UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
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x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 |
TICC Capital Corp.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x | No fee required. |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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TICC CAPITAL CORP.
8 Sound Shore Drive, Suite 255
Greenwich, Connecticut 06830
May 4, 2010
Dear Stockholder:
You are cordially invited to attend the 2010 Annual Meeting of Stockholders of TICC Capital Corp. (the Company) to be held on June 16, 2010 at 10:00 a.m., Eastern Time, at the Companys corporate headquarters located at 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830.
The notice of annual meeting and proxy statement accompanying this letter provide an outline of the business to be conducted at the meeting. At the meeting, you will be asked to (i) elect one director of the Company, (ii) ratify the selection of PricewaterhouseCoopers LLP to serve as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2010, (iii) approve a proposal to authorize the Company to issue securities to subscribe to, convert to, or purchase shares of the Companys common stock in one or more offerings, and (iv) vote on a stockholder proposal.
It is important that your shares be represented at the annual meeting. If you are unable to attend the meeting in person, I urge you to complete, date and sign the enclosed proxy card and promptly return it in the envelope provided, vote your shares by telephone, or vote via the internet. Your vote is important.
Sincerely yours, |
Jonathan H. Cohen |
Chief Executive Officer |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on June 16, 2010.
Our proxy statement and annual report on Form 10-K for the year ended December 31, 2009 are available on the Internet at http://ticc.com/2010proxy.
The following information applicable to the Annual Meeting may be found in the proxy statement and accompanying proxy card:
| The date, time and location of the meeting; |
| A list of the matters intended to be acted on and our recommendations regarding those matters; |
| Any control/identification numbers that you need to access your proxy card; and |
| Information about attending the meeting and voting in person. |
TICC CAPITAL CORP.
8 Sound Shore Drive, Suite 255
Greenwich, Connecticut 06830
(203) 983-5275
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 2010
To the Stockholders of TICC Capital Corp.:
The 2010 Annual Meeting of Stockholders of TICC Capital Corp. (the Company) will be held at the Companys corporate headquarters located at 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830 on June 16, 2010, at 10:00 a.m., Eastern Time, for the following purposes:
1. To elect one director of the Company, who will serve for a term of three years, or until her successor is duly elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP to serve as the Companys independent registered public accounting firm for the Company for the fiscal year ending December 31, 2010;
3. To approve a proposal to authorize the Company to issue securities to subscribe to, convert to, or purchase shares of the Companys common stock in one or more offerings;
4. To vote on a stockholder proposal; and
5. To transact such other business as may properly come before the meeting.
You have the right to receive notice of and to vote at the meeting if you were a stockholder of record at the close of business on April 23, 2010. Whether or not you expect to be present in person at the meeting, please sign the enclosed proxy and return it promptly in the self-addressed envelope provided or register your vote by telephone or through the internet. Instructions are shown on the proxy card. In the event there are not sufficient votes for a quorum or to approve or ratify any of the foregoing proposals at the time of the annual meeting, the annual meeting may be adjourned in order to permit further solicitation of proxies by the Company.
By | Order of the Board of Directors, | |
Patrick F. Conroy | ||
Corporate Secretary |
Greenwich, Connecticut
May 4, 2010
This is an important meeting. To ensure proper representation at the meeting, please complete, sign, date and return the proxy card in the enclosed, self-addressed envelope, vote your shares by telephone, or vote via the internet. Even if you vote your shares prior to the meeting, you still may attend the meeting and vote your shares in person.
TICC CAPITAL CORP.
8 Sound Shore Drive, Suite 255
Greenwich, Connecticut 06830
(203) 983-5275
PROXY STATEMENT
2010 Annual Meeting of Stockholders
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of TICC Capital Corp. (the Company, TICC, we, us or our) for use at the Companys 2010 Annual Meeting of Stockholders (the Annual Meeting) to be held on June 16, 2010, at 10:00 a.m., Eastern Time, at the Companys corporate headquarters located at 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830, and at any postponements or adjournments thereof. This Proxy Statement, the accompanying proxy card and the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009 are first being sent to stockholders on or about May 4, 2010.
We encourage you to vote your shares, either by voting in person at the Annual Meeting or by granting a proxy (i.e., authorizing someone to vote your shares). If you properly sign and date the accompanying proxy card, or otherwise provide voting instructions, either via the internet or by telephone, and the Company receives it in time for the Annual Meeting, the persons named as proxies will vote the shares registered directly in your name in the manner that you specified. If you give no instructions on the proxy card, the shares covered by the proxy card will be voted FOR the election of the nominee as a director, AGAINST the stockholder proposal and FOR the other matters listed in the accompanying Notice of Annual Meeting of Stockholders.
If you are a stockholder of record (i.e., you hold shares directly in your name), you may revoke a proxy at any time before it is exercised by notifying the proxy tabulator, Broadridge Financial Solutions, Inc. (Broadridge), in writing, by submitting a properly executed, later-dated proxy, or by voting in person at the Annual Meeting. Please send your notification to TICC Capital Corp., c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717, and submit a properly executed, later-dated proxy or vote in person at the Annual Meeting. Any stockholder of record attending the Annual Meeting may vote in person whether or not he or she has previously voted his or her shares. If your shares are held for your account by a broker, bank or other institution or nominee (Broker Shares), you may vote such shares at the Annual Meeting only if you obtain proper written authority from your institution or nominee and present it at the Annual Meeting. All of our directors are encouraged to attend the Annual Meeting. All of our directors attended our 2009 Annual Meeting.
