[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Registrant's Telephone Number, including Area Code: (203) 661-3122
Margery K. Neale, Esq. John A. MacKinnon, Esq.
Shearman & Sterling LLP Sidley Austin Brown & Wood LLP
599 Lexington Avenue 787 Seventh Avenue
New York, NY 10022-6069 New York, NY 10019
(212) 848-4000 (212) 839-5300
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Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a distribution reinvestment plan, check the following box. [ ]
It is proposed that this filing will become effective (check appropriate box):
[ ] when declared effective pursuant to section 8(c).
If appropriate, check the following box:
[ ] This [post-effective amendment] designates a new effective date for a previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities Act registration statement number of the earlier effective registration statement for the same offering is __________.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Amount Maximum Maximum Amount of
Being Offering Price Aggregate Registration
Title of Securities Being Registered Registered Per Unit Offering Price(1) Fee(2)
--------------------------------------------- --------------- ---------------- ---------------- ---------------
Common Stock, $0.01 par value
per share.................................. 6,666,666 $15 $100,000,000 $8,090
--------------------------------------------- --------------- ---------------- ---------------- ---------------
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(1) Estimated pursuant to Rule 457 solely for the purpose of determining the registration fee.
(2) Transmitted to the designated lockbox at Mellon Bank in Pittsburgh, PA.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
Technology Investment Capital Corp.
Cross Reference Sheet
PART A -- INFORMATION REQUIRED IN A PROSPECTUS
No. Description Location
--- ----------- --------
Item 1. Outside Front Cover Outside Front Cover
Item 2. Inside Front and Outside Back Cover Inside Front and Outside Back Cover
Item 3. Fee Table and Synopsis Fees and Expenses; Prospectus Summary
Item 4. Financial Highlights Not Applicable
Item 5. Plan of Distribution Underwriting
Item 6. Selling Shareholders Not Applicable
Item 7. Use of Proceeds Use of Proceeds
Item 8. General Description of the Registrant Outside Front Cover Page; Prospectus
Summary; Business; Risk Factors
Item 9. Management Management; Executive Officers
Item 10. Capital Stock, Long-Term Debt and Other Securities Description of our Capital Stock
Item 11. Defaults and Arrears on Senior Securities Not Applicable
Item 12. Legal Proceedings Not Applicable
Item 13. Table of Contents of the Statement of Additional Not Applicable
Information
PART B -- INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION*
No. Description Location
--- ----------- --------
Item 14. Cover Page Not Applicable
Item 15. Table of Contents Not Applicable
Item 16. General Information and History Summary; Business
Item 17. Investment Objective and Policies Summary; Our Investment Objective;
Risk Factors;
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* PURSUANT TO THE GENERAL INSTRUCTION TO FORM N-2, ALL INFORMATION REQUIRED
TO BE SET FORTH IN PART B "STATEMENT OF ADDITIONAL INFORMATION" HAS BEEN
INCLUDED IN THE PROSPECTUS AND, ACCORDINGLY, NO STATEMENT OF ADDITIONAL
INFORMATION HAS BEEN FILED AS PART OF THIS REGISTRATION STATEMENT.
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Business; Material U.S. Federal Income
Tax Considerations; Regulation
Item 18. Management Management
Item 19. Control Persons and Principal Holders of Securities Control Persons and Principal Stockholders
Item 20. Investment Advisory and Other Services Investment Advisory Agreement
Item 21. Brokerage Allocation and Other Practices Fees and Expenses; Prospectus Summary;
Underwriting; Brokerage Allocation and
Other Practices
Item 22. Tax Status Distributions; Material U.S. Federal
Income Tax Considerations
Item 23. Financial Statements Balance Sheet
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PART C -- OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this Registration Statement.
PRELIMINARY PROSPECTUS Subject to Completion September 23, 2003
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
_____________ SHARES
TECHNOLOGY INVESTMENT CAPITAL CORP.
COMMON STOCK
Technology Investment Capital Corp. is a newly organized closed-end, non-diversified company that has filed an election to become a business development company under the Investment Company Act of 1940, as amended.
Our investment objective is to maximize our portfolio's total return, principally by investing in the debt and/or equity securities of technology-related companies. Our primary initial focus will be on seeking current income through investment in non-public debt and long-term capital appreciation by acquiring accompanying warrants or other equity securities. Because our approach will be opportunistic, we may also invest in the publicly traded debt and/or equity securities of other technology-related companies.
As a business development company, we will be required to comply with certain regulatory requirements. For instance, we will have to invest at least 70% of our total assets in qualifying assets, including securities of private or thinly traded public U.S. companies and cash, cash equivalents and U.S. Government securities and other high-quality debt investments that mature in one year or less.
BDC Management Company, LLC will manage our investments and its affiliate will arrange for the performance of the administrative services necessary for us to operate.
The underwriters will reserve up to _______ shares for sale to our directors, officers and certain persons associated with us at the public offering price net of the sales concession.
Because we are newly organized, our shares have no history of public trading. We have applied to list our shares on the Nasdaq National Market under the symbol "___".
THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION YOU SHOULD KNOW BEFORE INVESTING, INCLUDING INFORMATION ABOUT RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 12. PLEASE READ IT BEFORE YOU INVEST AND KEEP IT FOR FUTURE REFERENCE. SHARES OF CLOSED-END INVESTMENT COMPANIES FREQUENTLY TRADE AT A DISCOUNT TO THEIR NET ASSET VALUE, AND THIS MAY INCREASE THE RISK OF LOSS OF PURCHASERS IN THIS OFFERING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER SHARE TOTAL
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Public offering price $ $
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Underwriting discount (sales load) $ $
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Proceeds to us(1) $ $
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(1) Before deducting estimated expenses payable by us of $_______ .
The underwriters have a 30-day option to purchase up to __ additional shares of common stock at the public offering price less the underwriting discount. If the over-allotment option is exercised in full, the total public offering price will be $____________ and the total sales load will be $________. The proceeds to us would be $ , less estimated expenses of $ .
The shares will be ready for delivery on or about __________, 2003.
UBS Investment Bank Jefferies & Company, Inc.
Legg Mason Wood Walker Incorporated
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell, or a solicitation of an offer to buy, any shares of common stock by any person where it is unlawful for that person to make such an offer or solicitation or to any person to whom it is unlawful to make such an offer or solicitation. The information in this prospectus is accurate only as of its date, and under no circumstances should the delivery of this prospectus or the sale of any common stock imply that the information in this prospectus is accurate as of any later date.
TABLE OF CONTENTS
Forward-looking statements................................................................3 Summary...................................................................................4 Fees and expenses........................................................................10 Example..................................................................................10 Risk factors.............................................................................12 Use of proceeds..........................................................................19 Distributions............................................................................19 Capitalization...........................................................................20 Management's discussion and analysis of financial condition and results of operations....21 Business.................................................................................23 Management...............................................................................33 Certain relationships....................................................................44 Control persons and principal stockholders...............................................44 Determination of net asset value.........................................................45 Distribution reinvestment plan...........................................................45 Material U.S. federal income tax considerations..........................................46 Description of our capital stock.........................................................51 Regulation...............................................................................56 Shares eligible for future sale..........................................................61 Share repurchases........................................................................61 Custodian, transfer and dividend paying agent and registrar..............................62 Brokerage allocation and other practices.................................................62 Underwriting.............................................................................62 Legal matters............................................................................64 Independent accountants..................................................................64 Available information....................................................................64 Balance sheet ..........................................................................F-2 Notes to balance sheet .................................................................F-3 |
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of the Securities Act and of the Exchange Act, that involve risks and uncertainties, including statements as to:
>> our future operating results,
>> our business prospects and the prospects of our portfolio companies,
>> the impact of investments that we expect to make,
>> our contractual arrangements and relationships with third parties,
>> the dependence of our future success on the general economy and its impact on the industries in which we invest,
>> the ability of our portfolio companies to achieve their objectives,
>> our expected financings and investments,
>> the adequacy of our cash resources and working capital, and
>> the timing of cash flows, if any, from the operations of our portfolio companies.
We use words such as "anticipates," "believes," "expects," "future," "intends," and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in "Risk factors" and elsewhere in this prospectus.
We have based the forward-looking statements included in this prospectus on information available to us on the date of this prospectus, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports, if any, that we in the future may file with the SEC, including an annual report on Form 10-K, quarterly reports on Form 10-Q and current reports, if any, on Form 8-K.
SUMMARY
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under "Risk factors" and the other information included in this prospectus. Except where the context suggests otherwise, the terms "we," "us," "Technology Investment Capital" and the "Company" refer to Technology Investment Capital Corp., "BDC Management" or the "investment adviser" refers to BDC Management Company, LLC and "BDC Partners" refers to BDC Partners, LLC.
THE COMPANY
GENERAL
Technology Investment Capital Corp. is a closed-end, non-diversified company that has filed an election to become a business development company under the Investment Company Act of 1940 Act, as amended (the "1940 Act"). Following the completion of this offering, we intend to provide capital to technology-related companies. We intend to concentrate our investments initially in companies having annual revenues of less than $100 million and/or a market capitalization of less than $200 million. In this prospectus, we refer to companies in this size range as "target" companies. In our investment activities, we will focus on companies that create products or provide services requiring advanced technology and companies that compete in industries characterized by such products or services, including companies in the following businesses: computer software and hardware, networking systems, semiconductors, semiconductor capital equipment, diversified technology, medical device technology, information technology infrastructure or services, Internet, telecommunications and telecommunications equipment and media. We refer to all of these companies as technology-related companies.
While the structure of our investments will vary, we expect to invest primarily in the debt of established target technology-related companies. We expect that most of these companies will have financial backing provided by private equity or venture capital funds or other financial or strategic sponsors at the time that we make an investment.
We intend to elect to be treated for federal income tax purposes as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986 (the "Code").
OUR INVESTMENT OBJECTIVE
Our investment objective is to maximize our portfolio's total return, principally by investing in debt and/or equity securities of technology-related companies. Our primary initial focus will be on seeking current income through investment in non-public debt and long-term capital appreciation by acquiring accompanying warrants or other equity securities. Because our approach will be opportunistic, we may also invest in the publicly-traded debt and/or equity securities of other technology-related companies.
OUR STRUCTURE
Our investment activities will be managed by BDC Management. BDC Management is a newly formed investment adviser that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Under our Investment Advisory Agreement, we have agreed to pay BDC Management an annual base management fee based on our net assets as well as an incentive fee based on our performance.
In addition, BDC Management has entered into a Sub-Advisory Agreement with Hill Street Advisors LLC. Hill Street Advisors is a newly formed affiliate of Hill Street Capital LLC, a private investment banking firm headquartered in New York providing general financial advisory, mergers and acquisitions, restructuring and capital raising services. Under the Sub-Advisory Agreement, Hill Street Advisors has agreed to recommend specific securities or other investments based upon our investment objectives and policies and to work with BDC Management in structuring, negotiating, arranging and effecting the acquisition or disposition of such investments
and monitoring such investments on our behalf. We have no obligation to pay any fees to Hill Street Advisors under our Sub-Advisory Agreement.
Our headquarters are located at 8 Sound Shore Drive, Suite 215, Greenwich, Connecticut 06830, and our telephone number is (203) 661-3122.
MARKET OPPORTUNITY
The three years since mid-2000 have seen dramatic shifts in the competitive landscape across the technology sector. Significant declines in corporate and consumer demand for information technology products and services have driven vigorous price competition and spurred numerous corporate reorganizations in technology-related industries. Many companies have merged with competitors, scaled-back their operations or simply closed down in response to these difficult business conditions, and we expect to see further consolidation in these industries. At the same time, technology-related companies with strong balance sheets, stable revenues and efficient operating structures are benefiting from the consolidation or elimination of competitors in their markets.
In this environment, we believe that many well-positioned technology-related companies could benefit from improved access to capital and that a significant opportunity exists to provide them with capital through debt and equity investments. The compression of valuations for technology-related companies in the public equity markets, together with a steep decline in the number of successful initial public offerings, have limited the availability of public equity financing. These developments have also impeded new funding by private sources of equity capital, such as private equity and venture capital funds, to the extent they have been unable to execute successful exit strategies with respect to their portfolio holdings. At the same time, many technology-related companies have had difficulty raising alternative forms of capital. Historically, technology-related companies, and particularly earlier-stage technology-related companies, have generally relied upon equity rather than debt financing. As a result, the market for debt financing of technology-related companies is generally less developed than the debt markets serving other types of businesses. In spite of the large number of technology-related companies in the United States today, we believe that these companies are significantly underserved by traditional lenders such as banks, savings and loan institutions and finance companies due to their non-traditional financial profiles and the fact that many businesses in technology-based industries lack the size, and the markets in which they operate lack the concentration, necessary to justify large loans by traditional lenders.
We believe that many viable technology-related companies have either not been able, or have elected not, to obtain financing from traditional lending institutions. We believe that these factors are likely to continue, given the ongoing consolidation of the financial services industry, and we seek to take advantage of this perceived opportunity to invest profitably in technology-related companies by purchasing their debt and equity securities.
COMPLEMENTING PRIVATE EQUITY AND VENTURE CAPITAL FUNDS
We believe that our investment approach complements other sources of capital available to technology-related companies. For example, although we may compete with private equity and venture capital funds as a source of capital for such businesses, those types of investors typically invest solely in equity securities. We believe that the nature of our proposed investments in debt securities will be viewed as an attractive alternative source of capital.
In many cases, we expect that private equity and venture capital funds will welcome an investment by us in their portfolio companies. After making an initial investment, these funds often seek to stabilize or reduce their financial exposure to their portfolio companies, a goal that financing from us could accomplish by providing alternative non-equity capital. In the current investment climate, it is possible that we will offer the only viable alternative source of capital for a target technology-related company other than incremental investments by the company's existing financial sponsors. As such, we will provide target technology-related companies and their financial sponsors with an opportunity to diversify the company's capital sources. In addition to enabling additional growth, this should facilitate access to other alternative sources of capital in the future.
As of [September] 2003, we have obtained several signed referral letters and a number of verbal commitments from private equity and venture capital funds to source prospective investments. We anticipate that we will obtain
additional commitments of this type and develop other valuable referral relationships in the future. While these referral letters and verbal commitments are not legally binding, we believe that they should provide us with access to additional target technology-related companies that may be appropriate investments.
PROSPECTIVE PORTFOLIO COMPANIES
We have recently entered into separate non-binding letters of intent with four potential portfolio companies. Each investment remains subject to several conditions, including the completion of this offering, satisfactory completion of our due diligence investigation of each prospective portfolio company, our acceptance of the terms and structure of the investment, the execution and delivery of satisfactory documentation and the receipt of any necessary consents. Neither we nor any of the potential portfolio companies is required to enter into a final agreement under the terms of these non-binding letters of intent. However, we currently expect to enter into binding agreements with each of these portfolio companies within 90 days of the completion of this offering and to fund these investments using a portion of the proceeds of this offering. These four non-binding letters of intent currently constitute all of our prospective investments. For a detailed description of the proposed portfolio companies and our letters of intent, see "Business -- Prospective portfolio companies."
The following table summarizes our current non-binding letters of intent:
TYPE OF PRINCIPAL PRINCIPAL SELECTED
NAME AND ADDRESS PRODUCT/SERVICE SECURITY TERM AMOUNT FINANCIAL TERMS INVESTORS
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Focus Internet Senior secured 7 years $10 million Cash interest Bain Capital
Interactive, Inc. notes of 10% plus LLC, JP
One Bridge 2% Morgan
Street, warrants(1) (2) Partners
Irvington, NY
MortgageIT, Inc. Online Senior secured 5 years $10 million Cash interest ING Barings,
33 Maiden Lane mortgage broker notes of 9% Sandler
New York, NY initially plus Capital
2% Management
warrants(2)(3)
Questia Media Digital library Senior secured 5 years $10 million Cash interest Oppenheimer
America, Inc. notes of 12% plus 6% Funds, Inc.,
3 Greenway Plaza PIK TA
Suite 1700 Interest(1) (4) Associates,
Houston, TX Inc.
dotPhoto, Inc. Digital imaging Senior secured 2 years(5) $5 million Cash interest Strategic
American Express notes of 12% plus 5% partners:
Park at Ewing warrants(1) (2) Verizon
800 Silvia Street Wireless,
West Trenton, NJ ALLTEL
Corporation
and U.S.
Cellular
Corporation(6)
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(1) Denotes interest at stated annual interest rate.
(2) Denotes warrants to purchase common stock as a percentage of outstanding common stock of the portfolio company on a fully diluted basis.
(3) Interest rate increases to 10% after the first year and to 11% after the second year and will remain at 11% for the remainder of the term.
(4) Denotes payment-in-kind interest at stated annual interest rate.
(5) At the option of dotPhoto, the term may be extended annually, under certain conditions, for an additional three years for a maximum term of five years.
(6) These entities are strategic partners with whom dotPhoto has established application distributor relationships and are not "selected investors" in dotPhoto.
THE OFFERING
Common stock offered by us(1)(2)...... shares
Common stock to be outstanding after
this offering(1)...................... shares
Use of proceeds....................... We plan to use a portion of the net proceeds from this offering to fund
non-binding letters of intent to make the initial investments described
under "Business -- Prospective portfolio companies" elsewhere in this
prospectus and to pay our operating expenses. We expect to invest the
remainder of the net proceeds in other portfolio companies in accordance
with our investment objective and strategies described in this prospectus.
Pending such investments, we will invest the net proceeds primarily in
cash, cash equivalents and U.S. Government securities and other
high-quality debt investments that mature in one year or less. See "Use of
proceeds."
Distributions......................... We intend to distribute quarterly dividends to our stockholders of at least
90% of our ordinary income and net realized short-term capital gains, if
any. We also intend to distribute any long-term capital gains at least
annually.
Listing............................... Because we are newly organized, our shares have no history of public
trading. We have applied to list our common stock on the Nasdaq National Market
under the symbol "____".
Trading............................... Shares of closed-end investment companies frequently trade at a discount to
their net asset value. This characteristic of closed-end investment
companies is separate and distinct from the risk that our net asset
value per share may decline. We cannot predict whether our shares will
be above, at or below net asset value.
Risk factors.......................... See "Risk factors" beginning on page 12 and the other information included
in this prospectus for a discussion of factors you should carefully
consider before deciding to invest in shares of our common stock.
Management arrangements............... BDC Management will serve as our investment adviser. Hill Street Advisors
LLC ("Hill Street Advisors" or the "sub-adviser") will serve as our
sub-adviser. BDC Partners, a Delaware limited liability company, is BDC
Management's managing member and will serve as our administrator. For a
description of BDC Management, Hill Street Advisors, BDC Partners and our
contractual arrangements with these companies, see "Management -- Investment
advisory agreement," "-- Sub-advisory agreement" and "-- Administration
agreement."
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(1) [Excludes ___ shares of common stock issuable pursuant to the over-allotment option granted to the underwriters.]
(2) [The underwriters will reserve up to _______ shares of common stock for sale to our directors, officers and certain associated persons at the public offering price net of the sales concession.]
Available information................. After completion of this offering, we will be subject to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and will be required
to file reports, proxy statements and other information with the SEC. This
information will be available at the SEC's public reference room in
Washington, D.C. and on the SEC's Internet website at http://www.sec.gov.
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FEES AND EXPENSES
The following table is intended to assist prospective investors in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary.
STOCKHOLDER TRANSACTION EXPENSES:
Sales Load (as a percentage of offering price)........................................ 7.00%(1)
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Distribution Reinvestment and Cash Purchase Plan Fees ................................ None(2)
Total stockholder transaction expenses (as a percentage of offering price)............ 7.00%
ESTIMATED ANNUAL EXPENSES (as a percentage of net assets attributable to common
stock):
Management fees....................................................................... 2.00%(3)
Interest payments on borrowed funds................................................... -- (4)
Other expenses........................................................................ 0.85%(5)
--------
Total annual expenses (estimated)..................................................... 2.85%(5)
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(1) The underwriting discount with respect to shares sold in this offering, which is a one-time fee, is the only sales load paid in connection with this offering. Transaction expenses do not reflect organizational and offering expenses, estimated at $ , and payable by us.
(2) The expenses of the distribution reinvestment plan are included in "other expenses." We have no cash purchase plan.
(3) Excludes the incentive fee payable to BDC Management under the Investment Advisory Agreement because, based on our projected net operating income and net realized gains, the investment adviser will not be entitled to this fee for at least the first year after this offering. See "Management -- Investment advisory agreement."
(4) We do not plan to incur any indebtedness, or to pay interest in respect thereof, during the first year after this offering. See footnote (5) below.
(5) We have based estimates of other expenses ($1.2 million, excluding organization and offering costs) and total annual expenses on our projected operating expenses for our first year of operations divided by total net assets subsequent to this offering. This percentage includes payments under the Administration Agreement based on our projected allocable portion of overhead and other expenses incurred by BDC Partners in performing its obligations under the Administration Agreement. This percentage also assumes that we have not incurred any indebtedness. We expect that it will take at least one year to invest the net proceeds of this offering. See "Use of proceeds." Once the proceeds of this offering are substantially invested, we may borrow funds to the extent permitted by the 1940 Act and would, thereafter, make interest payments on borrowed funds which would increase our expenses. See "Regulation -- Senior securities."
EXAMPLE
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. These amounts are based upon payment by an investor of a 7.00% sales load (the underwriting discount paid by us with respect to our common stock sold in this offering) and our payment of annual operating expenses at the levels set forth in the table above which, as indicated above, does not include leverage or related expenses.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return........................................... $___ $___ $___ $___
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This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. Moreover, while the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%.
In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in our distribution reinvestment plan may receive shares valued at the
market price in effect at that time. This price may be at, above or below net asset value. See "Distribution reinvestment plan" for additional information regarding our distribution reinvestment plan.
RISK FACTORS
Before you invest in the shares, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide whether to make an investment in our common stock. The risks set out below are not the only risks we face. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
WE ARE A NEW COMPANY WITH NO OPERATING HISTORY
We were incorporated in July 2003 and, through September 23, 2003, we have only
entered into four non-binding letters of intent to invest in debt securities. We
have not yet commenced investment operations. We are subject to all of the
business risks and uncertainties associated with any new business enterprise,
including the risk that we will not achieve our investment objective and that
the value of your investment in us could decline substantially or fall to zero.
ANY FAILURE ON OUR PART TO MAINTAIN OUR STATUS AS A BUSINESS DEVELOPMENT COMPANY WOULD REDUCE OUR OPERATING FLEXIBILITY If we do not remain a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would decrease our operating flexibility.
WE ARE DEPENDENT UPON BDC MANAGEMENT'S KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS, PARTICULARLY JONATHAN H. COHEN, SAUL B. ROSENTHAL AND LEE D. STERN We will depend on the diligence, skill and network of business contacts of the senior management of BDC Management. For a description of the senior management team, see "Management." The senior management will evaluate, negotiate, structure, close, monitor and service our investments. Our future success will depend to a significant extent on the continued service and coordination of the senior management team, particularly Jonathan H. Cohen, the chief executive officer and president of BDC Management, Saul B. Rosenthal, the chief operating officer of BDC Management, and Lee D. Stern, the chief transaction officer of BDC Management. Only Messrs. Rosenthal and Stern will devote substantially all of their business time to our operations. Neither Mr. Rosenthal nor Mr. Stern has extensive private equity investment experience, and neither Mr. Cohen nor Mr. Rosenthal has extensive private debt investment experience. None of these individuals is subject to an employment contract, and the departure of any of them could have a material adverse effect on our ability to achieve our investment objective.
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS WILL DEPEND ON OUR ABILITY TO
MANAGE OUR FUTURE GROWTH EFFECTIVELY
BDC Management and Hill Street Advisors are newly formed investment advisers,
and Technology Investment Capital is a newly organized company. As such, each
entity is subject to the business risks and uncertainties associated with any
new business enterprise, including the lack of experience in managing or
operating a business development company. Our ability to achieve our investment
objective will depend on our ability to grow, which will depend, in turn, on our
investment management team's ability to identify, analyze, invest in and finance
companies that meet our investment criteria. Accomplishing this result on a
cost-effective basis is largely a function of our management team's structuring
of the investment process, its ability to provide competent, attentive and
efficient services to us and our access to financing on acceptable terms. As we
grow, we and BDC Partners will need to hire, train, supervise and manage new
employees. Failure to manage our future growth effectively could have a material
adverse effect on our business, financial condition and results of operations.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET FOR INVESTMENT OPPORTUNITIES A large number of entities will compete with us to make the types of investments that we plan to make in target technology-related companies. We will compete with a large number of private equity and venture capital funds, other equity and non-equity based investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and finance companies. Many of our competitors
are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act will impose on us as a business development company. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.
