83 FR 56391 - Stellus Capital Investment Corporation, et al.
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 219 (November 13, 2018)
Federal Register Volume 83, Issue 219 (November 13, 2018)
| Page Range | 56391-56399 | |
| FR Document | 2018-24635 |
[Federal Register Volume 83, Number 219 (Tuesday, November 13, 2018)] [Notices] [Pages 56391-56399] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-24635] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 33289; File No. 812-14855] Stellus Capital Investment Corporation, et al. November 6, 2018. AGENCY: Securities and Exchange Commission (``Commission''). ACTION: Notice. ----------------------------------------------------------------------- Notice of application for an order (``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 and certain closed-end management investment companies to co-invest in portfolio companies with each other and with affiliated investment funds and accounts. The Order would supersede the prior order.\1\ --------------------------------------------------------------------------- \1\ Stellus Capital Investment Corporation, et al., Investment Company Act Rel. Nos. 30739 (Sep. 30, 2013) (notice) and 30754 (Oct. 23, 2013) (order). APPLICANTS: Stellus Capital Investment Corporation (the ``Company''); Stellus Credit Master Fund I, LLC, Stellus Credit VCOC Fund I, LLC, Stellus Credit Master Fund II, LLC, and Stellus Credit VCOC Fund II, LLC (collectively, ``Existing Affiliated Funds''); Stellus Capital SBIC LP, Stellus Capital SBIC GP, LLC, SCIC-Consolidated Blocker, Inc., SCIC-CC Blocker 1, Inc., SCIC-ERC Blocker 1, Inc., SCIC-SKP Blocker 1, Inc., SCIC-APE Blocker 1, Inc., SCIC-HUF Blocker 1, Inc., and SCIC- Hollander Blocker 1, Inc. (collectively, ``Existing Wholly-Owned Subsidiaries''); and Stellus Capital Management, LLC (``SCM'' and collectively with the Company, the Existing Affiliated Funds and the --------------------------------------------------------------------------- Existing Wholly-Owned Subsidiaries, the ``Applicants''). FILING DATES: The application was filed on December 19, 2017 and amended on September 17, 2018. 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 December 3, 2018, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0-5 under the Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, 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: 4400 Post Oak Parkway, Suite 2200, Houston, TX 77027. FOR FURTHER INFORMATION CONTACT: Barbara T. Heussler, Senior Counsel, at (202) 551-6990, or Andrea Ottomanelli Magovern, 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 website 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. Introduction 1. The Applicants request an Order of the Commission under sections 17(d) and 57(i) of the Act and rule 17d-1 under the Act to permit, subject to the terms and conditions set forth in the application (the ``Conditions''), a Regulated Fund \2\ and one or more other Regulated Funds and/or one or more Affiliated Funds \3\ to enter into Co- Investment Transactions with each other. ``Co-Investment Transaction'' means any transaction in which one or more Regulated Funds (or its Wholly-Owned Investment Sub, defined below) participated together with one or more Affiliated Funds and/or one or more other Regulated Funds in reliance on the Order. ``Potential Co-Investment Transaction'' means any investment opportunity in which a Regulated Fund (or its Wholly- Owned Investment Sub) could not participate together with one or more Affiliated Funds and/or one or more other Regulated Funds without obtaining and relying on the Order.\4\ --------------------------------------------------------------------------- \2\ ``Regulated Fund'' means the Company and any Future Regulated Fund. ``Future Regulated Fund'' means a closed-end management investment company (a) that is registered under the Act or has elected to be regulated as a business development company (``BDC'') and (b) whose investment adviser is an Adviser. ``Adviser'' means SCM together with any future investment adviser that (i) controls, is controlled by or is under common control with SCM, (ii) is registered as an investment adviser under the Investment Advisers Act of 1940 (the ``Advisers Act''), and (iii) is not a Regulated Fund or a subsidiary of a Regulated Fund. \3\ ``Affiliated Fund'' means any Existing Affiliated Fund, any Future Affiliated Fund or any Stellus Proprietary Account. ``Future Affiliated Fund'' means any entity (a) whose investment adviser is an Adviser, (b) that would be an investment company but for section 3(c)(1), 3(c)(5)(C) or 3(c)(7) of the Act, and (c) that intends to participate in the program of co-investments described in the application. ``Stellus Proprietary Account'' means any direct or indirect, wholly- or majority-owned subsidiary of SCM that is formed in the future that, from time to time, may hold various financial assets in a principal capacity. \4\ All existing entities that currently intend to rely on the Order have been named as Applicants and any existing or future entities that may rely on the Order in the future will comply with the terms and Conditions set forth in the application. --------------------------------------------------------------------------- Applicants 2. The Company is a closed-end management investment company incorporated in Maryland that has elected to be regulated as a BDC under the Act.\5\ The Company's Board \6\ currently consists of seven members, of [[Page 56392]] which four members are Independent Directors.\7\ --------------------------------------------------------------------------- \5\ 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 section 55(a)(1) through 55(a)(3) and makes available significant managerial assistance with respect to the issuers of such securities. \6\ ``Board'' means the board of directors (or the equivalent) of the applicable Regulated Fund. \7\ ``Independent Director'' means a member of the Board of any relevant entity who is not an ``interested person'' as defined in section 2(a)(19) of the Act. No Independent Director of a Regulated Fund will have a financial interest in any Co-Investment Transaction, other than indirectly through share ownership in one of the Regulated Funds. --------------------------------------------------------------------------- 3. SCM, a Delaware limited liability company that is registered under the Advisers Act, serves as the investment adviser to the Company pursuant to an investment advisory agreement. SCM also serves as investment adviser to each Existing Affiliated Fund. 4. Applicants represent that each Existing Affiliated Fund is a separate and distinct legal entity and each would be an investment company but for section 3(c)(1), 3(c)(5)(C) or 3(c)(7) of the Act. 5. Applicants state that a Regulated Fund may, from time to time, form one or more Wholly-Owned Investment Subs.\8\ Such a subsidiary may be prohibited from investing in a Co-Investment Transaction with a Regulated Fund (other than its parent) or any Affiliated Fund because it would be a company controlled by its parent Regulated Fund 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 applicable parent Regulated Fund 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 parent Regulated Fund 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 Fund's investments and, therefore, no conflicts of interest could arise between the parent Regulated Fund and the Wholly-Owned Investment Sub. The Board of the parent Regulated Fund 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 Board would be informed of, and take into consideration, any proposed use of a Wholly-Owned Investment Sub in the Regulated Fund's place. If the parent Regulated Fund proposes to participate in the same Co-Investment Transaction with any of its Wholly-Owned Investment Subs, the Board of the parent Regulated Fund will also be informed of, and take into consideration, the relative participation of the Regulated Fund and the Wholly-Owned Investment Sub. --------------------------------------------------------------------------- \8\ ``Wholly-Owned Investment Sub'' means an entity (i) that is wholly-owned by a Regulated Fund (with such Regulated Fund 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 Fund (and, in the case of a SBIC Subsidiary (defined below), maintains a license under the SBA Act (defined below) and issues debentures guaranteed by the SBA (defined below)); (iii) with respect to which such Regulated Fund's Board has the sole authority to make all determinations with respect to the entity's participation under the Conditions; and (iv) that would be an investment company but for section 3(c)(1) or 3(c)(7) of the Act. ``SBIC Subsidiary'' means a Wholly-Owned Investment Sub that is licensed by the Small Business Administration (the ``SBA'') to operate under the Small Business Investment Act of 1958, as amended, (the ``SBA Act'') as a small business investment company. The Existing Wholly-Owned Subsidiaries are Wholly-Owned Investment Subs. --------------------------------------------------------------------------- Applicants' Representations A. Allocation Process 6. Applicants state that SCM is presented with hundreds of investment opportunities each year on behalf of its clients and SCM determines how to allocate those opportunities in a manner that, over time, is fair and equitable to all of its clients. Such investment opportunities may be Potential Co-Investment Transactions. 7. Applicants represent that SCM has established processes for allocating initial investment opportunities, opportunities for subsequent investments in an issuer and dispositions of securities holdings reasonably designed to treat all clients fairly and equitably. Further, Applicants represent that these processes will be extended and modified in a manner reasonably designed to ensure that the additional transactions permitted under the Order will both (i) be fair and equitable to the Regulated Funds and the Affiliated Funds and (ii) comply with the Conditions. 