As filed with the Securities and Exchange Commission on
August 13, 2008
Securities Act File No. 333-151930
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. 1
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
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Maximum Aggregate
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Amount of
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Title of Securities being Registered
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Offering Price
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Registration Fee
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Common Stock, $0.001 par value per share
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$
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300,000,000
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$
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11,790(1
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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.
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SUBJECT TO COMPLETION, DATED
AUGUST 13, 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. On May 7, 2008, our common stockholders voted
to allow us to issue common stock at a price below net asset
value per share for a period of one year ending May 6,
2009. Our stockholders did not specify a maximum discount below
net asset value at which we are able to issue our common stock;
however, we do not intend to issue shares of our common stock
below net asset value unless our board of directors determines
that it would be in our stockholders best interests to do
so. Shares of closed-end investment companies such as us
frequently trade at a discount to their net asset value. This
risk is separate and distinct from the risk that our net asset
value per share may decline. We cannot predict whether our
common stock will trade above, at or below net asset value. You
should read this prospectus and the applicable prospectus
supplement carefully before you invest in our common stock.
Our common stock may be offered directly to one or more
purchasers through agents designated from time to time by us, or
to or through underwriters or dealers. The prospectus supplement
relating to the offering will identify any agents or
underwriters involved in the sale of our common stock, and will
disclose any applicable purchase price, fee, commission or
discount arrangement between us and our agents or underwriters
or among our underwriters or the basis upon which such amount
may be calculated. See Plan of Distribution. We may
not sell any of our common stock through agents, underwriters or
dealers without delivery of a prospectus supplement describing
the method and terms of the offering of such common stock.
We are a specialty finance company that provides customized
financing solutions to lower middle market companies located
throughout the United States, with an emphasis on the Southeast.
Our investment objective is to seek attractive returns by
generating current income from our debt investments and capital
appreciation from our equity related investments. We are an
internally managed, closed-end, non-diversified management
investment company that has elected to be treated as a business
development company under the Investment Company Act of 1940.
Our common stock is listed on the Nasdaq Global Market under the
symbol TCAP. On August 8, 2008, the last
reported sale price of our common stock on the Nasdaq Global
Market was $13.30 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 June 30, 2008, we had investments in 34
portfolio companies, with an aggregate cost of
$159.1 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
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de-emphasize
services to lower middle market companies in favor of larger
corporate clients and capital market transactions. We believe
these dynamics have resulted in the financing market for lower
middle market companies to be underserved, providing us with
greater investment opportunities.
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Providing Customized Financing Solutions. We
offer a variety of financing structures and have the flexibility
to structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt
securities, coupled with equity interests. We believe our
ability to customize financing arrangements makes us an
attractive partner to lower middle market companies.
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Leveraging the Experience of Our Management
Team. Our senior management team has more than
100 years of combined experience advising, investing in,
lending to and operating companies across changing market
cycles. The members of our management team have diverse
investment backgrounds, with prior experience at investment
banks, specialty finance companies, commercial banks, and
privately and publicly held companies in the capacity of
executive officers. We believe this diverse experience provides
us with an in depth understanding of the strategic, financial
and operational opportunities associated with lower middle
market companies. We believe this understanding allows us to
select and structure better investments and to efficiently
monitor and provide managerial assistance to our portfolio
companies.
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Applying Rigorous Underwriting Policies and Active Portfolio
Management. Our senior management team has
implemented rigorous underwriting policies that are followed in
each transaction. These policies include a thorough analysis of
each potential portfolio companys competitive position,
financial performance, management team operating discipline,
growth potential and industry attractiveness, allowing us to
better assess the companys prospects. After investing in a
company, we monitor the investment closely, typically receiving
monthly, quarterly and annual financial statements. We analyze
and discuss in detail the companys financial performance
with management in addition to attending regular board of
directors meetings. We believe that our initial and ongoing
portfolio review process allows us to monitor effectively the
performance and prospects of our portfolio companies.
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Taking Advantage of Low Cost Debentures Guaranteed by the
SBA. Our license to do business as an SBIC allows
us to issue 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 Industry 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 industry
diversification, using industry and market metrics as key
indicators. By monitoring our investment portfolio for industry
diversification we seek to reduce the effects of economic
downturns associated with any particular industry or market
sector. However, we may from time to time hold securities of a
single portfolio company that comprise more than 5.0% of our
total assets
and/or more
than 10.0% of the outstanding voting securities of the portfolio
company. For that reason, we are classified as a non-diversified
management investment company under the 1940 Act.
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Utilizing Long-Standing Relationships to Source
Deals. Our senior management team maintains
extensive relationships with entrepreneurs, financial sponsors,
attorneys, accountants, investment bankers, commercial bankers
and other non-bank providers of capital who refer prospective
portfolio companies to us. These relationships historically have
generated significant investment opportunities. We believe that
our network of relationships will continue to produce attractive
investment opportunities.
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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
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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 June 30, 2008, we had investments in 34 portfolio
companies with an aggregate cost of approximately
$159.1 million. As of June 30, 2008, we had no
investments that represented more than 10% of the total fair
value of our investment portfolio. As of June 30, 2008, the
weighted average yield on all of our outstanding debt
investments (including
payment-in-kind,
or PIK, interest) was approximately 14.0%. The weighted average
yield on all of our outstanding investments (including equity
and equity-linked investments) was approximately 13.0% as of
June 30, 2008. There is no assurance that the portfolio
yields will remain at these levels after the offering. The
following table sets forth certain unaudited information as of
June 30, 2008 for each portfolio company in which we had a
debt or equity investment.
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Type of
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Principal
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Fair
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Portfolio Company
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Industry
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Investment (1)(2)
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Amount
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Cost
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Value(3)
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Non-Control / Non-Affiliate Investments:
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Ambient Air Corporation (6%)*
620 West Baldwin Road
Panama City, FL 32405
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Specialty Trade
Contractors
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Subordinated Note
(12%, Due 03/11)
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$
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3,144,654
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$
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3,016,789
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$
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3,016,789
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Subordinated Note
(14%, Due 03/11)
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1,872,075
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1,838,115
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1,838,115
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Common Stock
Warrants (455 shares)
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142,361
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892,700
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5,016,729
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4,997,265
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5,747,604
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American De-Rosa Lamparts, LLC
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Wholesale and
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Subordinated Note
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and Hallmark Lighting (8%)*
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Distribution
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(15.25%, Due 10/13)
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8,052,586
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7,897,900
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7,897,900
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1945 S. Tubeway Ave.
Commerce, CA 90040
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8,052,586
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7,897,900
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7,897,900
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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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4,359,004
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4,265,799
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4,265,799
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Bartlett, TN 38133
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Marketing Products
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Unit purchase warrant
(87,302 Class C units)
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25,200
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273,100
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4,359,004
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4,290,999
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4,538,899
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ARC Industries, LLC (3%)*
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Remediation
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Subordinated Note
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221 Dalton Avenue
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Services
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(19%, Due 11/10)
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2,464,919
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2,439,537
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2,439,537
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Charlotte, NC 28225
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2,464,919
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2,439,537
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2,439,537
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Art Headquarters, LLC (2%)*
11885
44th Street
Clearwater, FL 33762
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Retail, Wholesale
and Distribution
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Subordinated Note
(14%, Due 01/10)
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2,333,488
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2,340,057
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2,075,900
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Membership unit warrants
(15% of units (150 units))
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40,800
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2,333,488
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2,299,057
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2,075,900
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3
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Type of
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Principal
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Fair
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Portfolio Company
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Industry
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Investment (1)(2)
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Amount
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Cost
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Value(3)
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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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$
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3,925,915
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$
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3,879,225
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$
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3,646,900
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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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3,925,915
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4,136,368
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3,695,400
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Bruce Plastics, Inc. (0%)*
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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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1,385,076
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Pittsburgh, PA 15205
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Common Stock Warrants
(12% of common stock)
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108,534
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1,500,000
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|
1,493,610
|
|
|
|
|
|
CV Holdings, LLC (6%)*
|
|
Specialty
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
1030 Riverfront Center
|
|
Healthcare Products
|
|
(16%, Due 03/10)
|
|
|
5,129,230
|
|
|
|
5,094,457
|
|
|
|
5,094,457
|
|
Amsterdam, NY 12010
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
274,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,129,230
|
|
|
|
5,094,457
|
|
|
|
5,369,057
|
|
Cyrus Networks, LLC (6%)*
4201 Southwest Freeway
|
|
Data Center
Services Provider
|
|
Senior Note
(8%, Due 07/13)
|
|
|
4,747,722
|
|
|
|
4,731,423
|
|
|
|
4,731,423
|
|
Houston, TX 77027
|
|
|
|
2nd
Lien Note
(11%, Due 01/14)
|
|
|
1,026,385
|
|
|
|
1,026,385
|
|
|
|
1,026,385
|
|
|
|
|
|
Revolving Line of
Credit (8%)
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,027,251
|
|
|
|
6,010,952
|
|
|
|
6,010,952
|
|
DataPath, Inc. (1%)*
350 Technology Pkwy., Suite 400
Norcross, GA 30092
|
|
Satellite
Communication
Manufacturer
|
|
Common Stock
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
636,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
636,700
|
|
Eastern Shore Ambulance, Inc. (1%)*
3303 Airline Blvd.,
Building 5A
Portsmouth, VA 23701
|
|
Specialty Health
Care Services
|
|
Subordinated Note
(13%, Due 03/11)
|
|
|
1,000,000
|
|
|
|
964,005
|
|
|
|
964,005
|
|
|
|
|
Common Stock Warrants
(6% of common stock)
|
|
|
|
|
|
|
55,268
|
|
|
|
41,300
|
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000
|
|
|
|
10,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,049,273
|
|
|
|
1,016,105
|
|
Electronic Systems Protection, Inc. (4%)*
517 North Industrial Drive
Zebulon, NC 27577
|
|
Power Protection
Systems
Manufacturing
|
|
Subordinated Note
(14%, Due 12/15)
Senior Note
|
|
|
3,028,903
|
|
|
|
3,000,977
|
|
|
|
3,000,977
|
|
|
|
|
|
(7%, Due 01/14)
|
|
|
994,219
|
|
|
|
994,219
|
|
|
|
994,219
|
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,023,122
|
|
|
|
4,245,196
|
|
|
|
4,245,196
|
|
Energy Hardware Holdings, LLC (4%)*
2730 E. Phillips Road
Greer, SC 29650
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
|
3,306,628
|
|
|
|
3,242,864
|
|
|
|
3,242,864
|
|
|
|
|
Junior Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8%, Due 10/12)
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,514,295
|
|
|
|
3,450,531
|
|
|
|
3,450,531
|
|
FCL Graphics, Inc. (7%)*
4600 N. Olcott Ave.
Harwood Heights, IL 60706
|
|
Commercial Printing
Services
|
|
Senior Note
(7%, Due 10/12)
|
|
|
1,789,200
|
|
|
|
1,782,290
|
|
|
|
1,782,290
|
|
|
|
|
|
Senior Note
(12%, Due 10/13)
|
|
|
2,000,000
|
|
|
|
1,992,608
|
|
|
|
1,992,608
|
|
|
|
|
|
2nd
Lien Note
(18%, Due 4/14)
|
|
|
3,265,970
|
|
|
|
3,254,235
|
|
|
|
3,254,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055,170
|
|
|
|
7,029,133
|
|
|
|
7,029,133
|
|
Fire Sprinkler Systems, Inc. (2%)*
705 E. Harrison Street, Suite 200
Corona, CA 92879
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13% 17.5%, Due 04/11)
|
|
|
2,464,428
|
|
|
|
2,426,940
|
|
|
|
2,123,100
|
|
|
|
|
|
Common Stock
(250 shares)
|
|
|
|
|
|
|
271,186
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464,428
|
|
|
|
2,698,126
|
|
|
|
2,141,100
|
|
Garden Fresh Restaurant Corp. (4%)*
15822 Bernardo Center Drive
San Diego, CA 92127
|
|
Restaurant
|
|
2nd
Lien Note
(13%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
583,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,583,600
|
|
Gerli & Company (3%)*
75 Stark Street
|
|
Specialty Woven
Fabrics
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,145,496
|
|
|
|
3,062,284
|
|
|
|
3,062,284
|
|
Plains, PA 18705
|
|
Manufacturer
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,145,496
|
|
|
|
3,145,698
|
|
|
|
3,062,284
|
|
Inland Pipe Rehabilitation
Holding Company, LLC (8%)*
|
|
Cleaning and Repair
Services
|
|
Subordinated Note
(14%, Due 01/14)
|
|
|
8,012,889
|
|
|
|
7,292,089
|
|
|
|
7,292,089
|
|
350 N. Old Woodward, Ste. 100
Birmingham, MI 48009
|
|
|
|
Membership Interest
Purchase Warrant (2.5)%
|
|
|
|
|
|
|
563,300
|
|
|
|
563,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,012,889
|
|
|
|
7,855,389
|
|
|
|
7,855,389
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Jenkins Services, LLC (10%)*
45681 Oakbrook Ct., Ste. 113
Sterling, VA 20166
|
|
Restoration
Services
|
|
Subordinated Note
(17.5%, Due 04/14)
|
|
$
|
8,107,945
|
|
|
$
|
7,952,853
|
|
|
$
|
7,952,853
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,400,000
|
|
|
|
1,359,298
|
|
|
|
1,359,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,507,945
|
|
|
|
9,312,151
|
|
|
|
9,312,151
|
|
Library Systems & Services, LLC (3%)*
12850 Middlebrook Road
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,937,506
|
|
|
|
1,937,506
|
|
Germantown, MD 20874
|
|
|
|
Common Stock
Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
608,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
1,996,501
|
|
|
|
2,545,506
|
|
Syrgis Holdings, Inc. (6%)*
1025 Mary Laidley Drive
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note
(9%, Due 08/12-02/14)
|
|
|
4,797,500
|
|
|
|
4,764,552
|
|
|
|
4,764,552
|
|
Covington, KY 41017
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
718,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,797,500
|
|
|
|
5,764,552
|
|
|
|
5,482,752
|
|
TrustHouse Services Group, Inc. (5%)*
21 Armory Drive
|
|
Food Management
Services
|
|
Subordinated Note
(14%, Due 03/15)
|
|
|
4,221,233
|
|
|
|
4,139,190
|
|
|
|
4,139,190
|
|
Wheeling, WV 26003
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
475,000
|
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,221,233
|
|
|
|
4,639,190
|
|
|
|
4,639,190
|
|
Twin-Star International, Inc. (6%)*
115 S.E. 4th Avenue
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(13%, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,434,146
|
|
|
|
4,434,146
|
|
Delray Beach, FL 33483
|
|
Manufacturer
|
|
Senior Note
(8%, Due 04/13)
|
|
|
1,485,000
|
|
|
|
1,485,000
|
|
|
|
1,485,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,985,000
|
|
|
|
5,919,146
|
|
|
|
5,919,146
|
|
Wholesale Floors, Inc. (4%)*
8855 N. Black Canyon Highway
|
|
Commercial
Services
|
|
Subordinated Note
(14%, Due 06/14)
|
|
|
3,502,771
|
|
|
|
3,334,971
|
|
|
|
3,334,971
|
|
Phoenix, AZ 85021
|
|
|
|
Membership Interest
Purchase Warrant (4.0%)
|
|
|
|
|
|
|
132,800
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,502,771
|
|
|
|
3,467,771
|
|
|
|
3,467,771
|
|
Yellowstone Landscape Group, Inc. (13%)*
|
|
Landscaping
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
220 Elm Street
|
|
Services
|
|
(15%, Due 04/14)
|
|
|
13,065,000
|
|
|
|
12,749,440
|
|
|
|
12,749,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Canaan, CT 06840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,065,000
|
|
|
|
12,749,440
|
|
|
|
12,749,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments
|
|
|
|
|
|
|
114,103,971
|
|
|
|
115,624,742
|
|
|
|
114,911,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (6%)*
770 Pelham Road, Suite 200
|
|
Asset Management
Software Provider
|
|
Subordinated Note
(15%, Due 03/13)
|
|
|
5,046,055
|
|
|
|
4,949,777
|
|
|
|
4,949,777
|
|
Greenville, SC 29615
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,046,055
|
|
|
|
5,449,777
|
|
|
|
5,449,777
|
|
Axxiom Manufacturing, Inc (2%)*
11927 South Highway 6
|
|
Industrial
Equipment
|
|
Subordinated Note
(14%, Due 01/11)
|
|
|
2,102,454
|
|
|
|
2,077,226
|
|
|
|
2,077,226
|
|
Fresno, TX 77545
|
|
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
286,300
|
|
|
|
|
|
Common Stock Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,102,454
|
|
|
|
2,277,226
|
|
|
|
2,369,926
|
|
Brantley Transportation, LLC
(Brantley Transportation) and
Pine Street Holdings, LLC
(Pine Street)(4) (4%)*
808 N. Ruth Street
Monahans, TX 79756
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley Transportation
(14%, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,680,133
|
|
|
|
3,680,133
|
|
|
|
|
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
|
|
|
|
3,913,733
|
|
|
|
3,913,733
|
|
Dyson Corporation (12%)*
53 Freedom Road
Painesville, OH 44077
|
|
Custom Forging and
Fastener
Supplies
|
|
Subordinated Note
(15%, Due 12/13)
|
|
|
10,161,935
|
|
|
|
9,953,777
|
|
|
|
9,953,777
|
|
|
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,161,935
|
|
|
|
10,953,777
|
|
|
|
10,953,777
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Equisales, LLC (8%)*
13811 Cullen Blvd.
|
|
Energy Products
and Services
|
|
Subordinated Note
(15%, Due 04/12)
|
|
$
|
6,223,280
|
|
|
$
|
6,118,966
|
|
|
$
|
6,118,966
|
|
Houston, TX 77047
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,856,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,223,280
|
|
|
|
6,618,966
|
|
|
|
7,975,466
|
|
Flint Acquisition Corporation (1%)*
115 Todd Court
Thomasville, NC 27360
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,291,600
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
1,291,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Genapure Corporation
(Genapure) and Genpref, LLC
|
|
Lab Testing
Services
|
|
Genapure Common Stock
(4,286 shares)
|
|
|
|
|
|
|
500,000
|
|
|
|
627,216
|
|
(Genpref)(5) (1%)*
1205 Industrial Blvd.
Southampton, PA 18966
|
|
|
|
Genpref Preferred Stock
(455 shares)
|
|
|
|
|
|
|
63,602
|
|
|
|
79,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
707,000
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
27,333,724
|
|
|
|
30,085,414
|
|
|
|
32,661,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (15%)*
151 Walker Road
Statesville, NC 28625
|
|
Packaging and
Materials Handling
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
8,859,632
|
|
|
|
8,717,540
|
|
|
|
8,717,540
|
|
|
|
Equipment
Manufacturer
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
5,257,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,859,632
|
|
|
|
12,917,540
|
|
|
|
13,975,040
|
|
Porters Group, LLC (5%)*
1111 Oates Road
|
|
Metal Fabrication
|
|
Membership Units
(4,730 units)
|
|
|
|
|
|
|
471,254
|
|
|
|
4,436,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bessemer City, NC 28016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254
|
|
|
|
4,436,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
8,859,632
|
|
|
|
13,388,794
|
|
|
|
18,411,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, June 30, 2008 (175%)*
|
|
|
|
|
|
$
|
150,297,327
|
|
|
$
|
159,098,950
|
|
|
$
|
165,983,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non-income producing. |
|
|
|
(2) |
|
Interest rates on subordinated debt include cash interest rate
and, where applicable,
paid-in-kind
interest rate. |
|
|
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by 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. |
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. As we qualified for RIC tax treatment
in 2007, 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.
We intend to file our 2007 corporate tax return with the
Internal
6
Revenue Service on or about September 15, 2008.
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. See Material U.S. Federal Income Tax
Considerations.
The
Offering
We may offer, from time to time, up to $300,000,000 worth of our
common stock, on terms to be determined at the time of the
offering. Our common stock may be offered at prices and on terms
to be disclosed in one or more prospectus supplements. 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
ending May 6, 2009) or (ii) under such other
circumstances as the SEC may permit. Our stockholders did not
specify a maximum discount below net asset value at which we are
able to issue or common stock; however, we do not intend to
issue shares of our common stock below net asset value unless
our board of directors determines that it would be in our
stockholders best interests to do so.
Our common stock may be offered directly to one or more
purchasers by us or through agents designated from time to time
by us, or to or through underwriters or dealers. The prospectus
supplement relating to the offering will disclose the terms of
the offering, including the name or names of any agents or
underwriters involved in the sale of our common stock by us, the
purchase price, and any fee, commission or discount arrangement
between us and our agents or underwriters or among our
underwriters or the basis upon which such amount may be
calculated. See Plan of Distribution. We may not
sell any of our common stock through agents, underwriters or
dealers without delivery of a prospectus supplement describing
the method and terms of the offering of our common stock.
Set forth below is additional information regarding the offering
of our common stock:
|
|
|
Nasdaq Global Market symbol |
|
TCAP |
|
Use of proceeds |
|
We intend to use the net proceeds from selling our common stock
to make investments in lower middle market companies in
accordance with our investment objective and strategies and for
working capital and general corporate purposes. |
|
Dividends and distributions |
|
We pay quarterly dividends to our stockholders out of assets
legally available for distribution. Our dividends, if any, will
be determined by our board of directors. |
|
|
|
Taxation |
|
As we qualified for RIC tax treatment in 2007, 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. We intend to file
our 2007 corporate tax return with the Internal Revenue Service
on or about September 15, 2008. 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 |
7
|
|
|
|
|
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. |
8
FEES AND
EXPENSES
The following table is intended to assist you in understanding
our and Triangle SBICs consolidated costs and expenses
that an investor in this offering will bear directly or
indirectly. We caution you that some of the percentages
indicated in the table below are estimates and may vary. Except
where the context suggests otherwise, whenever this prospectus
contains a reference to fees or expenses paid by
you, us or Triangle, or that
we will pay fees or expenses, stockholders will
indirectly bear such fees or expenses as investors in us.
|
|
|
|
|
Stockholder Transaction Expenses:
|
|
|
|
|
Sales load (as a percentage of offering price)
|
|
|
(1
|
)
|
Offering expenses
|
|
|
(2
|
)
|
Dividend reinvestment plan expenses
|
|
|
(3
|
)
|
Total stockholder transaction expenses (as a percentage of
offering price)
|
|
|
(4
|
)
|
Annual Expenses (as a percentage of net assets
attributable to common stock):
|
|
|
|
|
Interest payments on borrowed funds
|
|
|
4.41
|
%
|
Other expenses
|
|
|
6.22
|
%(5)
|
Total annual expenses
|
|
|
10.63
|
%(6)
|
|
|
|
(1) |
|
In the event that our common stock is sold to or through
underwriters, a corresponding prospectus supplement will
disclose the applicable sales load. |
|
|
|
(2) |
|
In the event that we conduct an offering of our common stock, a
corresponding prospectus supplement will disclose the estimated
offering expenses. |
|
|
|
(3) |
|
The expenses of administering our dividend reinvestment plan are
included in operating expenses. |
|
|
|
(4) |
|
Total stockholder transaction expenses may include sales load
and will be disclosed in a future prospectus supplement, if any. |
|
|
|
(5) |
|
Other expenses represent our estimated annual operating
expenses, excluding interest payments on borrowed funds. We do
not have an investment adviser and are internally managed by our
executive officers under the supervision of our board of
directors. As a result, we do not pay investment advisory fees,
but instead we pay the operating costs associated with employing
investment management professionals. |
|
|
|
(6) |
|
The total annual expenses are the sum of interest payments on
borrowed funds and other expenses. Total annual
expenses as a percentage of average net assets
attributable to common stock are higher than the total annual
expenses percentage would be for a company that is not
leveraged. The SEC requires that the Total annual
expenses percentage be calculated as a percentage of
average net assets, rather than average total assets, which
includes assets that have been funded with borrowed money. If
the Total annual expenses percentage were calculated
instead as a percentage of average total assets, we estimate
that our Total annual expenses would be
approximately 5.94% of average total assets. |
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
|
|
$
|
108
|
|
|
$
|
307
|
|
|
$
|
482
|
|
|
$
|
839
|
|
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 consolidated 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. Financial information prior
to our initial public offering in 2007 is that of Triangle SBIC,
which is Triangle Capital Corporations predecessor. The
selected financial data at and for the six month period ended
June 30, 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 six months ended June 30,
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
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
|
|
|
$
|
8,677
|
|
Interest income from cash and cash equivalent investments
|
|
|
15
|
|
|
|
18
|
|
|
|
108
|
|
|
|
280
|
|
|
|
1,824
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
41
|
|
|
|
1,987
|
|
|
|
5,963
|
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
8,884
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
339
|
|
|
|
1,543
|
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
1,461
|
|
Amortization of deferred financing fees
|
|
|
|
|
|
|
38
|
|
|
|
90
|
|
|
|
100
|
|
|
|
113
|
|
|
|
96
|
|
Management fees
|
|
|
1,048
|
|
|
|
1,564
|
|
|
|
1,574
|
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
General and administrative expenses
|
|
|
165
|
|
|
|
83
|
|
|
|
58
|
|
|
|
115
|
|
|
|
3,894
|
|
|
|
2,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,213
|
|
|
|
2,024
|
|
|
|
3,265
|
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
4,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(1,172
|
)
|
|
|
(37
|
)
|
|
|
2,698
|
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
4,456
|
|
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
|
|
|
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
475
|
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(640
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
(1,172
|
)
|
|
$
|
(1,262
|
)
|
|
$
|
3,173
|
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
3,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
0.65
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
0.53
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.73
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
0.31
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
|
|
|
$
|
19,415
|
|
|
$
|
36,617
|
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
165,984
|
|
Cash and cash equivalents
|
|
|
2,973
|
|
|
|
2,849
|
|
|
|
6,067
|
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
18,707
|
|
Interest and fees receivable
|
|
|
|
|
|
|
98
|
|
|
|
50
|
|
|
|
135
|
|
|
|
305
|
|
|
|
460
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
161
|
|
Deferred offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
40
|
|
Deferred financing fees
|
|
|
|
|
|
|
823
|
|
|
|
1,085
|
|
|
|
985
|
|
|
|
999
|
|
|
|
2,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,973
|
|
|
$
|
23,185
|
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
188,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital/net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
13
|
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
738
|
|
Interest payable
|
|
|
|
|
|
|
230
|
|
|
|
566
|
|
|
|
606
|
|
|
|
699
|
|
|
|
1,085
|
|
Distribution/dividends payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
2,041
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
Deferred revenue
|
|
|
35
|
|
|
|
251
|
|
|
|
75
|
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
|
|
2,129
|
|
SBA-guaranteed debentures payable
|
|
|
|
|
|
|
17,700
|
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
89,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
45
|
|
|
|
18,181
|
|
|
|
32,454
|
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
93,062
|
|
Total partners capital/shareholders equity
|
|
|
2,928
|
|
|
|
5,004
|
|
|
|
11,365
|
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
95,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net assets
|
|
$
|
2,973
|
|
|
$
|
23,185
|
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
188,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
|
|
|
|
15.5
|
%
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.0
|
%
|
Number of portfolio companies
|
|
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
Expense ratios (annualized, as percentage of average net
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
107.4
|
%
|
|
|
32.2
|
%
|
|
|
21.3
|
%
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.1
|
%
|
Interest expense and deferred financing fees
|
|
|
|
|
|
|
7.4
|
|
|
|
21.4
|
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
107.4
|
%
|
|
|
39.6
|
%
|
|
|
42.7
|
%
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
SELECTED
QUARTERLY FINANCIAL DATA
The following tables set forth certain quarterly financial
information for each of the ten quarters ended with the quarter
ended June 30, 2008. This information was derived from our
unaudited consolidated financial statements. Results for any
quarter are not necessarily indicative of results for the past
fiscal year or for any future quarter.
