Gladstone Capital Corporation, et al.; Notice of Application, 40389-40392 [2012-16626]
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Federal Register / Vol. 77, No. 131 / Monday, July 9, 2012 / Notices
By the Commission.
Ruth Ann Abrams,
Acting Secretary.
[FR Doc. 2012–16589 Filed 7–6–12; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–30125; File No. 812–13878]
Gladstone Capital Corporation, et al.;
Notice of Application
June 29, 2012.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
order under sections 17(d), 57(a)(4) and
57(i) of the Investment Company Act of
1940 (the ‘‘Act’’) and rule 17d–1 under
the Act to permit certain joint
transactions otherwise prohibited by
sections 17(d) and 57(a)(4) of the Act
and rule 17d–1 under the Act.
AGENCY:
Applicants
request an order to permit the Investors
(as defined below) to co-invest in
portfolio companies with each other and
with an affiliated investment fund.
APPLICANTS: Gladstone Capital
Corporation (‘‘GLAD’’), Gladstone
Investment Corporation (‘‘GAIN’’),
Gladstone Lending Corporation
(‘‘Lending,’’ and collectively with GLAD
and GAIN, the ‘‘Funds’’), Gladstone
Partners Fund, LP (‘‘Partners’’), and
Gladstone Management Corporation
(‘‘GMC’’).
FILING DATES: The application was filed
on March 10, 2011, and amended on
December 21, 2011, April 19, 2012, and
June 29, 2012.
HEARING OR NOTIFICATION OF HEARING: An
order granting the requested relief will
be issued unless the Commission orders
a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on July 25, 2012, and
should be accompanied by proof of
service on applicants, in the form of an
affidavit or, for lawyers, a certificate of
service. Hearing requests should state
the nature of the writer’s interest, the
reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by writing to the
Commission’s Secretary.
ADDRESSES: Secretary, U.S. Securities
and Exchange Commission, 100 F St.
NE., Washington, DC 20549–1090.
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SUMMARY OF APPLICATION:
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Applicants: 1521 Westbranch Dr., Suite
200, McLean, VA 22102.
FOR FURTHER INFORMATION CONTACT:
Marilyn Mann, Special Counsel, at (202)
551–6813 or Mary Kay Frech, Branch
Chief, at (202) 551–6821 (Office of
Investment Company Regulation,
Division of Investment Management).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. GLAD and GAIN are closed-end
management investment companies that
have elected to be regulated as business
development companies (‘‘BDCs’’)
under the Act. Lending is a closed-end
management investment company that
has filed a notice of intent to elect to be
regulated as a BDC pursuant to section
6(f) of the Act. Lending was organized
on December 7, 2009, but has not yet
commenced operations. A majority of
the directors of each of the Funds is or
will be persons who are not ‘‘interested
persons’’ as defined in section 2(a)(19)
of the Act (‘‘Non-Interested Directors’’).
2. GMC is registered as an investment
adviser under the Investment Advisers
Act of 1940 (the ‘‘Advisers Act’’) and
serves as the investment adviser to each
Fund. From time to time GMC, or an
entity controlling, controlled by, or
under common control with GMC, may
serve as investment adviser or
subadviser to other BDCs or registered
closed-end management investment
companies (each, a ‘‘Closed-End Fund,’’
and together with the Funds, the
‘‘Investors’’). Companies subadvised by
GMC or an entity controlling, controlled
by, or under common control with GMC
are included in the term ‘‘Closed-End
Fund’’ only if the subadviser controls
the Closed-End Fund.
3. GLAD’s Objectives and Strategies
are to achieve a high level of current
income by investing in certain debt
securities issued by private businesses
that are family-owned businesses or
substantially owned by leveraged
buyout funds or individual investors.1
GAIN’s Objectives and Strategies are to
achieve a high level of current income
1 ‘‘Objectives and Strategies’’ means the
investment objectives and strategies of an Investor,
as described in the Investor’s registration statement
on Form N–2, other filings the Investor has made
with the Commission under the Securities Act of
1933 (‘‘Securities Act’’), or under the Securities
Exchange Act of 1934, and the Investor’s reports to
shareholders.
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and capital gains by investing in debt
and equity securities of private
businesses. Lending’s proposed
Objectives and Strategies are to generate
current income and, to a lesser extent,
long-term capital appreciation through
investing in syndicated and nonsyndicated debt investments of small to
mid-sized corporations that are typically
larger companies than those in which
GLAD or GAIN invest, but which may
from time to time be similar to the types
of investments in which GLAD and
GAIN invest.
4. Partners is a limited partnership
organized under Delaware law and is
excluded from the definition of
investment company by section 3(c)(1)
of the Act. Partners’ investment
objective is similar to GLAD’s
Objectives and Strategies. GMC is the
general partner of Partners and serves as
its investment adviser.