Stockholders of record may also vote either via the internet or by telephone. Specific instructions to be followed by stockholders of record interested in voting via the internet or the telephone are shown on the enclosed proxy card. The internet and telephone voting procedures are designed to authenticate the stockholders identity and to allow stockholders to vote their shares and confirm that their instructions have been properly recorded.
Purpose of Meeting
At the Annual Meeting, you will be asked to vote on the following proposals:
1. To elect one director of the Company, who will serve for a term of three years, or until her successor is duly elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP to serve as the Companys independent registered public accounting firm for the Company for the fiscal year ending December 31, 2010;
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3. To approve a proposal to authorize the Company to issue securities to subscribe to, convert to, or purchase shares of the Companys common stock in one or more offerings;
4. To vote on a stockholder proposal; and
5. To transact such other business as may properly come before the meeting.
Voting Securities
You may vote your shares, in person or by proxy, at the Annual Meeting only if you were a stockholder of record at the close of business on April 23, 2010 (the Record Date). On the Record Date, there were 26,874,923 shares of the Companys common stock outstanding. Each share of common stock is entitled to one vote.
Quorum Required
A quorum must be present at the Annual Meeting for any business to be conducted. The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum. Abstentions will be treated as shares present for quorum purposes. Broker Shares for which the nominee has not received voting instructions from the record holder and does not have discretionary authority to vote the shares on certain proposals (which are considered Broker Non-Votes with respect to such proposals) will be treated as shares present for quorum purposes.
If a quorum is not present at the Annual Meeting, the stockholders who are represented may adjourn the Annual Meeting until a quorum is present. The persons named as proxies will vote those proxies for such adjournment, unless marked to be voted against any proposal for which an adjournment is sought, to permit the further solicitation of proxies.
Vote Required
Election of Directors. The election of a director requires the affirmative vote of a majority of the outstanding shares of common stock. Stockholders may not cumulate their votes. If you vote Withhold Authority with respect to the nominee, your shares will not be voted with respect to the person indicated. Because directors are elected by a majority of the outstanding shares, abstentions and Broker Non-Votes will have the effect of a vote against this proposal.
Ratification of Independent Registered Public Accounting Firm. The affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy is required to ratify the appointment of PricewaterhouseCoopers LLP to serve as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2010. Abstentions and Broker Non-Votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.
Approval of Proposal to Authorize Issuance of Securities to Subscribe to, Convert to or Purchase Common Stock. The affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy is required to approve this proposal. Abstentions and Broker Non-Votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.
Stockholder Proposal. Approval of this proposal requires the affirmative vote of a majority of the outstanding voting securities as of the Record Date. For purposes of this proposal, the Investment Company Act of 1940 Act, as amended, or the 1940 Act, defines a majority of the outstanding voting securities as: (i) 67% or more of the voting securities present at the Annual Meeting if the holders of more than 50% of the outstanding voting securities of the Company are present or represented by proxy; or (ii) 50% of the outstanding voting securities of the Company, whichever is less. Abstentions and Broker Non-Votes will have the effect of a vote against this proposal.
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Additional Solicitation. If there are not enough votes to approve any proposals other than the stockholder proposal, which we refer to collectively as the Company Proposals, at the Annual Meeting, the stockholders who are represented may adjourn the Annual Meeting to permit the further solicitation of proxies. The persons named as proxies will vote those proxies for such adjournment, unless marked to be voted against any Company Proposal for which an adjournment is sought, to permit the further solicitation of proxies.
Also, a stockholder vote may be taken on one or more of the proposals in this Proxy Statement prior to any such adjournment if there are sufficient votes for approval thereof.
Information Regarding This Solicitation
The Company will bear the expense of the solicitation of proxies for the Annual Meeting, including the cost of preparing, printing and mailing this Proxy Statement, the accompanying Notice of Annual Meeting of Stockholders, and proxy card. We have requested that brokers, nominees, fiduciaries and other persons holding shares in their names, or in the name of their nominees, which are beneficially owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners. We will reimburse such persons for their reasonable expenses in so doing.
In addition to the solicitation of proxies by the use of the mails, proxies may be solicited in person and by telephone or facsimile transmission by directors, officers or employees of the Company (without special compensation therefor). The Company has also retained Georgeson Inc. to assist in the solicitation of proxies for a fee of approximately $15,000, plus reimbursement of certain out of pocket expenses. Any proxy given pursuant to this solicitation may be revoked by notice from the person giving the proxy at any time before it is exercised.
Any such notice of revocation should be provided in writing, signed by the stockholder in the same manner as the proxy being revoked and delivered to the Companys proxy tabulator.
The principal business address of both our investment adviser, TICC Management, LLC (TICC Management), and our administrator, BDC Partners, LLC (BDC Partners), is 8 Sound Shore Drive, Suite 255, Greenwich, CT 06830.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the Record Date, the beneficial ownership of each current director, the nominee for director, the Companys executive officers, each person known to us to beneficially own 5% or more of the outstanding shares of our common stock, and the executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (SEC) and includes voting or investment power with respect to the securities. Ownership information for those persons who beneficially own 5% or more of our shares of common stock is based upon Schedule 13G filings by such persons with the SEC and other information obtained from such persons, if available.
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Unless otherwise indicated, the Company believes that each beneficial owner set forth in the table has sole voting and investment power and has the same address as the Company. Our address is 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830.