OUR BUSINESS MODEL DEPENDS UPON THE DEVELOPMENT OF STRONG REFERRAL RELATIONSHIPS WITH PRIVATE EQUITY AND VENTURE CAPITAL FUNDS AND INVESTMENT BANKING FIRMS We expect that we will rely to a significant extent upon informal relationships with private equity and venture capital funds and investment banking firms to provide us with deal flow. If we fail to maintain our relationship with key firms, or if we fail to establish strong referral relationships with other firms or other sources of investment opportunities, we will not be able to grow our portfolio of loans and achieve our investment objective.
WE MAY NOT REALIZE GAINS FROM OUR EQUITY INVESTMENTS
When we invest in debt securities, we generally expect to acquire warrants or
other equity securities as well. Our goal is ultimately to dispose of these
equity interests and realize gains upon our disposition of such interests. Over
time, the gains that we realize on these equity interests may offset, to some
extent, losses we experience on defaults under debt securities that we hold.
However, the equity interests we receive may not appreciate in value and, in
fact, may decline in value. Accordingly, we may not be able to realize gains
from our equity interests, and any gains that we do realize on the disposition
of any equity interests may not be sufficient to offset any other losses we
experience.
BECAUSE MOST OF OUR INVESTMENTS INITIALLY WILL NOT BE IN PUBLICLY TRADED SECURITIES, THERE WILL BE UNCERTAINTY REGARDING THE VALUE OF OUR INVESTMENTS, WHICH COULD ADVERSELY AFFECT THE DETERMINATION OF OUR NET ASSET VALUE Our portfolio investments, at least initially, will not be in publicly traded securities. As a result, the fair value of these securities will not be readily determinable. We will value these securities based on a determination of their fair value made in good faith by an independent valuation firm and approved by the valuation committee of our board of directors. Because such valuations are inherently uncertain and may be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities.
THE LACK OF LIQUIDITY IN OUR INVESTMENTS MAY ADVERSELY AFFECT OUR BUSINESS As stated above, at least initially, most of our investments will not be in publicly traded securities. Substantially all of these securities will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments.
In addition, since we generally intend to invest in debt securities with a term of up to seven years and to hold our investments in debt securities and related equity securities until maturity of the debt, you should not expect realization events, if any, to occur in the near-term. In addition, we expect that our holdings of equity securities may require several years to appreciate in value, and we can offer no assurance that such appreciation will occur.
WE MAY EXPERIENCE FLUCTUATIONS IN OUR QUARTERLY RESULTS
We could experience fluctuations in our quarterly operating results due to a
number of factors, including the interest rate payable on the debt securities we
acquire, the default rate on such securities, the level of our expenses,
variations in and the timing of the recognition of realized and unrealized gains
or losses, the degree to which we encounter competition in our markets and
general economic conditions. As a result of these factors, results for any
period should not be relied upon as being indicative of performance in future
periods.
REGULATIONS GOVERNING OUR OPERATION AS A BUSINESS DEVELOPMENT COMPANY WILL AFFECT OUR ABILITY TO, AND THE WAY IN WHICH WE, RAISE ADDITIONAL CAPITAL, WHICH MAY EXPOSE US TO RISKS, INCLUDING THE TYPICAL RISKS ASSOCIATED WITH LEVERAGE Our business will require a substantial amount of capital in addition to the proceeds of this offering. We may acquire additional capital from the following sources:
SENIOR SECURITIES AND OTHER INDEBTEDNESS
We may issue debt securities or preferred stock and/or borrow money from banks
or other financial institutions, which we refer to collectively as "senior
securities," up to the maximum amount permitted by the 1940 Act. Under the
provisions of the 1940 Act, we will be permitted, as a business development
company, to issue senior securities in amounts such that our asset coverage, as
defined in the 1940 Act, equals at least 200% after each issuance of senior
securities. If we issue senior securities, we will be exposed to typical risks
associated with leverage, including an increased risk of loss. If we incur
leverage to make investments, a decrease in the value of our investments would
have a greater negative impact on the value of our common stock. In addition,
our ability to pay dividends or issue additional senior securities would be
restricted if our asset coverage ratio were not at least 200%. If the value of
our assets declines, we may be unable to satisfy this test. If that happens, we
may be required to sell a portion of our investments and, depending on the
nature of our leverage, repay a portion of our indebtedness at a time when such
sales may be disadvantageous. Furthermore, any amounts that we use to service
our indebtedness or make payments on preferred stock would not be available for
distributions to our common stockholders. Finally, a lender may impose on us
operating covenants that are more restrictive than the provisions of the 1940
Act.
COMMON STOCK
To the extent we are constrained in our ability to issue debt or other senior
securities for the reasons given above, we will depend on issuances of common
stock to finance our operations. As a business development company, regulated
under the provisions of the 1940 Act, we will not generally be able to issue and
sell our common stock at a price below net asset value per share. We may,
however, sell our common stock, or warrants, options or rights to acquire our
common stock, at a price below the current net asset value of the common stock
if the requisite number of stockholders consent and a majority of the members of
our board of directors who have no financial interest in the sale (including a
majority of the directors who are not "interested persons" under the 1940 Act)
determine that such sale is in the best interests of Technology Investment
Capital and its stockholders. In any such case, the price at which our
securities are to be issued and sold may not be less than a price which, in the
determination of our board of directors, closely approximates the market value
of such securities (less any distributing commission or discount). We may also
make rights offerings to our stockholders at prices per share less than the net
asset value per share, subject to applicable requirements of the 1940 Act
discussed above. If we raise additional funds by issuing more common stock or
senior securities convertible into, or exchangeable for, our common stock, the
percentage ownership of our stockholders at that time would decrease and they
may experience dilution. In addition, any convertible or exchangeable securities
that we issue in the future may have rights, preferences and privileges more
favorable than those of our common stock. Moreover, we can offer no assurance
that we will be able to issue and sell additional equity securities in the
future, on favorable terms or at all.
A CHANGE IN INTEREST RATES MAY ADVERSELY AFFECT OUR PROFITABILITY A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest. We anticipate using a combination of equity and long-term and short-term borrowings to finance our investment activities. Over time, some of our investments in debt securities will be at fixed rates and others at variable rates. We expect that initially almost all of our investments in debt securities will be at fixed rates. We may, but will not be required to, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts, subject to applicable legal requirements. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to purchase or develop such expertise.
WE WILL BE SUBJECT TO CORPORATE INCOME TAX IF WE ARE UNABLE TO SATISFY CODE
REQUIREMENTS FOR RIC QUALIFICATION
To maintain our qualification as a RIC under the Code, we must meet certain
income source, asset diversification and annual distribution requirements. The
annual distribution requirement for a RIC is satisfied if we distribute at
least 90% of our ordinary income and net realized short-term capital gains to our stockholders on an annual basis. Because we may use debt financing in the future, we may be subject to certain asset coverage ratio requirements under the 1940 Act and could, under certain circumstances, be restricted from making distributions necessary to qualify as a RIC. Any warrants we receive in connection with our debt investments will generally result in "original issue discount" for tax purposes, which we must recognize as ordinary income, increasing the amounts we are required to distribute to maintain RIC status. Because these warrants would not produce distributable cash for us at the same time as we are required to make distributions in respect of the related original issue discount, we will need to obtain cash from other sources to satisfy such distribution requirements. Other features of the debt instruments we hold may also cause them to generate original issue discount, resulting in a distribution requirement in excess of current cash interest received. To qualify as a RIC, we must also meet certain asset diversification requirements. See "Material U.S. federal income tax considerations -- Taxation as a regulated investment company." These asset diversification requirements must be met at the end of each calendar quarter. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Since most of our investments will be illiquid, any such dispositions, if possible, may not be made at advantageous prices and may result in substantial losses. If we fail to qualify as a RIC for any reason and remain or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the actual amount of our distributions. Such a failure would have a material adverse effect on us and our shares. For additional information regarding asset coverage ratio and RIC requirements, see "Regulation -- Senior securities" and "Material U.S. federal income tax considerations."
THERE ARE SIGNIFICANT POTENTIAL CONFLICTS OF INTEREST, WHICH COULD IMPACT OUR
INVESTMENT RETURNS
Our executive officers and directors, and the executive officers of our
investment adviser, BDC Management, and its managing member, BDC Partners, as
well as of our sub-adviser, Hill Street Advisors, serve or may serve as officers
and directors of entities who operate in the same or related line of business as
we do. Accordingly, they may have obligations to investors in those entities,
the fulfillment of which might not be in the best interests of us or our
stockholders. For example, Jonathan H. Cohen, the chief executive officer and
president of BDC Management, BDC Partners and Technology Investment Capital, is
and, following this offering, will continue to be, the principal of JHC Capital
Management, LLC ("JHC Capital Management"), a registered investment adviser. In
addition, Lee D. Stern, our executive vice president and the chief transaction
officer of BDC Management and BDC Partners, is also a managing director of Hill
Street Advisors, our sub-adviser, and a senior professional of Hill Street
Capital, an affiliate of our sub-adviser; Steven P. Novak, one of our
independent directors, is also the president of Palladio Capital Management,
LLC, the manager of an equity-oriented hedge fund; and Charles M. Royce, the
non-executive chairman of our board of directors, is the president and chief
investment officer of Royce & Associates, LLC, the non-managing member of our
investment adviser. We will not make any investments in, or otherwise knowingly
do business with, any company in which any fund or other client account managed
by JHC Capital Management, Royce & Associates, Hill Street Advisors, Hill Street
Capital, or Palladio Capital Management holds a long or short position. It is
possible that new investment opportunities that meet our investment objective
may come to the attention of one of these entities in connection with another
investment advisory client or program, and, if so, such opportunity might not be
offered, or otherwise made available, to us. Also, our investment policy
precluding our investment in companies in which affiliates of our officers and
directors (as described above) have investments could cause us to miss out on
some investment opportunities. Finally, we will rent office space from BDC
Partners and pay BDC Partners our allocable portion of overhead and other
expenses incurred by BDC Partners in performing its obligations under the
Administration Agreement, which will create conflicts of interest that our board
of directors must monitor.
CHANGES IN LAWS OR REGULATIONS GOVERNING OUR OPERATIONS MAY ADVERSELY AFFECT
OUR BUSINESS
We and our portfolio companies will be subject to regulation by laws at the
local, state and federal level. These laws and regulations, as well as their
interpretation, may be changed from time to time. Accordingly, any change in
these laws or regulations could have a material adverse affect on our business.
For additional information regarding the regulations we are subject to, see
"Regulation."
RISKS RELATED TO OUR INVESTMENTS
OUR PORTFOLIO MAY BE CONCENTRATED IN A LIMITED NUMBER OF PORTFOLIO COMPANIES IN
THE TECHNOLOGY SECTOR, WHICH WILL SUBJECT US TO A RISK OF SIGNIFICANT LOSS IF
ANY OF THESE COMPANIES DEFAULTS ON ITS OBLIGATIONS UNDER ANY OF ITS DEBT
SECURITIES THAT WE HOLD OR IF THE TECHNOLOGY SECTOR EXPERIENCES A FURTHER
DOWNTURN
We intend to invest the net proceeds of this offering in 15 to 20 companies. A
consequence of this limited number of investments is that the aggregate returns
we realize may be significantly adversely affected if a small number of
investments perform poorly or if we need to write down the value of any one
investment. Beyond our income tax diversification requirements, we do not have
fixed guidelines for diversification, and our investments could be concentrated
in relatively few issuers. In addition, we intend to concentrate in the
technology sector and to invest, under normal circumstances, at least 80% of the
value of our net assets (including the amount of any borrowings for investment
purposes) in companies in this sector. As a result, a further downturn in the
technology sector could materially adversely affect us.
THE TECHNOLOGY-RELATED SECTOR IS SUBJECT TO MANY RISKS, INCLUDING VOLATILITY, INTENSE COMPETITION, DECREASING LIFE CYCLES AND PERIODIC DOWNTURNS We will invest in companies in the technology-related sector, some of which may have relatively short operating histories. The revenues, income (or losses) and valuations of technology companies can and often do fluctuate suddenly and dramatically. Also, the technology-related market is generally characterized by abrupt business cycles and intense competition. Since mid-2000, there has been substantial excess production capacity and a significant slowdown in many industries in the technology sector. Therefore, our portfolio companies may face considerably more risk of loss than companies in other industry sectors.
In addition, because of rapid technological change, historically, the average selling prices of products and some services provided by the technology sector have decreased over their productive lives. As a result, the average selling prices of products and services offered by our portfolio companies may decrease over time, which could adversely affect their operating results and their ability to meet their obligations under their debt securities, as well as the value of any equity securities, that we may hold. This could, in turn, materially adversely affect our business, financial condition and results of operations.
OUR INVESTMENTS IN THE TECHNOLOGY-RELATED COMPANIES THAT WE ARE TARGETING MAY BE
EXTREMELY RISKY AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT
Investment in the technology-related companies that we are targeting involves a
number of significant risks, including: (1) these companies may have limited
financial resources and may be unable to meet their obligations under their debt
securities that we hold, which may be accompanied by a deterioration in the
value of any collateral and a reduction in the likelihood of us realizing on any
guarantees we may have obtained in connection with our investment; (2) they
typically have limited operating histories, narrower product lines and smaller
market shares than larger businesses, which tend to render them more vulnerable
to competitors' actions and market conditions, as well as general economic
downturns; (3) because they are generally privately owned, there is generally
little publicly available information about these businesses; therefore,
although BDC Management's agents will perform "due diligence" investigations on
these portfolio companies, their operations and their prospects, we may not
learn all of the material information we need to know regarding these
businesses; (4) they are more likely to depend on the management talents and
efforts of a small group of persons; therefore, the death, disability,
resignation or termination of one or more of these persons could have a material
adverse impact on our portfolio company and, in turn, on us; and (5) they
generally have less predictable operating results, may from time to time be
parties to litigation, may be engaged in rapidly changing businesses with
products subject to a substantial risk of obsolescence, and may require
substantial additional capital to support their operations, finance expansion or
maintain their competitive position. A portfolio company's failure to satisfy
financial or operating covenants imposed by us or other lenders could lead to
defaults and, potentially, termination of its loans and foreclosure on its
secured assets, which could trigger cross-defaults under other agreements and
jeopardize our portfolio company's ability to meet its obligations under the
debt securities that we hold. We may incur expenses to the extent necessary to
seek recovery upon default or to negotiate new terms with a defaulting portfolio
company. In addition, if a portfolio company goes bankrupt, even though we may
have structured our interest as senior debt, depending on the facts and
circumstances, including the extent to which we actually provided significant
"managerial assistance" to that portfolio company, a bankruptcy court might
recharacterize our debt holding and subordinate all or a portion of our claim to
that of other creditors.
OUR INCENTIVE FEE MAY INDUCE BDC MANAGEMENT TO MAKE SPECULATIVE INVESTMENTS The incentive fee payable by us to BDC Management may create an incentive for BDC Management to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement.
RISKS RELATING TO THIS OFFERING
THERE IS A RISK THAT YOU MAY NOT RECEIVE DIVIDENDS OR THAT OUR DIVIDENDS MAY NOT
GROW OVER TIME
We cannot assure you that we will achieve investment results or maintain a tax
status that will allow or require any specified level of cash distributions or
year-to-year increases in cash distributions. See "Distributions."
PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND OF OUR CHARTER AND BYLAWS
COULD DETER TAKEOVER ATTEMPTS AND HAVE AN ADVERSE IMPACT ON THE PRICE OF OUR
COMMON STOCK
The Maryland General Corporation Law and our charter and bylaws contain
provisions that may have the effect of discouraging, delaying or making more
difficult a change in control and preventing the removal of incumbent directors.
After completion of this offering, we will be covered by the Business
Combination and Control Share Acts of the Maryland General Corporation Law to
the extent such statutes are not superseded by applicable requirements of the
1940 Act. Our board of directors has adopted a resolution exempting any business
combination between us and any other person, subject to prior approval of such
business combination by our board, including a majority of our disinterested
directors. The Control Share Act and, if the applicable board resolution is
repealed or our board does not otherwise approve a business combination, the
Business Combination Act, may discourage others from trying to acquire control
of us and increase the difficulty of consummating any offer. Additionally, under
our charter, our board of directors is divided into three classes serving
staggered terms; our board of directors may, without stockholder action,
authorize the issuance of shares of stock in one or more classes or series,
including preferred stock; and our board of directors may, without stockholder
action, amend our charter to increase the number of shares of stock of any class
or series that we have authority to issue. The existence of these provisions,
among others, may have a negative impact on the price of our common stock and
may discourage third party bids. These provisions may prevent any premiums being
offered to you for shares of our common stock.
THE MARKET PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY
The market price and liquidity of the market for shares of our common stock may
be significantly affected by numerous factors, which may adversely affect our
ability to raise capital through future equity financings. These factors, many
over which we have no control and that may not be directly related to us,
include the following:
>> significant volatility in the market price and trading volume of securities of closed-end investment companies, business development companies or other companies in our sector, which are not necessarily related to the operating performance of these companies;
>> changes in regulatory policies or tax guidelines, particularly with respect to RICs or business development companies;
>> loss of RIC status;
>> changes in earnings or variations in operating results;
>> changes in the value of our portfolio of investments;
>> any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;
>> departure of key personnel;
>> operating performance of companies comparable to us;
>> general economic trends and other external factors; and
>> loss of a major funding source.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK, AND WE CANNOT ASSURE YOU THAT THE MARKET PRICE OF OUR SHARES WILL NOT DECLINE FOLLOWING THE OFFERING
Prior to this offering, there has been no public market for our common stock. We cannot assure you that a trading market will develop for our common stock after this offering or, if one develops, that such trading market can be sustained. Shares of closed-end investment companies frequently trade at a discount from net asset value. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade at, above or below net asset value.
SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY HAVE
AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK
Upon consummation of this offering, we will have ___ shares of common stock
outstanding (or ___ shares of common stock if the over-allotment option is fully
exercised). Following this offering, sales of substantial amounts of our common
stock or the availability of such shares for sale, could adversely affect the
prevailing market prices for our common stock. If this occurs and continues, it
could impair our ability to raise additional capital through the sale of equity
securities should we desire to do so.
USE OF PROCEEDS
We estimate that the net proceeds of this offering will be approximately $ million ($ million if the underwriter exercises its over-allotment option in full), after deducting the underwriting discount and estimated organization and offering expenses of $ payable by us. We plan to use a portion of the net proceeds of this offering to fund non-binding letters of intent to make investments as described under "Business -- Prospective portfolio companies" elsewhere in this prospectus and to pay our operating expenses. Each of these non-binding letters of intent is conditioned upon the closing of this offering and satisfactory completion of our due diligence investigation of each target technology-related company, our acceptance of the investment terms and structure, the execution and delivery of satisfaction documentation and the receipt of any necessary consents.
We plan to invest the remainder of the net proceeds of this offering in accordance with our investment objective and policies. See "Business -- General" and "Regulation -- Fundamental investment policies." We estimate that it will take at least one year for us to substantially invest the net proceeds of this offering, depending on the availability of attractive opportunities and market conditions. However, we can offer no assurance that we will be able to achieve this goal.
Pending these uses, we will invest the net proceeds primarily in U.S. Government securities and other high-quality debt investments that mature in one year or less. See "Regulation -- Temporary investments" for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
DISTRIBUTIONS
We intend to distribute quarterly dividends to our stockholders of at least 90% of our ordinary income and short-term capital gains, if any. We generally intend to declare our first dividend [prior to December 31, 2003] [approximately 180 days after the completion of this offering]. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount equal to the sum of (1) at least 98% of our ordinary income for the calendar year, (2) at least 98% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for the preceding year that were not distributed during such year. In addition, although we currently intend to distribute net realized long-term capital gains at least annually, we may in the future decide to retain such capital gains for investment in accordance with our investment objective. In such event, the consequences of our retention of net realized long-term capital gains is as described under "Material U.S. federal income tax considerations."
Our current intention is to make any distributions in additional shares of our common stock under our distribution reinvestment plan unless you elect to receive your dividends and/or long-term capital gains distributions in cash. If you hold shares in the name of a broker or financial intermediary, you should contact the broker or financial intermediary regarding your election to receive distributions in cash. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.
CAPITALIZATION
The following table sets forth (1) our actual capitalization at September, 2003 and (2) our capitalization as adjusted to reflect the effects of the sale of our common stock in this offering at an assumed public offering price of $_____ per share, less the underwriting discount (sales charge) and organizational and offering expenses. You should read this table together with "Use of proceeds" and our balance sheet included elsewhere in this prospectus.
ACTUAL AS ADJUSTED(1)
--------------- ------------------
(AMOUNTS IN THOUSANDS)
ASSETS:
Cash.................................................................... $1.5 $
Total assets............................................................ $1.5 $
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STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 100,000,000 shares authorized,
actual and as adjusted, 100 shares outstanding, actual; 10,000,100
shares outstanding, as adjusted....................................... 0.0
Capital in excess of par value.......................................... 1.5
---
Total stockholders' equity.............................................. $1.5 $
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(1) Does not include the underwriter's over-allotment option of ________ shares.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are a newly formed company and have not yet commenced operations. Therefore, we do not have any operations to discuss. See "Risk factors -- Risks relating to our business and structure -- We are a new company with no operating history."
OVERVIEW
Technology Investment Capital was incorporated under the General Corporation Law of the State of Maryland in July 2003. We have filed an election to become a business development company under the 1940 Act. As such, we will be required to comply with certain regulatory requirements. For instance, we will have to invest at least 70% of our total assets in "qualifying assets," including securities of private or thinly traded public U.S. companies and cash, cash equivalents, U.S. Government securities and high-quality debt investments that mature in one year or less. This offering will significantly increase our capital resources.
REVENUES
We plan to generate revenue in the form of interest payable on the debt
securities that we hold and capital gains, if any, on warrants or other equity
securities that we acquire in portfolio companies. We expect that our
investments, whether in the form of a lead investment in the debt securities of
a portfolio company or a participation in a syndicated financing, will not
exceed $15 million in any case. We expect these investments to have a term of up
to seven years and typically to bear interest at a fixed rate that exceeds the
prime rate. To the extent achievable, we will seek to collateralize our
investments by obtaining security interests in our portfolio company's assets.
Interest on debt securities will generally be payable monthly or quarterly, with
amortization of principal generally being deferred for at least several years
from the date of the initial investment. The principal amount of the debt
securities and any accrued but unpaid interest will generally become due at the
maturity date. We will seek to make investments in debt securities that are
accompanied by warrants or other equity securities. In addition, we also expect
to generate revenue in the form of commitment fees and possibly consulting fees.
Any such fees will be generated in connection with our investments and
recognized as earned.
EXPENSES
Our primary operating expenses will include the payment of investment management
fees and the allocable portion of overhead and other expenses incurred by BDC
Partners in performing its obligations under the Administration Agreement. Our
investment management fee will compensate our investment adviser for its work in
identifying, evaluating, negotiating, closing, monitoring and servicing our
investments. BDC Partners will compensate the sub-adviser for its services. See
"Business -- Investment policy," "Management --Investment advisory agreement,"
"-- Sub-advisory agreement" and "-- Administration agreement." We will bear all
other expenses of our operations, including (without limitation) the cost of
calculating our net asset value; the cost of effecting sales and repurchases of
shares of our common stock and other securities; fees payable to third parties
relating to, or associated with, making investments (in each case subject to
approval of our board of directors); transfer agent and custodial fees; federal
and state registration fees; any exchange listing fees; federal, state and local
taxes; independent directors' fees; brokerage commissions; costs of proxy
statements, stockholders' reports and notices; fidelity bond, directors' and
officers'/errors and omissions liability insurance and other insurance premiums;
direct costs such as printing, mailing, long distance telephone, staff,
independent audits and outside legal costs and all other expenses incurred by
either BDC Partners or us in connection with administering our business,
including payments under the Administration Agreement that will be based upon
our allocable portion of overhead and other expenses incurred by BDC Partners in
performing its obligations under the Administration Agreement, including rent.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
We will generate cash primarily from the net proceeds of this offering and any
future offerings of securities and cash flows from operations, including
interest earned from the temporary investment of cash in U.S. Government
securities and other high-quality debt investments that mature in one year or
less. In the future, we may also fund a portion of our investments through
borrowings from banks and issuances of senior securities. Our primary use of
funds will be investments in portfolio companies and cash distributions to
holders of our common stock.