5. Applicants seek an order (‘‘Order’’)
under sections 17(d), 57(a)(4), and 57(i)
of the Act and rule 17d–1 under the Act
to permit two or more of the Investors
and Partners to (a) co-invest with each
other in securities issued by issuers in
private placement transactions 2 in
which GMC negotiates terms in addition
to price; and (b) make additional
investments in securities of such
issuers, including through the exercise
of warrants, conversion privileges, and
other rights to purchase securities of the
issuers (such additional investments,
‘‘Follow-On Investments’’).3 ‘‘CoInvestment Transaction’’ means any
transaction in which an Investor
participated together with Partners
and/or one or more other Investors in
reliance on the Order. ‘‘Potential CoInvestment Transaction’’ means any
investment opportunity in which an
Investor could not participate together
with Partners and/or one or more other
Investors without obtaining and relying
on the Order. The Order would
supersede a previous co-investment
order issued to GLAD, GAIN, Partners,
Gladstone General Partner, LLC, and
GMC.4
6. When considering Potential CoInvestment Transactions for any
Investor, GMC will consider only the
Objectives and Strategies, investment
policies, investment positions, capital
2 The term ‘‘private placement transactions’’
means transactions in which the offer and sale of
securities by the issuer are exempt from registration
under the Securities Act.
3 All existing entities that currently intend to rely
upon the Order have been named as applicants.
Any other existing or future entity that
subsequently relies on the Order will comply with
the terms and conditions of the application.
4 Gladstone Capital, Investment Company Act
Release Nos. 27120 (Oct. 25, 2005) (notice) and
27150 (Nov. 22, 2005) (order).
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available for investment, and other
pertinent factors applicable to that
Investor. Other than pro rata
dispositions and Follow-On Investments
as provided in conditions 7 and 8, and
after making the determinations
required in conditions 1 and 2(a), GMC
will present each Potential CoInvestment Transaction and the
proposed allocation to the directors
eligible to vote under section 57(o) of
the Act (‘‘Eligible Directors’’), and the
‘‘required majority,’’ as defined in
section 57(o) of the Act (‘‘Required
Majority’’) will approve each CoInvestment Transaction prior to any
investment by the participating Investor.
7. With respect to the pro rata
dispositions and Follow-On Investments
provided in conditions 7 and 8, an
Investor may participate in a pro rata
disposition or Follow-On Investment
without obtaining prior approval of the
Required Majority if, among other
things: (i) The proposed participation of
each Investor and Partners in such
disposition is proportionate to its
outstanding investments in the issuer
immediately preceding the disposition
or Follow-On Investment, as the case
may be; and (ii) the board of directors
of the Investor has approved that
Investor’s participation in pro rata
dispositions and Follow-On Investments
as being in the best interests of the
Investor. If the board does not so
approve, any such disposition or
Follow-On Investment will be submitted
to the Investor’s Eligible Directors. The
board of any Investor may at any time
rescind, suspend or qualify its approval
of pro rata dispositions and Follow-On
Investments with the result that all
dispositions and/or Follow-On
Investments must be submitted to the
Eligible Directors.
8. Applicants state that no NonInterested Director of an Investor will
have a financial interest in any CoInvestment Transaction, other than
through share ownership in one of the
Investors.
of the Act provides that, until the
Commission prescribes rules under
section 57(a)(4), the Commission’s rules
under section 17(d) of the Act
applicable to registered closed-end
investment companies will be deemed
to apply to transactions subject to
section 57(a)(4). Because the
Commission has not adopted any rules
under section 57(a)(4), rule 17d–1 also
applies to joint transactions with
Investors that are BDCs. Section 17(d) of
the Act and rule 17d–1 under the Act
are applicable to Investors that are
registered closed-end investment
companies.
2. Section 17(d) of the Act and rule
17d–1 under the Act prohibit affiliated
persons of a registered investment
company from participating in joint
transactions with the company unless
the Commission has granted an order
permitting such transactions. In passing
upon applications under rule 17d–1, the
Commission considers whether the
company’s participation in the joint
transaction is consistent with the
provisions, policies, and purposes of the
Act and the extent to which such
participation is on a basis different from
or less advantageous than that of other
participants.
3. Applicants state that in the absence
of the requested relief, the Investors
would be, in some circumstances,
limited in their ability to participate in
attractive and appropriate investment
opportunities. Applicants believe that
the proposed terms and conditions will
ensure that the Co-Investment
Transactions are consistent with the
protection of each Investor’s
shareholders and with the purposes
intended by the policies and provisions
of the Act. Applicants state that the
Investors’ participation in the CoInvestment Transactions will be
consistent with the provisions, policies,
and purposes of the Act and on a basis
that is not different from or less
advantageous than that of other
participants.
Applicants’ Legal Analysis
1. Section 57(a)(4) of the Act prohibits
certain affiliated persons of a BDC from
participating in joint transactions with
the BDC in contravention of rules as
prescribed by the Commission. Under
section 57(b)(2) of the Act, any person
who is directly or indirectly controlling,
controlled by, or under common control
with a BDC is subject to section 57(a)(4).
Applicants submit that each of the
Investors and Partners could be deemed
to be a person related to each Investor
in a manner described by section 57(b)
by virtue of being under common
control with the Investor. Section 57(i)
Applicants’ Conditions
Applicants agree that the Order will
be subject to the following conditions:
1. Each time GMC considers a
Potential Co-Investment Transaction for
Partners or another Investor that falls
within an Investor’s then-current
Objectives and Strategies, GMC will
make an independent determination of
the appropriateness of the investment
for the Investor in light of the Investor’s
then-current circumstances.
