SECURITIES
The following description is based on relevant portions of the Maryland General Corporation
Law and on our articles of incorporation and bylaws. This summary may not contain all of the
information that is important to you, and we refer you to the Maryland General Corporation Law and
our articles of incorporation and bylaws for a more detailed description of the provisions
summarized below.
Capital Stock
Our authorized capital stock consists of 150,000,000 shares of common stock, par value $0.001
per share, of which 6,917,363 shares were outstanding as of May 30, 2008. Under our articles of
incorporation, our board of directors is authorized to classify and reclassify any unissued shares
of stock into other classes or series of stock, and to cause the issuance of such shares, without
obtaining stockholder approval. In addition, as permitted by the Maryland General Corporation Law,
but subject to the 1940 Act, our articles of incorporation provide that the board of directors,
without any action by our stockholders, may amend the articles of incorporation from time to time
to increase or decrease the aggregate number of shares of stock or the number of shares of stock of
any class or series that we have authority to issue. Under Maryland law, our stockholders generally
are not personally liable for our debts or obligations.
Common Stock
All shares of our common stock have equal rights as to earnings, assets, dividends and voting
privileges, except as described below, and, when they are issued, will be duly authorized, validly
issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock
if, as and when authorized by our board of directors and declared by us out of assets legally
available therefor. Shares of our common stock have no conversion, exchange, preemptive or
redemption rights. In the event of a liquidation, dissolution or winding up of our company, each
share of our common stock would be entitled to share ratably in all of our assets that are legally
available for distribution after we pay all debts and other liabilities and subject to any
preferential rights of holders of our preferred stock, if any preferred stock is outstanding at
such time. Each share of our common stock is entitled to one vote on all matters submitted to a
vote of stockholders, including the election of directors. Except as provided with respect to any
other class or series of stock, the holders of our common stock will possess exclusive voting
power. There is no cumulative voting in the election of directors, which means that holders of a
majority of the outstanding shares of common stock will elect all of our directors, and holders of
less than a majority of such shares will be unable to elect any director.
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Preferred Stock
Our articles of incorporation authorize our board of directors to classify and reclassify any
unissued shares of stock into other classes or series of stock, including preferred stock. Prior to
issuance of shares of each class or series, the board of directors is required by Maryland law and
by our articles of incorporation to set the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions, qualifications and terms
or conditions of redemption for each class or series. Thus, the board of directors could authorize
the issuance of shares of preferred stock with terms and conditions which could have the effect of
delaying, deferring or preventing a transaction or a change in control that might involve a premium
price for holders of our common stock or otherwise be in their best interest. You should note,
however, that any issuance of preferred stock must comply with the requirements of the 1940 Act.
The 1940 Act requires, among other things, that (1) immediately after issuance and before any
dividend or other distribution is made with respect to our common stock and before any purchase of
common stock is made, such preferred stock together with all other senior securities must not
exceed an amount equal to 50.0% of our total assets after deducting the amount of such dividend,
distribution or purchase price, as the case may be, and (2) the holders of shares of preferred
stock, if any are issued, must be entitled as a class to elect two directors at all times and to
elect a majority of the directors if dividends on such preferred stock are in arrears by two years
or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued
and outstanding preferred stock. We believe that the availability for issuance of preferred stock
will provide us with increased flexibility in structuring future financings and acquisitions.
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Long-Term Debt
Debentures guaranteed by the SBA have a maturity of ten years, require semi-annual payments of
interest, do not require any principal payments prior to maturity, and, historically, were subject
to certain prepayment penalties. Those prepayment penalties no longer apply as of September 2006.
As of March 31, 2008, we (through Triangle SBIC) had issued $47.1 million of SBA guaranteed
debentures, which had an annual weight-averaged interest rate of approximately 5.7%. With $65.3
million of regulatory capital as of March 31, 2008, we have the current capacity to issue up to a
total of $130.6 million of SBA guaranteed debentures.
Outstanding Securities
Set forth below are our outstanding classes of securities as of March 31, 2008.
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Amount Held By Company |
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Amount Authorized |
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Or For Its Account |
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Amount Outstanding |
Common Stock
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150,000,000 |
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6,803,863 |
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SBA-Guaranteed Debentures
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$130.6 million(1)
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$47.1 million
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(1) |
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Based on $65.3 million of regulatory capital as of March 31, 2008. For more information
regarding our limitations as to SBA guaranteed debenture issuances, see Small Business
Administration Regulation below. |
Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses
Maryland law permits a Maryland corporation to include in its articles of incorporation a
provision limiting the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. Our articles of
incorporation contain such a provision that eliminates directors and officers liability to the
maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
Our articles of incorporation authorize us, to the maximum extent permitted by Maryland law
and subject to the requirements of the 1940 Act, to indemnify any present or former director or
officer or any individual who, while a director or officer and at our request, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise
as a director, officer, partner or trustee, from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his or her service in any
such capacity.
Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the
requirements of the 1940 Act, to indemnify any present or former director or officer or any
individual who, while a director or officer and at our request, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a
director, officer, partner or trustee and who is made, or threatened to be made, a party to the
proceeding by reason of his or her service in any such capacity from and against any claim or
liability to which that person may become subject or which that person may incur by reason of his
or her service in any such capacity. Our bylaws also provide that, to the maximum extent permitted
by Maryland law, with the approval of our board of directors and provided that certain conditions
described in our bylaws are met, we may pay certain expenses incurred by any such indemnified
person in advance of the final disposition of a proceeding upon receipt of an undertaking by or on
behalf of such indemnified person to repay amounts we have so paid if it is ultimately determined
that indemnification of such expenses is not authorized under our bylaws.
Maryland law requires a corporation (unless its articles of incorporation provide otherwise,
which our articles of incorporation do not) to indemnify a director or officer who has been
successful in the defense of any proceeding to which he or she is made, or threatened to be made, a
party by reason of his or her service in that capacity. Maryland law permits a corporation to
indemnify its
present and former directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses
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actually incurred by them in connection with any proceeding to
which they may be made, or threatened to be made, a party by reason of their service in those or
other capacities unless it is established that (a) the act or omission of the director or officer
was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2)
was the result of active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act or omission was
unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of liability on the
basis that a personal benefit was improperly received, unless in either case a court orders
indemnification, and then only for expenses. In addition, Maryland law permits a corporation to
advance reasonable expenses to a director or officer upon the corporations receipt of (a) a
written affirmation by the director or officer of his or her good faith belief that he or she has
met the standard of conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the standard of conduct was not met.
We have purchased directors and officers insurance policies covering our directors and
officers and us for any acts and omissions committed, attempted or allegedly committed by any
director or officer during the policy period. The policy is subject to customary exclusions.
Provisions of The Maryland General Corporation Law and Articles of Incorporation And Bylaws
The Maryland General Corporation Law and our articles of incorporation and bylaws contain
provisions that could make it more difficult for a potential acquiror to acquire us by means of a
tender offer, proxy contest or otherwise. These provisions are expected to discourage certain
coercive takeover practices and inadequate takeover bids and to encourage persons seeking to
acquire control of us to negotiate first with our board of directors. We believe that the benefits
of these provisions outweigh the potential disadvantages of discouraging any such acquisition
proposals because, among other things, the negotiation of such proposals may improve their terms.
Director Terms; Election of Directors
Our articles of incorporation provide that the term of each director is one year unless and
until the board of directors, acting by authority provided under Section 3-802 of the Maryland
General Corporation Law, establishes staggered terms in the manner provided in Section 3-803 of the
Maryland General Corporation Law. Our bylaws currently provide that directors are elected by a
plurality of the votes cast in the election of directors. Pursuant to our articles of incorporation
and bylaws, our board of directors may amend the bylaws to alter the vote required to elect
directors.
Number of Directors; Vacancies; Removal
Our articles of incorporation provide that the number of directors will be set only by the
board of directors in accordance with our bylaws. Our bylaws provide that a majority of our entire
board of directors may at any time increase or decrease the number of directors. However, unless
the bylaws are amended, the number of directors may never be less than one nor more than 12. We
have elected to be subject to the provision of Subtitle 8 of Title 3 of the Maryland General
Corporation Law regarding the filling of vacancies on the board of directors. Accordingly, at such
time, except as may be provided by the board of directors in setting the terms of any class or
series of preferred stock, any and all vacancies on the board of directors may be filled only by
the affirmative vote of a majority of the remaining directors in office, even if the remaining
directors do not constitute a quorum, and any director elected to fill a vacancy shall serve for
the remainder of the full term of the directorship in which the vacancy occurred and until a
successor is elected and qualifies, subject to any applicable requirements of the 1940 Act. Our
articles of incorporation provide that a director may be removed only for cause, as defined in the
articles of incorporation, and then only by the affirmative vote of at least two-thirds of the
votes entitled to be cast in the election of directors.
Action by Stockholders
Under the Maryland General Corporation Law, stockholder action may be taken only at an annual
or special meeting of stockholders or by unanimous consent in lieu of a meeting (unless the
articles of incorporation provide for stockholder action by less than unanimous written consent,
which our articles of incorporation permit only with respect to actions recommended by the board of
directors). These provisions, combined with the requirements of our bylaws regarding the calling of
a stockholder-requested special meeting of stockholders discussed below, may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of
persons for election to the board of directors and the proposal of business to be considered by
stockholders may be made only (1) pursuant to our notice of the meeting,
(2) by the board of directors or (3) by a stockholder who is entitled to vote at the meeting
and who has complied with the advance
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notice procedures of the bylaws. With respect to special
meetings of stockholders, only the business specified in our notice of the meeting may be brought
before the meeting. Nominations of persons for election to the board of directors at a special
meeting may be made only (1) pursuant to our notice of the meeting, (2) by the board of directors
or (3) provided that the board of directors has determined that directors will be elected at the
meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the
advance notice provisions of the bylaws.
The purpose of requiring stockholders to give us advance notice of nominations and other
business is to afford our board of directors a meaningful opportunity to consider the
qualifications of the proposed nominees and the advisability of any other proposed business and, to
the extent deemed necessary or desirable by our board of directors, to inform stockholders and make
recommendations about such qualifications or business, as well as to provide a more orderly
procedure for conducting meetings of stockholders. Although our bylaws do not give our board of
directors any power to disapprove stockholder nominations for the election of directors or
proposals recommending certain action, they may have the effect of precluding a contest for the
election of directors or the consideration of stockholder proposals if proper procedures are not
followed and of discouraging or deterring a third party from conducting a solicitation of proxies
to elect its own slate of directors or to approve its own proposal without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to us and our
stockholders.
Calling of Special Meeting of Stockholders
Our bylaws provide that special meetings of stockholders may be called by our board of
directors and certain of our officers. Additionally, our bylaws provide that, subject to the
satisfaction of certain procedural and informational requirements by the stockholders requesting
the meeting, a special meeting of stockholders shall be called by our secretary upon the written
request of stockholders entitled to cast not less than a majority of all of the votes entitled to
be cast at such meeting.
Approval of Extraordinary Corporate Action; Amendment of Articles of Incorporation and Bylaws
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its articles of
incorporation, merge, sell all or substantially all of its assets, engage in a share exchange or
engage in similar transactions outside the ordinary course of business, unless approved by the
affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be
cast on the matter. However, a Maryland corporation may provide in its articles of incorporation
for approval of these matters by a lesser percentage, but not less than a majority of all of the
votes entitled to be cast on the matter. Our articles of incorporation generally provide for
approval of amendments to our articles of incorporation and extraordinary transactions by the
stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter.