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2008
|
|
|
Total investment income
|
|
$
|
3,863,984
|
|
|
$
|
5,020,091
|
|
Net investment income
|
|
|
1,913,695
|
|
|
|
2,542,442
|
|
Net increase in net assets resulting from operations
|
|
|
765,391
|
|
|
|
2,848,507
|
|
Net investment income per share
|
|
$
|
0.28
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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
13
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, 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.
14
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.
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:
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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.
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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.
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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.
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We and, indirectly, our stockholders will bear the cost of
issuing and servicing such securities and other indebtedness.
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15
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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.
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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
ending May 6, 2009. Our stockholders did not specify a
maximum discount below net asset value at which we are able to
issue our common stock; however, we do not intend to issue
shares of our common stock below net asset value unless our
board of directors determines that it would be in our
stockholders best interests to do so. In any such case,
however, the price at which our common stock are to be issued
and sold may not be less than a price which, in the
determination of our board of directors, closely approximates
the market value of such securities (less any distributing
commission or discount). We may also make rights offerings to
our stockholders (though not in conjunction with this
prospectus) at prices per share less than the net asset value
per share, subject to applicable requirements of the 1940 Act.
If we raise additional funds by issuing more common stock or
senior securities convertible into, or exchangeable for, our
common stock, the percentage ownership of our stockholders at
that time would decrease, and they may experience dilution.
Moreover, we can offer no assurance that we will be able to
issue and sell additional equity securities in the future, on
favorable terms or at all.
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 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
16
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 June 30, 2008, we, through Triangle SBIC, had
$89.1 million of outstanding indebtedness guaranteed by the
SBA, which had a weighted average annualized interest cost of
approximately 4.8%. The calculation of this weighted average
interest rate includes the interim rates charged on SBA
guaranteed debentures that have not yet been pooled.
Illustration. The following table illustrates
the effect of leverage on returns from an investment in our
common stock assuming various annual returns, net of expenses.
The calculations in the table below are hypothetical and actual
returns may be higher or lower than those appearing below.
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Assumed Return on our Portfolio
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(Net of Expenses)
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(10.0
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(5.0
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0.0
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%
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5.0
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%
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10.0
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%
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Corresponding net return to stockholder(1)
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(25.3
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(15.4
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(5.5
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4.4
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%
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14.3
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%
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(1) |
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Assumes $188.1 million in total assets, $89.1 million
in debt outstanding, $95.0 million in net assets and an
average cost of funds of 5.88%, which was the weighted average
borrowing cost on our pooled borrowings at June 30, 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
June 30, 2008, Triangle SBIC had issued $89.1 million
in debentures guaranteed by the SBA. With $65.3 million of
regulatory capital as of June 30, 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
17
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.
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. Triangle and Triangle SBIC filed a joint
exemptive application with the SEC on January 3, 2007, and
amended on November 5, 2007, requesting relief under
various Sections of the 1940 Act that would permit Triangle, as
the BDC parent and Triangle SBIC, as a BDC/SBIC subsidiary to
operate effectively as one company for 1940 Act regulatory
purposes. Specifically, the application requests relief for
Triangle and Triangle SBIC to (a) engage in certain
transactions with each other, (b) invest in securities in
which the other is an investor and engage in transactions with
portfolio companies that would not otherwise be prohibited if
the BDC and its subsidiary were one company, (c) be subject
to modified consolidated asset coverage requirements for senior
securities issued by the BDC and the BDC/SBIC subsidiary,
(d) allow the BDC/SBIC subsidiary to have the maximum
amount of borrowing capacity for SBICs permitted under the SBA
and the 1940 Act, and (e) allow Triangle SBIC, as the
BDC/SBIC subsidiary, to file Exchange Act reports on a
consolidated basis with Triangle, the parent BDC. 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.
18
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.
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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. We qualified for RIC tax treatment in 2007. For more
information regarding tax treatment, see Material
U.S. Federal Income Tax Considerations. Because we
use debt financing, we are subject to certain asset coverage
ratio requirements under the 1940 Act and may in the future
become subject to certain financial covenants under loan and
credit agreements that could, under certain circumstances,
restrict us from making distributions necessary to satisfy the
distribution requirement. If we are unable to obtain cash from
other sources, we could fail to qualify for RIC tax treatment
and thus become subject to corporate-level income tax.
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The income source requirement will be satisfied if we obtain at
least 90.0% of our income for each year from distributions,
interest, gains from the sale of stock or securities or similar
sources.
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The asset diversification requirement will be satisfied if we
meet certain asset diversification requirements at the end of
each quarter of our taxable year. To satisfy this requirement,
at least 50.0% of the value of our assets must consist of cash,
cash equivalents, U.S. Government securities, securities of
other RICs, and other acceptable securities; and no more than
25.0% of the value of our assets can be invested in the
securities, other than U.S. government securities or
securities of other RICs, of one issuer, of two or more issuers
that are controlled, as determined under applicable Code rules,
by us and that are engaged in the same or similar or related
trades or businesses or of certain qualified publicly
traded partnerships. Failure to meet these requirements
may result in our having to dispose of certain investments
quickly in order to prevent the loss of RIC status. Because most
of our investments will be in private companies, and therefore
will be relatively illiquid, any such dispositions could be made
at disadvantageous prices and could result in substantial losses.
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If we fail to qualify for or maintain RIC tax treatment for any
reason and are subject to corporate 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.
19
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 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.
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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. If additional funds are not available to us, we could be
forced to curtail or cease new investment activities, and our
net asset value could decline. In addition, as a BDC, we
generally are not permitted to issue equity securities priced
below net asset value without stockholder approval. At our
Annual Stockholders Meeting on May 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 ending
May 6, 2009. Our stockholders did not specify a maximum
discount below net asset value at which we are able to issue our
common stock; however, we do not intend to issue shares of our
common stock below net asset value unless our board of directors
determines that it would be in our stockholders best
interests to do so. For an illustration on the potential
dilutive effect of an offering of our common stock at a price
below net asset value, please see the illustration below.
Illustration: Example of Dilutive Effect of the Issuance of
Shares Below Net Asset Value. Assume that Company
XYZ has 1,000,000 total shares outstanding, $15,000,000 in total
assets and $5,000,000 in total liabilities. The net asset value
per share of the common stock of Company XYZ is $10.00. The
following table illustrates the reduction to net asset value, or
NAV, and the dilution experienced by Stockholder A following the
sale of 40,000 shares of the common stock of Company XYZ at
$9.50 per share, a price below its NAV per share.
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Prior to Sale
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Following Sale
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Percentage
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Below NAV
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Below NAV
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Change
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Reduction to NAV
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Total Shares Outstanding
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1,000,000
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1,040,000
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4.0
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%
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NAV per share
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$
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10.00
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$
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9.98
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(0.2
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Dilution to Existing Stockholder
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Shares Held by Stockholder A
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10,000
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10,000
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(1)
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0.0
|
%
|
Percentage Held by Stockholder A
|
|
|
1.00
|
%
|
|
|
0.96
|
%
|
|
|
(3.8
|
)%
|
Total Interest of Stockholder A
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|
$
|
100,000
|
|
|
$
|
99,808
|
|
|
|
(0.2
|
)%
|
|
|
|
(1) |
|
Assumes that Stockholder A does not purchase additional shares
in equity offering of shares below NAV. |
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
21
program could have a significant impact on our ability to obtain
lower-cost leverage and, therefore, our competitive advantage
over other finance companies.
Additionally, any changes to the laws and regulations governing
our operations relating to permitted investments may cause us to
alter our investment strategy in order to avail ourselves of new
or different opportunities. Such changes could result in
material differences to the strategies and plans set forth in
this prospectus and may result in our investment focus shifting
from the areas of expertise of our management team to other
types of investments in which our management team may have less
expertise or little or no experience. Thus, any such changes, if
they occur, could have a material adverse effect on our results
of operations and the value of your investment.
Efforts
to comply with the Sarbanes-Oxley Act will involve significant
expenditures, and non-compliance with the Sarbanes-Oxley Act may
adversely affect us.
We are subject to the Sarbanes-Oxley Act of 2002, and the
related rules and regulations promulgated by the SEC. Among
other requirements, under Section 404 of the Sarbanes-Oxley
Act and rules and regulations of the SEC thereunder, our
management is required to report on our internal controls over
financial reporting. We are required to review on an annual
basis our internal controls over financial reporting, and on a
quarterly and annual basis to evaluate and disclose significant
changes in our internal controls over financial reporting. We
have and expect to continue to incur significant expenses
related to compliance with the Sarbanes-Oxley Act, which will
negatively impact our financial performance and our ability to
make distributions. In addition, this process results in a
diversion of managements time and attention. Since we have
a limited operating history as a company subject to the
Sarbanes-Oxley Act, we cannot assure you that our internal
controls over financial reporting will continue to be effective.
In the event that we are unable to maintain compliance with the
Sarbanes-Oxley Act and related rules, we may be adversely
affected.
Risks
Related to Our Investments
Our
investments in portfolio companies may be risky, and we could
lose all or part of our investment.
Investing in lower middle market companies involves a number of
significant risks. Among other things, these companies:
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may have limited financial resources and may be unable to meet
their obligations under their debt instruments that we hold,
which may be accompanied by a deterioration in the value of any
collateral and a reduction in the likelihood of us realizing any
guarantees from subsidiaries or affiliates of our portfolio
companies that we may have obtained in connection with our
investment, 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
downturns;
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are more likely to depend on the management talents and efforts
of a small group of persons; therefore, the death, disability,
resignation or termination of one or more of these persons could
have a material adverse impact on our portfolio company and, in
turn, on us;
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generally have less predictable operating results, may from time
to time be parties to litigation, may be engaged in rapidly
changing businesses with products subject to a substantial risk
of obsolescence, and may require substantial additional capital
to support their operations, finance expansion or maintain their
competitive position; and
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generally have less publicly available information about their
businesses, operations and financial condition. We 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 our investment.
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22
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 repaying such senior creditors,
such portfolio company may not have any remaining assets to use
for repaying its obligation to us. In the case of debt ranking
equally with debt instruments in which we invest, we would have
to share on an equal basis any distributions with other
creditors holding such debt in the event of an insolvency,
liquidation, dissolution, reorganization or bankruptcy of the
relevant portfolio company.
There
may be circumstances where our debt investments could be
subordinated to claims of other creditors or we could be subject
to lender liability claims.
Even though we may have structured certain of our investments as
senior loans, if one of our portfolio companies were to go
bankrupt, depending on the facts and circumstances and based
upon principles of equitable subordination as defined by
existing case law, a bankruptcy court could subordinate all or a
portion of our claim to that of other creditors and transfer any
lien securing such subordinated claim to the bankruptcy estate.
The principles of equitable subordination defined by case law
have generally indicated that a claim may be subordinated only
if its holder is guilty of misconduct or where the senior loan
is re-characterized as an equity investment and the senior
lender has actually provided significant managerial assistance
to the
23
bankrupt debtor. We may also be subject to lender liability
claims for actions taken by us with respect to a borrowers
business or instances where we exercise control over the
borrower. It is possible that we could become subject to a
lenders liability claim, including as a result of actions
taken in rendering significant managerial assistance or actions
to compel and collect payments from the borrower outside the
ordinary course of business.
Second
priority liens on collateral securing loans that we make to our
portfolio companies may be subject to control by senior
creditors with first priority liens. If there is a default, the
value of the collateral may not be sufficient to repay in full
both the first priority creditors and us.
Certain loans that we make 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).
24
We are
a non-diversified investment company within the meaning of the
1940 Act, and therefore we are not limited with respect to the
proportion of our assets that may be invested in securities of a
single issuer.
We are classified as a non-diversified investment company within
the meaning of the 1940 Act, which means that we are not limited
by the 1940 Act with respect to the proportion of our assets
that we may invest in securities of a single issuer. To the
extent that we assume large positions in the securities of a
small number of issuers, our net asset value may fluctuate to a
greater extent than that of a diversified investment company as
a result of changes in the financial condition or the
markets assessment of the issuer. We may also be more
susceptible to any single economic or regulatory occurrence than
a diversified investment company. Beyond our RIC asset
diversification requirements, we do not have fixed guidelines
for diversification, and our investments could be concentrated
in relatively few portfolio companies.
We
generally will not control our portfolio
companies.
We do not, and do not expect to, control most of our portfolio
companies, even though we may have board representation or board
observation rights, and our debt agreements may contain certain
restrictive covenants. As a result, we are subject to the risk
that a portfolio company in which we invest may make business
decisions with which we disagree and the management of such
company, as representatives of the holders of their common
equity, may take risks or otherwise act in ways that do not
serve our interests as debt investors. Due to the lack of
liquidity for our investments in non-traded companies, we may
not be able to dispose of our interests in our portfolio
companies as readily as we would like or at an appropriate
valuation. As a result, a portfolio company may make decisions
that could decrease the value of our portfolio holdings.
Economic
recessions or downturns could impair our portfolio companies and
harm our operating results.
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.
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
25
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 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.
26
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 voted to allow us to issue
common stock at a price below net asset value per share for a
period of one year ending May 6, 2009. Our stockholders did
not specify a maximum discount below net asset value at which we
are able to issue our common stock; however, we do not intend to
issue shares of our common stock below net asset value unless
our board of directors determines that it would be in our
stockholders best interests to do so.
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.
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As illustrated by recent events in the market for subprime
loans, and mortgage securities generally, the market for any
security is subject to volatility. The loans and securities
purchased by us and issued by us are no exception to this
fundamental investment truism that prices will fluctuate,
although we lack any material exposure to the subprime and
mortgage markets.
If a
substantial number of shares become available for sale and are
sold in a short period of time, the market price of our common
stock could decline.
As of June 30, 2008, we had 6,917,363 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.
28
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus and the accompanying
prospectus supplement, if any, constitute forward-looking
statements because they relate to future events or our future
performance or financial condition. The forward-looking
statements contained in this prospectus may include statements
as to:
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our future operating results;
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our business prospects and the prospects of our portfolio
companies;
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the impact of the investments that we expect to make;
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the ability of our portfolio companies to achieve their
objectives;
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our expected financings and investments;
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the adequacy of our cash resources and working capital; and
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the timing of cash flows, if any, from the operations of our
portfolio companies.
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In addition, words such as anticipate,
believe, expect and intend
indicate a forward-looking statement, although not all
forward-looking statements include these words. The
forward-looking statements contained in this prospectus involve
risks and uncertainties. Our actual results could differ
materially from those implied or expressed in the
forward-looking statements for any reason, including the factors
set forth in Risk Factors and elsewhere in this
prospectus and the accompanying prospectus supplement, if any.
Other factors that could cause actual results to differ
materially include:
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changes in the economy;
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risks associated with possible disruption in our operations or
the economy generally due to terrorism; and
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future changes in laws or regulations and conditions in our
operating areas.
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You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus
or the accompanying prospectus supplement, if any. Although we
undertake no obligation to revise or update any forward-looking
statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional
disclosures that we may make directly to you or through reports
that we file with the SEC, including annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K.
FORMATION
TRANSACTIONS
Triangle Capital Corporation is a 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.
|
29
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:
|
|
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(1) |
|
Based on 6,686,760 shares of common stock outstanding
immediately after the IPO and consummation of the Formation
Transactions. |
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.
30
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.
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.
31
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.
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Premium/Discount
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Premium/Discount
|
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Cash
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Price Range
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of High Sales
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of Low Sales Price
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Dividend
|
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NAV(1)
|
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High
|
|
|
Low
|
|
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Price to NAV(2)
|
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|
to NAV(2)
|
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|
per Share(3)
|
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|
Year ended December 31, 2007
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|
|
|
|
|
|
|
|
|
|
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|
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February 15, 2007 to March 31, 2007(4)
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$
|
13.57
|
|
|
$
|
16.00
|
|
|
$
|
13.45
|
|
|
|
118
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%
|
|
|
99
|
%
|
|
$
|
0.00
|
|
Second Quarter
|
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$
|
13.75
|
|
|
$
|
15.79
|
|
|
$
|
13.58
|
|
|
|
115
|
%
|
|
|
99
|
%
|
|
$
|
0.15
|
|
Third Quarter
|
|
$
|
13.99
|
|
|
$
|
14.99
|
|
|
$
|
11.95
|
|
|
|
107
|
%
|
|
|
85
|
%
|
|
$
|
0.26
|
|
Fourth Quarter
|
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$
|
13.74
|
|
|
$
|
14.50
|
|
|
$
|
10.75
|
|
|
|
106
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%
|
|
|
78
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%
|
|
$
|
0.57
|
|
Year ended December 31, 2008
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
13.85
|
|
|
$
|
13.40
|
|
|
$
|
10.50
|
|
|
|
97
|
%
|
|
|
76
|
%
|
|
$
|
|
|
Second Quarter
|
|
$
|
13.73
|
|
|
$
|
12.25
|
|
|
$
|
10.81
|
|
|
|
89
|
%
|
|
|
79
|
%
|
|
$
|
0.31
|
|
|
|
|
(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 August 8,
2008 was $13.30 per share. As of August 8, 2008, we had 72
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.
32
During 2007, cash dividends paid per share of $0.98 included
approximately $0.09 per share that is classified as a return of
capital for federal income tax purposes. While it is possible
that a portion of our 2008 dividends paid could be classified as
a return of capital for federal income tax purposes, we do not
intend to pay any dividends during 2008 that will be classified
as a return of capital for federal income tax purposes.
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.
33
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical financial and other data below reflects
the consolidated 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. Financial information prior
to our initial public offering in 2007 is that of Triangle SBIC,
which is Triangle Capital Corporations predecessor. The
selected financial data at and for the six month period ended
June 30, 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 six months ended June 30,
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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
June 30,
|
|
|
|
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
|
|
|
$
|
8,677
|
|
Interest income from cash and cash equivalent investments
|
|
|
15
|
|
|
|
18
|
|
|
|
108
|
|
|
|
280
|
|
|
|
1,824
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
41
|
|
|
|
1,987
|
|
|
|
5,963
|
|
|
|
6,723
|
|
|
|
12,736
|
|
|
|
8,884
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
339
|
|
|
|
1,543
|
|
|
|
1,834
|
|
|
|
2,073
|
|
|
|
1,461
|
|
Amortization of deferred financing fees
|
|
|
|
|
|
|
38
|
|
|
|
90
|
|
|
|
100
|
|
|
|
113
|
|
|
|
96
|
|
Management fees
|
|
|
1,048
|
|
|
|
1,564
|
|
|
|
1,574
|
|
|
|
1,589
|
|
|
|
233
|
|
|
|
|
|
General and administrative expenses
|
|
|
165
|
|
|
|
83
|
|
|
|
58
|
|
|
|
115
|
|
|
|
3,894
|
|
|
|
2,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,213
|
|
|
|
2,024
|
|
|
|
3,265
|
|
|
|
3,638
|
|
|
|
6,313
|
|
|
|
4,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(1,172
|
)
|
|
|
(37
|
)
|
|
|
2,698
|
|
|
|
3,085
|
|
|
|
6,423
|
|
|
|
4,456
|
|
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
|
|
|
|
(640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
475
|
|
|
|
5,612
|
|
|
|
2,442
|
|
|
|
(640
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
$
|
(1,172
|
)
|
|
$
|
(1,262
|
)
|
|
$
|
3,173
|
|
|
$
|
8,697
|
|
|
$
|
8,813
|
|
|
$
|
3,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
|
$
|
0.65
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.31
|
|
|
$
|
0.53
|
|
Net asset value per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
13.74
|
|
|
$
|
13.73
|
|
Dividends declared per common share
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.98
|
|
|
$
|
0.31
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
|
|
|
$
|
19,415
|
|
|
$
|
36,617
|
|
|
$
|
54,247
|
|
|
$
|
113,037
|
|
|
$
|
165,984
|
|
Cash and cash equivalents
|
|
|
2,973
|
|
|
|
2,849
|
|
|
|
6,067
|
|
|
|
2,556
|
|
|
|
21,788
|
|
|
|
18,707
|
|
Interest and fees receivable
|
|
|
|
|
|
|
98
|
|
|
|
50
|
|
|
|
135
|
|
|
|
305
|
|
|
|
460
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
161
|
|
Deferred offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,021
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
40
|
|
Deferred financing fees
|
|
|
|
|
|
|
823
|
|
|
|
1,085
|
|
|
|
985
|
|
|
|
999
|
|
|
|
2,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,973
|
|
|
$
|
23,185
|
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
188,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital/net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
13
|
|
|
$
|
825
|
|
|
$
|
1,144
|
|
|
$
|
738
|
|
Interest payable
|
|
|
|
|
|
|
230
|
|
|
|
566
|
|
|
|
606
|
|
|
|
699
|
|
|
|
1,085
|
|
Distribution/dividends payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
2,041
|
|
|
|
|
|
Income taxes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
Deferred revenue
|
|
|
35
|
|
|
|
251
|
|
|
|
75
|
|
|
|
25
|
|
|
|
31
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,760
|
|
|
|
2,129
|
|
SBA-guaranteed debentures payable
|
|
|
|
|
|
|
17,700
|
|
|
|
31,800
|
|
|
|
31,800
|
|
|
|
37,010
|
|
|
|
89,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
45
|
|
|
|
18,181
|
|
|
|
32,454
|
|
|
|
33,788
|
|
|
|
42,737
|
|
|
|
93,062
|
|
Total partners capital/shareholders equity
|
|
|
2,928
|
|
|
|
5,004
|
|
|
|
11,365
|
|
|
|
25,156
|
|
|
|
93,473
|
|
|
|
95,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital/net assets
|
|
$
|
2,973
|
|
|
$
|
23,185
|
|
|
$
|
43,819
|
|
|
$
|
58,944
|
|
|
$
|
136,210
|
|
|
$
|
188,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average yield on investments
|
|
|
|
|
|
|
15.5
|
%
|
|
|
14.2
|
%
|
|
|
13.3
|
%
|
|
|
12.6
|
%
|
|
|
13.0
|
%
|
Number of portfolio companies
|
|
|
|
|
|
|
6
|
|
|
|
12
|
|
|
|
19
|
|
|
|
26
|
|
|
|
34
|
|
Expense ratios (annualized, as percentage of average net
assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
107.4
|
%
|
|
|
32.2
|
%
|
|
|
21.3
|
%
|
|
|
8.3
|
%
|
|
|
4.4
|
%
|
|
|
6.1
|
%
|
Interest expense and deferred financing fees
|
|
|
|
|
|
|
7.4
|
|
|
|
21.4
|
|
|
|
9.5
|
|
|
|
2.4
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
107.4
|
%
|
|
|
39.6
|
%
|
|
|
42.7
|
%
|
|
|
17.8
|
%
|
|
|
6.8
|
%
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
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 six months ended
June 30, 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
36
negotiations with potential portfolio companies, we generally
seek to minimize PIK interest. Cash interest on our debt
investments is generally payable monthly; however, some of our
debt investments pay cash interest on a quarterly basis. As of
June 30, 2008 and December 31, 2007, the weighted
average yield on all of our outstanding debt investments
(including PIK interest) was approximately 14.0% and 13.9%,
respectively. The weighted average yield on all of our
outstanding investments (including equity and equity-linked
investments) was approximately 13.0% and 12.6% as of
June 30, 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.
Portfolio
Composition
The total value of our investment portfolio was
$166.0 million as of June 30, 2008, as compared to
$113.0 million as of December 31, 2007 and
$54.2 million as of December 31, 2006. As of
June 30, 2008, we had investments in 34 portfolio companies
with an aggregate cost of $159.1 million. As of
December 31, 2007, we had investments in 26 portfolio
companies with an aggregate cost of $105.9 million. As of
December 31, 2006, we had investments in 19 portfolio
companies with an aggregate cost of $51.9 million. As of
June 30, 2008, none of our portfolio investments
represented greater than 10% of the total fair value of our
investment portfolio. As of December 31, 2007, we had one
portfolio investment that represented greater than 10% of the
total fair value of our investment portfolio. 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 June 30, 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
|
|
|
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes(1)
|
|
$
|
130,998,424
|
|
|
|
82
|
%
|
|
$
|
128,853,826
|
|
|
|
78
|
%
|
Senior debt(1)
|
|
|
16,003,236
|
|
|
|
10
|
|
|
|
16,003,236
|
|
|
|
10
|
|
Equity shares
|
|
|
10,853,018
|
|
|
|
7
|
|
|
|
18,300,700
|
|
|
|
11
|
|
Equity warrants
|
|
|
1,244,272
|
|
|
|
1
|
|
|
|
2,551,200
|
|
|
|
1
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
274,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
159,098,950
|
|
|
|
100
|
%
|
|
$
|
165,983,562
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes(1)
|
|
$
|
80,902,982
|
|
|
|
76
|
%
|
|
$
|
80,902,982
|
|
|
|
72
|
%
|
Senior debt(1)
|
|
|
14,728,958
|
|
|
|
14
|
|
|
|
14,728,958
|
|
|
|
13
|
|
Equity shares
|
|
|
9,699,689
|
|
|
|
9
|
|
|
|
15,335,900
|
|
|
|
13
|
|
Equity warrants
|
|
|
548,172
|
|
|
|
1
|
|
|
|
1,870,500
|
|
|
|
2
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,879,801
|
|
|
|
100
|
%
|
|
$
|
113,036,240
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes(1)
|
|
$
|
48,038,892
|
|
|
|
93
|
%
|
|
$
|
46,574,669
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
51,912,136
|
|
|
|
100
|
%
|
|
$
|
54,247,212
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We have changed our balance sheet presentation for all periods
to net deferred loan origination revenue against the associated
debt investments for all periods as a result of the adoption of
SFAS 157 on January 1, 2008. |
37
Investment
Activity
During the six months ended June 30, 2008, we made eight
new investments totaling $56.4 million, one additional debt
investment in an existing portfolio company of $0.9 million
and two additional equity investments in existing portfolio
companies 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.
We had one portfolio company loan repaid at par in the amount of
$3.8 million. In addition, we received normal principal
repayments and payment in kind (PIK) interest repayments
totaling approximately $0.7 million in the six months ended
June 30, 2008. Total portfolio investment activity for the
six months ended June 30, 2008 was as follows:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2008(1)
|
|
|
Fair value of portfolio, January 1, 2008
|
|
$
|
113,036,240
|
|
New investments
|
|
|
57,312,359
|
|
Proceeds from sale of investment
|
|
|
(175,000
|
)
|
Loan origination fees received
|
|
|
(1,091,996
|
)
|
Principal repayments and payment in kind interest payments
received
|
|
|
(4,498,623
|
)
|
Payment in kind interest earned
|
|
|
1,442,626
|
|
Accretion of loan discounts
|
|
|
49,631
|
|
Accretion of deferred loan origination revenue
|
|
|
180,152
|
|
Unrealized losses on investments
|
|
|
(271,827
|
)
|
|
|
|
|
|
Fair value of portfolio, June 30, 2008
|
|
$
|
165,983,562
|
|
|
|
|
|
|
Weighted average yield on debt investments as of June 30,
2008
|
|
|
14.0
|
%
|
|
|
|
|
|
Weighted average yield on total investments as of June 30,
2008
|
|
|
13.0
|
%
|
|
|
|
|
|
|
|
|
(1) |
|
We have changed our balance sheet presentation for all periods
to net deferred loan origination revenue against the associated
debt investments for all periods as a result of the adoption of
SFAS 157 on January 1, 2008. |
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.