Name and Address of Beneficial Owner |
Number of Shares Owned Beneficially(1) |
Percentage of Class(2) |
|||
Interested Directors |
|||||
Jonathan H. Cohen(3) |
288,772 | 1.07 | % | ||
Charles M. Royce |
228,169 | * | |||
Independent Directors |
|||||
Steven P. Novak |
12,201 | * | |||
G. Peter OBrien |
55,614 | * | |||
Tonia L. Pankopf |
7,524 | * | |||
Executive Officers |
|||||
Saul B. Rosenthal(3) |
86,325 | * | |||
Patrick F. Conroy |
31,605 | * | |||
Executive officers and directors as a group |
710,210 | 2.64 | % | ||
William C. Martin(4) |
1,678,021 | 6.24 | % |
* | Represents less than one percent. |
(1) | Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. |
(2) | Based on a total of 26,874,923 shares of the Companys common stock issued and outstanding on the Record Date. |
(3) | Includes 188 shares held by BDC Partners, which may be deemed to be beneficially owned by Messrs. Cohen and Rosenthal by virtue of their ownership interests therein. |
(4) | Based upon information contained in the Schedule 13D/A filed January 4, 2010 by William C. Martin, Raging Capital Management, LLC, Raging Capital Fund, LP and Raging Capital Fund (QP), LP. Pursuant to such Schedule 13D/A, Raging Capital Management, LLC is the general partner of Raging Capital Fund, LP and Raging Capital Fund (QP), LP. Mr. Martin is the managing member of Raging Capital Management, LLC. The address of each of William C. Martin, Raging Capital Management, LLC, Raging Capital Fund, LP and Raging Capital Fund (QP), LP is 254 Witherspoon Street, Princeton, NJ 08542. |
Set forth below is the dollar range of equity securities beneficially owned by each of our directors as of the Record Date. We are not part of a family of investment companies, as that term is defined in the 1940 Act.
Name of Director |
Dollar Range of Equity
Securities Beneficially Owned(1)(2) | |
Interested Directors |
||
Jonathan H. Cohen |
Over $100,000 | |
Charles M. Royce |
Over $100,000 | |
Independent Directors |
||
Steven P. Novak |
$50,001 - $100,000 | |
G. Peter OBrien |
Over $100,000 | |
Tonia L. Pankopf |
$50,001 - $100,000 |
(1) | The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or Over $100,000. |
(2) | The dollar range of equity securities beneficially owned in us is based on the closing price for our common stock of $7.15 on the Record Date on the NASDAQ Global Select Market. Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Securities Exchange Act of 1934. |
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PROPOSAL I: ELECTION OF DIRECTORS
Pursuant to the Companys bylaws, the number of directors is set at five unless otherwise designated by the Board of Directors. Directors are elected for a staggered term of three years each, with a term of office of one of the three classes of directors expiring each year. Each director will hold office for the term to which he or she is elected or until his or her successor is duly elected and qualified.
Ms. Tonia L. Pankopf has been nominated for election for a three-year term expiring in 2013. Ms. Pankopf is not being proposed for election pursuant to any agreement or understanding between Ms. Pankopf and the Company.
A stockholder can vote for or withhold his or her vote from the nominee. In the absence of instructions to the contrary, it is the intention of the persons named as proxies to vote such proxy FOR the election of the nominee named below. If the nominee should decline or be unable to serve as a director, it is intended that the proxy will vote for the election of such person as is nominated by the Board of Directors as a replacement. The Board of Directors has no reason to believe that the person named above will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE NOMINEE NAMED IN THIS PROXY STATEMENT.
Information about the Nominee and Directors
As described below under Committees of the Board of DirectorsNominating and Corporate Governance Committee, the Board of Directors has identified certain desired talents and experience for director nominees. Each of our directors and the director nominee has demonstrated high character and integrity; the knowledge, skills and experience necessary to be able to offer advice and guidance to our management in light of prevailing business conditions; familiarity with national and international business matters; experience with accounting rules and practices; appreciation of the relationship of our business to the changing needs of society; and the desire to balance the considerable benefit of continuity with the periodic injection of fresh perspective. Each of our directors and the director nominee also has sufficient time available to devote to the affairs of the Company, is able to work with the other members of the Board of Directors and contribute to the success of the Company and can represent the long-term interests of the Companys stockholders as a whole. Our directors and the director nominee have been selected such that the Board of Directors represents a range of backgrounds and experience.
Certain information, as of the Record Date, with respect to the nominee for election at the Meeting, as well as each of the current directors, is set forth below, including their names, ages, a brief description of their recent business experience, including present occupations and employment, certain directorships that each person holds, the year in which each person became a director of the Company, and a discussion of their particular experience, qualifications, attributes or skills that lead us to conclude, as of the Record Date, that such individual should serve as a director of the Company, in light of the Companys business and structure.
The business address of each nominee and the directors listed below is 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830.
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Nominee for Director
Ms. Pankopf is not an interested person as defined in the 1940 Act.
Name and Year First Elected Director |
Age |
Background Information | ||
Tonia L. Pankopf (2003) |
42 | Ms. Pankopf is managing partner of Pareto Advisors, LLC. Previously, she was a senior analyst and managing director at Palladio Capital Management from January 2004 through April 2005. She previously served as an analyst and portfolio manager with P.A.W. Capital Partners, LP from 2001 to July 2003. Ms. Pankopf was a senior analyst and vice president at Goldman, Sachs & Co. from 1999 to 2001 and at Merrill Lynch & Co. from 1998 to 1999. Ms. Pankopf currently serves on the Board of Directors of the University System of Maryland Foundation. Ms. Pankopf is a member of the National Association of Corporate Directors and holds an ISS Accredited Certificate of Director Education. Ms. Pankopfs extensive experience in investment research and analysis of mid-market and technology companies provides the Board of Directors with valuable insights of an experienced and diligent financial and investment manager, as well as a diverse perspective. |
Current Directors
Interested Directors
Mr. Cohen is an interested person of TICC as defined in the 1940 Act due to his position as Chief Executive Officer of the Company and TICC Management, the Companys investment adviser, and as the managing member of BDC Partners, the managing member of TICC Management. Mr. Royce is an interested person due to his relationship with the Companys investment adviser, TICC Management.