Our articles of incorporation also provide that certain amendments and any proposal for our
conversion, whether by merger or otherwise, from a closed-end company to an open-end company or any
proposal for our liquidation or dissolution requires the approval of the stockholders entitled to
cast at least 75.0% of the votes entitled to be cast on such matter. However, if such amendment or
proposal is approved by at least 75.0% of our continuing directors (in addition to approval by our
board of directors), such amendment or proposal may be approved by the stockholders entitled to
cast a majority of the votes entitled to be cast on such a matter. The continuing directors are
defined in our articles of incorporation as our current directors, as well as those directors whose
nomination for election by the stockholders or whose election by the directors to fill vacancies is
approved by a majority of the continuing directors then on the board of directors.
Our articles of incorporation and bylaws provide that the board of directors will have the
exclusive power to make, alter, amend or repeal any provision of our bylaws.
No Appraisal Rights
Except with respect to appraisal rights arising in connection with the Maryland Control Share
Acquisition Act, or Control Share Act, discussed below, as permitted by the Maryland General
Corporation Law, our articles of incorporation provide that stockholders will not be entitled to
exercise appraisal rights, unless the board of directors, upon the affirmative vote of a majority
of the board of directors, shall determine that such rights apply, with respect to all or any class
or series of stock, to one or more transactions occurring after the date of determination in
connection with which holders of such shares would otherwise be entitled to exercise such rights.
Control Share Acquisitions
The Control Share Act provides that control shares of a Maryland corporation acquired in a
control share acquisition have no voting rights except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by
officers or by employees who are directors of the corporation are excluded from shares entitled to
vote on the matter. Control shares are voting shares of stock which, if aggregated with all other
shares of stock owned by the acquiror or in respect of which the acquiror is able to exercise or
direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle
the acquiror to exercise voting power in electing directors within one of the following ranges of
voting power:
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one-tenth or more but less than one-third; |
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one-third or more but less than a majority; or |
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a majority or more of all voting power. |
The requisite stockholder approval must be obtained each time an acquiror crosses one of the
thresholds of voting power set forth above. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained stockholder approval. A
control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of
directors of the corporation to call a special meeting of stockholders to be held within 50 days of
demand to consider the voting rights of the shares. The right to compel the calling of a special
meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the corporation may itself present
the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver
an acquiring person statement as required by the statute, then the corporation may repurchase for
fair value any or all of the control shares, except those for which voting rights have previously
been approved. The right of the corporation to repurchase control shares is subject to certain
conditions and limitations. Fair value is determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share acquisition by the acquiror
or of any meeting of stockholders at which the voting rights of the shares are considered and not
approved. If voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders
may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal
rights may not be less than the highest price per share paid by the acquiror in the control share
acquisition.
The Control Share Act does not apply (a) to shares acquired in a merger, consolidation or
share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or
exempted by the articles of incorporation or bylaws of the corporation. Moreover, it does not apply
to a corporation, such as us, registered under the 1940 Act as a closed-end investment company
unless the board of directors adopts a resolution that the corporation will be subject to the
Control Share Act. Our board of directors has not adopted and does not presently intend to adopt,
such a resolution.
Business Combinations
Under the Maryland Business Combination Act, or the Business Combination Act, business
combinations between a Maryland corporation and an interested stockholder or an affiliate of an
interested stockholder are prohibited for five years after the most recent date on which the
interested stockholder becomes an interested stockholder. These business combinations include a
merger, consolidation, share exchange or, in circumstances specified in the statute, an asset
transfer or issuance or reclassification of equity securities. An interested stockholder is defined
as:
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any person who beneficially owns 10.0% or more of the voting power of the
corporations shares; or |
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an affiliate or associate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10.0% or more of the
voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under this statute if the board of directors
approved in advance the transaction by which such stockholder otherwise would have become an
interested stockholder. However, in approving a transaction, the board of directors may provide
that its approval is subject to compliance, at or after the time of approval, with any terms and
conditions determined by the board.
After the 5-year prohibition, any business combination between the Maryland corporation and an
interested stockholder generally must be recommended by the board of directors of the corporation
and approved by the affirmative vote of at least:
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80.0% of the votes entitled to be cast by holders of outstanding shares of voting
stock of the corporation; and |
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two-thirds of the votes entitled to be cast by holders of voting stock of the
corporation other than shares held by the interested stockholder with whom or with whose
affiliate the business combination is to be effected or held by an affiliate or
associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporations common stockholders
receive a minimum price, as defined under Maryland law, for their shares in the form of cash or
other consideration in the same form as previously paid by the interested stockholder for its
shares.
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The statute permits various exemptions from its provisions, including business combinations
that are exempted by the board of directors before the time that the interested stockholder becomes
an interested stockholder. Moreover, it does not apply to a corporation, such as us, registered
under the 1940 Act as a closed-end investment company unless the board of directors adopts a
resolution that the corporation will be subject to the Business Combination Act.
Conflict with 1940 Act
Our bylaws provide that, if and to the extent that any provision of the Maryland General
Corporation Law, or any provision of our articles of incorporation or bylaws conflicts with any
provision of the 1940 Act, the applicable provision of the 1940 Act will control.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material U.S. federal income tax
considerations applicable to us and to an investment in our shares. This summary does not purport
to be a complete description of the income tax considerations applicable to 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). The discussion is based upon the
Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of
this prospectus and all of which are subject to change, possibly retroactively, which could affect
the continuing validity of this discussion. We have not sought and will not seek any ruling from
the Internal Revenue Service regarding this offering. 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. |
A Non-U.S. stockholder is a beneficial owner of shares of our common stock that is not a
U.S. stockholder.
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 Regulated Investment Company
As a BDC, we intend to elect to be treated as a RIC under Subchapter M of the Code. 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).
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Taxation as a Regulated Investment Company
If we:
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qualify as a RIC; and |
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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 (other than any built-in gain recognized between January
1, 2007 and December 31, 2007). 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. 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). |
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 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.
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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 currently intend to retain some or all of our realized net long-term capital gains in
excess of realized net short-term capital losses, but to designate the retained net capital gain as
a deemed distribution. In that case, among other consequences, we will pay tax on the retained
amount, each U.S. stockholder will be required to include his, her or its 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 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 stockholders 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 stockholders.
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
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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 carry back such losses for
three years or carry forward 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.
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 will be
required and the distributions generally will not be subject to federal income tax if (i) the
distributions are properly designated in a notice timely delivered to our stockholders as
interest-related dividends or short-term capital gain dividends, (ii) the distributions are
derived from sources specified in the Code for such dividends and (iii) certain other requirements
are satisfied. Currently, we do not anticipate that any significant amount of our distributions
will be 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 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
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documentary evidence requirements for establishing that it is a Non-U.S. stockholder or
otherwise establishes an exemption from backup withholding.
As a RIC, we will be subject to the alternative minimum tax (AMT), but any items that are
treated differently for AMT purposes must be apportioned between us and our stockholders and this
may affect the stockholders AMT liabilities. Although regulations explaining the precise method of
apportionment have not yet been issued by the Internal Revenue Service, we intend in general to
apportion these items in the same proportion that dividends paid to each stockholder bear to our
taxable income (determined without regard to the dividends paid deduction), unless we determine
that a different method for a particular item is warranted under the circumstances.
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 Regulated Investment Company
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.
REGULATION
We, and Triangle SBIC, have elected to be treated as a BDC
under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions
between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or
underwriters. The 1940 Act requires that a majority of the directors be persons other than
interested persons, as that term is defined in the 1940 Act. In addition, the 1940 Act provides
that we may not change the nature of our business so as to cease to be, or to withdraw our election
as, a BDC unless approved by a majority of our outstanding voting securities.
The 1940 Act defines a majority of the outstanding voting securities as the lesser of
(i) 67.0% or more of the voting securities present at a meeting if the holders of more than 50.0%
of our outstanding voting securities are present or represented by proxy, or (ii) 50.0% of our
voting securities.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in
Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the
acquisition is made, qualifying assets represent at least 70.0% of the companys total assets. The
principal categories of qualifying assets relevant to our business are any of the following:
(1) Securities purchased in transactions not involving any public offering from the issuer of
such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio
company, or from any person who is, or has been during the preceding 13 months, an affiliated
person of an eligible portfolio company, or from any other person, subject to such rules as may be
prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer
which:
(a) is organized under the laws of, and has its principal place of business in, the United
States;
(b) is not an investment company (other than a small business investment company wholly
owned by the BDC) or a company that would be an investment company but for certain exclusions
under the 1940 Act; and
(c) satisfies any of the following:
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does not have any class of securities that is traded on a
national securities exchange or has a class of securities listed on a national
securities exchange but has an aggregate market value of outstanding voting
and non-voting common equity of less than $250.0 million; |
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(ii) |
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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 |
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(iii) |
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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. Our management team will monitor the
creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
Senior Securities
We are permitted, under specified conditions, to issue multiple classes of debt and one class
of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least
equal to 200.0% immediately after each such issuance. In addition, while any senior securities
remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the
repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the
time of the distribution or repurchase. We may also borrow amounts up to 5.0% of the value of our
total assets for temporary or emergency purposes without regard to asset coverage. For a discussion
of the risks associated with leverage, see Risk Factors Risks Relating to Our Business and
Structure Because we intend to distribute substantially all of our income to our stockholders to
maintain our status as a regulated investment company, we will continue to need additional capital
to finance our growth and regulations governing our operation as a business development company
will affect our ability to, and the way in which we, raise additional capital.
Code of Ethics and Corporate Governance Guidelines
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We have adopted a code of ethics and corporate governance guidelines covering ethics and
business conduct. These documents apply to our directors, officers and employees. Our code of
ethics and corporate governance guidelines are available on the Investor Relations section of our
website at the following URL: http://ir.tcap.com/governance.cfm. We will report any amendments to
or waivers of a required provision of our code of ethics and corporate governance guidelines on our
website or in a Current Report on Form 8-K.
Proxy Voting Policies and Procedures
We vote proxies relating to our portfolio securities in the best interest of our stockholders.
We review on a case-by-case basis each proposal submitted to a stockholder vote to determine its
impact on the portfolio securities held by us. Although we generally vote against proposals that
may have a negative impact on our portfolio securities, we may vote for such a proposal if there
exists compelling long-term reasons to do so.
Our proxy voting decisions are made by the investment professionals who are responsible for
monitoring each of our investments. To ensure that our vote is not the product of a conflict of
interest, we require that: (i) anyone involved in the decision making process disclose to our chief
compliance officer any potential conflict that he or she is aware of and any contact that he or she
has had with any interested party regarding a proxy vote; and (ii) employees involved in the
decision making process or vote administration are prohibited from revealing how we intend to vote
on a proposal in order to reduce any attempted influence from interested parties.
Stockholders may, without charge, obtain information regarding how we voted proxies with
respect to our portfolio securities by making a written request for proxy voting information to:
Chief Compliance Officer, 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 business development
company, we are prohibited from protecting any director or officer against any liability to us or
our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such persons office.
We are required to adopt and implement written policies and procedures reasonably designed to
prevent violation of the federal securities laws, review these policies and procedures annually for
their adequacy and the effectiveness of their implementation, and to designate a chief compliance
officer to be responsible for administering the policies and procedures.
Small Business Administration Regulations
Triangle SBIC, our wholly-owned subsidiary, is licensed by the Small Business Administration
to operate as a Small Business Investment Company under Section 301(c) of the Small Business
Investment Act of 1958. Triangle SBIC initially obtained its SBIC license on September 11, 2003.
SBICs are designed to stimulate the flow of private equity capital to eligible small
businesses. Under SBA regulations, SBICs may make loans to eligible small businesses, invest in the
equity securities of such businesses and provide them with consulting and advisory services.
Triangle SBIC has typically invested in senior 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.
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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 privately-raised funds of the
SBIC(s). Debentures guaranteed by the SBA have a maturity of ten years, require semi-annual
payments of interest, do not require any principal payments prior to maturity, and, historically,
were subject to certain prepayment penalties. Those prepayment penalties no longer apply as of
September 2006. As of March 31, 2008, we had issued $47.1 million of SBA guaranteed debentures,
which had an annual weight-averaged interest rate of 5.661%. SBA regulations currently limit 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).
