[Federal Register Volume 72, Number 48 (Tuesday, March 13, 2007)]
[Notices]
[Pages 11408-11409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-4521]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 27748; 812-13238]
Hercules Technology Growth Capital, Inc., et al.; Notice of
Application
March 7, 2007.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of an application for an order under sections 6(c),
57(c), and 57(i) of the Investment Company Act of 1940 (the ``Act'')
and rule 17d-1 thereunder granting exemptions from sections 18(a),
57(a)(1), 57(a)(2) and 61(a) of the Act and permitting certain
transactions otherwise prohibited by section 57(a)(4) of the Act.
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Summary of Application: Applicants, Hercules Technology Growth Capital,
Inc. (``HTGC''), Hercules Technology II, L.P. (``HTII''), Hercules
Technology SBIC Management, LLC (``HTM''), Hercules Funding I, LLC
(``HFI'') and Hercules Funding Trust I (``HFT''), hereby apply for an
order permitting a business development company and its wholly-owned
subsidiaries to engage in certain transactions that otherwise would be
permitted if the business development company and its subsidiaries were
one company, and permitting the business development company to adhere
to a modified asset coverage requirement.
Filing Dates: The application was filed on September 28, 2005 and
amended on March 5, 2007.
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 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 April 2, 2007, 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
Street, NE., Washington, DC 20549-1090. Applicants, c/o Manuel A.
Henriquez, Chairman, President and Chief Executive Officer, Hercules
Technology Growth Capital, Inc., 525 University Avenue, Suite 700, Palo
Alto, CA 94301.
FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel,
at (202) 551-6868, or Nadya B. Roytblat, Assistant Director, 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 is available for a fee at the
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC
20549-0102 (tel. 202-551-5850).
Applicants' Representations
1. HTGC, a Maryland corporation, is a closed-end, non-diversified
management investment company that has elected to be regulated as a
business development company (``BDC'') within the meaning of section
2(a)(48) of the Act.\1\ HTGC is a specialty finance company that
provides debt and equity capital to technology-related and life-science
companies at all stages of development. HTGC's business and affairs are
managed under the direction of its board of directors (``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. HTII, a Delaware limited partnership and a wholly-owned
subsidiary of HTGC, is a small business investment company (``SBIC'')
licensed under the Small Business Administration (``SBA'') to operate
under the Small Business Investment Act of 1958 (``SBIA''). HTII relies
on section 3(c)(7) of the Act. HTM, a Delaware limited liability
company and a wholly-owned subsidiary of HTGC, is the general partner
and investment adviser to HTII. HTGC is the primary limited partner of
HTII. Manuel A. Henriquez, an officer of HTGC, and H. Scott Harvey, an
officer of HTGC, each have a nominal (0.001%) limited partnership
investment in HTII pursuant to the advice of tax counsel in order to
ensure that HTII is taxed as a partnership under the Internal Revenue
Code of 1986, as amended. HFI, a Delaware limited liability company,
and HFT, a Delaware statutory trust, and each wholly-owned subsidiary
of HTGC, were created to facilitate debt financing collateralized by
certain HTGC's investments. HFT relies on rule 3a-7 under the Act. HFT
is a wholly-owned subsidiary of HFI.
3. Applicants may in the future establish additional wholly-owned
subsidiaries of HTGC, (together with HTII, HTM, HFI and HFT,
``Subsidiaries''), private investment companies that rely on section
3(c)(7) of the Act and some of which may be licensed by the SBA to
operate under the SBIA as SBICs (together with HTII, ``SBIC
Subsidiaries'').
Applicant's Legal Analysis
1. Applicants request an exemption pursuant to sections 6(c), 57(c)
and 57(i) of the Act and rule 17d-1 under the Act from the provisions
of sections 18(a), 57(a)(1), 57(a)(2) and 61(a) of the Act to permit
HTGC and the Subsidiaries to engage in certain transactions that
otherwise would be permitted if HTGC and the Subsidiaries were one
company and to permit HTGC to adhere a modified asset coverage
requirement.
2. Section 18(a) of the Act prohibits a registered closed-end
investment company from issuing any class of senior security or selling
any such security of which it is the issuer unless the company complies
with the asset coverage requirements set forth in that section. Section
61(a) of the Act makes section 18 applicable to BDCs, with certain
modifications. Section 18(k) exempts an investment company operating as
an SBIC from the asset coverage requirements for senior securities
representing indebtedness that are contained in sections 18(a)(1)(A)
and (B).
3. Applicants state that a question exists as to whether HTGC must
comply with the asset coverage requirements of Section 18(a) (as
modified by Section 61(a)) solely on an individual basis or whether
HTGC must also comply with the asset coverage requirements on a
consolidated basis because HTGC may be deemed to be an indirect issuer
of any class of senior securities issued by HTII or another SBIC
Subsidiary. Applicants state that they wish to treat
[[Page 11409]]
HTII and other SBIC Subsidiaries as if each was a BDC subject to
sections 18 and 61 of the Act. Applicants state that companies
operating under the SBIA, such as HTII, will be subject to the SBA's
substantial regulation of permissible leverage in its capital
structure.