2. (a) If GMC deems an Investor’s
participation in any Potential CoInvestment Transaction to be
appropriate for the Investor, it will then
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determine an appropriate level of
investment for the Investor.
(b) If the aggregate amount
recommended by GMC to be invested in
the Potential Co-investment Transaction
by the Investors and Partners,
collectively, in the same transaction,
exceeds the amount of the investment
opportunity, the amount proposed to be
invested by each party will be allocated
among them pro rata based on each
party’s total assets, up to the amount
proposed to be invested by each. GMC
will provide the Eligible Directors of
each participating Investor with
information concerning each
participating party’s total assets to assist
the Eligible Directors with their review
of the Investor’s investments for
compliance with these allocation
procedures.
(c) After making the determinations
required in conditions 1 and 2(a), GMC
will distribute written information
concerning the Potential Co-Investment
Transaction (including the amount
proposed to be invested by each
Investor and Partners) to the Eligible
Directors of each participating Investor
for their consideration. An Investor will
co-invest with another Investor or
Partners only if, prior to participating in
the Potential Co-Investment
Transaction, a Required Majority
concludes that:
(i) The terms of the transaction,
including the consideration to be paid,
are reasonable and fair to the Investor
and its shareholders and do not involve
overreaching in respect of the Investor
or its shareholders on the part of any
person concerned;
(ii) The transaction is consistent with:
(A) The interests of the shareholders
of the Investor; and
(B) The Investor’s then-current
Objectives and Strategies;
(iii) The investment by other Investors
or Partners would not disadvantage the
Investor, and participation by the
Investor would not be on a basis
different from or less advantageous than
that of other Investors or Partners;
provided that, if any other Investor or
Partners, but not the Investor itself,
gains the right to nominate a director for
election to a portfolio company’s board
of directors or the right to have a board
observer or any similar right to
participate in the governance or
management of the portfolio company,
such event will not be interpreted to
prohibit the Required Majority from
reaching the conclusions required by
this condition (2)(c)(iii), if:
(A) The Eligible Directors will have
the right to ratify the selection of such
director or board observer, if any;
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(B) GMC agrees to, and does, provide,
periodic reports to the Investor’s board
of directors with respect to the actions
of the director or the information
received by the board observer or
obtained through the exercise of any
similar right to participate in the
governance or management of the
portfolio company; and
(C) Any fees or other compensation
that Partners or any Investor or any
affiliated person of Partners or any
Investor receives in connection with the
right of Partners or the Investor to
nominate a director or appoint a board
observer or otherwise to participate in
the governance or management of the
portfolio company will be shared
proportionately among Partners (who
may, in turn, share its portion with its
affiliated persons) and the participating
Investors in accordance with the
amount of each party’s investment; and
(iv) The proposed investment by the
Investor will not benefit GMC, Partners
or the other Investors or any affiliated
person of any of them (other than the
parties to the Co-Investment
Transaction), except (A) to the extent
permitted by condition 13, (B) to the
extent permitted by section 17(e) or
57(k) of the Act, as applicable, (C)
indirectly, as a result of an interest in
the securities issued by one of the
parties to the Co-Investment
Transaction, or (D) in the case of fees or
other compensation described in
condition 2(c)(iii)(C).
3. Each Investor has the right to
decline to participate in any Potential
Co-Investment Transaction or to invest
less than the amount proposed.
4. GMC will present to the board of
directors of each Investor, on a quarterly
basis, a record of all investments in
Potential Co-Investment Transactions
made by any of the other Investors or
Partners during the preceding quarter
that fell within the Investor’s thencurrent Objectives and Strategies that
were not made available to the Investor,
and an explanation of why the
investment opportunities were not
offered to the Investor. All information
presented to the board of directors
pursuant to this condition will be kept
for the life of the Investor and at least
two years thereafter, and will be subject
to examination by the Commission and
its staff.
5. Except for Follow-On Investments
made in accordance with condition 8,
an Investor will not invest in reliance on
the Order in any issuer in which
another Investor or Partners or any
affiliated person of such Investor or
Partners is an existing investor.
6. An Investor will not participate in
any Potential Co-Investment
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Transaction unless the terms,
conditions, price, class of securities to
be purchased, settlement date, and
registration rights will be the same for
each participating Investor and Partners.
The grant to Partners or another
Investor, but not the Investor, of the
right to nominate a director for election
to a portfolio company’s board of
directors, the right to have an observer
on the board of directors or similar
rights to participate in the governance or
management of the portfolio company
will not be interpreted so as to violate
this condition 6, if conditions
2(c)(iii)(A), (B) and (C) are met.
7. (a) If Partners or any Investor elects
to sell, exchange or otherwise dispose of
an interest in a security that was
acquired in a Co-Investment
Transaction, GMC will:
(i) Notify each Investor that
participated in the Co-Investment
Transaction of the proposed disposition
at the earliest practical time; and
(ii) Formulate a recommendation as to
participation by each Investor in the
disposition.
(b) Each Investor will have the right
to participate in such disposition on a
proportionate basis, at the same price
and on the same terms and conditions
as those applicable to Partners and any
other Investor.