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.
Although we cannot provide any assurance that we will receive any exemptive relief, we have
requested that the SEC allow us to exclude any indebtedness guaranteed by the SBA and issued by
Triangle SBIC from the 200.0% asset coverage requirements applicable to us as a BDC.
Neither the SBA nor the U.S. government or any of its agencies or officers has approved any
ownership interest to be issued by us or any obligation that we or any of our subsidiaries may
incur.
Securities Exchange Act and Sarbanes-Oxley Act Compliance
We are subject to the reporting and disclosure requirements of the Exchange Act, including the
filing of quarterly, annual and current reports, proxy statements and other required items. In
addition, we are subject to the Sarbanes-Oxley Act of 2002, which imposes a wide variety of
regulatory requirements on publicly-held companies and their insiders. For example:
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pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief
Financial Officer are required to certify the accuracy of the financial statements
contained in our periodic reports; |
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pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose
our conclusions about the effectiveness of our disclosure controls and procedures; and |
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pursuant to Rule 13a-15 of the Exchange Act, beginning with our fiscal year ending
December 31, 2007, our management is required to prepare a report regarding its
assessment of our internal control over financial reporting, and beginning with our
fiscal year ending December 31, 2008, such report must be audited by our independent
registered public accounting firm. |
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The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine
whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We
monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will
take all actions necessary to ensure that we are in compliance therewith.
The Nasdaq Global Market Corporate Governance Regulations
The Nasdaq Global Market has adopted corporate governance regulations that listed companies
must comply with. We believe we are in compliance with such corporate governance listing standards.
We intend to monitor our compliance with all future listing standards and to take all necessary
actions to ensure that we are in compliance therewith.
PLAN OF DISTRIBUTION
We
may sell our common stock through underwriters or dealers, directly to one or more
purchasers or through agents or through a
combination of any such methods of sale. Any underwriter or agent
involved in the offer and sale of our common stock will also be named in the applicable prospectus
supplement.
The
distribution of our common stock
may be effected from time to time in one or more
transactions at a fixed price or prices, which may be changed, at prevailing market prices at the
time of sale, at prices related to such prevailing market prices, or at negotiated prices,
provided, however, that the offering price per share of our common
stock less any
underwriting commissions or discounts must equal or exceed the net asset value per share of our
common stock except (i) with the consent of the majority of our common stockholders or (ii) under such other
circumstances as the SEC may permit.
In connection with the sale
of our common stock, underwriters or agents may receive compensation
from us or from purchasers of our common stock, for whom they may act as agents, in the form of
discounts, concessions or commissions. Underwriters may sell our common stock to or through dealers
and such dealers may receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as agents.
Underwriters, dealers and agents that participate in the distribution of our common stock may be
deemed to be underwriters under the Securities Act, and any discounts and commissions they receive
from us and any profit realized by them on the resale of our common stock may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such underwriter or agent will
be identified and any such compensation received from us will be described in the applicable
prospectus supplement.
We may enter into derivative transactions with third parties, or sell securities not covered
by this prospectus to third parties in privately negotiated transactions. If the applicable
prospectus supplement indicates, in connection with those derivatives, the third parties may sell
common stock covered by this prospectus and the applicable prospectus supplement, including in short
sale transactions. If so, the third party may use securities pledged by us or borrowed from us or
others to settle those sales or to close out any related open borrowings of stock, and may use
securities received from us in settlement of those derivatives to close out any related open
borrowings of stock. The third parties in such sale transactions will be underwriters and, if not
identified in this prospectus, will be identified in the applicable prospectus supplement (or a
post-effective amendment).
Any of our common stock sold pursuant to a prospectus supplement will be listed on The Nasdaq
Global Market, or another exchange on which our common stock is traded.
Under agreements into which we may enter, underwriters, dealers and agents who participate in
the distribution of our common stock may be entitled to indemnification by us against certain
liabilities, including liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with, or perform services for, us in the ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize underwriters or
other persons acting as our agents to solicit offers by certain institutions to purchase our common stock from us pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable institutions and others,
but in all cases such institutions must be approved by us. The obligations of any purchaser under
any such contract will be subject to the condition that the purchase of our common stock shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such other agents will not have any responsibility in respect of the
validity or performance of such contracts. Such contracts will be subject only to those conditions
set forth in the prospectus supplement, and the prospectus supplement will set forth the commission
payable for solicitation of such contracts.
91
In order to comply with the securities laws of certain states, if applicable, our common stock
offered hereby will be sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states, our common stock may not be
sold unless it has been
registered or qualified for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
The maximum commission or discount to be received by any member of the Financial Industry
Regulatory Authority, Inc. will not be greater than 10% for the sale of any securities being
registered and 0.5% for due diligence.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
Our securities are held under a custody agreement by U.S. Bank National Association. The
address of the custodian is: U.S. Bank National Association, Attn: Institutional Trust & Custody,
214 North Tryon Street; 27th floor, Charlotte, NC 28202. The Bank of New York Mellon acts as our
transfer agent, dividend paying agent and registrar. The principal business address of our transfer
agent is BNY Mellon, Shareowner Services, PO Box 358035, Pittsburgh, PA, 15252-8035, telephone
number: (866) 228-7201.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Since we generally acquire and dispose of our investments in privately negotiated
transactions, we infrequently use brokers in the normal course of our business. Our management team
is primarily responsible for the execution of 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.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Bass, Berry & Sims PLC, Memphis,
Tennessee. Venable LLP, Baltimore, Maryland, will pass upon the legality of the common stock offered by us and certain
other matters of Maryland law. Certain legal matters will be passed upon for underwriters, if any,
by the counsel named in the prospectus supplement, if any.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP, an independent registered public accounting firm whose address is 4130
ParkLake Avenue, Suite 500, Raleigh, NC 27612, has audited our financial statements and financial
highlights at December 31, 2007 and 2006, and for each of the three years in the period ended
December 31, 2007, as set forth in their report. We have included our financial statements and
financial highlights in the prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLPs report, given on its authority as an expert in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form N-2, together with all amendments
and related exhibits, under the Securities Act, with respect to the
common stock offered by this
prospectus. The registration statement contains additional information about us and the common stock
being offered by this prospectus.
We file with or submit to the SEC annual, quarterly and current periodic reports, proxy
statements and other information meeting the informational requirements of the Exchange Act. You
may inspect and copy these reports, proxy statements and other information, as well as the
registration statement and related exhibits and schedules, at the Public Reference Room of the SEC
at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements and other information filed electronically by us
with the SEC which are available on the SECs website at http://www.sec.gov. Copies of these
reports, proxy and information statements and other information may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by
writing the SECs Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.
92
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Unaudited Financial Statements |
|
|
|
|
|
|
|
F-1 |
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-9 |
|
|
|
|
F-12 |
|
|
|
|
|
|
Audited Financial Statements |
|
|
|
|
|
|
|
F-20 |
|
|
|
|
F-21 |
|
|
|
|
F-22 |
|
|
|
|
F-23 |
|
|
|
|
F-24 |
|
|
|
|
F-25 |
|
|
|
|
F-29 |
|
|
|
|
F-32 |
|
TRIANGLE CAPITAL CORPORATION
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
December 31, |
|
|
2008 |
|
2007 |
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Investments at fair value: |
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments (cost
of $78,569,772 and $66,819,386 at March 31, 2008 and
December 31, 2007, respectively) |
|
$ |
79,704,224 |
|
|
$ |
69,078,281 |
|
Affiliate investments (cost of $29,431,381 and $24,487,895
at March 31, 2008 and December 31, 2007, respectively) |
|
|
29,866,379 |
|
|
|
25,041,093 |
|
Control
investments (cost of $13,430,867 and $15,910,498
at March 31, 2008 and December 31, 2007, respectively) |
|
|
17,821,613 |
|
|
|
20,254,844 |
|
|
|
|
Total investments at fair value |
|
|
127,392,216 |
|
|
|
114,374,218 |
|
Deferred loan origination revenue |
|
|
(1,571,822 |
) |
|
|
(1,368,603 |
) |
Cash and cash equivalents |
|
|
15,611,011 |
|
|
|
21,787,750 |
|
Interest and fees receivable |
|
|
404,084 |
|
|
|
305,159 |
|
Prepaid expenses and other current assets |
|
|
177,962 |
|
|
|
47,477 |
|
Deferred financing fees |
|
|
1,752,488 |
|
|
|
999,159 |
|
Property and equipment, net |
|
|
32,916 |
|
|
|
34,166 |
|
|
|
|
Total assets |
|
$ |
143,798,855 |
|
|
$ |
136,179,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
643,633 |
|
|
$ |
1,144,222 |
|
Interest payable |
|
|
185,999 |
|
|
|
698,735 |
|
Dividends payable |
|
|
|
|
|
|
2,041,159 |
|
Income taxes payable |
|
|
95,580 |
|
|
|
52,598 |
|
Deferred income taxes |
|
|
1,585,899 |
|
|
|
1,760,259 |
|
SBA guaranteed debentures payable |
|
|
47,050,000 |
|
|
|
37,010,000 |
|
|
|
|
Total liabilities |
|
|
49,561,111 |
|
|
|
42,706,973 |
|
|
|
|
|
|
|
|
|
|
Net Assets |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share (150,000,000
shares authorized, 6,803,863 shares issued and outstanding
as of March 31, 2008 and December 31, 2007) |
|
|
6,804 |
|
|
|
6,804 |
|
Additional paid-in capital |
|
|
86,949,189 |
|
|
|
86,949,189 |
|
Investment income in excess of distributions |
|
|
3,526,071 |
|
|
|
1,738,797 |
|
Accumulated realized losses on investments |
|
|
(618,620 |
) |
|
|
(618,620 |
) |
Net unrealized appreciation of investments |
|
|
4,374,300 |
|
|
|
5,396,183 |
|
|
|
|
Total net assets |
|
|
94,237,744 |
|
|
|
93,472,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets |
|
$ |
143,798,855 |
|
|
$ |
136,179,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share |
|
$ |
13.85 |
|
|
$ |
13.74 |
|
|
|
|
See accompanying notes.
F-1
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
|
|
March 31, 2008 |
|
March 31, 2007 |
|
|
(Consolidated) |
|
(Combined) |
|
|
|
Investment income: |
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income: |
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments |
|
$ |
1,921,769 |
|
|
$ |
1,155,622 |
|
Affiliate investments |
|
|
748,766 |
|
|
|
274,614 |
|
Control investments |
|
|
487,434 |
|
|
|
75,718 |
|
|
|
|
Total loan interest, fee and dividend income |
|
|
3,157,969 |
|
|
|
1,505,954 |
|
|
|
|
|
|
|
|
|
|
Paid-in-kind interest income: |
|
|
|
|
|
|
|
|
Non-Control / Non-Affiliate investments |
|
|
296,636 |
|
|
|
174,796 |
|
Affiliate investments |
|
|
142,552 |
|
|
|
29,250 |
|
Control investments |
|
|
129,395 |
|
|
|
42,948 |
|
|
|
|
Total paid-in-kind interest income |
|
|
568,583 |
|
|
|
246,994 |
|
|
|
|
|
|
|
|
|
|
Interest income from cash and cash equivalent investments |
|
|
137,432 |
|
|
|
359,168 |
|
|
|
|
Total investment income |
|
|
3,863,984 |
|
|
|
2,112,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
561,815 |
|
|
|
499,691 |
|
Amortization of deferred financing fees |
|
|
40,141 |
|
|
|
27,108 |
|
Management fees |
|
|
|
|
|
|
232,423 |
|
General and administrative expenses |
|
|
1,348,333 |
|
|
|
548,164 |
|
|
|
|
Total expenses |
|
|
1,950,289 |
|
|
|
1,307,386 |
|
|
|
|
Net investment income |
|
|
1,913,695 |
|
|
|
804,730 |
|
|
|
|
|
|
|
|
|
|
Net realized loss on investment Non Control / Non-Affiliate |
|
|
|
|
|
|
(1,464,224 |
) |
Net unrealized appreciation (depreciation) of investments |
|
|
(1,021,883 |
) |
|
|
1,725,329 |
|
|
|
|
Total net gain (loss) on investments before income taxes |
|
|
(1,021,883 |
) |
|
|
261,105 |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
126,421 |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
765,391 |
|
|
$ |
1,065,835 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted |
|
$ |
0.28 |
|
|
$ |
0.12 |
|
|
|
|
Net increase in net assets resulting from
operations per share
basic and diluted |
|
$ |
0.11 |
|
|
$ |
0.16 |
|
|
|
|
Weighted average number of shares
outstanding basic and diluted |
|
|
6,803,863 |
|
|
|
6,686,760 |
|
|
|
|
See accompanying notes.
