Medley Capital Corporation, et al.; Notice of Application, 65728-65733 [2013-26038]
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Federal Register / Vol. 78, No. 212 / Friday, November 1, 2013 / Notices
the Investing Management Company in
an amount at least equal to any
compensation received from a Fund by
the Fund of Funds Sub-Adviser, or an
affiliated person of the Fund of Funds
Sub-Adviser, other than any advisory
fees paid to the Fund of Funds SubAdviser or its affiliated person by the
Fund, in connection with the
investment by the Investing
Management Company in the Fund
made at the direction of the Fund of
Funds Sub-Adviser. In the event that the
Fund of Funds Sub-Adviser waives fees,
the benefit of the waiver will be passed
through to the Investing Management
Company.
6. No Fund of Funds or Fund of
Funds Affiliate (except to the extent it
is acting in its capacity as an investment
adviser to a Fund) will cause a Fund to
purchase a security in any Affiliated
Underwriting.
7. The Board of a Fund, including a
majority of the non-interested Board
members, will adopt procedures
reasonably designed to monitor any
purchases of securities by the Fund in
an Affiliated Underwriting, once an
investment by a Fund of Funds in the
securities of the Fund exceeds the limit
of section 12(d)(1)(A)(i) of the Act,
including any purchases made directly
from an Underwriting Affiliate. The
Board will review these purchases
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Fund of Funds in the
Fund. The Board will consider, among
other things: (i) Whether the purchases
were consistent with the investment
objectives and policies of the Fund; (ii)
how the performance of securities
purchased in an Affiliated Underwriting
compares to the performance of
comparable securities purchased during
a comparable period of time in
underwritings other than Affiliated
Underwritings or to a benchmark such
as a comparable market index; and (iii)
whether the amount of securities
purchased by the Fund in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to ensure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders of the Fund.
8. Each Fund will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
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such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings
once an investment by a Fund of Funds
in the securities of the Fund exceeds the
limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities
were acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
9. Before investing in a Fund in
excess of the limit in section
12(d)(1)(A), a Fund of Funds and the
Trust will execute a FOF Participation
Agreement stating without limitation
that their respective boards of directors
or trustees and their investment
advisers, or trustee and Sponsor, as
applicable, understand the terms and
conditions of the order, and agree to
fulfill their responsibilities under the
order. At the time of its investment in
Shares of a Fund in excess of the limit
in section 12(d)(1)(A)(i), a Fund of
Funds will notify the Fund of the
investment. At such time, the Fund of
Funds will also transmit to the Fund a
list of the names of each Fund of Funds
Affiliate and Underwriting Affiliate. The
Fund of Funds will notify the Fund of
any changes to the list of the names as
soon as reasonably practicable after a
change occurs. The Fund and the Fund
of Funds will maintain and preserve a
copy of the order, the FOF Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
10. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Investing Management Company
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
fully recorded in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of a
Fund of Funds will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
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12. No Fund will acquire securities of
an investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent the Fund acquires
securities of another investment
company pursuant to exemptive relief
from the Commission permitting the
Fund to acquire securities of one or
more investment companies for shortterm cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–26068 Filed 10–31–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–30769; File No. 812–14020]
Medley Capital Corporation, et al.;
Notice of Application
October 28, 2013.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of application for an
amended order under sections 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
section 57(a)(4) of the Act.
AGENCY:
Applicants
request an amended order to permit
certain business development
companies (each, a ‘‘BDC’’) to co-invest
with each other and with certain
affiliated investment funds in portfolio
companies.
APPLICANTS: Medley Capital
Corporation (‘‘MCC’’); Medley SBIC, LP
(‘‘Medley SBIC’’); Medley SBIC GP, LLC
(the ‘‘SBIC General Partner’’); Medley
LLC; MCC Advisors LLC (‘‘MCC
Advisors’’); Medley Capital LLC, MOF II
Management LLC, and Medley Credit
Strategies LLC (collectively, the
‘‘Existing Affiliated Investment
Advisers’’); Medley GP LLC, MOF II GP
LLC, MOF II GP (Cayman) Ltd., and
Medley Credit Strategies GP, LLC
(collectively, the ‘‘Existing General
Partners’’); Medley Opportunity Fund
LP, Medley Opportunity Fund Ltd.,
Medley Opportunity Fund II LP, Medley
Opportunity Fund II (Cayman) LP, and
Medley Credit Strategies Master LP
(collectively, the ‘‘Existing Affiliated
Funds’’); Sierra Income Corporation
(‘‘Sierra’’); and SIC Advisors LLC (‘‘SIC
Advisors’’).
SUMMARY OF APPLICATION:
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Filing Dates: The application was
filed on March 29, 2012, and amended
on March 30, 2012, August 21, 2012,
January 14, 2013, and September 26,
2013.
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 November 22, 2013 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: c/o Brooke Taube, Medley
Capital Corporation, and Seth Taube,
Sierra Income Corporation, 375 Park
Avenue, Suite 3304, New York, NY
10152.
FOR FURTHER INFORMATION CONTACT: Jill
Ehrlich, Senior Counsel, at (202) 551–
6819, or David P. Bartels, Branch Chief,
at (202) 551–6821 (Division of
Investment Management, Exemptive
Applications Office).
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.
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DATES:
Applicants’ Representations
1. MCC is an externally managed,
non-diversified, closed-end
management investment company that
has elected to be regulated as a BDC
under the Act.1 MCC’s investment
objective is to generate current income
and capital appreciation by lending
directly to privately-held middle market
companies. MCC’s board of directors
(the ‘‘MCC Board’’) currently consists of
seven members, four of whom are not
1 Section 2(a)(48) defines a BDC to be any closedend investment company that operates for the
purpose of making investments in securities
described in sections 55(a)(1) through 55(a)(3) of the
Act and makes available significant managerial
assistance with respect to the issuers of such
securities.
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‘‘interested persons’’ within the
meaning of section 2(a)(19) of the Act
(the ‘‘Independent Directors’’). Each of
Andrew Fentress, Brooke Taube, and
Seth Taube (the ‘‘Principals’’) serves as
a director on the MCC Board.
2. Applicants represent that Medley
SBIC was organized as a limited
partnership under the laws of the state
of Delaware and is licensed by the Small
Business Administration (‘‘SBA’’) to
operate under the Small Business
Investment Act of 1958, as amended
(‘‘SBA Act’’), as a small business
investment company (each such
licensed entity, an ‘‘SBIC Subsidiary’’).
Applicants state that Medley SBIC will
not be registered under the Act based on
the exclusion from the definition of
investment company contained in
section 3(c)(7). The SBIC General
Partner was organized as a limited
liability company under the laws of the
state of Delaware and is the general
partner of Medley SBIC. Applicants
represent that Medley SBIC is
functionally a wholly-owned subsidiary
of MCC because MCC and the SBIC
General Partner (which is a whollyowned subsidiary of MCC) own all of
the equity and voting interests in
Medley SBIC.
3. Sierra is an externally managed,
non-diversified, closed-end
management investment company that
has elected to be regulated as a BDC
under the Act. Sierra’s investment
objective is to generate current income
and capital appreciation by investing
primarily in the debt of privately-held
U.S. companies with a focus on senior
secured debt, second lien debt and, to
a lesser extent, subordinated debt.
Sierra’s board of directors (the ‘‘Sierra
Board’’) currently consists of five
members, three of whom are
Independent Directors. Two of the
Principals, Brook Taube and Seth
Taube, serve as interested directors on
the Sierra Board.