(c) An Investor may participate in
such disposition without obtaining prior
approval of the Required Majority if: (i)
The proposed participation of each
Investor and Partners in such
disposition is proportionate to its
outstanding investments in the issuer
immediately preceding the disposition;
(ii) the board of directors of the Investor
has approved as being in the best
interests of the Investor the ability to
participate in such dispositions on a pro
rata basis (as described in greater detail
in this application); and (iii) the board
of directors of the Investor is provided
on a quarterly basis with a list of all
dispositions made in accordance with
this condition. In all other cases, GMC
will provide its written
recommendation as to the Investor’s
participation to the Eligible Directors,
and the Investor will participate in such
disposition solely to the extent that a
Required Majority determines that it is
in the Investor’s best interests.
(d) Partners and each Investor will
bear their own expenses in connection
with any such disposition.
8. (a) If Partners or any Investor
desires to make a Follow-On Investment
in a portfolio company whose securities
were acquired in a Co-Investment
Transaction, GMC will:
(i) Notify each Investor that
participated in the Co-Investment
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Transaction of the proposed transaction
at the earliest practical time; and
(ii) Formulate a recommendation as to
the proposed participation, including
the amount of the proposed Follow-On
Investment, by each Investor.
(b) An Investor may participate in
such Follow-On Investment without
obtaining prior approval of the Required
Majority if: (i) The proposed
participation of each Investor and
Partners in such investment is
proportionate to its outstanding
investments in the issuer immediately
preceding the Follow-On Investment;
and (ii) the board of directors of the
Investor has approved as being in the
best interests of the Investor the ability
to participate in Follow-On Investments
on a pro rata basis (as described in
greater detail in this application). In all
other cases, GMC will provide its
written recommendation as to the
Investor’s participation to the Eligible
Directors, and the Investor will
participate in such Follow-On
Investment solely to the extent that a
Required Majority determines that it is
in the Investor’s best interests.
(c) If, with respect to any Follow-On
Investment:
(i) The amount of the opportunity is
not based on the Investors’ and Partners’
outstanding investments immediately
preceding the Follow-On Investment;
and
(ii) The aggregate amount
recommended by GMC to be invested by
each Investor in the Follow-On
Investment, together with the amount
proposed to be invested by Partners in
the same transaction, exceeds the
amount of the opportunity; then the
amount invested by each such party will
be allocated among them pro rata based
on each party’s total assets, up to the
amount proposed to be invested by
each.
(d) The acquisition of Follow-On
Investments as permitted by this
condition will be considered a CoInvestment Transaction for all purposes
and subject to the other conditions set
forth in this application.
9. The Non-Interested Directors of
each Investor will be provided quarterly
for review all information concerning
Potential Co-Investment Transactions
and Co-Investment Transactions,
including investments made by other
Investors or Partners that the Investor
considered but declined to participate
in, so that the Non-Interested Directors
may determine whether all investments
made during the preceding quarter,
including those investments that the
Investor considered but declined to
participate in, comply with the
conditions of the Order. In addition, the
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Non-Interested Directors will consider
at least annually the continued
appropriateness for the Investor of
participating in new and existing CoInvestment Transactions.
10. Each Investor will maintain the
records required by section 57(f)(3) of
the Act as if each of the investments
permitted under these conditions were
approved by the Required Majority
under section 57(f).
11. No Non-Interested Director of an
Investor will also be a director, general
partner, managing member or principal,
or otherwise an ‘‘affiliated person’’
(as defined in the Act), of Partners.
12. The expenses, if any, associated
with acquiring, holding or disposing of
any securities acquired in a CoInvestment Transaction (including,
without limitation, the expenses of the
distribution of any such securities
registered for sale under the Securities
Act) will, to the extent not payable by
GMC under its investment advisory
agreements with the Investors and
Partners, be shared by the Investors and
Partners in proportion to the relative
amounts of the securities held or being
acquired or disposed of, as the case may
be.
13. Any transaction fee (including
break-up or commitment fees but
excluding broker’s fees contemplated by
section 17(e) or 57(k) of the Act, as
applicable) received in connection with
a Co-Investment Transaction will be
distributed to the participating Investors
and Partners on a pro rata basis based
on the amounts they invested or
committed, as the case may be, in such
Co-Investment Transaction. If any
transaction fee is to be held by GMC
pending consummation of the
transaction, the fee will be deposited
into an account maintained by GMC at
a bank or banks having the
qualifications prescribed in section
26(a)(1) of the Act, and the account will
earn a competitive rate of interest that
will also be divided pro rata among the
Investors and Partners based on the
amounts they invest in such CoInvestment Transaction. None of
Partners, GMC or any affiliated person
of the Investors will receive additional
compensation or remuneration of any
kind as a result of or in connection with
a Co-Investment Transaction (other than
(a) in the case of the Investors and
Partners, the pro rata transaction fees
described above and fees or other
compensation described in condition
2(c)(iii)(C) and (b) in the case of GMC,
investment advisory fees paid in
accordance with the agreements
between GMC and the Investors or
Partners).