Immediately after this offering, we expect to have cash resources in excess of $ million and no indebtedness. See "Use of proceeds."
DISTRIBUTION POLICY
In order to qualify as a RIC and to avoid corporate-level tax on our income, we must distribute to our stockholders, under Subchapter M of the Code, at least 90% of our ordinary income and net realized short-term capital gains on an annual basis. We intend to make these distributions on a quarterly basis. In addition, we also intend to distribute any long-term capital gains at least annually. These distributions are generally reinvested in additional shares of our common stock through our distribution reinvestment plan. See "Distributions."
CONTRACTUAL OBLIGATIONS
We have entered into two contracts under which we have material future commitments, the Investment Advisory Agreement, pursuant to which BDC Management agrees to serve as our investment adviser, and the Administration Agreement, pursuant to which BDC Partners agrees to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations. Payments under the Investment Advisory Agreement in future periods will be equal to (1) a percentage of the value of our net assets (which excludes any outstanding indebtedness, but not the liquidation preference of any outstanding preferred stock under certain circumstances) and (2) an incentive fee based on Technology Investment Capital's performance. Payments under the Administration Agreement will be based upon our allocable portion of overhead and other expenses incurred by BDC Partners in performing its obligations under the Administration Agreement, including rent. See "Management -- Investment advisory agreement" and "-- Administration agreement." For a discussion of the estimated amount of our obligations under these contracts based on a number of assumptions, see "Fees and expenses." Each of these contracts may be terminated by either party without penalty upon not more than 60 days' written notice to the other.
BUSINESS
GENERAL
Technology Investment Capital has filed an election to become a business development company under the 1940 Act. Following the completion of this offering, we will provide capital to technology-related companies. In our investment activities, we intend to concentrate our investments initially in target technology-related companies. While the structure of our investments will vary, we expect to invest primarily in the debt of established target technology-related companies. We expect that most of these companies will have financial backing provided by private equity or venture capital funds or other financial or strategic sponsors at the time that we make an investment.
Our investment objective is to maximize our portfolio's total return, principally by investing in the debt and/or equity securities of technology-related companies. Our primary initial focus will be on seeking current income through investment in non-public debt and long-term capital appreciation by acquiring accompanying warrants or other equity securities. Because our approach will be opportunistic, we may also invest in the publicly-traded debt and/or equity securities of other technology-related companies.
As a business development company, we will be required to invest at least 70% of our total assets in "qualifying assets," which, generally, are securities of private companies or securities of public companies whose securities are not eligible for purchase on margin (which includes many companies with thinly traded securities that are quoted in the "pink sheets" or the NASD Electronic Quotation Service). We must also offer to provide significant managerial assistance to these portfolio companies. Qualifying assets may also include cash, cash equivalents, U.S. Government securities or high-quality debt investments maturing in one year or less from the date of investment. We may invest a portion of the remaining 30% of our assets in debt and/or equity securities of companies that are not technology-related and that may be larger than target portfolio companies. However, we will, under normal circumstances, invest at least 80% of the value of our net assets, including the amount of any borrowings for investment purposes, in technology-related companies. Subject to compliance with applicable legal requirements, we may also use standard hedging techniques such as futures, options and forward contracts, in order to hedge our exposure to interest rate fluctuations.
We have recently entered into separate non-binding letters of intent with four potential portfolio companies. Each investment remains subject to several conditions, including the completion of this offering, satisfactory completion of our due diligence investigation of each prospective portfolio company, our acceptance of the terms and structure of the investment, the execution and delivery of satisfactory documentation and the receipt of any necessary consents. Neither we nor any of the potential portfolio companies is required to enter into a final agreement under the terms of these non-binding letters of intent. However, we currently expect to enter into binding agreements with each of these portfolio companies within 90 days after the completion of this offering and to fund these investments using a portion of the proceeds of this offering. These four non-binding letters of intent currently constitute all of our prospective investments. For a detailed description of the proposed portfolio companies and our letters of intent, see "Business -- Prospective portfolio companies."
Our investment activities will be managed by BDC Management. BDC Management is a newly formed investment adviser that is registered as an investment adviser under the Advisers Act. Under the Investment Advisory Agreement, we have agreed to pay BDC Management an annual base management fee based on our net assets as well as an incentive fee based on our performance.
In addition, BDC Management has entered into a Sub-Advisory Agreement with Hill Street Advisors. Hill Street Advisors is a newly formed affiliate of Hill Street Capital, a private investment banking firm headquartered in New York providing general financial, advisory, mergers and acquisitions, restructuring and capital raising services. Under the Sub-Advisory Agreement, Hill Street Advisors has agreed to recommend specific securities or other investments based upon our investment objectives and policies and to work with BDC Management in structuring, negotiating, arranging or effecting the acquisition or disposition of such investments and monitoring such investments on our behalf. BDC Partners, as the managing member of BDC Management, will compensate the sub-adviser for its services. We have no obligation to pay any fees to Hill Street Advisors under our Sub-Advisory
Agreement. See "Management -- Investment advisory agreement" and "-- Sub-advisory agreement" for a complete discussion of our management arrangements.
MARKET OPPORTUNITY
The three years since mid-2000 have seen dramatic shifts in the competitive landscape across the technology sector. Significant declines in corporate and consumer demand for information technology products and services have driven vigorous price competition and spurred numerous corporate reorganizations in technology-related industries. Many companies have merged with competitors, scaled-back their operations or simply closed down in response to these difficult business conditions, and we expect to see further consolidation in these industries. At the same time, technology-related companies with strong balance sheets, stable revenues and efficient operating structures are benefiting from the consolidation or elimination of competitors in their markets.
LARGE, UNDERSERVED MARKET FOR PRODUCT
In this environment, we believe that many well-positioned technology-related
companies could benefit from improved access to capital and that a significant
opportunity exists to provide them with capital through debt and equity
investments. The compression of valuations of technology-related companies in
the public equity markets, together with a steep decline in the number of
successful initial public offerings, have limited the availability of public
equity financing. These developments have also impeded new funding by private
sources of equity capital, such as private equity and venture capital funds, to
the extent they have been unable to execute successful exit strategies with
respect to their portfolio holdings. At the same time, many technology-related
companies have had difficulty raising alternative forms of capital.
Historically, technology-related companies, and particularly earlier-stage
technology-related companies, have generally relied upon equity rather than debt
financing. As a result, the market for debt financing of technology-related
companies is generally less developed than the debt markets serving other types
of businesses. In spite of the large number of technology-related companies in
the United States today, we believe that these companies are significantly
underserved by traditional lenders such as banks, savings and loan institutions
and finance companies for the following reasons:
NON-TRADITIONAL FINANCIAL PROFILES
The balance sheet of a technology-related company often includes a
disproportionately large amount of intellectual property assets as compared to
the balance sheets of basic industrial and service companies. This makes these
companies difficult to evaluate using traditional lending criteria and, to the
extent that creditors seek collateral, makes the process of perfecting liens on,
and foreclosing on, collateral more difficult than would be the case with loans
to industrial companies. In terms of the income statement profile, the high
revenue growth rates characteristic of technology-related companies often render
them difficult to evaluate from a credit perspective. Moreover,
technology-related companies often incur relatively high expenditures for
research and development, utilize unorthodox sales and marketing techniques and
selling structures, and experience rapid shifts in technology, consumer demand
and market share. These attributes can make it difficult for traditional lenders
to analyze technology-related companies using traditional analytical methods.
INDUSTRY SCALE, CONCENTRATION AND REGULATION
Many companies in technology-related industries lack the size, and the markets
they operate in lack the concentration, necessary to justify large loans by
traditional lenders. A portfolio of numerous small loans to smaller companies
typically entails greater management oversight and has associated with it
greater monitoring costs than a portfolio consisting of a few large loans to
larger companies. As a result, small loans are less attractive for large
institutions burdened by sizable administrative overhead. In the banking
industry, in particular, consolidation over the last decade has increased the
size, and reduced the number, of surviving banks. The surviving institutions
have sought to limit their credit exposure to, and the monitoring costs
associated with loans to, smaller businesses. In addition, traditional lending
institutions operate in a regulatory environment that favors lending to large,
established businesses. Over time, many traditional lending institutions have
developed loan approval processes in response to such regulation that conflict
with the entrepreneurial culture of smaller technology-related companies.
For the reasons outlined above, we believe that many viable technology-related companies have either not been able, or have elected not, to obtain financing from traditional lending institutions. We believe that these factors are likely to continue, given the ongoing consolidation in the financial services industry, and we seek to take advantage of this
perceived opportunity to invest profitably in technology-related companies by purchasing their debt and equity securities.
COMPLEMENTING PRIVATE EQUITY AND VENTURE CAPITAL FUNDS
We believe that our investment approach complements other sources of capital
available to technology-related companies. For example, although we may compete
with private equity and venture capital funds as a source of capital for such
businesses, those types of investors typically invest solely in equity
securities. We believe that the nature of our proposed investments in debt
securities will be viewed by such entities as an attractive alternative source
of capital. Private equity and venture capital funds often base their
investments on anticipated annual internal rates of return that are
substantially higher than the annual internal rates of return that we have set
as our operating target. However, private equity and venture capital investments
typically entail considerably more risk than the debt and equity investments
that we expect to make, as they are usually uncollateralized and rank lower in
priority in the capital structure of the portfolio companies. Moreover, private
equity and venture capital funds often demand a significantly greater percentage
of equity ownership interests than we would require. The prospect of obtaining
additional capital without incurring substantial incremental dilution should
make us attractive to owner-managers as a prospective source of capital.
In addition, in many cases, we expect that private equity and venture capital funds will welcome an investment by us in their portfolio companies. After making an initial investment, these funds often seek to stabilize or reduce their financial exposure to their portfolio companies, a goal that financing from us could accomplish by providing non-equity capital. In the current investment climate, it is possible that we will offer the only viable alternative source of capital for a target technology-related company other than incremental investments by the company's existing financial sponsors. As such, we will provide target technology-related companies and their financial sponsors with an opportunity to diversify the company's capital sources. In addition to enabling additional growth, this should facilitate access to other alternative sources of capital in the future.
As of September ______, 2003, we have obtained several signed referral letters and a number of verbal commitments from venture capital and other private equity funds to source prospective transactions. We anticipate that we will obtain additional commitments of this type and develop other valuable referral relationships in the future. While these referral letters and verbal commitments are not legally binding, we believe that they should provide us with access to additional target technology-related companies that may be appropriate investments.
COMPETITIVE ADVANTAGES
We believe that we are well positioned to provide financing to target technology-related companies for the following reasons:
TECHNOLOGY FOCUS
We intend to concentrate our investments in companies in technology-related
industries. We believe that this focus, together with our management's
experience in analyzing, investing in and financing such companies, will enable
us to develop a sustainable competitive advantage. In particular, we have and
expect to gain additional expertise in assessing the value of intellectual
property assets, and in evaluating the operating characteristics of target
technology-related companies. As we gain expertise in appraising the assets of
target technology-related companies for purposes of taking collateral, we should
develop a competitive advantage over less specialized lenders, particularly over
lenders with limited experience in lending to such companies. We believe that
our specialization in financing companies in particular industries within the
technology sector will enable us to identify investment opportunities, and to
advise our target technology-related companies on consolidation and exit
financing opportunities, more rapidly and effectively than less specialized
lenders.
MANAGEMENT EXPERTISE
We believe that our management's strong combination of experience and contacts
in the technology sector should attract well-positioned prospective portfolio
companies. Jonathan H. Cohen, the chief executive officer and president of BDC
Management, has more than 15 years of experience in technology-related equity
research and investment. He was named to Institutional Investor's "All-American"
research team in 1996, 1997 and 1998. During his career, Mr. Cohen has managed
technology research groups covering computer software and hardware companies,
telecommunication companies and semiconductor companies at several firms,
including Wit
SoundView, Merrill Lynch & Co., UBS Securities and Salomon Smith Barney. Mr. Cohen is currently the portfolio manager of the Royce Technology Value Fund, a technology-focused mutual fund. Saul B. Rosenthal, the chief operating officer of BDC Management, has five years of experience in the capital markets, with a focus on small to middle-market transactions in the technology sector. He recently led the private financing/public company effort at SoundView Technology Group, where he co-founded SoundView's Private Equity Group. Lee D. Stern, the chief transaction officer of BDC Management, has over 20 years of financial and investment experience in leveraged finance and in financing technology companies. He is also a managing director of Hill Street Advisors, our sub-adviser, and a senior professional at Hill Street Capital. Prior to joining Hill Street Capital, Mr. Stern was a partner of Thomas Weisel Partners and its predecessor, NationsBanc Montgomery, where he focused on leveraged transactions relating to acquisition finance and leveraged buyouts, including private and public mezzanine finance. Mr. Stern was also previously a managing director at Nomura Securities International, Inc., where he played a key role in building that firm's merchant banking and principal debt investing business. Over three years, Mr. Stern led Nomura Securities International's investment of over $1 billion in 22 transactions and was a member of Nomura Securities International's commitment and underwriting committees. We believe that our management team's extensive experience in researching, analyzing and investing in technology companies will afford us a relative competitive advantage in providing financing to target technology-related companies. See "Management."
FLEXIBLE PRODUCT SUITE
We will have significant relative flexibility in selecting and structuring our
investments. We will not be subject to many of the regulatory limitations that
govern traditional lending institutions such as banks. Also, we will have fairly
broad latitude as to the term and nature of our investments. We recognize that
technology-related companies regularly make corporate development decisions that
impact their financial performance, valuation and risk profile. In some cases,
these decisions can favorably impact long-term enterprise value at the expense
of short-term financial performance. We will seek to structure our investments
so as to take into account the uncertain and potentially variable financial
performance of our portfolio companies. This should enable our portfolio
companies to retain access to committed capital at different stages in their
development and eliminate some of the uncertainty surrounding their capital
allocation decisions. We will calculate rates of return on invested capital
based on a combination of up-front commitment fees, current and deferred
interest rates and residual values, which may take the form of common stock,
warrants, equity appreciation rights or future contract payments. We believe
that this flexible approach to structuring investments will facilitate positive,
long-term relationships with our portfolio companies and enable us to become a
preferred source of capital to them. We also believe our approach should enable
debt financing to develop into a viable alternative capital source for funding
the growth of target technology-related companies that wish to avoid the
dilutive effects of equity financings for existing equity holders.
LONGER INVESTMENT HORIZON
We will not be subject to periodic capital return requirements. Such
requirements, which are standard for most private equity and venture capital
funds, typically require that such funds return to investors the initial capital
investment after a pre-agreed time, together with any capital gains on such
capital investment. These provisions often force such funds to seek the return
of their investments in portfolio companies through mergers, public equity
offerings or other liquidity events more quickly than they otherwise might,
which can result in a lower overall return to investors and adversely affect the
ultimate viability of the affected portfolio companies. We believe that our
flexibility to take a longer-term view should help us to maximize returns on our
invested capital while still meeting the needs of our portfolio companies.
ESTABLISHED DEAL SOURCING NETWORK
We believe that, through the senior management of BDC Management and Hill Street
Advisors and our directors, we have extensive contacts and sources from which to
generate investment opportunities. These contacts and sources include public and
private companies, private equity and venture capital funds, investment bankers,
attorneys and commercial bankers. Senior management currently maintains
relationships with more than 100 private equity and venture capital funds. We
believe that senior management has developed a strong reputation within the
investment community over their years in the investment banking, investment
management and equity research businesses. We intend to utilize these
relationships and the reputations of senior management to identify significant
investment opportunities. In addition, we believe that senior management will
provide substantial management advisory capabilities that will add value to our
portfolio companies. Toward this end, we intend to enter into additional
informal relationships with private equity and venture capital funds to seek out
investment
opportunities. However, we cannot assure you that we will be able to enter into any such relationships or, if we do, that such relationships will lead to the origination of debt or other investments.
INVESTMENT PROCESS
PROSPECTIVE PORTFOLIO COMPANY CHARACTERISTICS
We have identified several criteria that we believe will prove important in
seeking our investment objective with respect to target technology-related
companies. These criteria will provide general guidelines for our investment
decisions; however, we caution you that not all of these criteria will be met by
each prospective portfolio company in which we choose to invest.
EXPERIENCED MANAGEMENT
We will generally require that our portfolio companies have an experienced
management team. We will also require the portfolio companies to have in place
proper incentives to induce management to succeed and to act in concert with our
interests as investors, including having significant equity interests.
SIGNIFICANT FINANCIAL OR STRATEGIC SPONSOR
We intend to invest in target technology-related companies in which established
private equity or venture capital funds or other financial or strategic sponsors
have previously invested and make an ongoing contribution to the management of
the business. We believe that having an established financial or strategic
sponsor that has a meaningful commitment to the business is a hallmark of a
target portfolio company.
STRONG COMPETITIVE POSITION IN INDUSTRY
We will seek to invest in target technology-related companies that have
developed a strong competitive position within their respective sector or niche
of a technology-related industry.
PROFITABLE OR NEARLY PROFITABLE OPERATIONS BASED ON CASH FLOW FROM OPERATIONS We will focus on target technology-related companies that are profitable or nearly profitable on an operating cash flow basis. Typically, we would not expect to invest in start-up companies.
POTENTIAL FOR FUTURE GROWTH
We will generally require that a prospective target technology-related company,
in addition to generating sufficient cash flow to cover its operating costs and
service its debt, demonstrate an ability to increase its revenues and operating
cash flow over time. The anticipated growth rate of a prospective target
technology-related company will be a key factor in determining the value that we
ascribe to any warrants or other equity securities that we may acquire in
connection with an investment in debt securities.
EXIT STRATEGY
Prior to making an investment in debt securities that is accompanied by an
equity-based security in a portfolio company, we will analyze the potential for
that company to increase the liquidity of its common equity through a future
event that would enable us to realize appreciation, if any, in the value of our
equity interest. Liquidity events may include an initial public offering, a
private sale of our equity interest to a third party, a merger or an acquisition
of the company or a purchase of our equity position by the company or one of its
stockholders.
LIQUIDATION VALUE OF ASSETS
Although we do not intend to operate as an asset-based lender, the prospective
liquidation value of the assets, if any, collateralizing the debt securities
that we hold will be an important factor in our credit analysis. We will
emphasize both tangible assets, such as accounts receivable, inventory and
equipment, and intangible assets, such as intellectual property, customer lists,
networks and databases.
DUE DILIGENCE
If a target technology-related company generally meets the characteristics
described above, we will perform initial due diligence, including company and
technology assessments, market analysis, competitive analysis, evaluation of
management, risk analysis and transaction size, pricing and structure analysis.
The criteria delineated below provide general parameters for our investment
decisions, although not all of such criteria will be followed in each instance.
Upon successful completion of this preliminary evaluation, we will decide whether to deliver a non-binding letter of intent and move forward towards the completion of a transaction.
MANAGEMENT TEAM AND FINANCIAL SPONSOR
>> Interviews with management and significant shareholders, including any financial or strategic sponsor;
>> Review of financing history;
>> Review of management's track record with respect to product development and marketing, mergers and acquisitions, alliances, collaborations, research and development outsourcing and other strategic activities;
>> Assessment of competition; and
>> Review of exit strategies.
FINANCIAL CONDITION
>> Evaluation of future financing needs and plans;
>> Detailed analysis of financial performance;
>> Development of pro forma financial projections; and
>> Review of assets and liabilities, including contingent liabilities, if any, and legal and regulatory risks.
TECHNOLOGY ASSESSMENT
>> Evaluation of intellectual property position;
>> Review of research and development milestones;
>> Analysis of core technology under development;
>> Assessment of collaborations and other technology validations; and
>> Assessment of market and growth potential.
Upon completion of these analyses, we will conduct on-site visits with the portfolio company's senior management team.
ONGOING RELATIONSHIPS WITH PORTFOLIO COMPANIES
MONITORING
We will continuously monitor our portfolio companies in order to determine
whether they are meeting our financing criteria and their respective business
plans. We may decline to make additional investments in portfolio companies that
do not continue to meet our financing criteria. However, we may choose to make
additional investments in portfolio companies that do not do so, but that we
believe will nevertheless perform well in the future.
We will monitor the financial trends of each portfolio company to assess the appropriate course of action for each company and to evaluate overall portfolio quality. Our management team will closely monitor the status and performance of each individual company on at least a quarterly and, in some cases, a monthly basis.
We have several methods of evaluating and monitoring the performance and fair value of our debt and equity positions, including but not limited to the following:
>> The amortized value of the debt securities;
>> Assessment of business development success, including product development, financings, profitability and the portfolio company's overall adherence to its business plan;
>> Periodic and regular contact with portfolio company management to discuss financial position, requirements and accomplishments;
>> Periodic and regular formal update interviews with portfolio company management and, if appropriate, the financial or strategic sponsor;
>> Attendance at and participation in board meetings; and
>> Review of monthly and quarterly financial statements and financial projections for portfolio companies.
MANAGERIAL ASSISTANCE
As a business development company, we will offer, and in many cases provide,
significant managerial assistance to our portfolio companies. This assistance
will typically involve monitoring the operations of our portfolio companies,
participating in their board and management meetings, consulting with and
advising their officers and providing other organizational and financial
guidance.
PROSPECTIVE PORTFOLIO COMPANIES
PRINCIPAL
PRODUCT/ TYPE OF PRINCIPAL FINANCIAL SELECTED
NAME AND ADDRESS SERVICE SECURITY TERM AMOUNT TERMS INVESTORS
----------------------------------------------------------------------------------------------------------------------
Focus Interactive, Internet Senior 7 years $10 million Cash interest of Bain Capital LLC,
Inc. secured notes 10% plus 2% JP Morgan Partners
One Bridge Street, warrants(1)(2)
Irvington, NY
MortgageIT, Inc. Online Senior 5 years $10 million Cash interest of ING Barings, Sandler
33 Maiden Lane mortgage secured notes 9% initially plus Capital Management
New York, NY broker 2% warrants(2)(3)
Questia Media Digital Senior 5 years $10 million Cash interest of Oppenheimer Funds,
America, Inc. library secured notes 12% plus 6% PIK Inc.,
3 Greenway Plaza Interest(1)(4) TA Associates, Inc.
Suite 1700
Houston, TX
dotPhoto, Inc. Digital Senior 2 $5 million Cash interest of Strategic partners:
American Express imaging secured notes years(5) 12% plus 5% Verizon Wireless,
Park at Ewing warrants(1)(2) ALLTEL Corporation
800 Silvia Street and U.S. Cellular
West Trenton, NJ Corporation(6)
|
(1) Denotes interest at stated annual interest rate.
(2) Denotes warrants to purchase common stock as a percentage of outstanding common stock of the portfolio company on a fully diluted basis.
(3) Interest rate increases to 10% after the first year and to 11% after the second year and will remain 11% for the remainder of the term.
(4) Denotes payment-in-kind interest at stated annual interest rate.
(5) At the option of dotPhoto, the term may be extended annually, under certain conditions, for an additional three years for a maximum term of five years.
(6) These entities are strategic partners that dotPhoto has established application distributor relationships with and are not "selected investors" in dotPhoto.
The following summary describes each of the businesses with which we have entered into a non-binding letter of intent to make an investment and which is identified in the preceding chart. We currently expect each of these non-binding letters of intent to be funded from the net proceeds of this offering. The consummation of each investment depends upon the completion of this offering and, among other things, satisfactory completion of our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment, the execution and delivery of satisfactory documentation and the receipt of any necessary consents. Unless otherwise noted, the only relationship between each prospective portfolio company and us is our non-binding letter of intent. We do not expect that any single portfolio investment will represent more than 10% of our assets. While we may make additional investments to these businesses, we will not make any investments that would raise our investment in any one portfolio company above 10% of our total assets. Any such additional investments will be made in accordance with our investment policies and procedures.