4. MCC Advisors is registered as an
investment adviser under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’) and serves as the
investment adviser to MCC. SIC
Advisors is registered as an investment
adviser under the Advisers Act and
serves as the investment adviser to
Sierra. The Existing Affiliated
Investment Advisers are registered
under the Advisers Act and currently
serve as investment advisers to the
Existing Affiliated Funds. Medley LLC,
which is controlled by the Principals,
serves as the direct or indirect holding
company for MCC Advisors, SIC
Advisors, and the Existing Affiliated
Investment Advisers (together with any
future investment advisers that Medley
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LLC controls, the ‘‘Affiliated Investment
Advisers’’). The Existing General
Partners are the general partners of
certain of the Existing Affiliated Funds.
The Existing General Partners are direct,
wholly-owned subsidiaries of Medley
GP Holdings LLC, which is controlled
by the Principals.
5. Each of the Existing Affiliated
Funds is a separate legal entity and is
excluded from the definition of
‘‘investment company’’ under section
3(c)(1) or 3(c)(7) of the Act.
6. Applicants seek to amend the Prior
Order 2 to permit a Regulated Entity and
one or more other Regulated Entities
and/or one or more Affiliated Funds to
participate in the same investment
opportunities through a proposed coinvestment program where such
participation would otherwise be
prohibited under section 57(a)(4) and
rule 17d–1 (the ‘‘Co-Investment
Program’’).3 For purposes of the
application, a ‘‘Co-Investment
Transaction’’ means any transaction in
which a Regulated Entity (or its WhollyOwned Investment Sub, as defined
below) participated, in reliance on the
Amended Order or the Prior Order), (a)
together with one or more other
Regulated Entities and/or (b) together
with one or more Affiliated Funds. A
‘‘Potential Co-Investment Transaction’’
means any investment opportunity in
which a Regulated Entity (or its WhollyOwned Investment Sub) could not
participate together with one or more
Regulated Entities and/or together with
one or more Affiliated Funds without
obtaining and relying on the Amended
Order. Affiliated Funds that have the
capacity to, and elect to, co-invest with
2 The requested order (the ‘‘Amended Order’’)
would supersede an exemptive order issued by the
Commission on March 26, 2012 (the ‘‘Prior Order’’)
that was granted pursuant to sections 57(a)(4) and
57(i) and rule 17d–1, with the result that no person
will continue to rely on the Prior Order if the
Amended Order is granted. Medley Capital
Corporation, et al., Investment Company Act
Release Nos. 29967 (Feb. 27, 2012) (notice) and
30009 (Mar. 26, 2012) (order). All existing entities
that currently intend to rely on the Amended Order
have been named as applicants. Any other existing
or future entity that relies on the Amended Order
in the future will comply with the terms and
conditions of the application.
3 ‘‘Future Affiliated Funds’’ means any entity
whose (i) investment adviser is an Affiliated
Investment Adviser, (ii) that would be an
investment company but for section 3(c)(1) or
3(c)(7) of the Act, and (iii) that is not a subsidiary
of a Regulated Entity. ‘‘Affiliated Funds’’ means the
Existing Affiliated Funds and the Future Affiliated
Funds. ‘‘Regulated Entity’’ means any of (i) MCC,
(ii) Sierra, or (iii) any future BDC whose investment
adviser is a Regulated Entity Adviser. ‘‘Regulated
Entity Advisers’’ means (i) MCC Advisors, (ii) SIC
Advisors, and (iii) any future investment adviser
that Medley LLC controls.
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the Regulated Entities are referred to as
‘‘Participating Funds.’’
7. Applicants state that a Regulated
Entity may, from time to time, form one
or more Wholly-Owned Investment
Subs.4 Such a subsidiary would be
prohibited from investing in a CoInvestment Transaction with any
Affiliated Fund or another Regulated
Entity because it would be a company
controlled by the Regulated Entity for
purposes of section 57(a)(4) and rule
17d–1. Applicants request that each
Wholly-Owned Investment Sub be
permitted to participate in CoInvestment Transactions in lieu of the
Regulated Entity that owns it and that
the Wholly-Owned Investment Sub’s
participation in any such transaction be
treated, for purposes of the Amended
Order, as though the Regulated Entity
were participating directly. Applicants
represent that this treatment is justified
because a Wholly-Owned Investment
Sub would have no purpose other than
serving as a holding vehicle for the
Regulated Entity’s investments and,
therefore, no conflicts of interest could
arise between the Regulated Entity and
the Wholly-Owned Investment Sub. The
Regulated Entity’s Board would make
all relevant determinations under the
conditions with regard to a WhollyOwned Investment Sub’s participation
in a Co-Investment Transaction, and the
Regulated Entity’s Board would be
informed of, and take into
consideration, any proposed use of a
Wholly-Owned Investment Sub in the
Regulated Entity’s place. If the
Regulated Entity proposes to participate
in the same Co-Investment Transaction
with any of its Wholly-Owned
Investment Subs, the Board of the
Regulated Entity will also be informed
of, and take into consideration, the
relative participation of the Regulated
4 The term ‘‘Wholly-Owned Investment Sub’’
means an entity (i) that is wholly-owned by a
Regulated Entity (with such Regulated Entity at all
times holding, beneficially and of record, 100% of
the voting and economic interests), (ii) whose sole
business purpose is to hold one or more
investments on behalf of such Regulated Entity
(and, in the case of an SBIC Subsidiary, maintain
a license under the SBA Act and issue debentures
guaranteed by the SBA); (iii) with respect to which
the Regulated Entity’s board of directors (‘‘Board’’)
has the sole authority to make all determinations
with respect to the entity’s participation under the
conditions of the application; and (iv) that would
be an investment company but for section 3(c)(1) or
3(c)(7) of the Act. All subsidiaries participating in
the Co-Investment Program will be Wholly-Owned
Investment Subs and will have Objectives and
Strategies (as defined below) that are either
substantially the same as, or a subset of, their parent
Regulated Entity’s Objectives and Strategies. An
SBIC Subsidiary may be a Wholly-Owned
Investment Sub if it satisfies the conditions in this
definition.
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Entity and the Wholly-Owned
Investment Sub.
8. In selecting investments for each
Regulated Entity, the Regulated Entity
Advisers will consider the investment
objective, investment policies,
investment position, capital available
for investment, and other factors
relevant to the respective Regulated
Entities they advise. The Regulated
Entity Advisers expect that any portfolio
company that is an appropriate
investment for a Regulated Entity
should also be an appropriate
investment for one or more other
Regulated Entities and/or one or more
Affiliated Funds, with certain
exceptions based on available capital or
diversification.5 The Regulated Entity
Adviser, as applicable, will present each
Potential Co-Investment Transaction
and the proposed allocation of each
investment opportunity to the directors
of the relevant Regulated Entity’s Board
that are eligible to vote under section
57(o) of the Act (the ‘‘Eligible
Directors’’). The ‘‘required majority,’’ as
defined in section 57(o) (‘‘Required
Majority’’) of a Regulated Entity will
approve each Co-Investment
Transaction prior to any investment by
the Regulated Entity.
9. All subsequent activity (i.e., exits or
Follow-On Investments, as defined
below) in a Co-Investment Transaction
will also be made in accordance with
the terms and conditions set forth in the
application.6 A Regulated Entity 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
Regulated Entity and Affiliated Fund 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 the Regulated Entity has
approved that Regulated Entity’s
participation in pro rata dispositions
and Follow-On Investments as being in
the best interests of the Regulated
Entity. If the Board has not given such
approval in advance, any such
disposition or Follow-On Investment
will be submitted to the Regulated
Entity’s Eligible Directors. The Board of
a Regulated Entity may at any time
rescind, suspend or qualify its approval
of pro rata dispositions and Follow-On
5 The Regulated Entities, however, will not be
obligated to invest, or co-invest, when investment
opportunities are referred to them.
