Document ID: SEC-2006-0122-0010
Agency: sec
Document Type: Notice
Title: Triangle Capital Corporation; Notice of Application
Posted Date: 2008-02-26T05:00Z

[Federal Register: February 26, 2008 (Volume 73, Number 38)]
[Notices]               
[Page 10310-10313]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26fe08-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28165; 812-13447]

 
Triangle Capital Corporation; Notice of Application

February 20, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 23(a), 23(b) and 63 of the Act, and under sections 57(a)(4) 
and 57(i) of the Act and rule 17d-1 under the Act authorizing certain 
joint transactions otherwise prohibited by section 57(a)(4) of the Act.

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    Summary of the Application: Triangle Capital Corporation 
(``Triangle'') requests an order to permit it to issue restricted 
shares of its common stock under the terms of its employee and director 
compensation plan.
    Filing Dates: The application was filed on October 31, 2007, and 
amended on February 20, 2008.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on March 17, 2008, and should be accompanied by proof of 
service on applicant, 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 
Street, NE., Washington, DC 20549-1090. Triangle, c/o Garland S. Tucker 
III, Triangle Capital Corporation, 3600 Glenwood Avenue, Suite 104, 
Raleigh, NC 27612.

FOR FURTHER INFORMATION CONTACT: John Yoder, Senior Counsel, at (202) 
551-6878, or Janet M. Grossnickle, Branch Chief, at (202) 551-6821, 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 
20549-1520 (tel. 202-551-5850).

Applicant's Representations

    1. Triangle, a Maryland corporation, is an internally managed, non-
diversified, closed-end investment company that has elected to be 
regulated as a business development company (``BDC'') under

[[Page 10311]]

the Act.\1\ Triangle is a specialty finance company that provides 
customized financing solutions to companies with annual revenues 
between $10 million and $100 million. Shares of Triangle's common stock 
are traded on The NASDAQ Global Market under the symbol ``TCAP.'' 
Triangle's initial public offering was completed on February 21, 2007. 
As of December 31, 2007, there were 6,803,863 shares of Triangle's 
common stock outstanding and Triangle had eleven employees, including 
the employees of its wholly-owned consolidated subsidiaries.
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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. Triangle currently has an eight member board of directors 
(``Board'') of whom three are ``interested persons'' of Triangle within 
the meaning of section 2(a)(19) of the Act and five are non-interested 
persons (``Non-interested Directors''). Triangle has five directors who 
are not officers or employees of Triangle (the ``Non-employee 
Directors'').
    3. Triangle believes that its successful performance depends on its 
ability to offer compensation packages to its professionals that are 
competitive with those offered by its competitors and other investment 
management businesses. Triangle believes its ability to offer 
compensation plans providing for the periodic issuance of shares of 
restricted stock (i.e., stock that, at the time of issuance, is subject 
to certain forfeiture restrictions, and thus is restricted as to its 
transferability until such forfeiture restrictions have lapsed) (the 
``Restricted Stock'') is vital to its future growth and success. 
Effective February 13, 2007, Triangle adopted the 2007 Equity Incentive 
Plan. Triangle proposes to amend and restate the 2007 Equity Incentive 
Plan (``Amended and Restated Plan'') to permit the issuance of shares 
of Restricted Stock to its Non-employee Directors, employees and 
employees of its wholly-owned consolidated subsidiaries (collectively, 
the ``Participants'' and each, a ``Participant'').
    4. The Amended and Restated Plan will authorize the issuance of 
shares of Restricted Stock subject to certain forfeiture restrictions. 
These restrictions may relate to continued employment or service on the 
Board, as the case may be (lapsing either on an annual or other 
periodic basis or on a ``cliff'' basis, i.e., at the end of a stated 
period of time), or other restrictions deemed by the Board to be 
appropriate. The Restricted Stock will not be transferable except for 
disposition by gift, will or intestacy. Except to the extent restricted 
under the terms of the Amended and Restated Plan, a Participant granted 
Restricted Stock will have all the rights of any other shareholder, 
including the right to vote the Restricted Stock and the right to 
receive dividends. During the restriction period, the Restricted Stock 
generally may not be sold, transferred, pledged, hypothecated, 
margined, or otherwise encumbered by the Participant. Except as the 
Board otherwise determines, upon termination of a Participant's 
employment or service on the Board during the applicable restriction 
period, Restricted Stock for which forfeiture restrictions have not 
lapsed at the time of such termination shall be forfeited.
    5. The maximum amount of Restricted Stock that may be issued under 
the Amended and Restated Plan will be 10% of the outstanding shares of 
Triangle's common stock on the effective date of the Amended and 
Restated Plan plus 10% of the outstanding number of shares of 
Triangle's common stock issued or delivered by Triangle (other than 
pursuant to compensation plans) during the term of the Amended and 
Restated Plan.\2\ The Amended and Restated Plan limits the total number 
of shares that may be awarded to any single Participant in a single 
year to 100,000 shares. In addition, no Participant may be granted more 
than 25% of the shares of common stock reserved for issuance under the 
Amended and Restated Plan. The Amended and Restated Plan will be 
administered by the Board, which will award shares of Restricted Stock 
to the Participants (except for Non-employee Directors) from time to 
time as part of the Participants' compensation based on a Participant's 
actual or expected performance and value to Triangle.
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    \2\ For purposes of calculating compliance with this limit, 
Triangle will count as Restricted Stock all shares of Triangle's 
common stock that are issued pursuant to the Amended and Restated 
Plan less any shares that are forfeited back to Triangle and 
cancelled as a result of forfeiture restrictions not lapsing.
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    6. Under the Amended and Restated Plan, Triangle's Non-Employee 
Directors will each receive a grant of $30,000 worth of shares of 
Restricted Stock at the beginning of each one-year term of service on 
the Board, for which forfeiture restrictions would lapse one year from 
the grant date. The Amended and Restated Plan will be administered by 
the Board, and the grants of Restricted Stock under the Amended and 
Restated Plan to Non-employee Directors will be automatic and will not 
be changed without Commission approval.
    7. The Amended and Restated Plan will be submitted for approval to 
Triangle's shareholders, and will become effective upon such approval, 
subject to the issuance of the requested order.