4. Section 6(c) of the Act, in relevant part, permits the
Commission to exempt any transaction or class of transactions from any
provision of the Act if, and to the extent that, such 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. Applicants state that the requested relief
satisfies the section 6(c) standard. Applicants contend that, to the
extent that HTGC is entitled to rely on section 18(k) for an exemption
from the asset coverage requirements of sections 18(a) and 61(a), there
is no policy reason to deny the benefit of that exemption when HTGC
consolidates its assets with those of HTII and other SBIC Subsidiaries
for the purpose of compliance with those requirements.
5. Sections 57(a)(1) and (2) of the Act generally prohibit, with
certain exceptions, sales or purchases or other property between BDCs
and certain of their affiliates as described in section 57(b) of the
Act. Section 57(b) includes a person, directly or indirectly, either
controlling, controlled by or under common control of the BDC.
Applicants state that HTGC owns or will directly or indirectly own more
than 99.9% of the voting securities of each Subsidiary and each
Subsidiary is or will be under the common control of HTGC. Applicants
further state that any purchase and sales between (a) HTGC and one or
more Subsidiaries, (b) Subsidiaries and downstream controlled
affiliates of HTGC and another Subsidiary and (c) HTGC and a controlled
portfolio affiliate of a Subsidiary may be prohibited. Applicants
submit that the requested relief is to the extent to permit HTGC and
its Subsidiaries, all of whom are owned, directly or indirectly, by the
shareholders of HTGC, to do that which they would otherwise would be
permitted to do if they were one company.
6. Section 57(c) provides that the Commission will exempt a
proposed transaction from the terms of the proposed transactions,
including the consideration to be paid or received, if they are
reasonable and fair and do not involve overreaching of any person
concerned, and the proposed transaction is consistent with the policy
of the business development company concerned and the general purposes
of the Act. Applicants submit that the requested relief meets this
standard.
7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
persons of registered investment company, or an affiliated person of
such person, acting as principal, from participating in any joint
transaction or arrangement in which the registered company or a company
it controls is a participant, unless the Commission has issued an order
authorizing the arrangement. Section 57(a)(4) of the Act imposes
substantially the same prohibitions on joint transactions involving
BDCs and certain affiliates of their affiliates as described in section
57(b). Section 57(i) of the Act provides that rules and regulations
under sections 17(a) and (d) and rule 17d-1 will apply to transactions
subject to section 57(a)(4) in the absence of rules under the section.
The Commission has not adopted rules under section 57(a)(4) with
respect to joint transactions and, accordingly, the standard set forth
in rule 17d-1 governs applicants' request for relief.
8. Applicants state that a joint transaction in which a Subsidiary
and HTGC or another Subsidiary may be prohibited under section 57(a)(4)
because HTGC would not be a controlled affiliate of the Subsidiaries.
Applicants request relief under section 57(i) and rule 17d-1 to permit
joint transactions in which the Subsidiaries to the extent that such
transactions would not be prohibited if the Subsidiaries participating
in the transactions were deemed to be part of HTGC and not separate
companies.
9. In determining whether to grant an order under section 57(i) and
rule 17d-1, the Commission may consider whether the participation of
the BDC in the joint transaction is consistent with the provisions,
policies, and purposes of the Act to the extent to which such
participation is on a basis different from or less advantageous than
that of other participants in the transaction. Applicants state that
the standard is satisfied because the requested relief would be simply
to permit HTGC and its Subsidiaries to conduct their business as if
they were one company.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Except for a nominal limited partnership interest in a
Subsidiary to the extent necessary to accomplish the Subsidiary's
taxation goals as described in this Application, HTGC will at all times
be the sole limited partner of any Subsidiary and the sole owner of the
Subsidiary's general partner, or otherwise own and hold beneficially,
all of the outstanding voting securities or other equity interests in
the Subsidiary.
2. No person shall serve or act as investment adviser to HTII or
another Subsidiary unless the HTGC Board and shareholders of HTGC have
taken the action with respect thereto also required to be taken by the
functional equivalent of the board of directors of HTII or another
Subsidiary and shareholders of HTII or another Subsidiary as if HTII or
another Subsidiary were a BDC.
3. No person shall serve as managing member of HTM unless such
person also shall be a member of the management of HTGC. The managing
members of HTM will be elected or appointed by HTGC.
4. HTGC will not issue or sell any senior security and HTGC will
not cause or permit HTII or any other SBIC Subsidiary to issue or sell
any senior security of which HTGC, HTII or any other SBIC Subsidiary is
the issuer except to the extent permitted by section 18 (as modified
for BDCs by section 61) of the Act; provided that immediately after
issuance or sale by any HTGC, HTII or any other SBIC Subsidiary of any
such senior security, HTGC individually and on a consolidated basis,
shall have the asset coverage required by section 18(a) of the Act (as
modified by section 61(a)), except that, in determining whether HTGC on
a consolidated basis has the asset coverage required by section 18(a)
of the Act (as modified by section 61(a)), any senior securities
representing indebtedness of HTII or another SBIC Subsidiary shall not
be considered senior securities and, for purposes of the definition of
``asset coverage'' in section 18(h), will be treated as indebtedness
not represented by senior securities.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4521 Filed 3-12-07; 8:45 am]
BILLING CODE 8010-01-P