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For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
Dated: July 3, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–16771 Filed 7–5–12; 11:15 am]
BILLING CODE 8011–01–P
[FR Doc. 2012–16626 Filed 7–6–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Tuesday, July 10, 2012 at 10:00 a.m.
and Friday, July 13, 2012 at 1:00 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meetings. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(2), (3), (5), (6), (7), 9(B)
and (10) and 17 CFR 200.402(a)(2), (3),
(5), (6), (7), 9(ii) and (10), permit
consideration of the scheduled matters
at the Closed Meeting.
Commissioner Gallagher, as duty
officer, voted to consider the items
listed for the Closed Meeting in closed
sessions.
The subject matter of the Closed
Meeting scheduled for Tuesday, July 10,
2012 will be:
Institution and settlement of an
injunctive action; and a personnel
matter.
The subject matter of the Closed
Meeting scheduled for Friday, July 13,
2012 will be:
Consideration of amicus participation;
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact:
The Office of the Secretary at (202)
551–5400.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67331; File No. SR–EDGX–
2012–24]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing of
Proposed Rule Changes To Amend
EDGX Rules Regarding Market Access
July 2, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 22,
2012, the EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
changes as described in Items I, II and
III below, which items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule changes
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 11.3 to (1) delete those provisions
that the Exchange believes have been
rendered superfluous and unnecessary
in light of the adoption by the
Commission of Rule 15c3–5 under the
Act; and (2) add a requirement for
Sponsoring Members 3 to maintain a list
of Sponsored Participants 4 which the
Sponsoring Member has authorized to
obtain access to the Exchange’s System,5
and to provide the list of Sponsored
Participants to the Exchange upon
request. The Exchange is also proposing
amendments to Rule 11.3(b)(1) and Rule
1.5(z) to align the definition of
Sponsored Participant with the
terminology used in Rule 15c3–5 to
describe such arrangements.
The text of the proposed rule changes
is attached as Exhibit 5 and is available
on the Exchange’s Web site at
www.directedge.com, at the Exchange’s
principal office and at the Public
Reference Room of the Commission.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 As defined in EDGX Rule 1.5(aa).
4 As defined in EDGX Rule 1.5(z).
5 As defined in EDGX Rule 1.5(cc).
2 17
E:\FR\FM\09JYN1.SGM
09JYN1
]]>Agencies
[Federal Register Volume 77, Number 131 (Monday, July 9, 2012)]
[Notices]
[Pages 40389-40392]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-16626]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-30125; File No. 812-13878]
Gladstone Capital Corporation, et al.; Notice of Application
June 29, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an order under sections 17(d),
57(a)(4) and 57(i) of the Investment Company Act of 1940 (the ``Act'')
and rule 17d-1 under the Act to permit certain joint transactions
otherwise prohibited by sections 17(d) and 57(a)(4) of the Act and rule
17d-1 under the Act.
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Summary of Application: Applicants request an order to permit the
Investors (as defined below) to co-invest in portfolio companies with
each other and with an affiliated investment fund.
Applicants: Gladstone Capital Corporation (``GLAD''), Gladstone
Investment Corporation (``GAIN''), Gladstone Lending Corporation
(``Lending,'' and collectively with GLAD and GAIN, the ``Funds''),
Gladstone Partners Fund, LP (``Partners''), and Gladstone Management
Corporation (``GMC'').
Filing Dates: The application was filed on March 10, 2011, and amended
on December 21, 2011, April 19, 2012, and June 29, 2012.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on July 25, 2012, and should be accompanied by proof of
service on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
St. NE., Washington, DC 20549-1090. Applicants: 1521 Westbranch Dr.,
Suite 200, McLean, VA 22102.
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Special Counsel, at
(202) 551-6813 or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Office of Investment Company Regulation, Division of Investment
Management).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicants' Representations
1. GLAD and GAIN are closed-end management investment companies
that have elected to be regulated as business development companies
(``BDCs'') under the Act. Lending is a closed-end management investment
company that has filed a notice of intent to elect to be regulated as a
BDC pursuant to section 6(f) of the Act. Lending was organized on
December 7, 2009, but has not yet commenced operations. A majority of
the directors of each of the Funds is or will be persons who are not
``interested persons'' as defined in section 2(a)(19) of the Act
(``Non-Interested Directors'').
2. GMC is registered as an investment adviser under the Investment
Advisers Act of 1940 (the ``Advisers Act'') and serves as the
investment adviser to each Fund. From time to time GMC, or an entity
controlling, controlled by, or under common control with GMC, may serve
as investment adviser or subadviser to other BDCs or registered closed-
end management investment companies (each, a ``Closed-End Fund,'' and
together with the Funds, the ``Investors''). Companies subadvised by
GMC or an entity controlling, controlled by, or under common control
with GMC are included in the term ``Closed-End Fund'' only if the
subadviser controls the Closed-End Fund.
3. GLAD's Objectives and Strategies are to achieve a high level of
current income by investing in certain debt securities issued by
private businesses that are family-owned businesses or substantially
owned by leveraged buyout funds or individual investors.\1\ GAIN's
Objectives and Strategies are to achieve a high level of current income
and capital gains by investing in debt and equity securities of private
businesses. Lending's proposed Objectives and Strategies are to
generate current income and, to a lesser extent, long-term capital
appreciation through investing in syndicated and non-syndicated debt
investments of small to mid-sized corporations that are typically
larger companies than those in which GLAD or GAIN invest, but which may
from time to time be similar to the types of investments in which GLAD
and GAIN invest.