Applicant's Legal Analysis

Sections 23(a) and (b), Section 63

    1. Under section 63 of the Act, the provisions of section 23(a) of 
the Act generally prohibiting a registered closed-end investment 
company from issuing securities for services or for property other than 
cash or securities are made applicable to BDCs. This provision would 
prohibit the issuance of Restricted Stock as a part of the Amended and 
Restated Plan.
    2. Section 23(b) generally prohibits a closed-end management 
investment company from selling its common stock at a price below its 
current net asset value (``NAV''). Section 63(2) makes section 23(b) 
applicable to BDCs unless certain conditions are met. Because 
Restricted Stock that would be granted under the Amended and Restated 
Plan would not meet the terms of section 63(2), sections 23(b) and 63 
would prevent the issuance of the Restricted Stock.
    3. Section 6(c) provides, in part, that the Commission may, by 
order upon application, conditionally or unconditionally exempt any 
person, security, or transaction, or any class or classes thereof, from 
any provision of the Act, if and to the extent that the exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    4. Triangle requests an order pursuant to section 6(c) of the Act 
granting an exemption from the provisions of sections 23(a) and (b) and 
section 63 of the Act. Triangle states that the concerns underlying 
those sections include: (i) Preferential treatment of investment 
company insiders and the use of options and other rights by insiders to 
obtain control of the investment company; (ii) complication of the 
investment company's structure that makes it difficult to determine the 
value of the company's shares; and (iii) dilution of shareholders' 
equity in the investment company. Triangle states that the Amended and 
Restated Plan does not raise the concern about preferential treatment 
of Triangle's insiders because the Amended and Restated Plan is a bona 
fide