8. If the requested Order is granted, the Adviser will establish, maintain and implement policies and procedures reasonably designed to ensure that when such opportunities arise, the Adviser to the relevant Regulated Funds is promptly notified and receives the same information about the opportunity as any other Adviser considering the opportunity for its clients. In particular, consistent with Condition 1, if a Potential Co-Investment Transaction falls within the then-current Objectives and Strategies \9\ and any Board-Established Criteria \10\ of a Regulated Fund, the policies and procedures will require that the Adviser to such Regulated Fund receive sufficient information to allow such Adviser's investment committee to make its independent determination and recommendations under the Conditions. --------------------------------------------------------------------------- \9\ ``Objectives and Strategies'' means a Regulated Fund's investment objectives and strategies, as described in its most current registration statement on Form N-2, other current filings with the Commission under the Securities Act of 1933 (the ``Securities Act'') or under the Securities Exchange Act of 1934, as amended, and its most current report to stockholders. \10\ ``Board-Established Criteria'' means criteria that the Board of a Regulated Fund may establish from time to time to describe the characteristics of Potential Co-Investment Transactions regarding which the Adviser to such Regulated Fund should be notified under Condition 1. The Board-Established Criteria will be consistent with the Regulated Fund's Objectives and Strategies. If no Board-Established Criteria are in effect, then the Regulated Fund's Adviser will be notified of all Potential Co-Investment Transactions that fall within the Regulated Fund's then-current Objectives and Strategies. Board-Established Criteria will be objective and testable, meaning that they will be based on observable information, such as industry/sector of the issuer, minimum EBITDA of the issuer, asset class of the investment opportunity or required commitment size, and not on characteristics that involve a discretionary assessment. The Adviser to the Regulated Fund may from time to time recommend criteria for the Board's consideration, but Board-Established Criteria will only become effective if approved by a majority of the Independent Directors. The Independent Directors of a Regulated Fund may at any time rescind, suspend or qualify its approval of any Board- Established Criteria, though Applicants anticipate that, under normal circumstances, the Board would not modify these criteria more often than quarterly. --------------------------------------------------------------------------- 9. The Adviser to each applicable Regulated Fund will then make an independent determination of the appropriateness of the investment for the Regulated Fund in light of the Regulated Fund's then-current circumstances. If the Adviser to a Regulated Fund deems the Regulated Fund's participation in any Potential Co-Investment Transaction to be appropriate, it will formulate a recommendation regarding the proposed order amount for the Regulated Fund. 10. Applicants state that, for each Regulated Fund and Affiliated Fund whose Adviser recommends participating in a Potential Co- Investment Transaction, such Adviser's investment committee will approve an investment amount to be allocated to each Regulated Fund and/or Affiliated Fund participating in the Potential Co-Investment Transaction. Applicants state further that, each proposed order amount may be reviewed and adjusted, in accordance with the Adviser's written allocation policies and procedures, by the Adviser's investment committee.\11\ The order of a Regulated Fund or Affiliated Fund resulting from this process is referred to as its ``Internal [[Page 56393]] Order.'' The Internal Order will be submitted for approval by the Required Majority of any participating Regulated Funds in accordance with the Conditions.\12\ --------------------------------------------------------------------------- \11\ The reason for any such adjustment to a proposed order amount will be documented in writing and preserved in the records of each Adviser. \12\ ``Required Majority'' means a required majority, as defined in section 57(o) of the Act. In the case of a Regulated Fund that is a registered closed-end fund, the Board members that make up the Required Majority will be determined as if the Regulated Fund were a BDC subject to section 57(o). --------------------------------------------------------------------------- 11. Applicants acknowledge that some of the Affiliated Funds may not be funds advised by an Adviser because they are Stellus Proprietary Accounts. Applicants do not believe these Stellus Proprietary Accounts should raise issues under the Conditions because the allocation policies and procedures of the Advisers provide that investment opportunities are offered to client accounts before they are offered to Stellus Proprietary Accounts. 12. If the aggregate Internal Orders for a Potential Co-Investment Transaction do not exceed the size of the investment opportunity immediately prior to the submission of the orders to the underwriter, broker, dealer or issuer, as applicable (the ``External Submission''), then each Internal Order will be fulfilled as placed and to the extent there is excess amount available to invest, a Stellus Proprietary Account shall be permitted to invest. If, on the other hand, the aggregate Internal Orders for a Potential Co-Investment Transaction exceed the size of the investment opportunity immediately prior to the External Submission, then the allocation of the opportunity will be made pro rata on the basis of the size of the Internal Orders and the Stellus Proprietary Accounts shall not be permitted to invest.\13\ If, subsequent to such External Submission, the size of the opportunity is increased or decreased, or if the terms of such opportunity, or the facts and circumstances applicable to the Regulated Funds' or the Affiliated Funds' consideration of the opportunity, change, the participants will be permitted to submit revised Internal Orders in accordance with written allocation policies and procedures that the Advisers will establish, implement and maintain.\14\ --------------------------------------------------------------------------- \13\ Each Adviser will maintain records of all proposed order amounts, Internal Orders and External Submissions in conjunction with Potential Co-Investment Transactions. Each applicable Adviser will provide the Eligible Directors with information concerning the Affiliated Funds' and Regulated Funds' order sizes to assist the Eligible Directors with their review of the applicable Regulated Fund's investments for compliance with the Conditions. ``Eligible Directors'' means, with respect to a Regulated Fund and a Potential Co-Investment Transaction, the members of the Regulated Fund's Board eligible to vote on that Potential Co-Investment Transaction under section 57(o) of the Act. \14\ However, if the size of the opportunity is decreased such that the aggregate of the original Internal Orders would exceed the amount of the remaining investment opportunity, then upon submitting any revised order amount to the Board of a Regulated Fund for approval, the Adviser to the Regulated Fund will also notify the Board promptly of the amount that the Regulated Fund would receive if the remaining investment opportunity were allocated pro rata on the basis of the size of the original Internal Orders. The Board of the Regulated Fund will then either approve or disapprove of the investment opportunity in accordance with condition 2, 6, 7, 8 or 9, as applicable. --------------------------------------------------------------------------- B. Follow-On Investments 13. Applicants state that from time to time the Regulated Funds and Affiliated Funds may have opportunities to make Follow-On Investments \15\ in an issuer in which a Regulated Fund and one or more other Regulated Funds and/or Affiliated Funds previously have invested. --------------------------------------------------------------------------- \15\ ``Follow-On Investment'' means an additional investment in the same issuer, including, but not limited to, through the exercise of warrants, conversion privileges or other rights to purchase securities of the issuer. --------------------------------------------------------------------------- 14. Applicants propose that Follow-On Investments would be divided into two categories depending on whether the prior investment was a Co- Investment Transaction or a Pre-Boarding Investment.\16\ If the Regulated Funds and Affiliated Funds have previously participated in a Co-Investment Transaction with respect to the issuer, then the terms and approval of the Follow-On Investment would be subject to the Standard Review Follow-Ons described in Condition 8. If the Regulated Funds and Affiliated Funds have not previously participated in a Co- Investment Transaction with respect to the issuer but hold a Pre- Boarding Investment, then the terms and approval of the Follow-On Investment would be subject to the Enhanced-Review Follow-Ons described in Condition 9. All Enhanced Review Follow-Ons require the approval of the Required Majority. For a given issuer, the participating Regulated Funds and Affiliated Funds need to comply with the requirements of Enhanced-Review Follow-Ons only for the first Co-Investment Transaction. Subsequent Co-Investment Transactions with respect to the issuer would be governed by the requirements of Standard Review Follow- Ons. --------------------------------------------------------------------------- \16\ ``Pre-Boarding Investments'' are investments in an issuer held by a Regulated Fund as well as one or more Affiliated Funds and/or one or more other Regulated Funds that were acquired prior to participating in any Co-Investment Transaction: (i) In transactions in which the only term negotiated by or on behalf of such funds was price in reliance on one of the JT No-Action Letters (defined below); or (ii) in transactions occurring at least 90 days apart and without coordination between the Regulated Fund and any Affiliated Fund or other Regulated Fund. --------------------------------------------------------------------------- 15. A Regulated Fund would be permitted to invest in Standard Review Follow-Ons either with the approval of the Required Majority under Condition 8(c) or without Board approval under Condition 8(b) if it is (i) a Pro Rata Follow-On Investment \17\ or (ii) a Non-Negotiated Follow-On Investment.