F-2
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
Accumulated |
|
Net |
|
|
|
|
General |
|
Limited |
|
Common Stock |
|
Additional |
|
Income |
|
Realized |
|
Unrealized |
|
Total |
|
|
Partners |
|
Partners |
|
Number |
|
Par |
|
Paid In |
|
in Excess of |
|
Losses on |
|
Appreciation of |
|
Net |
|
|
Capital |
|
Capital |
|
of Shares |
|
Value |
|
Capital |
|
Distributions |
|
Investments |
|
Investments |
|
Assets |
|
|
|
Balance, January 1, 2007 |
|
$ |
100 |
|
|
$ |
21,250,000 |
|
|
|
100 |
|
|
$ |
|
|
|
$ |
1,500 |
|
|
$ |
1,570,135 |
|
|
$ |
|
|
|
$ |
2,335,076 |
|
|
$ |
25,156,811 |
|
Public offering of common stock |
|
|
|
|
|
|
|
|
|
|
4,770,000 |
|
|
|
4,770 |
|
|
|
64,723,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,728,037 |
|
Formation transactions |
|
|
(100 |
) |
|
|
(21,250,000 |
) |
|
|
1,916,660 |
|
|
|
1,917 |
|
|
|
21,248,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
804,730 |
|
|
|
|
|
|
|
|
|
|
|
804,730 |
|
Realized loss on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,464,224 |
) |
|
|
1,464,224 |
|
|
|
|
|
Net unrealized gains on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,105 |
|
|
|
261,105 |
|
Tax distribution to partners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
|
|
|
|
|
|
|
(220,047 |
) |
|
|
|
Balance, March 31, 2007 |
|
$ |
|
|
|
$ |
|
|
|
|
6,686,760 |
|
|
$ |
6,687 |
|
|
$ |
85,972,950 |
|
|
$ |
2,154,818 |
|
|
$ |
(1,464,224 |
) |
|
$ |
4,060,405 |
|
|
$ |
90,730,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
Accumulated |
|
Net |
|
|
|
|
Common Stock |
|
Additional |
|
Income |
|
Realized |
|
Unrealized |
|
Total |
|
|
Number |
|
Par |
|
Paid In |
|
in Excess of |
|
Losses on |
|
Appreciation of |
|
Net |
|
|
of Shares |
|
Value |
|
Capital |
|
Distributions |
|
Investments |
|
Investments |
|
Assets |
|
|
|
Balance, January 1, 2008 |
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
86,949,189 |
|
|
$ |
1,738,797 |
|
|
$ |
(618,620 |
) |
|
$ |
5,396,183 |
|
|
$ |
93,472,353 |
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,913,695 |
|
|
|
|
|
|
|
|
|
|
|
1,913,695 |
|
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,421 |
) |
|
|
|
|
|
|
|
|
|
|
(126,421 |
) |
Net unrealized losses on
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,021,883 |
) |
|
|
(1,021,883 |
) |
|
|
|
Balance, March 31, 2008 |
|
|
6,803,863 |
|
|
$ |
6,804 |
|
|
$ |
86,949,189 |
|
|
$ |
3,526,071 |
|
|
$ |
(618,620 |
) |
|
$ |
4,374,300 |
|
|
$ |
94,237,744 |
|
|
|
|
See accompanying notes.
F-3
TRIANGLE CAPITAL CORPORATION
Unaudited Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Three Months |
|
|
Ended |
|
Ended |
|
|
March 31, |
|
March 31, |
|
|
2008 |
|
2007 |
|
|
(Consolidated) |
|
(Combined) |
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations |
|
$ |
765,391 |
|
|
$ |
1,065,835 |
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
Purchases of portfolio investments |
|
|
(14,123,791 |
) |
|
|
(63,602 |
) |
Repayments received/sales of portfolio investments |
|
|
475,404 |
|
|
|
1,424,112 |
|
Loan origination and other fees received |
|
|
403,889 |
|
|
|
27,500 |
|
Net realized loss on investments |
|
|
|
|
|
|
1,464,224 |
|
Net unrealized depreciation (appreciation) of investments |
|
|
1,196,243 |
|
|
|
(1,725,329 |
) |
Deferred income taxes |
|
|
(174,360 |
) |
|
|
|
|
Paid-in-kind interest accrued, net of payments received |
|
|
(541,434 |
) |
|
|
(142,908 |
) |
Amortization of deferred financing fees |
|
|
40,141 |
|
|
|
27,108 |
|
Recognition of loan origination and other fees |
|
|
(200,670 |
) |
|
|
(47,057 |
) |
Accretion of loan discounts |
|
|
(24,420 |
) |
|
|
(51,953 |
) |
Depreciation expense |
|
|
3,265 |
|
|
|
358 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Interest and fees receivable |
|
|
(98,925 |
) |
|
|
(46,782 |
) |
Prepaid expenses |
|
|
(130,485 |
) |
|
|
(70,892 |
) |
Accounts payable and accrued liabilities |
|
|
(500,589 |
) |
|
|
(234,839 |
) |
Interest payable |
|
|
(512,736 |
) |
|
|
(449,456 |
) |
Income taxes payable |
|
|
42,982 |
|
|
|
|
|
Receivable from / payable to Triangle Capital Partners, LLC |
|
|
|
|
|
|
(48,687 |
) |
|
|
|
Net cash provided by (used in) operating activities |
|
|
(13,380,095 |
) |
|
|
1,127,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(2,015 |
) |
|
|
(12,905 |
) |
|
|
|
Net cash used in investing activities |
|
|
(2,015 |
) |
|
|
(12,905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable |
|
|
10,040,000 |
|
|
|
4,000,000 |
|
Financing fees paid |
|
|
(793,470 |
) |
|
|
(97,000 |
) |
Proceeds from initial public offering, net of expenses |
|
|
|
|
|
|
64,728,037 |
|
Change in deferred offering costs |
|
|
|
|
|
|
1,020,646 |
|
Cash dividends paid |
|
|
(2,041,159 |
) |
|
|
|
|
Tax distribution to partners |
|
|
|
|
|
|
(531,566 |
) |
|
|
|
Net cash provided by financing activities |
|
|
7,205,371 |
|
|
|
69,120,117 |
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(6,176,739 |
) |
|
|
70,234,844 |
|
Cash and cash equivalents, beginning of period |
|
|
21,787,750 |
|
|
|
2,556,502 |
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
15,611,011 |
|
|
$ |
72,791,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,074,552 |
|
|
$ |
949,148 |
|
|
|
|
|
Summary of non-cash financing transactions: |
|
|
|
|
|
|
|
|
Accrued tax distribution to partners |
|
$ |
|
|
|
$ |
220,047 |
|
|
|
|
See accompanying notes.
F-4
TRIANGLE CAPITAL CORPORATION
Unaudited Consolidated Schedule of Investments
March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(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 |
|
|
$ |
3,049,405 |
|
|
$ |
3,049,405 |
|
|
|
|
|
|
|
Subordinated Note (14%, Due 03/11) |
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
1,872,075 |
|
|
|
|
|
|
|
Common Stock Warrants (455 shares) |
|
|
|
|
|
|
142,361 |
|
|
|
882,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729 |
|
|
|
5,063,841 |
|
|
|
5,804,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
APO Newco, LLC (5%)* |
|
Commercial and Consumer |
|
Subordinated Note (14%, Due 03/13) |
|
|
4,337,078 |
|
|
|
4,314,941 |
|
|
|
4,314,941 |
|
|
|
Marketing Products |
|
Unit purchase warrant (87,302 Class C units) |
|
|
|
|
|
|
25,200 |
|
|
|
273,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,337,078 |
|
|
|
4,340,141 |
|
|
|
4,588,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)* |
|
Remediation Services |
|
Subordinated Note (19%, Due 11/10) |
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
2,434,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Art Headquarters, LLC (3%)* |
|
Retail, Wholesale and Distribution |
|
Subordinated Note (14%, Due 01/10) |
|
|
2,376,823 |
|
|
|
2,359,270 |
|
|
|
2,359,270 |
|
|
|
|
|
|
|
Membership unit warrants (15% of units (150 units)) |
|
|
|
|
|
|
40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,376,823 |
|
|
|
2,400,070 |
|
|
|
2,359,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurance Operations Corporation (4%)* |
|
Auto Components / Metal Fabrication |
|
Subordinated Note (17%, Due 03/12) |
|
|
3,876,915 |
|
|
|
3,876,915 |
|
|
|
3,643,115 |
|
|
|
|
|
|
|
Common Stock (57 shares) |
|
|
|
|
|
|
257,143 |
|
|
|
48,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,876,915 |
|
|
|
4,134,058 |
|
|
|
3,691,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Plastics, Inc. (1%)* |
|
Plastic Component Manufacturing |
|
Subordinated Note (14%, Due 10/11) |
|
|
1,500,000 |
|
|
|
1,416,604 |
|
|
|
538,404 |
|
|
|
|
|
|
|
Common Stock Warrants (12% of common stock) |
|
|
|
|
|
|
108,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000 |
|
|
|
1,525,138 |
|
|
|
538,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CV Holdings, LLC (6%)* |
|
Specialty Healthcare
Products Manufacturer |
|
Subordinated Note (16%, Due 03/10) |
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
|
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,052,217 |
|
|
|
5,052,217 |
|
|
|
5,326,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Provider |
|
(8%, Due 07/13) |
|
|
4,595,208 |
|
|
|
4,595,208 |
|
|
|
4,595,208 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11%, Due 01/14) |
|
|
980,428 |
|
|
|
980,428 |
|
|
|
980,428 |
|
|
|
|
|
|
|
Revolving Line of Credit (8%) |
|
|
70,880 |
|
|
|
70,880 |
|
|
|
70,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
5,646,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DataPath, Inc. (1%)* |
|
Satellite Communication
Manufacturer |
|
Common Stock
(210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Shore Ambulance, Inc. (1%)* |
|
Specialty Health Care Services |
|
Subordinated Note (13%, Due 03/11) |
|
|
1,000,000 |
|
|
|
961,318 |
|
|
|
961,318 |
|
|
|
|
|
|
|
Common Stock Warrants (6% of common stock) |
|
|
|
|
|
|
55,268 |
|
|
|
11,200 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 shares) |
|
|
|
|
|
|
30,000 |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 |
|
|
|
1,046,586 |
|
|
|
975,418 |
|
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Electronic Systems Protection, Inc. (5%)* |
|
Power Protection
Systems |
|
Subordinated Note (14%, Due 12/15) |
|
$ |
3,013,833 |
|
|
$ |
3,013,833 |
|
|
$ |
3,013,833 |
|
|
|
Manufacturing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7%, Due 01/14) |
|
|
997,110 |
|
|
|
997,110 |
|
|
|
997,110 |
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,010,943 |
|
|
|
4,260,943 |
|
|
|
4,260,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Hardware Holdings, LLC (4%)* |
|
Machined Parts Distribution |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.5%, Due 10/12) |
|
|
3,285,819 |
|
|
|
3,285,819 |
|
|
|
3,285,819 |
|
|
|
|
|
|
|
Junior Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8%, Due 10/12) |
|
|
207,667 |
|
|
|
207,667 |
|
|
|
207,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
3,493,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCL Graphics, Inc. (8%)* |
|
Commercial Printing |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(7%, Due 10/12) |
|
|
1,880,000 |
|
|
|
1,880,000 |
|
|
|
1,880,000 |
|
|
|
|
|
|
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12%, Due 10/13) |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
|
|
|
|
2nd Lien Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18%, Due 4/14) |
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
3,205,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
7,085,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Sprinkler Systems, Inc. (3%)* |
|
Specialty Trade Contractors |
|
Subordinated Notes (13%-17.5%, Due 04/11) |
|
|
2,441,060 |
|
|
|
2,441,060 |
|
|
|
2,441,060 |
|
|
|
|
|
|
|
Common Stock
(250 shares) |
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,060 |
|
|
|
2,691,060 |
|
|
|
2,441,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
1,097,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000 |
|
|
|
4,058,333 |
|
|
|
4,847,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000 |
|
|
|
3,500,000 |
|
|
|
3,450,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerli & Company (3%)* |
|
Specialty Woven
Fabrics |
|
Subordinated Note (14%, Due 08/11) |
|
|
3,129,726 |
|
|
|
3,076,896 |
|
|
|
3,076,896 |
|
|
|
Manufacturer |
|
Common Stock Warrants
(56,559 shares) |
|
|
|
|
|
|
83,414 |
|
|
|
29,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,129,726 |
|
|
|
3,160,310 |
|
|
|
3,106,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Library Systems & Services, LLC (3%)* |
|