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\1\ ``Objectives and Strategies'' means the investment
objectives and strategies of an Investor, as described in the
Investor's registration statement on Form N-2, other filings the
Investor has made with the Commission under the Securities Act of
1933 (``Securities Act''), or under the Securities Exchange Act of
1934, and the Investor's reports to shareholders.
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4. Partners is a limited partnership organized under Delaware law
and is excluded from the definition of investment company by section
3(c)(1) of the Act. Partners' investment objective is similar to GLAD's
Objectives and Strategies. GMC is the general partner of Partners and
serves as its investment adviser.
5. Applicants seek an order (``Order'') under sections 17(d),
57(a)(4), and 57(i) of the Act and rule 17d-1 under the Act to permit
two or more of the Investors and Partners to (a) co-invest with each
other in securities issued by issuers in private placement transactions
\2\ in which GMC negotiates terms in addition to price; and (b) make
additional investments in securities of such issuers, including through
the exercise of warrants, conversion privileges, and other rights to
purchase securities of the issuers (such additional investments,
``Follow-On Investments'').\3\ ``Co-Investment Transaction'' means any
transaction in which an Investor participated together with Partners
and/or one or more other Investors in reliance on the Order.
``Potential Co-Investment Transaction'' means any investment
opportunity in which an Investor could not participate together with
Partners and/or one or more other Investors without obtaining and
relying on the Order. The Order would supersede a previous co-
investment order issued to GLAD, GAIN, Partners, Gladstone General
Partner, LLC, and GMC.\4\
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\2\ The term ``private placement transactions'' means
transactions in which the offer and sale of securities by the issuer
are exempt from registration under the Securities Act.
\3\ All existing entities that currently intend to rely upon the
Order have been named as applicants. Any other existing or future
entity that subsequently relies on the Order will comply with the
terms and conditions of the application.
\4\ Gladstone Capital, Investment Company Act Release Nos. 27120
(Oct. 25, 2005) (notice) and 27150 (Nov. 22, 2005) (order).
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6. When considering Potential Co-Investment Transactions for any
Investor, GMC will consider only the Objectives and Strategies,
investment policies, investment positions, capital
[[Page 40390]]
available for investment, and other pertinent factors applicable to
that Investor. Other than pro rata dispositions and Follow-On
Investments as provided in conditions 7 and 8, and after making the
determinations required in conditions 1 and 2(a), GMC will present each
Potential Co-Investment Transaction and the proposed allocation to the
directors eligible to vote under section 57(o) of the Act (``Eligible
Directors''), and the ``required majority,'' as defined in section
57(o) of the Act (``Required Majority'') will approve each Co-
Investment Transaction prior to any investment by the participating
Investor.
7. With respect to the pro rata dispositions and Follow-On
Investments provided in conditions 7 and 8, an Investor may participate
in a pro rata disposition or Follow-On Investment without obtaining
prior approval of the Required Majority if, among other things: (i) The
proposed participation of each Investor and Partners in such
disposition is proportionate to its outstanding investments in the
issuer immediately preceding the disposition or Follow-On Investment,
as the case may be; and (ii) the board of directors of the Investor has
approved that Investor's participation in pro rata dispositions and
Follow-On Investments as being in the best interests of the Investor.
If the board does not so approve, any such disposition or Follow-On
Investment will be submitted to the Investor's Eligible Directors. The
board of any Investor may at any time rescind, suspend or qualify its
approval of pro rata dispositions and Follow-On Investments with the
result that all dispositions and/or Follow-On Investments must be
submitted to the Eligible Directors.
8. Applicants state that no Non-Interested Director of an Investor
will have a financial interest in any Co-Investment Transaction, other
than through share ownership in one of the Investors.
Applicants' Legal Analysis
1. Section 57(a)(4) of the Act prohibits certain affiliated persons
of a BDC from participating in joint transactions with the BDC in
contravention of rules as prescribed by the Commission. Under section
57(b)(2) of the Act, any person who is directly or indirectly
controlling, controlled by, or under common control with a BDC is
subject to section 57(a)(4). Applicants submit that each of the
Investors and Partners could be deemed to be a person related to each
Investor in a manner described by section 57(b) by virtue of being
under common control with the Investor. Section 57(i) of the Act
provides that, until the Commission prescribes rules under section
57(a)(4), the Commission's rules under section 17(d) of the Act
applicable to registered closed-end investment companies will be deemed
to apply to transactions subject to section 57(a)(4). Because the
Commission has not adopted any rules under section 57(a)(4), rule 17d-1
also applies to joint transactions with Investors that are BDCs.
Section 17(d) of the Act and rule 17d-1 under the Act are applicable to
Investors that are registered closed-end investment companies.
2. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
affiliated persons of a registered investment company from
participating in joint transactions with the company unless the
Commission has granted an order permitting such transactions. In
passing upon applications under rule 17d-1, the Commission considers
whether the company's participation in the joint transaction is
consistent with the provisions, policies, and purposes of the Act and
the extent to which such participation is on a basis different from or
less advantageous than that of other participants.