\18\ Applicants believe that these Pro Rata and Non-Negotiated Follow-On Investments do not present a significant opportunity for overreaching on the part of any Adviser and thus do not warrant the time or the attention of the Board. Pro Rata Follow-On Investments and Non-Negotiated Follow-On Investments remain subject to the Board's periodic review in accordance with Condition 10. --------------------------------------------------------------------------- \17\ A ``Pro Rata Follow-On Investment'' is a Follow-On Investment (i) in which the participation of each Affiliated Fund and each Regulated Fund is proportionate to its outstanding investments in the issuer or security, as appropriate, immediately preceding the Follow-On Investment, and (ii) in the case of a Regulated Fund, a majority of the Board has approved the Regulated Fund's participation in the pro rata Follow-On Investments as being in the best interests of the Regulated Fund. The Regulated Fund's Board may refuse to approve, or at any time rescind, suspend or qualify, its approval of Pro Rata Follow-On Investments, in which case all subsequent Follow-On Investments will be submitted to the Regulated Fund's Eligible Directors in accordance with Condition 8(c). \18\ A ``Non-Negotiated Follow-On Investment'' is a Follow-On Investment in which a Regulated Fund participates together with one or more Affiliated Funds and/or one or more other Regulated Funds (i) in which the only term negotiated by or on behalf of the funds is price and (ii) with respect to which, if the transaction were considered on its own, the funds would be entitled to rely on one of the JT No-Action Letters. ``JT No-Action Letters'' means SMC Capital, Inc., SEC No-Action Letter (pub. avail. Sept. 5, 1995) and Massachusetts Mutual Life Insurance Company, SEC No-Action Letter (pub. avail. June 7, 2000). --------------------------------------------------------------------------- C. Dispositions 16. Applicants propose that Dispositions \19\ would be divided into two categories. If the Regulated Funds and Affiliated Funds holding investments in the issuer have previously participated in a Co- Investment Transaction with respect to the issuer, then the terms and approval of the Disposition would be subject to the Standard Review Dispositions described in Condition 6. If the Regulated Funds and Affiliated Funds have not previously participated in a Co-Investment Transaction with respect to the issuer but hold a Pre-Boarding Investment, then the terms and approval of the Disposition would be subject to the Enhanced Review Dispositions described in Condition 7. Subsequent [[Page 56394]] Dispositions with respect to the same issuer would be governed by Condition 6 under the Standard Review Dispositions.\20\ --------------------------------------------------------------------------- \19\ ``Disposition'' means the sale, exchange or other disposition of an interest in a security of an issuer. \20\ However, with respect to an issuer, if a Regulated Fund's first Co-Investment Transaction is an Enhanced Review Disposition, and the Regulated Fund does not dispose of its entire position in the Enhanced Review Disposition, then before such Regulated Fund may complete its first Standard Review Follow-On in such issuer, the Eligible Directors must review the proposed Follow-On Investment not only on a stand-alone basis but also in relation to the total economic exposure in such issuer (i.e., in combination with the portion of the Pre-Boarding Investment not disposed of in the Enhanced Review Disposition), and the other terms of the investments. This additional review is required because such findings were not required in connection with the prior Enhanced Review Disposition, but they would have been required had the first Co-Investment Transaction been an Enhanced Review Follow-On. --------------------------------------------------------------------------- 17. A Regulated Fund may participate in a Standard Review Disposition either with the approval of the Required Majority under Condition 6(d) or without Board approval under Condition 6(c) if (i) the Disposition is a Pro Rata Disposition \21\ or (ii) the securities are Tradable Securities \22\ and the Disposition meets the other requirements of Condition 6(c)(ii). Pro Rata Dispositions and Dispositions of a Tradable Security remain subject to the Board's periodic review in accordance with Condition 10. --------------------------------------------------------------------------- \21\ A ``Pro Rata Disposition'' is a Disposition (i) in which the participation of each Affiliated Fund and each Regulated Fund is proportionate to its outstanding investment in the security subject to Disposition immediately preceding the Disposition; and (ii) in the case of a Regulated Fund, a majority of the Board has approved the Regulated Fund's participation in pro rata Dispositions as being in the best interests of the Regulated Fund. The Regulated Fund's Board may refuse to approve, or at any time rescind, suspend or qualify, its approval of Pro Rata Dispositions, in which case all subsequent Dispositions will be submitted to the Regulated Fund's Eligible Directors. \22\ ``Tradable Security'' means a security that meets the following criteria at the time of Disposition: (i) It trades on a national securities exchange or designated offshore securities market as defined in rule 902(b) under the Securities Act; (ii) it is not subject to restrictive agreements with the issuer or other security holders; and (iii) it trades with sufficient volume and liquidity (findings as to which are documented by the Advisers to any Regulated Funds holding investments in the issuer and retained for the life of the Regulated Fund) to allow each Regulated Fund to dispose of its entire position remaining after the proposed Disposition within a short period of time not exceeding 30 days at approximately the value (as defined by section 2(a)(41) of the Act) at which the Regulated Fund has valued the investment. --------------------------------------------------------------------------- D. Delayed Settlement 18. Applicants represent that under the terms and Conditions of the application, all Regulated Funds and Affiliated Funds participating in a Co-Investment Transaction will invest at the same time, for the same price and with the same terms, conditions, class, registration rights and any other rights, so that none of them receives terms more favorable than any other. However, the settlement date for an Affiliated Fund in a Co-Investment Transaction may occur up to ten business days after the settlement date for the Regulated Fund, and vice versa.\23\ Nevertheless, in all cases, (i) the date on which the commitment of the Affiliated Funds and Regulated Funds is made will be the same even where the settlement date is not and (ii) the earliest settlement date and the latest settlement date of any Affiliated Fund or Regulated Fund participating in the transaction will occur within ten business days of each other. --------------------------------------------------------------------------- \23\ Applicants state this may occur for two reasons. First, when the Affiliated Fund or Regulated Fund is not yet fully funded because, when the Affiliated Fund or Regulated Fund desires to make an investment, it must call capital from its investors to obtain the financing to make the investment, and in these instances, the notice requirement to call capital could be as much as ten business days. Second, where, for tax or regulatory reasons, an Affiliated Fund or Regulated Fund does not purchase new issuances immediately upon issuance but only after a short seasoning period of up to ten business days. --------------------------------------------------------------------------- E. Holders 19. Under Condition 15, if an Adviser, its principals, or any person controlling, controlled by, or under common control with the Adviser or its principals, and the Affiliated Funds (collectively, the ``Holders'') own in the aggregate more than 25 percent of the outstanding voting shares of a Regulated Fund (the ``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 Co-Investment Transactions, because the ability of an Adviser or its principals to influence the Independent Directors by a suggestion, explicit or implied, that the Independent Directors can be removed will be limited significantly. The Independent Directors shall evaluate and approve any independent party, taking into account its qualifications, reputation for independence, cost to the shareholders, and other factors that they deem relevant. Applicants' Legal Analysis 1. 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. Section 17(d) of the Act and rule 17d-1 under the Act are applicable to Regulated Funds that are registered closed-end investment companies. 