Name and Year First Elected Director |
Term |
Age |
Background Information | |||
Jonathan H. Cohen (2003) |
2012 | 45 | Mr. Cohen has served as Chief Executive Officer of both TICC and TICC Management, and as the managing member of BDC Partners, since 2003. In addition, Mr. Cohen has served since 2005 as the Chief Executive Officer of T2 Advisers, LLC, which serves as the investment adviser to Greenwich Loan Income Fund Limited (f/k/a T2 Income Fund Limited) (GLIF), a Guernsey fund established and operated for the purpose of investing in bilateral transactions and syndicated loans across a variety of industries globally. Mr. Cohen was also the owner, Managing Member, and a Principal of JHC Capital Management, a registered investment adviser, and was previously a Managing Member and Principal of Privet Financial Securities, LLC, a registered broker-dealer, from 2003 to 2004. 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. Mr. Cohens depth of experience in managerial positions in investment management, securities research and financial services, as well as his intimate knowledge of the Companys business and operations, gives the Board of Directors valuable industry-specific knowledge and expertise on these and other matters. |
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Name and Year First Elected Director |
Term |
Age |
Background Information | |||
Charles M. Royce (2003) |
2011 | 70 | Mr. Royce has served as Chairman of our Board of Directors since 2003. Mr. Royce became President and Chief Investment Officer in 1972, and a member of the Board of Managers in 2001, of Royce & Associates. He also manages or co-manages ten of Royce & Associates open- and closed-end registered funds. Mr. Royce serves on the Board of Directors of The Royce Funds. Mr. Royces history with the Company, familiarity with its investment platform, and extensive knowledge of the financial services industry and the investment valuation process in particular qualify him to serve as the Chairman of our Board of Directors. |
Independent Directors
The following directors are not interested persons as defined in the 1940 Act.
Name and Year First Elected Director |
Term |
Age |
Background Information | |||
Steven P. Novak (2003) |
2011 | 62 | Mr. Novak currently serves as Chairman of the Board of Directors of Mederi Therapeutics Inc., an early stage medical device company, and serves as Chairman of the Board of Directors of Aperio Technologies Inc., the leading vendor of digital pathology systems to the healthcare and life sciences markets. Mr. Novak also serves on the Board of Directors of CyberSource Corporation, a publicly traded Internet based epayments processor company, where he serves as the Lead Independent Director and Chairman of the Nominating Committee. Mr. Novak previously served as President of Palladio Capital Management, LLC and as the Principal and Managing Member of the General Partner of Palladio Partners, LP, an equities hedge fund, from July 2002 until July 2009. Prior to founding Palladio Partners, LP, Mr. Novak was a Managing Director of C.E. Unterberg, Towbin from February 1993 through December 2001. Mr. Novaks financial expertise from his experience as a financial manager and varied roles on the boards of both publicly-traded and privately-held companies provides the Companys Board of Directors with particular technology-related knowledge and the perspective of a knowledgeable corporate leader. | |||
G. Peter OBrien (2003) |
2012 | 64 | Mr. OBrien is currently a member of the Board of Directors of Hill House, Inc., a congregate care facility for low income elderly residents, and a member of the Board of Directors of the Bridges School. Mr. OBrien serves on the Board of Directors of the Legg Mason Family of Mutual Funds and The Royce Funds. Mr. OBrien was a member of the Board of Trustees of Colgate University from May 1996 to May 2005. Mr. OBrien retired as a Managing Director of Merrill Lynch & Co. in 1999 after working in the equity capital markets area since he joined Merrill Lynch & Co. in 1971. Mr. OBriens extensive familiarity with the financial industry and the investment management process in particular, and experience as a director of other publicly-traded and privately-held companies, provides the Companys Board of Directors with valuable insight and perspective. |
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Information about Executive Officers Who Are Not Directors
The following information, as of the Record Date, pertains to our executive officers who are not directors of the Company. Certain of our executive officers serve as directors of, or on the board of managers of, certain of our portfolio companies.
Name |
Age |
Background Information | ||
Saul B. Rosenthal |
41 | Mr. Rosenthal has served as Chief Operating Officer since 2003 and President since 2004 of TICC and TICC Management, and is a member of BDC Partners. In addition, Mr. Rosenthal has also served since 2005 as the President of T2 Advisers, LLC, which serves as investment adviser for GLIF, a Guernsey fund established and operated for the purpose of investing in bilateral transactions and syndicated loans across a variety of industries globally. Mr. Rosenthal was previously President of Privet Financial Securities, LLC, a registered broker-dealer, from 2003 to 2004. Mr. Rosenthal serves on the board of Algorithmic Implementations, Inc. (d/b/a Ai Squared) and is a member of the board of the New York chapter of the Young Presidents Organization (YPO-WPO). | ||
Patrick F. Conroy |
53 | Mr. Conroy has served as the Chief Financial Officer since 2003, and the Chief Compliance Officer and Corporate Secretary since 2004 of TICC, TICC Management, and BDC Partners. Mr. Conroy has served as the Treasurer of TICC Management and BDC Partners since 2004, and previously served as the Treasurer of TICC from 2004 to 2009. He joined the Company in December 2003, and was previously a consultant on financial reporting and compliance matters, as well as an adjunct professor of accounting and finance at St. Thomas Aquinas College. Mr. Conroy has also served since 2005 as the Chief Financial Officer of T2 Advisers, LLC and the Chief Financial Officer of GLIF, a Guernsey fund established and operated for the purpose of investing in bilateral transactions and syndicated loans across a variety of industries globally, for which T2 Advisers, LLC serves as investment adviser. He is a certified public accountant. |
Director Independence
In accordance with rules of the NASDAQ Stock Market, our Board of Directors annually determines each directors independence. We do not consider a director independent unless the Board of Directors has determined that he or she has no material relationship with us. We monitor the relationships of our directors and officers through a questionnaire each director completes no less frequently than annually and updates periodically as information provided in the most recent questionnaire changes.