Municipal Business Services |
|
Subordinated Note (12%, Due 03/11) |
|
|
2,000,000 |
|
|
|
1,963,309 |
|
|
|
1,963,309 |
|
|
|
|
|
|
|
Common Stock Warrants (112 shares) |
|
|
|
|
|
|
58,995 |
|
|
|
560,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000 |
|
|
|
2,022,304 |
|
|
|
2,523,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syrgis Holdings, Inc. (6%)* |
|
Specialty Chemical Manufacturer |
|
Senior Note (9%, Due 08/12-02/14) |
|
|
4,865,000 |
|
|
|
4,865,000 |
|
|
|
4,865,000 |
|
|
|
|
|
|
|
Common Units
(2,114 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,865,000 |
|
|
|
5,865,000 |
|
|
|
5,865,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TrustHouse Services Group, Inc. (5%)* |
|
Food Management Services |
|
Subordinated Note (14%, Due 03/15) |
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
4,200,000 |
|
|
|
|
|
|
|
Class A Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,495 units) |
|
|
|
|
|
|
475,000 |
|
|
|
475,000 |
|
|
|
|
|
|
|
Class B Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79 units) |
|
|
|
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,200,000 |
|
|
|
4,700,000 |
|
|
|
4,700,000 |
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(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) |
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
1,488,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
5,988,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
75,204,762 |
|
|
|
78,569,772 |
|
|
|
79,704,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (5%)* |
|
Asset Management Software Provider |
|
Subordinated Note
(15%, Due 03/13) |
|
|
4,309,151 |
|
|
|
4,309,151 |
|
|
|
4,309,151 |
|
|
|
|
|
|
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,309,151 |
|
|
|
4,809,151 |
|
|
|
4,809,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (3%)* |
|
Industrial Equipment
Manufacturer |
|
Subordinated Note
(14%, Due 01/11) |
|
|
2,091,861 |
|
|
|
2,091,861 |
|
|
|
2,091,861 |
|
|
|
|
|
Common Stock
(34,100 shares) |
|
|
|
|
|
|
200,000 |
|
|
|
428,000 |
|
|
|
|
|
|
|
Common Stock Warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 shares) |
|
|
|
|
|
|
|
|
|
|
9,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,091,861 |
|
|
|
2,291,861 |
|
|
|
2,529,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
Common Unit |
|
|
3,800,000 |
|
|
|
3,771,580 |
|
|
|
3,771,580 |
|
|
|
|
|
|
|
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 |
|
|
|
4,005,180 |
|
|
|
4,005,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dyson Corporation (12%)* |
|
Custom Forging and Fastener
Supplies |
|
Subordinated Note
(15%, Due 12/13) |
|
|
10,085,262 |
|
|
|
10,085,262 |
|
|
|
10,085,262 |
|
|
|
|
|
Class A Units
(1,000,000 units) |
|
|
|
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,085,262 |
|
|
|
11,085,262 |
|
|
|
11,085,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equisales, LLC (7%)* |
|
Energy Products and Services |
|
Subordinated Note
(15%, Due 04/12) |
|
|
6,176,325 |
|
|
|
6,176,325 |
|
|
|
6,176,325 |
|
|
|
|
|
|
|
Class A Units (500,000 units) |
|
|
|
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,176,325 |
|
|
|
6,676,325 |
|
|
|
6,676,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation (Genapure) and Genpref, |
|
Lab Testing Services |
|
Genapure Common Stock (4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
LLC (Genpref) (5) (1%)* |
|
|
|
|
|
Genpref Preferred Stock
(455 shares) |
|
|
|
|
|
|
63,602 |
|
|
|
85,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602 |
|
|
|
761,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments |
|
|
|
|
|
|
|
|
|
|
26,462,599 |
|
|
|
29,431,381 |
|
|
|
29,866,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (14%)* |
|
Packaging and Materials Handling |
|
Subordinated Note
(16.5%, Due 05/13) |
|
|
8,759,613 |
|
|
|
8,759,613 |
|
|
|
8,759,613 |
|
|
|
Equipment Manufacturer |
|
Membership Units
(4,200,000 units) |
|
|
|
|
|
|
4,200,000 |
|
|
|
4,626,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
12,959,613 |
|
|
|
13,385,613 |
|
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Porters Group, LLC (5%)* |
|
Metal Fabrication |
|
Membership Units (4,730 units) |
|
|
|
|
|
$ |
471,254 |
|
|
$ |
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254 |
|
|
|
4,436,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments |
|
|
|
|
|
|
|
|
|
|
8,759,613 |
|
|
|
13,430,867 |
|
|
|
17,821,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, March 31, 2008 (135%)* |
|
|
|
|
|
|
|
|
|
$ |
110,426,974 |
|
|
$ |
121,432,020 |
|
|
$ |
127,392,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
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-8
TRIANGLE
CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio Company |
|
Industry |
|
Type of Investment
(1) (2) |
|
Principal
Amount |
|
|
Cost |
|
|
Fair
Value (3) |
|
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)* |
|
Specialty Trade |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
(14%, Due 03/13) |
|
|
4,315,262 |
|
|
|
4,292,325 |
|
|
|
4,292,325 |
|
|
|
Marketing Products |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Distribution |
|
(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 / |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal Fabrication |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
(16%, Due 03/10) |
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
5,174,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Provider |
|
(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 |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication |
|
(210,263 shares) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Shore Ambulance, Inc. (1%)* |
|
Specialty Health |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care Services |
|
(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 |
|
F-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Energy Hardware Holdings, LLC (4%)* |
|
Machined Parts |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
(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 |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(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 |
|
Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabrics |
|
(14%, Due 08/11) |
|
|
3,114,063 |
|
|
|
3,057,349 |
|
|
|
3,057,349 |
|
|
|
Manufacturer |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(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 |
|
Senior Note (9%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twin-Star International, Inc. (6%)* |
|
Consumer Home |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furnishings |
|
(13%, Due 04/14) |
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
4,500,000 |
|
|
|
Manufacturer |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
|
(14%, Due 01/11) |
|
|
2,081,321 |
|
|
|
2,081,321 |
|
|
|
2,081,321 |
|
|
|
Manufacturer |
|
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 |
|
F-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Brantley
Transportation, LLC |
|
Oil and Gas |
|
Subordinated Note - |
|
|
|
|
|
|
|
|
|
|
|
|
(Brantley Transportation) and |
|
Services |
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street Holdings, LLC (Pine Street) (4) (4%)* |
|
|
|
|
|
(14%, Due 12/12) Common Unit |
|
$ |
3,800,000 |
|
|
$ |
3,770,482 |
|
|
$ |
3,770,482 |
|
|
|
|
|
|
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Fastener |
|
(15%, Due 12/13) |
|
|
10,009,167 |
|
|
|
10,009,167 |
|
|
|
10,009,167 |
|
|
|
Supplies |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Services |
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation |
|
Lab Testing |
|
Genapure Common |
|
|
|
|
|
|
|
|
|
|
|
|
(Genapure) and Genpref, LLC |
|
Services |
|
Stock (4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
(Genpref) (5) (1%)* |
|
|
|
|
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials Handling |
|
(16.5%, Due 05/13) |
|
|
8,660,723 |
|
|
|
8,660,723 |
|
|
|
8,660,723 |
|
|
|
Equipment |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(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-11
TRIANGLE CAPITAL CORPORATION
Notes to Unaudited Financial Statements
1. ORGANIZATION, BASIS OF PRESENTATION AND BUSINESS
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 an SBIC, the Fund is
subject to a variety of regulations concerning, among other things, the size and nature of the
companies in which it may invest and the structure of those investments.
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 SBA
to operate as an 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 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 Accounting
Standards No. 141, Business Combinations (SFAS 141), the Companys results of operations and cash
flows for the three months ended March 31, 2007 are presented as if the Formation Transactions had
occurred as of January 1, 2007. The effects of all intercompany transactions between the Company
and its subsidiaries have been eliminated in consolidation/combination. All financial data and
information included in these financial statements have been presented on the basis describe above.
The accompanying unaudited financial statements are presented in conformity with United States
generally accepted accounting principles (U.S. GAAP) for interim financial information and
pursuant to the requirements for reporting on Form 10-Q and
F-12
Article 10 of Regulation S-X.
Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in
accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments,
consisting solely of normal recurring accruals considered necessary for the fair presentation of
financial statements for the interim period, have been included. The current periods results of
operations are not necessarily indicative of results that ultimately may be achieved for the year.
Therefore, the unaudited financial statements and notes should be read in conjunction with the
audited financial statements and notes thereto for the period ended December 31, 2007. Financial
statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that
affect the amounts and disclosures reported in the consolidated financial statements and
accompanying notes. Such estimates and assumptions could change in the future as more information
becomes known, which could impact the amounts reported and disclosed herein.
Allocations and Distributions of the Fund
During the three months ended March 31, 2007, the Fund distributed $531,566 in cash to TML,
the former General Partner of the Fund and accrued a partners tax distribution payable of $220,047
to TML and the former limited partners, such distribution related to the taxable earnings of the
Fund from January 1, 2007 through February 21, 2007. This payable was distributed in the second
quarter of 2007.
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 employees. Triangle Capital Partners, LLC was entitled to a
quarterly management fee, which was payable at an annual rate of 2.5% of total aggregate
subscriptions of all institutional partners and capital available from the SBA. Payments of the
management fee were made quarterly in advance. Certain direct expenses such as legal, audit, tax
and limited partner expense were the responsibility of the Fund. The management fees for the three
months ended March 31, 2007 were $232,423. In conjunction with the completion of the Offering in
February 2007, the management agreement was terminated.