2. Similarly, with regard to BDCs, section 57(a)(4) of the Act generally prohibits certain persons specified in section 57(b) from participating in joint transactions with the BDC or a company controlled by the BDC in contravention of rules as prescribed by the Commission. Section 57(i) of the Act provides that, until the Commission prescribes rules under section 57(a)(4), the Commission's rules under section 17(d) of the Act applicable to registered closed- end investment companies will be deemed to apply to transactions subject to section 57(a)(4). Because the Commission has not adopted any rules under section 57(a)(4), rule 17d-1 also applies to joint transactions with Regulated Funds that are BDCs. 3. Co-Investment Transactions are prohibited by either or both of rule 17d-1 and section 57(a)(4) without a prior exemptive order of the Commission to the extent that the Affiliated Funds and the Regulated Funds participating in such transactions fall within the category of persons described by rule 17d-1 and/or section 57(b), as applicable, vis-[agrave]-vis each participating Regulated Fund. Each of the participating Regulated Funds and Affiliated Funds may be deemed to be affiliated persons vis-[agrave]-vis a Regulated Fund within the meaning of section 2(a)(3) by reason of common control because (i) the Adviser manages each of the Affiliated Funds and may be deemed to control any Future Regulated Fund and any Future Affiliated Fund, and (ii) the Adviser manages the Company pursuant to its investment advisory agreement. Thus, each of the Affiliated Funds could be deemed to be a person related to the Company in a manner described by section 57(b) and related to Future Regulated Funds in a manner described by rule 17d-1; and therefore the prohibitions of rule 17d-1 and section 57(a)(4) would apply respectively to prohibit the Affiliated Funds from participating in Co-Investment Transactions with the Regulated Funds. In addition, because the Stellus Proprietary Accounts are controlled by SCM and, therefore, may be under common control with the Company, any future Advisers, and any Future Regulated Funds, the Stellus Proprietary Accounts could be deemed to be persons related to the Regulated Funds (or a company controlled by the Regulated Funds) in a manner described by section 57(b) and also prohibited [[Page 56395]] from participating in the Co-Investment Program. 4. In passing upon applications under rule 17d-1, the Commission considers whether the company's participation in the joint transaction is consistent with the provisions, policies, and purposes of the Act and the extent to which such participation is on a basis different from or less advantageous than that of other participants. 5. Applicants state that in the absence of the requested relief, in many circumstances the Regulated Funds would be limited in their ability to participate in attractive and appropriate investment opportunities. Applicants state that, as required by rule 17d-1(b), the Conditions ensure that the terms on which Co-Investment Transactions may be made will be consistent with the participation of the Regulated Funds being on a basis that it is neither different from nor less advantageous than other participants, thus protecting the equity holders of any participant from being disadvantaged. Applicants further state that the Conditions ensure that all Co-Investment Transactions are reasonable and fair to the Regulated Funds and their shareholders and do not involve overreaching by any person concerned, including the Advisers. Applicants state that the Regulated Funds' participation in the Co-Investment Transactions in accordance with the Conditions will be consistent with the provisions, policies, and purposes of the Act and would be done in a manner that is not different from, or less advantageous than, that of other participants. Applicants' Conditions Applicants agree that the Order will be subject to the following Conditions: 1. Identification and Referral of Potential Co-Investment Transactions. (a) The Advisers will establish, maintain and implement policies and procedures reasonably designed to ensure that each Adviser is promptly notified of all Potential Co-Investment Transactions that fall within the then-current Objectives and Strategies and Board-Established Criteria of any Regulated Fund the Adviser manages. (b) When an Adviser to a Regulated Fund is notified of a Potential Co-Investment Transaction under Condition 1(a), the Adviser will make an independent determination of the appropriateness of the investment for the Regulated Fund in light of the Regulated Fund's then-current circumstances. 2. Board Approvals of Co-Investment Transactions. (a) If the Adviser deems a Regulated Fund's participation in any Potential Co-Investment Transaction to be appropriate for the Regulated Fund, it will then determine an appropriate level of investment for the Regulated Fund. (b) If the aggregate amount recommended by the Advisers to be invested in the Potential Co-Investment Transaction by the participating Regulated Funds and any participating Affiliated Funds, collectively, exceeds the amount of the investment opportunity, the investment opportunity will be allocated among them pro rata based on the size of the Internal Orders, as described in section III.A.1.b. of the application. Each Adviser to a participating Regulated Fund will promptly notify and provide the Eligible Directors with information concerning the Affiliated Funds' and Regulated Funds' order sizes to assist the Eligible Directors with their review of the applicable Regulated Fund's investments for compliance with these Conditions. (c) After making the determinations required in Condition 1(b) above, each Adviser to a participating Regulated Fund will distribute written information concerning the Potential Co-Investment Transaction (including the amount proposed to be invested by each participating Regulated Fund and each participating Affiliated Fund) to the Eligible Directors of its participating Regulated Fund(s) for their consideration. A Regulated Fund will enter into a Co-Investment Transaction with one or more other Regulated Funds or Affiliated Funds only if, prior to the Regulated Fund's participation in the Potential Co-Investment Transaction, a Required Majority concludes that: (i) The terms of the transaction, including the consideration to be paid, are reasonable and fair to the Regulated Fund and its equity holders and do not involve overreaching in respect of the Regulated Fund or its equity holders on the part of any person concerned; (ii) the transaction is consistent with: (A) The interests of the Regulated Fund's equity holders; and (B) the Regulated Fund's then-current Objectives and Strategies; (iii) the investment by any other Regulated Fund(s) or Affiliated Fund(s) would not disadvantage the Regulated Fund, and participation by the Regulated Fund would not be on a basis different from, or less advantageous than, that of any other Regulated Fund(s) or Affiliated Fund(s) participating in the transaction; provided that the Required Majority shall not be prohibited from reaching the conclusions required by this Condition 2(c)(iii) if: (A) The settlement date for another Regulated Fund or an Affiliated Fund in a Co-Investment Transaction is later than the settlement date for the Regulated Fund by no more than ten business days or earlier than the settlement date for the Regulated Fund by no more than ten business days, in either case, so long as: (x) The date on which the commitment of the Affiliated Funds and Regulated Funds is made is the same; and (y) the earliest settlement date and the latest settlement date of any Affiliated Fund or Regulated Fund participating in the transaction will occur within ten business days of each other; or (B) any other Regulated Fund or Affiliated Fund, but not the Regulated Fund itself, gains the right to nominate a director for election to a portfolio company's board of directors, the right to have a board observer or any similar right to participate in the governance or management of the portfolio company so long as: (x) The Eligible Directors will have the right to ratify the selection of such director or board observer, if any; (y) the Adviser agrees to, and does, provide periodic reports to the Regulated Fund's Board 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 (z) any fees or other compensation that any other Regulated Fund or Affiliated Fund or any affiliated person of any other Regulated Fund or Affiliated Fund receives in connection with the right of one or more Regulated Funds or Affiliated Funds 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 Affiliated Funds (who may, in turn, share their portion with their affiliated persons) and any participating Regulated Fund(s) in accordance with the amount of each such party's investment; and (iv) the proposed investment by the Regulated Fund will not involve compensation, remuneration or a direct or indirect \24\ financial benefit to the Advisers, any other Regulated Fund, the Affiliated Funds or any affiliated person of any of them (other than the parties to [[Page 56396]] the Co-Investment Transaction), except (A) to the extent permitted by Condition 14, (B) to the extent permitted by section 17(e) or 57(k), as applicable, (C) indirectly, as a result of an interest in the securities issued by one of the parties to the Co-Investment Transaction, or (D) in the case of fees or other compensation described in Condition 2(c)(iii)(B)(z). --------------------------------------------------------------------------- \24\ For example, procuring the Regulated Fund's investment in a Potential Co-Investment Transaction to permit an affiliate to complete or obtain better terms in a separate transaction would constitute an indirect financial benefit. --------------------------------------------------------------------------- 3. Right to Decline. Each Regulated Fund has the right to decline to participate in any Potential Co-Investment Transaction or to invest less than the amount proposed. 