38
Total portfolio investment activity for the year ended
December 31, 2007 was as follows:
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|
|
|
|
|
|
Year Ended
|
|
|
|
December 31, 2007
|
|
|
Fair value of portfolio, January 1, 2007
|
|
$
|
54,996,428
|
|
New investments
|
|
|
64,159,172
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|
Proceeds from sale of investment
|
|
|
(2,227,124
|
)
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Principal repayments and payment in kind interest payments
received
|
|
|
(8,483,843
|
)
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Payment in kind interest earned
|
|
|
1,521,114
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|
Accretion/writeoff of loan discounts
|
|
|
205,725
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|
Net realized loss on investments
|
|
|
(618,620
|
)
|
Net unrealized gain on investments
|
|
|
4,821,366
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|
|
|
|
|
|
Fair value of portfolio, December 31, 2007
|
|
$
|
114,374,218
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|
|
|
|
|
|
Weighted average yield on debt investments as of
December 31, 2007
|
|
|
13.9
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%
|
|
|
|
|
|
Weighted average yield on total investments as of
December 31, 2007
|
|
|
12.6
|
%
|
|
|
|
|
|
Results
of Operations
Comparison
of three months ended June 30, 2008 and June 30,
2007
Investment
Income
For the three months ended June 30, 2008, total investment
income was $5.0 million, a 53% increase from
$3.3 million of total investment income for the three
months ended June 30, 2007. This increase was primarily
attributable to a $1.8 million increase in total loan
interest, fee and dividend income and a $0.5 million
increase in total
paid-in-kind
interest income due to net increase in our portfolio investments
from June 30, 2007 to June 30, 2008 offset by a
$0.6 million decrease in interest income from cash and cash
equivalent investments due to (i) a significant decrease in
average cash balances in the second quarter of 2008 over the
comparable period in 2007 and (ii) a decrease in overall
interest rates. Non-recurring fee income was $0.2 million
for both the three months ended June 30, 2008 and 2007.
Expenses
For the three months ended June 30, 2008, expenses
increased by 51% to $2.5 million from $1.6 million for
the three months ended June 30, 2007. The increase in
expenses was primarily attributable to a $0.4 million
increase in general and administrative expenses and a
$0.4 million increase in interest expense. As a result of
the Offering 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 June 30, 2008, we had
13 full-time employees, as compared to nine full-time
employees as of June 30, 2007. In addition, we experienced
an increase in general and administrative costs in 2008
associated with being a publicly-traded company, such as
increased insurance, accounting, corporate governance and legal
costs. The increase in interest expense is related to higher
average balances of SBA-guaranteed debentures outstanding during
the three months ended June 30, 2008 than in the comparable
period in 2007.
Net
Investment Income
As a result of the $1.7 million increase in total
investment income and the $0.9 million increase in
expenses, net investment income for the three months ended
June 30, 2008 was $2.5 million compared to net
investment income of $1.6 million during the three months
ended June 30, 2007.
39
Net
Increase in Net Assets Resulting From Operations
In the three months ended June 30, 2008, we recorded net
unrealized appreciation of investments in the amount of
$0.4 million, comprised of unrealized gains on nine
investments totaling $1.9 million and unrealized losses on
eight investments totaling $1.5 million. During the three
months ended June 30, 2007, we recorded net unrealized
appreciation of investments in the amount of $0.6 million,
comprised of unrealized gains on eight investments totaling
$1.2 million and unrealized losses on eleven investments
totaling $0.6 million.
As a result of these events, our net increase in net assets from
operations during the three months ended June 30, 2008 was
$2.8 million as compared to $2.2 million for the three
months ended June 30, 2007.
Comparison
of six months ended June 30, 2008 and June 30,
2007
Investment
Income
For the six months ended June 30, 2008, total investment
income was $8.9 million, a 65% increase from
$5.4 million of total investment income for the six months
ended June 30, 2007. This increase was primarily
attributable to a $3.5 million increase in total loan
interest, fee and dividend income and a $0.8 million
increase in total
paid-in-kind
interest income due to net increase in our portfolio investments
from June 30, 2007 to June 30, 2008 offset by a
$0.8 million decrease in interest income from cash and cash
equivalent investments due to (i) a significant decrease in
average cash balances in the first six months of 2008 over the
comparable period in 2007 and (ii) a decrease in overall
interest rates. Non-recurring fee income was $0.3 million
for the six months ended June 30, 2008 as compared to
$0.2 million for the six months ended June 30, 2007.
Expenses
For the six months ended June 30, 2008, expenses increased
by 50% to $4.4 million from $3.0 million for the six
months ended June 30, 2007. The increase in expenses was
primarily attributable to a $1.2 million increase in
general and administrative expenses and a $0.4 million
increase in interest expense. As a result of the Offering 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 June 30, 2008, we had 13 full-time
employees, as compared to nine full-time employees as of
June 30, 2007. In addition, we experienced an increase in
general and administrative costs in 2008 associated with being a
publicly-traded company, such as increased insurance,
accounting, corporate governance and legal costs. The increase
in interest expense is related to higher average balances of
SBA-guaranteed debentures outstanding during the six months
ended June 30, 2008 than in the comparable period in 2007.
These increases in general and administrative costs and interest
costs were partially offset by a $0.2 million decrease in
management fees. We incurred no management fees in the first six
months of 2008 compared to $0.2 million in management fees
in the first six months of 2007.
Net
Investment Income
As a result of the $3.5 million increase in total
investment income and the $1.5 million increase in
expenses, net investment income for the six months ended
June 30, 2008 was $4.5 million compared to net
investment income of $2.4 million during the six months
ended June 30, 2007.
Net
Increase in Net Assets Resulting From Operations
We recorded no realized gains or losses on investments in the
six months ended June 30, 2008. For the six months ended
June 30, 2007, net realized loss on investment was
$1.5 million, all of which related to one investment.
In the six months ended June 30, 2008, we recorded net
unrealized depreciation of investments in the amount of
$0.6 million, comprised of unrealized gains on ten
investments totaling $2.6 million and unrealized losses on
ten investments totaling $3.2 million. During the six
months ended June 30, 2007, we recorded net
40
unrealized appreciation of investments in the amount of
$2.3 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
six months ended June 30, 2007, we recorded unrealized
gains on eleven other investments totaling $2.0 million and
unrealized losses on eight investments totaling
$1.1 million.
As a result of these events, our net increase in net assets from
operations during the six months ended June 30, 2008 was
$3.6 million as compared to $3.3 million for the six
months ended June 30, 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.
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.
41
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.
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.
42
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 six months ended June 30, 2008, we experienced a
net decrease in cash and cash equivalents in the amount of
$3.1 million. During that period, our operating activities
used $49.2 million in cash, consisting primarily of new
portfolio investments of $57.3 million, and we generated
$46.1 million of cash from financing activities, consisting
of proceeds from borrowings under SBA guaranteed debentures
payable of $52.1 million, partially offset by financing
fees paid to the SBA of $1.8 million and cash dividends
paid of $4.2 million. At June 30, 2008, we had
$18.7 million of cash and cash equivalents on hand.
For the six months ended June 30, 2007, we experienced a
net increase in cash and cash equivalents in the amount of
$42.6 million. During that period, our operating activities
used $25.9 million in cash, and we generated
$68.5 million of cash from financing activities, consisting
primarily of (i) proceeds from our Offering 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 cash dividends paid of
$0.4 million, tax distributions to partners of
$0.8 million and financing fees paid to the SBA of
$0.1 million. At June 30, 2007, we had
$45.1 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.
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 June 30, 2008 is
currently $130.6 million (which amount is subject to
increase on an annual basis based on cost of living increases).
43
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
June 30, 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 June 30, 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 $89.1 million are outstanding as of
June 30, 2008. On July 9, 2008, the Fund received an
additional commitment from the SBA of $33.75 million,
bringing the total commitment from the SBA up to the statutory
limit of $130.6 million. Upon receipt of this commitment,
the Fund incurred a 1.0% non-refundable commitment fee of
$337,500. In addition to the one time 1.0% fee on
the total commitment from the SBA, the Company also pays a
one time 2.425% fee on the amount of each debenture
issued. These fees are capitalized as deferred financing costs
and are amortized over the term of the debt agreements using the
effective interest method. The weighted average interest rate
for all SBA guaranteed debentures as of June 30, 2008 was
4.812%. The calculation of these weighted average interest rates
includes the interim rates charged on SBA guaranteed debentures
which have not yet been pooled.
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
44
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.
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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45
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ability of the issuer to obtain needed financing;
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changes in the economy affecting the issuer;
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financial statements and reports from portfolio company senior
management and ownership;
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the type of security, the securitys cost at the date of
purchase and any contractual restrictions on the disposition of
the security;
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discount from market value of unrestricted securities of the
same class at the time of purchase;
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special reports prepared by analysts;
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information as to any transactions or offers with respect to the
security
and/or sales
to third parties of similar securities;
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the issuers ability to make payments and the type of
collateral;
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the current and forecasted earnings of the issuer;
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statistical ratios compared to lending standards and to other
similar securities; and
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other pertinent factors.
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In making the good faith determination of the value of debt
securities, we start with the cost basis of the security, which
includes 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 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. For the quarter ended June 30, 2008, we asked
Duff & Phelps to perform the procedures on investments
in five portfolio companies comprising approximately 18% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of June 30,
2008. 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
46
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 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 Liabilities Including
an amendment of FASB Statement No. 115
(SFAS 159), which permits entities to
choose to measure many financial instruments and certain other
items at fair value. The objective of SFAS 159 is to
improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term
measurement objectives for accounting for financial instruments.
Under SFAS 159, unrealized gains and losses on items for
47
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
June 30, 2008, approximately 86.2% 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 June 30, 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 $0.2 million in
management fees from Triangle SBIC during the six months ended
June 30, 2007. This agreement terminated upon the closing
of the IPO.
48
Contractual
Obligations
As of June 30, 2008, our future fixed commitments for cash
payments are as follows:
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2009 to
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2011 to
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2013 and
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Total
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2008
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2010
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2012
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Thereafter
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SBA guaranteed debentures payable
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$
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89,110,000
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$
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$
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$
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$
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89,110,000
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Interest due on SBA guaranteed debentures payable
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49,054,957
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1,933,020
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10,657,284
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10,865,720
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25,598,933
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Unused commitments to extend credit(1)
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1,265,004
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1,265,004
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Operating lease payments(2)
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1,497,573
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57,336
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556,533
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582,336
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301,368
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Total
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$
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140,927,534
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$
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3,255,360
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$
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11,213,817
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$
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11,448,056
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$
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115,010,301
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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
June 30, 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. |
49
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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Total Amount
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Outstanding
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Involuntary
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Exclusive of
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Asset
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Liquidating
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Average Market
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Treasury
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Coverage per
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Preference per
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Value per
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Class and Year
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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
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thousands)
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|
|
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|
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SBA guaranteed debentures payable
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|
|
|
|
|
|
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2003
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$
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|
|
|
|
|
|
|
|
|
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N/A
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2004
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17,700
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|
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1,283
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|
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N/A
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2005
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|
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31,800
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|
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1,357
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|
|
|
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N/A
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2006
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|
|
31,800
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|
|
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1,791
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|
|
|
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N/A
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2007
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|
|
37,010
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|
|
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3,526
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|
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N/A
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(a) |
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Total amount of each class of senior securities outstanding at
the end of the period presented. |
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(b) |
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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. |
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(c) |
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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. |
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(d) |
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Not applicable because senior securities are not registered for
public trading. |
50
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 June 30, 2008, we had investments in 34
portfolio companies, with an aggregate cost of
$159.1 million.
Our
Business Strategy
We seek attractive returns by generating current income from our
debt investments and capital appreciation from our equity
related investments by:
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Focusing on Underserved Markets. We believe
that broad-based consolidation in the financial services
industry coupled with operating margin and growth pressures have
caused financial institutions to de-emphasize services to lower
middle market companies in favor of larger corporate clients and
capital market transactions. We believe these dynamics have
resulted in the financing market for lower middle market
companies to be underserved, providing us with greater
investment opportunities.
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Providing Customized Financing Solutions. We
offer a variety of financing structures and have the flexibility
to structure our investments to meet the needs of our portfolio
companies. Typically we invest in senior and subordinated debt
securities, coupled with equity interests. We believe our
ability to customize financing arrangements makes us an
attractive partner to lower middle market companies.
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Leveraging the Experience of Our Management
Team. Our senior management team has more than
100 years of combined experience advising, investing in,
lending to and operating companies across changing market
cycles. The members of our management team have diverse
investment backgrounds, with prior experience at investment
banks, specialty finance companies, commercial banks, and
privately and publicly held companies in the capacity of
executive officers. We believe this diverse experience provides
us with an in depth understanding of the strategic, financial
and operational challenges and opportunities of lower middle
market companies. We believe this understanding allows us to
select and structure better investments and to efficiently
monitor and provide managerial assistance to our portfolio
companies.
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Applying Rigorous Underwriting Policies and Active Portfolio
Management. Our senior management team has
implemented rigorous underwriting policies that are followed in
each transaction. These policies include a thorough analysis of
each potential portfolio companys competitive position,
financial performance, management team operating discipline,
growth potential and industry attractiveness, allowing us to
better assess the companys prospects. After investing in a
company, we monitor the investment closely, typically receiving
monthly, quarterly and annual financial statements. We analyze
and discuss in detail the companys financial performance
with management in addition to
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51
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attending regular board of directors meetings. We believe that
our initial and ongoing portfolio review process allows us to
monitor effectively the performance and prospects of our
portfolio companies.
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Taking Advantage of Low Cost Debentures Guaranteed by the
SBA. Our 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 Industry 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 industry
diversification, using industry and market metrics as key
indicators. By monitoring our investment portfolio for industry
diversification we seek to reduce the effects of economic
downturns associated with any particular industry or market
sector. However, we may from time to time hold securities of a
single portfolio company that comprise more than 5.0% of our
total assets
and/or more
than 10.0% of the outstanding voting securities of the portfolio
company. For that reason, we are classified as a non-diversified
management investment company under the 1940 Act.
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Utilizing Long-Standing Relationships to Source
Deals. Our senior management team maintains
extensive relationships with entrepreneurs, financial sponsors,
attorneys, accountants, investment bankers, commercial bankers
and other non-bank providers of capital who refer prospective
portfolio companies to us. These relationships historically have
generated significant investment opportunities. We believe that
our network of relationships will continue to produce attractive
investment opportunities.
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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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52
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 June 30, 2008, the weighted average yield on all of our
outstanding debt investments was approximately 14.0%.
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:
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Origination
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Due Diligence and Underwriting
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Approval
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Documentation and Closing
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Portfolio Management and Investment Monitoring
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53
Our investment process is summarized in the following chart:
Origination
The origination process for our investments includes sourcing,
screening, preliminary due diligence, transaction structuring,
and negotiation. Our origination process ultimately leads to the
issuance of a non-binding term sheet. Investment origination is
conducted by our eight investment professionals who are
responsible for sourcing potential investment opportunities. Our
investment professionals utilize their extensive relationships
with various financial sponsors, entrepreneurs, attorneys,
accountants, investment bankers and other non-bank providers of
capital to source transactions with prospective portfolio
companies.
If a transaction meets our investment criteria, we perform
preliminary due diligence, taking into consideration some or all
of the following factors:
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A comprehensive financial model that we prepare based on
quantitative analysis of historical financial performance,
financial projections and pro forma financial ratios assuming
investment;
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Competitive landscape surrounding the potential investment;
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Strengths and weaknesses of the potential investments
business strategy and industry;
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Results of a broad qualitative analysis of the companys
products or services, market position, market dynamics and
customers and suppliers; and
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Potential investment structures, certain financing ratios and
investment pricing terms.
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If the results of our preliminary due diligence are
satisfactory, the origination team prepares a Summary
Transaction Memorandum which is presented to our investment
committee. If our investment committee recommends moving
forward, we issue a non-binding term sheet to the potential
portfolio company. Upon execution of a term sheet, we begin our
formal due diligence and underwriting process as we move toward
investment approval.
54
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.
Portfolio
Management and Investment Monitoring
Our investment professionals generally employ several methods of
evaluating and monitoring the performance of our portfolio
companies, which, depending on the particular investment, may
include the following specific processes, procedures and reports:
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Monthly and quarterly review of actual financial performance
versus the corresponding period of the prior year and financial
projections;
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Monthly and quarterly monitoring of all financial and other
covenants;
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Review of senior lender loan compliance certificates, where
applicable;
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55
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Quarterly review of operating results, and general business
performance, including the preparation of a portfolio monitoring
report which is distributed to members of our investment
committee;
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Periodic face-to-face meetings with management teams and
financial sponsors of portfolio companies;
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Attendance at portfolio company board meetings through board
seats or observation rights; and
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Application of our investment rating system to each investment.
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In the event that our investment committee determines that an
investment is underperforming, or circumstances suggest that the
risk associated with a particular investment has significantly
increased, we undertake more aggressive monitoring of the
affected portfolio company. The frequency of our monitoring of
an investment is determined by a number of factors, including,
but not limited to, the trends in the financial performance of
the portfolio company, the investment structure and the type of
collateral securing our investment, if any.
Investment
Rating System
We monitor a wide variety of key credit statistics that provide
information regarding our portfolio companies to help us assess
credit quality and portfolio performance. We generally require
our portfolio companies to provide annual audits in addition to
monthly and quarterly unaudited financial statements. Using
these statements, we calculate and evaluate certain financing
ratios. For purposes of analyzing the financial performance of
our portfolio companies, we may make certain adjustments to
their financial statements to reflect the pro forma results of a
company consistent with a change of control transaction, to
reflect anticipated cost savings resulting from a merger or
restructuring, costs related to new product development,
compensation to previous owners, and other acquisition or
restructuring related items.
As part of our valuation procedures we risk rate all of our
investments in debt securities. Our investment rating system
uses a scale of 0 to 10, with 10 being the lowest probability of
default and principal loss. This system is used to estimate the
probability of default on our debt securities and the
probability of loss if there is a default. The system is also
used to assist us in estimating the fair value of equity related
securities. These types of systems are referred to as risk
rating systems and are used by banks and rating agencies. Our
risk rating system covers both qualitative and quantitative
aspects of the business and the securities we hold.
56
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:
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Investment
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Rating
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Description
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10
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Investment is performing above original expectations and
possibly 30.0% or more above original projections provided by
the portfolio company. Investment has been positively influenced
by an unforeseen external event. Full return of principal and
interest is expected. Capital gain is expected.
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9
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|
Investment is performing above original expectations and
possibly 30.0% or more above original projections provided by
the portfolio company. Investment may have been or is soon to be
positively influenced by an unforeseen external event. Full
return of principal and interest is expected. Capital gain is
expected.
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8
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|
Investment is performing above original expectations and
possibly 21.0% to 30.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Capital gain is expected.
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7
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|
Investment is performing above original expectations and
possibly 11.0% to 21.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Depending on age of transaction, potential for capital
gain exists.
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6
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|
Investment is performing above original expectations and
possibly 5.0% to 11.0% above original projections provided by
the portfolio company. Full return of principal and interest is
expected. Depending on age of transaction, potential for capital
gain exists.
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5
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|
Investment is performing in line with expectations. Full return
of principal and interest is expected. Depending on age of
transaction, potential for nominal capital gain may be expected.
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4
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|
Investment is performing below expectations, but no covenant
defaults have occurred. Full return of principal and interest is
expected. Little to no capital gain is expected.
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3
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Investment is in default of transaction covenants but interest
payments are current. No loss of principal is expected.
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2
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|
Investment is in default of transaction covenants and interest
payments are not current. A principal loss of between 1.0% and
33.0% is expected.
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1
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|
Investment is in default of transaction covenants and interest
(and possibly principal) payments are not current. A principal
loss of between 34.0% and 67.0% is expected.
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0
|
|
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
57
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. 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:
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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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58
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information as to any transactions or offers with respect to the
security
and/or sales
to third parties of similar securities;
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the issuers ability to make payments and the type of
collateral;
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the current and forecasted earnings of the issuer;
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statistical ratios compared to lending standards and to other
similar securities; and
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other pertinent factors.
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In making the good faith determination of the value of debt
securities, we start with the cost basis of the security, which
includes the amortized original issue discount, and
payment in kind (PIK) interest, if any.
We also use the risk rating system discussed above under
Investment Rating System to estimate the probability
of default on the debt securities and the probability of loss if
there is a default. The risk rating system covers both
qualitative and quantitative aspects of the business and the
securities held. In valuing debt securities, we utilize an
income approach model that considers factors
including, but not limited to, (i) the portfolio
investments current risk rating (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 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. For the quarter ended June 30, 2008, we asked
Duff & Phelps to perform the procedures on investments
in five portfolio companies comprising approximately 18% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of June 30,
2008. 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.
59
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 June 30, 2008, we employed thirteen individuals,
including investment and portfolio management professionals,
operations professionals and administrative staff. We expect to
expand our management team and administrative staff in the
future in proportion to our growth.
Properties
We do not own any real estate or other physical properties
materially important to our operation or any of our
subsidiaries. Currently, we lease approximately
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.
60
PORTFOLIO
COMPANIES
The following table sets forth certain information as of
June 30, 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.
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Principal
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Fair
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Portfolio Company
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Industry
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Type of Investment(1)(2)
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Amount
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Cost
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Value(3)
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Non-Control / Non-Affiliate Investments:
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Ambient Air Corporation (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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$
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3,144,654
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$
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3,016,789
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$
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3,016,789
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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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1,838,115
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1,838,115
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Common Stock
Warrants (455 shares)
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142,361
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892,700
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5,016,729
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4,997,265
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5,747,604
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American De-Rosa Lamparts, LLC
And Hallmark Lighting (8%)*
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Wholesale and
Distribution
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Subordinated Note
(15.25%, Due 10/13)
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8,052,586
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7,897,900
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7,897,900
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1945 S. Tubeway Ave.
Commerce, CA 90040
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8,052,586
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7,897,900
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7,897,900
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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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4,359,004
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4,265,799
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4,265,799
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Bartlett, TN 38133
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Marketing Products
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Unit purchase warrant
(87,302 Class C units)
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25,200
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273,100
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4,359,004
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4,290,999
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4,538,899
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ARC Industries, LLC (3%)*
221 Dalton Avenue
Charlotte, NC 28225
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Remediation
Services
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Subordinated Note
(19%, Due 11/10)
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2,464,919
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2,439,537
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2,439,537
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2,464,919
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2,439,537
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2,439,537
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Art Headquarters, LLC (2%)*
11885
44th Street
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Retail, Wholesale
and Distribution
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Subordinated Note
(14%, Due 01/10)
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2,333,488
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2,299,257
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2,075,900
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Clearwater, FL 33762
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Membership unit warrants
(15% of units (150 units))
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40,800
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2,333,488
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2,340,057
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2,075,900
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Assurance Operations Corp. (4%)*
9341 Highway 43
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Auto Components/
Metal Fabrication
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Subordinated Note
(17%, Due 03/12)
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3,925,915
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3,879,225
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3,646,900
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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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3,925,915
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4,136,368
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3,695,400
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Bruce Plastics, Inc. (0%)*
4100 Steubenville Pike
Pittsburgh, PA 15205
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Plastic Component
Manufacturing
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Subordinated Note
(14%, Due 10/11)
Common Stock Warrants
(12% of common stock)
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1,500,000
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1,385,076
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108,534
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1,500,000
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1,493,610
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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
|
|
Healthcare Products
|
|
(16%, Due 03/10)
|
|
|
5,129,230
|
|
|
|
5,094,457
|
|
|
|
5,094,457
|
|
Amsterdam, NY 12010
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,129,230
|
|
|
|
5,094,457
|
|
|
|
5,369,057
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Cyrus Networks, LLC (6%)*
|
|
Data Center
|
|
Senior Note
|
|
|
|
|
|
|
|
|
|
|
|
|
4201 Southwest Freeway
|
|
Services Provider
|
|
(8%, Due 07/13)
|
|
$
|
4,747,722
|
|
|
$
|
4,731,423
|
|
|
$
|
4,731,423
|
|
Houston, TX 77027
|
|
|
|
2nd
Lien Note
(11%, Due 01/14)
|
|
|
1,026,385
|
|
|
|
1,026,385
|
|
|
|
1,026,385
|
|
|
|
|
|
Revolving Line of
Credit (8)%
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,027,251
|
|
|
|
6,010,952
|
|
|
|
6,010,952
|
|
DataPath, Inc. (1%)*
|
|
Satellite
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350 Technology Pkwy., Suite 400
|
|
Communication
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Norcross, GA 30092
|
|
Manufacturer
|
|
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
636,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
636,700
|
|
Eastern Shore Ambulance, Inc.(1%)*
3303 Airline Blvd., Building 5A
|
|
Specialty Health
Care Services
|
|
Subordinated Note
(13%, Due 03/11)
|
|
|
1,000,000
|
|
|
|
964,005
|
|
|
|
964,005
|
|
Portsmouth, VA 23701
|
|
|
|
Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6% of common stock)
|
|
|
|
|
|
|
55,268
|
|
|
|
41,300
|
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000
|
|
|
|
10,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,049,273
|
|
|
|
1,016,105
|
|
Electronic Systems Protection, Inc. (4%)*
|
|
Power Protection
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
517 North
Industrial Drive
|
|
Systems
Manufacturing
|
|
(14%, Due 12/15)
Senior Note
|
|
|
3,028,903
|
|
|
|
3,000,977
|
|
|
|
3,000,977
|
|
Zebulon, NC 27577
|
|
|
|
(7%, Due 01/14)
|
|
|
994,219
|
|
|
|
994,219
|
|
|
|
994,219
|
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,023,122
|
|
|
|
4,245,196
|
|
|
|
4,245,196
|
|
Energy Hardware Holdings, LLC (4%)*
2730 E. Phillips Road
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
|
3,306,628
|
|
|
|
3,242,864
|
|
|
|
3,242,864
|
|
Greer, SC 29650
|
|
|
|
Junior Subordinated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note (8%, Due 10/12)
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,514,295
|
|
|
|
3,450,531
|
|
|
|
3,450,531
|
|
FCL Graphics, Inc. (7%)*
4600 N. Olcott Ave
|
|
Commercial Printing
Services
|
|
Senior Note
(7%, Due 10/12)
|
|
|
1,789,200
|
|
|
|
1,782,290
|
|
|
|
1,782,290
|
|
Harwood Heights, IL 60706
|
|
|
|
Senior Note
(12%, Due 10/13)
|
|
|
2,000,000
|
|
|
|
1,992,608
|
|
|
|
1,992,608
|
|
|
|
|
|
2nd
Lien Note
(18%, Due 4/14)
|
|
|
3,265,970
|
|
|
|
3,254,235
|
|
|
|
3,254,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055,170
|
|
|
|
7,029,133
|
|
|
|
7,029,133
|
|
Fire Sprinkler Systems, Inc. (2%)*
|
|
Specialty Trade
|
|
Subordinated Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
705 E. Harrison Street, Suite 200
|
|
Contractors
|
|
(13% 17.5%, Due 04/11)
|
|
|
2,464,428
|
|
|
|
2,426,940
|
|
|
|
2,123,100
|
|
Corona, CA 92879
|
|
|
|
Common Stock (250 shares)
|
|
|
|
|
|
|
271,186
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464,428
|
|
|
|
2,698,126
|
|
|
|
2,141,100
|
|
Garden Fresh Restaurant Corp. (4%)*
15822 Bernardo Center Drive
|
|
Restaurant
|
|
2nd
Lien Note
(13%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
San Diego, CA 92127
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
583,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,583,600
|
|
Gerli & Company (3%)*
75 Stark Street
|
|
Specialty Woven
Fabrics
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,145,496
|
|
|
|
3,062,284
|
|
|
|
3,062,284
|
|
Plains, PA 18705
|
|
Manufacturer
|
|
Common Stock Warrants
(56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,145,496
|
|
|
|
3,145,698
|
|
|
|
3,062,284
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Inland Pipe Rehabilitation
|
|
Cleaning and Repair
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
Holding Company, LLC (8%)*
|
|
Services
|
|
(14%, Due 01/14)
|
|
$
|
8,012,889
|
|
|
$
|
7,292,089
|
|
|
$
|
7,292,089
|
|
350 N. Old Woodward, Ste. 100
Birmingham, MI 48009
|
|
|
|
Membership Interest
Purchase Warrant (2.5)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,300
|
|
|
|
563,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,012,889
|
|
|
|
7,855,389
|
|
|
|
7,855,389
|
|
Jenkins Services, LLC (10%)*
45681 Oakbrook Ct., Ste. 113
|
|
Restoration
Services
|
|
Subordinated Note
(17.5%, Due 04/14)
|
|
|
8,107,945
|
|
|
|
7,952,853
|
|
|
|
7,952,853
|
|
Sterling, VA 20166
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,400,000
|
|
|
|
1,359,298
|
|
|
|
1,359,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,507,945
|
|
|
|
9,312,151
|
|
|
|
9,312,151
|
|
Library Systems & Services, LLC (3%)*
12850 Middlebrook Road
Germantown, MD 20874
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
Common Stock Warrants
|
|
|
2,000,000
|
|
|
|
1,937,506
|
|
|
|
1,937,506
|
|
|
|
|
|
(112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
608,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
1,996,501
|
|
|
|
2,545,506
|
|
Syrgis Holdings, Inc. (6%)*
1025 Mary Laidley (9%, Due Drive
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note
08/12-02/14)
|
|
|
4,797,500
|
|
|
|
4,764,552
|
|
|
|
4,764,552
|
|
Covington, KY 41017
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
718,200
|
|
|
|
|
|
|
|
|
4,797,500
|
|
|
|
5,764,552
|
|
|
|
5,482,752
|
|
TrustHouse Services Group, Inc. (5%)*
21 Armory Drive
|
|
Food Management
Services
|
|
Subordinated Note
(14%, Due 03/15)
|
|
|
4,221,233
|
|
|
|
4,139,190
|
|
|
|
4,139,190
|
|
Wheeling, WV 26003
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
475,000
|
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,221,233
|
|
|
|
4,639,190
|
|
|
|
4,639,190
|
|
Twin-Star International, Inc. (6%)*
115 S.E. 4th Avenue
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(13%, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,434,146
|
|
|
|
4,434,146
|
|
Delray Beach, FL 33483
|
|
Manufacturer
|
|
Senior Note (8%,
Due 04/13)
|
|
|
1,485,000
|
|
|
|
1,485,000
|
|
|
|
1,485,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,985,000
|
|
|
|
5,919,146
|
|
|
|
5,919,146
|
|
Wholesale Floors, Inc. (4%)*
8855 N. Black Canyon Highway
|
|
Commercial
Services
|
|
Subordinated Note
(14%, Due 06/14)
|
|
|
3,502,771
|
|
|
|
3,334,971
|
|
|
|
3,334,971
|
|
Phoenix, AZ 85021
|
|
|
|
Membership Interest
Purchase Warrant (4.0)%
|
|
|
|
|
|
|
132,800
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,502,771
|
|
|
|
3,467,771
|
|
|
|
3,467,771
|
|
Yellowstone Landscape Group, Inc. (13%)*
220 Elm Street
|
|
Landscaping
Services
|
|
Subordinated Note
(15%, Due 04/14)
|
|
|
13,065,000
|
|
|
|
12,749,440
|
|
|
|
12,749,440
|
|
New Canaan, CT 06840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,065,000
|
|
|
|
12,749,440
|
|
|
|
12,749,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control/Non-Affiliate Investments
|
|
|
|
|
|
|
114,103,971
|
|
|
|
115,624,742
|
|
|
|
114,911,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (6%)*
770 Pelham Road, Suite 200
|
|
Asset Management
Software Provider
|
|
Subordinated Note
(15%, Due 03/13)
|
|
|
5,046,055
|
|
|
|
4,949,777
|
|
|
|
4,949,777
|
|
Greenville, SC 29615
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,046,055
|
|
|
|
5,449,777
|
|
|
|
5,449,777
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
Portfolio Company
|
|
Industry
|
|
Type of Investment(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Value(3)
|
|
|
Axxiom Manufacturing, Inc. (2%)*
|
|
Industrial
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
11927 South Highway 6
|
|
Equipment
|
|
(14%, Due 01/11)
|
|
$
|
2,102,454
|
|
|
$
|
2,077,226
|
|
|
$
|
2,077,226
|
|
Fresno, TX 77545
|
|
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
286,300
|
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,102,454
|
|
|
|
2,277,226
|
|
|
|
2,369,926
|
|
Brantley Transportation, LLC
|
|
Oil and Gas
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
(Brantley Transportation) and
|
|
Services
|
|
Brantley Transportation
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine Street Holdings, LLC
|
|
|
|
(14%, Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,680,133
|
|
|
|
3,680,133
|
|
(Pine Street)(4) (4%)*
808 N. Ruth Street
|
|
|
|
Common Unit Warrants
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
|
|
|
|
3,913,733
|
|
|
|
3,913,733
|
|
Dyson Corporation (12%)*
53 Freedom Road
|
|
Custom Forging and
Fastener
|
|
Subordinated Note
(15%, Due 12/13)