6 ‘‘Follow-On Investments’’ means additional
investments in securities of issuers, including
through the exercise of warrants, conversion
privileges, and other rights to purchase securities of
the issuers.
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Investments with the result that all
dispositions and/or Follow-On
Investments must be submitted to the
Eligible Directors.
10. Applicants state that none of the
Principals will benefit directly or
indirectly from any Co-Investment
Transaction (other than by virtue of the
ownership of securities of MCC and the
Affiliated Investment Advisers) or
participate individually in any CoInvestment Transaction. In addition, no
Independent Director will have any
direct or indirect financial interest in
any Co-Investment Transaction or any
interest in any portfolio company, other
than through an interest (if any) in the
securities of a Regulated Entity.
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 or a company controlled by
such 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
Affiliated Funds and the other
Regulated Entities could be deemed to
be a person related to each Regulated
Entity in a manner described by section
57(b) by virtue of being under common
control with such Regulated Entity.
2. 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 BDCs. Because
the Commission has not adopted any
rules under section 57(a)(4), rule 17d–1
applies.
3. 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. Rule 17d–
1, as made applicable to BDCs by
section 57(i), prohibits any person who
is related to a BDC in a manner
described in section 57(b), acting as
principal, from participating in, or
effecting any transaction in connection
with, any joint enterprise or other joint
arrangement or profit-sharing plan in
which the BDC or a company controlled
by such BDC is a participant, absent an
order from the Commission. In passing
upon applications under rule 17d–1, the
Commission considers whether the
participation by the BDC or controlled
company in the joint transaction is
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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.
4. Applicants state that they expect
that co-investment in portfolio
companies by the Regulated Entities and
the Affiliated Funds will increase the
number of favorable investment
opportunities for the Regulated Entities
and that the Co-Investment Program will
be implemented only if the Required
Majority of the applicable Regulated
Entity approves it.
5. Applicants submit that the
Required Majority’s approval of each
Co-Investment Transaction before
investment, and other protective
conditions set forth in the application,
will ensure that the applicable
Regulated Entity will be treated fairly.
Applicants state that the Regulated
Entities’ 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.
6. Under condition 14, if the
Regulated Entity Advisers or the
Principals, or any person controlling,
controlled by, or under common control
with the Regulated Entity Advisers or
the Principals, and the Affiliated Funds
(collectively, the ‘‘Holders’’) own in the
aggregate more than 25% of the
outstanding voting securities of a
Regulated Entity (‘‘Shares’’), then the
Holders will vote such Shares as
directed by an independent third party
when voting on matters specified in the
condition. Applicants believe that this
condition will ensure that the
Independent Directors will act
independently in evaluating the CoInvestment Program, because the ability
of the Regulated Entity Advisers or the
Principals to influence the Independent
Directors by a suggestion, explicit or
implied, that the Independent Directors
can be removed will be limited
significantly. Applicants represent that
the Independent Directors will evaluate
and approve any such voting trust or
proxy adviser, taking into accounts its
qualifications, reputation for
independence, cost to the shareholders,
and other factors that they deem
relevant.
Investment Transaction for an Affiliated
Fund or another Regulated Entity that
falls within the then-current Objectives
and Strategies of a Regulated Entity,7
the appropriate Regulated Entity
Adviser will make an independent
determination of the appropriateness of
the investment for the Regulated Entity
in light of the Regulated Entity’s thencurrent circumstances.
2. (a) If a Regulated Entity Adviser
deems a Regulated Entity’s participation
in any Potential Co-Investment
Transaction to be appropriate for such
Regulated Entity, it will then determine
an appropriate level of investment for
such Regulated Entity.
(b) If the aggregate amount
recommended by Regulated Entity
Advisers to be invested by the Regulated
Entities in such Potential Co-Investment
Transaction, together with the amount
proposed to be invested by each
Participating Fund, collectively, in the
same transaction, exceeds the amount of
the investment opportunity, the amount
proposed to be invested by each such
party will be allocated among them pro
rata based on each participating party’s
capital available for investment in the
asset class being allocated, up to the
amount proposed to be invested by
each. The Regulated Entity Advisers
will provide the respective Eligible
Directors with information concerning
each party’s available capital to assist
the Eligible Directors with their review
of such Regulated Entity’s investments
for compliance with these allocation
procedures.
(c) After making the determinations
required in conditions 1 and 2(a), the
Regulated Entity Advisers will
distribute written information
concerning the Potential Co-Investment
Transaction, including the amount
proposed to be invested by each
Regulated Entity and any Participating
Fund, to the Eligible Directors of the
each participating Regulated Entity for
their consideration. A Regulated Entity
will co-invest with another Regulated
Entity and/or any Participating Fund
only if, prior to participating in the
Potential Co-Investment Transaction, a
Required Majority of the Regulated
Entity concludes that:
(i) The terms of the transaction,
including the consideration to be paid,
are reasonable and fair to the Regulated
Applicants’ Conditions
Applicants agree that any order
granting the requested relief will be
subject to the following conditions:
1. Each time a Regulated Entity
Adviser or an Affiliated Investment
Adviser considers a Potential Co-
7 ‘‘Objectives and Strategies’’ means the Regulated
Entity’s investment objectives and strategies, as
described in the Regulated Entity’s registration
statement on Form N–2, other filings the Regulated
Entity has made with the Commission under the
Securities Act of 1933, as amended (the ‘‘1933
Act’’), or under the Securities Exchange Act of
1934, as amended, and the Regulated Entity’s
reports to stockholders.
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65731
Entity and its stockholders and do not
involve overreaching in respect of the
Regulated Entity or its stockholders on
the part of any person concerned;
(ii) the transaction is consistent with
(A) the interests of the Regulated
Entity’s stockholders; and
(B) the Regulated Entity’s then-current
Objectives and Strategies.
(iii) the investment by another
Regulated Entity or one or more
Participating Funds would not
disadvantage the Regulated Entity, and
participation by such Regulated Entity
is not on a basis different from or less
advantageous than that of any
Participating Fund or other Regulated
Entity; provided that, if any
Participating Fund or other Regulated
Entity, but not the Regulated Entity
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 shall not
be interpreted to prohibit the Required
Majority from reaching the conclusions
required by this condition (2)(c)(iii), if
(A) the Eligible Directors shall have
the right to ratify the selection of such
director or board observer, if any;
(B) the Regulated Entity Adviser
agrees to, and does, provide periodic
reports to the Board of the applicable
Regulated Entity with respect to the
actions of such director or the
information received by such 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 any other Regulated Entity or any
Participating Fund or any affiliated
person of either receives in connection
with the right of a Participating Fund or
other Regulated Entity 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 any Participating
Funds (who may, in turn, share their
portion with their affiliated persons)
and the participating Regulated Entities
in accordance with the amount of each
party’s investment; and
(iv) the proposed investment by the
Regulated Entity will not benefit the
Regulated Entity Advisers, the Affiliated
Funds or other Regulated Entities, or
any affiliated person of any of them
(other than the other parties to the CoInvestment Transaction), except (a) to
the extent permitted by condition 13; (b)
to the extent permitted by sections 17(e)
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or 57(k), as applicable; (c) indirectly, as
a result of an interest in securities
issued by one of the parties to the CoInvestment Transaction; or (d) in the
case of fees or other compensation
described in condition 2(c)(iii)(C).
3. Each Regulated Entity has the right
to decline to participate in any Potential
Co-Investment Transaction or to invest
less than the amount proposed.