In order to evaluate the materiality of any such relationship, the Board of Directors uses the definition of director independence set forth in the rules promulgated by the NASDAQ Stock Market. Rule 5605(a)(2) provides that a director of a business development company (BDC), shall be considered to be independent if he or she is not an interested person of the Company, as defined in Section 2(a)(19) of the 1940 Act.
The Board of Directors has determined that each of the directors is independent and has no relationship with us, except as a director and stockholder, with the exception of Jonathan H. Cohen, as a result of his position as the Companys Chief Executive Officer, and Charles M. Royce, as a result of his position as President and Chief Investment Officer of Royce & Associates, the non-managing member of the Companys investment adviser, TICC Management.
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Board Leadership Structure
Our Board of Directors monitors and performs an oversight role with respect to the business and affairs of the Company, including with respect to investment practices and performance, compliance with regulatory requirements and the services, expenses and performance of service providers to the Company. Among other things, our Board of Directors approves the appointment of our investment adviser and officers, reviews and monitors the services and activities performed by our investment adviser and executive officers and approves the engagement, and reviews the performance of, our independent registered public accounting firm.
Under the Companys bylaws, our Board of Directors may designate a Chairman to preside over the meetings of the Board of Directors and meetings of the stockholders and to perform such other duties as may be assigned to him by the Board of Directors. We do not have a fixed policy as to whether the Chairman of the Board of Directors should be an independent director and believe that we should maintain the flexibility to select the Chairman and reorganize the leadership structure, from time to time, based on the criteria that is in the best interests of the Company and its stockholders at such times.
Presently, Mr. Royce serves as the Chairman of our Board of Directors. Mr. Royce is an interested person of the Company as defined in Section 2(a)(19) of the 1940 Act as a result of his position as President and Chief Investment Officer of Royce & Associates, the non-managing member of the Companys investment adviser, TICC Management. We believe that Mr. Royces history with the Company, familiarity with its investment platform, and extensive knowledge of the financial services industry and the investment valuation process in particular qualify him to serve as the Chairman of our Board of Directors. We believe that the Company is best served through this existing leadership structure, as Mr. Royces relationship with the Companys investment adviser provides an effective bridge and encourages an open dialogue between management and the Board of Directors, ensuring that these groups act with a common purpose.
Our Board of Directors does not currently have a designated lead independent director. We are aware of the potential conflicts that may arise when a non-independent director is Chairman of the Board of Directors, but believe these potential conflicts are offset by our strong corporate governance policies. Our corporate governance policies include regular meetings of the independent directors in executive session without the presence of interested directors and management, the establishment of Audit and Nominating and Corporate Governance Committees comprised solely of independent directors and the appointment of a Chief Compliance Officer, with whom the independent directors meet regularly without the presence of interested directors and other members of management, for administering our compliance policies and procedures.
We recognize that different board leadership structures are appropriate for companies in different situations. We re-examine our corporate governance policies on an ongoing basis to ensure that they continue to meet the Companys needs.
Boards Role In Risk Oversight
Our Board of Directors performs its risk oversight function primarily through (i) its three standing committees, which report to the entire Board of Directors and are comprised solely of independent directors, and (ii) active monitoring of our Chief Compliance Officer and our compliance policies and procedures.
As described below in more detail under Committees of the Board of Directors, the Audit Committee, the Valuation Committee and the Nominating and Corporate Governance Committee assist the Board of Directors in fulfilling its risk oversight responsibilities. The Audit Committees risk oversight responsibilities include overseeing the Companys accounting and financial reporting processes, the Companys systems of internal controls regarding finance and accounting, and audits of the Companys financial statements. The Valuation Committees risk oversight responsibilities include establishing guidelines and making recommendations to our Board of Directors regarding the valuation of our loans and investments. The Nominating and Corporate Governance Committees risk oversight responsibilities include selecting, researching and nominating directors for election by our stockholders, developing and recommending to the Board of Directors a set of corporate governance principles and overseeing the evaluation of the Board of Directors and our management.
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Our Board of Directors also performs its risk oversight responsibilities with the assistance of the Companys Chief Compliance Officer. The Board of Directors annually reviews a written report from the Chief Compliance Officer discussing the adequacy and effectiveness of the compliance policies and procedures of the Company and its service providers. The Chief Compliance Officers annual report addresses at a minimum (i) the operation of the compliance policies and procedures of the Company and its service providers since the last report; (ii) any material changes to such policies and procedures since the last report; (iii) any recommendations for material changes to such policies and procedures as a result of the Chief Compliance Officers annual review; and (iv) any compliance matter that has occurred since the date of the last report about which the Board of Directors would reasonably need to know to oversee our compliance activities and risks. In addition, the Chief Compliance Officer meets separately in executive session with the independent directors at least quarterly.