|
|
|
10,161,935
|
|
|
|
9,953,777
|
|
|
|
9,953,777
|
|
Painesville, OH 44077
|
|
Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,161,935
|
|
|
|
10,953,777
|
|
|
|
10,953,777
|
|
Equisales, LLC (8%)*
|
|
Energy Products
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
13811 Cullen Blvd.
|
|
and Services
|
|
(15%, Due 04/12)
|
|
|
6,223,280
|
|
|
|
6,118,966
|
|
|
|
6,118,966
|
|
Houston, TX 77047
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,856,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,223,280
|
|
|
|
6,618,966
|
|
|
|
7,975,466
|
|
Flint Acquisition Corporation (1%)*
115 Todd Court
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,291,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomasville, NC 27360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
1,291,600
|
|
Genapure Corporation
|
|
Lab Testing
|
|
Genapure Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
(Genapure) and Genpref, LLC
|
|
Services
|
|
(4,286 shares)
|
|
|
|
|
|
|
500,000
|
|
|
|
627,216
|
|
(Genpref)(5) (1%)*
|
|
|
|
Genpref Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
1205 Industrial Blvd.
|
|
|
|
(455 shares)
|
|
|
|
|
|
|
63,602
|
|
|
|
79,784
|
|
Southampton, PA 18966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
707,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
27,333,724
|
|
|
|
30,085,414
|
|
|
|
32,661,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (15%)*
151 Walker Road
|
|
Packaging and
Materials Handling
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
8,859,632
|
|
|
|
8,717,540
|
|
|
|
8,717,540
|
|
Statesville, NC 28625
|
|
Equipment
Manufacturer
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
5,257,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,859,632
|
|
|
|
12,917,540
|
|
|
|
13,975,040
|
|
Porters Group, LLC (5%)*
1111 Oates Road
|
|
Metal Fabrication
|
|
Membership Units
(4,730 units)
|
|
|
|
|
|
|
471,254
|
|
|
|
4,436,000
|
|
Bessemer City, NC 28016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254
|
|
|
|
4,436,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
8,859,632
|
|
|
|
13,388,794
|
|
|
|
18,411,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, June 30, 2008 (175%)*
|
|
|
|
|
|
$
|
150,297,327
|
|
|
$
|
159,098,950
|
|
|
$
|
165,983,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non-income producing. |
|
|
|
(2) |
|
Interest rates on subordinated debt include cash interest rate
and, where applicable,
paid-in-kind
interest rate. |
|
|
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by 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. |
64
Description
of our Portfolio Companies
Set forth below is a brief description of each of our portfolio
companies as of June 30, 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
De-Rosa Lamparts and Hallmark Lighting
American De-Rosa Lamparts and Hallmark Lighting, headquartered
in Commerce, California, markets a wide variety of lighting
products, including fixtures, bulbs, electrical components,
glass, and hardware to maintenance and repair organizations,
lighting wholesalers, retailers, and original equipment
manufacturers.
American
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)
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.
65
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.
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.
66
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.
Inland
Pipe Rehabilitation Holding Company, LLC
Inland Pipe Rehabilitation Holding Company, LLC provides
maintenance, inspection, and repair for piping, sewers, drains,
and storm lines by utilizing several of the industrys
leading technologies including pipe bursting,
cured-in-place-pipe,
and spiral-wound piping.
Jenkins
Services, LLC
Jenkins Services, LLC, headquartered in Sterling, Virginia, is a
provider of insurance restoration services, focusing on
reconstruction and repair of damage to residential and
commercial buildings caused by fire, wind, storm, vandalism, or
burglary.
Library
Systems & Services, LLC
Library Systems & Services, LLC is a provider of
outsourced library management services in the U.S., with
customers including federal libraries such as the Library of
Congress and the Smithsonian.
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.
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.
67
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.
Wholesale
Floors, Inc.
Wholesale Floors, Inc., headquartered near Phoenix, Arizona,
provides commercial flooring design and installation services
for institutional and corporate clients and is the largest
full-service flooring contractor in the state of Arizona.
Yellowstone
Landscape Group, Inc.
Yellowstone Landscape Group, Inc., headquartered in Dallas,
Texas, is a full-service lawn care provider focused primarily on
the commercial market with services including lawn and landscape
maintenance, construction/installation, irrigation, turf
management, and tree care throughout Texas and the Southeast.
68
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 seven members, four 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of
|
Name
|
|
Age
|
|
Director Since
|
|
Current Term
|
|
W. McComb Dunwoody
|
|
|
63
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of
|
Name
|
|
Age
|
|
Director Since
|
|
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
|
69
Executive
Officers
The following persons serve as our executive officers in the
following capacities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
Name
|
|
Age
|
|
Position(s) Held with the Company
|
|
Officer Since
|
|
Garland S. Tucker, III
|
|
|
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.
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.
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
70
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 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. 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, LLC 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
71
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, Mr. Long 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, Mr. Long established and headed the Industrial
Growth Group. From 1979 to 1990, Mr. Long was with The First
Boston Corporation (now Credit Suisse) becoming a Director in
the Corporate Finance Department. Mr. Long began his career in
finance in 1976 with White Weld & Co., New York. Mr.
Long 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, Mr. Parker was Vice-President and
Treasurer at Marion Laboratories, Inc., a Fortune 500
pharmaceutical company, where Mr. Parker was responsible for
Marions public and private financings, venture capital
investments, divestitures, and investor communications. Before
working at Marion Laboratories, Mr. Parker worked six years as
Vice-President and Director of Private Placements at J. Henry
Schroder Corp, a position that followed three years at Kidder,
Peabody & Co., on its private placement desk.
Mr. Parker began his career in 1971 at Shearson,
Hammill & Co. in New York. Mr. Parker is a graduate of
North Carolina State University and Harvard Business School.
Meetings
of the Board of Directors and Committees
During 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.
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. 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
72
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 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
73
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. 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.
74
COMPENSATION
OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR
COMPENSATION
Our directors are divided into two groups interested
directors and independent directors. Interested directors are
interested persons as defined in
Section 2(a)(19) of the 1940 Act. The compensation table
below sets forth compensation that 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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All Other
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Name
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Year
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Cash($)
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Compensation($)
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Total($)
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W. McComb Dunwoody
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2007
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$
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28,000
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$
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28,000
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Thomas M. Garrott, III(1)
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2007
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$
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35,000
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$
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35,000
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Benjamin S. Goldstein
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2007
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$
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38,000
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$
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5,000(2
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$
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43,000
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Simon B. Rich, Jr.
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2007
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$
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38,000
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$
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5,000(3
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$
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43,000
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Sherwood H. Smith, Jr.
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2007
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$
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38,000
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$
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5,000(4
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$
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43,000
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(1) |
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On August 12, 2008, Mr. Garrott resigned as a member of our
board of directors for health related concerns. |
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(2) |
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Mr. Goldstein received $5,000 in 2007 for his services as
our audit committee chairman. |
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(3) |
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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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(4) |
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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
75
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 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.
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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
76
with the long-term interests of our stockholders. In allocating
among these elements the compensation committee believes that
the compensation of our NEOs should be based predominately on
company and individual performance.
Overview
Our performance-driven compensation policy consists of the
following three components:
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Base salary;
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Annual cash bonuses; and
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Long-term compensation pursuant to our equity incentive plan.
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We designed, 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 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
77
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 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
78
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.
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
79
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.
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.
80
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.
81
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 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 $1 million limit on deductibility.
We intend to account for share-based awards under the provisions
of Statement of Financial Accounting Standards No. 123(R),
Share-Based Payment, or FAS 123(R). FAS 123(R)
establishes accounting for stock-based awards exchanged for
goods or services. Accordingly, stock-based compensation cost is
measured at grant date, based on the fair value of the awards,
and is recognized as an expense ratably over the requisite
service period. Accounting rules also require us to record cash
compensation as an expense at the time the obligation is
incurred.
Conclusion
Our compensation policies are designed to retain and motivate
our NEOs and to ultimately reward them for outstanding
performance. The retention and motivation of our NEOs should
enable us to grow strategically and position ourselves
competitively in our market.
Executive
Officer Compensation
Due to the fact that we consummated our initial public offering
of common stock in February 2007, we did not compensate our
executive officers in 2006, and we only have executive officer
compensation data for a portion of 2007. The respective
compensation of our NEOs in 2007 was as follows:
2007
Summary Compensation Table
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Name and Principal
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Base
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All Other
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Position
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Year
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Salary(1)
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Bonus
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Compensation(2)
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Total
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Garland S. Tucker III
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2007
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$
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231,875
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$
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265,000
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$
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18,277
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$
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515,152
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Chief Executive Officer
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Brent P.W. Burgess
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2007
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$
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210,000
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$
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240,000
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$
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12,318
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$
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462,318
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Chief Investment Officer
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Steven C. Lilly
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2007
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$
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210,000
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$
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280,416
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(3)
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$
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11,488
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$
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501,904
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Chief Financial Officer
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Tarlton H. Long
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2007
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$
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175,000
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$
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0
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$
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16,886
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$
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191,886
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Managing Director
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David F. Parker
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2007
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$
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175,000
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$
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0
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$
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17,949
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$
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192,949
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Managing Director
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(1) |
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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) |
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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) |
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Includes a tax
gross-up
bonus approved by the compensation committee. |
82
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.
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.
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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
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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)
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Garland S. Tucker,III
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Severance Pay(1)
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$
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530,000
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$
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795,000
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$
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530,000
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$
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530,000
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$
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795,000
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Bonus Compensation(2)
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$
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530,000
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$
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795,000
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$
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530,000
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$
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530,000
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$
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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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$
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480,000
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$
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720,000
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$
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480,000
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$
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480,000
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$
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720,000
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Bonus Compensation(2)
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$
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480,000
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$
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720,000
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$
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480,000
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$
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480,000
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$
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720,000
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Steven C. Lilly
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Severance Pay(1)
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$
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480,000
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$
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720,000
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$
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480,000
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$
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480,000
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$
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720,000
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Bonus Compensation(2)
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$
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480,000
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$
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720,000
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$
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480,000
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$
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480,000
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$
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720,000
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Tarlton H. Long
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Severance Pay(1)
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$
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200,000
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$
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300,000
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$
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200,000
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$
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200,000
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$
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300,000
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Bonus Compensation(2)
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$
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200,000
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$
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300,000
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$
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200,000
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$
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200,000
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$
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300,000
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David F. Parker
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Severance Pay(1)
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$
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200,000
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$
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300,000
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$
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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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$
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200,000
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$
|
300,000
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$
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200,000
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$
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200,000
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$
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300,000
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83
|
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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) |
|
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 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
84
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 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.
85
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.
86
CONTROL
PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock as of August 1,
2008, by each of our executive officers and independent
directors and all of our directors and executive officers as a
group. As of August 1, 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 August 1, 2008. Percentage of beneficial
ownership is based on 6,917,363 shares of common stock
outstanding as of August 1, 2008. The business address of
each person below is 3600 Glenwood Avenue, Suite 104,
Raleigh, North Carolina 27612.
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Dollar Range of
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Number of
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Equity
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Shares
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Securities
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Beneficially
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Percentage
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Beneficially Owned by
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Name of Beneficial Owner
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Owned
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of Class
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Directors(1)
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Executive Officers:
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Garland S. Tucker, III
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144,455
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(2)
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2.1
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%
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over $
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100,000
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Brent P. W. Burgess
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140,187
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(3)
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2.0
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%
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over $
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100,000
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Steven C. Lilly
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118,758
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(4)
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1.7
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%
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over $
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100,000
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Independent Directors:
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W. McComb Dunwoody
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153,854
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(5)
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2.2
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%
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over $
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100,000
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Thomas M. Garrott, III(6)
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88,311
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(5)
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1.3
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%
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over $
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100,000
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Benjamin S. Goldstein
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9,256
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(5)
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*
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over $
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100,000
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Simon B. Rich, Jr.
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23,775
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(5)
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*
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over $
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100,000
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Sherwood H. Smith, Jr.
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44,264
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(5)
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*
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over $
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100,000
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All Directors and Officers as a Group
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722,860
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10.4
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%
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over $
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100,000
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(1) |
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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 August 1, 2008. |
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(2) |
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Includes 22,054 shares of restricted stock that vest
ratably over four years. |
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(3) |
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Includes 19,973 shares of restricted stock that vest
ratably over four years. |
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Includes 19,973 shares of restricted stock that vest
ratably over four years. |
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Includes 2,700 shares of restricted stock that become fully
vested on May 7, 2009. |
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(6) |
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On August 12, 2008, Mr. Garrott resigned as a member of our
board of directors for health related reasons. |
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
87
stockholder who has not elected to receive dividends in cash and
hold such shares in non-certificated form. Upon request by a
stockholder participating in the plan, received in writing not
less than three days prior to the payment date fixed by the
Board of Directors, the plan administrator will, instead of
crediting shares to the participants account, issue a
certificate registered in the participants name for the
number of whole shares of our common stock and a check for any
fractional share. Those stockholders whose shares are held by a
broker or other financial intermediary may receive dividends in
cash by notifying their broker or other financial intermediary
of their election.
We intend to use primarily newly issued shares to implement the
plan, so long as our shares are trading at or above net asset
value. If our shares are trading below net asset value, we
intend to purchase shares in the open market in connection with
our implementation of the plan. If we use newly issued shares to
implement the plan, the number of shares to be issued to a
stockholder is determined by dividing the total dollar amount of
the dividend payable to such stockholder by the market price per
share of our common stock at the close of regular trading on the
Nasdaq Global Market on the dividend payment date. Market price
per share on that date will be the closing price for such shares
on the Nasdaq Global Market or, if no sale is reported for such
day, at the average of their reported bid and asked prices. If
we purchase shares in the open market to implement the plan, the
number of shares to be issued to a stockholder is determined by
dividing the total dollar amount of the dividend payable to such
stockholder by the average price per share for all shares
purchased by the Plan Administrator in the open market in
connection with the dividend. The number of shares of our common
stock to be outstanding after giving effect to payment of the
dividend cannot be established until the value per share at
which additional shares will be issued has been determined and
elections of our stockholders have been tabulated.
There will be no brokerage charges or other charges to
stockholders who participate in the plan. We will pay the plan
administrators fees under the plan. If a participant
elects by written notice to the plan administrator to have the
plan administrator sell part or all of the shares held by the
plan administrator in the participants account and remit
the proceeds to the participant, the plan administrator is
authorized to deduct a $15.00 transaction fee plus a $0.10 per
share brokerage commissions from the proceeds.
Stockholders who receive dividends in the form of stock
generally are subject to the same federal, state and local tax
consequences as are stockholders who elect to receive their
dividends in cash. A stockholders basis for determining
gain or loss upon the sale of stock received in a dividend from
us will be equal to the total dollar amount of the dividend
payable to the stockholder. Any stock received in a dividend
will have a holding period for 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.
88
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 June 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.
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.
89
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
June 30, 2008, we (through Triangle SBIC) had issued
$89.1 million of SBA guaranteed debentures, which had an
annual weighted-average interest rate of approximately 4.8%.
With $65.3 million of regulatory capital as of
June 30, 2008, we have the current capacity to issue up to
a total of $130.6 million of SBA guaranteed debentures.
Outstanding
Securities
Set forth below are our outstanding classes of securities as of
June 30, 2008.
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Amount held by
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Amount
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Company
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Amount
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Title of Class
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Authorized
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or for its Account
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Outstanding
|
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Common Stock
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150,000,000
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6,917,363
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SBA-Guaranteed Debentures
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$
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130.6 million(1
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)
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$
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89.1 million
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(1) |
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Based on $65.3 million of regulatory capital as of
June 30, 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 actually incurred by them in
connection with any proceeding to which they may be made, or
threatened to be made, a party by
90
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.
91
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 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
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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.
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The requisite stockholder approval must be obtained each time an
acquiror crosses one of the thresholds of voting power set forth
above. Control shares do not include shares the acquiring person
is then entitled to vote as a result of having previously
obtained stockholder approval. A control share acquisition means
the acquisition of 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
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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.
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A person is not an interested stockholder under this statute if
the board of directors approved in advance the transaction by
which such stockholder otherwise would have become an interested
stockholder. However, in approving a transaction, the board of
directors may provide that its approval is subject to
compliance, at or after the time of approval, with any terms and
conditions determined by the board.
After the
5-year
prohibition, any business combination between the Maryland
corporation and an interested stockholder generally must be
recommended by the board of directors of the corporation and
approved by the affirmative vote of at least:
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80.0% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting
stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the
business combination is to be effected or held by an affiliate
or associate of the interested stockholder.
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These super-majority vote requirements do not apply if the
corporations common stockholders receive a minimum price,
as defined under Maryland law, for their shares in the form of
cash or other consideration in the same form as previously paid
by the interested stockholder for its shares.
The statute permits various exemptions from its provisions,
including business combinations that are exempted by the board
of directors before the time that the interested stockholder
becomes an interested stockholder. Moreover, it does not apply
to a corporation, such as us, registered under the 1940 Act as a
closed-end investment company unless the board of directors
adopts a resolution that the corporation will be subject to the
Business Combination Act.
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.
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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.
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A
Non-U.S. stockholder
is a beneficial owner of shares of our common stock that is not
a U.S. stockholder.
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,
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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).
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We may be required to recognize taxable income in circumstances
in which we do not receive cash. For example, if we hold debt
obligations that are treated under applicable tax rules as
having original issue discount (such as debt instruments with
PIK interest or, in certain cases, increasing interest rates or
issued with warrants), we must include in income each year a
portion of the original issue discount that accrues over the
life of the obligation, regardless of whether cash representing
such income is received by us in the same taxable year. We may
also have to include in income other amounts that we have not
yet received in cash, such as PIK interest and deferred loan
origination fees that are paid after origination of the loan or
are paid in non-cash compensation such as warrants or stock.
Because any original issue discount or other amounts accrued
will be included in our investment company taxable income for
the year of accrual, we may be required to make a distribution
to our stockholders in order to satisfy the Annual Distribution
Requirement, even though we will not have received any
corresponding cash amount.
Although we do not presently expect to do so, we are authorized
to borrow funds and to sell assets in order to satisfy
distribution requirements. However, under the 1940 Act, we are
not permitted to make distributions to our stockholders while
our debt obligations and other senior securities are outstanding
unless certain asset coverage tests are met. See
Regulation 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
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assets in order to meet the Annual Distribution Requirement or
the Excise Tax Avoidance Requirement, we may make such
dispositions at times that, from an investment standpoint, are
not advantageous.
The remainder of this discussion assumes that we qualify as a
RIC and have satisfied the Annual Distribution Requirement.
Taxation
of U.S. Stockholders
Distributions by us generally are taxable to
U.S. stockholders as ordinary income or capital gains.
Distributions of our investment company taxable
income (which is, generally, our net ordinary income plus
realized net short-term capital gains in excess of realized net
long-term capital losses) will be taxable as ordinary income to
U.S. stockholders to the extent of our current or
accumulated earnings and profits, whether paid in cash or
reinvested in additional common stock. To the extent such
distributions paid by us to non-corporate stockholders
(including individuals) are attributable to dividends from
U.S. corporations and certain qualified foreign
corporations, such distributions (Qualifying
Dividends) may be eligible for a maximum tax rate of
15.0%. In this regard, it is anticipated that distributions paid
by us will generally not be attributable to dividends and,
therefore, generally will not qualify for the 15.0% maximum rate
applicable to Qualifying Dividends. Distributions of our net
capital gains (which is generally our realized net long-term
capital gains in excess of realized net short-term capital
losses) properly designated by us as capital gain
dividends will be taxable to a U.S. stockholder as
long-term capital gains that are currently taxable at a maximum
rate of 15.0% in the case of individuals, trusts or estates,
regardless of the U.S. stockholders holding period
for his, her or its common stock and regardless of whether paid
in cash or reinvested in additional common stock. Distributions
in excess of our earnings and profits first will reduce a
U.S. stockholders adjusted tax basis in such
stockholders common stock and, after the adjusted basis is
reduced to zero, will constitute capital gains to such
U.S. stockholder.
We 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.
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If an investor purchases shares of our common stock shortly
before the record date of a distribution, the price of the
shares will include the value of the distribution and the
investor will be subject to tax on the distribution even though
economically it may represent a return of his, her or its
investment.
A stockholder generally will recognize taxable gain or loss if
the stockholder sells or otherwise disposes of his, her or its
shares of our common stock. The amount of gain or loss will be
measured by the difference between such stockholders
adjusted tax basis in the common stock sold and the amount of
the proceeds received in exchange. Any gain arising from such
sale or disposition generally will be treated as long-term
capital gain or loss if the stockholder has held his, her or its
shares for more than one year. Otherwise, it will be classified
as short-term capital gain or loss. However, any capital loss
arising from the sale or disposition of shares of our common
stock held for six months or less will be treated as long-term
capital loss to the extent of the amount of capital gain
dividends received, or undistributed capital gain deemed
received, with respect to such shares. In addition, all or a
portion of any loss recognized upon a disposition of shares of
our common stock may be disallowed if other shares of our common
stock are purchased (whether through reinvestment of
distributions or otherwise) within 30 days before or after
the disposition.
In general, individual U.S. stockholders currently are
subject to a maximum federal income tax rate of 15.0% on their
net capital gain (i.e., the excess of realized net long-term
capital gains over realized net short-term capital losses),
recognized prior to January 1, 2011, including any
long-term capital gain derived from an investment in our shares.
Such rate is lower than the maximum rate on ordinary income
currently payable by individuals. Corporate
U.S. stockholders currently are subject to federal income
tax on net capital gain at the maximum 35.0% rate also applied
to ordinary income. Non-corporate stockholders with net capital
losses for a year (i.e., capital losses in excess of capital
gains) generally may deduct up to $3,000 of such losses against
their ordinary income each year; any net capital losses of a
non-corporate stockholder in excess of $3,000 generally may be
carried forward and used in subsequent years as provided in the
Code. Corporate stockholders generally may not deduct any net
capital losses for a year, but may 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
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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
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.
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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:
(i) does not have any class of securities that is traded on
a national securities exchange or has a class of securities
listed on a national securities exchange but has an aggregate
market value of outstanding voting and non-voting common equity
of less than $250.0 million;
(ii) is controlled by a BDC or a group of companies
including a BDC and the BDC has an affiliated person who is a
director of the eligible portfolio company; or
(iii) is a small and solvent company having total assets of
not more than $4.0 million and capital and surplus of not
less than $2.0 million.
(2) Securities of any eligible portfolio company that we
control.