4. The Regulated Entity Advisers will
present to the Board of each Regulated
Entity, as applicable, on a quarterly
basis, a record of all investments in
Potential Co-Investment Transactions
made by the Affiliated Funds and other
Regulated Entities during the preceding
quarter that fell within the Regulated
Entity’s then-current Objectives and
Strategies that were not made available
to the respective Regulated Entity, and
an explanation of why the investment
opportunities were not offered to the
Regulated Entity. All information
presented to the Board pursuant to this
condition will be kept for the life of the
Regulated Entity 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 pursuant to condition 8 below, a
Regulated Entity will not invest in
reliance on the Amended Order in any
portfolio company in which any other
Regulated Entity, any Affiliated Fund,
or any affiliated person of any other
Regulated Entity or Affiliated Fund is an
existing investor.
6. A Regulated Entity will not
participate in any Potential CoInvestment Transaction unless the
terms, conditions, price, class of
securities to be purchased, settlement
date and registration rights will be the
same for such Regulated Entity as for
the Participating Funds and/or other
Regulated Entities. The grant to an
Affiliated Fund or another Regulated
Entity, but not such Regulated Entity, 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 any Regulated Entity or
Participating Fund elects to sell,
exchange, or otherwise dispose of an
interest in a security that was acquired
in a Co-Investment Transaction, then:
(i) The investment adviser to such
Regulated Entity or Participating Fund
will notify each other Regulated Entity
that participated in the Co-Investment
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17:40 Oct 31, 2013
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Transaction of the proposed disposition
at the earliest practical time; and
(ii) the investment adviser to each
other Regulated Entity that participated
in the Co-Investment Transaction will
formulate a recommendation as to
participation by such Regulated Entity
in the disposition.
(b) Each Regulated Entity 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
any Participating Funds and any other
Regulated Entities.
(c) A Regulated Entity may participate
in such disposition without obtaining
prior approval of the Required Majority
if: (i) The proposed participation of each
Regulated Entity and the Participating
Funds in such disposition is
proportionate to its outstanding
investments in the issuer immediately
preceding the disposition; (ii) the Board
of the applicable Regulated Entity has
approved as being in the best interests
of the applicable Regulated Entity the
ability to participate in such
dispositions on a pro rata basis (as
described in greater detail in the
application); and (iii) the Board of the
applicable Regulated Entity is provided
on a quarterly basis with a list of all
dispositions made in accordance with
this condition. In all other cases, the
applicable Regulated Entity Adviser will
provide its written recommendation as
to such Regulated Entity’s participation
to the Eligible Directors, and such
Regulated Entity will participate in such
disposition solely to the extent that a
Required Majority determines that it is
in such Regulated Entity’s best interests.
(d) Each Regulated Entity and each of
the Participating Funds will bear its
own expenses in connection with any
such disposition.
8. (a) If any Regulated Entity or
Participating Fund desires to make a
Follow-On Investment in a portfolio
company whose securities were
acquired in a Co-Investment
Transaction, then:
(i) The investment adviser to such
Regulated Entity or Participating Fund
will notify each other Regulated Entity
that participated in the Co-Investment
Transaction of the proposed transaction
at the earliest practical time; and
(ii) the investment adviser to each
other Regulated Entity that participated
in the Co-Investment Transaction will
formulate a recommendation as to the
proposed participation, including the
amount of the proposed investment, by
such Regulated Entity.
(b) A Regulated Entity may participate
in such Follow-On Investment without
obtaining prior approval of the Required
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Majority if: (i) The proposed
participation of each Regulated Entity
and Participating Fund in such
investment is proportionate to its
outstanding investments in the issuer
immediately preceding the Follow-On
Investment; (ii) the Board of the
applicable Regulated Entity has
approved as being in the best interests
of such Regulated Entity the ability to
participate in Follow-On Investments on
a pro rata basis (as described in greater
detail in the application); and (iii) the
Board of the applicable Regulated Entity
is provided on a quarterly basis with a
list of all Follow-On Investments made
in accordance with this condition. In all
other cases, the applicable Regulated
Entity Adviser will provide its written
recommendation as to such Regulated
Entity’s participation to the Eligible
Directors, and such Regulated Entity
will participate in such follow-on
investment solely to the extent that a
Required Majority determines that it is
in such Regulated Entity’s best interests.
(c) If, with respect to any follow-on
investment:
(i) The amount of the opportunity is
not based on the Regulated Entities’ and
the Participating Funds’ outstanding
investments immediately preceding the
follow-on investment; and
(ii) the aggregate amount
recommended by the applicable
Regulated Entity Adviser to be invested
by each Regulated Entity in such CoInvestment Transaction, together with
the amount proposed to be invested by
the Participating Funds and/or other
Regulated Entity, collectively, in the
same transaction, exceeds the amount of
the investment opportunity, then the
amount to be invested by each such
party will be allocated among them pro
rata based on each party’s capital
available for investment in the asset
class being allocated, 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 be subject to the other conditions
set forth in the application.
9. The Independent Directors of each
Regulated Entity will be provided
quarterly for review all information
concerning Potential Co-Investment
Transactions and Co-Investment
Transactions, including investments
made by other Regulated Entities or
Affiliated Funds that the Regulated
Entity considered but declined to
participate in, so that the Independent
Directors may determine whether all
investments made during the preceding
quarter, including those investments
that the Regulated Entity considered but
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declined to participate in, comply with
the conditions of the Amended Order.
In addition, the Independent Directors
will consider at least annually the
continued appropriateness for the
Regulated Entities of participating in
new and existing Co-Investment
Transactions.
10. Each Regulated Entity will
maintain the records required by section
57(f)(3) as if each of the Regulated
Entities were a BDC and each of the
investments permitted under these
conditions were approved by the
Required Majority under section 57(f).
11. No Independent Director of a
Regulated Entity will also be a director,
general partner, managing member or
principal, or otherwise an ‘‘affiliated
person’’ (as defined in the Act) of, any
of the Affiliated Funds.
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 1933 Act)
shall, to the extent not payable by the
Regulated Entity Advisers or the
Affiliated Investment Advisers under
their respective investment advisory
agreements with the Regulated Entities
and the Participating Funds, be shared
by the applicable Regulated Entities and
the Participating Funds in proportion to
the relative amounts of their 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 brokers’ fees contemplated by
section 57(k)(2) or 17(e)(2), as
applicable) received in connection with
a Co-Investment Transaction will be
distributed to the applicable Regulated
Entities and the Participating Funds on
a pro rata basis based on the amounts
each invested or committed, as the case
may be, in such Co-Investment
Transaction. If any transaction fee is to
be held by a Regulated Entity Adviser or
an Affiliated Investment Adviser
pending consummation of the
transaction, the fee will be deposited
into an account maintained by the
Regulated Entity Adviser or such other
adviser, as the case may be, at a bank
or banks having the qualifications
prescribed in section 26(a)(1), and the
account will earn a competitive rate of
interest that will also be divided pro
rata among each applicable Regulated
Entity and each Participating Fund
based on the amount each invests in
such Co-Investment Transaction. None
of the Affiliated Funds, Regulated Entity
Advisers, Affiliated Investment
Advisers, or any affiliated person of any
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17:40 Oct 31, 2013
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of the Regulated Entities will receive
additional compensation or
remuneration of any kind (other than (a)
in the case of the Regulated Entities and
the Participating Funds, 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 the Regulated Entity Advisers and the
Affiliated Advisers, investment advisory
fees paid in accordance with the
Regulated Entities’ and Affiliated
Funds’ governing agreements) as a result
of or in connection with a CoInvestment Transaction.