We believe that our Board of Directors role in risk oversight is effective and appropriate given the extensive regulation to which we are already subject as a BDC. As a BDC, we are required to comply with certain regulatory requirements that control the levels of risk in our business and operations. For example, our ability to incur indebtedness is limited such that our asset coverage must equal at least 200% immediately after each time we incur indebtedness, we generally have to invest at least 70% of our total assets in qualifying assets and we are limited in our ability to invest in any portfolio company in which one of our affiliates currently has an investment.
We recognize that different board roles in risk oversight are appropriate for companies in different situations. We re-examine the manner in which the Board of Directors administers its oversight function on an ongoing basis to ensure that they continue to meet the Companys needs.
Committees of the Board of Directors
Our Board of Directors has established an Audit Committee, a Valuation Committee and a Nominating and Corporate Governance Committee. During 2009, our Board of Directors held seven Board meetings, five Audit Committee meetings, four Valuation Committee meetings and three Nominating and Corporate Governance Meetings. All directors attended at least 75% of the aggregate number of meetings of our Board of Directors and of the respective committees on which they served. We require each director to make a diligent effort to attend all Board and committee meetings, as well as each annual meeting of stockholders.
The Audit Committee. The Audit Committee operates pursuant to a charter approved by our Board of Directors, a copy of which is available on our website at http://www.ticc.com. The charter sets forth the responsibilities of the Audit Committee. The Audit Committees responsibilities include recommending the selection of our independent registered public accounting firm, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of our financial statements, pre-approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing our annual financial statements and periodic filings, and receiving our audit reports and financial statements. The Audit Committee is presently composed of three persons: Messrs. Novak and OBrien and Ms. Pankopf, all of whom are considered independent under the rules promulgated by the NASDAQ Stock Market. Our Board of Directors has determined that Mr. Novak is an audit committee financial expert as that term is defined under Item 407 of Regulation S-K of the Securities Exchange Act of 1934. Mr. Novak meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act and, in addition, is not an interested person of the Company as defined in Section 2(a)(19) of the 1940 Act. Mr. Novak currently serves as Chairman of the Audit Committee. The Audit Committee met on five occasions during 2009.
The Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee operates pursuant to a charter approved by our Board of Directors, a copy of which is available on our website at http://www.ticc.com. The charter sets forth the responsibilities of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committees responsibilities include selecting, researching and nominating directors for election by our stockholders, selecting nominees to fill
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vacancies on the Board of Directors or a committee thereof, monitoring and making recommendations to the Board of Directors on matters of Company policies and practices relating to corporate governance and overseeing the evaluation of the Board of Directors and our management. The Nominating and Corporate Governance Committee is presently composed of three persons: Messrs. Novak and OBrien and Ms. Pankopf, all of whom are considered independent under the rules promulgated by the NASDAQ Stock Market. Mr. OBrien currently serves as Chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee met on three occasions during 2009.
The Nominating and Corporate Governance Committee does not currently have a written policy with regard to nominees recommended by our stockholders. The absence of such a policy does not mean, however, that a stockholder recommendation would not have been considered had one been received.
The Nominating and Corporate Governance Committee will consider qualified director nominees recommended by stockholders when such recommendations are submitted in accordance with our bylaws and any applicable law, rule or regulation regarding director nominations. When submitting a nomination for consideration, a stockholder must provide certain information that would be required under applicable SEC rules, including the following minimum information for each director nominee: full name, age and address; principal occupation during the past five years; current directorships on publicly held companies and investment companies; number of shares of Company common stock owned, if any; and, a written consent of the individual to stand for election if nominated by our Board of Directors and to serve if elected by the stockholders.
In evaluating director nominees, the members of the Nominating and Corporate Governance Committee consider the following factors:
| the appropriate size and composition of our Board of Directors; |
| whether or not the person is an interested person of the Company as defined in Section 2(a)(19) of the 1940 Act; |
| the needs of the Company with respect to the particular talents and experience of its directors; |
| the knowledge, skills and experience of nominees in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board of Directors; |
| familiarity with national and international business matters; |
| experience with accounting rules and practices; |
| appreciation of the relationship of our business to the changing needs of society; |
| the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members; and |
| all applicable laws, rules, regulations, and listing standards. |
The Nominating and Corporate Governance Committees goal is to assemble a Board of Directors that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience.
Other than the foregoing there are no stated minimum criteria for director nominees, although the members of the Nominating and Corporate Governance Committee may also consider such other factors as they may deem are in the best interests of the Company and its stockholders. The Nominating and Corporate Governance Committee also believes it appropriate for certain key members of our management to participate as members of the Board of Directors.
The members of the Nominating and Corporate Governance Committee identify nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the
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Board of Directors with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board of Directors with that of obtaining a new perspective. If any member of the Board of Directors does not wish to continue in service or if the Board of Directors decides not to re-nominate a member for re-election, the independent members of the Board of Directors identify the desired skills and experience of a new nominee in light of the criteria above. The entire Board of Directors is polled for suggestions as to individuals meeting the aforementioned criteria. Research may also be performed to identify qualified individuals. To date, neither the Board of Directors nor the Nominating and Corporate Governance Committee has engaged third parties to identify or evaluate or assist in identifying potential nominees although each reserves the right in the future to retain a third party search firm, if necessary.
The Nominating and Corporate Governance Committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the Nominating and Corporate Governance Committee considers and discusses diversity, among other factors, with a view toward the needs of the board of directors as a whole. The Nominating and Corporate Governance Committee generally conceptualizes diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to the Board of Directors, when identifying and recommending director nominees. The Nominating and Corporate Governance Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the Nominating and Corporate Governance Committees goal of creating a Board of Directors that best serves the needs of the Company and the interest of its shareholders.
