

[Federal Register: March 13, 2007 (Volume 72, Number 48)]
[Notices]               
[Page 11408-11409]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr07-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27748; 812-13238]

 
Hercules Technology Growth Capital, Inc., et al.; Notice of 
Application

March 7, 2007.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order under sections 6(c), 
57(c), and 57(i) of the Investment Company Act of 1940 (the ``Act'') 
and rule 17d-1 thereunder granting exemptions from sections 18(a), 
57(a)(1), 57(a)(2) and 61(a) of the Act and permitting certain 
transactions otherwise prohibited by section 57(a)(4) of the Act.

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Summary of Application: Applicants, Hercules Technology Growth Capital, 
Inc. (``HTGC''), Hercules Technology II, L.P. (``HTII''), Hercules 
Technology SBIC Management, LLC (``HTM''), Hercules Funding I, LLC 
(``HFI'') and Hercules Funding Trust I (``HFT''), hereby apply for an 
order permitting a business development company and its wholly-owned 
subsidiaries to engage in certain transactions that otherwise would be 
permitted if the business development company and its subsidiaries were 
one company, and permitting the business development company to adhere 
to a modified asset coverage requirement.

Filing Dates: The application was filed on September 28, 2005 and 
amended on March 5, 2007.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on April 2, 2007, and should be accompanied by proof of service on 
applicants, in the form of an affidavit or, for lawyers, a certificate 
of service. Hearing requests should state the nature of the writer's 
interest, the reason for the request, and the issues contested. Persons 
who wish to be notified of a hearing may request notification by 
writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants, c/o Manuel A. 
Henriquez, Chairman, President and Chief Executive Officer, Hercules 
Technology Growth Capital, Inc., 525 University Avenue, Suite 700, Palo 
Alto, CA 94301.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 551-6868, or Nadya B. Roytblat, Assistant Director, at (202) 
551-6821 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee at the 
Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. HTGC, a Maryland corporation, is a closed-end, non-diversified 
management investment company that has elected to be regulated as a 
business development company (``BDC'') within the meaning of section 
2(a)(48) of the Act.\1\ HTGC is a specialty finance company that 
provides debt and equity capital to technology-related and life-science 
companies at all stages of development. HTGC's business and affairs are 
managed under the direction of its board of directors (``Board'').
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. HTII, a Delaware limited partnership and a wholly-owned 
subsidiary of HTGC, is a small business investment company (``SBIC'') 
licensed under the Small Business Administration (``SBA'') to operate 
under the Small Business Investment Act of 1958 (``SBIA''). HTII relies 
on section 3(c)(7) of the Act. HTM, a Delaware limited liability 
company and a wholly-owned subsidiary of HTGC, is the general partner 
and investment adviser to HTII. HTGC is the primary limited partner of 
HTII. Manuel A. Henriquez, an officer of HTGC, and H. Scott Harvey, an 
officer of HTGC, each have a nominal (0.001%) limited partnership 
investment in HTII pursuant to the advice of tax counsel in order to 
ensure that HTII is taxed as a partnership under the Internal Revenue 
Code of 1986, as amended. HFI, a Delaware limited liability company, 
and HFT, a Delaware statutory trust, and each wholly-owned subsidiary 
of HTGC, were created to facilitate debt financing collateralized by 
certain HTGC's investments. HFT relies on rule 3a-7 under the Act. HFT 
is a wholly-owned subsidiary of HFI.
    3. Applicants may in the future establish additional wholly-owned 
subsidiaries of HTGC, (together with HTII, HTM, HFI and HFT, 
``Subsidiaries''), private investment companies that rely on section 
3(c)(7) of the Act and some of which may be licensed by the SBA to 
operate under the SBIA as SBICs (together with HTII, ``SBIC 
Subsidiaries'').

Applicant's Legal Analysis

    1. Applicants request an exemption pursuant to sections 6(c), 57(c) 
and 57(i) of the Act and rule 17d-1 under the Act from the provisions 
of sections 18(a), 57(a)(1), 57(a)(2) and 61(a) of the Act to permit 
HTGC and the Subsidiaries to engage in certain transactions that 
otherwise would be permitted if HTGC and the Subsidiaries were one 
company and to permit HTGC to adhere a modified asset coverage 
requirement.
    2. Section 18(a) of the Act prohibits a registered closed-end 
investment company from issuing any class of senior security or selling 
any such security of which it is the issuer unless the company complies 
with the asset coverage requirements set forth in that section. Section 
61(a) of the Act makes section 18 applicable to BDCs, with certain 
modifications. Section 18(k) exempts an investment company operating as 
an SBIC from the asset coverage requirements for senior securities 
representing indebtedness that are contained in sections 18(a)(1)(A) 
and (B).
    3. Applicants state that a question exists as to whether HTGC must 
comply with the asset coverage requirements of Section 18(a) (as 
modified by Section 61(a)) solely on an individual basis or whether 
HTGC must also comply with the asset coverage requirements on a 
consolidated basis because HTGC may be deemed to be an indirect issuer 
of any class of senior securities issued by HTII or another SBIC 
Subsidiary. Applicants state that they wish to treat

[[Page 11409]]