4. General Limitation. Except for Follow-On Investments made in accordance with Conditions 8 and 9 below,\25\ a Regulated Fund will not invest in reliance on the Order in any issuer in which a Related Party has an investment.\26\ --------------------------------------------------------------------------- \25\ This exception applies only to Follow-On Investments by a Regulated Fund in issuers in which that Regulated Fund already holds investments. \26\ ``Related Party'' means (i) any Close Affiliate and (ii) in respect of matters as to which any Adviser has knowledge, any Remote Affiliate. ``Close Affiliate'' means the Advisers, the Regulated Funds, the Affiliated Funds and any other person described in section 57(b) (after giving effect to Rule 57b-1) in respect of any Regulated Fund (treating any registered investment company or series thereof as a BDC for this purpose) except for limited partners included solely by reason of the reference in section 57(b) to section 2(a)(3)(D). ``Remote Affiliate'' means any person described in section 57(e) in respect of any Regulated Fund (treating any registered investment company or series thereof as a BDC for this purpose) and any limited partner holding 5% or more of the relevant limited partner interests that would be a Close Affiliate but for the exclusion in that definition. --------------------------------------------------------------------------- 5. Same Terms and Conditions. A Regulated Fund will not participate in any Potential Co-Investment Transaction unless (i) the terms, conditions, price, class of securities to be purchased, date on which the commitment is entered into and registration rights (if any) will be the same for each participating Regulated Fund and Affiliated Fund and (ii) the earliest settlement date and the latest settlement date of any participating Regulated Fund or Affiliated Fund will occur as close in time as practicable and in no event more than ten business days apart. The grant to one or more Regulated Funds or Affiliated Funds, but not the respective Regulated Fund, 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 5, if Condition 2(c)(iii)(B) is met. 6. Standard Review Dispositions. (a) General. If any Regulated Fund or Affiliated Fund elects to sell, exchange or otherwise dispose of an interest in a security and one or more Regulated Funds and Affiliated Funds have previously participated in a Co-Investment Transaction with respect to the issuer, then: (i) The Adviser to such Regulated Fund or Affiliated Fund \27\ will notify each Regulated Fund that holds an investment in the issuer of the proposed Disposition at the earliest practical time; and --------------------------------------------------------------------------- \27\ Any Stellus Proprietary Account that is not advised by an Adviser is itself deemed to be an Adviser for purposes of conditions 6(a)(i), 7(a)(i), 8(a)(i) and 9(a)(i). --------------------------------------------------------------------------- (ii) the Adviser to each Regulated Fund that holds an investment in the issuer will formulate a recommendation as to participation by such Regulated Fund in the Disposition. (b) Same Terms and Conditions. Each Regulated Fund 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 the Affiliated Funds and any other Regulated Fund. (c) No Board Approval Required. A Regulated Fund may participate in such a Disposition without obtaining prior approval of the Required Majority if: (i)(A) The participation of each Regulated Fund and Affiliated Fund in such Disposition is proportionate to its then-current holding of the security (or securities) of the issuer that is (or are) the subject of the Disposition; \28\ (B) the Board of the Regulated Fund has approved as being in the best interests of the Regulated Fund the ability to participate in such Dispositions on a pro rata basis (as described in greater detail in the application); and (C) the Board of the Regulated Fund is provided on a quarterly basis with a list of all Dispositions made in accordance with this Condition; or --------------------------------------------------------------------------- \28\ In the case of any Disposition, proportionality will be measured by each participating Regulated Fund's and Affiliated Fund's outstanding investment in the security in question immediately preceding the Disposition. --------------------------------------------------------------------------- (ii) each security is a Tradable Security and (A) the Disposition is not to the issuer or any affiliated person of the issuer; and (B) the security is sold for cash in a transaction in which the only term negotiated by or on behalf of the participating Regulated Funds and Affiliated Funds is price. (d) Standard Board Approval. In all other cases, the Adviser will provide its written recommendation as to the Regulated Fund's participation to the Eligible Directors and the Regulated Fund will participate in such Disposition solely to the extent that a Required Majority determines that it is in the Regulated Fund's best interests. 7. Enhanced Review Dispositions. (a) General. If any Regulated Fund or Affiliated Fund elects to sell, exchange or otherwise dispose of a Pre-Boarding Investment in a Potential Co-Investment Transaction and the Regulated Funds and Affiliated Funds have not previously participated in a Co-Investment Transaction with respect to the issuer: (i) The Adviser to such Regulated Fund or Affiliated Fund will notify each Regulated Fund that holds an investment in the issuer of the proposed Disposition at the earliest practical time; (ii) the Adviser to each Regulated Fund that holds an investment in the issuer will formulate a recommendation as to participation by such Regulated Fund in the Disposition; and (iii) the Advisers will provide to the Board of each Regulated Fund that holds an investment in the issuer all information relating to the existing investments in the issuer of the Regulated Funds and Affiliated Funds, including the terms of such investments and how they were made, that is necessary for the Required Majority to make the findings required by this Condition. (b) Enhanced Board Approval. The Adviser will provide its written recommendation as to the Regulated Fund's participation to the Eligible Directors, and the Regulated Fund will participate in such Disposition solely to the extent that a Required Majority determines that: (i) The Disposition complies with Condition 2(c)(i), (ii), (iii)(A), and (iv); and (ii) the making and holding of the Pre-Boarding Investments were not prohibited by section 57 or rule 17d-1, as applicable, and records the basis for the finding in the Board minutes. (c) Additional Requirements. The Disposition may only be completed in reliance on the Order if: (i) Same Terms and Conditions. Each Regulated Fund has 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 the Affiliated Funds and any other Regulated Fund; (ii) Original Investments. All of the Affiliated Funds' and Regulated Funds' investments in the issuer are Pre-Boarding Investments; (iii) Advice of counsel. Independent counsel to the Board advises that the making and holding of the investments in the Pre-Boarding Investments were [[Page 56397]] not prohibited by section 57 (as modified by rule 57b-1) or rule 17d-1, as applicable; (iv) Multiple Classes of Securities. All Regulated Funds and Affiliated Funds that hold Pre-Boarding Investments in the issuer immediately before the time of completion of the Co-Investment Transaction hold the same security or securities of the issuer. For the purpose of determining whether the Regulated Funds and Affiliated Funds hold the same security or securities, they may disregard any security held by some but not all of them if, prior to relying on the Order, the Required Majority is presented with all information necessary to make a finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's holding of a different class of securities (including for this purpose a security with a different maturity date) is immaterial \29\ in amount, including immaterial relative to the size of the issuer; and (y) the Board records the basis for any such finding in its minutes. In addition, securities that differ only in respect of issuance date, currency, or denominations may be treated as the same security; and --------------------------------------------------------------------------- \29\ In determining whether a holding is ``immaterial'' for purposes of the Order, the Required Majority will consider whether the nature and extent of the interest in the transaction or arrangement is sufficiently small that a reasonable person would not believe that the interest affected the determination of whether to enter into the transaction or arrangement or the terms of the transaction or arrangement. --------------------------------------------------------------------------- (v) No control. The Affiliated Funds, the other Regulated Funds and their affiliated persons (within the meaning of section 2(a)(3)(C) of the Act), individually or in the aggregate, do not control the issuer of the securities (within the meaning of section 2(a)(9) of the Act). 