New Accounting Standards
On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles (GAAP) and
expands disclosures about fair value measurements. The changes to previous practice resulting from
the application of SFAS 157 relate to the definition of fair value, the methods used to measure
fair value, and the expanded disclosures about fair value measurements. The definition of fair
value retains the exchange price notion used in earlier definitions of fair value. SFAS 157
clarifies that the exchange price is the price in an orderly transaction between market
participants to sell the asset or transfer the liability in the market in which the reporting
entity would transact for the asset or liability, that is, the principal or most advantageous
market for the asset or liability. The transaction to sell the asset or transfer the liability is a
hypothetical transaction at the measurement date, considered from the perspective of a market
participant that holds the asset or owes the liability. SFAS 157 provides a consistent definition
of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the
use of market-based inputs over entity-specific inputs. In addition, SFAS 157 provides a framework
for measuring fair value, and establishes a three-level hierarchy for fair value measurements based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement
date. The Companys adoption of SFAS 157 resulted in additional unrealized depreciation of
approximately $0.2 million. See Note 2 for a further discussion of the impact of the adoption of
SFAS 157 on the Companys financial statements and for expanded disclosures about the Companys
fair value measurements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial LiabilitiesIncluding 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. The Company did not
adopt SFAS 159.
F-13
2. INVESTMENTS
Summaries of the composition of the Companys investment portfolio at cost and fair value as a
percentage of total investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of |
|
|
|
|
|
Percentage of |
|
|
Cost |
|
Total Portfolio |
|
Fair Value |
|
Total Portfolio |
|
|
|
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and 2nd lien notes
|
|
$ |
94,155,068 |
|
|
|
78
|
% |
|
$ |
93,043,068
|
|
|
|
73
|
% |
Senior debt
|
|
|
15,896,948 |
|
|
|
13 |
|
|
|
15,896,948 |
|
|
|
12 |
|
Equity shares
|
|
|
10,831,832 |
|
|
|
9 |
|
|
|
16,376,800 |
|
|
|
13 |
|
Equity warrants
|
|
|
548,172 |
|
|
|
|
|
|
|
1,800,800 |
|
|
|
2 |
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
274,600 |
|
|
|
|
|
|
|
|
$ |
121,432,020 |
|
|
|
100 |
% |
|
$ |
127,392,216 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
During the three months ended March 31, 2008, the Company made three new investments totaling
$13.8 million, one additional debt investment in an existing portfolio company of $0.3 million and
one additional equity investment in an existing portfolio company of approximately $0.1 million.
During the three months ended March 31, 2007, the Company made one equity investment in an existing
portfolio company of approximately $0.1 million.
Valuation of Investments
The Company has established and documented processes and methodologies for determining the
fair values of portfolio company investments on a recurring basis in accordance with SFAS 157.
Under SFAS 157, a financial instruments categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value measurement. The three levels
of valuation hierarchy established by SFAS 157 are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
The Company invests primarily in debt and equity of privately held companies for which quoted
prices falling within the categories of Level 1 and Level 2 inputs are not available. Therefore,
the Company values all of its investments at fair value, as determined in good faith by the Board
of Directors (Level 3 inputs, as further described below). Due to the inherent uncertainty in the
valuation process, the Board of Directors estimate of fair value may differ significantly from the
values that would have been used had a ready market for the securities existed, and the differences
could be material. In addition, changes in the market environment and other events that may occur
over the life of the investments may cause the gains or losses ultimately realized on these
investments to be different than the valuations currently assigned.
Debt and equity securities that are not publicly traded and for which a limited market does
not exist are valued at fair value as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as fair value depends upon
circumstances of each individual case. In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the security.
Management evaluates the investments in portfolio companies using the most recent portfolio
company financial statements and forecasts. Management also consults with the portfolio companys
senior management to obtain further updates on the portfolio companys performance, including
information such as industry trends, new product development and other operational issues.
F-14
In making the good faith determination of the value of debt securities, the Company starts
with the cost basis of the security, which includes the amortized original issue discount, and
payment-in-kind (PIK) interest, if any. The Company also uses a risk rating system to estimate the
probability of default on the debt securities and the probability of loss if there is a default.
The risk rating
system covers both qualitative and quantitative aspects of the business and the securities
held. In valuing debt securities, management utilizes an income approach model that considers
factors including, but not limited to, (i) the portfolio investments current risk rating
(discussed below), (ii) the portfolio companys current trailing twelve months (TTM) results of
operations as compared to the portfolio companys TTM results of operations as of the date the
investment was made, (iii) the portfolio companys current leverage as compared to its leverage as
of the date the investment was made, and (iv) current pricing and credit metrics for similar
proposed and executed investment transactions. In valuing equity securities of private companies,
the Company considers valuation methodologies consistent with industry practice, including (i)
valuation using a valuation model based on original transaction multiples and the portfolio
companys recent financial performance, (ii) valuation of the securities based on recent sales in
comparable transactions, and (iii) a review of similar companies that are publicly traded and the
market multiple of their equity securities.
The following table presents the Companys financial instruments carried at fair value as of
March 31, 2008, on the consolidated balance sheet by FAS 157 valuation hierarchy, as previously
described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at March 31, 2008 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
|
March 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio company investments
|
|
$
|
|
$
|
|
$ |
127,392,216 |
|
|
$ |
127,392,216 |
|
|
|
|
|
|
$
|
|
$
|
|
$ |
127,392,216 |
|
|
$ |
127,392,216 |
|
|
|
|
The following table reconciles the beginning and ending balances of our portfolio company
investments measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) for the three months ended March 31, 2008:
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended |
|
|
|
March 31, 2008 |
|
Fair value of portfolio, January 1, 2008 |
|
$ |
114,374,218 |
|
New investments |
|
|
14,123,791 |
|
Proceeds from sale of investment |
|
|
(175,000 |
) |
Principal repayments and payment in kind interest payments received |
|
|
(327,553 |
) |
Payment in kind interest earned |
|
|
568,583 |
|
Accretion of loan discounts |
|
|
24,420 |
|
Net unrealized losses on investments |
|
|
(1,196,243 |
) |
|
|
|
|
|
Fair value of portfolio, March 31, 2008 |
|
$ |
127,392,216 |
|
|
|
|
|
All realized and unrealized gains and losses are included in earnings (changes in net assets)
and are reported on separate line items within the Companys statements of operations. Unrealized
losses on investments of $1,252,543 during the three months ended March 31, 2008 are related to
portfolio company investments that are still held by the Company as of March 31, 2008.
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.
For the quarter ended March 31, 2008, the Company asked Duff & Phelps to perform the
procedures on investments in six portfolio companies comprising approximately 35% of the total
investments at fair value (exclusive of the fair value of new investments made during the quarter)
as of March 31, 2008. Upon completion of the procedures, Duff & Phelps concluded that the fair
value, as determined by the Board of Directors, of those investments subjected to the procedures
did not appear to be unreasonable. The Board of Directors of Triangle Capital Corporation is
ultimately and solely responsible for determining the fair value of the Companys investments in
good faith.
F-15
Warrants
When originating a debt security, the Company will sometimes receive warrants or other
equity-related securities from the borrower. The Company determines the cost basis of the warrants
or other equity-related securities received based upon their respective fair values on the date of
receipt in proportion to the total fair value of the debt and warrants or other equity-related
securities received. Any resulting difference between the face amount of the debt and its recorded
fair value resulting from the assignment of value to the warrant or other equity instruments is
treated as original issue discount and accreted into interest income over the life of the loan.
Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments
Realized gains or losses are recorded upon the sale or liquidation of investments and
calculated as the difference between the net proceeds from the sale or liquidation, if any, and the
cost basis of the investment using the specific identification method. Unrealized appreciation or
depreciation reflects the difference between the valuation of the investments and the cost basis of
the investments.
Investment Classification
In accordance with the provisions of the 1940 Act, the Company classifies investments by level
of control. As defined in the 1940 Act, Control Investments are investments in those companies
that the Company is deemed to Control. Affiliate Investments are investments in those companies
that are Affiliated Companies of the Company, as defined in the 1940 Act, other than Control
Investments. Non-Control/Non-Affiliate Investments are those that are neither Control Investments
nor Affiliate Investments. Generally, under the 1940 Act, the Company is deemed to control a
company in which it has invested if the Company owns more than 25.0% of the voting securities of
such company or has greater than 50.0% representation on its board. The Company is deemed to be an
affiliate of a company in which the Company has invested if it owns between 5.0% and 25.0% of the
voting securities of such company.
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.
Concentration of Credit Risk
The Companys investees are generally lower middle-market companies in a variety of
industries. At both March 31, 2008 and 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 as of March 31, 2008 and December 31, 2007. Income, consisting of interest, dividends,
fees, other investment income, and realization of gains or losses on equity interests, can
fluctuate dramatically upon repayment of an investment or sale of an equity interest and in any
given year can be highly concentrated among several investees.
The Companys investments carry a number of risks including, but not limited to: 1) investing
in lower middle market companies which have a limited operating history and financial resources;
2) investing in senior subordinated debt which ranks equal to or lower
F-16
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.
3. INCOME TAXES
For 2007 and 2008, 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 certain portfolio companies that are organized as limited liability
companies (LLCs) (or other forms of pass-through entities) and still satisfy the RIC tax
requirement that at least 90% of the RICs gross revenue for income tax purposes must consist of
investment income. Absent the Taxable Subsidiaries, a proportionate amount of any gross income of
an LLC (or other pass-through entity) portfolio investment would flow through directly to the RIC.
To the extent that such income did not consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause the Company to incur significant amounts
of federal income taxes. 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.
For federal income tax purposes, the cost of investments owned at March 31, 2008 was
approximately $123.3 million.
4. LONG-TERM DEBT
The Company has the following debentures outstanding guaranteed by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized |
|
March 31, |
|
December 31, |
Issuance/Pooling Date |
|
Maturity Date |
|
Return Rate |
|
2008 |
|
2007 |
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539 |
% |
|
$ |
8,700,000 |
|
|
$ |
8,700,000 |
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893 |
% |
|
|
13,600,000 |
|
|
|
13,600,000 |
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796 |
% |
|
|
9,500,000 |
|
|
|
9,500,000 |
|
February 1, 2007
|
|
March 1, 2017
|
|
|
6.231 |
% |
|
|
4,000,000 |
|
|
|
4,000,000 |
|
March 26, 2008
|
|
March 1, 2018
|
|
|
6.191 |
% |
|
|
6,410,000 |
|
|
|
1,210,000 |
|
March 27, 2008
|
|
September 1, 2018
|
|
|
3.788 |
% |
|
|
4,840,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
47,050,000 |
|
|
$ |
37,010,000 |
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semi-annually. There are no principal payments required on these
issues prior to maturity. Debentures issued prior to September 2006 were subject to prepayment
penalties during their first five years. Those pre-payment penalties no longer apply to debentures
issued after September 1, 2006.
Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC
(or group of SBICs under common control) can have outstanding at any time SBA guaranteed debentures
up to twice the amount of its regulatory capital. As of March 31, 2008, 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 $65.3 million of regulatory capital as of March 31, 2008, the Fund has the
current capacity to issue up to a total of $130.6 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 March 31,
2008, the Fund had paid commitment fees for and had a commitment from the SBA to issue a total of
$96.9 million of SBA guaranteed debentures, of which $47.1 million are outstanding as of March 31,
2008. In order to access the remaining $33.7 million in borrowing capacity for which the Fund is
currently eligible, the Fund would incur non-refundable commitment fees of $337,000. 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 March 31, 2008 and
December 31, 2007 were 5.661% and 5.826%, respectively.