14. If the Regulated Entity Advisers,
the Principals, any person controlling,
controlled by, or under common control
with the Regulated Entity Advisers or
the Principals, and the Affiliated Funds
(collectively, the ‘‘Holders’’) own in the
aggregate more than 25% of the
outstanding voting securities of a
Regulated Entity (‘‘Shares’’), then the
Holders will vote such Shares as
directed by an independent third party
(such as the trustee of a voting trust or
a proxy adviser) when voting on (1) the
election of directors; (2) the removal of
one or more directors; or (3) any matters
requiring approval by the vote of a
majority of the outstanding voting
securities, as defined in section 2(a)(42).
15. The Regulated Entity Advisers and
the Affiliated Investment Advisers will
maintain written policies and
procedures reasonably designed to
ensure compliance with the foregoing
conditions. These policies and
procedures will require, among other
things, that each Regulated Entity
Adviser will be notified of all Potential
Co-Investment Transactions that fall
within the then-current Objectives and
Strategies of any Regulated Entity it
advises and will be given sufficient
information to make its independent
determination and recommendations
under conditions 1, 2(a), 7 and 8.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–26038 Filed 10–31–13; 8:45 am]
BILLING CODE 8011–01–P
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65733
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70764; File No. 4–443]
Joint Industry Plan; Notice of Filing
and Immediate Effectiveness of
Amendment to the Plan for the
Purpose of Developing and
Implementing Procedures Designed To
Facilitate the Listing and Trading of
Standardized Options To Add Miami
International Securities Exchange, LLC
(‘‘MIAX’’) as a Plan Sponsor
October 28, 2013.
Pursuant to Section 11A(a)(3) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 608 thereunder,2
notice is hereby given that on December
6, 2012, Miami International Securities
Exchange, LLC (‘‘MIAX’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) an
amendment to the Plan for the Purpose
of Developing and Implementing
Procedures Designed to Facilitate the
Listing and Trading of Standardized
Options (‘‘OLPP’’).3 The amendment
proposes to add MIAX as a Sponsor of
the OLPP. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Description and Purpose of the
Amendment
The current Sponsors of the OLPP are
BATS, BOX, BX, CBOE, C2, ISE,
Nasdaq, NYSE Amex, NYSE Arca, OCC,
and Phlx. The proposed amendment to
the OLPP would add MIAX as a Sponsor
of the OLPP. A national securities
1 15
U.S.C. 78k–1(a)(3).
CFR 242.608.
3 On July 6, 2001, the Commission approved the
OLPP, which was proposed by the American Stock
Exchange LLC (‘‘Amex’’), Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’), International
Securities Exchange LLC (‘‘ISE’’), Options Clearing
Corporation (‘‘OCC’’), Philadelphia Stock Exchange,
Inc. (‘‘Phlx’’), and Pacific Exchange, Inc. (‘‘PCX’’)
(n/k/a NYSE Arca). See Securities Exchange Act
Release No. 44521, 66 FR 36809 (July 13, 2001). On
February 5, 2004, Boston Stock Exchange, Inc.
(‘‘BSE’’) was added as a Sponsor to OLPP. See
Securities Exchange Act Release No. 49199, 69 FR
7030 (February 12, 2004). On March 21, 2008, the
Nasdaq Stock Market, LLC (‘‘Nasdaq’’) was added
as a Sponsor to the OLPP. See Securities Exchange
Act Release No. 57546, 73 FR 16393 (March 27,
2008). On February 17, 2010, BATS Exchange, Inc.
(‘‘BATS’’) was added as a Sponsor to the OLPP. See
Securities Exchange Act Release No. 61528, 75 FR
8415 (February 24, 2010). On October 22, 2010, C2
Options Exchange Incorporated (‘‘C2’’) was added
as a Sponsor to the OLPP. See Securities Exchange
Act Release No. 63162, 75 FR 66401 (October 28,
2010). On May 9, 2012, BOX Options Exchange LLC
(‘‘BOX’’) was added as a Sponsor to the OLPP. See
Securities Exchange Act Release No. 66952, 77 FR
28641 (May 15, 2012). On June 29, 2012, Nasdaq
OMX BX, Inc. was added as a Sponsor to the OLPP.
See Securities Exchange Act Release No. 67327, 77
FR 40125 (July 6, 2012) (‘‘BX’’).
2 17
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]]>Agencies
[Federal Register Volume 78, Number 212 (Friday, November 1, 2013)]
[Notices]
[Pages 65728-65733]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26038]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-30769; File No. 812-14020]
Medley Capital Corporation, et al.; Notice of Application
October 28, 2013.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of application for an amended order under sections
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 section 57(a)(4) of the Act.
-----------------------------------------------------------------------
Summary of Application: Applicants request an amended order to permit
certain business development companies (each, a ``BDC'') to co-invest
with each other and with certain affiliated investment funds in
portfolio companies.
Applicants: Medley Capital Corporation (``MCC''); Medley SBIC, LP
(``Medley SBIC''); Medley SBIC GP, LLC (the ``SBIC General Partner'');
Medley LLC; MCC Advisors LLC (``MCC Advisors''); Medley Capital LLC,
MOF II Management LLC, and Medley Credit Strategies LLC (collectively,
the ``Existing Affiliated Investment Advisers''); Medley GP LLC, MOF II
GP LLC, MOF II GP (Cayman) Ltd., and Medley Credit Strategies GP, LLC
(collectively, the ``Existing General Partners''); Medley Opportunity
Fund LP, Medley Opportunity Fund Ltd., Medley Opportunity Fund II LP,
Medley Opportunity Fund II (Cayman) LP, and Medley Credit Strategies
Master LP (collectively, the ``Existing Affiliated Funds''); Sierra
Income Corporation (``Sierra''); and SIC Advisors LLC (``SIC
Advisors'').
[[Page 65729]]
DATES: Filing Dates: The application was filed on March 29, 2012, and
amended on March 30, 2012, August 21, 2012, January 14, 2013, and
September 26, 2013.
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 November 22, 2013 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: c/o Brooke Taube,
Medley Capital Corporation, and Seth Taube, Sierra Income Corporation,
375 Park Avenue, Suite 3304, New York, NY 10152.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at
(202) 551-6819, or David P. Bartels, Branch Chief, at (202) 551-6821
(Division of Investment Management, Exemptive Applications Office).
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. MCC is an externally managed, non-diversified, closed-end
management investment company that has elected to be regulated as a BDC
under the Act.\1\ MCC's investment objective is to generate current
income and capital appreciation by lending directly to privately-held
middle market companies. MCC's board of directors (the ``MCC Board'')
currently consists of seven members, four of whom are not ``interested
persons'' within the meaning of section 2(a)(19) of the Act (the
``Independent Directors''). Each of Andrew Fentress, Brooke Taube, and
Seth Taube (the ``Principals'') serves as a director on the MCC Board.
---------------------------------------------------------------------------
\1\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
---------------------------------------------------------------------------
2. Applicants represent that Medley SBIC was organized as a limited
partnership under the laws of the state of Delaware and is licensed by
the Small Business Administration (``SBA'') to operate under the Small
Business Investment Act of 1958, as amended (``SBA Act''), as a small
business investment company (each such licensed entity, an ``SBIC
Subsidiary''). Applicants state that Medley SBIC will not be registered
under the Act based on the exclusion from the definition of investment
company contained in section 3(c)(7). The SBIC General Partner was
organized as a limited liability company under the laws of the state of
Delaware and is the general partner of Medley SBIC. Applicants
represent that Medley SBIC is functionally a wholly-owned subsidiary of
MCC because MCC and the SBIC General Partner (which is a wholly-owned
subsidiary of MCC) own all of the equity and voting interests in Medley
SBIC.
3. Sierra is an externally managed, non-diversified, closed-end
management investment company that has elected to be regulated as a BDC
under the Act. Sierra's investment objective is to generate current
income and capital appreciation by investing primarily in the debt of
privately-held U.S. companies with a focus on senior secured debt,
second lien debt and, to a lesser extent, subordinated debt. Sierra's
board of directors (the ``Sierra Board'') currently consists of five
members, three of whom are Independent Directors. Two of the
Principals, Brook Taube and Seth Taube, serve as interested directors
on the Sierra Board.