8. Standard Review Follow-Ons. (a) General. If any Regulated Fund or Affiliated Fund desires to make a Follow-On Investment in an issuer and the Regulated Funds and Affiliated Funds holding investments in the issuer previously participated in a Co-Investment Transaction with respect to the issuer: (i) The Adviser to each such Regulated Fund or Affiliated Fund will notify each Regulated Fund that holds securities of the portfolio company of the proposed transaction at the earliest practical time; and (ii) the Adviser to each Regulated Fund that holds an investment in the issuer will formulate a recommendation as to the proposed participation, including the amount of the proposed investment, by such Regulated Fund. (b) No Board Approval Required. A Regulated Fund may participate in the Follow-On Investment without obtaining prior approval of the Required Majority if: (i)(A) The proposed participation of each Regulated Fund and each Affiliated Fund in such investment is proportionate to its outstanding investments in the issuer or the security at issue, as appropriate,\30\ immediately preceding the Follow-On Investment; and (B) the Board of the Regulated Fund has approved as being in the best interests of the Regulated Fund the ability to participate in Follow-On Investments on a pro rata basis (as described in greater detail in the application); or --------------------------------------------------------------------------- \30\ To the extent that a Follow-On Investment opportunity is in a security or arises in respect of a security held by the participating Regulated Funds and Affiliated Funds, proportionality will be measured by each participating Regulated Fund's and Affiliated Fund's outstanding investment in the security in question immediately preceding the Follow-On Investment using the most recent available valuation thereof. To the extent that a Follow-On Investment opportunity relates to an opportunity to invest in a security that is not in respect of any security held by any of the participating Regulated Funds or Affiliated Funds, proportionality will be measured by each participating Regulated Fund's and Affiliated Fund's outstanding investment in the issuer immediately preceding the Follow-On Investment using the most recent available valuation thereof. --------------------------------------------------------------------------- (ii) it is a Non-Negotiated Follow-On Investment. (c) Standard Board Approval. In all other cases, the Adviser will provide its written recommendation as to the Regulated Fund's participation to the Eligible Directors and the Regulated Fund will participate in such Follow-On Investment solely to the extent that a Required Majority makes the determinations set forth in Condition 2(c). If the only previous Co-Investment Transaction with respect to the issuer was an Enhanced Review Disposition the Eligible Directors must complete this review of the proposed Follow-On Investment both on a stand-alone basis and together with the Pre-Boarding Investments in relation to the total economic exposure and other terms of the investment. (d) Allocation. If, with respect to any such Follow-On Investment: (i) The amount of the opportunity proposed to be made available to any Regulated Fund is not based on the Regulated Funds' and the Affiliated Funds' outstanding investments in the issuer or the security at issue, as appropriate, immediately preceding the Follow-On Investment; and (ii) the aggregate amount recommended by the Advisers to be invested in the Follow-On Investment by the participating Regulated Funds and any participating Affiliated Funds, collectively, exceeds the amount of the investment opportunity, then the Follow-On Investment opportunity will be allocated among them pro rata based on the size of the Internal Orders, as described in section III.A.1.b. of the application. (e) Other Conditions. The acquisition of Follow-On Investments as permitted by this Condition will be considered a Co-Investment Transaction for all purposes and subject to the other Conditions set forth in the application. 9. Enhanced Review Follow-Ons. (a) General. If any Regulated Fund or Affiliated Fund desires to make a Follow-On Investment in an issuer that is a Potential Co- Investment Transaction and the Regulated Funds and Affiliated Funds holding investments in the issuer have not previously participated in a Co-Investment Transaction with respect to the issuer: (i) The Adviser to each such Regulated Fund or Affiliated Fund will notify each Regulated Fund that holds securities of the portfolio company of the proposed transaction at the earliest practical time; (ii) the Adviser to each Regulated Fund that holds an investment in the issuer will formulate a recommendation as to the proposed participation, including the amount of the proposed investment, by such Regulated Fund; and (iii) the Advisers will provide to the Board of each Regulated Fund that holds an investment in the issuer all information relating to the existing investments in the issuer of the Regulated Funds and Affiliated Funds, including the terms of such investments and how they were made, that is necessary for the Required Majority to make the findings required by this Condition. (b) Enhanced Board Approval. The Adviser will provide its written recommendation as to the Regulated Fund's participation to the Eligible Directors, and the Regulated Fund will participate in such Follow-On Investment solely to the extent that a Required Majority reviews the proposed Follow-On Investment both on a stand-alone basis and together with the Pre-Boarding Investments in relation to the total economic exposure and other terms and makes the determinations set forth in Condition 2(c). In addition, the Follow-On Investment may only be completed in reliance on the Order if the Required Majority of each participating Regulated Fund determines that the making and holding of the Pre-Boarding Investments were not prohibited by section 57 (as modified by rule 57b-1) or rule 17d-1, [[Page 56398]] as applicable. The basis for the Board's findings will be recorded in its minutes. (c) Additional Requirements. The Follow-On Investment may only be completed in reliance on the Order if: (i) Original Investments. All of the Affiliated Funds' and Regulated Funds' investments in the issuer are Pre-Boarding Investments; (ii) Advice of counsel. Independent counsel to the Board advises that the making and holding of the investments in the Pre-Boarding Investments were not prohibited by section 57 (as modified by rule 57b- 1) or rule 17d-1, as applicable; (iii) Multiple Classes of Securities. All Regulated Funds and Affiliated Funds that hold Pre-Boarding Investments in the issuer immediately before the time of completion of the Co-Investment Transaction hold the same security or securities of the issuer. For the purpose of determining whether the Regulated Funds and Affiliated Funds hold the same security or securities, they may disregard any security held by some but not all of them if, prior to relying on the Order, the Required Majority is presented with all information necessary to make a finding, and finds, that: (x) Any Regulated Fund's or Affiliated Fund's holding of a different class of securities (including for this purpose a security with a different maturity date) is immaterial in amount, including immaterial relative to the size of the issuer; and (y) the Board records the basis for any such finding in its minutes. In addition, securities that differ only in respect of issuance date, currency, or denominations may be treated as the same security; and (iv) No control. The Affiliated Funds, the other Regulated Funds and their affiliated persons (within the meaning of section 2(a)(3)(C) of the Act), individually or in the aggregate, do not control the issuer of the securities (within the meaning of section 2(a)(9) of the Act). (d) Allocation. If, with respect to any such Follow-On Investment: (i) The amount of the opportunity proposed to be made available to any Regulated Fund is not based on the Regulated Funds' and the Affiliated Funds' outstanding investments in the issuer or the security at issue, as appropriate, immediately preceding the Follow-On Investment; and (ii) the aggregate amount recommended by the Advisers to be invested in the Follow-On Investment by the participating Regulated Funds and any participating Affiliated Funds, collectively, exceeds the amount of the investment opportunity, then the Follow-On Investment opportunity will be allocated among them pro rata based on the size of the Internal Orders, as described in section III.A.1.b. of the application. (e) Other Conditions. The acquisition of Follow-On Investments as permitted by this Condition will be considered a Co-Investment Transaction for all purposes and subject to the other Conditions set forth in the application. 10. Board Reporting, Compliance and Annual Re-Approval. (a) Each Adviser to a Regulated Fund will present to the Board of each Regulated Fund, on a quarterly basis, and at such other times as the Board may request, (i) a record of all investments in Potential Co- Investment Transactions made by any of the other Regulated Funds or any of the Affiliated Funds during the preceding quarter that fell within the Regulated Fund's then-current Objectives and Strategies and Board- Established Criteria that were not made available to the Regulated Fund, and an explanation of why such investment opportunities were not made available to the Regulated Fund; (ii) a record of all Follow-On Investments in and Dispositions of investments in any issuer in which the Regulated Fund holds any investments by any Affiliated Fund or other Regulated Fund during the prior quarter; and (iii) all information concerning Potential Co-Investment Transactions and Co- Investment Transactions, including investments made by other Regulated Funds or Affiliated Funds that the Regulated Fund considered but declined to participate in, so that the Independent Directors, may determine whether all Potential Co-Investment Transactions and Co- Investment Transactions during the preceding quarter, including those investments that the Regulated Fund considered but declined to participate in, comply with the Conditions. (b) All information presented to the Regulated Fund's Board pursuant to this Condition will be kept for the life of the Regulated Fund and at least two years thereafter, and will be subject to examination by the Commission and its staff. (c) Each Regulated Fund'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 Fund's compliance with the terms and Conditions of the application and the procedures established to achieve such compliance. (d) The Independent Directors will consider at least annually whether continued participation in new and existing Co-Investment Transactions is in the Regulated Fund's best interests. 