HTII and other SBIC Subsidiaries as if each was a BDC subject to 
sections 18 and 61 of the Act. Applicants state that companies 
operating under the SBIA, such as HTII, will be subject to the SBA's 
substantial regulation of permissible leverage in its capital 
structure.
    4. Section 6(c) of the Act, in relevant part, permits the 
Commission to exempt any transaction or class of transactions from any 
provision of the Act if, and to the extent that, such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act. Applicants state that the requested relief 
satisfies the section 6(c) standard. Applicants contend that, to the 
extent that HTGC is entitled to rely on section 18(k) for an exemption 
from the asset coverage requirements of sections 18(a) and 61(a), there 
is no policy reason to deny the benefit of that exemption when HTGC 
consolidates its assets with those of HTII and other SBIC Subsidiaries 
for the purpose of compliance with those requirements.
    5. Sections 57(a)(1) and (2) of the Act generally prohibit, with 
certain exceptions, sales or purchases or other property between BDCs 
and certain of their affiliates as described in section 57(b) of the 
Act. Section 57(b) includes a person, directly or indirectly, either 
controlling, controlled by or under common control of the BDC. 
Applicants state that HTGC owns or will directly or indirectly own more 
than 99.9% of the voting securities of each Subsidiary and each 
Subsidiary is or will be under the common control of HTGC. Applicants 
further state that any purchase and sales between (a) HTGC and one or 
more Subsidiaries, (b) Subsidiaries and downstream controlled 
affiliates of HTGC and another Subsidiary and (c) HTGC and a controlled 
portfolio affiliate of a Subsidiary may be prohibited. Applicants 
submit that the requested relief is to the extent to permit HTGC and 
its Subsidiaries, all of whom are owned, directly or indirectly, by the 
shareholders of HTGC, to do that which they would otherwise would be 
permitted to do if they were one company.
    6. Section 57(c) provides that the Commission will exempt a 
proposed transaction from the terms of the proposed transactions, 
including the consideration to be paid or received, if they are 
reasonable and fair and do not involve overreaching of any person 
concerned, and the proposed transaction is consistent with the policy 
of the business development company concerned and the general purposes 
of the Act. Applicants submit that the requested relief meets this 
standard.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
persons of registered investment company, or an affiliated person of 
such person, acting as principal, from participating in any joint 
transaction or arrangement in which the registered company or a company 
it controls is a participant, unless the Commission has issued an order 
authorizing the arrangement. Section 57(a)(4) of the Act imposes 
substantially the same prohibitions on joint transactions involving 
BDCs and certain affiliates of their affiliates as described in section 
57(b). Section 57(i) of the Act provides that rules and regulations 
under sections 17(a) and (d) and rule 17d-1 will apply to transactions 
subject to section 57(a)(4) in the absence of rules under the section. 
The Commission has not adopted rules under section 57(a)(4) with 
respect to joint transactions and, accordingly, the standard set forth 
in rule 17d-1 governs applicants' request for relief.
    8. Applicants state that a joint transaction in which a Subsidiary 
and HTGC or another Subsidiary may be prohibited under section 57(a)(4) 
because HTGC would not be a controlled affiliate of the Subsidiaries. 
Applicants request relief under section 57(i) and rule 17d-1 to permit 
joint transactions in which the Subsidiaries to the extent that such 
transactions would not be prohibited if the Subsidiaries participating 
in the transactions were deemed to be part of HTGC and not separate 
companies.
    9. In determining whether to grant an order under section 57(i) and 
rule 17d-1, the Commission may consider whether the participation of 
the BDC in the joint transaction is consistent with the provisions, 
policies, and purposes of the Act to the extent to which such 
participation is on a basis different from or less advantageous than 
that of other participants in the transaction. Applicants state that 
the standard is satisfied because the requested relief would be simply 
to permit HTGC and its Subsidiaries to conduct their business as if 
they were one company.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Except for a nominal limited partnership interest in a 
Subsidiary to the extent necessary to accomplish the Subsidiary's 
taxation goals as described in this Application, HTGC will at all times 
be the sole limited partner of any Subsidiary and the sole owner of the 
Subsidiary's general partner, or otherwise own and hold beneficially, 
all of the outstanding voting securities or other equity interests in 
the Subsidiary.
    2. No person shall serve or act as investment adviser to HTII or 
another Subsidiary unless the HTGC Board and shareholders of HTGC have 
taken the action with respect thereto also required to be taken by the 
functional equivalent of the board of directors of HTII or another 
Subsidiary and shareholders of HTII or another Subsidiary as if HTII or 
another Subsidiary were a BDC.
    3. No person shall serve as managing member of HTM unless such 
person also shall be a member of the management of HTGC. The managing 
members of HTM will be elected or appointed by HTGC.
    4. HTGC will not issue or sell any senior security and HTGC will 
not cause or permit HTII or any other SBIC Subsidiary to issue or sell 
any senior security of which HTGC, HTII or any other SBIC Subsidiary is 
the issuer except to the extent permitted by section 18 (as modified 
for BDCs by section 61) of the Act; provided that immediately after 
issuance or sale by any HTGC, HTII or any other SBIC Subsidiary of any 
such senior security, HTGC individually and on a consolidated basis, 
shall have the asset coverage required by section 18(a) of the Act (as 
modified by section 61(a)), except that, in determining whether HTGC on 
a consolidated basis has the asset coverage required by section 18(a) 
of the Act (as modified by section 61(a)), any senior securities 
representing indebtedness of HTII or another SBIC Subsidiary shall not 
be considered senior securities and, for purposes of the definition of 
``asset coverage'' in section 18(h), will be treated as indebtedness 
not represented by senior securities.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4521 Filed 3-12-07; 8:45 am]

BILLING CODE 8010-01-P