4. MCC Advisors is registered as an investment adviser under the
Investment Advisers Act of 1940 (the ``Advisers Act'') and serves as
the investment adviser to MCC. SIC Advisors is registered as an
investment adviser under the Advisers Act and serves as the investment
adviser to Sierra. The Existing Affiliated Investment Advisers are
registered under the Advisers Act and currently serve as investment
advisers to the Existing Affiliated Funds. Medley LLC, which is
controlled by the Principals, serves as the direct or indirect holding
company for MCC Advisors, SIC Advisors, and the Existing Affiliated
Investment Advisers (together with any future investment advisers that
Medley LLC controls, the ``Affiliated Investment Advisers''). The
Existing General Partners are the general partners of certain of the
Existing Affiliated Funds. The Existing General Partners are direct,
wholly-owned subsidiaries of Medley GP Holdings LLC, which is
controlled by the Principals.
5. Each of the Existing Affiliated Funds is a separate legal entity
and is excluded from the definition of ``investment company'' under
section 3(c)(1) or 3(c)(7) of the Act.
6. Applicants seek to amend the Prior Order \2\ to permit a
Regulated Entity and one or more other Regulated Entities and/or one or
more Affiliated Funds to participate in the same investment
opportunities through a proposed co-investment program where such
participation would otherwise be prohibited under section 57(a)(4) and
rule 17d-1 (the ``Co-Investment Program'').\3\ For purposes of the
application, a ``Co-Investment Transaction'' means any transaction in
which a Regulated Entity (or its Wholly-Owned Investment Sub, as
defined below) participated, in reliance on the Amended Order or the
Prior Order), (a) together with one or more other Regulated Entities
and/or (b) together with one or more Affiliated Funds. A ``Potential
Co-Investment Transaction'' means any investment opportunity in which a
Regulated Entity (or its Wholly-Owned Investment Sub) could not
participate together with one or more Regulated Entities and/or
together with one or more Affiliated Funds without obtaining and
relying on the Amended Order. Affiliated Funds that have the capacity
to, and elect to, co-invest with
[[Page 65730]]
the Regulated Entities are referred to as ``Participating Funds.''
---------------------------------------------------------------------------
\2\ The requested order (the ``Amended Order'') would supersede
an exemptive order issued by the Commission on March 26, 2012 (the
``Prior Order'') that was granted pursuant to sections 57(a)(4) and
57(i) and rule 17d-1, with the result that no person will continue
to rely on the Prior Order if the Amended Order is granted. Medley
Capital Corporation, et al., Investment Company Act Release Nos.
29967 (Feb. 27, 2012) (notice) and 30009 (Mar. 26, 2012) (order).
All existing entities that currently intend to rely on the Amended
Order have been named as applicants. Any other existing or future
entity that relies on the Amended Order in the future will comply
with the terms and conditions of the application.
\3\ ``Future Affiliated Funds'' means any entity whose (i)
investment adviser is an Affiliated Investment Adviser, (ii) that
would be an investment company but for section 3(c)(1) or 3(c)(7) of
the Act, and (iii) that is not a subsidiary of a Regulated Entity.
``Affiliated Funds'' means the Existing Affiliated Funds and the
Future Affiliated Funds. ``Regulated Entity'' means any of (i) MCC,
(ii) Sierra, or (iii) any future BDC whose investment adviser is a
Regulated Entity Adviser. ``Regulated Entity Advisers'' means (i)
MCC Advisors, (ii) SIC Advisors, and (iii) any future investment
adviser that Medley LLC controls.
---------------------------------------------------------------------------
7. Applicants state that a Regulated Entity may, from time to time,
form one or more Wholly-Owned Investment Subs.\4\ Such a subsidiary
would be prohibited from investing in a Co-Investment Transaction with
any Affiliated Fund or another Regulated Entity because it would be a
company controlled by the Regulated Entity for purposes of section
57(a)(4) and rule 17d-1. Applicants request that each Wholly-Owned
Investment Sub be permitted to participate in Co-Investment
Transactions in lieu of the Regulated Entity that owns it and that the
Wholly-Owned Investment Sub's participation in any such transaction be
treated, for purposes of the Amended Order, as though the Regulated
Entity were participating directly. Applicants represent that this
treatment is justified because a Wholly-Owned Investment Sub would have
no purpose other than serving as a holding vehicle for the Regulated
Entity's investments and, therefore, no conflicts of interest could
arise between the Regulated Entity and the Wholly-Owned Investment Sub.
The Regulated Entity's Board would make all relevant determinations
under the conditions with regard to a Wholly-Owned Investment Sub's
participation in a Co-Investment Transaction, and the Regulated
Entity's Board would be informed of, and take into consideration, any
proposed use of a Wholly-Owned Investment Sub in the Regulated Entity's
place. If the Regulated Entity proposes to participate in the same Co-
Investment Transaction with any of its Wholly-Owned Investment Subs,
the Board of the Regulated Entity will also be informed of, and take
into consideration, the relative participation of the Regulated Entity
and the Wholly-Owned Investment Sub.
---------------------------------------------------------------------------
\4\ The term ``Wholly-Owned Investment Sub'' means an entity (i)
that is wholly-owned by a Regulated Entity (with such Regulated
Entity at all times holding, beneficially and of record, 100% of the
voting and economic interests), (ii) whose sole business purpose is
to hold one or more investments on behalf of such Regulated Entity
(and, in the case of an SBIC Subsidiary, maintain a license under
the SBA Act and issue debentures guaranteed by the SBA); (iii) with
respect to which the Regulated Entity's board of directors
(``Board'') has the sole authority to make all determinations with
respect to the entity's participation under the conditions of the
application; and (iv) that would be an investment company but for
section 3(c)(1) or 3(c)(7) of the Act. All subsidiaries
participating in the Co-Investment Program will be Wholly-Owned
Investment Subs and will have Objectives and Strategies (as defined
below) that are either substantially the same as, or a subset of,
their parent Regulated Entity's Objectives and Strategies. An SBIC
Subsidiary may be a Wholly-Owned Investment Sub if it satisfies the
conditions in this definition.
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8. In selecting investments for each Regulated Entity, the
Regulated Entity Advisers will consider the investment objective,
investment policies, investment position, capital available for
investment, and other factors relevant to the respective Regulated
Entities they advise. The Regulated Entity Advisers expect that any
portfolio company that is an appropriate investment for a Regulated
Entity should also be an appropriate investment for one or more other
Regulated Entities and/or one or more Affiliated Funds, with certain
exceptions based on available capital or diversification.\5\ The
Regulated Entity Adviser, as applicable, will present each Potential
Co-Investment Transaction and the proposed allocation of each
investment opportunity to the directors of the relevant Regulated
Entity's Board that are eligible to vote under section 57(o) of the Act
(the ``Eligible Directors''). The ``required majority,'' as defined in
section 57(o) (``Required Majority'') of a Regulated Entity will
approve each Co-Investment Transaction prior to any investment by the
Regulated Entity.
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\5\ The Regulated Entities, however, will not be obligated to
invest, or co-invest, when investment opportunities are referred to
them.
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9. All subsequent activity (i.e., exits or Follow-On Investments,
as defined below) in a Co-Investment Transaction will also be made in
accordance with the terms and conditions set forth in the
application.\6\ A Regulated Entity 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 Regulated Entity and Affiliated Fund 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 the Regulated Entity has approved that Regulated
Entity's participation in pro rata dispositions and Follow-On
Investments as being in the best interests of the Regulated Entity. If
the Board has not given such approval in advance, any such disposition
or Follow-On Investment will be submitted to the Regulated Entity's
Eligible Directors. The Board of a Regulated Entity 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.