11. Record Keeping. Each Regulated Fund will maintain the records required by section 57(f)(3) of the Act as if each of the Regulated Funds were a BDC and each of the investments permitted under these Conditions were approved by the Required Majority under section 57(f). 12. Director Independence. No Independent Director of a Regulated Fund will also be a director, general partner, managing member or principal, or otherwise be an ``affiliated person'' (as defined in the Act) of any Affiliated Fund. 13. Expenses. The expenses, if any, associated with acquiring, holding or disposing of any securities acquired in a Co-Investment Transaction (including, without limitation, the expenses of the distribution of any such securities registered for sale under the Securities Act) will, to the extent not payable by the Advisers under their respective advisory agreements with the Regulated Funds and the Affiliated Funds, be shared by the Regulated Funds and the participating Affiliated Funds in proportion to the relative amounts of the securities held or being acquired or disposed of, as the case may be. 14. Transaction Fees.\31\ Any transaction fee (including break-up, structuring, monitoring or commitment fees but excluding brokerage or underwriting compensation permitted by section 17(e) or 57(k)) received in connection with any Co-Investment Transaction will be distributed to the participants on a pro rata basis based on the amounts they invested or committed, as the case may be, in such Co-Investment Transaction. If any transaction fee is to be held by an Adviser pending consummation of the transaction, the fee will be deposited into an account maintained by an Adviser 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 the participants. None of the Adviser, the Affiliated Funds, the other Regulated Funds or any affiliated person of the Affiliated Funds or the Regulated Funds will receive any additional compensation or remuneration of any kind as a result of or in connection with a Co-Investment Transaction other than (i) in the case of the Regulated Funds and the Affiliated Funds, the pro rata [[Page 56399]] transaction fees described above and fees or other compensation described in Condition 2(c)(iii)(B)(z), (ii) brokerage or underwriting compensation permitted by section 17(e) or 57(k) or (iii) in the case of the Adviser, investment advisory compensation paid in accordance with investment advisory agreements between the applicable Regulated Fund(s) or Affiliated Fund(s) and its Adviser. --------------------------------------------------------------------------- \31\ Applicants are not requesting and the Commission is not providing any relief for transaction fees received in connection with any Co-Investment Transaction. --------------------------------------------------------------------------- 15. Independence. If the Holders own in the aggregate more than 25 percent of the Shares of a Regulated Fund, 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. 16. Proprietary Accounts. The Stellus Proprietary Accounts will not be permitted to invest in a Potential Co-Investment Transaction except to the extent the aggregate demand from the Regulated Funds and the other Affiliated Funds is less than the total investment opportunity. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018-24635 Filed 11-9-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 219 / Tuesday, November 13, 2018 / Notices 56391
Commission and any person, other than APPLICANTS: Stellus Capital Investment Introduction
those that may be withheld from the Corporation (the ‘‘Company’’); Stellus
public in accordance with the Credit Master Fund I, LLC, Stellus 1. The Applicants request an Order of
provisions of 5 U.S.C. 552, will be Credit VCOC Fund I, LLC, Stellus Credit the Commission under sections 17(d)
available for website viewing and Master Fund II, LLC, and Stellus Credit and 57(i) of the Act and rule 17d–1
printing in the Commission’s Public VCOC Fund II, LLC (collectively, under the Act to permit, subject to the
Reference Room, 100 F Street NE, ‘‘Existing Affiliated Funds’’); Stellus terms and conditions set forth in the
Washington, DC 20549 on official Capital SBIC LP, Stellus Capital SBIC application (the ‘‘Conditions’’), a
business days between the hours of GP, LLC, SCIC-Consolidated Blocker, Regulated Fund 2 and one or more other
10:00 a.m. and 3:00 p.m. Copies of the Inc., SCIC–CC Blocker 1, Inc., SCIC–ERC Regulated Funds and/or one or more
filing also will be available for Blocker 1, Inc., SCIC–SKP Blocker 1, Affiliated Funds 3 to enter into Co-
inspection and copying at the principal Inc., SCIC–APE Blocker 1, Inc., SCIC– Investment Transactions with each
office of the Exchange. All comments HUF Blocker 1, Inc., and SCIC- other. ‘‘Co-Investment Transaction’’
received will be posted without change. Hollander Blocker 1, Inc. (collectively, means any transaction in which one or
Persons submitting comments are ‘‘Existing Wholly-Owned more Regulated Funds (or its Wholly-
cautioned that we do not redact or edit Subsidiaries’’); and Stellus Capital Owned Investment Sub, defined below)
personal identifying information from Management, LLC (‘‘SCM’’ and participated together with one or more
comment submissions. You should collectively with the Company, the Affiliated Funds and/or one or more
submit only information that you wish Existing Affiliated Funds and the other Regulated Funds in reliance on
to make available publicly. All Existing Wholly-Owned Subsidiaries, the Order. ‘‘Potential Co-Investment
submissions should refer to File the ‘‘Applicants’’). Transaction’’ means any investment
Number SR–Phlx–2018–68, and should opportunity in which a Regulated Fund
The application was filed
FILING DATES:
be submitted on or before December 4, (or its Wholly-Owned Investment Sub)
on December 19, 2017 and amended on
2018. could not participate together with one
September 17, 2018.
For the Commission, by the Division of or more Affiliated Funds and/or one or
Trading and Markets, pursuant to delegated HEARING OR NOTIFICATION OF HEARING: An more other Regulated Funds without
authority.31 order granting the requested relief will obtaining and relying on the Order.4
Eduardo A. Aleman, be issued unless the Commission orders
a hearing. Interested persons may Applicants
Assistant Secretary.
request a hearing by writing to the 2. The Company is a closed-end
[FR Doc. 2018–24638 Filed 11–9–18; 8:45 am]
Commission’s Secretary and serving management investment company
BILLING CODE 8011–01–P
applicants with a copy of the request, incorporated in Maryland that has
personally or by mail. Hearing requests elected to be regulated as a BDC under
should be received by the Commission the Act.5 The Company’s Board 6
SECURITIES AND EXCHANGE
by 5:30 p.m. on December 3, 2018, and currently consists of seven members, of
COMMISSION
should be accompanied by proof of
[Investment Company Act Release No. service on applicants, in the form of an 2 ‘‘Regulated Fund’’ means the Company and any
33289; File No. 812–14855] affidavit or, for lawyers, a certificate of Future Regulated Fund. ‘‘Future Regulated Fund’’
service. Pursuant to rule 0–5 under the means a closed-end management investment
Stellus Capital Investment Act, hearing requests should state the company (a) that is registered under the Act or has
Corporation, et al. nature of the writer’s interest, any facts elected to be regulated as a business development
company (‘‘BDC’’) and (b) whose investment
bearing upon the desirability of a adviser is an Adviser. ‘‘Adviser’’ means SCM
November 6, 2018.
hearing on the matter, the reason for the together with any future investment adviser that (i)
AGENCY: Securities and Exchange request, and the issues contested. controls, is controlled by or is under common
Commission (‘‘Commission’’). Persons who wish to be notified of a control with SCM, (ii) is registered as an investment
ACTION: Notice. adviser under the Investment Advisers Act of 1940
hearing may request notification by (the ‘‘Advisers Act’’), and (iii) is not a Regulated
writing to the Commission’s Secretary. Fund or a subsidiary of a Regulated Fund.
Notice of application for an order 3 ‘‘Affiliated Fund’’ means any Existing Affiliated
(‘‘Order’’) under sections 17(d) and 57(i) ADDRESSES: Secretary, U.S. Securities Fund, any Future Affiliated Fund or any Stellus
of the Investment Company Act of 1940 and Exchange Commission, 100 F St. Proprietary Account. ‘‘Future Affiliated Fund’’
(the ‘‘Act’’) and rule 17d–1 under the NE, Washington, DC 20549–1090. means any entity (a) whose investment adviser is
Act to permit certain joint transactions Applicants: 4400 Post Oak Parkway, an Adviser, (b) that would be an investment
company but for section 3(c)(1), 3(c)(5)(C) or 3(c)(7)
otherwise prohibited by sections 17(d) Suite 2200, Houston, TX 77027. of the Act, and (c) that intends to participate in the
and 57(a)(4) of the Act and rule 17d–1 FOR FURTHER INFORMATION CONTACT: program of co-investments described in the
under the Act. Barbara T. Heussler, Senior Counsel, at
application. ‘‘Stellus Proprietary Account’’ means
any direct or indirect, wholly- or majority-owned
SUMMARY OF APPLICATION: Applicants (202) 551–6990, or Andrea Ottomanelli subsidiary of SCM that is formed in the future that,
request an order to permit certain Magovern, Branch Chief, at (202) 551– from time to time, may hold various financial assets
business development companies and 6821 (Chief Counsel’s Office, Division of in a principal capacity.