(3) Securities purchased in a private transaction from a
U.S. issuer that is not an investment company or from an
affiliated person of the issuer, or in transactions incident
thereto, if the issuer is in bankruptcy and subject to
reorganization or if the issuer, immediately prior to the
purchase of its securities was unable to meet its obligations as
they came due without material assistance other than
conventional lending or financing arrangements.
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(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.
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Code of
Ethics and Corporate Governance Guidelines
We have adopted a code of ethics and corporate governance
guidelines covering ethics and business conduct. These documents
apply to our directors, officers and employees. Our code of
ethics and corporate governance guidelines are available on the
Investor Relations section of our website at the following URL:
http://ir.tcap.com/governance.cfm.
We will report any amendments to or waivers of a required
provision of our code of ethics and corporate governance
guidelines on our website or in a Current Report on
Form 8-K.
Proxy
Voting Policies and Procedures
We vote proxies relating to our portfolio securities in the best
interest of our stockholders. We review on a
case-by-case
basis each proposal submitted to a stockholder vote to determine
its impact on the portfolio securities held by us. Although we
generally vote against proposals that may have a negative impact
on our portfolio securities, we may vote for such a proposal if
there exists compelling long-term reasons to do so.
Our proxy voting decisions are made by the investment
professionals who are responsible for monitoring each of our
investments. To ensure that our vote is not the product of a
conflict of interest, we require that: (i) anyone involved
in the decision making process disclose to our chief compliance
officer any potential conflict that he or she is aware of and
any contact that he or she has had with any interested party
regarding a proxy vote; and (ii) employees involved in the
decision making process or vote administration are prohibited
from revealing how we intend to vote on a proposal in order to
reduce any attempted influence from interested parties.
Stockholders may, without charge, obtain information regarding
how we voted proxies with respect to our portfolio securities by
making a written request for proxy voting information to: Chief
Compliance Officer, 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.
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Under present SBA regulations, eligible small businesses
generally include businesses that (together with their
affiliates) have a tangible net worth not exceeding
$18.0 million and have average annual net income after
Federal income taxes not exceeding $6.0 million (average
net income to be computed without benefit of any carryover loss)
for the two most recent fiscal years. In addition, an SBIC must
devote 20.0% of its investment activity to smaller
concerns as defined by the SBA. A smaller concern generally
includes businesses that have a tangible net worth not exceeding
$6.0 million and have average annual net income after
Federal income taxes not exceeding $2.0 million (average
net income to be computed without benefit of any net carryover
loss) for the two most recent fiscal years. SBA regulations also
provide alternative size standard criteria to determine
eligibility for designation as an eligible small business or
smaller concern, which criteria depend on the industry in which
the business is engaged and are based on such factors as the
number of employees and gross revenue. However, once an SBIC has
invested in a company, it may continue to make follow on
investments in the company, regardless of the size of the
portfolio company at the time of the follow on investment, up to
the time of the portfolio companys initial public offering.
The SBA prohibits an SBIC from providing funds to small
businesses for certain purposes, such as relending and
investment outside the United States, to businesses engaged in a
few prohibited industries, and to certain passive
(non-operating) companies. In addition, without prior SBA
approval, an SBIC may not invest an amount equal to more than
20.0% of the SBICs regulatory capital in any one portfolio
company.
The SBA places certain limitations on the financing terms of
investments by SBICs in portfolio companies (such as limiting
the permissible interest rate on debt securities held by an SBIC
in a portfolio company). Although prior regulations prohibited
an SBIC from controlling a small business concern except in
limited circumstances, regulations adopted by the SBA in 2002
now allow an SBIC to exercise control over a small business for
a period of seven years from the date on which the SBIC
initially acquires its control position. This control period may
be extended for an additional period of time with the SBAs
prior written approval.
The SBA restricts the ability of an SBIC to lend money to any of
its officers, directors and employees or to invest in affiliates
thereof. The SBA also prohibits, without prior SBA approval, a
change of control of an SBIC or transfers that would
result in any person (or a group of persons acting in concert)
owning 10.0% or more of a class of capital stock of a licensed
SBIC. A change of control is any event which would
result in the transfer of the power, direct or indirect, to
direct the management and policies of an SBIC, whether through
ownership, contractual arrangements or otherwise.
An SBIC (or group of SBICs under common control) may generally
have outstanding debentures guaranteed by the SBA in amounts up
to twice the amount of the 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
June 30, 2008, we had issued $89.1 million of SBA
guaranteed debentures, which had an annual weighted-average
interest rate of 4.812%. The calculation of the weighted-average
interest rate includes the interim rates charged on SBA
guaranteed debentures which have not yet been pooled. 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.
103
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, 2009, 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. On May 7, 2008,
our common stockholders voted to allow us to issue common stock
at a price below net asset value per share for a period of one
year ending May 6, 2009. Our stockholders did not specify a
maximum discount below net asset value at which we are able to
issue our common stock; however, we do not intend to issue
shares of our common stock below net asset value unless our
board of directors determines that it would be in our
stockholders best interests to do so.
In connection with the sale of our common stock, underwriters or
agents may receive compensation from us or from purchasers of
our common stock, for whom they may act as agents, in the form
of discounts,
104
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.
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.
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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.
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INDEX TO
FINANCIAL STATEMENTS
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Unaudited Financial Statements
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F-2
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F-3
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F-4
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F-5
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F-6
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F-10
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F-13
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Audited Financial Statements
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F-23
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F-24
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F-25
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F-26
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F-27
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F-28
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F-32
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F-35
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F-1
PART I
FINANCIAL INFORMATION
Item
1. Financial Statements
TRIANGLE
CAPITAL CORPORATION
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June 30,
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December 31,
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2008
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2007
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(Unaudited)
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ASSETS
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Investments at fair value:
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Non Control / Non Affiliate investments
(cost of $115,624,742 and $66,129,119 at June 30, 2008 and
December 31, 2007, respectively)
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$
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114,911,243
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$
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68,388,014
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Affiliate investments (cost of $30,085,414 and $24,023,264 at
June 30, 2008 and December 31, 2007, respectively)
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32,661,279
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24,576,462
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Control investments (cost of $13,388,794 and $15,727,418 at
June 30, 2008 and December 31, 2007, respectively)
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18,411,040
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20,071,764
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Total investments at fair value
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165,983,562
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113,036,240
|
|
Cash and cash equivalents
|
|
|
18,706,661
|
|
|
|
21,787,750
|
|
Interest and fees receivable
|
|
|
459,990
|
|
|
|
305,159
|
|
Prepaid expenses and other current assets
|
|
|
160,989
|
|
|
|
47,477
|
|
Deferred financing fees
|
|
|
2,716,415
|
|
|
|
999,159
|
|
Property and equipment, net
|
|
|
39,911
|
|
|
|
34,166
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
188,067,528
|
|
|
$
|
136,209,951
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable and accrued liabilities
|
|
$
|
737,742
|
|
|
$
|
1,144,222
|
|
Interest payable
|
|
|
1,084,994
|
|
|
|
698,735
|
|
Dividends payable
|
|
|
|
|
|
|
2,041,159
|
|
Income taxes payable
|
|
|
|
|
|
|
52,598
|
|
Deferred revenue
|
|
|
|
|
|
|
30,625
|
|
Deferred income taxes
|
|
|
2,128,499
|
|
|
|
1,760,259
|
|
SBA guaranteed debentures payable
|
|
|
89,110,000
|
|
|
|
37,010,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
93,061,235
|
|
|
|
42,737,598
|
|
Net Assets
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 6,917,363 and
6,803,863 shares issued and outstanding as of June 30,
2008 and December 31, 2007, respectively)
|
|
|
6,917
|
|
|
|
6,804
|
|
Additional paid-in capital
|
|
|
87,013,500
|
|
|
|
86,949,189
|
|
Investment income in excess of distributions
|
|
|
3,848,381
|
|
|
|
1,738,797
|
|
Accumulated realized losses on investments
|
|
|
(618,620
|
)
|
|
|
(618,620
|
)
|
Net unrealized appreciation of investments
|
|
|
4,756,115
|
|
|
|
5,396,183
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
95,006,293
|
|
|
|
93,472,353
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
188,067,528
|
|
|
$
|
136,209,951
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
13.73
|
|
|
$
|
13.74
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-2
TRIANGLE
CAPITAL CORPORATION
Unaudited
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Control / Non Affiliate investments
|
|
$
|
2,797,958
|
|
|
$
|
1,349,014
|
|
|
$
|
4,719,727
|
|
|
$
|
2,504,636
|
|
Affiliate investments
|
|
|
886,815
|
|
|
|
519,000
|
|
|
|
1,635,581
|
|
|
|
793,614
|
|
Control investments
|
|
|
391,761
|
|
|
|
408,023
|
|
|
|
879,195
|
|
|
|
483,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
4,076,534
|
|
|
|
2,276,037
|
|
|
|
7,234,503
|
|
|
|
3,781,991
|
|
Paid in kind interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Control / Non Affiliate investments
|
|
|
572,169
|
|
|
|
202,009
|
|
|
|
868,805
|
|
|
|
376,805
|
|
Affiliate investments
|
|
|
170,962
|
|
|
|
66,292
|
|
|
|
313,514
|
|
|
|
95,542
|
|
Control investments
|
|
|
130,912
|
|
|
|
108,365
|
|
|
|
260,307
|
|
|
|
151,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid in kind interest income
|
|
|
874,043
|
|
|
|
376,666
|
|
|
|
1,442,626
|
|
|
|
623,660
|
|
Interest income from cash and cash equivalent investments
|
|
|
69,514
|
|
|
|
634,521
|
|
|
|
206,946
|
|
|
|
993,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
5,020,091
|
|
|
|
3,287,224
|
|
|
|
8,884,075
|
|
|
|
5,399,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
898,995
|
|
|
|
521,026
|
|
|
|
1,460,810
|
|
|
|
1,020,717
|
|
Amortization of deferred financing fees
|
|
|
56,028
|
|
|
|
28,108
|
|
|
|
96,169
|
|
|
|
55,216
|
|
Management fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,423
|
|
General and administrative expenses
|
|
|
1,522,626
|
|
|
|
1,094,092
|
|
|
|
2,870,959
|
|
|
|
1,642,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,477,649
|
|
|
|
1,643,226
|
|
|
|
4,427,938
|
|
|
|
2,950,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
2,542,442
|
|
|
|
1,643,998
|
|
|
|
4,456,137
|
|
|
|
2,448,728
|
|
Net realized loss on investment Non
Control/Non Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,464,224
|
)
|
Net unrealized appreciation (depreciation) of investments
|
|
|
381,815
|
|
|
|
586,086
|
|
|
|
(640,068
|
)
|
|
|
2,311,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain (loss) on investments before income taxes
|
|
|
381,815
|
|
|
|
586,086
|
|
|
|
(640,068
|
)
|
|
|
847,191
|
|
Income tax expense
|
|
|
75,750
|
|
|
|
|
|
|
|
202,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
2,848,507
|
|
|
$
|
2,230,084
|
|
|
$
|
3,613,898
|
|
|
$
|
3,295,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
0.37
|
|
|
$
|
0.25
|
|
|
$
|
0.65
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
$
|
0.41
|
|
|
$
|
0.33
|
|
|
$
|
0.53
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
6,871,215
|
|
|
|
6,687,773
|
|
|
|
6,837,539
|
|
|
|
6,687,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-3
TRIANGLE
CAPITAL CORPORATION
Unaudited
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
General
|
|
|
Limited
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Partners
|
|
|
Partners
|
|
|
Number
|
|
|
Par
|
|
|
Paid in
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation) 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,448,728
|
|
|
|
|
|
|
|
|
|
|
|
2,448,728
|
|
Realized loss on investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,464,224
|
)
|
|
|
1,464,224
|
|
|
|
|
|
Net unrealized gains on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
847,191
|
|
|
|
847,191
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
46,102
|
|
|
|
46
|
|
|
|
644,919
|
|
|
|
(1,003,014
|
)
|
|
|
|
|
|
|
|
|
|
|
(358,049
|
)
|
Tax distribution to partners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(220,047
|
)
|
|
|
|
|
|
|
|
|
|
|
(220,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007
|
|
$
|
|
|
|
$
|
|
|
|
|
6,732,862
|
|
|
$
|
6,733
|
|
|
$
|
86,617,869
|
|
|
$
|
2,795,802
|
|
|
$
|
(1,464,224
|
)
|
|
$
|
4,646,491
|
|
|
$
|
92,602,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Number
|
|
|
Par
|
|
|
Paid in
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation) 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,456,137
|
|
|
|
|
|
|
|
|
|
|
|
4,456,137
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
64,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,424
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,171
|
)
|
|
|
|
|
|
|
|
|
|
|
(202,171
|
)
|
Net unrealized losses on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(640,068
|
)
|
|
|
(640,068
|
)
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,144,382
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,144,382
|
)
|
Issuance of restricted stock
|
|
|
113,500
|
|
|
|
113
|
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
|
6,917,363
|
|
|
$
|
6,917
|
|
|
$
|
87,013,500
|
|
|
$
|
3,848,381
|
|
|
$
|
(618,620
|
)
|
|
$
|
4,756,115
|
|
|
$
|
95,006,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-4
TRIANGLE
CAPITAL CORPORATION
Unaudited
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
3,613,898
|
|
|
$
|
3,295,919
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(57,312,359
|
)
|
|
|
(29,413,602
|
)
|
Repayments received/sales of portfolio investments
|
|
|
4,620,159
|
|
|
|
1,534,111
|
|
Loan origination and other fees received
|
|
|
1,091,996
|
|
|
|
642,125
|
|
Net realized loss on investments
|
|
|
|
|
|
|
1,464,224
|
|
Net unrealized depreciation (appreciation) of investments
|
|
|
271,828
|
|
|
|
(2,311,415
|
)
|
Deferred income taxes
|
|
|
368,240
|
|
|
|
|
|
Paid-in-kind interest accrued, net of payments received
|
|
|
(1,389,162
|
)
|
|
|
(498,684
|
)
|
Amortization of deferred financing fees
|
|
|
96,169
|
|
|
|
55,216
|
|
Recognition of loan origination and other fees
|
|
|
(210,778
|
)
|
|
|
(243,975
|
)
|
Accretion of loan discounts
|
|
|
(49,631
|
)
|
|
|
(106,248
|
)
|
Depreciation expense
|
|
|
6,813
|
|
|
|
2,064
|
|
Stock-based compensation
|
|
|
64,424
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(154,831
|
)
|
|
|
5,612
|
|
Prepaid expenses and other current assets
|
|
|
(113,512
|
)
|
|
|
(50,637
|
)
|
Accounts payable and accrued liabilities
|
|
|
(406,480
|
)
|
|
|
(324,523
|
)
|
Interest payable
|
|
|
386,259
|
|
|
|
71,570
|
|
Income taxes payable
|
|
|
(52,598
|
)
|
|
|
|
|
Receivable from / payable to Triangle Capital Partners, LLC
|
|
|
|
|
|
|
(48,687
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(49,169,565
|
)
|
|
|
(25,926,930
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(12,558
|
)
|
|
|
(23,561
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(12,558
|
)
|
|
|
(23,561
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable
|
|
|
52,100,000
|
|
|
|
4,000,000
|
|
Financing fees paid
|
|
|
(1,813,425
|
)
|
|
|
(97,000
|
)
|
Proceeds from initial public offering, net of expenses
|
|
|
|
|
|
|
64,728,037
|
|
Change in deferred offering costs
|
|
|
|
|
|
|
1,020,646
|
|
Cash dividends paid
|
|
|
(4,185,541
|
)
|
|
|
(358,049
|
)
|
Tax distribution to partners
|
|
|
|
|
|
|
(751,613
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
46,101,034
|
|
|
|
68,542,021
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(3,081,089
|
)
|
|
|
42,591,530
|
|
Cash and cash equivalents, beginning of period
|
|
|
21,787,750
|
|
|
|
2,556,502
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
18,706,661
|
|
|
$
|
45,148,032
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,074,552
|
|
|
$
|
949,148
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-5
TRIANGLE
CAPITAL CORPORATION
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Non-Control / Non-Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note
(12%, Due 03/11)
|
|
$
|
3,144,654
|
|
|
$
|
3,016,789
|
|
|
$
|
3,016,789
|
|
|
|
|
|
Subordinated Note
(14%, Due 03/11)
|
|
|
1,872,075
|
|
|
|
1,838,115
|
|
|
|
1,838,115
|
|
|
|
|
|
Common Stock
Warrants (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
892,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729
|
|
|
|
4,997,265
|
|
|
|
5,747,604
|
|
American De-Rosa Lamparts, LLC and
Hallmark Lighting (8%)*
|
|
Wholesale and
Distribution
|
|
Subordinated Note
(15.25%, Due 10/13)
|
|
|
8,052,586
|
|
|
|
7,897,900
|
|
|
|
7,897,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,052,586
|
|
|
|
7,897,900
|
|
|
|
7,897,900
|
|
APO Newco, LLC (5%)*
|
|
Commercial and
Consumer
|
|
Subordinated Note
(14%, Due 03/13)
|
|
|
4,359,004
|
|
|
|
4,265,799
|
|
|
|
4,265,799
|
|
|
|
Marketing Products
|
|
Unit purchase
warrant (87,302
Class C units)
|
|
|
|
|
|
|
25,200
|
|
|
|
273,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,359,004
|
|
|
|
4,290,999
|
|
|
|
4,538,899
|
|
ARC Industries, LLC (3%)*
|
|
Remediation
Services
|
|
Subordinated Note
(19%, Due 11/10)
|
|
|
2,464,919
|
|
|
|
2,439,537
|
|
|
|
2,439,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464,919
|
|
|
|
2,439,537
|
|
|
|
2,439,537
|
|
Art Headquarters, LLC (2%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(14%, Due 01/10)
|
|
|
2,333,488
|
|
|
|
2,299,257
|
|
|
|
2,075,900
|
|
|
|
|
|
Membership unit
warrants (15% of units
(150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333,488
|
|
|
|
2,340,057
|
|
|
|
2,075,900
|
|
Assurance Operations Corporation (4%)*
|
|
Auto Components/
Metal Fabrication
|
|
Subordinated Note
(17%, Due 03/12)
|
|
|
3,925,915
|
|
|
|
3,879,225
|
|
|
|
3,646,900
|
|
|
|
|
|
Common Stock
(57 shares)
|
|
|
|
|
|
|
257,143
|
|
|
|
48,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,925,915
|
|
|
|
4,136,368
|
|
|
|
3,695,400
|
|
Bruce Plastics, Inc. (0%)*
|
|
Plastic Component
Manufacturing
|
|
Subordinated Note
(14%, Due 10/11)
|
|
|
1,500,000
|
|
|
|
1,385,076
|
|
|
|
|
|
|
|
|
|
Common Stock
Warrants (12% of
common stock)
|
|
|
|
|
|
|
108,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,493,610
|
|
|
|
|
|
CV Holdings, LLC (6%)*
|
|
Specialty Healthcare
Products
|
|
Subordinated Note
(16%, Due 03/10)
|
|
|
5,129,230
|
|
|
|
5,094,457
|
|
|
|
5,094,457
|
|
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
274,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,129,230
|
|
|
|
5,094,457
|
|
|
|
5,369,057
|
|
Cyrus Networks, LLC (6%)*
|
|
Data Center
Services Provider
|
|
Senior Note
(6%, Due 07/13)
|
|
|
4,747,722
|
|
|
|
4,731,423
|
|
|
|
4,731,423
|
|
|
|
|
|
2nd Lien Note
(10%, Due 01/14)
|
|
|
1,026,385
|
|
|
|
1,026,385
|
|
|
|
1,026,385
|
|
|
|
|
|
Revolving Line of
Credit (6%)
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
253,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,027,251
|
|
|
|
6,010,952
|
|
|
|
6,010,952
|
|
DataPath, Inc. (1%)*
|
|
Satellite
Communication
Manufacturer
|
|
Common Stock
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
636,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
636,700
|
|
F-6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Eastern Shore Ambulance, Inc. (1%)*
|
|
Specialty Health
Care Services
|
|
Subordinated Note
(13%, Due 03/11)
|
|
$
|
1,000,000
|
|
|
$
|
964,005
|
|
|
$
|
964,005
|
|
|
|
|
|
Common Stock
Warrants (6% of
common stock)
|
|
|
|
|
|
|
55,268
|
|
|
|
41,300
|
|
|
|
|
|
Common Stock
(30 shares)
|
|
|
|
|
|
|
30,000
|
|
|
|
10,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,049,273
|
|
|
|
1,016,105
|
|
Electronic Systems Protection, Inc. (4%)*
|
|
Power Protection
Systems
|
|
Subordinated Note
(14%, Due 12/15)
|
|
|
3,028,903
|
|
|
|
3,000,977
|
|
|
|
3,000,977
|
|
|
|
Manufacturing
|
|
Senior Note
(7%, Due 01/14)
|
|
|
994,219
|
|
|
|
994,219
|
|
|
|
994,219
|
|
|
|
|
|
Common Stock
(500 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,023,122
|
|
|
|
4,245,196
|
|
|
|
4,245,196
|
|
Energy Hardware Holdings, LLC (4%)*
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
|
3,306,628
|
|
|
|
3,242,864
|
|
|
|
3,242,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated
Note (8%, Due 10/12)
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,514,295
|
|
|
|
3,450,531
|
|
|
|
3,450,531
|
|
FCL Graphics, Inc. (7%)*
|
|
Commercial
Printing Services
|
|
Senior Note
(6%, Due 10/12)
|
|
|
1,789,200
|
|
|
|
1,782,290
|
|
|
|
1,782,290
|
|
|
|
|
|
Senior Note
(10%, Due 10/13)
|
|
|
2,000,000
|
|
|
|
1,992,608
|
|
|
|
1,992,608
|
|
|
|
|
|
2nd
Lien Note
(18%, Due 4/14)
|
|
|
3,265,970
|
|
|
|
3,254,235
|
|
|
|
3,254,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,055,170
|
|
|
|
7,029,133
|
|
|
|
7,029,133
|
|
Fire Sprinkler Systems, Inc. (2%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13% 17.5%, Due 04/11)
|
|
|
2,464,428
|
|
|
|
2,426,940
|
|
|
|
2,123,100
|
|
|
|
|
|
Common Stock
(250 shares)
|
|
|
|
|
|
|
271,186
|
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,464,428
|
|
|
|
2,698,126
|
|
|
|
2,141,100
|
|
Garden Fresh Restaurant Corp. (4%)*
|
|
Restaurant
|
|
2nd
Lien Note
(10%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units
(5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
583,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,583,600
|
|
Gerli & Company (3%)*
|
|
Specialty Woven
Fabrics
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,145,496
|
|
|
|
3,062,284
|
|
|
|
3,062,284
|
|
|
|
Manufacturer
|
|
Common Stock
Warrants (56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,145,496
|
|
|
|
3,145,698
|
|
|
|
3,062,284
|
|
Inland Pipe Rehabilitation Holding Company LLC (8%)*
|
|
Cleaning and Repair
Services
|
|
Subordinated Note
(14%, Due 01/14)
|
|
|
8,012,889
|
|
|
|
7,292,089
|
|
|
|
7,292,089
|
|
|
|
|
|
Membership Interest
Purchase Warrant (2.5%)
|
|
|
|
|
|
|
563,300
|
|
|
|
563,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,012,889
|
|
|
|
7,855,389
|
|
|
|
7,855,389
|
|
Jenkins Service, LLC (10%)*
|
|
Restoration Services
|
|
Subordinated Note
(17.5%, Due 04/14)
|
|
|
8,107,945
|
|
|
|
7,952,853
|
|
|
|
7,952,853
|
|
|
|
|
|
Convertible Note
(10%, Due 04/14)
|
|
|
1,400,000
|
|
|
|
1,359,298
|
|
|
|
1,359,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,507,945
|
|
|
|
9,312,151
|
|
|
|
9,312,151
|
|
Library Systems & Services, LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,937,506
|
|
|
|
1,937,506
|
|
|
|
|
|
Common Stock
Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
608,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
1,996,501
|
|
|
|
2,545,506
|
|
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note
(7%, Due
08/12-02/14)
|
|
$
|
4,797,500
|
|
|
$
|
4,764,552
|
|
|
$
|
4,764,552
|
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
718,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,797,500
|
|
|
|
5,764,552
|
|
|
|
5,482,752
|
|
TrustHouse Services Group, Inc. (5%)*
|
|
Food Management
Services
|
|
Subordinated Note
(14%, Due 03/15)
|
|
|
4,221,233
|
|
|
|
4,139,190
|
|
|
|
4,139,190
|
|
|
|
|
|
Class A Units
(1,495 units)
|
|
|
|
|
|
|
475,000
|
|
|
|
475,000
|
|
|
|
|
|
Class B Units
(79 units)
|
|
|
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,221,233
|
|
|
|
4,639,190
|
|
|
|
4,639,190
|
|
Twin-Star International, Inc. (6%)*
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(13%, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,434,146
|
|
|
|
4,434,146
|
|
|
|
Manufacturer
|
|
Senior Note
(6%, Due 04/13)
|
|
|
1,485,000
|
|
|
|
1,485,000
|
|
|
|
1,485,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,985,000
|
|
|
|
5,919,146
|
|
|
|
5,919,146
|
|
Wholesale Floors, Inc. (4%)*
|
|
Commercial Services
|
|
Subordinated Note
(14%, Due 06/14)
|
|
|
3,502,771
|
|
|
|
3,334,971
|
|
|
|
3,334,971
|
|
|
|
|
|
Membership Interest
Purchase Warrant (4.0%)
|
|
|
|
|
|
|
132,800
|
|
|
|
132,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,502,771
|
|
|
|
3,467,771
|
|
|
|
3,467,771
|
|
Yellowstone Landscape Group, Inc. (13%)*
|
|
Landscaping
Services
|
|
Subordinated Note
(15%, Due 04/14)
|
|
|
13,065,000
|
|
|
|
12,749,440
|
|
|
|
12,749,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,065,000
|
|
|
|
12,749,440
|
|
|
|
12,749,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate Investments
|
|
|
|
|
|
|
114,103,971
|
|
|
|
115,624,742
|
|
|
|
114,911,243
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Point, LLC (6%)*
|
|
Asset Management
Software Provider
|
|
Subordinated Note
(15%, Due 03/13)
|
|
|
5,046,055
|
|
|
|
4,949,777
|
|
|
|
4,949,777
|
|
|
|
|
|
Membership Units
(10 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,046,055
|
|
|
|
5,449,777
|
|
|
|
5,449,777
|
|
Axxiom Manufacturing, Inc. (2%)*
|
|
Industrial
Equipment
|
|
Subordinated Note
(14%, Due 01/11)
|
|
|
2,102,454
|
|
|
|
2,077,226
|
|
|
|
2,077,226
|
|
|
|
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
286,300
|
|
|
|
|
|
Common Stock Warrant
(1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
6,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,102,454
|
|
|
|
2,277,226
|
|
|
|
2,369,926
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings,
LLC (Pine Street)(4) (4%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley
Transportation (14%,
Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,680,133
|
|
|
|
3,680,133
|
|
|
|
|
|
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
|
|
|
|
3,913,733
|
|
|
|
3,913,733
|
|
Dyson Corporation (12%)*
|
|
Custom Forging
and Fastener
|
|
Subordinated Note
(15%, Due 12/13)
|
|
|
10,161,935
|
|
|
|
9,953,777
|
|
|
|
9,953,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,161,935
|
|
|
|
10,953,777
|
|
|
|
10,953,777
|
|
F-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Equisales, LLC (8%)*
|
|
Energy Products
and Services
|
|
Subordinated Note
(15%, Due 04/12)
|
|
$
|
6,223,280
|
|
|
$
|
6,118,966
|
|
|
$
|
6,118,966
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
1,856,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,223,280
|
|
|
|
6,618,966
|
|
|
|
7,975,466
|
|
Flint Acquisition Corporation (1%)*
|
|
Specialty Chemical
Manufacturer
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,291,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,333
|
|
|
|
1,291,600
|
|
Genapure Corporation (Genapure) and Genpref, LLC
(Genpref) (5) (1%)*
|
|
Lab Testing
Services
|
|
Genapure Common
Stock (4,286 shares)
|
|
|
|
|
|
|
500,000
|
|
|
|
627,216
|
|
|
|
|
|
Genpref Preferred
Stock (455 shares)
|
|
|
|
|
|
|
63,602
|
|
|
|
79,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
707,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
27,333,724
|
|
|
|
30,085,414
|
|
|
|
32,661,279
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fischbein, LLC (15%)*
|
|
Packaging and
Materials Handling
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
8,859,632
|
|
|
|
8,717,540
|
|
|
|
8,717,540
|
|
|
|
Equipment
Manufacturer
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
5,257,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,859,632
|
|
|
|
12,917,540
|
|
|
|
13,975,040
|
|
Porters Group, LLC (5%)*
|
|
Metal Fabrication
|
|
Membership Units
(4,730 units)
|
|
|
|
|
|
|
471,254
|
|
|
|
4,436,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,254
|
|
|
|
4,436,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Control Investments
|
|
|
|
|
|
|
8,859,632
|
|
|
|
13,388,794
|
|
|
|
18,411,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, June 30, 2008 (175%)*
|
|
|
|
|
|
$
|
150,297,327
|
|
|
$
|
159,098,950
|
|
|
$
|
165,983,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
|
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are non-income producing. |
|
|
|
(2) |
|
Interest rates on subordinated debt include cash interest rate
and, where applicable, paid-in-kind interest rate. |
|
|
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
|
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
|
|
|
(5) |
|
Genpref is the sole owner of Genapures preferred stock and
its sole business purpose is its ownership of Genapures
preferred stock. |
See accompanying notes.
