[Federal Register Volume 82, Number 177 (Thursday, September 14, 2017)]
[Notices]
[Pages 43269-43274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19473]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32809; File No. 812-14778]


Medley Capital Corporation, et al.

September 8, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of application for an order under sections 17(d) 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.

Summary of Application: Applicants request an order to permit certain 
business development companies (each, a ``BDC'') and closed-end 
management investment companies to co-invest in portfolio companies 
with each other and with certain affiliated investment funds and 
accounts.

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 MOF III Management LLC (collectively, the 
``Existing Affiliated Investment Advisers''); MOF II GP LLC, MOF III GP 
LLC, and Medley Credit Strategies GP, LLC (collectively, the ``Existing 
General Partners''); Medley Opportunity Fund III LP, Medley Opportunity 
Fund II LP, and Medley Credit Strategies (KOC) LLC (collectively, the 
``Existing Affiliated Funds''); Sierra Income Corporation (``Sierra''); 
SIC Advisors LLC (``SIC Advisors''); Sierra Total Return Fund 
(``STRF''); STRF Advisors LLC (``STRF Advisors''); Sierra Opportunity 
Fund (``SOF''); and SOF Advisor LLC (``SOF Advisors'').

Filing Date: The application was filed on May 24, 2017.

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 October 3, 2017 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, Seth Taube, Sierra Income Corporation, 
Sierra Total Return Fund, and Sierra Opportunity Fund, 280 Park Avenue, 
6th Floor East, New York, NY 10017.

FOR FURTHER INFORMATION CONTACT: Hae-Sung Lee, Attorney-Adviser, at 
(202)

[[Page 43270]]

551-7345, or David J. Marcinkus, Branch Chief, at (202) 551-6821 (Chief 
Counsel's Office, 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 http://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'' as defined in section 2(a)(19) of the Act (the ``Independent 
Directors''). Each of Brooke Taube and Seth Taube (the ``Principals'') 
and Jeff Tonkel serves as an interested director on the MCC Board.
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    \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.
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    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. Each of the 
Principals serves as an interested director on the Sierra Board.
    4. STRF is an externally managed, non-diversified, closed-end 
management investment company registered under the Act. STRF will be 
operated as an interval fund. STRF's investment objective is to 
generate total return through a combination of current income and long-
term capital appreciation by investing in a portfolio of debt 
securities and equities. STRF's board of directors (the ``STRF Board'') 
currently consists of five members, three of whom are Independent 
Directors. Each of the Principals serves as an interested trustee on 
the STRF Board.
    5. SOF is an externally managed, non-divsersified, closed-end 
management investment company registered under the Act. SOF will be 
operated as an interval fund. SOF's investment objective is to generate 
current income and, as a secondary objective, long-term capital 
appreciation. SOF's board of directors (the ``SOF Board'') currently 
consists of five members, three of whom are Independent Directors. Each 
of the Principals serves as an interested trustee on the SOF Board.
    6. 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. STRF Advisors is registered as an investment adviser 
under the Advisers Act and serves as an investment adviser to STRF. SOF 
Advisors is registered as an investment adviser under the Advisers Act 
and serves as an investment adviser to SOF. 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, controls each of the 
Existing Affiliated Investment Advisers.\2\ 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.
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    \2\ ``Affiliated Investment Advisers'' means the Existing 
Affiliated Investment Adviser and any future investment adviser that 
Medley LLC controls.
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    7. Medley LLC, and its direct, wholly-owned subsidiary, Medley 
Capital LLC, from time to time, may hold various financial assets in a 
principal capacity (together, in such capacity, ``Existing Medley 
Proprietary Accounts'' and together with any Future Medley Proprietary 
Account (as defined below), the ``Medley Proprietary Accounts'').
    8. 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.
    9. Applicants seek to supersede the Prior Order \3\ 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 sections 17(d) and 
57(a)(4) and rule 17d-1 (the ``Co-Investment Program'').\4\ 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