4 All existing entities that currently intend to rely
certain closed-end management Investment Management). on the Order have been named as Applicants and
investment companies to co-invest in any existing or future entities that may rely on the
portfolio companies with each other and SUPPLEMENTARY INFORMATION: The
Order in the future will comply with the terms and
following is a summary of the
amozie on DSK3GDR082PROD with NOTICES1
with affiliated investment funds and Conditions set forth in the application.
accounts. The Order would supersede application. The complete application 5 Section 2(a)(48) defines a BDC to be any closed-
the prior order.1 may be obtained via the Commission’s end investment company that operates for the
website by searching for the file purpose of making investments in securities
number, or for an applicant using the described in section 55(a)(1) through 55(a)(3) and
31 17CFR 200.30–3(a)(12). makes available significant managerial assistance
1 StellusCapital Investment Corporation, et al.,
Company name box, at http:// with respect to the issuers of such securities.
Investment Company Act Rel. Nos. 30739 (Sep. 30, www.sec.gov/search/search.htm or by 6 ‘‘Board’’ means the board of directors (or the
2013) (notice) and 30754 (Oct. 23, 2013) (order). calling (202) 551–8090. equivalent) of the applicable Regulated Fund.
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![Federal Register / Vol. 83, No. 219 / Tuesday, November 13, 2018 / Notices 56399
transaction fees described above and 4. Report of the People and Performance possible. You may submit comments by
fees or other compensation described in Committee any of the following methods:
Condition 2(c)(iii)(B)(z), (ii) brokerage or A. Fiscal Year 2018 Performance and • Email: prainfo@occ.treas.gov.
underwriting compensation permitted Compensation • Mail: Legislative and Regulatory
by section 17(e) or 57(k) or (iii) in the B. CEO Compensation for Fiscal Year Activities Division, Office of the
case of the Adviser, investment advisory 2019 Comptroller of the Currency, Attention:
compensation paid in accordance with 5. Report of the Audit, Risk, and 1557–0315, 400 7th Street SW, Suite
investment advisory agreements Regulation Committee 3E–218, Washington, DC 20219.
between the applicable Regulated A. Regulatory Assets • Hand Delivery/Courier: 400 7th
Fund(s) or Affiliated Fund(s) and its 6. Report of the External Relations Street SW, Suite 3E–218, Washington,
Adviser. Committee DC 20219.
15. Independence. If the Holders own 7. Report of the Nuclear Oversight Instructions: You must include
in the aggregate more than 25 percent of Committee ‘‘OCC’’ as the agency name and ‘‘1557–
the Shares of a Regulated Fund, then the For more information: Please call 0315’’ in your comment. In general, the
Holders will vote such Shares as TVA Media Relations at (865) 632–6000, OCC will publish comments on
directed by an independent third party Knoxville, Tennessee. People who plan www.reginfo.gov without change,
when voting on (1) the election of to attend the meeting and have special including any business or personal
directors; (2) the removal of one or more needs should call (865) 632–6000. information that you provide, such as
directors; or (3) any other matter under Anyone who wishes to comment on any name and address information, email
either the Act or applicable State law of the agenda in writing may send their addresses, or phone numbers.
affecting the Board’s composition, size comments to: TVA Board of Directors, Comments received, including
or manner of election. Board Agenda Comments, 400 West attachments and other supporting
16. Proprietary Accounts. The Stellus Summit Hill Drive, Knoxville, materials, are part of the public record
Proprietary Accounts will not be Tennessee 37902. and subject to public disclosure. Do not
permitted to invest in a Potential Co- include any information in your
Dated: November 7, 2018.
Investment Transaction except to the comment or supporting materials that
Sherry A. Quirk, you consider confidential or
extent the aggregate demand from the
Regulated Funds and the other General Counsel. inappropriate for public disclosure.
Affiliated Funds is less than the total [FR Doc. 2018–24842 Filed 11–8–18; 4:15 pm] You may review comments and other
investment opportunity. BILLING CODE 8120–08–P related materials that pertain to this
For the Commission, by the Division of information collection beginning on the
Investment Management, under delegated date of publication of the second notice
authority. DEPARTMENT OF THE TREASURY for this collection 1 by any of the
Eduardo A. Aleman, following methods:
Assistant Secretary.
Office of the Comptroller of the • Viewing Comments Electronically:
Currency Go to www.reginfo.gov. Click on the
[FR Doc. 2018–24635 Filed 11–9–18; 8:45 am]
‘‘Information Collection Review’’ tab.
BILLING CODE 8011–01–P Agency Information Collection Underneath the ‘‘Currently under
Activities: Information Collection Review’’ section heading, from the drop-
Renewal; Comment Request; down menu, select ‘‘Department of
TENNESSEE VALLEY AUTHORITY Leveraged Lending Treasury’’ and then click ‘‘submit.’’ This
AGENCY: Office of the Comptroller of the information collection can be located by
Sunshine Act Meeting Notice; Meeting
Currency (OCC), Treasury. searching by OMB control number
No. 18–04
ACTION: Notice and request for comment.
‘‘1557–0315’’ or ‘‘Leveraged Lending.’’
The TVA Board of Directors will hold Upon finding the appropriate
a public meeting on November 14, 2018, SUMMARY: The OCC, as part of its information collection, click on the
in the Bancorp South Conference continuing effort to reduce paperwork related ‘‘ICR Reference Number.’’ On the
Center, 387 East Main Street, Tupelo, and respondent burden, invites the next screen, select ‘‘View Supporting
Mississippi. The meeting will be called general public and other federal Statement and Other Documents’’ and
to order at 9:30 a.m. CT to consider the agencies to take this opportunity to then click on the link to any comment
agenda items listed below. TVA comment on a continuing information listed at the bottom of the screen.
management will answer questions from collection as required by the Paperwork • For assistance in navigating
the news media following the Board Reduction Act of 1995 (PRA). www.reginfo.gov, please contact the
meeting. In accordance with the requirements Regulatory Information Service Center
On November 13, the public may of the PRA, the OCC may not conduct at (202) 482–7340.
comment on any agenda item or subject or sponsor, and respondents are not • Viewing Comments Personally: You
at a board-hosted public listening required to respond to, an information may personally inspect comments at the
session which begins at 2:30 p.m. CT collection unless it displays a currently OCC, 400 7th Street SW, Washington,
and will last until 4:30 p.m. valid Office of Management and Budget DC. For security reasons, the OCC
Preregistration is required to address the (OMB) control number. requires that visitors make an
Board. The OCC is soliciting comment appointment to inspect comments. You
Status: Open.
amozie on DSK3GDR082PROD with NOTICES1
concerning the renewal of its may do so by calling (202) 649–6700 or,
Agenda information collection titled ‘‘Leveraged for persons who are deaf or hearing
Lending.’’ impaired, TTY, (202) 649–5597. Upon
1. Approval of minutes of the August arrival, visitors will be required to
22, 2018, Board Meeting DATES: Comments must be received by
2. Report from President and CEO January 14, 2019. 1 Following the close of the 60-Day comment
3. Report of the Finance, Rates, and ADDRESSES: Commenters are encouraged period for this notice, the OCC will publish a notice
Portfolio Committee to submit comments by email, if for 30 days of comment for this collection.
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Document Created: 2018-11-10 03:19:16
Document Modified: 2018-11-10 03:19:16
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Notice. | |
| Dates | The application was filed on December 19, 2017 and amended on September 17, 2018. | |
| Contact | Barbara T. Heussler, Senior Counsel, at (202) 551-6990, or Andrea Ottomanelli Magovern, Branch Chief, at (202) 551-6821 (Chief Counsel's Office, Division of Investment Management). | |
| FR Citation | 83 FR 56391 |
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