3. Applicants state that in the absence of the requested relief,
the Investors would be, in some circumstances, limited in their ability
to participate in attractive and appropriate investment opportunities.
Applicants believe that the proposed terms and conditions will ensure
that the Co-Investment Transactions are consistent with the protection
of each Investor's shareholders and with the purposes intended by the
policies and provisions of the Act. Applicants state that the
Investors' participation in the Co-Investment Transactions will be
consistent with the provisions, policies, and purposes of the Act and
on a basis that is not different from or less advantageous than that of
other participants.
Applicants' Conditions
Applicants agree that the Order will be subject to the following
conditions:
1. Each time GMC considers a Potential Co-Investment Transaction
for Partners or another Investor that falls within an Investor's then-
current Objectives and Strategies, GMC will make an independent
determination of the appropriateness of the investment for the Investor
in light of the Investor's then-current circumstances.
2. (a) If GMC deems an Investor's participation in any Potential
Co-Investment Transaction to be appropriate for the Investor, it will
then determine an appropriate level of investment for the Investor.
(b) If the aggregate amount recommended by GMC to be invested in
the Potential Co-investment Transaction by the Investors and Partners,
collectively, in the same transaction, exceeds the amount of the
investment opportunity, the amount proposed to be invested by each
party will be allocated among them pro rata based on each party's total
assets, up to the amount proposed to be invested by each. GMC will
provide the Eligible Directors of each participating Investor with
information concerning each participating party's total assets to
assist the Eligible Directors with their review of the Investor's
investments for compliance with these allocation procedures.
(c) After making the determinations required in conditions 1 and
2(a), GMC will distribute written information concerning the Potential
Co-Investment Transaction (including the amount proposed to be invested
by each Investor and Partners) to the Eligible Directors of each
participating Investor for their consideration. An Investor will co-
invest with another Investor or Partners only if, prior to
participating in the Potential Co-Investment Transaction, a Required
Majority concludes that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the Investor and its shareholders and
do not involve overreaching in respect of the Investor or its
shareholders on the part of any person concerned;
(ii) The transaction is consistent with:
(A) The interests of the shareholders of the Investor; and
(B) The Investor's then-current Objectives and Strategies;
(iii) The investment by other Investors or Partners would not
disadvantage the Investor, and participation by the Investor would not
be on a basis different from or less advantageous than that of other
Investors or Partners; provided that, if any other Investor or
Partners, but not the Investor itself, gains the right to nominate a
director for election to a portfolio company's board of directors or
the right to have a board observer or any similar right to participate
in the governance or management of the portfolio company, such event
will not be interpreted to prohibit the Required Majority from reaching
the conclusions required by this condition (2)(c)(iii), if:
(A) The Eligible Directors will have the right to ratify the
selection of such director or board observer, if any;
[[Page 40391]]
(B) GMC agrees to, and does, provide, periodic reports to the
Investor's board of directors with respect to the actions of the
director or the information received by the board observer or obtained
through the exercise of any similar right to participate in the
governance or management of the portfolio company; and
(C) Any fees or other compensation that Partners or any Investor or
any affiliated person of Partners or any Investor receives in
connection with the right of Partners or the Investor to nominate a
director or appoint a board observer or otherwise to participate in the
governance or management of the portfolio company will be shared
proportionately among Partners (who may, in turn, share its portion
with its affiliated persons) and the participating Investors in
accordance with the amount of each party's investment; and
(iv) The proposed investment by the Investor will not benefit GMC,
Partners or the other Investors or any affiliated person of any of them
(other than the parties to the Co-Investment Transaction), except (A)
to the extent permitted by condition 13, (B) to the extent permitted by
section 17(e) or 57(k) of the Act, as applicable, (C) indirectly, as a
result of an interest in the securities issued by one of the parties to
the Co-Investment Transaction, or (D) in the case of fees or other
compensation described in condition 2(c)(iii)(C).
3. Each Investor has the right to decline to participate in any
Potential Co-Investment Transaction or to invest less than the amount
proposed.
4. GMC will present to the board of directors of each Investor, on
a quarterly basis, a record of all investments in Potential Co-
Investment Transactions made by any of the other Investors or Partners
during the preceding quarter that fell within the Investor's then-
current Objectives and Strategies that were not made available to the
Investor, and an explanation of why the investment opportunities were
not offered to the Investor. All information presented to the board of
directors pursuant to this condition will be kept for the life of the
Investor and at least two years thereafter, and will be subject to
examination by the Commission and its staff.
5. Except for Follow-On Investments made in accordance with
condition 8, an Investor will not invest in reliance on the Order in
any issuer in which another Investor or Partners or any affiliated
person of such Investor or Partners is an existing investor.
6. An Investor will not participate in any Potential Co-Investment
Transaction unless the terms, conditions, price, class of securities to
be purchased, settlement date, and registration rights will be the same
for each participating Investor and Partners. The grant to Partners or
another Investor, but not the Investor, of the right to nominate a
director for election to a portfolio company's board of directors, the
right to have an observer on the board of directors or similar rights
to participate in the governance or management of the portfolio company
will not be interpreted so as to violate this condition 6, if
conditions 2(c)(iii)(A), (B) and (C) are met.