F-17
5. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the three months ended March 31, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
2007(1) |
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
Net asset value at beginning of period(1) |
|
$ |
13.74 |
|
|
$ |
13.44 |
|
|
Net investment income(2) |
|
|
0.28 |
|
|
|
0.12 |
|
Net realized loss on investments(2) |
|
|
|
|
|
|
(0.22 |
) |
Net unrealized appreciation (depreciation) on investments(2) |
|
|
(0.15 |
) |
|
|
0.26 |
|
|
|
|
Total increase from investment operations(2) |
|
|
0.13 |
|
|
|
0.16 |
|
|
Accrued distribution to partners(2) |
|
|
|
|
|
|
(0.03 |
) |
Income tax provision(2) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
Net asset value at end of period |
|
$ |
13.85 |
|
|
$ |
13.57 |
|
|
|
|
Market value at end of period(3) |
|
$ |
11.92 |
|
|
$ |
13.65 |
|
|
|
|
|
Shares outstanding at end of period |
|
|
6,803,863 |
|
|
|
6,686,760 |
|
Net assets at end of period |
|
$ |
94,237,744 |
|
|
$ |
90,730,636 |
|
Average net assets(1) |
|
$ |
93,727,483 |
|
|
$ |
90,166,777 |
|
Ratio of operating expenses to average net assets (annualized) |
|
|
8 |
% |
|
|
6 |
% |
Ratio of net investment income to average net assets
(annualized) |
|
|
8 |
% |
|
|
4 |
% |
Portfolio turnover ratio |
|
|
0 |
% |
|
|
0 |
% |
Total Return(4) |
|
|
(4 |
%) |
|
|
(9 |
%) |
|
|
|
(1) |
|
Net asset value as of January 1, 2007 and average net assets for the three months
ended March 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. |
|
(2) |
|
Weighted average basic per share data. |
|
(3) |
|
Represents the closing price of the Companys common stock on the last day of the
period. |
|
(4) |
|
The total return for the three months ended March 31, 2008 equals the change in the
ending market value of the Companys common stock during the period, plus dividends
declared per share during the period, divided by the market value of the Companys common
stock on the first day of the period. The total return for the three months ended March
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 paid per share during the period,
divided by the Offering price. Total return is not annualized. |
6. SUBSEQUENT EVENTS
SBA Guaranteed Debentures Payable
On April 11, 2008, the Company borrowed an additional $9.4 million under the SBA debenture
commitment.
On April 28, 2008, the Company borrowed an additional $15.2 million under the SBA debenture
commitment.
Repayment of Loan to Flint Acquisition Corporation
On April 17, 2008, the Companys loan to Flint Acquisition Corporation of approximately $3.8
million was repaid in full. In connection with the repayment, the Company recognized a prepayment
fee of $37,500.
New Portfolio Company Investments
On April 25, 2008, the Company invested $9.4 million in Jenkins Restoration, Inc. (Jenkins)
consisting of $8.0 million in subordinated debt and $1.4 million in convertible debt. Jenkins,
headquartered in Sterling, Virginia, is a provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and commercial buildings caused by fire, wind,
storm, vandalism, or burglary.
F-18
On April 29, 2008, the Company made an $8.0 million subordinated debt investment in American
De-Rosa Lamparts, LLC and Hallmark Lighting (ADL/Hallmark). ADL/Hallmark, headquartered in
California, markets a wide variety of lighting products, including fixtures, bulbs, electrical
components, glass and hardware, to maintenance and repair organizations, lighting wholesalers,
retailers and original equipment manufacturers.
On April 30, 2008, the Company invested $13.0 million in subordinated debt in Yellowstone
Landscape Group, Inc. (Yellowstone). Yellowstone, headquartered in Dallas, Texas, is a
full-service lawn care provider focused primarily on the commercial market with services including
lawn and landscape maintenance, construction/installation, irrigation, turf management, and tree
care throughout Texas and the Southeast.
F-19
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.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 11, 2008
F-20
Triangle Capital Corporation
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
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-21
Triangle Capital Corporation
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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-22
Triangle Capital Corporation
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment |
|
Accumulated |
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
Realized |
|
Unrealized |
|
|
|
|
General |
|
Limited |
|
Contribution |
|
Common Stock |
|
Additional |
|
in Excess of |
|
Gains |
|
Appreciation |
|
Total |
|
|
Partners |
|
Partners |
|
Commitment |
|
Number |
|
Par |
|
Paid In |
|
(Less Than) |
|
(Losses) on |
|
(Depreciation) of |
|
Net |
|
|
Capital |
|
Capital |
|
Receivable |
|
of Shares |
|
Value |
|
Capital |
|
Distributions |
|
Investments |
|
Investments |
|
Assets |
|
|
|
Balance, January 1, 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-23
Triangle Capital Corporation
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-24
TRIANGLE CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
Cost |
|
|
Value (3) |
|
Non-Control / Non-Affiliate Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)* |
|
Specialty Trade |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Marketing |
|
(14%, Due 03/13) |
|
|
4,315,262 |
|
|
|
4,292,325 |
|
|
|
4,292,325 |
|
|
|
Products |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Distribution |
|
(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 / |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal Fabrication |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Products |
|
(16%, Due 03/10) |
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
Manufacturer |
|
Royalty rights |
|
|
|
|
|
|
|
|
|
|
197,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,360 |
|
|
|
4,976,360 |
|
|
|
5,174,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyrus Networks, LLC (6%)* |
|
Data Center |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Provider |
|
(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 |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(210,263 shares) |
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500 |
|
|
|
576,400 |
|
F-25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Eastern Shore Ambulance, Inc. (1%)* |
|
Specialty Health |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care Services |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution |
|
(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 |
|
Senior Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(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 |
|
Subordinated Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(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 |
|
2 nd 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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fabrics |
|
(14%, Due 08/11) |
|
|
3,114,063 |
|
|
|
3,057,349 |
|
|
|
3,057,349 |
|
|
|
Manufacturer |
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(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 |
|
Senior Note (9%, Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
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-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Twin-Star International, |
|
Consumer Home |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
Inc. (6%)* |
|
Furnishings |
|
(13%, Due 04/14) |
|
$ |
4,500,000 |
|
|
$ |
4,500,000 |
|
|
$ |
4,500,000 |
|
|
|
Manufacturer |
|
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. |
|
Industrial Equipment |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
(3%)* |
|
Manufacturer |
|
(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
|
|
Oil and Gas |
|
Subordinated Note - |
|
|
|
|
|
|
|
|
|
|
|
|
(Brantley Transportation) |
|
Services |
|
Brantley Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
and Pine Street Holdings, |
|
|
|
|
|
(14%, Due 12/12) |
|
|
3,800,000 |
|
|
|
3,770,482 |
|
|
|
3,770,482 |
|
LLC
(Pine Street) (4) (4%)* |
|
|
|
|
|
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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fastener Supplies |
|
(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 |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
(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 |
|
|
Genapure Corporation |
|
Lab Testing Services |
|
Genapure Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
(Genapure) and Genpref, |
|
|
|
|
|
(4,286 shares) |
|
|
|
|
|
|
500,000 |
|
|
|
675,122 |
|
LLC (Genpref) (5) (1%)* |
|
|
|
|
|
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 |
|
F-27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
(1) (2) |
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
Fischbein, LLC (14%)* |
|
Packaging and |
|
Subordinated Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials Handling |
|
(16.5%, Due 05/13) |
|
$ |
8,660,723 |
|
|
$ |
8,660,723 |
|
|
$ |
8,660,723 |
|
|
|
Equipment |
|
Membership Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturer |
|
(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-28
TRIANGLE CAPITAL CORPORATION
Combined Schedule of Investments
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(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) Common Stock |
|
|
3,640,439
|
|
|
|
3,640,439
|
|
|
|
3,640,439
|
|
|
|
|
|
|
|
(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 |
|
Subordinated
Note
(16%, Due 03/10) |
|
|
4,683,376 |
|
|
|
4,683,376 |
|
|
|
4,683,376 |
|
|
|
Manufacturer |
|
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-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(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 |
|
Subordinated Note (14%, Due 08/11) |
|
|
3,052,167 |
|
|
|
2,981,184 |
|
|
|
2,981,184 |
|
|
|
Manufacturer |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment |
|
|
Principal |
|
|
|
|
|
|
Fair |
|
Portfolio Company |
|
Industry |
|
|
(1) (2) |
|
|
Amount |
|
|
Cost |
|
|
Value (3) |
|
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-31
Triangle Capital Corporation
Notes to Financial Statements
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 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
F-32
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 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.
F-33
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% 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.
F-34
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 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
F-35
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 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
F-36
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
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 LiabilitiesIncluding 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
F-37
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.
2. Investments
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.
3. Long-Term Debt
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.
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
F-38
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.
4. Income Taxes
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 |
) |
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 |
|
|
|
|
|
F-39
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-40
7. Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-41
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 |
|
9. Subsequent Events
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-42
PART C
Other Information
Item 25 Financial Statements and Exhibits
(1) Financial Statements
The following financial statements of the Registrant are included in Part A of this Registration
Statement:
|
|
|
Unaudited Financial Statements |
|
|
Unaudited Consolidated Balance Sheet as of March 31, 2008 and Consolidated Balance Sheet as of December 31, 2007
|
|
F-1 |
Unaudited Consolidated Statement of Operations for the Three Months Ended March 31, 2008 and Unaudited Combined
Statement of Operations for the Three Months Ended March 31, 2007
|
|
F-2 |
Unaudited Consolidated Statement of Changes in Net Assets for the Three Months Ended March 31, 2008 and
Unaudited Combined Statement of Changes in Net Assets for the Three Months Ended March 31, 2007
|
|
F-3 |
Unaudited Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2008 and Unaudited Combined
Statement of Cash Flows for the Three Months Ended March 31, 2007
|
|
F-4 |
Unaudited Consolidated Schedule of Investments as of March 31, 2008
|
|
F-5 |
Consolidated Schedule of Investments as of December 31, 2007
|
|
F-9 |
Notes to Unaudited Financial Statements
|
|
F-12 |
|
|
|
Audited Financial Statements |
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-20 |
Consolidated Balance Sheet as of December 31, 2007 and Combined Balance Sheet as of December 31, 2006
|
|
F-21 |
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-22 |
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-23 |
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-24 |
Consolidated Schedule of Investments as of December 31, 2007
|
|
F-25 |
Combined Schedule of Investments as of December 31, 2006
|
|
F-29 |
Notes to Financial Statements
|
|
F-32 |
(2) Exhibits
|
|
|
(a)
|
|
Articles of Amendment and Restatement of the Registrant (Incorporated by reference to Exhibit
(k)(7) to the Registration Statement on Form N-2/N-5, File No. 333-138418, filed on November
3, 2006) |
|
|
|
(b)
|
|
Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit (b) to
Amendment No. 1 to the Registration Statement on Form N-2/N-5, File No. 333-138418, filed on
December 29, 2006) |
|
|
|
(c)
|
|
Not Applicable |
|
|
|
(d) |
|
Form of Common Stock Certificate (Incorporated by reference to Exhibit (d) to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-2/N-5, File No. 333-138418, filed on
February 15, 2007) |
|
|
|
(e)
|
|
Dividend Reinvestment Plan (Incorporated by reference to Exhibit 4.2 to the Registrants
Annual Report on Form 10-K for the year ended December 31, 2007, filed on
March 12, 2008) |
|
|
|
(f)(1)
|
|
Debenture No. 08000219 dated March 27, 2008 by and between Triangle Mezzanine Fund LLLP and
the U.S. Small Business Administration |
|
|
|
(f)(2)
|
|