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\6\ ``Follow-On Investments'' means additional investments in
securities of issuers, including through the exercise of warrants,
conversion privileges, and other rights to purchase securities of
the issuers.
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10. Applicants state that none of the Principals will benefit
directly or indirectly from any Co-Investment Transaction (other than
by virtue of the ownership of securities of MCC and the Affiliated
Investment Advisers) or participate individually in any Co-Investment
Transaction. In addition, no Independent Director will have any direct
or indirect financial interest in any Co-Investment Transaction or any
interest in any portfolio company, other than through an interest (if
any) in the securities of a Regulated Entity.
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 or a
company controlled by such 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 Affiliated Funds and the other Regulated Entities
could be deemed to be a person related to each Regulated Entity in a
manner described by section 57(b) by virtue of being under common
control with such Regulated Entity.
2. 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 BDCs. Because the Commission has
not adopted any rules under section 57(a)(4), rule 17d-1 applies.
3. 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. Rule 17d-
1, as made applicable to BDCs by section 57(i), prohibits any person
who is related to a BDC in a manner described in section 57(b), acting
as principal, from participating in, or effecting any transaction in
connection with, any joint enterprise or other joint arrangement or
profit-sharing plan in which the BDC or a company controlled by such
BDC is a participant, absent an order from the Commission. In passing
upon applications under rule 17d-1, the Commission considers whether
the participation by the BDC or controlled company in the joint
transaction is
[[Page 65731]]
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.
4. Applicants state that they expect that co-investment in
portfolio companies by the Regulated Entities and the Affiliated Funds
will increase the number of favorable investment opportunities for the
Regulated Entities and that the Co-Investment Program will be
implemented only if the Required Majority of the applicable Regulated
Entity approves it.
5. Applicants submit that the Required Majority's approval of each
Co-Investment Transaction before investment, and other protective
conditions set forth in the application, will ensure that the
applicable Regulated Entity will be treated fairly. Applicants state
that the Regulated Entities' 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.
6. Under condition 14, if the Regulated Entity Advisers or the
Principals, or any person controlling, controlled by, or under common
control with the Regulated Entity Advisers or the Principals, and the
Affiliated Funds (collectively, the ``Holders'') own in the aggregate
more than 25% of the outstanding voting securities of a Regulated
Entity (``Shares''), then the Holders will vote such Shares as directed
by an independent third party when voting on matters specified in the
condition. Applicants believe that this condition will ensure that the
Independent Directors will act independently in evaluating the Co-
Investment Program, because the ability of the Regulated Entity
Advisers or the Principals to influence the Independent Directors by a
suggestion, explicit or implied, that the Independent Directors can be
removed will be limited significantly. Applicants represent that the
Independent Directors will evaluate and approve any such voting trust
or proxy adviser, taking into accounts its qualifications, reputation
for independence, cost to the shareholders, and other factors that they
deem relevant.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each time a Regulated Entity Adviser or an Affiliated Investment
Adviser considers a Potential Co-Investment Transaction for an
Affiliated Fund or another Regulated Entity that falls within the then-
current Objectives and Strategies of a Regulated Entity,\7\ the
appropriate Regulated Entity Adviser will make an independent
determination of the appropriateness of the investment for the
Regulated Entity in light of the Regulated Entity's then-current
circumstances.
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\7\ ``Objectives and Strategies'' means the Regulated Entity's
investment objectives and strategies, as described in the Regulated
Entity's registration statement on Form N-2, other filings the
Regulated Entity has made with the Commission under the Securities
Act of 1933, as amended (the ``1933 Act''), or under the Securities
Exchange Act of 1934, as amended, and the Regulated Entity's reports
to stockholders.
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2. (a) If a Regulated Entity Adviser deems a Regulated Entity's
participation in any Potential Co-Investment Transaction to be
appropriate for such Regulated Entity, it will then determine an
appropriate level of investment for such Regulated Entity.
(b) If the aggregate amount recommended by Regulated Entity
Advisers to be invested by the Regulated Entities in such Potential Co-
Investment Transaction, together with the amount proposed to be
invested by each Participating Fund, collectively, in the same
transaction, exceeds the amount of the investment opportunity, the
amount proposed to be invested by each such party will be allocated
among them pro rata based on each participating party's capital
available for investment in the asset class being allocated, up to the
amount proposed to be invested by each. The Regulated Entity Advisers
will provide the respective Eligible Directors with information
concerning each party's available capital to assist the Eligible
Directors with their review of such Regulated Entity's investments for
compliance with these allocation procedures.
(c) After making the determinations required in conditions 1 and
2(a), the Regulated Entity Advisers will distribute written information
concerning the Potential Co-Investment Transaction, including the
amount proposed to be invested by each Regulated Entity and any
Participating Fund, to the Eligible Directors of the each participating
Regulated Entity for their consideration. A Regulated Entity will co-
invest with another Regulated Entity and/or any Participating Fund only
if, prior to participating in the Potential Co-Investment Transaction,
a Required Majority of the Regulated Entity concludes that:
(i) The terms of the transaction, including the consideration to be
paid, are reasonable and fair to the Regulated Entity and its
stockholders and do not involve overreaching in respect of the
Regulated Entity or its stockholders on the part of any person
concerned;
(ii) the transaction is consistent with
(A) the interests of the Regulated Entity's stockholders; and
(B) the Regulated Entity's then-current Objectives and Strategies.
(iii) the investment by another Regulated Entity or one or more
Participating Funds would not disadvantage the Regulated Entity, and
participation by such Regulated Entity is not on a basis different from
or less advantageous than that of any Participating Fund or other
Regulated Entity; provided that, if any Participating Fund or other
Regulated Entity, but not the Regulated Entity 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 shall not be interpreted to prohibit the Required Majority
from reaching the conclusions required by this condition (2)(c)(iii),
if
(A) the Eligible Directors shall have the right to ratify the
selection of such director or board observer, if any;
(B) the Regulated Entity Adviser agrees to, and does, provide
periodic reports to the Board of the applicable Regulated Entity with
respect to the actions of such director or the information received by
such 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 any other Regulated Entity
or any Participating Fund or any affiliated person of either receives
in connection with the right of a Participating Fund or other Regulated
Entity 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 any Participating Funds (who may,
in turn, share their portion with their affiliated persons) and the
participating Regulated Entities in accordance with the amount of each
party's investment; and
(iv) the proposed investment by the Regulated Entity will not
benefit the Regulated Entity Advisers, the Affiliated Funds or other
Regulated Entities, or any affiliated person of any of them (other than
the other parties to the Co-Investment Transaction), except (a) to the
extent permitted by condition 13; (b) to the extent permitted by
sections 17(e)
[[Page 65732]]
or 57(k), as applicable; (c) indirectly, as a result of an interest in
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 Regulated Entity has the right to decline to participate in
any Potential Co-Investment Transaction or to invest less than the
amount proposed.
4. The Regulated Entity Advisers will present to the Board of each
Regulated Entity, as applicable, on a quarterly basis, a record of all
investments in Potential Co-Investment Transactions made by the
Affiliated Funds and other Regulated Entities during the preceding
quarter that fell within the Regulated Entity's then-current Objectives
and Strategies that were not made available to the respective Regulated
Entity, and an explanation of why the investment opportunities were not
offered to the Regulated Entity. All information presented to the Board
pursuant to this condition will be kept for the life of the Regulated
Entity 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 pursuant to condition 8
below, a Regulated Entity will not invest in reliance on the Amended
Order in any portfolio company in which any other Regulated Entity, any
Affiliated Fund, or any affiliated person of any other Regulated Entity
or Affiliated Fund is an existing investor.