The Valuation Committee. The Valuation Committee establishes guidelines and makes recommendations to our Board of Directors regarding the valuation of our loans and investments. Our portfolio investments are generally not publicly traded securities. As a result, there is no readily determinable market value for these securities. Thus, as required by the 1940 Act for such securities, we value these securities at fair value as determined in good faith by our Board of Directors based upon the recommendation of the Valuation Committee.
Our process for determining the fair value of a bilateral investment begins with determining the enterprise value of the portfolio company. Enterprise value means the entire value of the company to a potential buyer, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The fair value of our investment is based on the enterprise value at which the portfolio company could be sold in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. The liquidity event whereby we exit a private investment is generally the sale, the recapitalization or, in some cases, the initial public offering of the portfolio company.
There is no one methodology to determine enterprise value and, in fact, for any one portfolio company, enterprise value is best expressed as a range of fair values, from which we derive a single estimate of enterprise value. To determine the enterprise value of a portfolio company, we analyze the historical and projected financial results, as well as the nature and value of any collateral. We also use industry valuation benchmarks and public market comparables. We also consider other events, including private mergers and acquisitions, a purchase transaction, public offering or subsequent debt or equity sale or restructuring, and include these events in the enterprise valuation process. We generally require portfolio companies to provide annual audited and quarterly unaudited financial statements, as well as annual projections for the upcoming fiscal year.
Typically, our debt investments are valued on the basis of a fair value determination arrived at through an analysis of the borrowers financial and operating condition or other factors, as well as consideration of the entitys enterprise value. The types of factors that we may take into account in valuing our investments include: market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio companys ability to make payments and its earnings and discounted cash flows, among other factors. The fair value of equity interests in
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portfolio companies is determined based on various factors, including the enterprise value remaining for equity holders after the repayment of the portfolio companys debt and other preference capital, and other pertinent factors such as recent offers to purchase a portfolio company, recent transactions involving the purchase or sale of the portfolio companys equity securities, or other liquidity events. The determined equity values are generally discounted when we have a minority position, restrictions on resale, specific concerns about the receptivity of the capital markets to a specific company at a certain time, or other factors.
Further, in connection with the determination of fair value, members of TICC Managements portfolio management team prepare portfolio company valuations using the most recent portfolio company financial statements and forecasts. We also utilize the services of a third party valuation firm which prepares valuations for each of our bilateral portfolio securities that, when combined with all other investments in the same portfolio company (i) have a book value as of the previous quarter of greater than or equal to 2.5% of our total assets as of the previous quarter, and (ii) have a book value as of the current quarter of greater than or equal to 2.5% of our total assets as of the previous quarter, after taking into account any repayment of principal during the current quarter. In addition, the frequency of the third party valuations of our bilateral portfolio securities is based upon the grade assigned to each such security under our credit grading system as follows: Grade 1, at least annually; Grade 2, at least semi-annually; Grades 3, 4, and 5, at least quarterly. TICC Management also retains the authority to seek, on our behalf, additional third party valuations with respect to both our bilateral portfolio securities and our syndicated loan investments. The Board of Directors retains ultimate authority as to the appropriate valuation of each investment.
The Valuation Committee is presently composed of Messrs. Novak and OBrien and Ms. Pankopf. Mr. Novak currently serves as Chairman of the Valuation Committee. The Valuation Committee met on four occasions during 2009.
The Compensation Committee. We do not have a compensation committee because our executive officers do not receive any direct compensation from the Company.
Communication with the Board of Directors
Stockholders with questions about the Company are encouraged to contact TICC Capital Corp.s Investor Relations Department. However, if stockholders believe that their questions have not been addressed, they may communicate with the Companys Board of Directors by sending their communications to TICC Capital Corp., c/o Patrick F. Conroy, Corporate Secretary, 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830. All stockholder communications received in this manner will be delivered to one or more members of the Board of Directors, as appropriate.
Code of Ethics
The Company has adopted a code of ethics which applies to, among others, its senior officers, including its Chief Executive Officer and its Chief Financial Officer, as well as every officer, director and employee of the Company. The Companys code can be accessed via its website at http://www.ticc.com. The Company intends to disclose amendments to or waivers from a required provision of the code on Form 8-K.
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Compensation of Directors
The following table sets forth compensation of the Companys directors for the year ended December 31, 2009.
Name |
Fees Earned or Paid in Cash(1) |
All
Other Compensation(2) |
Total | |||||
Interested Directors |
||||||||
Jonathan H. Cohen |
| | | |||||
Charles M. Royce |
| | | |||||
Independent Directors |
||||||||
G. Peter OBrien |
$ | 64,000 | | $ | 64,000 | |||
Steven P. Novak |
$ | 66,500 | | $ | 66,500 | |||
Tonia L. Pankopf |
$ | 62,500 | | $ | 62,500 |
(1) | For a discussion of the independent directors compensation, see below. |
(2) | We do not maintain a stock or option plan, non-equity incentive plan or pension plan for our directors. |
The independent directors receive an annual fee of $35,000. In addition, the independent directors receive $2,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each Board of Directors meeting, $1,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each Valuation Committee meeting, $1,500 plus reimbursement of reasonable out of-pocket expenses incurred in connection with attending each Audit Committee meeting and $1,000 plus reimbursement of reasonable out of-pocket expenses incurred in connection with attending each Nominating and Corporate Governance Committee meeting. The Chairman of the Audit Committee and Valuation Committee also receives an additional annual fee of $7,500 for his service as chair of both committees. The Chairman of the Nominating and Corporate Governance Committee also receives an additional annual fee of $3,000 for his service as chair of the Nominating and Corporate Governance Committee. No compensation was paid to directors who are interested persons of the Company as defined in the 1940 Act.