Debenture No. 08000216 dated April 11, 2008 by and between Triangle Mezzanine Fund LLLP and
the U.S. Small Business Administration |
|
|
|
(f)(3)
|
|
Debenture No. 08000218 dated April 28, 2008 by and between Triangle Mezzanine Fund LLLP and
the U.S. Small Business Administration |
|
|
|
(f)(4)
|
|
Debenture No. 08000403 dated May 29, 2008 by and between Triangle Mezzanine Fund LLLP and the
U.S. Small Business Administration |
|
|
|
(f)(5)
|
|
Debenture No. 08000404 dated May 29, 2008 by and between Triangle Mezzanine Fund LLLP and the
U.S. Small Business Administration |
|
|
|
(f)(6)
|
|
Debenture No. 08000405 dated
June 11, 2008 by and between Triangle Mezzanine Fund LLLP and the
U.S. Small Business Administration |
|
|
|
(f)(7)
|
|
Agreement to Furnish Certain Instruments |
|
|
|
(g)
|
|
Not Applicable |
|
|
|
(h)
|
|
Form of Underwriting Agreement* |
|
|
|
(i)
|
|
Triangle Capital Corporation Amended and Restated 2007 Equity Incentive Plan (Incorporated by
reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K, filed on May 9, 2008) |
|
|
|
(j)(1)
|
|
Custodian Agreement between the Registrant and U.S. Bank National Association (Incorporated
by reference to Exhibit 10.7 to the Registrants Annual Report on Form 10-K for the year
ended December 31, 2006, filed on March 29, 2007) |
|
|
|
(j)(2)
|
|
Amendment to Custody Agreement between the Registrant and U.S. Bank National Association
dated February 5, 2008 (Incorporated by reference to Exhibit 10.9 to the Registrants Annual
Report on Form 10-K for the year ended December 31, 2007, filed on March
12, 2008) |
|
|
|
(k)(1)
|
|
Stock Transfer Agency Agreement between the Registrant and The Bank of New York (Incorporated
by reference to Exhibit (k)(1) to Amendment No. 4 to the Registration Statement on Form
N-2/N-5, File No. 333-138418, filed February 13, 2007) |
|
|
|
(k)(2)
|
|
Employment Agreement between the Registrant and Garland S. Tucker, III dated February 21,
2007 (Incorporated by reference to Exhibit 10.1 to the Registrants Annual Report on Form
10-K for the year ended December 31, 2006, filed on March 29, 2007) |
|
|
|
(k)(3)
|
|
Employment Agreement between the Registrant and Brent P.W. Burgess dated February 21, 2007
(Incorporated by reference to Exhibit 10.2 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2006, filed on March 29, 2007) |
|
|
|
(k)(4)
|
|
Employment Agreement between the Registrant and Steven C. Lilly dated February 21, 2007
(Incorporated by reference to Exhibit 10.3 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2006, filed on March 29, 2007) |
|
|
|
(k)(5)
|
|
Sublease Assignment and Assumption of Assignors Interest dated January 17, 2007
(Incorporated by reference to Exhibit 10.8 to the Registrants Annual Report on Form 10-K for
the year ended December 31, 2006, filed on March 29, 2007) |
|
|
|
(l)
|
|
Opinion and Consent of Counsel* |
|
|
|
(m)
|
|
Not Applicable |
|
|
|
(n)(1)
|
|
Consent of Ernst & Young LLP, the independent registered public accounting firm for Registrant |
|
|
|
(n)(2)
|
|
Report of Ernst & Young LLP regarding the senior security table contained herein |
|
|
|
(o)
|
|
Not Applicable |
|
|
|
(p)
|
|
Subscription and Investment Letter Agreement between the Registrant and Garland S. Tucker III
(Incorporated by reference to Exhibit (p) to the Registration Statement on Form N-2/N-5, File
No. 333-138418, filed November 3, 2006) |
|
|
|
(q)
|
|
Not Applicable |
|
|
|
(r)
|
|
Code of Ethics (Incorporated by reference to Exhibit 14.1 to the Registrants Annual Report
on Form 10-K for the year ended December 31, 2006, filed on March 29, 2007) |
|
|
|
(s)
|
|
Power of Attorney (included on signature page hereto) |
|
|
|
* |
|
To be filed by amendment. |
Item 26. Marketing Arrangements
The information contained under the heading Plan of Distribution on this Registration
Statement is incorporated herein by reference and any information concerning any underwriters will
be contained in the accompanying prospectus supplement, if any.
Item 27. Other Expenses of Issuance and Distribution
|
|
|
|
|
SEC registration fee |
|
$ |
11,790 |
|
Nasdaq Global Market additional listing fee |
|
|
* |
|
FINRA fee |
|
$ |
30,500 |
|
Accounting fees and expenses |
|
|
* |
|
Legal fees and expenses |
|
|
* |
|
Printing and engraving |
|
|
* |
|
Miscellaneous fees and expenses |
|
|
* |
|
Total |
|
|
* |
|
|
|
|
* |
|
To be provided by amendment. |
All of the expenses set forth above shall be borne by the Registrant.
Item 28. Persons Controlled By or Under Common Control
|
|
|
Triangle Mezzanine Fund LLLP, a North Carolina limited liability limited partnership and
wholly-owned subsidiary of the Registrant |
|
|
|
|
New Triangle GP, LLC, a North Carolina limited liability company and wholly-owned
subsidiary of the Registrant |
|
|
|
|
ARC Industries Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the
Registrant |
|
|
|
|
Brantley Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the
Registrant |
|
|
|
|
Energy Hardware Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of
the Registrant |
|
|
|
|
Porters Group Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the
Registrant |
|
|
|
|
Tulcan Fund Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the
Registrant |
In addition, Triangle Capital Corporation may be deemed to control certain portfolio
companies. For a more detailed discussion of these entities, see Portfolio Companies in the
prospectus.
Item 29. Number of Holders of Securities
The following table sets forth the number of record holders of the Registrants capital stock
at May 30, 2008.
|
|
|
|
|
Number of |
Title of Class |
|
Record Holders |
Common stock, $0.001 par value
|
|
70 |
Item 30. Indemnification
Maryland law permits a Maryland corporation to include in its articles of incorporation a
provision limiting the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. Our articles of
incorporation contain such a provision that eliminates directors and officers liability to the
maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
Our articles of incorporation authorize us, to the maximum extent permitted by Maryland law
and subject to the requirements of the 1940 Act, to indemnify any present or former director or
officer or any individual who, while a director or officer and at our request, serves or has served
another corporation, real estate investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise as a director, officer, partner or trustee, from and against any
claim or liability to which such person may become subject or which such person may incur by reason
of his or her service in any such capacity.
Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the
requirements of the 1940 Act, to indemnify any present or former director or officer or any
individual who, while a director or officer and at our request, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan
or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be
made, a party to the proceeding by reason of his or her service in any such capacity from and
against any claim or liability to which that person may become subject or which that person may
incur by reason of his or her service in any such capacity. Our bylaws also provide that, to the
maximum extent permitted by
Maryland law, with the approval of our board of directors and provided that certain conditions
described in our bylaws are met, we may pay certain expenses incurred by any such indemnified
person in advance of the final disposition of a proceeding upon receipt of an undertaking by or on
behalf of such indemnified person to repay amounts we have so paid if it is ultimately determined
that indemnification of such expenses is not authorized under our bylaws.
Maryland law requires a corporation (unless its articles of incorporation provide otherwise,
which our articles of incorporation do not) to indemnify a director or officer who has been
successful in the defense of any proceeding to which he or she is made, or threatened to be made, a
party by reason of his or her service in that capacity. Maryland law permits a corporation to
indemnify its present and former directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made, or threatened to be made, a party by reason of their
service in those or other capacities unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and (1) was committed
in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe that the act or
omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an
adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on
the basis that a personal benefit was improperly received, unless in either case a court orders
indemnification, and then only for expenses. In addition, Maryland law permits a corporation to
advance reasonable expenses to a director or officer upon the corporations receipt of (a) a
written affirmation by the director or officer of his or her good faith belief that he or she has
met the standard of conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the standard of conduct was not met.
The Registrant has obtained primary and excess insurance policies insuring our directors and
officers against some liabilities they may incur in their capacity as directors and officers. Under
such policies, the insurer, on the Registrants behalf, may also pay amounts for which the
Registrant has granted indemnification to the directors or officers.
Item 31. Business and Other Connections of Investment Adviser
Not applicable.
Item 32. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules thereunder are maintained at the Registrants offices
at 3600 Glenwood Avenue, Suite 104, Raleigh, North Carolina 27612.
Item 33. Management Services
Not applicable.
Item 34. Undertakings
1. We hereby undertake to suspend any offering of shares until the prospectus or prospectus
supplement is amended if (1) subsequent to the effective date of this registration statement, our
net asset value declines more than ten percent from our net asset value as of the effective date of
this registration statement or (2) our net asset value increases
to an amount greater than our net
proceeds (if applicable) as stated in the prospectus.
2. We hereby undertake:
|
a. |
|
to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: |
|
(1) |
|
to include any prospectus required by Section
10(a)(3) of the 1933 Act; |
|
|
(2) |
|
to reflect in the prospectus or prospectus
supplement any facts or events after the effective date of this
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in this registration statement; and |
|
|
(3) |
|
to include any material information with respect to
the plan of distribution not previously disclosed in this registration
statement or any material change to such information in this registration
statement. |
|
b. |
|
for the purpose of determining any liability under the 1933 Act,
that each such post-effective amendment to this registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be deemed to be
the initial bona fide offering thereof. |
|
|
c. |
|
to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering. |
|
|
d. |
|
for the purpose of determining liability under the 1933 Act to any
purchaser, that if we are subject to Rule 430C under the 1933 Act, each
prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the 1933 Act as
part of this registration statement relating to an offering shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness, provided, however, that no statement made in a
registration statement or prospectus or prospectus supplement that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supercede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first use. |
|
|
e. |
|
for the purpose of determining liability of the Registrant under
the 1933 Act to any purchaser in the initial distribution of securities, that if
the securities are offered or sold to such purchaser by means of any of the
following communications, we will be a seller to the purchaser and will be
considered to offer or sell such securities to the purchaser: |
|
(1) |
|
any preliminary prospectus or prospectus or
prospectus supplement of us relating to the offering required to be filed
pursuant to Rule 497 under the 1933 Act; |
|
|
(2) |
|
the portion of any advertisement pursuant to Rule
482 under the 1933 Act relating to the offering containing material
information about us or our securities provided by or on behalf of us; and |
|
|
(3) |
|
any other communication that is an offer in the
offering made by us to the purchaser. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment Company Act
of 1940, the Registrant has duly caused this Registration Statement on Form N-2 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on June 25, 2008.
|
|
|
|
|
|
|
|
|
TRIANGLE CAPITAL CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
By: |
|
/s/ Garland S. Tucker, III |
|
|
|
|
Name:
|
|
Garland S. Tucker, III
|
|
|
|
|
Title:
|
|
President, Chief Executive Officer &
Chairman of the Board of Directors |
|
|
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below hereby constitutes
and appoints Garland S. Tucker, III , Steven C. Lilly and C. Robert Knox, Jr. his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all amendments and post
effective amendments to this Registration Statement and any registration statement filed pursuant
to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on
Form N-2 has been signed below by the following persons 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)
|
|
June 25, 2008 |
|
|
|
|
|
/s/ Steven C. Lilly
Steven C. Lilly
|
|
Chief
Financial Officer, Treasurer,
Secretary and Director (Principal
Financial Officer)
|
|
June 25, 2008 |
|
|
|
|
|
/s/ Brent P. W. Burgess
Brent P. W. Burgess
|
|
Chief
Investment Officer and Director
|
|
June 25, 2008 |
|
|
|
|
|
/s/ C. Robert Knox, Jr.
C. Robert Knox, Jr.
|
|
Controller
(Principal Accounting Officer)
|
|
June 25, 2008 |
|
|
|
|
|
W. McComb Dunwoody
|
|
Director
|
|
June 25, 2008 |
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Thomas M. Garrott, III
Thomas M. Garrott, III
|
|
Director
|
|
June 25, 2008 |
|
|
|
|
|
/s/ Benjamin S. Goldstein
Benjamin S. Goldstein
|
|
Director
|
|
June 25, 2008 |
|
|
|
|
|
/s/ Simon B. Rich, Jr.
Simon B. Rich, Jr.
|
|
Director
|
|
June 25, 2008 |
|
|
|
|
|
/s/ Sherwood H. Smith, Jr.
Sherwood H. Smith, Jr.
|
|
Director
|
|
June 25, 2008 |