F-9
TRIANGLE
CAPITAL CORPORATION
Consolidated
Schedule of Investments
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
of Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Non Control / Non Affiliate
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Note
(12%, Due 03/11)
|
|
$
|
3,144,654
|
|
|
$
|
2,997,686
|
|
|
$
|
2,997,686
|
|
|
|
|
|
Subordinated Note
(14%, Due 03/11)
|
|
|
1,872,075
|
|
|
|
1,833,206
|
|
|
|
1,833,206
|
|
|
|
|
|
Common Stock
Warrants (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
929,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729
|
|
|
|
4,973,253
|
|
|
|
5,760,592
|
|
APO Newco, LLC (5%)*
|
|
Commercial and
Consumer
|
|
Subordinated Note
(14%, Due 03/13)
|
|
|
4,315,262
|
|
|
|
4,214,957
|
|
|
|
4,214,957
|
|
|
|
Marketing Products
|
|
Unit purchase
warrant (87,302
Class C units)
|
|
|
|
|
|
|
25,200
|
|
|
|
199,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,315,262
|
|
|
|
4,240,157
|
|
|
|
4,413,957
|
|
Art Headquarters, LLC (3%)*
|
|
Retail, Wholesale
and Distribution
|
|
Subordinated Note
(14%, Due 01/10)
|
|
|
2,441,824
|
|
|
|
2,397,556
|
|
|
|
2,397,556
|
|
|
|
|
|
Membership unit
warrants (15% of
units (150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,824
|
|
|
|
2,438,356
|
|
|
|
2,407,356
|
|
Assurance Operations Corporation (4%)*
|
|
Auto Components /
Metal Fabrication
|
|
Subordinated Note
(17%, Due 03/12)
|
|
|
3,828,527
|
|
|
|
3,776,608
|
|
|
|
3,776,608
|
|
|
|
|
|
Common Stock
(200 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828,527
|
|
|
|
3,976,608
|
|
|
|
3,776,608
|
|
Bruce Plastics, Inc. (1%)*
|
|
Plastic Component
Manufacturing
|
|
Subordinated Note
(14%, Due 10/11)
|
|
|
1,500,000
|
|
|
|
1,371,527
|
|
|
|
1,371,527
|
|
|
|
|
|
Common Stock
Warrants (12% of
common stock)
|
|
|
|
|
|
|
108,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,480,061
|
|
|
|
1,371,527
|
|
CV Holdings, LLC (5%)*
|
|
Specialty Healthcare
Products
|
|
Subordinated Note
(16%, Due 03/10)
|
|
|
4,976,360
|
|
|
|
4,932,535
|
|
|
|
4,932,535
|
|
|
|
Manufacturer
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,976,360
|
|
|
|
4,932,535
|
|
|
|
5,130,435
|
|
Cyrus Networks, LLC (6%)*
|
|
Data Center
Services Provider
|
|
Senior Note
(9%, Due 07/13)
|
|
|
4,382,257
|
|
|
|
4,364,705
|
|
|
|
4,364,705
|
|
|
|
|
|
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
|
|
|
|
5,343,248
|
|
|
|
5,343,248
|
|
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
|
|
|
|
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-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
of Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Energy Hardware Holdings, LLC (4%)*
|
|
Machined Parts
Distribution
|
|
Subordinated Note
(14.5%, Due 10/12)
|
|
$
|
3,265,142
|
|
|
$
|
3,196,108
|
|
|
$
|
3,196,108
|
|
|
|
|
|
Junior Subordinated
Note (8%, Due 10/12)
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,472,809
|
|
|
|
3,403,775
|
|
|
|
3,403,775
|
|
FCL Graphics, Inc. (8%)*
|
|
Commercial
Printing Services
|
|
Senior Note
(9%, Due 10/12)
|
|
|
1,920,000
|
|
|
|
1,912,331
|
|
|
|
1,912,331
|
|
|
|
|
|
Senior Note
(13%, Due 10/13)
|
|
|
2,000,000
|
|
|
|
1,992,061
|
|
|
|
1,992,061
|
|
|
|
|
|
2nd Lien Note
(18%, Due 4/14)
|
|
|
3,145,481
|
|
|
|
3,133,096
|
|
|
|
3,133,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,065,481
|
|
|
|
7,037,488
|
|
|
|
7,037,488
|
|
Fire Sprinkler Systems, Inc. (3%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13% 17.5%,
Due 04/11)
|
|
|
2,517,986
|
|
|
|
2,474,943
|
|
|
|
2,474,943
|
|
|
|
|
|
Common Stock
(250 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
41,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,986
|
|
|
|
2,724,943
|
|
|
|
2,516,643
|
|
Flint Acquisition Corporation (5%)*
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Note
(12.5%, Due 09/09)
|
|
|
3,750,000
|
|
|
|
3,719,770
|
|
|
|
3,719,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
(9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,074,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000
|
|
|
|
4,028,103
|
|
|
|
4,793,870
|
|
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
|
|
|
|
3,017,205
|
|
|
|
3,017,205
|
|
|
|
Manufacturer
|
|
Common Stock
Warrants (56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
84,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,114,063
|
|
|
|
3,100,619
|
|
|
|
3,101,705
|
|
Library Systems & Services, LLC (3%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,927,075
|
|
|
|
1,927,075
|
|
|
|
|
|
Common Stock
Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
594,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
1,986,070
|
|
|
|
2,521,375
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical
Manufacturer
|
|
Senior Note
(9%, Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/12-02/14)
|
|
|
4,932,500
|
|
|
|
4,896,481
|
|
|
|
4,896,481
|
|
|
|
|
|
Common Units
(2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,932,500
|
|
|
|
5,896,481
|
|
|
|
5,896,481
|
|
Twin-Star International, Inc. (6%)*
|
|
Consumer Home
Furnishings
|
|
Subordinated Note
(13%, Due 04/14)
|
|
|
4,500,000
|
|
|
|
4,429,439
|
|
|
|
4,429,439
|
|
|
|
Manufacturer
|
|
Senior Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8%, Due 04/13)
|
|
|
1,492,500
|
|
|
|
1,492,500
|
|
|
|
1,492,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,992,500
|
|
|
|
5,921,939
|
|
|
|
5,921,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non Control/Non Affiliate
Investments
|
|
|
|
|
|
|
64,284,841
|
|
|
|
66,129,119
|
|
|
|
68,388,014
|
|
F-11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Principal
|
|
|
|
Fair
|
Portfolio Company
|
|
Industry
|
|
of Investment (1)(2)
|
|
Amount
|
|
Cost
|
|
Value(3)
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (3%)*
|
|
Industrial
Equipment
|
|
Subordinated Note
(14%, Due 01/11)
|
|
$
|
2,081,321
|
|
|
$
|
2,051,882
|
|
|
$
|
2,051,882
|
|
|
|
Manufacturer
|
|
Common Stock
(34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
543,600
|
|
|
|
|
|
Common Stock
Warrant (1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,081,321
|
|
|
|
2,251,882
|
|
|
|
2,607,682
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
Street) (4) (4%)*
|
|
Oil and Gas
Services
|
|
Subordinated Note
Brantley
Transportation (14%,
Due 12/12)
|
|
|
3,800,000
|
|
|
|
3,670,336
|
|
|
|
3,670,336
|
|
|
|
|
|
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
|
|
|
|
3,903,936
|
|
|
|
3,903,936
|
|
Dyson Corporation (12%)*
|
|
Custom Forging
and Fastener
|
|
Subordinated Note
(15%, Due 12/13)
|
|
|
10,009,167
|
|
|
|
9,789,167
|
|
|
|
9,789,167
|
|
|
|
Supplies
|
|
Class A Units
(1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,009,167
|
|
|
|
10,789,167
|
|
|
|
10,789,167
|
|
Equisales, LLC (7%)*
|
|
Energy Products
and Services
|
|
Subordinated Note
(15%, Due 04/12)
|
|
|
6,129,723
|
|
|
|
6,014,677
|
|
|
|
6,014,677
|
|
|
|
|
|
Class A Units
(500,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,129,723
|
|
|
|
6,514,677
|
|
|
|
6,514,677
|
|
Genapure Corporation (Genapure) and
Genpref, LLC (Genpref) (5) (1%)*
|
|
Lab Testing
Services
|
|
Genapure Common
Stock (4,286 shares)
|
|
|
|
|
|
|
500,000
|
|
|
|
675,122
|
|
|
|
|
|
Genpref Preferred
Stock (455 shares)
|
|
|
|
|
|
|
63,602
|
|
|
|
85,878
|
|
|
|
|
|
|
|
|
|
|
|
|
563,602
|
|
|
|
761,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Affiliate Investments
|
|
|
|
|
|
|
22,020,211
|
|
|
|
24,023,264
|
|
|
|
24,576,462
|
|
Control Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARC Industries, LLC (3%)*
|
|
Remediation
Services
|
|
Subordinated Note
(19%, Due 11/10)
|
|
|
2,403,521
|
|
|
|
2,373,358
|
|
|
|
2,373,358
|
|
|
|
|
|
Membership
Units (3,000 units)
|
|
|
|
|
|
|
175,000
|
|
|
|
118,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403,521
|
|
|
|
2,548,358
|
|
|
|
2,492,058
|
|
Fischbein, LLC (14%)*
|
|
Packaging and
Materials Handling
|
|
Subordinated Note
(16.5%, Due 05/13)
|
|
|
8,660,723
|
|
|
|
8,507,806
|
|
|
|
8,507,806
|
|
|
|
Equipment
Manufacturer
|
|
Membership Units
(4,200,000 units)
|
|
|
|
|
|
|
4,200,000
|
|
|
|
4,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,660,723
|
|
|
|
12,707,806
|
|
|
|
12,707,806
|
|
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
|
|
|
|
15,727,418
|
|
|
|
20,071,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments, December 31, 2007 (121%)*
|
|
|
|
|
|
$
|
97,369,296
|
|
|
$
|
105,879,801
|
|
|
$
|
113,036,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Value as a percent of net assets |
|
|
|
(1) |
|
All debt investments are income producing. Common stock,
preferred stock and all warrants are
non-income
producing. |
|
|
|
(2) |
|
Interest rates on subordinated debt include cash interest rate
and, where applicable, paid-in-kind interest rate. |
|
|
|
(3) |
|
All investments are restricted as to resale and were valued at
fair value as determined in good faith by the Board of Directors. |
|
|
|
(4) |
|
Pine Street Holdings, LLC is the majority owner of Brantley
Transportation, LLC and its sole business purpose is its
ownership of Brantley Transportation, LLC. |
|
|
|
(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-12
TRIANGLE
CAPITAL CORPORATION
|
|
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 six months
F-13
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
ended June 30, 2007 are presented as if the Formation
Transactions had occurred as of January 1, 2007. The
effects of all intercompany transactions between the Company and
its subsidiaries have been eliminated in
consolidation/combination. All financial data and information
included in these financial statements have been presented on
the basis described above.
The accompanying unaudited financial statements are presented in
conformity with United States generally accepted accounting
principles (U.S. GAAP) for interim financial
information and pursuant to the requirements for reporting on
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, certain disclosures accompanying annual
consolidated financial statements prepared in accordance with
U.S. GAAP are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring accruals
considered necessary for the fair presentation of financial
statements for the interim period, have been included. The
current periods results of operations are not necessarily
indicative of results that ultimately may be achieved for the
year. Therefore, the unaudited financial statements and notes
should be read in conjunction with the audited financial
statements and notes thereto for the period ended
December 31, 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 six months ended June 30, 2007, the Fund
distributed $751,613 in cash to the former General and Limited
Partners of the Fund. After consummation of the Formation
Transactions, distributions of the Fund are allocated 100% to
the Company.
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 six
months ended June 30, 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
F-14
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
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 Liabilities Including
an amendment of FASB Statement No. 115
(SFAS 159), which permits entities to
choose to measure many financial instruments and certain other
items at fair value. The objective of SFAS 159 is to
improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term
measurement objectives for accounting for financial instruments.
Under SFAS 159, unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings (or another performance indicator if the business
entity does not report earnings) at each subsequent reporting
date. The Company did not adopt SFAS 159.
As described above, effective January 1, 2008, the Company
adopted SFAS 157 for its financial assets. The company has
changed its balance sheet presentation for all periods to
reclassify deferred loan origination revenue to the associated
debt investments. Prior to the adoption of SFAS 157, the
Company reported deferred loan origination revenue as a single
line item on the Consolidated Balance Sheets. This change in
presentation had no impact on the aggregate net cost or fair
value of the Companys investment portfolio and had no
impact on the Companys financial position or results of
operations.
Summaries of the composition of the Companys investment
portfolio at cost and fair value as a percentage of total
investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
130,998,424
|
|
|
|
82
|
%
|
|
$
|
128,853,826
|
|
|
|
78
|
%
|
Senior debt
|
|
|
16,003,236
|
|
|
|
10
|
|
|
|
16,003,236
|
|
|
|
10
|
|
Equity shares
|
|
|
10,853,018
|
|
|
|
7
|
|
|
|
18,300,700
|
|
|
|
11
|
|
Equity warrants
|
|
|
1,244,272
|
|
|
|
1
|
|
|
|
2,551,200
|
|
|
|
1
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
274,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
159,098,950
|
|
|
|
100
|
%
|
|
$
|
165,983,562
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
80,902,982
|
|
|
|
76
|
%
|
|
$
|
80,902,982
|
|
|
|
72
|
%
|
Senior debt
|
|
|
14,728,958
|
|
|
|
14
|
|
|
|
14,728,958
|
|
|
|
13
|
|
Equity shares
|
|
|
9,699,689
|
|
|
|
9
|
|
|
|
15,335,900
|
|
|
|
13
|
|
Equity warrants
|
|
|
548,172
|
|
|
|
1
|
|
|
|
1,870,500
|
|
|
|
2
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
105,879,801
|
|
|
|
100
|
%
|
|
$
|
113,036,240
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
During the three months ended June 30, 2008, the Company
made five new investments totaling $41.9 million, two
additional debt investments in existing portfolio companies of
$1.3 million and one additional equity investment in an
existing portfolio company of approximately $21,000. During the
six months ended June 30, 2008, the Company made eight new
investments totaling $56.4 million, one additional debt
investment in an existing portfolio company of $0.9 million
and two additional equity investments in existing portfolio
companies of approximately $0.1 million.
During the three months ended June 30, 2007, the Company
made four new investments totaling $29.3 million. During
the six months ended June 30, 2007, the Company made four
new investments totaling $29.3 million and 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.
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
F-16
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
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 June 30, 2008, on
the consolidated balance sheet by SFAS 157 valuation
hierarchy, as previously described:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at June 30, 2008
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Portfolio company investments
|
|
$
|
|
|
|
$
|
|
|
|
$
|
165,983,562
|
|
|
$
|
165,983,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
165,983,562
|
|
|
$
|
165,983,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the beginning and ending balances
of our portfolio company investments measured at fair value on a
recurring basis using significant unobservable inputs
(Level 3) for the six months ended June 30, 2008:
|
|
|
|
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
|
June 30, 2008
|
|
|
Fair value of portfolio, January 1, 2008
|
|
$
|
113,036,240
|
|
New investments
|
|
|
57,312,359
|
|
Proceeds from sale of investment
|
|
|
(175,000
|
)
|
Loan origination fees received
|
|
|
(1,091,996
|
)
|
Principal repayments and payment in kind interest payments
received
|
|
|
(4,498,623
|
)
|
Payment in kind interest earned
|
|
|
1,442,626
|
|
Accretion of loan discounts
|
|
|
49,631
|
|
Accretion of deferred loan origination revenue
|
|
|
180,152
|
|
Unrealized losses on investments
|
|
|
(271,827
|
)
|
|
|
|
|
|
Fair value of portfolio, June 30, 2008
|
|
$
|
165,983,562
|
|
|
|
|
|
|
All realized and unrealized gains and losses are included in
earnings (changes in net assets) and are reported on separate
line items within the Companys statements of operations.
Net unrealized gains (losses) on investments of $924,416 and
$(328,127), respectively, during the three and six months ended
June 30, 2008 are related to portfolio company investments
that are still held by the Company as of June 30, 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
F-17
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
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. For the quarter ended June 30, 2008, the Company
asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately
18% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2008. Upon completion of the procedures,
Duff & Phelps concluded that the fair value, as
determined by the Board of Directors, of those investments
subjected to the procedures did not appear to be unreasonable.
The Board of Directors of Triangle Capital Corporation is
ultimately and solely responsible for determining the fair value
of the Companys investments in good faith.
Warrants
When originating a debt security, the Company will sometimes
receive warrants or other equity related securities
from the borrower. The Company determines the cost basis of the
warrants or other equity related securities received
based upon their respective fair values on the date of receipt
in proportion to the total fair value of the debt and warrants
or other equity related securities received. Any
resulting difference between the face amount of the debt and its
recorded fair value resulting from the assignment of value to
the warrant or other equity instruments is treated as original
issue discount and accreted into interest income over the life
of the loan.
Realized
Gain or Loss and Unrealized Appreciation or Depreciation of
Portfolio Investments
Realized gains or losses are recorded upon the sale or
liquidation of investments and calculated as the difference
between the net proceeds from the sale or liquidation, if any,
and the cost basis of the investment using the specific
identification method. Unrealized appreciation or depreciation
reflects the difference between the valuation of the investments
and the cost basis of the investments.
Investment
Classification
In accordance with the provisions of the 1940 Act, the Company
classifies investments by level of control. As defined in the
1940 Act, Control Investments are investments in
those companies that the Company is deemed to
Control. Affiliate Investments are
investments in those companies that are Affiliated
Companies of the Company, as defined in the 1940 Act,
other than Control Investments. Non
Control/Non Affiliate Investments are those
that are neither Control Investments nor Affiliate Investments.
Generally, under the 1940 Act, the Company is deemed to control
a company in which it has invested if the Company owns more than
25.0% of the voting securities of such company or has greater
than 50.0% representation on its board. The Company is deemed to
be an affiliate of a company in which the Company has invested
if it owns between 5.0% and 25.0% of the voting securities of
such company.
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.
F-18
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
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 June 30, 2008, the Company had no investments that were
individually greater than or equal to 10% of the total fair
value of its investment portfolio. 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 as
of 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 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.
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
F-19
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
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 June 30, 2008 was approximately $161.6 million.
The Company has the following debentures outstanding guaranteed
by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized
|
|
|
June 30,
|
|
|
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
|
%(1)
|
|
|
4,840,000
|
|
|
|
|
|
April 11, 2008
|
|
September 1, 2018
|
|
|
3.728
|
%(1)
|
|
|
9,400,000
|
|
|
|
|
|
April 28, 2008
|
|
September 1, 2018
|
|
|
4.007
|
%(1)
|
|
|
15,160,000
|
|
|
|
|
|
May 29, 2008
|
|
September 1, 2018
|
|
|
3.768
|
%(1)
|
|
|
5,000,000
|
|
|
|
|
|
May 29, 2008
|
|
September 1, 2018
|
|
|
3.768
|
%(1)
|
|
|
5,000,000
|
|
|
|
|
|
June 11, 2008
|
|
September 1, 2018
|
|
|
3.854
|
%(1)
|
|
|
5,000,000
|
|
|
|
|
|
June 24, 2008
|
|
September 1, 2018
|
|
|
3.826
|
%(1)
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,110,000
|
|
|
$
|
37,010,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Prioritized Return Rates for debentures issued subsequent to
March 26, 2008 are interim rates set by the SBA. These
debentures will be pooled in September 2008 and at that time, a
permanent Prioritized Return Rate for these debentures will be
established by the SBA. |
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 June 30, 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
June 30, 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 June 30, 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 $89.1 million are outstanding as of
June 30, 2008. On July 9, 2008, the Fund received an
additional commitment from the SBA of $33.75 million,
bringing the total commitment from the SBA up to the statutory
limit of $130.6 million. Upon receipt of this commitment,
the Fund incurred a 1.0% non-refundable commitment fee of
$337,500. In addition
F-20
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
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 June 30, 2008 and
December 31, 2007 were 4.812% and 5.826%, respectively. The
calculation of these weighted average interest rates includes
the interim rates charged on SBA guaranteed debentures which
have not yet been pooled.
|
|
5.
|
EQUITY-BASED
COMPENSATION
|
The Companys Board of Directors and shareholders have
approved the Triangle Capital Corporation Amended and Restated
2007 Equity Incentive Plan (the Plan), under which
there are 900,000 shares of the Companys Common Stock
authorized for issuance. The terms of equity-based awards
granted under the Plan generally will vest ratably over one- to
four-year periods.
The Company accounts for its equity-based compensation plan
using the fair value method, as prescribed by Statement of
Accounting Standards No. 123R, Share-Based
Payment. Accordingly, for restricted stock awards, we
measure the grant date fair value based upon the market price of
our common stock on the date of the grant and amortize this fair
value to compensation expense over the requisite service period
or vesting term.
On May 7, 2008, the Companys Board of Directors
granted 113,500 restricted shares of our common stock to certain
employees and independent directors. These restricted shares had
a total grant date fair value of approximately
$1.3 million, which will be expensed on a straight-line
basis over each respective awards vesting period. In the
six months ended June 30, 2008, the Company recognized
equity-based compensation expense of approximately
$0.1 million. This expense is included in general and
administrative expenses in the Companys consolidated
statements of operations. As of June 30, 2008, the Company
has a total of 113,500 restricted shares outstanding.
As of June 30, 2008, there was approximately
$1.2 million of total unrecognized compensation cost,
related to the Companys non-vested restricted shares. This
cost is expected to be recognized over a weighted-average period
of approximately 3.5 years.
F-21
TRIANGLE
CAPITAL CORPORATION
Notes to
Unaudited Financial
Statements (Continued)
The following is a schedule of financial highlights for the six
months ended June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Net asset value at beginning of period(1)
|
|
$
|
13.74
|
|
|
$
|
13.44
|
|
Net investment income(2)
|
|
|
0.65
|
|
|
|
0.37
|
|
Net realized loss on investments(2)
|
|
|
|
|
|
|
(0.22
|
)
|
Net unrealized appreciation (depreciation) on investments(2)
|
|
|
(0.09
|
)
|
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
Total increase from investment operations(2)
|
|
|
0.56
|
|
|
|
0.49
|
|
Cash dividends paid
|
|
|
(0.31
|
)
|
|
|
(0.05
|
)
|
Stock-based compensation
|
|
|
0.01
|
|
|
|
|
|
Distribution to partners(2)
|
|
|
|
|
|
|
(0.03
|
)
|
Income tax provision(2)
|
|
|
(0.03
|
)
|
|
|
|
|
Other(3)
|
|
|
(0.24
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
Net asset value at end of period
|
|
$
|
13.73
|
|
|
$
|
13.75
|
|
|
|
|
|
|
|
|
|
|
Market value at end of period(4)
|
|
$
|
11.39
|
|
|
$
|
14.17
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
6,917,363
|
|
|
|
6,732,862
|
|
Net assets at end of period
|
|
$
|
95,006,293
|
|
|
$
|
92,602,671
|
|
Average net assets(1)
|
|
$
|
94,468,102
|
|
|
$
|
90,820,387
|
|
Ratio of operating expenses to average net assets (annualized)
|
|
|
9
|
%
|
|
|
6.5
|
%
|
Ratio of net investment income to average net assets (annualized)
|
|
|
9
|
%
|
|
|
5.4
|
%
|
Portfolio turnover ratio
|
|
|
4
|
%
|
|
|
2.7
|
%
|
Total Return(5)
|
|
|
(6
|
)%
|
|
|
(4.5
|
)%
|
|
|
|
(1) |
|
Net asset value as of January 1, 2007 and average net
assets for the six months ended June 30, 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 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 shares
outstanding during the period and certain per share data based
on the shares outstanding as of a period end or transaction date. |
|
|
|
(4) |
|
Represents the closing price of the Companys common stock
on the last day of the period. |
|
|
|
(5) |
|
The total return for the six months ended June 30, 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 six months ended June 30,
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. |
On July 9, 2008, the Fund received an additional commitment
from the SBA of $33.75 million, bringing the total
commitment from the SBA up to the statutory limit of
$130.6 million. Upon receipt of this commitment, the Fund
incurred a 1.0% non-refundable commitment fee of $337,500.
On July 21, 2008, the Companys Board of Directors
declared a cash dividend of $0.35 per share payable on
September 4, 2008 to all holders of record on
August 14, 2008.
F-22
Report of
Independent Registered Public Accounting Firm
To the Board of Directors
Triangle Capital Corporation
We have audited the accompanying consolidated balance sheet of
Triangle Capital Corporation (the Company), including the
schedule of investments, as of December 31, 2007, and the
related consolidated statements of operations, changes in net
assets, and cash flows for the year then ended, and the
consolidated financial highlights for the year then ended. We
have also audited the accompanying combined balance sheet of
Triangle Capital Corporation, including the schedule of
investments, as of December 31, 2006, and the related
combined statements of operations, changes in net assets, and
cash flows for each of the two years in the period then ended,
and the combined financial highlights for each of the four years
in the period then ended. These financial statements and
financial highlights are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated and combined financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Companys internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting
principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. Our
procedures included confirmation of securities owned as of
December 31, 2007 and 2006 by correspondence with the
portfolio companies. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material
respects, the consolidated financial position of Triangle
Capital Corporation at December 31, 2007, the consolidated
results of its operations, changes in net assets, and its cash
flows for the year then ended, the financial highlights for the
year then ended, and the combined financial position of Triangle
Capital Corporation at December 31, 2006, the combined
results of its operations, changes in net assets, and its cash
flows for each of the two years in the period then ended, and
the combined financial highlights for the four years in the
period then ended, in conformity with U.S. generally
accepted accounting principles.