6. A Regulated Entity 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 such Regulated Entity as for the Participating
Funds and/or other Regulated Entities. The grant to an Affiliated Fund
or another Regulated Entity, but not such Regulated Entity, 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 any Regulated Entity or Participating Fund elects to
sell, exchange, or otherwise dispose of an interest in a security that
was acquired in a Co-Investment Transaction, then:
(i) The investment adviser to such Regulated Entity or
Participating Fund will notify each other Regulated Entity that
participated in the Co-Investment Transaction of the proposed
disposition at the earliest practical time; and
(ii) the investment adviser to each other Regulated Entity that
participated in the Co-Investment Transaction will formulate a
recommendation as to participation by such Regulated Entity in the
disposition.
(b) Each Regulated Entity 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 any Participating
Funds and any other Regulated Entities.
(c) A Regulated Entity may participate in such disposition without
obtaining prior approval of the Required Majority if: (i) The proposed
participation of each Regulated Entity and the Participating Funds in
such disposition is proportionate to its outstanding investments in the
issuer immediately preceding the disposition; (ii) the Board of the
applicable Regulated Entity has approved as being in the best interests
of the applicable Regulated Entity the ability to participate in such
dispositions on a pro rata basis (as described in greater detail in the
application); and (iii) the Board of the applicable Regulated Entity is
provided on a quarterly basis with a list of all dispositions made in
accordance with this condition. In all other cases, the applicable
Regulated Entity Adviser will provide its written recommendation as to
such Regulated Entity's participation to the Eligible Directors, and
such Regulated Entity will participate in such disposition solely to
the extent that a Required Majority determines that it is in such
Regulated Entity's best interests.
(d) Each Regulated Entity and each of the Participating Funds will
bear its own expenses in connection with any such disposition.
8. (a) If any Regulated Entity or Participating Fund desires to
make a Follow-On Investment in a portfolio company whose securities
were acquired in a Co-Investment Transaction, then:
(i) The investment adviser to such Regulated Entity or
Participating Fund will notify each other Regulated Entity that
participated in the Co-Investment Transaction of the proposed
transaction at the earliest practical time; and
(ii) the investment adviser to each other Regulated Entity that
participated in the Co-Investment Transaction will formulate a
recommendation as to the proposed participation, including the amount
of the proposed investment, by such Regulated Entity.
(b) A Regulated Entity may participate in such Follow-On Investment
without obtaining prior approval of the Required Majority if: (i) The
proposed participation of each Regulated Entity and Participating Fund
in such investment is proportionate to its outstanding investments in
the issuer immediately preceding the Follow-On Investment; (ii) the
Board of the applicable Regulated Entity has approved as being in the
best interests of such Regulated Entity the ability to participate in
Follow-On Investments on a pro rata basis (as described in greater
detail in the application); and (iii) the Board of the applicable
Regulated Entity is provided on a quarterly basis with a list of all
Follow-On Investments made in accordance with this condition. In all
other cases, the applicable Regulated Entity Adviser will provide its
written recommendation as to such Regulated Entity's participation to
the Eligible Directors, and such Regulated Entity will participate in
such follow-on investment solely to the extent that a Required Majority
determines that it is in such Regulated Entity's best interests.
(c) If, with respect to any follow-on investment:
(i) The amount of the opportunity is not based on the Regulated
Entities' and the Participating Funds' outstanding investments
immediately preceding the follow-on investment; and
(ii) the aggregate amount recommended by the applicable Regulated
Entity Adviser to be invested by each Regulated Entity in such Co-
Investment Transaction, together with the amount proposed to be
invested by the Participating Funds and/or other Regulated Entity,
collectively, in the same transaction, exceeds the amount of the
investment opportunity, then the amount to be invested by each such
party will be allocated among them pro rata based on each party's
capital available for investment in the asset class being allocated, 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 be subject to the other conditions set forth in the
application.
9. The Independent Directors of each Regulated Entity will be
provided quarterly for review all information concerning Potential Co-
Investment Transactions and Co-Investment Transactions, including
investments made by other Regulated Entities or Affiliated Funds that
the Regulated Entity considered but declined to participate in, so that
the Independent Directors may determine whether all investments made
during the preceding quarter, including those investments that the
Regulated Entity considered but
[[Page 65733]]
declined to participate in, comply with the conditions of the Amended
Order. In addition, the Independent Directors will consider at least
annually the continued appropriateness for the Regulated Entities of
participating in new and existing Co-Investment Transactions.
10. Each Regulated Entity will maintain the records required by
section 57(f)(3) as if each of the Regulated Entities were a BDC and
each of the investments permitted under these conditions were approved
by the Required Majority under section 57(f).
11. No Independent Director of a Regulated Entity will also be a
director, general partner, managing member or principal, or otherwise
an ``affiliated person'' (as defined in the Act) of, any of the
Affiliated Funds.
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 1933 Act) shall, to the
extent not payable by the Regulated Entity Advisers or the Affiliated
Investment Advisers under their respective investment advisory
agreements with the Regulated Entities and the Participating Funds, be
shared by the applicable Regulated Entities and the Participating Funds
in proportion to the relative amounts of their 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 brokers' fees contemplated by section 57(k)(2) or 17(e)(2),
as applicable) received in connection with a Co-Investment Transaction
will be distributed to the applicable Regulated Entities and the
Participating Funds on a pro rata basis based on the amounts each
invested or committed, as the case may be, in such Co-Investment
Transaction. If any transaction fee is to be held by a Regulated Entity
Adviser or an Affiliated Investment Adviser pending consummation of the
transaction, the fee will be deposited into an account maintained by
the Regulated Entity Adviser or such other adviser, as the case may be,
at a bank or banks having the qualifications prescribed in section
26(a)(1), and the account will earn a competitive rate of interest that
will also be divided pro rata among each applicable Regulated Entity
and each Participating Fund based on the amount each invests in such
Co-Investment Transaction. None of the Affiliated Funds, Regulated
Entity Advisers, Affiliated Investment Advisers, or any affiliated
person of any of the Regulated Entities will receive additional
compensation or remuneration of any kind (other than (a) in the case of
the Regulated Entities and the Participating Funds, 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 the
Regulated Entity Advisers and the Affiliated Advisers, investment
advisory fees paid in accordance with the Regulated Entities' and
Affiliated Funds' governing agreements) as a result of or in connection
with a Co-Investment Transaction.
14. If the Regulated Entity Advisers, the Principals, any person
controlling, controlled by, or under common control with the Regulated
Entity Advisers or the Principals, and the Affiliated Funds
(collectively, the ``Holders'') own in the aggregate more than 25% of
the outstanding voting securities of a Regulated Entity (``Shares''),
then the Holders will vote such Shares as directed by an independent
third party (such as the trustee of a voting trust or a proxy adviser)
when voting on (1) the election of directors; (2) the removal of one or
more directors; or (3) any matters requiring approval by the vote of a
majority of the outstanding voting securities, as defined in section
2(a)(42).
15. The Regulated Entity Advisers and the Affiliated Investment
Advisers will maintain written policies and procedures reasonably
designed to ensure compliance with the foregoing conditions. These
policies and procedures will require, among other things, that each
Regulated Entity Adviser will be notified of all Potential Co-
Investment Transactions that fall within the then-current Objectives
and Strategies of any Regulated Entity it advises and will be given
sufficient information to make its independent determination and
recommendations under conditions 1, 2(a), 7 and 8.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-26038 Filed 10-31-13; 8:45 am]
BILLING CODE 8011-01-P