Based on due diligence investigations conducted to date, we believe that each of our prospective portfolio companies described below will satisfy our general financing criteria (i.e., experienced management, significant financial or strategic sponsor, strong position in industry, etc.). For each investment, BDC Management has screened the prospective portfolio company to determine satisfaction of our general financing criteria. Subsequently, BDC Management initiated a preliminary due diligence investigation of the prospective portfolio company and negotiated the terms of the non-binding letter of intent. Upon the consummation of an investment, BDC Management will be responsible for monitoring and servicing the investment.
If we do not wish to make an investment, we will not be obligated to do so. Similarly, none of the portfolio companies is obligated to obtain financing from us. We can offer no assurance that we will not discover facts in the course of our due diligence that would render these investments imprudent or that any of the investments described below will actually be made.
The following information was supplied by the portfolio company or otherwise obtained from sources believed to be reliable.
FOCUS INTERACTIVE
We have signed a non-binding letter of intent to purchase up to $10 million of
senior secured debt from Focus Interactive. Focus Interactive is the parent
company of The Excite Network, Inc., MaxOnline, My Way, My Search and Targeted
Media Solutions. The Excite Network comprises the Internet portals iWon and
Excite and focuses on generating financial returns from these websites primarily
through sales of online media. MaxOnline is an Internet-based advertising
networks and provides marketing solutions for a substantial portfolio of leading
websites. My Way and My Search offers Internet users a simple ad-free Internet
portal and search tool. These websites generate revenues primarily through
sponsored search listings. Targeted Media Solutions provides risk management
tools to optimize online advertising campaigns by tracking results in real time.
The debt securities in which we expect to invest will have a seven-year term and will bear interest at a fixed annual rate of 10%. We will receive a security interest in the assets of Focus Interactive, and the debt securities will be senior to all other indebtedness of the portfolio company except for indebtedness under certain capitalized equipment lease obligations. In connection with this investment, we will also receive warrants to purchase up to 2% of the common stock (on a fully diluted basis) of Focus Interactive for a nominal exercise price. In addition, we will receive a funding fee equal to 1.5% of the aggregate principal amount of our investment if the investment closes.
MORTGAGEIT
We have signed a non-binding letter of intent to purchase up to $10 million of
senior debt securities from MortgageIT. MortgageIT provides national online
multi-lender mortgage brokerage. This service provides access to mortgage
lending rates from over 120 lending institutions and 3,000 loan programs in the
United States. MortgageIT's proprietary software enables its customers to find
the lowest available interest rates on mortgages by completing and submitting a
simple online application form. This application matches the prospective
customer's profile, including credit quality, income, debt level and financing
requirements, with lending criteria of subscribing mortgage lending
institutions.
The debt securities in which we expect to invest will have a five-year term and will initially bear interest at a fixed annual rate of 9%. The interest rate will increase to 10% after the first year and to 11% after the second year and
will remain at 11% for the remainder of the term. We will receive a security interest in the assets of MortgageIT, and the debt securities will be senior to all other indebtedness of the portfolio company, except for indebtedness under certain warehouse line obligations. In addition, the debt securities will rank equally with all unsubordinated indebtedness of MortgageIT. In connection with this investment, we will also receive warrants to purchase up to 2% of the common stock (on a fully diluted basis) of MortgageIT for a nominal exercise price. In addition, we will receive a funding fee equal to 1% of the aggregate principal amount of our investment if the investment closes.
QUESTIA MEDIA AMERICA
We have signed a non-binding letter of intent to purchase up to $10 million of
senior secured debt securities from Questia Media America, of which $8 million
will be funded initially and the remainder of which will be made available to
Questia Media over a period of 24 months. Questia has developed a fully
searchable electronic database of academic information content primarily for
student use. Questia makes this database available on a subscription basis.
Questia believes that this online research tool enables students to search,
access and interact with tens of thousands of frequently cited books and
journals from anywhere in the world. The company makes available to students the
full text of scholarly books and journals in its digital library for a daily,
monthly or annual fee. To complement this library, Questia offers a range of
search, note-taking and writing tools. These tools enable students to locate
information relevant to their studies quickly, to quote and cite their sources
accurately, and to create properly formatted footnotes and bibliographies
automatically. Questia believes that this package of services will provide a
comprehensive research environment that meets the needs of students and
researchers throughout the world.
The debt securities in which we expect to invest will have a five-year term and will bear interest at a fixed annual rate of 12%. The principal amount of the investment will also have a pay-in-kind feature bearing interest at 6% on a compounded annual basis. This pay-in-kind feature will apply only to the extent that any principal amount of the investment is outstanding as of the final day of each 12-month period after the closing of the initial investment. The securities will be secured by the assets of Questia. In addition, if this investment closes, we will receive a funding fee equal to 1.5% of the amount, if any, made available to Questia in excess of $8 million at the time of such funding.
DOTPHOTO
We have signed a non-binding letter of intent to purchase up to $5 million of
senior secured debt securities of dotPhoto. dotPhoto has developed innovative
Web-based imaging and sound technologies for enhancing, storing, sharing and
printing digital images. dotPhoto seeks to become a leader in the market for
wireless digital image-handling applications. In May 2003, dotPhoto was named
"Editor's Choice" in a list of 10 top photo sites by CNET's Computer Shopper, a
computer trade magazine, and also a finalist in QUALCOMM BREW's Best
Communication Application survey. The company's services include Web and
wireless "one-stop" digital image-handling services to archive, share, add sound
technology to photos, e-mail, sell and print images. dotPhoto has established
application distributor relationships with several QUALCOMM BREW carriers,
including Verizon Wireless, ALLTEL Corporation and U.S. Cellular Corporation.
These carriers have more than 46 million estimated users.
The debt securities in which we expect to invest will have an initial term of two years which may, at the option of dotPhoto, be extended annually, under certain circumstances, for an additional three years for a maximum term of five years and will bear interest at a fixed annual rate of 12%. We will receive a security interest in the assets of dotPhoto and the debt securities will rank senior or equally with all other indebtedness of the portfolio company. In connection with this investment, we will also receive warrants to purchase up to 5% of the common stock (on a fully diluted basis) of dotPhoto for a nominal exercise price. In addition, if the investment closes, we will receive a funding fee equal to 1.5% of the aggregate principal amount of our investment.
COMPETITION
Our primary competitors to provide financing to target technology-related companies will include private equity and venture capital funds, other equity and non-equity based investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and specialty finance companies. Many of these entities have greater financial and managerial resources than we will have. For
additional information concerning the competitive risks we face, see "Risk factors -- Risks relating to our business and structure -- We operate in a highly competitive market for investment opportunities."
EMPLOYEES
We do not currently have any direct employees. In the future, we expect to hire an individual to act as our chief financial officer (and to the extent necessary, a controller). It is likely that these individuals will be employees of BDC Partners and will perform their respective functions under the terms of the Administration Agreement. Each of our executive officers described under "Management" is an officer of our investment adviser and an employee of BDC Partners or Hill Street Advisors. Our day-to-day investment operations will be managed by our investment adviser, assisted by the sub-adviser. See "Management -- Investment advisory agreement" and "-- Sub-advisory agreement." In addition, we reimburse BDC Partners for our allocable portion of expenses incurred by it in performing its obligations under the Administration Agreement. See "Management -- Administration agreement."
PROPERTIES
Our corporate headquarters are located at 8 Sound Shore Drive, Greenwich, Connecticut, in the offices of BDC Partners. We do not own or lease any office space directly; however, we will pay a portion of the rent as allocated to us by BDC Partners. We believe that our office facilities are suitable and adequate for our business as it is presently conducted.
MANAGEMENT
Our business and affairs are managed under the direction of our board of
directors. The board of directors currently consists of five members, three of
whom are not "interested persons" of Technology Investment Capital as defined in
Section 2(a)(19) of the 1940 Act. We refer to these individuals as our
independent directors. Our board of directors elects our officers, who will
serve at the discretion of the board of directors.
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their positions are set forth below. The address for each director and executive officer is c/o Technology Investment Capital Corp., 8 Sound Shore Drive, Greenwich, CT 06830.
INDEPENDENT DIRECTORS
OTHER
POSITION(S) TERM OF OFFICE* PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS DIRECTORSHIPS
HELD WITH THE AND LENGTH OF DURING IN FUND COMPLEX HELD BY
NAME AND AGE COMPANY TIME SERVED PAST 5 YEARS OVERSEEN BY DIRECTOR DIRECTOR
-------------------- ------------------ ---------------- --------------------------- -------------------- ---------------
Steven P. Novak Director August 2003 to Mr. Novak has 30 years of One Mr. Novak is
55 present experience in securities currently a
investment and finance. Mr. director of
Novak currently serves as CyberSource
president of Palladio Corporation,
Capital Management, LLC and an online
as the principal and payments
managing member of the processor
General Partner of Palladio for
Partners, LP, an equities electronic
hedge fund that commenced merchants
operations in July 2002. Mr. listed on
Novak is also currently a the Nasdaq
director of two private National
companies. Prior to founding Market.
Palladio, Mr. Novak was a
Managing Director of C.E.
Unterberg, Towbin from
February 1993 through
December 2001. During his
tenure at Unterberg, Mr.
Novak founded and served as
president and portfolio
manager of Unterberg Harris
Capital Management (now
Unterberg Towbin Capital
Management), a registered
investment adviser, where he
managed discretionary
accounts, and Unterberg
Harris Capital Partners I, a
hedge fund. Mr. Novak
subsequently served as
director of research at C.E.
Unterberg, Towbin, the
adviser's parent company,
and founded the Internet
Practice within Unterberg's
Corporate Finance
Department. While at
Unterberg, Mr. Novak also
directed private equity
investments on behalf of
limited partnerships managed
by Unterberg. Prior
affiliations included
Sanford C. Bernstein &
Company, Inc., where Mr.
Novak was a partner, member
of the
------------------------
* Our board of directors is divided into three classes of directors
serving staggered three-year terms. Ms. Pankopf's term will expire
in 2004, the terms of Messrs. Royce and Novak will expire in 2005,
and the terms of Messrs. Cohen and O'Brien will expire in 2006.
33
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Investment Policy Committee and
senior portfolio manager, and
Harris Bankcorp, where he
served as a vice president
and managed a $175 million
fund of employee benefit
assets that invested in
small and medium-sized
companies. Mr. Novak
received a Bachelor of
Science degree from Purdue
University and a M.B.A. from
the Harvard Business School.
He is a Chartered Financial
Analyst.
G. Peter O'Brien Director August 2003 to Mr. O'Brien has 28 years of One Mr. O'Brien
57 present experience in the securities is a member
industry. Mr. O'Brien of the
retired as a managing Boards of
director of Merrill Lynch & Directors of
Co. in 1999 after working in the Legg
the Equity Capital Markets Mason Family
area since he joined Merrill of Mutual
Lynch & Co. in 1971, during Funds, The
which time he created the Royce Funds
Equity Transaction Group in and the
1985, helped launch Merrill Renaissance
Lynch's London-based Equity IPO Plus
Capital Markets Group and Aftermarket
had primary responsibility Fund.
for the pricing of all
equity and convertible
issues managed by Merrill
Lynch. Mr. O'Brien is
currently a member of the
Board of Trustees of Colgate
University and President of
the Board of Directors of
Hill House, Inc., a
congregate care facility for
low income elderly residents
in Riverside, Connecticut.
Mr. O'Brien received a
Bachelor of Arts degree from
Colgate University and a
M.B.A. from Columbia
Business School.
Tonia L. Pankopf Director August 2003 to Ms. Pankopf served as an One None
35 present analyst with P.A.W. Capital
Partners, LP from 2001 to
July 2003, where she covered
the technology hardware
sectors. Ms. Pankopf
followed the Internet and
software sectors as a senior
analyst and vice president
at Goldman Sachs and Company
from 1999 to 2001 and at
Merrill Lynch & Co. from
1998 to 1999. She was an
associate director in
corporate finance at
Deutsche Bank in the
Technology Group's London
office from 1997 to 1998.
Prior to joining Deutsche
Bank, she started her career
in investment research in
1995, working as a sell-side
Internet and software
analyst at Salomon Smith
Barney. Ms. Pankopf
received a Bachelor of Arts
degree summa cum laude from
the University of Maryland
and a M.S. from the London
School of Economics.
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INTERESTED DIRECTORS
OTHER
POSITION(S) TERM OF OFFICE* PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS DIRECTORSHIPS
HELD WITH THE AND LENGTH OF DURING IN FUND COMPLEX HELD BY
NAME AND AGE COMPANY TIME SERVED PAST 5 YEARS OVERSEEN BY DIRECTOR DIRECTOR
---------------------- -------------- ------------------ ---------------------- -------------------- -------------
Charles M. Royce** Non-Executive August 2003 to Mr. Royce became president One Mr. Royce is
64 Chairman of the present and chief investment officer a member of
Board of of Royce & Associates (which the Board of
Directors and term, as used in this Directors of
Director prospectus, includes its The Royce
corporate predecessor) in Funds.
1972 and has served in those
positions for more than 30
years. He also manages or
co-manages five of Royce &
Associates' funds. He
received a Bachelor of Arts
degree from Brown University
and a M.B.A. from Columbia
University. Royce &
Associates is a non-managing
member of BDC Management.
Royce & Associates is
registered as an investment
adviser under the Advisers
Act. As of June 30, 2003,
Royce & Associates had more
than $10 billion in assets
under management.
Substantially all of Royce &
Associates' client accounts
are managed as small- and
micro-cap investment
products.
Jonathan H. Cohen** Chief Executive August 2003 to Mr. Cohen is chief executive One None
38 Officer, present officer and president of BDC
President and Management and the managing
Director member of BDC Partners, the
managing member of BDC
Management. Mr. Cohen is
also a principal of JHC
Capital Management, a
registered investment
adviser that serves as the
sub-adviser to the Royce
Technology Value Fund, a
technology focused mutual
fund, and a principal of
Privet Financial Securities,
LLC ("Privet Financial
Securities"), a registered
broker-dealer and financial
consultant to small to
medium-sized private and
public technology
companies. Prior to
founding JHC Capital
Management in 2001, Mr.
Cohen managed technology
research groups at Wit
SoundView from 1999 to
2001. He has also managed
securities research groups
at Merrill Lynch & Co. from
1998 to 1999, UBS Securities
from 1997 to 1998 and
Salomon Smith Barney from
1993 to 1997. Mr. Cohen has
more than 15 years of
experience in
technology-related equity
research and was named to
the Institutional Investor
"All-American" research team
in 1996, 1997 and 1998. Mr.
Cohen received a Bachelor of
Arts degree in Economics
from Connecticut College and
a M.B.A. from Columbia
University.
|
** Mr. Royce is considered an "interested person" under the 1940 Act because of his relationship with Royce & Associates. Mr. Cohen is considered an "interested person" under the 1940 Act by virtue of serving as one of our officers and his relationship with the investment adviser.
OFFICERS
TERM OF OFFICE
AND LENGTH OF PRINCIPAL OCCUPATION(S)
NAME AND AGE POSITION(S) HELD WITH THE COMPANY TIME SERVED DURING PAST 5 YEARS
---------------------- ----------------------------------- ------------------ ----------------------------
Saul B. Rosenthal Chief Operating Officer, August 2003 to Mr. Rosenthal is chief operating
35 Treasurer and Secretary present officer of BDC Management and a
member of BDC Partners, the managing
member of BDC Management. Mr.
Rosenthal also serves as president of
Privet Financial Securities
(described in Mr. Cohen's
biography). Mr. Rosenthal led the
private financing/public company
effort at SoundView Technology Group
from 2000 to 2002, where he
co-founded SoundView's Private Equity
Group. Previously, Mr. Rosenthal was
a vice president and co-founder of
the Private Equity Group at Wit
Capital from 1998 to 2000. Prior to
joining Wit Capital, Mr. Rosenthal
was an attorney at the law firm of
Shearman & Sterling LLP from 1996 to
1997. He received a Bachelor of
Science degree magna cum laude from
the Wharton School of the University
of Pennsylvania, a J.D. from Columbia
University Law School, where he was a
Harlan Fiske Stone Scholar, and a
L.L.M. (Taxation) from New York
University School of Law.
Lee D. Stern Executive Vice President August 2003 to Mr. Stern is the chief transaction
52 present officer of BDC Management. Mr. Stern
is also a managing director of Hill
Street Advisors, our sub-adviser,
and a senior professional at Hill
Street Capital. He has over 20
years of financial and investment
experience in leveraged finance and
in financing technology companies.
Prior to joining Hill Street
Capital, he was a partner of
Thomas Weisel Partners and its
predecessor, NationsBanc
Montgomery, from 1997 to 2000,
where he focused on leveraged
transactions relating to
acquisition finance and leveraged
buyouts, including private and
public mezzanine finance. From 1993
to 1997, Mr. Stern was a managing
director at Nomura Securities
International, where he played a
key role in building the firm's
merchant banking and principal debt
investing business. He sat on
Nomura Securities International's
commitment and underwriting
committees. He has also held
managing director positions at
Kidder, Peabody & Co., Inc. from
1990 to 1992 and Drexel Burnham
Lambert from 1985 to 1990. Mr.
Stern received a Bachelor of Arts
degree from Middlebury College and
a M.B.A. from the Wharton Business
School.
|
BOARD OF DIRECTORS
Under our charter, our directors are divided into three classes. One class will hold office initially for a term expiring at the annual meeting of stockholders to be held in 2004, a second class will hold office initially for a term expiring at the annual meeting of stockholders to be held in 2005 and a third class will hold office initially for a term expiring at the annual meeting of stockholders to be held in 2006. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualified. Ms. Pankopf's term will expire in 2004, the terms of Messrs. Royce and Novak will expire in 2005, and the terms of Messrs. Cohen and O'Brien will expire in 2006. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
The members of the audit committee are Messrs. Novak and O'Brien and Ms.
Pankopf, each of whom is an independent director. The audit committee is
responsible for approving our independent accountants, reviewing with our
independent accountants the plans and results of the audit engagement, approving
professional services provided by our independent accountants, reviewing the
independence of our independent accountants and reviewing the adequacy of our
internal accounting controls.
COMPENSATION COMMITTEE
We will not have a compensation committee because our executive officers will
not receive any direct compensation from us.
VALUATION COMMITTEE
The members of the valuation committee are Messrs. Novak and O'Brien and Ms.
Pankopf, each of whom is an independent director. The valuation committee is
responsible for reviewing and approving the fair value determinations provided
by the independent valuation firm retained by the board of directors with
respect to our securities for which market quotations are not readily available.
Aggregate Dollar Range of Equity
Securities in All Registered
Investment Companies Overseen
Dollar Range of Equity by Director in Family of
Name of Director Securities in the Company Investment Companies
----------------------- ------------------------- --------------------------------
INDEPENDENT DIRECTORS
Steven P. Novak None None
G. Peter O'Brien None None
Tonia L. Pankopf None None
INTERESTED DIRECTORS
Charles M. Royce None None
Jonathan H. Cohen(1) $1-$10,000 $1-$10,000
|
(1) Represents an indirect beneficial ownership in shares of the Company's common stock, that are beneficially owned directly by BDC Partners, by reason of Mr. Cohen's portion as a principal of BDC Partners.
COMPENSATION OF DIRECTORS
The following table shows information regarding the compensation expected to be received by the independent directors for the calendar year ending December 31, 2003. No compensation is paid to Directors who are "interested persons."
COMPENSATION TABLE FOR CALENDAR YEAR ENDING DECEMBER 31, 2003
TOTAL
COMPENSATION
PENSION OR FROM COMPANY
AGGREGATE RETIREMENT BENEFITS AND FUND
COMPENSATION FROM ACCRUED AS PART OF COMPLEX PAID
NAME OF DIRECTOR THE COMPANY(1) COMPANY EXPENSES(2) TO DIRECTOR
-------------------------------- -------------- ------------------- -----------
INDEPENDENT DIRECTORS
Steven P. Novak $ ___ None $ ___
G. Peter O'Brien $ ___ None $ ___
Tonia L. Pankopf $ ___ None $ ___
INTERESTED DIRECTORS
Charles M. Royce None None None
Jonathan H. Cohen None None None
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The independent directors will receive an annual fee of $35,000 and will receive $2,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting. No additional fees will be paid in connection with attending committee meetings.
INVESTMENT ADVISORY AGREEMENT
MANAGEMENT SERVICES
BDC Management serves as our investment adviser. BDC Management is a newly
formed investment adviser that is registered as an investment adviser under the
Advisers Act. Subject to the overall supervision of our board of directors, the
investment adviser will manage the day-to-day operations of, and provide
investment advisory services to, Technology Investment Capital. Under the terms
of an Investment Advisory Agreement, BDC Management will:
>> determine the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
>> identify, evaluate and negotiate the structure of the investments we make;
>> close, monitor and service the investments we make; and
>> determine what securities we will purchase, retain or sell.
BDC Management's services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired. However, BDC Management has agreed that, during the term of the Investment Advisory Agreement, it will not serve as investment adviser to any other public or private entity that utilizes a principal investment strategy of providing debt financing to target technology-related companies.
MANAGEMENT FEE
We will pay BDC Management a fee for investment advisory services consisting of
two components -- a base management fee and an incentive fee.
The base management fee will be calculated at an annual rate of 2.00%. For services rendered under the Investment Advisory Agreement during the period commencing from the closing of this offering through and including March
31, 2004, the base management fee will be payable monthly in arrears, and will be calculated based on the initial value of our net assets upon closing. For services rendered under the Investment Advisory Agreement after March 31, 2004, the base management fee will be payable quarterly in arrears, and will be calculated based on the average value of our net assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances, repurchases or redemptions during the current calendar quarter. Base management fees for any partial month or quarter will be appropriately pro rated. The liquidation preference of any issued and outstanding preferred stock will be included in the calculation of our net assets for purposes of determining the base management fee, with such liquidation preference appropriately adjusted for any share issuances, repurchases or redemptions during the current calendar quarter. BDC Management has agreed to waive voluntarily that portion of the base management fee attributable to any outstanding preferred stock for any quarter in which our total return for such quarter fails to exceed the dividend rate applicable to such preferred stock. BDC Management has further agreed not to terminate or modify this waiver agreement without the prior consent of its board of directors, including the separate consent of a majority of its independent directors.
The incentive fee will have two parts, as follows: One part will be calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income earned during the calendar quarter, minus our operating expenses for the quarter (including the base management fee and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes any consulting or other fees that we receive from portfolio companies but does not include any net realized capital gains. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, will be compared to one-fourth of the applicable annual "hurdle rate." BDC Management will be entitled to 20.0% of the excess (if any) of our pre-incentive fee net investment income for the quarter over one-fourth of the applicable annual hurdle rate. The annual hurdle rate will initially be ___% (which has been set at a percentage equal to the interest rate payable, at the closing of this offering, on the most recently issued five-year U.S. Treasury Notes plus 5.0%). For each calendar year commencing on or after January 1, 2005, the annual hurdle rate will be determined as of the immediately preceding December 31st by adding 5.0% to the interest rate then payable on the most recently issued five-year U.S. Treasury Notes, up to a maximum annual hurdle rate of 10.0%. The calculations will be appropriately pro rated for any period of less than three months and adjusted for any share issuances, redemptions or repurchases during the current quarter.
The second part of the incentive fee will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2004, and will equal 20.0% of our net realized capital gains for the calendar year less any net unrealized capital losses at the end of such year; provided that the incentive fee determined as of December 31, 2004 will take into account any capital gains and losses for the period ending December 31, 2003, if any.
PAYMENT OF OUR EXPENSES
All personnel of the investment adviser when and to the extent engaged in
providing investment advisory services, and the compensation and expenses of
such personnel allocable to such services, will be provided and paid for by BDC
Partners, the investment adviser's managing member. We are responsible for all
other costs and expenses of our operations and transactions, including (without
limitation) calculating our net asset value; effecting sales and repurchases of
shares of our common stock and other securities; investment advisory fees; fees
payable to third parties relating to, or associated with, making investments (in
each case subject to approval of our board of directors); transfer agent and
custodial fees; federal and state registration fees; any exchange listing fees;
federal, state and local taxes; independent directors' fees; brokerage
commissions; costs of proxy statements, stockholders' reports and notices;
fidelity bond, directors' and officers'/ errors and omissions liability
insurance and other insurance premiums; direct costs such as printing, mailing,
long distance telephone, staff, independent audits and outside legal costs and
all other expenses incurred by either BDC Partners or us in connection with
administering our business, including payments under the Administration
Agreement that will be based upon our allocable portion of overhead and other
expenses incurred by BDC Partners in performing its obligations under the
Administration Agreement, including rent.