Raleigh, North Carolina
March 11, 2008
F-23
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
ASSETS
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate investments (cost of $66,819,386 and
$40,592,972 at December 31, 2007 and 2006, respectively)
|
|
$
|
69,078,281
|
|
|
$
|
42,370,348
|
|
Affiliate investments (cost of $24,487,895 and $9,453,445 at
December 31, 2007 and 2006, respectively)
|
|
|
25,041,093
|
|
|
|
10,011,145
|
|
Control investments (cost of $15,910,498 and $2,614,935 at
December 31, 2007 and 2006, respectively)
|
|
|
20,254,844
|
|
|
|
2,614,935
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
|
114,374,218
|
|
|
|
54,996,428
|
|
Deferred loan origination revenue
|
|
|
(1,368,603
|
)
|
|
|
(774,216
|
)
|
Cash and cash equivalents
|
|
|
21,787,750
|
|
|
|
2,556,502
|
|
Interest and fees receivable
|
|
|
305,159
|
|
|
|
134,819
|
|
Prepaid expenses and other current assets
|
|
|
47,477
|
|
|
|
|
|
Deferred offering costs
|
|
|
|
|
|
|
1,020,646
|
|
Deferred financing fees
|
|
|
999,159
|
|
|
|
985,477
|
|
Property and equipment, net
|
|
|
34,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
136,179,326
|
|
|
$
|
58,919,656
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND NET ASSETS
|
Accounts payable and accrued liabilities
|
|
$
|
1,144,222
|
|
|
$
|
794,983
|
|
Interest payable
|
|
|
698,735
|
|
|
|
606,296
|
|
Partners distribution payable
|
|
|
|
|
|
|
531,566
|
|
Dividends payable
|
|
|
2,041,159
|
|
|
|
|
|
Income taxes payable
|
|
|
52,598
|
|
|
|
|
|
Deferred income taxes
|
|
|
1,760,259
|
|
|
|
|
|
Payable to Triangle Capital Partners, LLC
|
|
|
|
|
|
|
30,000
|
|
SBA guaranteed debentures payable
|
|
|
37,010,000
|
|
|
|
31,800,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
42,706,973
|
|
|
|
33,762,845
|
|
Net assets:
|
|
|
|
|
|
|
|
|
General partners capital
|
|
|
|
|
|
|
100
|
|
Limited partners capital
|
|
|
|
|
|
|
21,250,000
|
|
Common stock, $0.001 par value per share
(150,000,000 shares authorized, 6,803,863 and
100 shares issued and outstanding as of December 31,
2007 and 2006, respectively)
|
|
|
6,804
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
86,949,189
|
|
|
|
1,500
|
|
Investment income in excess of distributions
|
|
|
1,738,797
|
|
|
|
1,570,135
|
|
Accumulated realized losses on investments
|
|
|
(618,620
|
)
|
|
|
|
|
Net unrealized appreciation of investments
|
|
|
5,396,183
|
|
|
|
2,335,076
|
|
|
|
|
|
|
|
|
|
|
Total net assets
|
|
|
93,472,353
|
|
|
|
25,156,811
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and net assets
|
|
$
|
136,179,326
|
|
|
$
|
58,919,656
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
$
|
13.74
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
F-24
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
Investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest, fee and dividend income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate investments
|
|
$
|
6,258,670
|
|
|
$
|
4,488,831
|
|
|
$
|
4,125,584
|
|
Affiliate investments
|
|
|
1,808,664
|
|
|
|
638,318
|
|
|
|
459,810
|
|
Control investments
|
|
|
1,323,876
|
|
|
|
293,532
|
|
|
|
39,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan interest, fee and dividend income
|
|
|
9,391,210
|
|
|
|
5,420,681
|
|
|
|
4,625,244
|
|
Paid-in-kind
interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Control/Non-Affiliate investments
|
|
|
871,184
|
|
|
|
815,408
|
|
|
|
962,121
|
|
Affiliate investments
|
|
|
225,622
|
|
|
|
40,208
|
|
|
|
243,663
|
|
Control investments
|
|
|
424,308
|
|
|
|
166,690
|
|
|
|
23,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
paid-in-kind
interest income
|
|
|
1,521,114
|
|
|
|
1,022,306
|
|
|
|
1,229,426
|
|
Interest income from cash and cash equivalent investments
|
|
|
1,823,519
|
|
|
|
279,817
|
|
|
|
108,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
12,735,843
|
|
|
|
6,722,804
|
|
|
|
5,963,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
2,073,311
|
|
|
|
1,833,458
|
|
|
|
1,543,378
|
|
Amortization of deferred financing fees
|
|
|
112,660
|
|
|
|
99,920
|
|
|
|
89,970
|
|
Management fees
|
|
|
232,423
|
|
|
|
1,589,070
|
|
|
|
1,573,602
|
|
General and administrative expenses
|
|
|
3,894,240
|
|
|
|
115,040
|
|
|
|
57,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
6,312,634
|
|
|
|
3,637,488
|
|
|
|
3,264,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
6,423,209
|
|
|
|
3,085,316
|
|
|
|
2,698,222
|
|
Net realized gain (loss) on investments Non
Control/Non-Affiliate
|
|
|
(759,634
|
)
|
|
|
6,026,948
|
|
|
|
(3,500,000
|
)
|
Net realized gain on investment Affiliate
|
|
|
141,014
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation) of investments
|
|
|
3,061,107
|
|
|
|
(414,924
|
)
|
|
|
3,975,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net gain on investments before income taxes
|
|
|
2,442,487
|
|
|
|
5,612,024
|
|
|
|
475,000
|
|
Income tax expense
|
|
|
52,598
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,813,098
|
|
|
$
|
8,697,340
|
|
|
$
|
3,173,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income per share basic and diluted
|
|
$
|
0.95
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations per
share basic and diluted
|
|
$
|
1.31
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
0.98
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic
and diluted
|
|
|
6,728,733
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net increase 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-25
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
Accumulated
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
General
|
|
|
Limited
|
|
|
Contribution
|
|
|
Common Stock
|
|
|
Additional
|
|
|
in Excess of
|
|
|
Gains
|
|
|
Appreciation
|
|
|
Total
|
|
|
|
Partners
|
|
|
Partners
|
|
|
Commitment
|
|
|
Number
|
|
|
Par
|
|
|
Paid in
|
|
|
(Less Than)
|
|
|
(Losses) on
|
|
|
(Depreciation) of
|
|
|
Net
|
|
|
|
Capital
|
|
|
Capital
|
|
|
Receivable
|
|
|
of Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Distributions
|
|
|
Investments
|
|
|
Investments
|
|
|
Assets
|
|
|
Balance, January 1, 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-26
Triangle
Capital Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Consolidated)
|
|
|
(Combined)
|
|
|
(Combined)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
$
|
8,813,098
|
|
|
$
|
8,697,340
|
|
|
$
|
3,173,222
|
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of portfolio investments
|
|
|
(64,159,172
|
)
|
|
|
(21,458,478
|
)
|
|
|
(29,125,000
|
)
|
Repayments received/sales of portfolio investments
|
|
|
10,470,803
|
|
|
|
9,965,446
|
|
|
|
12,202,510
|
|
Loan origination and other fees received
|
|
|
1,272,002
|
|
|
|
607,794
|
|
|
|
1,083,600
|
|
Net realized (gain) loss on investments
|
|
|
618,620
|
|
|
|
(6,026,948
|
)
|
|
|
3,500,000
|
|
Net unrealized (appreciation) depreciation on investments
|
|
|
(4,821,366
|
)
|
|
|
414,923
|
|
|
|
(3,975,000
|
)
|
Deferred income taxes
|
|
|
1,760,259
|
|
|
|
|
|
|
|
|
|
Paid-in-kind
interest accrued, net of payments received
|
|
|
(1,280,950
|
)
|
|
|
(578,724
|
)
|
|
|
47,748
|
|
Amortization of deferred financing fees
|
|
|
112,660
|
|
|
|
99,920
|
|
|
|
89,970
|
|
Recognition of loan origination and other fees
|
|
|
(677,615
|
)
|
|
|
(435,492
|
)
|
|
|
(1,018,965
|
)
|
Accretion of loan discounts
|
|
|
(205,725
|
)
|
|
|
(169,036
|
)
|
|
|
(93,272
|
)
|
Depreciation
|
|
|
7,814
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees receivable
|
|
|
(170,340
|
)
|
|
|
(85,236
|
)
|
|
|
48,859
|
|
Prepaid expenses and other current assets
|
|
|
(47,477
|
)
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
349,239
|
|
|
|
781,757
|
|
|
|
13,226
|
|
Interest payable
|
|
|
92,439
|
|
|
|
40,228
|
|
|
|
335,696
|
|
Income taxes payable
|
|
|
52,598
|
|
|
|
|
|
|
|
|
|
Payable to Triangle Capital Partners, LLC
|
|
|
(30,000
|
)
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(47,843,113
|
)
|
|
|
(8,116,506
|
)
|
|
|
(13,717,406
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(41,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under SBA guaranteed debentures payable
|
|
|
5,210,000
|
|
|
|
|
|
|
|
14,100,000
|
|
Financing fees paid
|
|
|
(126,342
|
)
|
|
|
|
|
|
|
(352,500
|
)
|
Issuance of common stock
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
Proceeds from initial public offering, net of expenses
|
|
|
64,728,037
|
|
|
|
|
|
|
|
|
|
Change in deferred offering costs
|
|
|
1,020,646
|
|
|
|
(1,020,646
|
)
|
|
|
|
|
Partners capital contributions
|
|
|
|
|
|
|
10,625,000
|
|
|
|
3,187,500
|
|
Cash dividends paid
|
|
|
(2,964,387
|
)
|
|
|
|
|
|
|
|
|
Distribution to partners
|
|
|
(751,613
|
)
|
|
|
(5,000,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
67,116,341
|
|
|
|
4,605,844
|
|
|
|
16,935,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
19,231,248
|
|
|
|
(3,510,662
|
)
|
|
|
3,217,594
|
|
Cash and cash equivalents, beginning of year
|
|
|
2,556,502
|
|
|
|
6,067,164
|
|
|
|
2,849,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
21,787,750
|
|
|
$
|
2,556,502
|
|
|
$
|
6,067,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,980,872
|
|
|
$
|
1,793,230
|
|
|
$
|
1,208,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of non-cash financing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared but not paid
|
|
$
|
2,041,159
|
|
|
$
|
|
|
|
$
|
|
|
Accrued distribution to partners
|
|
$
|
|
|
|
$
|
531,566
|
|
|
$
|
|
|
See accompanying notes.
F-27
TRIANGLE
CAPITAL CORPORATION
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
Cost
|
|
Fair Value(3)
|
|
Non-Control/Non-Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ambient Air Corporation (6%)*
|
|
Specialty Trade Contractors
|
|
Subordinated Note (12%, Due 03/11)
|
|
$
|
3,144,654
|
|
|
$
|
3,042,889
|
|
|
$
|
3,042,889
|
|
|
|
|
|
Subordinated Note (14%, Due 03/11)
|
|
|
1,872,075
|
|
|
|
1,872,075
|
|
|
|
1,872,075
|
|
|
|
|
|
Common Stock Warrants (455 shares)
|
|
|
|
|
|
|
142,361
|
|
|
|
929,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,016,729
|
|
|
|
5,057,325
|
|
|
|
5,844,664
|
|
APO Newco, LLC (5%)*
|
|
Commercial and
Consumer Marketing
|
|
Subordinated Note
(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 and Distribution
|
|
Subordinated Note (14%, Due 01/10)
|
|
|
2,441,824
|
|
|
|
2,422,091
|
|
|
|
2,422,091
|
|
|
|
|
|
Membership unit warrants (15% of units (150 units))
|
|
|
|
|
|
|
40,800
|
|
|
|
9,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,441,824
|
|
|
|
2,462,891
|
|
|
|
2,431,891
|
|
Assurance Operations Corporation (4%)*
|
|
Auto Components/Metal Fabrication
|
|
Subordinated Note (17%, Due 03/12)
|
|
|
3,828,527
|
|
|
|
3,828,527
|
|
|
|
3,828,527
|
|
|
|
|
|
Common Stock (200 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828,527
|
|
|
|
4,028,527
|
|
|
|
3,828,527
|
|
Bruce Plastics, Inc. (2%)*
|
|
Plastic Component Manufacturing
|
|
Subordinated Note (14%, Due 10/11)
|
|
|
1,500,000
|
|
|
|
1,412,046
|
|
|
|
1,412,046
|
|
|
|
|
|
Common Stock Warrants (12% of common stock)
|
|
|
|
|
|
|
108,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
|
1,520,580
|
|
|
|
1,412,046
|
|
CV Holdings, LLC (6%)*
|
|
Specialty Healthcare Products
|
|
Subordinated Note (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 Services Provider
|
|
Senior Note (9%, Due 07/13)
|
|
|
4,382,257
|
|
|
|
4,382,257
|
|
|
|
4,382,257
|
|
|
|
|
|
2nd
Lien Note (12%, Due 01/14)
|
|
|
907,663
|
|
|
|
907,663
|
|
|
|
907,663
|
|
|
|
|
|
Revolving Line of Credit (9%)
|
|
|
70,880
|
|
|
|
70,880
|
|
|
|
70,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,360,800
|
|
|
|
5,360,800
|
|
|
|
5,360,800
|
|
DataPath, Inc. (1%)*
|
|
Satellite Communication
Manufacturer
|
|
Common Stock
(210,263 shares)
|
|
|
|
|
|
|
101,500
|
|
|
|
576,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,500
|
|
|
|
576,400
|
|
F-28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
Cost
|
|
Fair Value(3)
|
|
Eastern Shore Ambulance, Inc. (1%)*
|
|
Specialty Health Care Services
|
|
Subordinated Note (13%, Due 03/11)
|
|
$
|
1,000,000
|
|
|
$
|
958,715
|
|
|
$
|
958,715
|
|
|
|
|
|
Common Stock Warrants (6% of common stock)
|
|
|
|
|
|
|
55,268
|
|
|
|
7,400
|
|
|
|
|
|
Common Stock (30 shares)
|
|
|
|
|
|
|
30,000
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,043,983
|
|
|
|
968,015
|
|
Energy Hardware Holdings, LLC (4%)*
|
|
Machined Parts Distribution
|
|
Subordinated Note (14.5%, Due 10/12)
|
|
|
3,265,142
|
|
|
|
3,265,142
|
|
|
|
3,265,142
|
|
|
|
|
|
Junior Subordinated Note (8%, Due 10/12)
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
207,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,472,809
|
|
|
|
3,472,809
|
|
|
|
3,472,809
|
|
FCL Graphics, Inc. (8%)*
|
|
Commercial Printing Services
|
|
Senior Note (9%, Due 10/12)
|
|
|
1,920,000
|
|
|
|
1,920,000
|
|
|
|
1,920,000
|
|
|
|
|
|
Senior Note (13%, Due 10/13)
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
2,000,000
|
|
|
|
|
|
2nd
Lien Note (18%, Due 4/14)
|
|
|
3,145,481
|
|
|
|
3,145,481
|
|
|
|
3,145,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,065,481
|
|
|
|
7,065,481
|
|
|
|
7,065,481
|
|
Fire Sprinkler Systems, Inc. (3%)*
|
|
Specialty Trade
|
|
Subordinated Notes (13%-17.5%, Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractors
|
|
04/11)
|
|
|
2,517,986
|
|
|
|
2,517,986
|
|
|
|
2,517,986
|
|
|
|
|
|
Common Stock (250 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
41,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,517,986
|
|
|
|
2,767,986
|
|
|
|
2,559,686
|
|
Flint Acquisition Corporation (5%)*
|
|
Specialty Chemical Manufacturer
|
|
Subordinated Note (12.5%, Due 09/09)
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
|
|
Preferred Stock (9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
1,074,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000
|
|
|
|
4,058,333
|
|
|
|
4,824,100
|
|
Garden Fresh Restaurant Corp. (4%)*
|
|
Restaurant
|
|
2nd
Lien Note (13%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units (5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
446,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,446,600
|
|
Gerli & Company (3%)*
|
|
Specialty Woven Fabrics
|
|
Subordinated Note (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 Services
|
|
Subordinated Note (12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,960,528
|
|
|
|
1,960,528
|
|
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
594,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
2,019,523
|
|
|
|
2,554,828
|
|
Syrgis Holdings, Inc. (6%)*
|
|
Specialty Chemical Manufacturer
|
|
Senior Note (9%, Due 08/12-02/14)
|
|
|
4,932,500
|
|
|
|
4,932,500
|
|
|
|
4,932,500
|
|
|
|
|
|
Common Units (2,114 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,932,500
|
|
|
|
5,932,500
|
|
|
|
5,932,500
|
|
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
Cost
|
|
Fair Value(3)
|
|
Twin-Star International, Inc. (6%)*
|
|
Consumer Home Furnishings
|
|
Subordinated Note (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 Equipment Manufacturer
|
|
Subordinated Note (14%, Due 01/11)
|
|
|
2,081,321
|
|
|
|
2,081,321
|
|
|
|
2,081,321
|
|
|
|
|
|
Common Stock (34,100 shares)
|
|
|
|
|
|
|
200,000
|
|
|
|
543,600
|
|
|
|
|
|
Common Stock Warrant (1,000 shares)
|
|
|
|
|
|
|
|
|
|
|
12,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,081,321
|
|
|
|
2,281,321
|
|
|
|
2,637,121
|
|
Brantley Transportation, LLC (Brantley
Transportation) and Pine Street Holdings, LLC (Pine
Street)(4) (4%)*
|
|
Oil and Gas Services
|
|
Subordinated Note Brantley Transportation (14%, Due
12/12)
|
|
|
3,800,000
|
|
|
|
3,770,482
|
|
|
|
3,770,482
|
|
|
|
|
|
Common Unit Warrants Brantley Transportation (4,560
common units)
|
|
|
|
|
|
|
33,600
|
|
|
|
33,600
|
|
|
|
|
|
Preferred Units Pine Street (200 units)
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
Common Unit Warrants - Pine Street (2,220 units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800,000
|
|
|
|
4,004,082
|
|
|
|
4,004,082
|
|
Dyson Corporation (12%)*
|
|
Custom Forging and Fastener Supplies
|
|
Subordinated Note (15%, Due 12/13)
|
|
|
10,009,167
|
|
|
|
10,009,167
|
|
|
|
10,009,167
|
|
|
|
|
|
Class A Units (1,000,000 units)
|
|
|
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,009,167
|
|
|
|
11,009,167
|
|
|
|
11,009,167
|
|
Equisales, LLC (7%)*
|
|
Energy Products and
|
|
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
|
|
|
|
(4,286 shares)
|
|
|
|
|
|
|
500,000
|
|
|
|
675,122
|
|
Genpref, 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-30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
Cost
|
|
Fair Value(3)
|
|
Fischbein, LLC (14%)*
|
|
Packaging and Materials Handling
|
|
Subordinated Note (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-31
TRIANGLE
CAPITAL CORPORATION
December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Fair 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
|
|
Specialty Trade
|
|
Subordinated Notes
(12%-13%, Due
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation (16%)*
|
|
Contractors
|
|
03/09-03/11)
|
|
|
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
|
|
Specialty
|
|
Subordinated Note
|
|
|
|
|
|
|
|
|
|
|
|
|
(20%)*
|
|
Healthcare Products
|
|
(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-32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Fair Value(3)
|
|
|
Fire Sprinkler Systems, Inc. (12%)*
|
|
Specialty Trade
Contractors
|
|
Subordinated Notes
(13%-17.5%, Due 04/11)
|
|
$
|
2,713,460
|
|
|
$
|
2,713,460
|
|
|
$
|
2,713,460
|
|
|
|
|
|
Common Stock (250 shares)
|
|
|
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,713,460
|
|
|
|
2,963,460
|
|
|
|
2,963,460
|
|
Flint Acquisition Corporation (18%)*
|
|
Specialty Chemical
Manufacturer
|
|
Subordinated Note
(12.5%, Due 09/09)
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
3,750,000
|
|
|
|
|
|
Preferred Stock (9,875 shares)
|
|
|
|
|
|
|
308,333
|
|
|
|
829,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,750,000
|
|
|
|
4,058,333
|
|
|
|
4,579,633
|
|
Garden Fresh Restaurant Corp. (15%)*
|
|
Restaurant
|
|
Subordinated Note (12.8%, Due 12/11)
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
|
|
|
|
Membership Units (5,000 units)
|
|
|
|
|
|
|
500,000
|
|
|
|
673,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,000
|
|
|
|
3,500,000
|
|
|
|
3,673,700
|
|
Gerli & Company (12%)*
|
|
Specialty Woven
Fabrics Manufacturer
|
|
Subordinated Note
(14%, Due 08/11)
|
|
|
3,052,167
|
|
|
|
2,981,184
|
|
|
|
2,981,184
|
|
|
|
|
|
Common Stock Warrants (56,559 shares)
|
|
|
|
|
|
|
83,414
|
|
|
|
83,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,052,167
|
|
|
|
3,064,598
|
|
|
|
3,064,598
|
|
Library Systems & Services, LLC (9%)*
|
|
Municipal Business
Services
|
|
Subordinated Note
(12%, Due 03/11)
|
|
|
2,000,000
|
|
|
|
1,950,190
|
|
|
|
1,950,190
|
|
|
|
|
|
Common Stock Warrants (112 shares)
|
|
|
|
|
|
|
58,995
|
|
|
|
189,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
|
|
2,009,185
|
|
|
|
2,140,085
|
|
Numo Manufacturing, Inc. (5%)*
|
|
Consumer Products
Manufacturer
|
|
Subordinated Note
(13%, Due 12/10)
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
1,235,777
|
|
|
|
|
|
Common Stock Warrants (238 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
1,235,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Non-Control / Non-Affiliate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
38,946,410
|
|
|
|
40,592,972
|
|
|
|
42,370,348
|
|
Affiliate Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom Manufacturing, Inc. (4)(10%)*
|
|
Industrial Equipment Manufacture
|
|
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-33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Investment
|
|
Principal
|
|
|
|
|
|
|
|
Portfolio Company
|
|
Industry
|
|
(1)(2)
|
|
Amount
|
|
|
Cost
|
|
|
Fair 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-34
Triangle
Capital Corporation
|
|
1.
|
Organization,
Basis of Presentation and Summary of Significant Accounting
Policies
|
Organization
Triangle Capital Corporation (the Company), was
formed on October 10, 2006 for the purposes of acquiring
100% of the equity interest in Triangle Mezzanine Fund LLLP
(the Fund) and its general partner, Triangle
Mezzanine LLC (TML), raising capital in an initial
public offering, which was completed in February 2007 (the
Offering) and thereafter operating as an internally
managed Business Development Company (BDC) under the
Investment Company Act of 1940 (the 1940 Act).
The Fund is a specialty finance limited liability limited
partnership formed to make investments primarily in middle
market companies located throughout the United States. The
Funds term is ten years from the date of formation
(August 14, 2002) unless terminated earlier or
extended in accordance with provisions of the limited
partnership agreement. On September 11, 2003, the Fund was
licensed to operate as a Small Business Investment Company
(SBIC) under the authority of the United States Small Business
Administration (SBA). As a SBIC, the Fund is subject to a
variety of regulations concerning, among other things, the size
and nature of the companies in which it may invest and the
structure of those investments.
On February 21, 2007, concurrent with the closing of the
Offering, the following formation transactions were consummated
(the Formation Transactions):
|
|
|
|
|
The Company acquired 100% of the limited partnership interests
in the Fund in exchange for approximately 1.9 million
shares of the Companys common stock. The Fund became a
wholly owned subsidiary of the Company, retained its license
under the authority of the United States Small Business
Administrations (SBA) to operate as a Small Business
Investment Company (SBIC) and continues to hold its
existing investments and make new investments with the proceeds
of the Offering; and
|
|
|
|
The Company acquired 100% of the equity interests in TML, and
the management agreement between the Fund and Triangle Capital
Partners, LLC was terminated.
|
The Offering consisted of the sale of 4,770,000 shares of
Common Stock at a price of $15 per share, resulting in net
proceeds of approximately $64.7 million, after deducting
offering costs totaling approximately $6.8 million. Upon
completion of the Offering, the Company had 6,686,760 common
shares outstanding.
As a result of completion of the Offering and formation
transactions, the Fund became a 100% wholly owned subsidiary of
the Company. The General partner of the Fund is the New General
Partner (which is wholly owned by the Company) and the limited
partners of the Fund are the Company (99.9%) and the New General
Partner (0.1%).
The Company currently operates as a closed-end, non-diversified
investment company and has elected to be treated as a BDC under
the 1940 Act. The Company is internally managed by its executive
officers (previously employed by the Funds external
manager) under the supervision of its board of directors. For
all periods subsequent to the consummation of the Offering and
the Formation Transactions, the Company does not pay management
or advisory fees, but instead incurs the operating costs
associated with employing executive management and investment
and portfolio management professionals.
Basis
of Presentation
The financial statements of the Company include the accounts of
the Company and its wholly-owned subsidiaries, including the
Fund. The Fund does not consolidate portfolio company
investments.
The accompanying financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. The Formation Transactions discussed above
involved an exchange of shares of the Companys common
stock between companies under common control. In accordance with
the guidance on exchanges of shares between entities under
common control contained in Statement of Financial
F-35
Accounting Standards No. 141, Business Combinations
(SFAS 141), the Companys financial
position as of December 31, 2007 and the results of
operations and cash flows for the year ended December 31,
2007 are presented as if the Formation Transactions had occurred
as of January 1, 2007. In addition, in accordance with
SFAS 141, the results of the Companys operations and
its cash flows for the years ended December 31, 2006 and
2005 and the Companys financial position as of
December 31, 2006 have been presented on a combined basis
in order to provide comparative information with respect to
prior periods. The effects of all intercompany transactions
between the Company and its subsidiaries have been eliminated in
consolidation/combination. All financial data and information
included in these financial statements have been presented on
the basis described above.
Significant
Accounting Policies
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
Valuation
of Investments
The Company invests primarily in debt and equity of privately
held companies for which market prices are not available.
Therefore, the Company values all of its investments at fair
value, as determined in good faith by the Board of Directors.
Due to the inherent uncertainty in the valuation process, the
Board of Directors estimate of fair value may differ
significantly from the values that would have been used had a
ready market for the securities existed, and the differences
could be material. In addition, changes in the market
environment and other events that may occur over the life of the
investments may cause the gains or losses ultimately realized on
these investments to be different than the valuations currently
assigned.
Debt and equity securities that are not publicly traded and for
which a limited market does not exist are valued at fair value
as determined in good faith by the Board of Directors. There is
no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case.
In general, fair value is the amount that the Company might
reasonably expect to receive upon the current sale of the
security. In making the good faith determination of the value of
these securities, the Company starts with the cost basis of the
security, which includes the amortized original issue discount,
and
payment-in-kind
(PIK) interest, if any. Management evaluates the investments in
portfolio companies using the most recent portfolio company
financial statements and forecasts. Management also consults
with the portfolio companys senior management to obtain
further updates on the portfolio companys performance,
including information such as industry trends, new product
development and other operational issues. In addition, when
evaluating equity securities of private companies, the Company
considers valuation methodologies consistent with industry
practice, including (i) valuation using a valuation model
based on original transaction multiples and the portfolio
companys recent financial performance, (ii) valuation
of the securities based on recent sales in comparable
transactions, and (iii) a review of similar companies that
are publicly traded and the market multiple of their equity
securities. The Company also uses a risk rating system to
estimate the probability of default on the debt securities and
the probability of loss if there is a default. The risk rating
system covers both qualitative and quantitative aspects of the
business and the securities held.