7. (a) If Partners or any Investor elects to sell, exchange or
otherwise dispose of an interest in a security that was acquired in a
Co-Investment Transaction, GMC will:
(i) Notify each Investor that participated in the Co-Investment
Transaction of the proposed disposition at the earliest practical time;
and
(ii) Formulate a recommendation as to participation by each
Investor in the disposition.
(b) Each Investor will have the right to participate in such
disposition on a proportionate basis, at the same price and on the same
terms and conditions as those applicable to Partners and any other
Investor.
(c) An Investor may participate in such disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Investor and Partners in such disposition is
proportionate to its outstanding investments in the issuer immediately
preceding the disposition; (ii) the board of directors of the Investor
has approved as being in the best interests of the Investor the ability
to participate in such dispositions on a pro rata basis (as described
in greater detail in this application); and (iii) the board of
directors of the Investor is provided on a quarterly basis with a list
of all dispositions made in accordance with this condition. In all
other cases, GMC will provide its written recommendation as to the
Investor's participation to the Eligible Directors, and the Investor
will participate in such disposition solely to the extent that a
Required Majority determines that it is in the Investor's best
interests.
(d) Partners and each Investor will bear their own expenses in
connection with any such disposition.
8. (a) If Partners or any Investor desires to make a Follow-On
Investment in a portfolio company whose securities were acquired in a
Co-Investment Transaction, GMC will:
(i) Notify each Investor that participated in the Co-Investment
Transaction of the proposed transaction at the earliest practical time;
and
(ii) Formulate a recommendation as to the proposed participation,
including the amount of the proposed Follow-On Investment, by each
Investor.
(b) An Investor may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Investor and Partners in such investment
is proportionate to its outstanding investments in the issuer
immediately preceding the Follow-On Investment; and (ii) the board of
directors of the Investor has approved as being in the best interests
of the Investor the ability to participate in Follow-On Investments on
a pro rata basis (as described in greater detail in this application).
In all other cases, GMC will provide its written recommendation as to
the Investor's participation to the Eligible Directors, and the
Investor will participate in such Follow-On Investment solely to the
extent that a Required Majority determines that it is in the Investor's
best interests.
(c) If, with respect to any Follow-On Investment:
(i) The amount of the opportunity is not based on the Investors'
and Partners' outstanding investments immediately preceding the Follow-
On Investment; and
(ii) The aggregate amount recommended by GMC to be invested by each
Investor in the Follow-On Investment, together with the amount proposed
to be invested by Partners in the same transaction, exceeds the amount
of the opportunity; then the amount invested by each such party will be
allocated among them pro rata based on each party's total assets, up to
the amount proposed to be invested by each.
(d) The acquisition of Follow-On Investments as permitted by this
condition will be considered a Co-Investment Transaction for all
purposes and subject to the other conditions set forth in this
application.
9. The Non-Interested Directors of each Investor will be provided
quarterly for review all information concerning Potential Co-Investment
Transactions and Co-Investment Transactions, including investments made
by other Investors or Partners that the Investor considered but
declined to participate in, so that the Non-Interested Directors may
determine whether all investments made during the preceding quarter,
including those investments that the Investor considered but declined
to participate in, comply with the conditions of the Order. In
addition, the
[[Page 40392]]
Non-Interested Directors will consider at least annually the continued
appropriateness for the Investor of participating in new and existing
Co-Investment Transactions.
10. Each Investor will maintain the records required by section
57(f)(3) of the Act as if each of the investments permitted under these
conditions were approved by the Required Majority under section 57(f).
11. No Non-Interested Director of an Investor will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act), of Partners.
12. The expenses, if any, associated with acquiring, holding or
disposing of any securities acquired in a Co-Investment Transaction
(including, without limitation, the expenses of the distribution of any
such securities registered for sale under the Securities Act) will, to
the extent not payable by GMC under its investment advisory agreements
with the Investors and Partners, be shared by the Investors and
Partners in proportion to the relative amounts of the securities held
or being acquired or disposed of, as the case may be.
13. Any transaction fee (including break-up or commitment fees but
excluding broker's fees contemplated by section 17(e) or 57(k) of the
Act, as applicable) received in connection with a Co-Investment
Transaction will be distributed to the participating Investors and
Partners on a pro rata basis based on the amounts they invested or
committed, as the case may be, in such Co-Investment Transaction. If
any transaction fee is to be held by GMC pending consummation of the
transaction, the fee will be deposited into an account maintained by
GMC at a bank or banks having the qualifications prescribed in section
26(a)(1) of the Act, and the account will earn a competitive rate of
interest that will also be divided pro rata among the Investors and
Partners based on the amounts they invest in such Co-Investment
Transaction. None of Partners, GMC or any affiliated person of the
Investors will receive additional compensation or remuneration of any
kind as a result of or in connection with a Co-Investment Transaction
(other than (a) in the case of the Investors and Partners, the pro rata
transaction fees described above and fees or other compensation
described in condition 2(c)(iii)(C) and (b) in the case of GMC,
investment advisory fees paid in accordance with the agreements between
GMC and the Investors or Partners).
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-16626 Filed 7-6-12; 8:45 am]
BILLING CODE 8011-01-P