DURATION AND TERMINATION
The Investment Advisory Agreement was approved by our board of directors on
August 1, 2003. Unless terminated earlier as described below, it will continue
in effect for a period of two years from its effective date. It will remain in
effect from year to year thereafter if approved annually by our board of
directors or by the affirmative vote of the holders of a majority of our
outstanding voting securities, including, in either case, approval by a majority
of our directors who are not interested persons. The Investment Advisory
Agreement will automatically terminate in the event of its assignment. The
Investment Advisory Agreement may be terminated by either party without penalty
upon not more than 60 days' written notice to the other. See "Risk factors --
Risks relating to our business and structure -- We are dependent upon BDC
Management's key management personnel for our future success, particularly
Jonathan H. Cohen, Saul B. Rosenthal and Lee D. Stern."
INDEMNIFICATION
The Investment Advisory Agreement provides that, absent willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
reckless disregard of its duties and obligations, BDC Management and its
officers, managers, agents, employees, controlling persons, members and any
other person or entity affiliated with it are entitled to indemnification from
Technology Investment Capital for any damages, liabilities, costs and expenses
(including reasonable attorneys' fees and amounts reasonably paid in settlement)
arising from the rendering of BDC Management's services under the Investment
Advisory Agreement or otherwise as an investment adviser of Technology
Investment Capital.
ORGANIZATION OF THE INVESTMENT ADVISER
BDC Management is a newly formed Delaware limited liability company that is
registered as an investment adviser under the Advisers Act. BDC Partners, a
Delaware limited liability company, is its managing member and provides the
investment adviser with all personnel necessary to manage our day-to-day
operations and provide the services under the Investment Advisory Agreement. BDC
Partners has no investment advisory operations separate from serving as the
managing member of BDC Management. The principal address of BDC Management and
BDC Partners is 8 Sound Shore Drive, Suite 215, Greenwich, Connecticut 06830.
Royce & Associates, a Delaware limited liability company, is the investment adviser's non-managing member. Royce & Associates has agreed to make Mr. Royce and/or other portfolio managers available to the investment adviser on a limited basis to provide certain consulting services without compensation. Royce & Associates is a wholly owned subsidiary of Legg Mason, Inc., a publicly held financial services company that is the parent of one of our underwriters.
INVESTMENT PERSONNEL
In addition to the individuals who serve as our executive officers as discussed
above, see "Management -- Executive officers and directors," senior management
of BDC Management includes the following persons:
PAUL EZEKIEL, M.D. Dr. Ezekiel is a managing director of BDC Management. From 2002 to the present, he has served as president and founder of Gelflex USA, Inc. He founded the U.S. sales and marketing operation for Australian Specialty Contact Lens Manufacturer, Gelfex Laboratories. He has over eight years of investment banking experience focused on providing capital raising and strategic advice to health care, financial services and telecommunications companies ranging from start-ups to public companies located in North America, Europe and Asia. From 2001 to 2002, Dr. Ezekiel was a managing director at SoundView Technology Group, a boutique technology focused investment bank, where he ran the Telecommunications Investment Banking practice. Prior to SoundView, Dr. Ezekiel was a founding managing director of Wit Capital, where he started the Health Care Technology and Financial Services Technology Investment Banking groups in 1999. From 1996 to 1999, Dr. Ezekiel was a principal in the Health Care Investment Banking Group at NationsBanc Montgomery, where he managed the east coast Health Care Services calling effort, which included buyout client coverage. Dr. Ezekiel was also an associate at Credit Suisse First Boston in 1995. Dr. Ezekiel received a M.D. from the University of Western Australia in 1988 and a M.B.A. from Cornell University in 1995.
DAVID J. GROSSMAN. Dr. Grossman is a director of BDC Management. He co-founded and developed the $100 million financial technology and services venture capital fund at Toronto Dominion Bank, where, as a Vice President of the private equity group from 1999 to 2001 and an associate from 1997 to 1999, he also sourced, analyzed and made investments in a number of telecommunications companies. During his tenure at Toronto Dominion Bank, Dr. Grossman was involved with more than 20 investments and served on the Board of Directors of
six private companies. Previously, he was a management consultant with A.T. Kearney, from 1994 to 1997 where he advised Fortune 500 companies on strategic, cost reduction, activity-based costing and operations improvement issues. Since 2001, Dr. Grossman has operated his own consulting firm, working closely with a number of small and mid-sized companies where his role has ranged from serving as senior executive to capital-raising and mergers and acquisitions activities to advising on financial, strategic and operational issues. Dr. Grossman received a Ph.D. in business economics and an M.A. from Harvard University in 1994 and 1992, respectively and an undergraduate degree in applied math-computer science from Brown University in 1989.
JON VANDEN HEUVEL. Mr. Vanden Heuvel is a managing director of BDC Management. He is also a managing director of Privet Financial Securities. He was most recently a director for SoundView Technology Group, from 2001 to 2002, where he was responsible for European telecommunications equity research. Before joining SoundView, Mr. Vanden Heuvel was an investment banker with Credit Suisse First Boston in New York, from 1996 to 2000, where he was a vice president in the media and telecommunications group. Before Credit Suisse First Boston, Mr. Vanden Heuvel worked for Dr. Henry Kissinger, president of Kissinger Associates Inc., an international business consulting firm, from 1990 to 1995. Mr. Vanden Heuvel received a Bachelor of Arts degree from Lawrence University in 1985, a Master of Arts degree from Columbia University in 1989 and Ph.D. in history from Columbia University in 1996.
BARRY A. OSHEROW. Mr. Osherow is a vice president of BDC Management. He has nine years of experience in financing companies. Since 2002, Mr. Osherow has been, and is currently, vice president of Privet Financial Securities. He was previously at SoundView Technology Group from 1996 to 2002, where he was most recently employed as an associate in the Private Equity Group, which he co-founded in 1998. Mr. Osherow was a founding employee of Wit Capital in 1996 and worked on developing several business units, including brokerage, public relations, equity sales and marketing. Prior to Wit Capital, he was vice president of Spring Street Brewing Company from 1995 to 1996, where he was in charge of sales, marketing and merchandising. He began his career at Lehman Brothers from 1994 to 1995. Mr. Osherow received a Bachelor of Science degree from Babson College in 1994.
SUB-ADVISORY AGREEMENT
SUB-ADVISORY SERVICES
Technology Investment Capital, BDC Management, BDC Partners and Hill Street
Advisors are parties to a Sub-Advisory Agreement pursuant to which, subject to
the oversight of our board of directors and BDC Management, Hill Street Advisors
will perform the following services as well as other related services as may be
requested from time to time by BDC Management:
>> recommend specific securities or other investments based upon our investment objectives and policies and to work with BDC Management in arranging or effecting the acquisition or disposition of such investments;
>> participate in the structuring of debt and equity securities;
>> assist in determining and negotiating the terms and conditions under which we may purchase such securities from prospective portfolio companies;
>> monitor a portfolio company's operations with respect to the ongoing credit quality of such investment; and
>> provide BDC Management with records concerning its activities in accordance with the Advisers Act and 1940 Act.
Hill Street Advisors' fee for its services will be paid by BDC Partners and not by Technology Investment Capital. Under the terms of the Sub-Advisory Agreement, Hill Street Advisors will appoint one person to BDC Management's investment committee. This committee will require unanimous approval to invest in any portfolio company.
DURATION AND TERMINATION
The Sub-Advisory Agreement was approved by our board of directors on August 1,
2003. Unless terminated earlier as described below, it will continue in effect
for a period of two years from its effective date. It will remain in effect from
year to year thereafter if approved annually by our board of directors or by the
affirmative vote of the holders of a majority of our outstanding voting
securities, including, in either case, approval by a majority of our directors
who are not interested persons. The Sub-Advisory Agreement will automatically
terminate in the event of its assignment or upon termination of the Investment
Advisory Agreement. The Sub-Advisory Agreement may be terminated by Hill Street
Advisors upon not less than 60 days' written notice, and by any of the other
parties upon no more than 30 days' written notice, to the other parties, in any
such case without penalty.
INDEMNIFICATION
The Sub-Advisory Agreement provides that, absent willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations or duties, the
sub-adviser (and certain affiliates) is entitled to indemnification from
Technology Investment Capital for any and all losses, claims, damages,
liabilities or litigation (including reasonable legal and other expenses)
arising from the sub-adviser's services under the agreement or the sale of
securities by Technology Investment Capital.
ORGANIZATION OF THE SUB-ADVISER
Hill Street Advisors, a newly formed Delaware limited liability company, [is
registered] as an investment adviser under the Advisers Act. Each of John G.
Brim and Lorenzo D. Weisman owns 50% of the outstanding equity interest in Hill
Street Advisors. Hill Street Advisors' principal address is located at 126 East
56th Street, New York, NY 10022.
Hill Street Advisors' services under the Sub-Advisory Agreement are exclusive during the term of this Agreement, and neither it nor any of affiliated entities will render similar services to any other person, firm or entity.
ADMINISTRATION AGREEMENT
Pursuant to a separate Administration Agreement, BDC Partners will furnish us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the Administration Agreement, BDC Partners also will perform, or oversee the performance of, our required administrative services, which include being responsible for the financial records which we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, BDC Partners will assist us in determining and publishing our net asset value, oversee the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversee the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the Administration Agreement will be based upon our allocable portion of overhead and other expenses incurred by BDC Partners in performing its obligations under the Administration Agreement, including rent. The Administration Agreement may be terminated by either party without penalty upon 60 days' written notice to the other.
INDEMNIFICATION
The Administration Agreement provides that, absent willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
reckless disregard of its duties and obligations, BDC Partners and its officers,
manager, agents, employees, controlling persons, members and any other person or
entity affiliated with it are entitled to indemnification from Technology
Investment Capital for any damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid in settlement) arising
from the rendering of BDC Partner's services under the Administration Agreement
or otherwise as administrator for Technology Investment Capital.
BOARD APPROVAL OF THE INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
Our board of directors determined at a meeting held on August 1, 2003, to approve the Investment Advisory Agreement and the Sub-Advisory Agreement (together, the "Advisory Agreements"). In its consideration of the Advisory Agreements, the board of directors focused on information it had received relating to, among other things: (a) the nature, quality and extent of the advisory and other services to be provided to us by the investment adviser and sub-adviser; (b) comparative data with respect to advisory fees or similar expenses paid by other business
development companies with similar investment objectives; (c) our projected operating expenses and expense ratio compared to business development companies with similar investment objectives; (d) any existing and potential sources of indirect income to the investment adviser, sub-adviser or BDC Partners from their relationships with us and the profitability of those relationships; (f) information about the services to be performed and the personnel performing such services under the Advisory Agreements; (g) the organizational capability and financial condition of the investment adviser and sub-adviser and their affiliates; (h) the investment adviser and sub-adviser's practices regarding the selection and compensation of brokers that may execute our portfolio transactions and the brokers' provision of brokerage and research services to the investment adviser or sub-adviser; and (i) the possibility of obtaining similar services from other third party service providers or through an internally managed structure.
Based on the information reviewed and the discussions, the board of directors, including a majority of the non-interested directors, concluded that the investment advisory fee rates were reasonable in relation to the services to be provided. The non-interested directors were represented by independent counsel, who assisted them in their deliberations.
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CERTAIN RELATIONSHIPS
We have entered into the Investment Advisory Agreement with BDC Management. BDC Management is controlled by BDC Partners, its managing member. In addition to BDC Partners, BDC Management is owned by Royce & Associates as the non-managing member. See "Management -- Investment advisory agreement." BDC Partners, as the managing member of BDC Management and our controlling shareholder prior to this offering, manages the business and internal affairs of BDC Management. In addition, BDC Partners provides us with office facilities and administrative services pursuant to the Administration Agreement. Jonathan H. Cohen, our chief executive officer and president, as well as a director, is the managing member of and controls BDC Partners. Saul B. Rosenthal, our chief operating officer, is also the chief operating officer of BDC Management and a member of BDC Partners.
We have entered into a Sub-Advisory Agreement with Hill Street Advisors, BDC Management and BDC Partners. Lee D. Stern, our executive vice president, is chief transaction officer of BDC Management, a managing director of Hill Street Advisors and a senior professional at Hill Street Capital, an affiliate of Hill Street Advisors. See "Management -- Sub-advisory agreement." Under the Sub-Advisory Agreement, Hill Street Advisors will provide various advisory services to us and BDC Management, our investment adviser.
Charles M. Royce, a director and the non-executive chairman of our board of directors, is president and chief investment officer of Royce & Associates. Royce & Associates, as the non-managing member of our investment adviser, will not take part in the management or participate in the operations of BDC Management. Royce & Associates is a wholly owned subsidiary of Legg Mason, Inc. Legg Mason Wood Walker, Incorporated, a wholly owned subsidiary of Legg Mason, Inc. is one of our underwriters.
JHC Capital Management, a registered investment adviser owned by Mr. Cohen, has invested on behalf of certain of its discretionary advisory clients in CyberSource Corporation, a public company engaged in the business of processing online payments for electronic merchants listed on the Nasdaq National Market. Mr. Novak, an independent director of Technology Investment Capital, is also an independent director of CyberSource Corporation. JHC Capital Management's discretionary advisory clients own in the aggregate less than 1% of the outstanding common stock (on a fully diluted basis) of CyberSource Corporation.
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
Immediately prior to the completion of this offering, there will be 100 shares of common stock outstanding and one stockholder of record. At that time, we will have no other shares of capital stock outstanding. The following table sets forth certain ownership information with respect to our common stock for those persons who directly or indirectly own, control or hold with the power to vote, 5% or more of our outstanding common stock and all officers and directors, as a group.
PERCENTAGE OF COMMON
STOCK OUTSTANDING
-----------------------------------------------------------
IMMEDIATELY AFTER
PRIOR TO THIS THIS
OFFERING OFFERING(1)
TYPE OF
NAME AND ADDRESS OWNERSHIP SHARES OWNED PERCENTAGE SHARES OWNED PERCENTAGE
---------------------------------------------------------------------------------------------------------------------------
BDC Partners, LLC(2)........ Record and beneficial 100 100.0% %
All officers and directors as
a group (7 persons)(3).... Record and beneficial 100 100.0% %
|
(1) Assumes issuance of _________ shares offered hereby. Does not reflect shares of common stock reserved for issuance upon exercise of the underwriters' over-allotment option.
(2) The beneficial interest holders of all of the equity interest in BDC Partners, LLC are Jonathan H. Cohen and Saul B. Rosenthal.
(3) The address for all officers and directors is c/o Technology Investment Capital Corp., 8 Sound Shore Drive, Greenwich, CT 06830. Their ownership is attributable to the shares owned by BDC Partners.
OUTSTANDING SECURITIES
The following table sets forth certain information regarding the Company's authorized shares and shares outstanding as of ____________, 2003.
(1) (2) (3) (4) |
AMOUNT OUTSTANDING
AMOUNT HELD BY COMPANY OR EXCLUSIVE OF AMOUNT SHOWN
TITLE OF CLASS AMOUNT AUTHORIZED FOR ITS ACCOUNT UNDER (3)
------------------------------- ----------------------- --------------------------- --------------------------
Common Stock 100,000,000 0 100
|
DETERMINATION OF NET ASSET VALUE
The net asset value per share of our outstanding shares of common stock will be determined quarterly, as soon as practicable after, and as of the end of, each calendar quarter, by dividing the value of total assets minus liabilities by the total number of shares outstanding at the date as of which such determination is made.
In calculating the value of our total assets, we will value securities that are publicly traded at the closing price on the valuation date. Debt and equity securities that are not publicly traded are valued at fair value as determined in good faith by an independent valuation firm and approved by the valuation committee of our board of directors. In making such fair value determinations for debt or equity securities, the independent valuation firm will consider, as relevant, the nature and value of any collateral, the portfolio company's ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly traded securities, discounted cash flow and other relevant factors.
Determination of fair values involves subjective judgment and estimates not susceptible to substantiation by auditing procedures. Accordingly, under current auditing standards, the notes to our financial statements will refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
DISTRIBUTION REINVESTMENT PLAN
We have adopted a distribution reinvestment plan (the "Plan"), through which all net investment income dividends and capital gains distributions are paid to stockholders in the form of additional shares of our common stock, unless a stockholder elects to receive cash as provided below. In this way, a stockholder can maintain an undiluted investment in the Company and still allow us to pay out the required distributable income.
No action is required on the part of a registered stockholder to receive a distribution in shares of our common stock. A registered stockholder may elect to receive an entire distribution in cash by notifying __________, the plan administrator [and our transfer agent and registrar], in writing so that such notice is received by the plan administrator no later than 10 days prior to the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the Plan for each stockholder who has not elected to receive distributions in cash ("Participant") and hold such shares in non-certificated form. Upon request by a Participant, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the Participant's account, issue a certificate registered in the Participant's name for the number of whole shares of our common stock and a check for any fractional share.
Those stockholders whose shares are held by a broker or other financial intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We use only newly-issued shares to implement the Plan, whether our shares are trading at a premium or at a discount to net asset value. The number of shares
to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by the market price per share of our common stock at the close of regular trading on the Nasdaq National Market on the valuation date for such distribution. Market price per share on that date will be the closing price for such shares on the Nasdaq National Market or, if no sale is reported for such day, at the average of their electronically- reported bid and asked prices. The number of shares of our common stock to be outstanding after giving effect to payment of the distribution cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated.
There is no charge to stockholders for receiving their distributions in the form of additional shares of our common stock. The plan administrator's fees for handling distributions in stock are paid by the Company. There are no brokerage charges with respect to shares we have issued directly as a result of distributions payable in stock. If a Participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the Participant's account and remit the proceeds to the Participant, the plan administrator is authorized to deduct a $[2.50] transaction fee plus brokerage commissions from the proceeds.
Stockholders who receive distributions in the form of stock are subject to the same Federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. A stockholder's basis for determining gain or loss upon the sale of stock received in a distribution from us will be equal to the total dollar amount of the distribution payable to the stockholder.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, and financial institutions. This summary assumes that investors hold our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this prospectus and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service regarding this offering. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.
A "U.S. stockholder" generally is a beneficial owner of shares of our common stock who is for U.S. federal income tax purposes:
>> a citizen or individual resident of the United States;
>> a corporation or other entity treated as a corporation, for U.S.
federal income tax purposes, created or organized in or under the laws
of the United States or any political subdivision thereof;
>> a trust or an estate, the income of which is subject to U.S. federal income taxation regardless of its source.
A "Non-U.S. stockholder" is a beneficial owner of shares of our common stock that is not a U.S. stockholder.
If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective stockholder that is a partner of a partnership holding shares of our common stock should consult its tax advisors with respect to the purchase, ownership and disposition of shares of our common stock.
Tax matters are very complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY
As a business development company, we intend to elect to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, we must distribute to our stockholders, for each taxable year, at least 90% of our "investment company taxable income," which is generally our ordinary income plus the excess of net realized short-term capital gains over net realized long-term capital losses (the "Annual Distribution Requirement").
TAXATION AS A REGULATED INVESTMENT COMPANY
If we:
>> qualify as a RIC; and
>> satisfy the Annual Distribution Requirement;
then we will not be subject to federal income tax on the portion of our investment company taxable income and net capital gain (i.e., net long-term capital gains in excess of net short-term capital losses) we distribute to stockholders, other than any built-in gain with respect to assets held by us prior to our qualification as a RIC, unless we make a special election to pay corporate-level tax on such gain recognized within 10 years after the effective date of our election to be treated as a RIC. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our stockholders.
We will be subject to a 4% nondeductible federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year (the "Excise Tax Avoidance Requirement"). We currently intend to make sufficient distributions each taxable year to satisfy the Excise Tax Avoidance Requirement.
In order to qualify as a RIC for federal income tax purposes, we must, among other things:
>> qualify as a business development company under the 1940 Act at all times during each taxable year;
>> derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities (the "90% Income Test"); and
>> diversify our holdings so that at the end of each quarter of the taxable year:
>> at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and
>> no more than 25% of the value of our assets is invested in the securities, other than U.S. Government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses (the "Diversification Tests").
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants), we
must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain "asset coverage" tests are met. See "Regulation -- Senior securities." Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our stockholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing the amount available to be distributed to our stockholders, and all of our distributions to our stockholders will be characterized as ordinary income (to the extent of our current and accumulated earnings and profits). In contrast, following the effective date of our election to be treated as a RIC, assuming we qualify as a RIC, our corporate-level federal income tax should be substantially reduced or eliminated, and, as explained below, a portion of our distributions or deemed distributions may be characterized as long-term capital gain in the hands of stockholders. From the date hereof through the date on which our election to be treated as a RIC becomes effective, we will continue to be taxed as an ordinary corporation under Subchapter C. See "Election to be taxed as a regulated investment company" above.
The remainder of this discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement.
TAXATION OF U.S. STOCKHOLDERS
Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our "investment company taxable income" (which is, generally, our ordinary income plus net short-term capital gains in excess of net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions generally will be eligible for a maximum tax rate of 15%. In this regard, it is anticipated that distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the 15% maximum rate. Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as "capital gain dividends" will be taxable to a U.S. stockholder as long-term capital gains at a maximum rate of 15% in the case of individuals, trusts or estates, regardless of the U.S. stockholder's holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder's adjusted tax basis in such stockholder's common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder.
Although we currently intend to distribute any long-term capital gains at least annually, we may in the future decide to retain some or all of our long-term capital gains, but designate the retained amount as a "deemed distribution." In that case, among other consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its share of the deemed distribution in income as if it had been actually distributed to the U.S.
stockholder, and the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. The amount of the deemed distribution net of such tax will be added to the U.S. stockholder's cost basis for his, her or its common stock. Since we expect to pay tax on any retained capital gains at our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder's other federal income tax obligations or may be refunded to the extent it exceeds a stockholder's liability for federal income tax. A stockholder that is not subject to federal income tax or otherwise required to file a federal income tax return would be required to file a federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a "deemed distribution."
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by our U.S. stockholders on December 31 of the year in which the dividend was declared.
If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of his, her or its investment.
A stockholder generally will recognize taxable gain or loss if the stockholder sells or otherwise disposes of his, her or its shares of our common stock. Any gain arising from such sale or disposition generally will be treated as capital gain or loss if the stockholder has held his, her or its shares for more than one year. Otherwise, it would be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition.
In general, individual U.S. stockholders currently are subject to a maximum federal income tax rate of 15% on their net capital gain, i.e., the excess of net long-term capital gain over net realized short-term capital loss for a taxable year, including a long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. Corporate U.S. stockholders currently are subject to federal income tax on net capital gain at the maximum 35% rate also applied to ordinary income. Non-corporate stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses for a year, but may carryback such losses for three years or carry forward such losses for five years.
We will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder's taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each year's distributions generally will be reported to the Internal Revenue Service (including the amount of dividends, if any, eligible for the 15% maximum rate). Distributions may also be subject to additional state, local, and foreign taxes depending on a U.S. stockholder's particular situation. Dividends distributed by us generally will not be eligible for the dividends-received deduction or the preferential rate applicable to qualifying dividends.
We may be required to withhold federal income tax ("backup withholding") currently at a rate of 28% from all taxable distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding, or (2) with respect to whom the IRS notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual's taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder's federal income tax liability, provided that proper information is provided to the IRS.
TAXATION OF NON-U.S. STOCKHOLDERS
Whether an investment in the shares is appropriate for a Non-U.S. stockholder will depend upon that person's particular circumstances. An investment in the shares by a Non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisors before investing in our common stock.
Distributions of our "investment company taxable income" to Non-U.S. stockholders (including interest income and net short-term capital gain, which generally would be free of withholding if paid to Non-U.S. stockholders directly) will be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current and accumulated earnings and profits unless the distributions are effectively connected with a U.S. trade or business of the Non-U.S. stockholder, and, if an income tax treaty applies, attributable to a permanent establishment in the United States, in which case the distributions will be subject to federal income tax at the rates applicable to U.S. persons. In that case, we will not be required to withhold federal tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements. Special certification requirements apply to a Non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisors. The cash dividend(s) we intend to pay to our stockholders representing all of our accumulated earnings and profits, if any, for the period from our inception through the effective date of our election to be treated as a RIC, generally will be taxable to Non-U.S. stockholders in the same manner as distributions of our investment company taxable income.
Actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains realized by a Non-U.S. stockholder upon the sale of our common stock, will not be subject to federal withholding tax and generally will not be subject to federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States.
If we distribute our net capital gains in the form of deemed rather than actual distributions (which we may do in the future), a Non-U.S. stockholder will be entitled to a federal income tax credit or tax refund equal to the stockholder's allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a federal income tax return. For a corporate Non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our common stock that are effectively connected to a U.S. trade or business may, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or at a lower rate if provided for by an applicable treaty). Accordingly, investment in the shares may not be appropriate for a Non-U.S. stockholder.
A Non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of federal tax, may be subject to information reporting and backup withholding of federal income tax on dividends unless the Non-U.S. stockholder provides us or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. stockholder or otherwise establishes an exemption from backup withholding.
Non-U.S. persons should consult their own tax advisors with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares.
FAILURE TO QUALIFY AS A RIC
If we were unable to qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions would be taxable to our stockholders as ordinary dividend income eligible for the 15% maximum rate to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder's tax basis, and any remaining distributions would be treated as a capital gain.
DESCRIPTION OF OUR CAPITAL STOCK
The following description is based on relevant portions of the Maryland General Corporation Law and on our charter and bylaws. This summary is not necessarily complete, and we refer you to the Maryland General Corporation Law and our charter and bylaws for a more detailed description of the provisions summarized below.
CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of stock, par value $.01 per share, all of which is initially designated as common stock. There is currently no market for our common stock, and we can offer no assurances that a market for our shares will develop in the future. We have applied to list our common stock on the Nasdaq National Market under the ticker symbol "________". There are no outstanding options or warrants to purchase our stock. No stock has been authorized for issuance under any equity compensation plans. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.
Under our charter, our board of directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our charter provides that the board of directors, without any action by our stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.
COMMON STOCK
All shares of our common stock have equal rights as to earnings, assets,
dividends and voting privileges and, when they are issued, will be duly
authorized, validly issued, fully paid and nonassessable. Distributions may be
paid to the holders of our common stock if, as and when authorized by our board
of directors and declared by us out of funds legally available for such
distributions. Shares of our common stock have no preemptive, conversion or
redemption rights and are freely transferable, except where their transfer is
restricted by federal and state securities laws or by contract. In the event of
a liquidation, dissolution or winding up of Technology Investment Capital, each
share of our common stock would be entitled to share ratably in all of our
assets that are legally available for distribution after we pay all debts and
other liabilities and subject to any preferential rights of holders of our
preferred stock, if any preferred stock is outstanding at such time. Each share
of our common stock is entitled to one vote on all matters submitted to a vote
of stockholders, including the election of directors. Except as provided with
respect to any other class or series of stock, the holders of our common stock
will possess exclusive voting power. There is no cumulative voting in the
election of directors, which means that holders of a majority of the outstanding
shares of common stock will elect all of our directors, and holders of less than
a majority of such shares will be unable to elect any director.
PREFERRED STOCK
Our charter authorizes our board of directors to classify and reclassify any
unissued shares of stock into other classes or series of stock, including
preferred stock. Prior to issuance of shares of each class or series, the board
of directors is required by Maryland law and by our charter to set the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each class or series. Thus, the board of directors
could authorize the issuance of shares of preferred stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control that might involve a premium price for
holders of our common stock or otherwise be in their best
interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two years or more. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a business development company. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION AND ADVANCE OF EXPENSES
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our charter contains such a provision which eliminates directors' and officers' liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made a party to the proceeding by reason of his service in that capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor.
Maryland law requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who has been
successful in the defense of any proceeding to which he or she is made a party
by reason of his or her service in that capacity. Maryland law permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1) was committed in
bad faith or (2) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, under Maryland law, a Maryland corporation may not indemnify
for an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that a personal benefit was improperly
received, unless in either case a court orders indemnification, and then only
for expenses. In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her
or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the standard of conduct was not
met.
PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND OUR CHARTER AND BYLAWS
The Maryland General Corporation Law and our charter and bylaws contain provisions that could make it more difficult for a potential acquiror to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. The initial terms of the first, second and third
classes will expire in 2004, 2005 and 2006, respectively. Beginning in 2004,
directors of each class will be chosen for three-year terms upon expiration of
their current terms and each year one class of directors will be elected by the
stockholders. A classified board may render a change in control of us or removal
of our incumbent management more difficult. We believe, however, that the longer
time required to elect a majority of a classified board of directors will help
to ensure the continuity and stability of our management and policies.
ELECTION OF DIRECTORS
Our charter and bylaws provide that the affirmative vote of the holders of a
majority of the outstanding shares of stock entitled to vote in the election of
directors will be required to elect a director. Pursuant to the charter, our
board of directors may amend the bylaws to alter the vote required to elect
directors.
NUMBER OF DIRECTORS; VACANCIES; REMOVAL
Our charter provides that the number of directors will be set only by the board
of directors in accordance with our bylaws. Our bylaws provide that a majority
of our entire board of directors may at any time increase or decrease the number
of directors. However, the number of directors may never be less than one nor
more than twelve. Our charter provides that, at such time as we have three
independent directors and our common stock is registered under the Exchange Act,
we elect to be subject to the provision of Subtitle 8 of Title 3 of the Maryland
General Corporation Law regarding the filling of vacancies on the board of
directors. Accordingly, at such time, except as may be provided by the board of
directors in setting the terms of any class or series of preferred stock, any
and all vacancies on the board of directors may be filled only by the
affirmative vote of a majority of the remaining directors in office, even if the
remaining directors do not constitute a quorum, and any director elected to fill
a vacancy will serve for the remainder of the full term of the directorship in
which the vacancy occurred and until a successor is elected and qualifies,
subject to any applicable requirements of the 1940 Act.
Under Maryland law, a director on a classified board may be removed only for cause and then only by the affirmative vote of at least a majority of the votes entitled to be cast in the election of directors.
ACTION BY STOCKHOLDERS
The Maryland General Corporation Law provides that stockholder action can be
taken only at an annual or special meeting of stockholders or by unanimous
written consent in lieu of a meeting. These provisions, combined with the
requirements of our bylaws regarding the calling of a stockholder-requested
special meeting of stockholders discussed below, may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND STOCKHOLDER PROPOSALS Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the board of directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by the board of directors or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the board of directors at a special meeting may be made only (1) pursuant to our notice of the meeting, (2) by the board of directors or (3) provided that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.
The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our board of directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
CALLING OF SPECIAL MEETINGS OF STOCKHOLDERS
Our bylaws provide that special meetings of stockholders may be called by our
board of directors and certain of our officers. Additionally, our bylaws provide
that, subject to the satisfaction of certain procedural and informational
requirements by the stockholders requesting the meeting, a special meeting of
stockholders will be called by the secretary of the corporation upon the written
request of stockholders entitled to cast not less than a majority of all the
votes entitled to be cast at such meeting.
APPROVAL OF EXTRAORDINARY CORPORATE ACTION; AMENDMENT OF CHARTER AND BYLAWS Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Under our charter, provided that at least 75% of our directors then in office have approved and declared the action advisable and submitted such action to the stockholders, our dissolution, an amendment to our charter that requires stockholder approval, a merger, or a sale of all or substantially all of our assets or a similar transaction outside the ordinary course of business, must be approved by the affirmative vote of stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. If an extraordinary matter submitted to stockholders by the board of directors is approved and advised by less than 75% of our directors, such matter will require approval by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter.
Our charter and bylaws provide that the board of directors will have the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws.
NO APPRAISAL RIGHTS
Except with respect to appraisal rights arising in connection with the Control
Shares Act discussed below, as permitted by the Maryland General Corporation
Law, our charter provides that stockholders will not be entitled to exercise
appraisal rights.
CONTROL SHARE ACQUISITIONS
The Maryland General Corporation Law provides that control shares of a Maryland
corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter (the "Control Share Act"). Shares owned by the acquiror, by
officers or by directors who are employees of the corporation are excluded from
shares entitled to vote on the matter. Control shares are voting shares of stock
which, if aggregated with all other shares of stock owned by the acquiror or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power:
>> one-tenth or more but less than one-third,
>> one-third or more but less than a majority, or
>> a majority or more of all voting power.
The requisite stockholder approval must be obtained each time an acquiror crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may repurchase for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to repurchase control shares is subject to certain conditions and limitations, including, as provided in our bylaws, compliance with the 1940 Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.
The Control Share Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Section 18(i) of the 1940 Act, which will apply to us when we become a business development company, provides that "every share of stock . . . issued by a registered management company . . . shall be a voting stock and have equal voting rights with every other outstanding voting stock." Thus, the 1940 Act prohibits a business development company from issuing a class of shares with voting rights that vary within the class. We interpret the Control Share Act as limiting the voting rights of holders within the specified percentages and not the voting rights of the shares themselves. Moreover, each holder would be equally subject to the Control Share Act. However, we are not aware of any judicial decision or SEC interpretation that addresses the issue of whether the Control Share Act conflicts with Section 18(i) of the 1940 Act. It is possible that the SEC or a court could find that the Control Share Act conflicts with the 1940 Act and, therefore, its provisions are unenforceable as to a business development company. The Control Share Act will apply to us, to the extent not in conflict with Section 18(i) of the 1940 Act.
BUSINESS COMBINATIONS
Under Maryland law, "business combinations" between a Maryland corporation and
an interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business combinations
include a merger, consolidation, share exchange or, in circumstances specified
in the statute, an asset transfer or issuance or reclassification of equity
securities. An interested stockholder is defined as:
>> any person who beneficially owns 10% or more of the voting power of the corporation's shares; or
>> an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.
A person is not an interested stockholder under this statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
>> 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
>> two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our board of directors has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the board of directors, including a majority of the directors who are not interested persons as defined in the 1940 Act. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or the board of directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
CONFLICT WITH 1940 ACT
Our bylaws provide that, if and to the extent that any provision of the Maryland
General Corporation Law, including the Control Share Act and the Business
Combination Act, or any provision of our charter or bylaws conflicts with any
provision of the 1940 Act, the applicable provision of the 1940 Act will
control.
REGULATION
We have filed an election to be regulated as a business development company under the 1940 Act and as a RIC under Subchapter M of the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than "interested persons," as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a business development company unless approved by a majority of our outstanding voting securities.
QUALIFYING ASSETS
Under the 1940 Act, a business development company may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company's total assets. The principal categories of qualifying assets relevant to our proposed business are the following:
(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company. An eligible portfolio company is defined in the 1940 Act as any issuer which:
(a) is organized under the laws of, and has its principal place of business in, the United States;
(b) is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and
(c) satisfies any of the following:
>> does not have any class of securities with respect to which a broker or dealer may extend margin credit;
>> is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or
>> is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.
(2) Securities of any eligible portfolio company which we control.
(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company and is in bankruptcy and subject to reorganization.
(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.
(6) Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment.
SIGNIFICANT MANAGERIAL ASSISTANCE
In addition, a business development company must have been organized and have
its principal place of business in the United States and must be operated for
the purpose of making investments in the types of securities described in (1),
(2) or (3) above. However, in order to count portfolio securities as qualifying
assets for the purpose of the 70% test, the business development company must
either control the issuer of the securities or must offer to make available to
the issuer of the securities (other than small and solvent companies described
above) significant managerial assistance; except that, where the business
development company purchases such securities in conjunction with one or more
other persons acting together, one of the other persons in the group may make
available such managerial assistance. Making available significant managerial
assistance means, among other things, any arrangement whereby the business
development company, through its directors, officers or employees, offers to
provide, and, if accepted, does so provide, significant guidance and counsel
concerning the management, operations or business objectives and policies of a
portfolio company.
TEMPORARY INVESTMENTS
Pending investment in other types of "qualifying assets," as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed upon future date and at a price which is greater than the
purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the Diversification Tests in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our investment adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions.
FUNDAMENTAL INVESTMENT POLICIES
The restrictions identified as fundamental below, along with our investment objective of seeking to maximize total return, are our only fundamental policies. Fundamental policies may not be changed without the approval of the holders of a majority of our outstanding voting securities, as defined in the 1940 Act. The percentage restrictions set forth below, as well as those contained elsewhere in this prospectus, other than the restriction pertaining to the issuance of senior securities, apply at the time a transaction is effected, and a subsequent change in a percentage resulting from market fluctuations or any cause will not require us to dispose of portfolio securities or to take other action to satisfy the percentage restriction.
As a matter of fundamental policy, we will not: (1) act as an underwriter of securities of other issuers (except to the extent that we may be deemed an "underwriter" of securities we purchase that must be registered under the Securities Act before they may be offered or sold to the public); (2) purchase or sell real estate or interests in real estate or real estate investment trusts (except that we may (A) purchase and sell real estate or interests in real estate in connection with the orderly liquidation of investments, or in connection with foreclosure on collateral, (B) own the securities of companies that are in the business of buying, selling or developing real estate or (C) finance the purchase of real estate by our portfolio companies); (3) sell securities short (except with regard to managing the risks associated with publicly-traded securities issued by our portfolio companies); (4) purchase securities on margin (except to the extent that we may purchase securities with borrowed money); or (5) engage in the purchase or sale of commodities or commodity contracts, including futures contracts (except where necessary in working out distressed loan or investment situations or in hedging the risks associated with interest rate fluctuations).
We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an "underwriter" as that term is defined in the Securities Act. Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly-traded securities of our portfolio companies, except that we may enter into hedging transactions to manage the risks associated with interest rate fluctuations. However, we may purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in connection with acquisition financing or other investment. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of more than one investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses.
SENIOR SECURITIES
We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes. For a discussion of the risks associated with the resulting leverage, see "Risk factors -- Risks relating to our business and structure -- Regulations governing our operation as a business development company will affect our ability to, and the way in which we, raise additional capital, which may expose us to risks, including the typical risks associated with leverage."
CODE OF ETHICS
We, BDC Management, BDC Partners and Hill Street Advisors have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code's requirements. For information on how to obtain a copy of each code of ethics, see "Available Information."
PROXY VOTING POLICIES AND PROCEDURES
We have delegated our proxy voting responsibility to our investment adviser, BDC Management. The Proxy Voting Policies and Procedures of BDC Management are set forth below. (The guidelines are reviewed periodically by BDC Management and our non-interested directors, and, accordingly, are subject to change.)
INTRODUCTION
As an investment adviser registered under the Investment Advisers Act of 1940,
BDC Management Company, LLC has a fiduciary duty to act solely in the best
interests of our clients. As part of this duty, we recognize that we must vote
client securities in a timely manner free of conflicts of interest and in the
best interests of our clients.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Investment Advisers Act of 1940.
PROXY POLICIES
These policies are designed to be responsive to the wide range of subjects that
may be the subject of a proxy vote. These policies are not exhaustive due to the
variety of proxy voting issues that we may be required to consider. In general,
we will vote proxies in accordance with these guidelines unless: (1) we have
determined to consider the matter on a case-by-case basis (as is stated in these
guidelines), (2) the subject matter of the vote is not covered by these
guidelines, (3) a material conflict of interest is present, or (4) we might find
it necessary to vote contrary to our general guidelines to maximize shareholder
value and vote in our clients' best interests. In such cases, a decision on how
to vote will be made by the Proxy Voting Committee (as described below). In
reviewing proxy issues, we will apply the following general policies:
ELECTIONS OF DIRECTORS: In general, we will vote in favor of the management-proposed slate of directors. If there is a proxy fight for seats on the Board or we determine that there are other compelling reasons for withholding votes for directors, the Proxy Voting Committee will determine the appropriate vote on the matter. We believe that directors have a duty to respond to shareholder actions that have received significant shareholder support. We may withhold votes for directors that fail to act on key issues such as failure to implement proposals to declassify boards, failure to implement a majority vote requirement, failure to submit a rights plan to a shareholder vote and failure to act on tender offers where a majority of shareholders have tendered their shares. Finally, we may withhold votes for directors of non-U.S. issuers where there is insufficient information about the nominees disclosed in the proxy statement.
APPOINTMENT OF AUDITORS: We believe that the company remains in the best position to choose the auditors and will generally support management's recommendation.
CHANGES IN CAPITAL STRUCTURE: Changes in a company's charter, articles of incorporation or by-laws may be required by state or federal regulation. In general, we will cast our votes in accordance with the company's management on such proposals. However, the Proxy Voting Committee will review and analyze on a case-by-case basis any proposals regarding changes in corporate structure that are not required by state or federal regulation.
CORPORATE RESTRUCTURINGS, MERGERS AND ACQUISITIONS: We believe proxy votes dealing with corporate reorganizations are an extension of the investment decision. Accordingly, the Proxy Voting Committee will analyze such proposals on a case-by-case basis.
PROPOSALS AFFECTING SHAREHOLDER RIGHTS: We will generally vote in favor of proposals that give shareholders a greater voice in the affairs of the company and oppose any measure that seeks to limit those rights. However, when analyzing such proposals we will weigh the financial impact of the proposal against the impairment of shareholder rights.
CORPORATE GOVERNANCE: We recognize the importance of good corporate governance in ensuring that management and the board of directors fulfill their obligations to the shareholders. We favor proposals promoting transparency and accountability within a company.
ANTI-TAKEOVER MEASURES: The Proxy Voting Committee will evaluate, on a case-by-case basis, proposals regarding anti-takeover measures to determine the measure's likely effect on shareholder value dilution.
STOCK SPLITS: We will generally vote with management on stock split matters.
LIMITED LIABILITY OF DIRECTORS: We will generally vote with management on matters that would affect the limited liability of directors.
SOCIAL AND CORPORATE RESPONSIBILITY: The Proxy Voting Committee may review and analyze on a case-by-case basis proposals relating to social, political and environmental issues to determine whether they will have a financial impact on shareholder value. We may abstain from voting on social proposals that do not have a readily determinable financial impact on shareholder value.
PROXY VOTING PROCEDURES
We will generally vote proxies in accordance with these guidelines. In
circumstances in which (1) we have determined to consider the matter on a
case-by-case basis (as is stated in these guidelines), (2) the subject matter of
the vote is not covered by these guidelines, (3) a material conflict of interest
is present, or (4) we might find it necessary to vote contrary to our general
guidelines to maximize shareholder value and vote in our clients' best
interests, the Proxy Voting Committee will vote the proxy.
PROXY VOTING COMMITTEE
We have formed a proxy voting committee to establish general proxy policies and
consider specific proxy voting matters as necessary. In addition, members of the
committee may contact management and interested shareholder groups as necessary
to discuss proxy issues. Members of the committee will include relevant senior
personnel. The committee may also evaluate proxies where we face a potential
conflict of interest (as discussed below). Finally, the committee monitors
adherence to guidelines, and reviews the policies contained in this statement
from time to time.
CONFLICTS OF INTEREST
We recognize that there may be a potential conflict of interest when we vote a
proxy solicited by an issuer that is our advisory client or a client or customer
of one of our affiliates or with whom we have another business or personal
relationship that may affect how we vote on the issuer's proxy. We believe that
adherence to these policies and procedures ensures that proxies are voted with
only our clients' best interests in mind. To ensure that our votes are not the
product of a conflict of interests, we require that: (i) anyone involved in the
decision making process (including members of the Proxy Voting Committee) to
disclose to the chairman of the Proxy Voting Committee any potential conflict
that he or she is aware of and any contact that he or she has had with any
interested party regarding a proxy vote; and (ii) employees involved in the
decision making process or vote administration are prohibited from revealing how
we intend to vote on a proposal in order to reduce any attempted influence from
interested parties.
PROXY VOTING
Each account's custodian will forward all relevant proxy materials to us, either
electronically or in physical form to the address of record that we have
provided to the custodian.
PROXY RECORDKEEPING
We must retain the following documents pertaining to proxy voting:
Copies of our proxy voting polices and procedures;
Copies of all proxy statements;
Records of all votes cast by us;
Copies of all documents created by us that were material to making a
decision how to vote proxies or that memorializes the basis for that decision;
Copies of all written client request for information with regard to how we
voted proxies on behalf of the client as well as any written responses
provided.
All of the above-referenced records will be maintained and preserved for a period of not less than five years from the end of the fiscal year during which the last entry was made. The first two years of records must be maintained at our office.
PROXY VOTING RECORDS
Clients may obtain information about how we voted proxies on their behalf by
making a written request for proxy voting information to: Compliance Officer,
BDC Management Company, LLC, 8 Sound Shore Drive, Suite 215, Greenwich, CT
06830.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, shares of our common stock will be outstanding, based on the number of shares outstanding on September , 2003, assuming no exercise of the underwriter's over-allotment option. Of these shares, shares of our common stock sold in this offering will be freely tradeable without restriction or limitation under the Securities Act, other than shares purchased by our affiliates. Any shares purchased in this offering by our affiliates will be subject to the public information, manner of sale and volume limitations of Rule 144 under the Securities Act of 1933.
SHARE REPURCHASES
Stockholders will not have the right to cause us to repurchase their shares. Although we will not offer to repurchase the stockholders' shares on a periodic basis, we may repurchase their shares if our board of directors deems it advisable. We may repurchase our shares under the 1940 Act: (1) on a securities exchange or such other open market as may be designated by the SEC (provided that we have, in any such case, informed holders of the class of stock involved within the preceding six months of our intention to repurchase such stock), (2) by a tender offer open to all holders of the class of shares involved or (3) as otherwise permitted by the SEC. If we intend to repurchase our shares other than on a securities exchange, in the open market or by making a tender offer, a rule adopted by the SEC under the 1940 Act provides that we must meet certain conditions regarding the distribution of our net income, the identity of the seller, the price paid, any brokerage commissions, prior notice to holders of the class of shares involved of an intention to purchase such shares and that the purchase is not being made in a manner or on a basis which discriminates unfairly against the other holders of such class.
Shares of closed-end investment companies frequently trade at discounts to net asset value, especially shortly after the completion of the initial public offering. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our shares will trade above, at or below net asset value. The market price of our common stock will be determined by, among other things, the supply and demand for our shares, our investment performance and investor perception of our overall attractiveness as an investment as compared with alternative investments. We cannot assure you that we will ever conduct any open market purchases and if we do conduct open market purchases, we may terminate them at any time. If we repurchase our shares for a price below their net asset value, the net asset value of those shares that remain outstanding would be enhanced. This does not necessarily mean, however, that the market price of those outstanding shares would be affected, either positively or negatively. Repurchases of shares by us would also decrease our total assets and accordingly may increase our expenses as a percentage of average net assets. Further, interest on any borrowings to finance any such share repurchase transactions would reduce our net income.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
Our securities are held under a custody agreement by State Street Bank and Trust Company. The address of the custodian is: One Heritage Drive, North Quincy, MA 02171. EquiServe, Inc. and EquiServe Trust Company, N.A. (collectively, the "Transfer Agent") will act as our transfer agent, dividend paying agent and registrar. The principal business address of the Transfer Agent is [525 Washington Boulevard, Jersey City, NJ 07310] [150 Royal Street, Canton, MA 02021].
BROKERAGE ALLOCATION AND OTHER PRACTICES
Since we will generally acquire and dispose of our investments in privately negotiated transactions, we will infrequently use brokers in the normal course of our business. Subject to policies established by our board of directors, the investment adviser will be primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and the allocation of brokerage commissions. The investment adviser does not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for Technology Investment Capital, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm's risk and skill in positioning blocks of securities. While the investment adviser will generally seek reasonably competitive trade execution costs, Technology Investment Capital will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, the investment adviser may select a broker based partly upon brokerage or research services provided to the investment adviser and Technology Investment Capital and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if the investment adviser determines in good faith that such commission is reasonable in relation to the services provided.
UNDERWRITING
We and the underwriters for this offering named below have entered into an underwriting agreement concerning the shares being offered. Subject to conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table and ___________ are the representatives of the underwriters.
UNDERWRITERS
UBS Securities LLC
Jefferies & Company, Inc. NUMBER OF SHARES
Legg Mason Wood Walker, Incorporated
Total..................................................................