[[Page 10312]]

compensation plan of the type that is common among corporations 
generally. In addition, section 61(a)(3)(B) of the Act permits a BDC to 
issue to its officers, directors and employees, pursuant to an 
executive compensation plan, warrants, options and rights to purchase 
the BDC's voting securities, subject to certain requirements. Triangle 
states that, for reasons that are unclear, section 61 and its 
legislative history do not address the issuance by a BDC of restricted 
stock as incentive compensation. Triangle states, however, that the 
issuance of Restricted Stock is substantially similar, for purposes of 
investor protection under the Act, to the issuance of warrants, 
options, and rights as contemplated by section 61. Triangle also 
asserts that the Amended and Restated Plan would not become a means for 
insiders to obtain control of Triangle because the maximum number of 
Triangle's voting securities that may be issued pursuant to the Amended 
and Restated Plan will be limited as set forth in the application. 
Triangle's current intention is to issue only shares of Restricted 
Stock as incentive compensation; however, if Triangle issues stock 
options in the future, it will do so pursuant to section 61 and in 
compliance with the terms and conditions of the application. Moreover, 
no individual Participant could be issued more than 25% of the shares 
reserved for issuance under the Amended and Restated Plan.
    5. Triangle further states that the Amended and Restated Plan will 
not unduly complicate Triangle's structure because equity-based 
employee compensation arrangements are widely used among corporations 
and commonly known to investors. Triangle notes that the Amended and 
Restated Plan will be submitted to its shareholders. Triangle 
represents that a concise, ``plain English'' description of the Amended 
and Restated Plan, including its potential dilutive effect, will be 
provided in the proxy materials that will be submitted to Triangle's 
shareholders. Triangle also states that it will comply with the proxy 
disclosure requirements in Item 10 of Schedule 14A under the Securities 
Exchange Act of 1934. Triangle further notes that the Amended and 
Restated Plan will be disclosed to investors in accordance with the 
requirements of the Form N-2 registration statement for closed-end 
investment companies, and pursuant to the standards and guidelines 
adopted by the Financial Accounting Standards Board for operating 
companies. In addition, Triangle will comply with the disclosure 
requirements for executive compensation plans applicable to operating 
companies under the Exchange Act.\3\ Triangle thus concludes that the 
Amended and Restated Plan will be adequately disclosed to investors and 
appropriately reflected in the market value of Triangle's shares.
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    \3\ In addition, Triangle will comply with the amendments to the 
disclosure requirements for executive and director compensation, 
related party transactions, director independence and other 
corporate governance matters, and security ownership of officers and 
directors to the extent adopted and applicable to BDCs. See 
Executive Compensation and Related Party Disclosure, Release No. 34-
53185 (Jan. 27, 2006).
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    6. Triangle acknowledges that, while awards granted under the 
Amended and Restated Plan would have a dilutive effect on the 
shareholders' equity in Triangle, that effect would be outweighed by 
the anticipated benefits of the Amended and Restated Plan to Triangle 
and its shareholders. Triangle asserts that it needs the flexibility to 
provide the requested equity-based employee compensation in order to be 
able to compete effectively with other financial services firms for 
talented professionals. These professionals, Triangle suggests, in turn 
are likely to increase Triangle's performance and shareholder value. 
Triangle also asserts that equity-based compensation would more closely 
align the interests of Triangle's employees with those of Triangle's 
shareholders. Triangle believes that the granting of shares of 
Restricted Stock to Non-employee Directors under the Amended and 
Restated Plan is fair and reasonable because of the skills and 
experience that such directors provide to Triangle. Such skills and 
experience are necessary for the management and oversight of Triangle's 
investments and operations. Triangle believes that granting the shares 
of Restricted Stock will provide significant incentives for Non-
employee Directors to remain on the Board and to devote their best 
efforts to the success of Triangle's business in the future. The 
issuance of shares of Restricted Stock will also provide a means for 
Triangle's Non-employee Directors to increase their ownership interest 
in Triangle, thereby helping to ensure a close identification of their 
interests with those of Triangle and its shareholders. In addition, 
Triangle states that Triangle's shareholders will be further protected 
by the conditions to the requested order that assure continuing 
oversight of the operation of the Amended and Restated Plan by 
Triangle's Board.