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below) participated, in reliance on the 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 Order. 
Affiliated Funds that have the capacity to, and elect to, co-invest 
with the Regulated Entities are referred to as ``Participating Funds.''
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    \3\ The requested order (the ``Order'') would supersede an 
exemptive order issued by the Commission on March 29, 2017 (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 Order is granted. Medley Capital 
Corporation, et al., Investment Company Act Release Nos. 32520 (Mar. 
03, 2017) (notice) and 32581 (Mar. 29, 2017) (order). All existing 
entities that currently intend to rely on the Order have been named 
as applicants. Any other existing or future entity that relies on 
the Order in the future will comply with the terms and conditions of 
the application.
    \4\ ``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, (iii) that is not a subsidiary of a Regulated Entity, and 
(iv) that intends to participate in the Co-Investment Program. 
``Affiliated Funds'' means the Existing Affiliated Funds, the 
Existing Medley Proprietary Accounts, the Future Affiliated Funds, 
and any Future Medley Proprietary Accounts. ``Regulated Entity'' 
means any of (i) MCC, (ii) Sierra, (iii) STRF, (iv) SOF, or (v) any 
future closed-end investment company that is registered under the 
Act or has elected to be regulated as a BDC under the Act, whose 
investment adviser is a Regulated Entity Adviser, and that intends 
to participate in the Co-Investment Program. ``Regulated Entity 
Advisers'' means (i) MCC Advisors, (ii) SIC Advisors, (iii) STRF 
Advisors, (iv) SOF Advisors, and (v) any future investment adviser 
that Medley LLC controls. ``Future Medley Proprietary Account'' 
means any direct or indirect, wholly- or majority-owned subsidiary 
of Medley LLC that is formed in the future that, from time to time, 
may hold various financial assets in a principal capacity.
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    10. Applicants state that a Regulated Entity may, from time to 
time, form one or more Wholly-Owned Investment Subs.\5\ 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 sections 17(d) and 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 
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.
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    \5\ 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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    11. 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.\6\ 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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    \6\ The Regulated Entities, however, will not be obligated to 
invest, or co-invest, when investment opportunities are referred to 
them.
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    12. 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.\7\ 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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    \7\ ``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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    13. 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 17(d) of the Act and rule 17d-1 under the Act are 
applicable to Regulated Entities that are registered closed-end 
investment companies. Section 17(d) of the Act and rule 17d-1 under the 
Act prohibit participation by a registered investment company and an 
affiliated person in any ``joint enterprise or other joint arrangement 
or profit-sharing plan,'' as defined in the rule, without prior 
approval by the Commission by order upon application.
    2. Similarly, with regard to BDCs, 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.
    3. 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

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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.
    4. 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 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.
    5. 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.
    6. 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.
    7. 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 independent third 
party, 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,\8\ 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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    \8\ ``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

[[Page 43273]]

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) 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,\9\ a Regulated Entity will not invest in reliance on the 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.
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    \9\ This exception applies only to Follow-On Investments by a 
Regulated Entity in issuers in which that Regulated Entity already 
holds investments.
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    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

[[Page 43274]]

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 declined to participate in, comply with 
the conditions of the 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 when voting on (1) the election of directors; (2) the 
removal of one or more directors; or (3) any other matter under either 
the Act or applicable State law affecting the Board's composition, size 
or manner of election.
    15. The Medley Proprietary Accounts will not be permitted to invest 
in a Potential Co-Investment Transaction except to the extent the 
aggregate demand from the Regulated Entities and the other Affiliated 
Funds is less than the total investment opportunity.
    16. 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.
    17. Each Regulated Entity's chief compliance officer, as defined in 
Rule 38a-1(a)(4), will prepare an annual report for its Board each year 
that evaluates (and documents the basis of that evaluation) the 
Regulated Entity's compliance with the terms and conditions of the 
application and the procedures established to achieve such compliance.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-19473 Filed 9-13-17; 8:45 am]
 BILLING CODE P