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy up to ___ shares from
--
us, at the public offering price less the underwriting discount (sales load), to
cover these sales. If any shares are purchased under this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:
PAID BY US
-----------------------------------------------
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------------------- ---------------------
Per share..................................................... $ $
62
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Total.................................................... $ $
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We estimate that the total expenses of this offering payable by us, excluding the underwriting discount, will be approximately $________.
At our request, the underwriters have reserved up to ___________ shares of our common stock for sale, at the public offering price on the cover of this prospectus less the sales concession, to our directors, officers and employees and certain associated persons. The number of shares available for sale to the general public will be reduced to the extent such persons purchase these reserved shares. Any reserved shares not so purchased will be offered to the general public on the same terms as other shares are offered hereby.
Shares sold by the underwriters to the general public will initially be offered at the public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $_______ per share from the public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to $________ per share from the public offering price. If all the shares are not sold at the public offering price, the representatives may change the offering price and the other selling terms. Investors must pay for any shares purchased in the offering on or before_______, 2003.
We have agreed with the underwriters not to offer, sell, contract to sell, hedge or otherwise dispose of, directly or indirectly, any of our common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date ____ days after the date of this prospectus, without the prior written consent of _____________. Our executive officers and directors have also agreed to these restrictions.
In connection with this offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include stabilizing transactions, short sales and purchases to cover positions created by short sales. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering is in progress. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. Short sales may be either "covered short sales" or "naked short sales." Covered short sales are sales made in an amount not greater than the underwriters' over-allotment option to purchase additional shares in this offering. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned there may be downward pressure on the price of shares in the open market after pricing that could adversely affect investors who purchase in this offering.
The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of that underwriter in stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market or otherwise.
No underwriter is obligated to conduct market making activities in our common stock and any such activities may be discontinued at any time without notice, at the sole discretion of the underwriter. We have agreed to indemnify the several underwriters against some liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect thereof.
Some of the underwriters, their affiliates and executive officers have engaged in, and may in the future engage in, investment banking and other commercial dealings (including equity investing) in the ordinary course of business with some of our prospective portfolio companies and may in the future engage in investment banking and other commercial dealings in the ordinary course of business with us.
Royce & Associates is a wholly owned subsidiary of Legg Mason, Inc. Legg Mason Wood Walker, Incorporated, a wholly owned subsidiary of Legg Mason, Inc. is one of our underwriters.
LEGAL MATTERS
Certain legal matters regarding the securities offered by this prospectus will be passed upon for Technology Investment Capital by Shearman & Sterling LLP, New York, New York, and Venable, Baetjer and Howard LLP, Baltimore, Maryland. Shearman & Sterling LLP also represents BDC Management. Certain legal matters in connection with the offering will be passed upon for the underwriters by Sidley Austin Brown & Wood LLP, New York, New York.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP are the independent accountants of Technology Investment Capital.
AVAILABLE INFORMATION
Upon completion of this offering, we will file with or submit to the SEC reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC in Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-202-942-8090. Reports, proxy and information statements and other information filed electronically by us with the SEC are available on the SEC's Internet site at http://www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Until ______, 2003 (_____ days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
TECHNOLOGY INVESTMENT CAPITAL CORP.
To the Shareholder and Board of Directors of the Technology Investment Capital Corp.:
In our opinion, the accompanying statement of assets and liabilities presents fairly, in all material respects, the financial position of the Technology Investment Capital Corp. ("TICC") at September 19, 2003 in conformity with accounting principles generally accepted in the United States of America. This financial statement is the responsibility of TICC's management; our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with accounting principles generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
September 19, 2003
TECHNOLOGY INVESTMENT CAPITAL CORP
STATEMENT OF ASSETS AND LIABILITIES
September 19, 2003
ASSETS:
Cash $ 1,500
-------------
Total assets 1,500
-------------
LIABILITIES:
Accrued Organizational Expenses -
-------------
Net Assets (100 shares of beneficial interest issued and outstanding;
100,000,000 shares authorized) $ 1,500
=============
Net asset value per share $ 15.00
----------------------------------------------------------------------- =============
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Notes:
1. ORGANIZATION
Technology Investment Capital Corp. ("TICC") was organized as a Maryland corporation on July 21, 2003. TICC has had no operations other than the sale and issuance of 100 shares of beneficial interest at an aggregate purchase price of $1,500 to BDC Partners, LLC ("BDC Partners"), the managing member of BDC Management Company, LLC (the "Adviser").
2. ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Actual results could differ from these estimates.
3. AGREEMENTS
TICC has entered into an Investment Advisory Agreement with the Adviser, under which the Adviser, subject to the overall supervision of TICC's board of directors, will manage the day-to-day operations of, and provide investment advisory services to, TICC. For providing these services the Adviser will receive a fee from TICC, consisting of two components -- a base management fee and an incentive. The base management fee will be calculated at an annual rate of 2.00%. For services rendered under the Investment Advisory Agreement during the period commencing from the closing of this offering through and including March 31, 2004, the base management fee will be payable monthly in arrears, and will be calculated based on the initial value of TICC's net assets upon closing. For services rendered under the Investment Advisory Agreement after March 31, 2004, the base management fee will be payable quarterly in arrears, and will be calculated based on the average value of TICC's net assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances, repurchases or redemptions during the current calendar quarter. Base management fees for any partial month or quarter will be appropriately pro rated.
The incentive fee will have two parts, as follows: One part will be calculated and payable quarterly in arrears based on TICC's pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income earned during the calendar quarter, minus TICC's operating expenses for the quarter (including the base management fee and any interest expense and dividends paid on any issued and outstanding preferred stock, but
excluding the incentive fee). Pre-incentive fee net investment income includes any consulting or other fees that TICC receives from portfolio companies but does not include any net realized capital gains. Pre-incentive fee net investment income, expressed as a rate of return on the value of TICC's net assets at the end of the immediately preceding calendar quarter, will be compared to one-fourth of the applicable annual "hurdle rate." The Adviser will be entitled to 20.0% of the excess (if any) of TICC's pre-incentive fee net investment income for the quarter over one-fourth of the applicable annual hurdle rate. The annual hurdle rate will be a percentage equal to the interest rate payable, at the closing of this offering, on the most recently issued five-year U.S. Treasury Notes plus 5.0%). For each calendar year commencing on or after January 1, 2005, the annual hurdle rate will be determined as of the immediately preceding December 31st by adding 5.0% to the interest rate then payable on the most recently issued five-year U.S. Treasury Notes, up to a maximum annual hurdle rate of 10.0%. The calculations will be appropriately pro rated for any period of less than three months and adjusted for any share issuances, redemptions or repurchases during the current quarter.
The second part of the incentive fee will be determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commencing on December 31, 2004, and will equal 20.0% of our net realized capital gains for the calendar year less any net unrealized capital losses at the end of such year; provided that the incentive fee determined as of December 31, 2004 will take into account any capital gains and losses for the period ending December 31, 2003, if any.
TICC has also entered into an Administration Agreement with BDC Partners under which BDC Partners will provide administrative services for TICC. For providing these services, facilities and personnel, TICC will reimburse BDC Partners for TICC's allocable portion of overhead and other expenses incurred by BDC Partners in performing its obligations under the Administration Agreement, including rent.
The Advisor and TICC have entered into a Sub-advisory Agreement with Hill Street Advisors, LLC ("Subadviser") pursuant to which, subject to the oversight of TICC's Board and the Adviser, the Subadviser will recommend specific securities or other investments based upon TICC's investment objectives and policies and work along with the Adviser in structuring, negotiating, arranging and effecting the acquisition or disposition of such investments and monitoring such investments on TICC's behalf. The Subadviser's fees for its services will be paid by BDC Partners and not by TICC.
4. ORGANIZATIONAL EXPENSES
The Adviser has agreed to bear the organizational expenses on behalf of TICC in the approximate amount of $200,000. These expenses will be reimbursed by
TICC after the public offering and will be treated as an expense in the year incurred. In the event the public offering does not occur, the Adviser will not be able to recover the expenses.
5. FEDERAL INCOME TAXES
TICC intends to qualify for the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and, among other things, is required to make the requisite distributions to its shareholders which will relieve it from Federal income or excise taxes. Therefore, no provision has been recorded for Federal income or excise taxes.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements.
The following statements of Technology Investment Capital Corp. (the "Company" or the "Registrant") are included in Part A of this Registration Statement:
Balance Sheet of Registrant, dated as of _________________. ___
2. Exhibits
a. Articles of Incorporation**
b. Bylaws**
c. Not Applicable
d. Form of Share Certificate**
e. Dividend Reinvestment Plan*
f. Not Applicable
g.1. Investment Advisory Agreement between Registrant and BDC Management Company, LLC*
g.2. Sub-Advisory Agreement among Registrant, BDC Partners, LLC, BDC Management Company, LLC and Hill Street Advisors, LLC*
h. Form of Underwriting Agreement between Registrant and ____________________*
i. Not Applicable
j. Custodian Agreement between Registrant and State Street Bank and Trust Company*
k.1. Administration Agreement between Registrant and BDC Partners, LLC*
k.2. Transfer Agency and Service Agreement among Registrant, EquiServe Trust Company, N.A. and EquiServe, Inc.*
l. Opinion and Consent of Venable, Baetjer and Howard, LLP, special Maryland counsel for Registrant*
m. Not Applicable
n. Consent of PricewaterhouseCoopers LLP, independent auditors for Registrant**
o. Not Applicable
p. Not Applicable
q. Not Applicable
r. Codes of Ethics*
* To be filed by amendment. ** Filed herewith.
ITEM 25. MARKETING ARRANGEMENTS
The information contained under the heading "Underwriting" on page ___ of this Part A of this Registration Statement is incorporated herein by reference, and any information concerning any underwriters will be contained in the accompanying prospectus supplement, if any.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Commission registration fee $ *
---
[NASD] filing fee *
---
Nasdaq National Market Additional Listing Fee *
---
Accounting fees and expenses *
---
Legal fees and expenses *
---
Printing and engraving *
---
Miscellaneous fees and expenses *
---
Total $ *
---
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* To be provided by amendment.
All of the expenses set forth above shall be borne by the Company.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Immediately prior to this offering, BDC Partners, LLC, a Delaware limited liability company, will own 100 shares of the Registrant, representing 100% of the common stock outstanding. Following the completion of this offering, BDC Partners, LLC's share ownership is expected to represent less than 1% of the common stock outstanding.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the approximate number of record holders of the Company's common stock at September ___ , 2003.
Number of Record
Title of Class Holders
-------------- -------
Common stock, $ .01 par value 1
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ITEM 29. INDEMNIFICATION
Reference is made to Section 2-418 of the Maryland General Corporation Law, Article VIII of the Company's Articles of Incorporation, Article XI of the Company's Bylaws, the Investment Advisory Agreement, Sub-Advisory Agreement, Administration Agreement [and Underwriting Agreement].
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our charter contains such a provision which eliminates directors' and officers' liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.
Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made a party to the proceeding by reason of his service in that capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor.
Maryland law requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who has been
successful in the defense of any proceeding to which he or she is made a party
by reason of his or her service in that capacity. Maryland law permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (1) was committed in
bad faith or (2) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, under Maryland law, a Maryland corporation may not indemnify
for an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that a personal benefit was improperly
received, unless in either case a court orders indemnification, and then only
for expenses. In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her
or on his or her behalf to repay the amount paid or reimbursed by the
corporation if it is ultimately determined that the standard of conduct was not
met.
The Investment Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, BDC Management Company, LLC (the "Adviser") and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser's services under the Investment Advisory Agreement or otherwise as an investment adviser of the Company.
The Sub-Advisory Agreement provides that, absent willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations or duties, Hill Street Advisors, LLC ( and certain affiliates) is entitled to indemnification from the Company for any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) arising from the sub-adviser's services under the agreement or the sale of securities by the Company.
The Administration Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, BDC Partners, LLC and its officers, manager, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Company for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of BDC Partners, LLC's services under the Administration Agreement or otherwise as administrator for the Company.
The law also provides for comparable indemnification for corporate officers and agents.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or employment of a substantial nature in which the Adviser, and each managing director, director or executive officer of the Adviser, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the sections entitled "Management -- Directors and Executive Officers" and "-- Investment advisory agreement -- Investment personnel." [Additional information regarding the Adviser and its officers and directors is set forth in its Form ADV, as filed with the Securities and Exchange Commission (SEC File No. 801-62278), and is incorporated herein by reference.]
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules thereunder are maintained at the offices of:
(1) the Registrant, Technology Investment Capital Corp., 8 Sound Shore Drive, Suite 215, Greenwich, CT 06830;
(2) the Transfer Agent, EquiServe Trust Company, N.A. and EquiServe, Inc.,
[525 Washington Boulevard, Jersey City, NJ 07310][150 Royal Street,
Canton, MA 02021];
(3) the Custodian, State Street Bank and Trust Company, One Heritage Drive, North Quincy, MA 02171; and
(4) the Adviser, BDC Management Company, LLC, 8 Sound Shore Drive, Suite 215, Greenwich, CT 06830.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend the offering of shares until the
prospectus is amended if (1) subsequent to the effective date of its
registration statement, the net asset value declines more than ten percent from
its net asset value as of the effective date of the registration statement; or
(2) the net asset value increases to an amount greater than the net proceeds as
stated in the prospectus.
2. The Registrant undertakes that:
(a) For the purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Greenwich, in the State of Connecticut, on the 23 day of September, 2003.
TECHNOLOGY INVESTMENT CAPITAL CORP.
By: /s/ Jonathan H. Cohen
Jonathan H. Cohen
Chief Executive Officer, President and Director
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KNOW ALL MEN BY THESE PRESENT, each person whose signature appears below hereby constitutes and appoints Jonathan H. Cohen and Saul B. Rosenthal and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Registration Statement and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on September 23, 2003. This document may be executed by the signatories hereto on any number of counterparts, all of which constitute one and the same instrument.
Signature Title
--------- -----
/s/ Jonathan H. Cohen Chief Executive Officer, President
----------------------- and Director (Principal Executive Officer
Jonathan H. Cohen and Principal Financial and Accounting
Officer)
/s/ Steven P. Novak Director
-----------------------
Steven P. Novak
/s/ G. Peter O'Brien Director
-----------------------
G. Peter O'Brien
/s/ Tonia L. Pankopf Director
-----------------------
Tonia L. Pankopf
/s/ Charles M. Royce Chairman of the Board and Director
-----------------------
Charles M. Royce
|
EXHIBIT INDEX
a. Articles of Incorporation**
b. Bylaws**
c. Not Applicable
d. Form of Share Certificate**
e. Dividend Reinvestment Plan*
f. Not Applicable
g.1. Investment Advisory Agreement between Registrant and BDC Management Company, LLC*
g.2. Sub-Advisory Agreement among Registrant, BDC Partners, LLC, BDC Management Company, LLC and Hill Street Advisors, LLC*
h. Form of Underwriting Agreement between Registrant and ____________________*
i. Not Applicable
j. Custodian Agreement between Registrant and State Street Bank and Trust Company*
k.1. Administration Agreement between Registrant and BDC Partners, LLC*
k.2. Transfer Agency and Service Agreement among Registrant, EquiServe Trust Company, N.A. and EquiServe, Inc.*
l. Opinion and Consent of Venable, Baetjer and Howard, LLP, special Maryland counsel for Registrant*
m. Not Applicable
n. Consent of PricewaterhouseCoopers LLP, independent auditors for Registrant**
o. Not Applicable
p. Not Applicable
q. Not Applicable
r. Codes of Ethics*
* To be filed by amendment. ** Filed herewith.
TECHNOLOGY INVESTMENT CAPITAL CORP.
ARTICLES OF INCORPORATION
THIS IS TO CERTIFY THAT:
ARTICLE I
INCORPORATOR
The undersigned, Jonathan H. Cohen, whose address is 8 Sound Shore Drive, Suite 215, Greenwich, Connecticut 06830, being at least 18 years of age, does hereby form a corporation under the general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Technology Investment Capital Corp.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to conduct and carry on the business of a business development company, subject to making an election under the Investment Company Act of 1940, as amended (the "1940 Act"), and to engage in any lawful act or activity for which corporations may be organized under the general laws of the State of Maryland as now or hereafter in force.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 300 East Lombard Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in the State of Maryland is The Corporation Trust Incorporated. The post office address of the resident agent is 300 East Lombard Street, Baltimore, Maryland 21202.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number and Classification of Directors. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. The number of directors of the Corporation initially shall be one, which number may be increased or decreased only by the Board of Directors pursuant to the Bylaws, but shall never be less than the minimum number required by the Maryland General Corporation Law (the "MGCL"). The name of the director who shall serve until the first annual meeting of stockholders and until his successor is duly elected and qualifies is Jonathan H. Cohen.
The initial director may increase the number of directors and may fill any vacancy, whether resulting from an increase in the number of directors or otherwise, on the Board of Directors occurring before the first annual meeting of stockholders in the manner provided in the Bylaws.
The Corporation elects, at such time as Subtitle 8 of Title 3 of the MGCL becomes applicable to the Corporation, that, subject to applicable requirements of the 1940 Act
and except as may be provided by the Board of Directors in setting the terms of any class or series of Preferred Stock (as hereinafter defined), any and all vacancies on the Board of Directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which such vacancy occurred and until a successor is duly elected and qualifies.
On the first date on which the Corporation shall have more than one stockholder of record, the directors shall be classified, with respect to the terms for which they severally hold office, into three classes, as nearly equal in number as possible as determined by the Board of Directors, one class to hold office initially for a term expiring at the next succeeding annual meeting of stockholders, another class to hold office initially for a term expiring at the second succeeding annual meeting of stockholders and another class to hold office initially for a term expiring at the third succeeding annual meeting of stockholders, with the members of each class to hold office until their successors are duly elected and qualify. At each annual meeting of the stockholders, the successors to the class of directors whose term expires at such meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors are duly elected and qualify.
Section 5.2 Extraordinary Actions. Notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of the holders of shares entitled to cast a greater number of votes, any such action shall be effective and valid if declared advisable and approved by the Board of Directors, by the affirmative vote of 75% of the directors then in office, and taken or approved by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter.
Section 5.3 Election of Directors. Except as otherwise provided in the Bylaws of the Corporation, directors shall be elected by the affirmative vote of the holders of a majority of the shares of stock outstanding and entitled to vote thereon.
Section 5.4 Authorization by Board of Stock Issuance. The Board of Directors may authorize the issuance from time to time of shares of stock of the Corporation of any class or series, whether now or hereafter authorized, or securities or rights convertible into shares of its stock of any class or series, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable (or without consideration in the case of a stock split or stock dividend), subject to such restrictions or limitations, if any, as may be set forth in the charter or the Bylaws.
Section 5.5 Quorum. The presence in person or by proxy of the holders of shares of stock of the Corporation entitled to cast a majority of the votes entitled to be cast (without regard to class) shall constitute a quorum at any meeting of stockholders, except with respect to any such matter that, under applicable statutes or regulatory requirements, requires approval by a separate vote of one or more classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast a majority of the votes entitled to be cast by each such class on such a matter shall constitute a quorum.
Section 5.6 Preemptive Rights. Except as may be provided by the Board of Directors in setting the terms of classified or reclassified shares of stock pursuant to Section 6.4 or as may otherwise be provided by contract, no holder of shares of stock of the Corporation shall, as such holder, have any preemptive right to purchase or subscribe for any additional shares of stock of the Corporation or any other security of the Corporation which it may issue or sell.
Section 5.7 Appraisal Rights. No holder of stock of the Corporation shall be entitled to exercise the rights of an objecting stockholder under Title 3, Subtitle 2 of the MGCL or any successor provision thereto.
Section 5.8 Determinations by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its stock:
the amount of the net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its stock or the payment of other distributions on its stock; the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any other matter
relating to the business and affairs of the Corporation.
ARTICLE VI
STOCK
Section 6.1 Authorized Shares. The Corporation has authority to issue 100,000,000 shares of stock initially consisting of 100,000,000 shares of Common Stock, $.01
par value per share ("Common Stock"). The aggregate par value of all authorized shares of stock having par value is $1,000,000. If shares of one class of stock are classified or reclassified into shares of another class of stock pursuant to this Article VI, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes that the Corporation has authority to issue shall not be more than the total number of shares of stock set forth in the first sentence of this paragraph. A majority of the entire Board of Directors, without any action by the stockholders of the Corporation, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue.
Section 6.2 Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote. The Board of Directors may reclassify any unissued shares of Common Stock from time to time in one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may classify any unissued shares of stock and reclassify any previously classified but unissued shares of stock of any class or series from time to time, in one or more classes or series of preferred stock ("Preferred Stock").
Section 6.4 Classified or Reclassified Shares. Prior to issuance of classified or reclassified shares of any class or series, the Board of Directors by resolution shall: (a) designate that class or series to distinguish it from all other classes and series of stock of the Corporation; (b) specify the number of shares to be included in the class or series; (c) set or change, subject to the express terms of any class or series of stock of the Corporation outstanding at the time, the
preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series; and (d) cause the Corporation to file articles supplementary with the State Department of Assessments and Taxation of Maryland ("SDAT"). Any of the terms of any class or series of stock set or changed pursuant to clause (c) of this Section 6.4 may be made dependent upon facts or events ascertainable outside the charter (including determinations by the Board of Directors or other facts or events within the control of the Corporation) and may vary among holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of stock is clearly and expressly set forth in the articles supplementary filed with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the charter and the Bylaws. The Board of Directors of the Corporation shall have the exclusive power to make, alter, amend or repeal the Bylaws.
ARTICLE VII
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment to its charter, now or hereafter authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the charter, of any shares of outstanding stock. All rights and powers conferred by the charter on stockholders, directors and officers are granted subject to this reservation. Any amendment to Section 5.2 or to this sentence of the charter shall be valid
only if declared advisable by the Board of Directors and approved by the affirmative vote of two-thirds of all the votes entitled to be cast on the matter.
ARTICLE VIII
LIMITATION OF LIABILITY; INDEMNIFICATION AND ADVANCE OF EXPENSES
Section 8.1 Limitation of Liability. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers of a corporation, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages.
Section 8.2 Indemnification and Advance of Expenses. The Corporation
shall have the power, to the maximum extent permitted by Maryland law in effect
from time to time, to obligate itself to indemnify, and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to, (a) any
individual who is a present or former director or officer of the Corporation or
(b) any individual who, while a director of the Corporation and at the request
of the Corporation, serves or has served as a director, officer, partner or
trustee of another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise from and against
any claim or liability to which such person may become subject or which such
person may incur by reason of his status as a present or former director or
officer of the Corporation. The Corporation shall have the power, with the
approval of the Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Corporation or a predecessor of the Corporation.
Section 8.3 1940 Act. No provision of this Article VIII shall be effective to protect or purport to protect any director or officer of the Corporation against liability to the Corporation or its stockholders to which he or she would otherwise be subject by reason of willfulness misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Section 8.4 Amendment or Repeal. Neither the amendment nor repeal of this Article VIII, nor the adoption or amendment of any other provision of the charter or Bylaws inconsistent with this Article VIII, shall apply to or affect in any respect the applicability of the preceding sections of this Article VIII with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and acknowledge the same to be my act on this 21st day of July, 2003
/s/ Jonathan H. Cohen ---------------------- Jonathan H. Cohen Incorporator |
TECHNOLOGY INVESTMENT CAPITAL CORP.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation in the State of Maryland shall be located at such place as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices, including a principal executive office, at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the principal executive office of the Corporation or at such other place as shall be set by the Board of Directors and stated in the notice of the meeting.
Section 2. ANNUAL MEETING. Commencing with the 2004 annual meeting of stockholders of the Corporation, an annual meeting of the stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on a date and at the time set by the Board of Directors during the month of April of each year.
Section 3. SPECIAL MEETINGS.
(a) General. The Chairman of the Board, the president or the Board of
Directors may call a special meeting of the stockholders. Subject to subsection
(b) of this Section 3, a special meeting of stockholders shall also be called by
the secretary of the Corporation upon the written request of the stockholders
entitled to cast not less than a majority of all the votes entitled to be cast
at such meeting.