Section 57(a)(4), Rule 17d-1

    7. Section 57(a) proscribes certain transactions between a BDC and 
persons related to the BDC in the manner described in section 57(b) 
(``57(b) persons''), absent a Commission order. Section 57(a)(4) 
generally prohibits a 57(b) person from effecting a transaction in 
which the BDC is a joint participant absent such an order. Rule 17d-1, 
made applicable to BDCs by section 57(i), proscribes participation in a 
``joint enterprise or other joint arrangement or profit-sharing plan,'' 
which includes a stock option or purchase plan. Employees and directors 
of a BDC are 57(b) persons. Thus, the issuance of shares of Restricted 
Stock could be deemed to involve a joint transaction involving a BDC 
and a 57(b) person in contravention of section 57(a)(4). Rule 17d-1(b) 
provides that, in considering relief pursuant to the rule, the 
Commission will consider (i) whether the participation of the company 
in a joint enterprise is consistent with the Act's policies and 
purposes and (ii) the extent to which that participation is on a basis 
different from or less advantageous than that of other participants.
    8. Triangle requests an order pursuant to section 57(a)(4) and rule 
17d-1 to permit the Amended and Restated Plan. Triangle states that the 
Amended and Restated Plan, although benefiting the Participants and 
Triangle in different ways, are in the interests of Triangle's 
shareholders because the Amended and Restated Plan will help Triangle 
attract and retain talented professionals, help align the interests of 
Triangle's employees with those of its shareholders, and in turn help 
produce a better return to Triangle's shareholders. Thus, Triangle 
asserts that the Amended and Restated Plan is consistent with the 
policies and purposes of the Act.

Applicant's Conditions

    Triangle agrees that the order granting the requested relief will 
be subject to the following conditions:
    1. The Amended and Restated Plan will be approved by Triangle's 
shareholders in accordance with section 61(a)(3)(A)(iv) of the 1940 
Act.
    2. Each issuance of Restricted Stock to officers and employees will 
be approved by the required majority, as defined in section 57(o) of 
the Act, of Triangle's directors on the basis that such issuance is in 
the best interests of Triangle and its shareholders.
    3. The amount of voting securities that would result from the 
exercise of all of Triangle's outstanding warrants,

[[Page 10313]]

options, and rights, together with any Restricted Stock issued pursuant 
to the Amended and Restated Plan, at the time of issuance shall not 
exceed 25% of the outstanding voting securities of Triangle, except 
that if the amount of voting securities that would result from the 
exercise of all of Triangle's outstanding warrants, options, and rights 
issued to Triangle's directors, officers, and employees, together with 
any Restricted Stock issued pursuant to the Amended and Restated Plan, 
would exceed 15% of the outstanding voting securities of Triangle, then 
the total amount of voting securities that would result from the 
exercise of all outstanding warrants, options, and rights, together 
with any Restricted Stock issued pursuant to the Amended and Restated 
Plan, at the time of issuance shall not exceed 20% of the outstanding 
voting securities of Triangle.
    4. The maximum amount of Restricted Stock that may be issued under 
the Amended and Restated Plan will be 10% of the outstanding shares of 
common stock of Triangle on the effective date of the Amended and 
Restated Plan plus 10% of the number of shares of Triangle's common 
stock issued or delivered by Triangle (other than pursuant to 
compensation plans) during the term of the Amended and Restated Plan.
    5. The Board will review periodically the potential impact that the 
issuance of Restricted Stock under the Amended and Restated Plan could 
have on Triangle's earnings and NAV per share, such review to take 
place prior to any decisions to grant Restricted Stock under the 
Amended and Restated Plan, but in no event less frequently than 
annually. Adequate procedures and records will be maintained to permit 
such review. The Board will be authorized to take appropriate steps to 
ensure that the grant of Restricted Stock under the Amended and 
Restated Plan would not have an effect contrary to the interests of 
Triangle's shareholders. This authority will include the authority to 
prevent or limit the granting of additional Restricted Stock under the 
Amended and Restated Plan. All records maintained pursuant to this 
condition will be subject to examination by the Commission and its 
staff.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-3555 Filed 2-25-08; 8:45 am]

BILLING CODE 8011-01-P