When originating a debt security, the Company will sometimes
receive warrants or other equity-related securities from the
borrower. The Company determines the cost basis of the warrants
or other equity-related securities received based upon their
respective fair values on the date of receipt in proportion to
the total fair value of the debt and warrants or other
equity-related securities received. Any resulting difference
between the face amount of the debt and its recorded fair value
resulting from the assignment of value to the warrant 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
F-36
and requested Duff & Phelps to perform (hereinafter
referred to as the procedures). We generally request
Duff & Phelps to perform the procedures on each
portfolio company at least once in every calendar year and for
new portfolio companies, at least once in the twelve-month
period subsequent to the initial investment. In certain
instances, we may determine that it is not cost-effective, and
as a result is not in our shareholders best interest, to
request Duff & Phelps to perform the procedures on one
or more portfolio companies. Such instances include, but are not
limited to, situations where the fair value of our investment in
the portfolio company is determined to be insignificant relative
to our total investment portfolio.
As of September 30, 2006, the Company asked
Duff & Phelps to perform the procedures on investments
in 17 portfolio companies comprising 100% of the total
investments at fair value as of September 30, 2006. As of
December 31, 2006, the Company asked Duff &
Phelps to perform the procedures on investments in six portfolio
companies comprising approximately 41% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2006. For the
quarter ended March 31, 2007, the Company asked
Duff & Phelps to perform the procedures on investments
in five portfolio companies comprising approximately 26% of the
total investments at fair value (exclusive of the fair value of
new investments made during the quarter) as of March 31,
2007. For the quarter ended June 30, 2007, the Company
asked Duff & Phelps to perform the procedures on
investments in five portfolio companies comprising approximately
28% of the total investments at fair value (exclusive of the
fair value of new investments made during the quarter) as of
June 30, 2007. For the quarter ended September 30,
2007, the Company asked Duff & Phelps to perform the
procedures on investments in five portfolio companies comprising
approximately 29% of the total investments at fair value
(exclusive of the fair value of new investments made during the
quarter) as of September 30, 2007. For the quarter ended
December 31, 2007, the Company asked Duff &
Phelps to perform the procedures on investments in six portfolio
companies comprising approximately 23% of the total investments
at fair value (exclusive of the fair value of new investments
made during the quarter) as of December 31, 2007. Upon
completion of the procedures, Duff & Phelps concluded
that the fair value, as determined by the Board of Directors, of
those investments subjected to the procedures did not appear to
be unreasonable. The Board of Directors of Triangle Capital
Corporation is ultimately and solely responsible for determining
the fair value of the Companys investments in good faith.
Realized
Gain or Loss and Unrealized Appreciation or Depreciation of
Portfolio Investments
Realized gains or losses are recorded upon the sale or
liquidation of investments and calculated as the difference
between the net proceeds from the sale or liquidation, if any,
and the cost basis of the investment using the specific
identification method. Unrealized appreciation or depreciation
reflects the difference between the valuation of the investments
and the cost basis of the investments.
Investment
Classification
In accordance with the provisions of the 1940 Act, the Company
classifies investments by level of control. As defined in the
1940 Act, Control Investments are investments in
those companies that the Company is deemed to
Control. Affiliate Investments are
investments in those companies that are Affiliated
Companies of the Company, as defined in the 1940 Act,
other than Control Investments. Non-Control/Non-Affiliate
Investments are those that are neither Control Investments
nor Affiliate Investments. Generally, under the 1940 Act, the
Company is deemed to control a company in which it has invested
if the Company owns more than 25.0% of the voting securities of
such company or has greater than 50.0% 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.
F-37
Deferred
Offering Costs
Deferred offering costs consist of costs incurred in connection
with the Offering completed in February 2007. The related
offering costs were reclassified to shareholders equity
and netted against the gross proceeds of the Offering in the
first quarter of 2007.
Deferred
Financing Fees
Costs incurred to obtain long-term debt are capitalized and are
amortized over the term of the debt agreements using the
effective interest method.
Depreciation
Furniture, fixtures and equipment are depreciated on a
straight-line basis over an estimated useful life of five years.
Software and computer equipment are depreciated over an
estimated useful life of three years.
Investment
Income
Interest income, adjusted for amortization of premium and
accretion of original issue discount, is recorded on the accrual
basis to the extent that such amounts are expected to be
collected. The Company will stop accruing interest on
investments and write off any previously accrued and uncollected
interest when it is determined that interest is no longer
collectible. Dividend income is recorded on the ex-dividend date.
Fee
Income
Loan origination, facility, commitment, consent and other
advance fees received in connection with loan agreements are
recorded as deferred income and recognized as income over the
term of the loan. Loan prepayment penalties and loan amendment
fees are recorded into income when received. Any previously
deferred fees are immediately recorded into income upon
prepayment of the related loan.
Payment
in Kind Interest
The Company holds loans in its portfolio that contain a
payment-in-kind
(PIK) interest provision. The PIK interest, computed
at the contractual rate specified in each loan agreement, is
added to the principal balance of the loan and is recorded as
interest income. Thus, the actual collection of this interest
generally occurs at the time of loan principal repayment. The
Company will generally cease accruing PIK interest if there is
insufficient value to support the accrual or if the investee is
not expected to be able to pay all principal and interest due.
Management
Fee
Prior to the consummation of the Formation Transactions, the
Fund was managed by Triangle Capital Partners, LLC, a related
party that is majority-owned by the Companys Chief
Executive Officer and two of the Companys managing
directors. Triangle Capital Partners, LLC was entitled to a
quarterly management fee, which was payable at an annual rate of
2.5% of total aggregate subscriptions of all institutional
partners 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
F-38
financial statements because all income, deductions, gains,
losses, and credits were reported in the tax returns of the
partners.
For 2007, the Company intends to elect to be treated as a
Regulated Investment Company (RIC) under Subchapter
M of the Code. As a RIC, so long as the Company meets certain
minimum distribution,
source-of-income
and asset diversification requirements, it generally is required
to pay income taxes only on the portion of its taxable income
and gains it does not distribute (actually or constructively)
and certain
built-in
gains.
In addition, the company has certain wholly owned taxable
subsidiaries (the Taxable Subsidiaries), each of
which holds one or more of its portfolio investments that are
listed on the Consolidated Schedule of Investments. The Taxable
Subsidiaries are consolidated for GAAP purposes, such that the
companys consolidated financial statements reflect the
Companys investments in the portfolio companies owned by
the Taxable Subsidiaries. The purpose of the Taxable
Subsidiaries is to permit the Company to hold portfolio
companies that are organized as limited liability companies
(LLCs) (or other forms of pass-through entities) and
still satisfy the RIC tax requirement that at least 90% of the
RICs gross revenue for income tax purposes must consist of
investment income. Absent the Taxable Subsidiaries, a
proportionate amount of any gross income of an LLC (or other
pass-through entity) portfolio investment would flow through
directly to the RIC. To the extent that such income did not
consist of investment income, it could jeopardize the
Companys ability to qualify as a RIC and therefore cause
the Company to incur significant amounts of federal income
taxes. Where the LLCs (or other pass-through entities) are owned
by the Taxable Subsidiaries, however, their income is taxed to
the Taxable Subsidiaries and does not flow through to the RIC,
thereby helping the Company preserve its RIC status and
resultant tax advantages. The Taxable Subsidiaries are not
consolidated for income tax purposes and may generate income tax
expense as a result of their ownership of the portfolio
companies. This income tax expense is reflected in the
Companys Statements of Operations.
Segments
The Company lends to and invests in customers in various
industries. The Company separately evaluates the performance of
each of its lending and investment relationships. However,
because each of these loan and investment relationships has
similar business and economic characteristics, they have been
aggregated into a single lending and investment segment. All
applicable segment disclosures are included in or can be derived
from the Companys financial statements.
Concentration
of Credit Risk
The Companys investees are generally lower middle-market
companies in a variety of industries. At December 31, 2007,
the Company had one investment that was individually greater
than or equal to 10% of the total fair value of its investment
portfolio. This investment represented approximately 11% of the
total fair value of the Companys investment portfolio.
There were no individual investments greater than 10% of the
fair value of the Companys portfolio at December 31,
2006. Income, consisting of interest, dividends, fees, other
investment income, and realization of gains or losses on equity
interests, can fluctuate dramatically upon 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.
F-39
The Company has adopted a dividend reinvestment plan
(DRIP) that provides for reinvestment of dividends
on behalf of its shareholders, unless a shareholder elects to
receive cash. As a result, when the Company declares a dividend,
shareholders who have not opted out of the DRIP will have their
dividends automatically reinvested in shares of the
Companys common stock, rather than receiving cash
dividends.
On May 9, 2007, the Company declared a dividend of $0.15
per common share, payable on June 28, 2007 to shareholders
of record on May 31, 2007. The total amount of the dividend
was approximately $1.0 million, of which approximately
$358,000 was paid in cash and approximately $645,000 was
reinvested in new shares of the Companys common stock.
On August 8, 2007, the Company declared a dividend of $0.26
per common share, payable on September 27, 2007 to
shareholders of record on August 30, 2007. The total amount
of the dividend was approximately $1.75 million, of which
approximately $769,000 was paid in cash and approximately
$981,000 was reinvested in new shares of the Companys
common stock.
On November 7, 2007, the Company declared a dividend of
$0.27 per common share, payable on December 27, 2007 to
shareholders of record on November 29, 2007. The total
amount of the dividend was approximately $1.84 million, all
of which was paid in cash.
On December 14, 2007, the Company declared a dividend of
$0.30 per common share, payable on January 28, 2008 to
shareholders of record on December 31, 2007. The total
amount of the dividend was approximately $2.04 million and
is reflected as dividends payable in the Companys
financial statements as of December 31, 2007.
Allocations
and Distributions of the Fund
Prior to the Offering, cumulative net increase in net assets
resulting from operations were allocated to the former General
Partner and limited partners in the following order: first to
the extent of the former limited partners preferred
return, second to the former General Partner until its
allocation equaled 20.0% of the former limited partners
preferred return divided by 80.0%, and third 80.0% to the former
limited partners and 20.0% to the former General Partner of any
remaining amounts. The former limited partners preferred
return was an amount equal to 7.0%, compounded annually, of the
partners net capital contribution. Cumulative net losses
were allocated to the former partners in proportion to their
capital contributions.
In addition, prior to the Offering, distributions were generally
allocated to the former partners in the following order: first
to the extent of the income taxes imposed on the former partner
with respect to income allocated to the former partner, second
to each former limited partner to the extent of the former
limited partners preferred return, third to each former
partner to the extent of contributed capital, fourth to the
former General Partner until its allocation equaled 20.0% of the
cumulative distributions, and fifth 80.0% to the former limited
partners and 20.0% to the former General Partner. Distributions
were at the discretion of the 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.
F-40
Recently
Issued Accounting Standards
In February 2006, the FASB issued FASB Statement No. 155,
Accounting for Certain Hybrid Financial Instruments an
amendment of FASB Statements No. 133 and 140. This
Statement is effective for all financial instruments acquired or
issued after the beginning of an entitys first fiscal year
that begins after September 15, 2006. The adoption of this
statement did not have a material impact on the Companys
financial position, results of operations of cash flows.
In July 2006, the FASB released FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). FIN 48 provides guidance for
how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48
requires the evaluation of tax positions taken or expected to be
taken in the course of preparing the Companys tax returns
to determine whether the tax positions are
more-likely-than-not of being sustained by the
applicable tax authority. Tax positions deemed to meet the
more-likely-than-not threshold would be recorded as a tax
benefit or expense in the current year. Adoption of FIN 48
is required for fiscal years beginning after December 15,
2006 and is to be applied to all open tax years as of the
effective date. The adoption of this statement did not have a
material impact on the Companys financial position,
results of operations or cash flows.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS 157), which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is
the relevant measurement attribute. SFAS 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years. The Company is currently evaluating the impact on its
financial statements of adopting SFAS 157.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including
an amendment of FASB Statement No. 115
(SFAS 159), which permits entities to
choose to measure many financial instruments and certain other
items at fair value. The objective of SFAS 159 is to
improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value
measurement, which is consistent with the Boards long-term
measurement objectives for accounting for financial instruments.
Under SFAS 159, unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings (or another performance indicator if the business
entity does not report earnings) at each subsequent reporting
date. SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Company is currently
evaluating the impact on its financial statements of adopting
SFAS 159.
F-41
Summaries of the composition of the Companys investment
portfolio at cost and fair value as a percentage of total
investments are shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Cost
|
|
|
Total Portfolio
|
|
|
Fair Value
|
|
|
Total Portfolio
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
82,171,781
|
|
|
|
76
|
%
|
|
$
|
82,171,781
|
|
|
|
72
|
%
|
Senior debt
|
|
|
14,798,137
|
|
|
|
14
|
|
|
|
14,798,137
|
|
|
|
13
|
|
Equity shares
|
|
|
9,699,689
|
|
|
|
9
|
|
|
|
15,335,900
|
|
|
|
13
|
|
Equity warrants
|
|
|
548,172
|
|
|
|
1
|
|
|
|
1,870,500
|
|
|
|
2
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
197,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,217,779
|
|
|
|
100
|
%
|
|
$
|
114,374,218
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt and
2nd
lien notes
|
|
$
|
48,788,108
|
|
|
|
93
|
%
|
|
$
|
47,323,885
|
|
|
|
86
|
%
|
Equity shares
|
|
|
2,714,833
|
|
|
|
5
|
|
|
|
5,633,283
|
|
|
|
10
|
|
Equity warrants
|
|
|
1,158,411
|
|
|
|
2
|
|
|
|
1,789,260
|
|
|
|
3
|
|
Royalty rights
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,661,352
|
|
|
|
100
|
%
|
|
$
|
54,996,428
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2007, the Company made
nine new investments totaling $62.2 million, one additional
debt investment in an existing portfolio company of
$1.9 million and one additional equity investment in an
existing portfolio company of approximately $0.1 million.
During the year ended December 31, 2006, the Company made
nine new investments totaling $21.5 million.
The Company has the following debentures outstanding guaranteed
by the SBA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prioritized
|
|
|
December 31,
|
|
|
December 31,
|
|
Issuance Date
|
|
Maturity Date
|
|
Return Rate
|
|
|
2007
|
|
|
2006
|
|
|
September 22, 2004
|
|
September 1, 2014
|
|
|
5.539
|
%
|
|
$
|
8,700,000
|
|
|
$
|
8,700,000
|
|
March 23, 2005
|
|
March 1, 2015
|
|
|
5.893
|
%
|
|
|
13,600,000
|
|
|
|
13,600,000
|
|
September 28, 2005
|
|
September 1, 2015
|
|
|
5.796
|
%
|
|
|
9,500,000
|
|
|
|
9,500,000
|
|
February 1, 2007
|
|
March 1, 2017
|
|
|
6.231
|
%
|
|
|
4,000,000
|
|
|
|
|
|
December 20, 2007
|
|
March 1, 2018
|
|
|
6.031
|
%
|
|
|
1,210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,010,000
|
|
|
$
|
31,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments are payable semi-annually. There are no
principal payments required on these issues prior to maturity.
Debentures issued prior to September 2006 were subject to
prepayment penalties during their first five years. Those
pre-payment penalties no longer apply to debentures issued after
September 1, 2006.
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
F-42
the amount of the commitment. As of December 31, 2007, the
Fund had paid commitment fees for and had a commitment from the
SBA to issue a total of $41.9 million of SBA guaranteed
debentures, of which $37.0 million are outstanding as of
December 31, 2007. On January 8, 2008, the SBA
approved an additional commitment to the Fund in the amount of
$55.0 million, bringing the total commitment from the SBA
to approximately $96.9 million. In order to access the
remaining $29.6 million in borrowing capacity for which the
Fund is currently eligible, the Fund would incur non-refundable
commitment fees of $296,000. In addition to the one-time 1.0%
fee on the total commitment from the SBA, the Company also pays
a one-time 2.425% fee on the amount of each debenture issued.
These fees are capitalized as deferred financing costs and are
amortized over the term of the debt agreements using the
effective interest method. The weighted average interest rates
for all SBA guaranteed debentures as of December 31, 2007
and December 31, 2006 were 5.826% and 5.767%, respectively.
From the date of its formation, October 10, 2006 up to
December 31, 2006, Triangle Capital Corporation was taxed
under Subchapter C of the Internal Revenue Code. Prior to the
consummation of the Formation Transactions, Triangle Mezzanine
Fund LLLP recorded no provision for income taxes in its
financial statements because all income, deductions, gains,
losses, and credits were reported in the tax returns of the
partners.
The Company intends to elect to be treated as a RIC under
Subchapter M of the Internal Revenue Code (the Code)
with the filing of its 2007 federal income tax return. The
election will be effective as of January 1, 2007. Provided
the Company continues to qualify as a RIC, its income generally
will not be subject to federal income or excise tax to the
extent it makes the requisite distributions to stockholders.
To qualify as a RIC, the Company is required to meet certain
income and asset diversification tests in addition to
distributing at least 90% of its investment company taxable
income, as defined by the Code. Because federal income tax
regulations differ from accounting principles generally accepted
in the United States, distributions in accordance with tax
regulations may differ from net investment income and realized
gains recognized for financial reporting purposes. Differences
may be permanent or temporary in nature. Permanent differences
are reclassified among capital accounts in the financial
statements to reflect their tax character. Differences in
classification may also result from the treatment of short-term
gains as ordinary income for tax purposes. During the year ended
December 31, 2007, the Company reclassified for book
purposes amounts arising from permanent book/tax differences
primarily related to return of capital distributions as follows:
|
|
|
|
|
Investment income in excess of distributions
|
|
$
|
649,856
|
|
Additional paid-in capital
|
|
$
|
(649,856
|
)
|
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.
F-43
At December 31, 2007, the components of distributable
earnings on a tax basis detailed below differ from the amounts
reflected in the Companys Statement of Assets and
Liabilities by temporary and other book/tax differences,
primarily relating to depreciation expense and the tax treatment
of certain partnership investments.
|
|
|
|
|
Accumulated Capital Losses
|
|
$
|
(618,620
|
)
|
Other permanent differences relating to the Companys
Formation
|
|
|
1,834,692
|
|
Other temporary differences
|
|
|
34,166
|
|
Unrealized Appreciation
|
|
|
5,266,122
|
|
|
|
|
|
|
Components of Distributable Earnings at December, 31, 2007
|
|
$
|
6,516,360
|
|
|
|
|
|
|
At December 31, 2007, the Company had a capital loss
carryover of $618,620, which is available to offset future
capital gains through December 31, 2015.
|
|
5.
|
Equity
Compensation Plan
|
The Companys Board of Directors (the Board)
has adopted, effective upon approval of our stockholders at our
2008 Annual Meeting, the Triangle Capital Corporation Amended
and Restated 2007 Equity Incentive Plan (the Plan)
whereby the Board (or compensation committee, if delegated
administrative authority by the Board) may award stock options,
restricted stock or other stock based incentive awards to
executive officers, employees and directors; provided that,
until we receive exemptive relief from the SEC allowing
otherwise, the independent members of the Board shall each
receive exactly $30,000 of restricted stock annually as
compensation for their services on the Board, in addition to any
other cash compensation our compensation committee desires to
award to such independent directors. Up to 900,000 shares
are available for grant under the Plan. As of December 31,
2007, no awards under the plan had been granted or were
outstanding.
|
|
6.
|
Commitments
and Contingencies
|
In the normal course of business, the Company is party to
financial instruments with off-balance sheet risk, consisting
primarily of unused commitments to extend credit, in the form of
loans, to the Companys portfolio companies. The balance of
unused commitments to extend credit as of December 31, 2007
was approximately $2.1 million. Since these commitments may
expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements.
The Companys headquarters is leased under an agreement
that expires on December 31, 2008. Rent expense for the
year ended December 31, 2007 was approximately $98,000 and
the rent commitment for the year ended December 31, 2008 is
approximately $115,000.
F-44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-45
|
|
8.
|
Selected
Quarterly Financial Data (Unaudited)
|
The following tables set forth certain quarterly financial
information for each of the eight quarters in the two years
ended December 31, 2007. Results for any quarter are not
necessarily indicative of results for the full year or for any
future quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
2007
|
|
|
Total investment income
|
|
$
|
2,112,116
|
|
|
$
|
3,287,224
|
|
|
$
|
3,594,287
|
|
|
$
|
3,742,216
|
|
Net investment income
|
|
|
804,730
|
|
|
|
1,643,998
|
|
|
|
1,992,001
|
|
|
|
1,982,480
|
|
Net increase in net assets resulting from operations
|
|
|
1,065,835
|
|
|
|
2,230,084
|
|
|
|
3,366,681
|
|
|
|
2,150,498
|
|
Net investment income per share
|
|
$
|
0.12
|
|
|
$
|
0.25
|
|
|
$
|
0.30
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
Total investment income
|
|
$
|
1,401,965
|
|
|
$
|
1,898,543
|
|
|
$
|
1,713,483
|
|
|
$
|
1,708,813
|
|
Net investment income
|
|
|
505,638
|
|
|
|
994,711
|
|
|
|
830,057
|
|
|
|
754,910
|
|
Net increase in net assets resulting from operations
|
|
|
505,638
|
|
|
|
4,190,320
|
|
|
|
1,058,757
|
|
|
|
2,942,626
|
|
SBA
Guaranteed Debentures Payable
On February 28, 2008, the Fund borrowed an additional
$5.2 million under the SBA debenture commitment.
New
Portfolio Company Investments
On March 6, 2008, the Company invested $4.3 million
and $0.5 million in subordinated debt and in equity of
AssetPoint, LLC (AssetPoint), a provider of
integrated enterprise asset management and computerized
maintenance management software and services based in
Greenville, South Carolina. Under the terms of the investment,
AssetPoint will pay interest on the subordinated debt at a fixed
rate of 15.0% per annum.
On March 7, 2008, the Company invested $1.0 million
and $3.0 million in senior debt and subordinated debt,
respectively, of Electronic Systems Protection, Inc.
(ESP), a manufacturer of power protection technology
for the office technology industry based in Zebulon, North
Carolina. Under the terms of the investment, ESP will pay
interest on the senior debt at a floating rate of LIBOR plus
375 basis points per annum and will pay interest on the
subordinated debt at a fixed rate of 14.0% per annum.
F-46
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 June 30, 2008
and Consolidated Balance Sheet as of December 31, 2007
|
|
|
F-2
|
|
Unaudited Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2008 and Unaudited Combined
Statements of Operations for the Three and Six Months Ended
June 30, 2007
|
|
|
F-3
|
|
Unaudited Consolidated Statement of Changes in Net Assets for
the Six Months Ended June 30, 2008 and Unaudited Combined
Statement of Changes in Net Assets for the Six Months Ended
June 30, 2007
|
|
|
F-4
|
|
Unaudited Consolidated Statement of Cash Flows for the Six
Months Ended June 30, 2008 and Unaudited Combined Statement
of Cash Flows for the Six Months Ended June 30, 2007
|
|
|
F-5
|
|
Unaudited Consolidated Schedule of Investments as of
June 30, 2008
|
|
|
F-6
|
|
Consolidated Schedule of Investments as of December 31, 2007
|
|
|
F-10
|
|
Notes to Unaudited Financial Statements
|
|
|
F-13
|
|
|
|
|
|
|
Audited Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-23
|
|
Consolidated Balance Sheet as of December 31, 2007 and
Combined Balance Sheet as of December 31, 2006
|
|
|
F-24
|
|
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-25
|
|
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-26
|
|
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-27
|
|
Consolidated Schedule of Investments as of December 31, 2007
|
|
|
F-28
|
|
Combined Schedule of Investments as of December 31, 2006
|
|
|
F-32
|
|
Notes to Financial Statements
|
|
|
F-34
|
|
(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 (Incorporated by reference to Exhibit
(f)(1) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
(f)(2)
|
|
Debenture No. 08000216 dated April 11, 2008 by and
between Triangle Mezzanine Fund LLLP and the U.S. Small
Business Administration (Incorporated by reference to Exhibit
(f)(2) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
C-1
|
|
|
(f)(3)
|
|
Debenture No. 08000218 dated April 28, 2008 by and
between Triangle Mezzanine Fund LLLP and the U.S. Small
Business Administration (Incorporated by reference to Exhibit
(f)(3) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
(f)(4)
|
|
Debenture No. 08000403 dated May 29, 2008 by and
between Triangle Mezzanine Fund LLLP and the U.S. Small
Business Administration (Incorporated by reference to Exhibit
(f)(4) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
(f)(5)
|
|
Debenture No. 08000404 dated May 29, 2008 by and
between Triangle Mezzanine Fund LLLP and the U.S. Small
Business Administration (Incorporated by reference to Exhibit
(f)(5) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
(f)(6)
|
|
Debenture No. 08000405 dated June 11, 2008 by and
between Triangle Mezzanine Fund LLLP and the U.S. Small
Business Administration (Incorporated by reference to Exhibit
(f)(6) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
(f)(7)
|
|
Agreement to Furnish Certain Instruments (Incorporated by
reference to Exhibit (f)(7) to the Registration Statement on
Form N-2,
File
No. 333-151930,
filed on June 25, 2008)
|
(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)
|
(k)(6)
|
|
Office Lease Agreement between 3700 Glenwood LLC and Triangle
Capital Corporation dated March 27, 2008
|
(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-Q
for the quarter ended June 30, 2008, filed on
August 5, 2008)
|
(s)
|
|
Power of Attorney (included on signature page hereto)
|
|
|
|
* |
|
To be filed by
post-effective
amendment, if applicable. |
C-2
|
|
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
|
|
$
|
65,000
|
*
|
FINRA fee
|
|
$
|
30,500
|
|
Accounting fees and expenses
|
|
$
|
100,000
|
*
|
Legal fees and expenses
|
|
$
|
500,000
|
*
|
Printing and engraving
|
|
$
|
300,000
|
*
|
Miscellaneous fees and expenses
|
|
$
|
10,000
|
*
|
Total
|
|
$
|
1,017,290
|
*
|
|
|
|
* |
|
Estimated for filing purposes. |
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 August 8, 2008.
|
|
|
|
|
|
|
Number of
|
Title of Class
|
|
Record Holders
|
|
Common stock, $0.001 par value
|
|
|
72
|
|
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
C-3
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.
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Item 31.
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Business
and Other Connections of Investment Adviser
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Not applicable.
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Item 32.
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Location
of Accounts and Records.
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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.
C-4
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Item 33.
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Management
Services
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Not applicable.
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.
C-5
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 Pre-effective Amendment No. 1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of Raleigh, State of North Carolina, on August 13,
2008.
TRIANGLE CAPITAL CORPORATION
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By:
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/s/ Garland
S. Tucker, III
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Name: Garland S. Tucker, III
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Title:
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President, Chief Executive Officer & Chairman of the
Board of Directors
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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
Pre-effective Amendment No. 1 has been signed below by the
following persons in the capacities and on the dates indicated:
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Signature
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Title
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Date
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/s/ Garland
S. Tucker, III
Garland
S. Tucker, III
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President, Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
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August 13, 2008
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*
Steven
C. Lilly
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Chief Financial Officer, Treasurer, Secretary and Director
(Principal Financial Officer)
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August 13, 2008
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*
Brent
P. W. Burgess
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Chief Investment Officer and Director
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August 13, 2008
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*
C.
Robert Knox, Jr.
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Controller (Principal Accounting Officer)
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August 13, 2008
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W.
McComb Dunwoody
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Director
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August 13, 2008
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*
Benjamin
S. Goldstein
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Director
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August 13, 2008
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*
Simon
B. Rich, Jr.
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Director
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August 13, 2008
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*
Sherwood
H. Smith, Jr.
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Director
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August 13, 2008
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*By: /s/ Garland
S. Tucker, III
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Garland S. Tucker, III,
Attorney-in-fact
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C-6