(b) Stockholder Requested Special Meetings. (1) Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary (the "Record Date Request Notice") by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the "Request Record Date"). The Record Date Request Notice shall set forth the purpose of the meeting and the matters proposed to be acted on at it, shall be signed by one or more stockholders of record as of the date of signature (or their duly authorized agents), shall bear the date of signature of each such stockholder (or such agent) and shall set forth all information relating to each such stockholder that must be disclosed in solicitations of proxies for election of directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case
pursuant to Regulation 14A (or any successor provision) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon receiving the Record Date Request Notice, the Board of Directors may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date and make a public announcement of such Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which the Record Date Request Notice is received by the secretary.
(2) In order for any stockholder to request a special meeting, one or more written requests for a special meeting signed by stockholders of record (or their duly authorized agents) as of the Request Record Date entitled to cast not less than a majority (the "Special Meeting Percentage") of all of the votes entitled to be cast at such meeting (the "Special Meeting Request") shall be delivered to the secretary. In addition, the Special Meeting Request shall set forth the purpose of the meeting and the matters proposed to be acted on at it (which shall be limited to the matters set forth in the Record Date Request Notice received by the secretary), shall bear the date of signature of each such stockholder (or such agent) signing the Special Meeting Request, shall set forth the name and address, as they appear in the Corporation's books, of each stockholder signing such request (or on whose behalf the Special Meeting Request is signed) and the class, series and number of all shares of stock of the Corporation which are owned by each such stockholder, and the nominee holder for, and number of, shares owned beneficially but not of record, shall be sent to the secretary by registered mail, return receipt requested, and shall be received by the secretary within 60 days after the Request Record Date. Any requesting stockholder may revoke his, her or its request for a special meeting at any time by written revocation delivered to the secretary.
(3) The secretary shall inform the requesting stockholders of the
reasonably estimated cost of preparing and mailing the notice of meeting
(including the Corporation's proxy materials). The secretary shall not be
required to call a special meeting upon stockholder request and such meeting
shall not be held unless, in addition to the documents required by subsection
(b)(2) of this Section 3, the secretary receives payment of such reasonably
estimated cost prior to the mailing of any notice of the meeting.
(4) Except as provided in the next sentence, any special meeting shall be held at such place, date and time as may be designated by the Chairman of the Board, the president or the Board of Directors, whoever has called the meeting. In the case of any special meeting called by the secretary upon the request of stockholders (a "Stockholder Requested Meeting"), such meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder Requested Meeting shall be not more than 90 days after the record date for such meeting (the "Meeting Record Date"); and provided further that if the Board of Directors fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the "Delivery Date"), a date and time for a Stockholder Requested Meeting, then such meeting shall be held at 2:00 p.m. local time on the 90th day after the Meeting Record Date or, if such 90th day is not a Business Day (as defined below), on the first preceding Business Day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder Requested Meeting within ten days after the Delivery
Date, then such meeting shall be held at the principal executive office of the Corporation. In fixing a date for any special meeting, the Chairman of the Board, the president or the Board of Directors may consider such factors as he, she or it deems relevant within the good faith exercise of business judgment, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for meeting and any plan of the Board of Directors to call an annual meeting or a special meeting. In the case of any Stockholder Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date.
(5) If written revocations of requests for the special meeting have been delivered to the Secretary and the result is that stockholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting to the Secretary, the Secretary shall: (i) if the notice of meeting has not already been mailed, refrain from mailing the notice of the meeting and send to all requesting stockholders who have not revoked such requests written notice of any revocation of a request for the special meeting, or (ii) if the notice of meeting has been mailed and if the Secretary first sends to all requesting stockholders who have not revoked requests for a special meeting written notice of any revocation of a request for the special meeting and written notice of the Secretary's intention to revoke the notice of the meeting, revoke the notice of the meeting at any time before ten days before the commencement of the meeting. Any request for a special meeting received after a revocation by the Secretary of a notice of a meeting shall be considered a request for a new special meeting.
(6) The Board of Directors, the Chairman of the Board or the president may appoint independent inspectors of elections to act as the agent of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported request shall be deemed to have been delivered to the secretary until the earlier of (i) five Business Days after receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the secretary represent at least the Special Meeting Percentage. Nothing contained in this subsection (6) shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
(7) For purposes of these Bylaws, "Business Day" shall mean any day other than a Saturday, a Sunday or other day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
Section 4. NOTICE OF MEETINGS. Written or printed notice of the purpose or purposes, in the case of a special meeting, and of the time and place of every meeting of the stockholders shall be given by the secretary of the Corporation to each stockholder of record entitled to vote at the meeting, by either placing the notice in the mail, delivering it by
overnight delivery service or transmitting the notice by electronic mail or any other electronic means at least ten days, but not more than 90 days, prior to the date designated for the meeting, addressed to each stockholder at such stockholder's address appearing on the books of the Corporation or supplied by the stockholder to the Corporation for the purpose of notice. The notice of any meeting of stockholders may be accompanied by a form of proxy approved by the Board of Directors in favor of the actions or persons as the Board of Directors may select. Notice of any meeting of stockholders shall be deemed waived by any stockholder who attends the meeting in person or by proxy or who before or after the meeting submits a signed waiver of notice that is filed with the records of the meeting.
Any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice of such meeting, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice of such meeting.
Section 5. ORGANIZATION AND CONDUCT. Every meeting of stockholders
shall be conducted by an individual appointed by the Board of Directors to be
chairman of the meeting or, in the absence of such appointment, by the Chairman
of the Board, if any, or, in the case of a vacancy in the office or absence of
the Chairman of the Board, by one of the following officers present at the
meeting: the Vice Chairman of the Board, if any, the president, any Vice
president, the secretary, the Treasurer or, in the absence of such officers, a
chairman chosen by the stockholders by the vote of a majority of the votes cast
by stockholders present in person or by proxy. The secretary or, in the
secretary's absence, an assistant secretary or, in the absence of both the
secretary and assistant secretaries, an individual appointed by the Board of
Directors or, in the absence of such appointment, an individual appointed by the
chairman of the meeting shall act as secretary. In the event that the secretary
presides at a meeting of the stockholders, an assistant secretary, or, in the
absence of assistant secretaries, an individual appointed by the Board of
Directors or the chairman of the meeting, shall record the minutes of the
meeting. The order of business and all other matters of procedure at any meeting
of stockholders shall be determined by the chairman of the meeting. The chairman
of the meeting may prescribe such rules, regulations and procedures and take
such action as, in the discretion of such chairman, are appropriate for the
proper conduct of the meeting, including, without limitation, (a) restricting
admission to the time set for the commencement of the meeting; (b) limiting
attendance at the meeting to stockholders of record of the Corporation, their
duly authorized proxies or other such individuals as the chairman of the meeting
may determine; (c) limiting participation at the meeting on any matter to
stockholders of record of the Corporation entitled to vote on such matter, their
duly authorized proxies or other such individuals as the chairman of the meeting
may determine; (d) limiting the time allotted to questions or comments by
participants; (e) maintaining order and security at the meeting; (f) removing
any stockholder or any other individual who refuses to comply with meeting
procedures, rules or guidelines as set forth by the chairman of the meeting; and
(g) recessing or adjourning the meeting to a later date and time and place
announced at the meeting. Unless otherwise determined by the chairman of the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
Section 6. QUORUM. The presence in person or by proxy of the holders of shares of stock of the Corporation entitled to cast a majority of the votes entitled to be cast (without regard to class) shall constitute a quorum at any meeting of the stockholders, except with respect to any such matter that, under applicable statutes or regulatory requirements, requires approval by a separate vote of one or more classes of stock, in which case the presence in person or by proxy of the holders of shares entitled to cast a majority of the votes entitled to be cast by each such class on such a matter shall constitute a quorum.
If, however, such quorum shall not be present at any meeting of the stockholders, the chairman of the meeting or the stockholders entitled to vote at such meeting, present in person or by proxy, shall have the power to adjourn the meeting from time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.
The stockholders present either in person or by proxy, at a meeting which has been duly called and convened, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 7. VOTING. Directors shall be elected by the affirmative vote of the holders of a majority of the shares of stock outstanding and entitled to vote thereon. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the charter of the Corporation. Unless otherwise provided in the charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders.
Section 8. PROXIES. A stockholder may cast the votes entitled to be cast by the shares of stock owned of record by the stockholder in person or by proxy executed by the stockholder or by the stockholder's duly authorized agent in any manner permitted by law. Such proxy or evidence of authorization of such proxy shall be filed with the secretary of the Corporation before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy.
Section 9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or other fiduciary may vote stock registered in his or her name as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification.
Section 10. INSPECTORS. The Board of Directors, in advance of any meeting, may, but need not, appoint one or more individual inspectors or one or more entities that designate individuals as inspectors to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the chairman of the meeting. The inspectors, if any, shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, and determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. Each such report shall be in writing and signed by him or her or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.
Section 11. ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER STOCKHOLDER PROPOSALS.
(a) Annual Meetings of Stockholders. (1) Nominations of individuals for
election to the Board of Directors and the proposal of other business to be
considered by the stockholders may be made at an annual meeting of stockholders
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record both at the time of giving of notice provided
for in this Section 11(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who has complied with this Section 11(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of subsection
(a)(1) of this Section 11, the stockholder must have given timely notice thereof
in writing to the secretary of the Corporation and such other business must
otherwise be a proper matter for action by the stockholders. To be timely, a
stockholder's notice shall set forth all information required under this Section
11 and shall be delivered to the secretary at the principal executive office of
the Corporation not less than 90 days nor more than 120 days prior to the first
anniversary of the date of mailing of the notice for the preceding year's annual
meeting; provided, however, that in the event that the date of the mailing of
the notice for the annual meeting is advanced or delayed by more than 30 days
from the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting, notice by the stockholder to be timely must be
so delivered not earlier than the 120th day prior to the date of mailing of the
notice for such annual meeting and not later than the close of business on the
later of the 90th day prior to the date of mailing of the notice for such annual
meeting or the tenth day following the day on which public announcement of the
date of mailing of the notice for such meeting is first made. In no event shall
the public announcement of a postponement or adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (i) as to each individual whom
the stockholder proposes to nominate for election or reelection as a director,
(A) the name, age, business address and residence address of such individual,
(B) the class, series and number of any shares of stock of the Corporation that
are beneficially owned by such individual and the date such shares were acquired
and the investment intent of such acquisition, (C) whether such stockholder
believes any such individual is, or is not, an "interested person" of the
Corporation, as defined in the Investment Company Act of 1940, as amended, and
the rules promulgated thereunder (the "Investment Company Act") and information
regarding such individual that is sufficient, in the discretion of the Board of
Directors or any committee thereof or any authorized officer of the Corporation,
to make such determination and (D) all other information relating to such
individual that is required to be disclosed in solicitations of proxies for
election of directors in an election contest (even if an election contest is not
involved), or is otherwise required, in each case pursuant to Regulation 14A (or
any successor provision) under the Exchange Act and the rules thereunder
(including such individual's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (ii) as to any
other business that the stockholder proposes to bring before the meeting, a
description of the business desired to be brought before the meeting, the
reasons for proposing such business at the meeting and any material interest in
such business of such stockholder and any Stockholder Associated Person (as
defined below), individually or in the aggregate, including any anticipated
benefit to the stockholder and any Stockholder Associated Person therefrom;
(iii) as to the stockholder giving the notice and any Stockholder Associated
Person, the class, series and number of all shares of stock of the Corporation
which are owned beneficially by such stockholder and by such Stockholder
Associated Person, if any, (iv) as to the stockholder giving the notice and any
Stockholder Associated Person covered by clauses (ii) or (iii) of this Section
11(a)(2), the name and address of such stockholder, as they appear on the
Corporation's stock ledger and current name and address, if different, and of
such Stockholder Associated Person and (v) to the extent known by the
stockholder giving the notice,
the name and address of any other stockholder supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder's notice.
(3) Notwithstanding anything in this Section 11(a) to the contrary, in the event the Board of Directors increases or decreases the number of directors in accordance with Article III, Section 2 of these Bylaws, and there is no public announcement of such action at least 100 days prior to the first anniversary of the date of mailing of the notice for the preceding year's annual meeting, a stockholder's notice required by this Section 11(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive office of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation.
(4) For purposes of this Section 11, "Stockholder Associated Person" of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder and (iii) any person controlling, controlled by or under common control with such Stockholder Associated Person.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 11 and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 11. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more individuals to the Board of Directors, any such stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation's notice of meeting, if the stockholder's notice required by subsection (a)(2) of this Section 11 shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of a postponement or adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above.
(c) General. (1) Upon written request by the secretary or the Board of Directors or any committee thereof, any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall provide, within five Business Days of delivery of such request (or such other period as may be specified in such request), written verification, satisfactory, in the discretion of the Board of Directors or any committee thereof or
any authorized officer of the Corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 11. If a stockholder fails to provide such written verification within such period, the information as to which written verification was requested may be deemed not to have been provided in accordance with this Section 11.
(2) Only such individuals who are nominated in accordance with this Section 11 shall be eligible for election as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with this Section 11. The chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with this Section 11.
(3) For purposes of this Section 11, (a) the "date of mailing of the notice" shall mean the date of the proxy statement for the solicitation of proxies for election of directors and (b) "public announcement" shall mean disclosure (i) in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or (ii) in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to the Exchange Act or the Investment Company Act.
(4) Notwithstanding the foregoing provisions of this Section 11, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 11. Nothing in this Section 11 shall be deemed to affect any right of a stockholder to request inclusion of a proposal in, nor the right of the Corporation to omit a proposal from, the Corporation's proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act.
Section 12. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order or any stockholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Directors may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than the minimum number required by the MGCL, nor more than 12, and further provided that the tenure of office of a director shall not be affected by any decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. Regular meetings of the Board of Directors shall be held from time to time at such places and times as provided by the Board of Directors by resolution, without notice other than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the chairman of the Board of Directors, the president or by a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them. The Board of Directors may provide, by resolution, the time and place for the holding of special meetings of the Board of Directors without notice other than such resolution.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors shall be delivered personally or by telephone, electronic mail, facsimile transmission, United States mail or courier to each director at his or her business or residence address. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by United States mail shall be given at least three days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which the director or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to the charter of the Corporation or these Bylaws, the vote of a majority of a particular group of directors is required for action, a quorum must also include a majority of such group.
The directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable statute or the charter. If enough directors have withdrawn from a meeting to leave less than a quorum but the meeting is not adjourned, the action of the majority of the directors still present at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable statute or the charter.
Section 8. ORGANIZATION. At each meeting of the Board of Directors, the chairman of the board or, in the absence of the chairman, the vice chairman of the board, if any, shall act as Chairman. In the absence of both the chairman and vice chairman of the board, the chief executive officer or in the absence of the chief executive officer, the president or in the absence of the president, a director chosen by a majority of the directors present, shall act as Chairman. The secretary or, in his or her absence, an assistant secretary of the Corporation, or in the absence of the secretary and all assistant secretaries, a person appointed by the Chairman, shall act as secretary of the meeting.
Section 9. TELEPHONE MEETINGS. Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time; provided however, this Section 9 does not apply to any action of the directors pursuant to the Investment Company Act, that requires the vote of the directors to be cast in person at a meeting. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 10. WRITTEN CONSENT BY DIRECTORS. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each director and such written consent is filed with the minutes of proceedings of the Board of Directors; provided however, this Section 10 does not apply to any action of the directors pursuant to the Investment Company Act, that requires the vote of the directors to be cast in person at a meeting.
Section 11. VACANCIES. If for any reason any or all the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder, if any. Pursuant to the Corporation's election in Article V of the charter, subject to applicable requirements of the Investment Company Act, except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, (a) any vacancy on the Board of Directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum and (b) any director elected to fill a vacancy shall serve for the remainder of the full term of the class in which the vacancy occurred and until a successor is elected and qualifies.
Section 12. COMPENSATION. Directors shall not receive any stated salary for their services as directors but, by resolution of the Board of Directors, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Corporation and for any service or activity they performed or engaged in as directors. Directors may be reimbursed for expenses of attendance, if any, at each annual,
regular or special meeting of the Board of Directors or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they performed or engaged in as directors; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.
Section 13. LOSS OF DEPOSITS. No director shall be liable for any loss which may occur by reason of the failure of the bank, trust company, savings and loan association, or other institution with whom moneys or stock have been deposited.
Section 14. SURETY BONDS. Unless required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his or her duties.
Section 15. RELIANCE. Each director, officer, employee and agent of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Corporation, upon an opinion of counsel or upon reports made to the Corporation by any of its officers or employees or by the adviser, accountants, appraisers or other experts or consultants selected by the Board of Directors or officers of the Corporation, regardless of whether such counsel or expert may also be a director.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint from among its members an Executive Committee, an Audit Committee, a Nominating Committee and other committees, composed of one or more directors, to serve at the pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees appointed under Section 1 of this Article any of the powers of the Board of Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board of Directors may designate a chairman of any committee, and such chairman or, in the absence of a chairman, any two members of any committee (if there are at least two members of the Committee) may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum,
may appoint another director to act in the place of such absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 5. WRITTEN CONSENT BY COMMITTEES. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing to such action is signed by each member of the committee and such written consent is filed with the minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members to replace any absent or disqualified member or to dissolve any such committee. Subject to the power of the Board of Directors, the members of the committee shall have the power to fill any vacancies on the committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chief executive officer, one or more vice presidents, a chief operating officer, a chief financial officer, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Directors may from time to time elect such other officers with such powers and duties as it shall deem necessary or desirable. The Board of Directors may designate a Chairman of the Board and a Vice Chairman of the Board, who shall not be officers of the Corporation but shall have such powers and duties as determined by the Board of Directors from time to time. The officers of the Corporation shall be elected annually by the Board of Directors, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries, assistant treasurers or other officers. Each officer shall hold office until his or her successor is elected and qualifies or until death, resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors if in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board of Directors, the chairman of the board, the president or the secretary. Any resignation shall take
effect immediately upon its receipt or at such later time specified in the notice of resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a chief executive officer. In the absence of such designation, the president shall be the chief executive officer of the Corporation. The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate a chief operating officer. The chief operating officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as set forth by the Board of Directors or the chief executive officer.
Section 7. PRESIDENT. In the absence of a designation of a chief executive officer by the Board of Directors, the president shall be the chief executive officer. He or she may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.
Section 8. VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to such vice president by the president or by the Board of Directors. The Board of Directors may designate one or more vice presidents as executive vice president or as vice president for particular areas of responsibility.
Section 9. SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have
general charge of the stock transfer books of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to him by the chief executive officer, the president or by the Board of Directors.
Section 10. TREASURER. The treasurer shall have the custody of the funds and securities of the Corporation and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. In the absence of a designation of a chief financial officer by the Board of Directors, the treasurer shall be the chief financial officer of the Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and Board of Directors, at the regular meetings of the Board of Directors or whenever it may so require, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, moneys and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.
Section 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the president or the Board of Directors. The assistant treasurers shall, if required by the Board of Directors, give bonds for the faithful performance of their duties in such sums and with such surety or sureties as shall be satisfactory to the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Corporation when authorized or ratified by action of the Board of Directors and executed by an authorized person.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES; REQUIRED INFORMATION. In the event that the Corporation issues shares of stock represented by certificates, such certificates shall be signed by the officers of the Corporation in the manner permitted by the MGCL and contain the statements and information required by the MGCL. In the event that the Corporation issues shares of stock without certificates, the Corporation shall provide to holders of such shares a written statement of the information required by the MGCL to be included on stock certificates.
Section 2. TRANSFERS WHEN CERTIFICATES ISSUED. Upon surrender to the Corporation or the transfer agent of the Corporation of a stock certificate duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock will be subject in all respects to the charter of the Corporation and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. The president, the secretary, the treasurer or any officer designated by the Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the Corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, an officer designated by the Board of Directors may, in his or her discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner's legal representative to advertise the same in such manner as he or she shall require and/or to give bond, with sufficient surety, to the Corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not longer than 20 days. If the stock transfer books are closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the stock transfer books are not closed for the determination of stockholders, (a) the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day on which the notice of meeting is mailed or the 30th day before the meeting, whichever is the closer date to the meeting; and (b) the record date for the determination of stockholders entitled to receive payment of a dividend or an allotment of any other rights shall be the close of business on the day on which the resolution of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any adjournment thereof, except when (i) the determination has been made through the closing of the transfer books and the stated period of closing has expired or (ii) the meeting is adjourned to a date more than 120 days after the record date fixed for the original meeting, in either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the charter or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized by the Board of Directors, subject to the provisions of law and the charter of the Corporation. Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine to be in the best interest of the Corporation, and the Board of Directors may modify or abolish any such reserve.
ARTICLE X
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the Corporation and the year of its incorporation and the words "Incorporated Maryland." The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.
ARTICLE XI
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law and the Investment Company Act, in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a
present or former director or officer of the Corporation and who is made a party to the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his or her service in that capacity. The Corporation may, with the approval of its Board of Directors, provide such indemnification and advance for expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Bylaws or charter of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.
No provision of this Article XI shall be effective to protect or purport to protect any director or officer of the Corporation against liability to the Corporation or its stockholders to which he or she would otherwise be subject by reason of willfulness misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIII
INSPECTION OF RECORDS
A stockholder who is otherwise eligible under the MGCL to inspect certain books and records of the Corporation shall have no right to inspect any such books and records if the Board of Directors determines that such stockholder has an improper purpose for such inspection.
ARTICLE XIV
INVESTMENT COMPANY ACT
If and to the extent that any provision of the MGCL, including, without limitation, Subtitles 6 and 7 of Title 3 of the MGCL, or any provision of the charter or these Bylaws conflicts with any provision of the Investment Company Act, the applicable provision of the Investment Company Act shall control.
ARTICLE XV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.
Number *0* Shares *0*
SEE REVERSE FOR IMPORTANT
NOTICE ON TRANSFER RESTRICTIONS
AND OTHER INFORMATION
TECHNOLOGY INVESTMENT CAPITAL CORP.
a Corporation Formed Under the Laws of the State of Maryland
THIS CERTIFIES THAT **Specimen**
is the owner of **Zero (0)**
fully paid and nonassessable shares of Common Stock, $.01 par value per share, of
TECHNOLOGY INVESTMENT CAPITAL CORP.
(the "Corporation") transferable on the books of the Corporation by the holder hereof in person or by its duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the charter of the Corporation (the "Charter") and the Bylaws of the Corporation and any amendments thereto. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed on its behalf by its duly authorized officers.
DATED __________________
Countersigned and Registered:
Transfer Agent ______________________________(SEAL)
and Registrar Jonathan H. Cohen, Chief Executive
Officer and President
By:______________________________ ____________________________________
Authorized Signature Saul B. Rosenthal, Chief Operating
Officer, Treasurer and Secretary
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IMPORTANT NOTICE
The Corporation will furnish to any stockholder, on request and without charge, a full statement of the information required by Section 2-211(b) of the Corporations and Associations Article of the Annotated Code of Maryland with respect to the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption of the stock of each class which the Corporation has authority to issue and, if the Corporation is authorized to issue any preferred or special class in series, (i) the differences in the relative rights and preferences between the shares of each series to the extent set, and (ii) the authority of the Board of Directors to set such rights and preferences of subsequent series. The foregoing summary does not purport to be complete and is subject to and qualified in its entirety by reference to the charter of the Corporation (the "Charter"), a copy of which will be sent without charge to each stockholder who so requests. Such request must be made to the Secretary of the Corporation at its principal office or to the Transfer Agent.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT___________ Custodian _______
TEN ENT - as tenants by the entireties (Custodian) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act of
survivorship and not as tenants
in common _______________________________
(State)
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Additional abbreviations may also be used though not in the above list.
____________________________ (______________) shares of Common Stock of the Corporation represented by this Certificate and does hereby irrevocably constitute and appoint ________________________________ attorney to transfer the said shares of Common Stock on the books of the Corporation, with full power of substitution in the premises.
Dated _______________________
EXHIBIT n
We hereby consent to the use in this Registration Statement on Form N-2 of our report dated September 19, 2003, relating to the financial of the Technology Investment Capital Corp., which appear in such Registration Statement. We also consent to the references to us under the headings "Report of Independent Accountants" and "Independent Accountants" in such Registration Statement.
/s/PricewaterhouseCoopers LLP Baltimore, Maryland September 19, 2003 |