Compensation of Chief Executive Officer and Other Executive Officers
None of our officers receive direct compensation from the Company. Mr. Cohen, our Chief Executive Officer, and Mr. Rosenthal, our President and Chief Operating Officer, through their ownership interest in BDC Partners, the managing member of TICC Management, are entitled to a portion of any profits earned by TICC Management, which includes any fees payable to TICC Management under the terms of an investment advisory agreement by and between the Company and TICC Management (the Investment Advisory Agreement), less expenses incurred by TICC Management in performing its services under the Investment Advisory Agreement. Messrs. Cohen and Rosenthal do not receive any additional compensation from TICC Management in connection with the management of our portfolio.
The compensation of Mr. Conroy, our Chief Financial Officer, Chief Compliance Officer and Corporate Secretary, is paid by our administrator, BDC Partners, subject to reimbursement by us of an allocable portion of such compensation for services rendered by Mr. Conroy to TICC. During 2009, we reimbursed BDC Partners approximately $971,000 for the allocable portion of compensation expenses incurred by BDC Partners on our behalf for our Chief Financial Officer and Chief Compliance Officer, our Treasurer and Controller, and other support personnel, pursuant to the administration agreement with BDC Partners (the Administration Agreement).
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Certain Relationships and Transactions
Transactions with Affiliated Persons
We have entered into the Investment Advisory Agreement with TICC Management. TICC Management is controlled by BDC Partners, its managing member. In addition to BDC Partners, TICC Management is owned in part by Royce & Associates as a non-managing member. BDC Partners, as the managing member of TICC Management, manages the business and internal affairs of TICC 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, as well as a director, is the managing member of and controls BDC Partners. Saul B. Rosenthal, our President and Chief Operating Officer, is also the President and Chief Operating Officer of TICC Management and a member of BDC Partners. BDC Partners is also the managing member of Oxford Gate Capital, LLC, a private fund in which Messrs. Cohen, Rosenthal and Conroy, along with certain investment and administrative personnel of TICC Management, are invested.
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 a non-managing member of TICC Management, does not take part in the management or participate in the operations of TICC Management; however, Royce & Associates has agreed to make Mr. Royce or certain other portfolio managers available to TICC Management to provide certain consulting services without compensation. Royce & Associates is a wholly owned subsidiary of Legg Mason, Inc.
In addition, Messrs. Cohen and Rosenthal currently serve as Chief Executive Officer and President, respectively, for T2 Advisers, LLC, an investment adviser to GLIF. BDC Partners is the managing member of T2 Advisers, LLC. In addition, Patrick F. Conroy, the Chief Financial Officer, Chief Compliance Officer and Corporate Secretary of TICC Management, BDC Partners and TICC, serves as the Chief Financial Officer of GLIF and as the Chief Financial Officer, Chief Compliance Officer and Treasurer of T2 Advisers, LLC.
Both we and GLIF have adopted a written policy with respect to the allocation of investment opportunities in view of the potential conflicts of interest raised by the relationships described above. Bilateral investment opportunities are those negotiated directly between us or GLIF and a prospective portfolio company. Our general policy is to allocate bilateral U.S.-based opportunities to TICC and bilateral non-U.S.-based opportunities to GLIF; provided, that in instances involving bilateral investment opportunities where there is significant question as to a prospective portfolio companys primary base of operation (by virtue, for instance, of it conducting business in many countries, including the United States, with no clear principal center of operation or legal domicile), and where that question leads to doubt with regard to an investment in that company representing a qualified asset for the purpose of compliance with the 70% test for qualifying assets for BDCs under Section 55(a) of the 1940 Act, that bilateral investment opportunity will be allocated to GLIF.
Either TICC or GLIF may also purchase syndicated loans (i.e., those transactions in which an agent bank syndicates loans to four or more investors) of issuers in which the other fund holds no position, or has held a position (and has made no further investment) for a period greater than 30 calendar days and the purchases are not made directly from the other fund or the issuer of the acquired syndicated loans. In instances where both TICC and GLIF desire to either purchase or sell the same position at the same time, such purchases or sales will generally be allocated on a pro rata basis between TICC and GLIF based on order size as determined by each funds investment adviser in good faith.
Notwithstanding the foregoing policy with respect to the allocation of investment opportunities, any opportunity to invest a sum of less than or equal to $500,000 (an amount generally considered below our or GLIFs minimum investment threshold) will be allocated to Oxford Gate Capital, LLC.
In the ordinary course of business, we may enter into transactions with portfolio companies that may be considered related party transactions. In order to ensure that we do not engage in any prohibited transactions with
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any persons affiliated with us, we have implemented certain policies and procedures whereby our executive officers screen each of our transactions for any possible affiliations between the proposed portfolio investment, us, companies controlled by us and our employees and directors. We will not enter into any agreements unless and until we are satisfied that doing so will not raise concerns under the 1940 Act or, if such concerns exist, we have taken appropriate actions to seek board review and approval or exemptive relief for such transaction. Our Board of Directors reviews these procedures on an annual basis.
We have also adopted a Code of Ethics which applies to, among others, our senior officers, including our Chief Executive Officer and Chief Financial Officer, as well as every officer, director and employee of TICC. Our Code of Ethics requires that all employees and directors avoid any conflict, or the appearance of a conflict, between an individuals personal interests and the interests of TICC. Pursuant to our Code of Ethics, each employee and director must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to our Chief Compliance Officer. Our Audit Committee is charged with approving any waivers under our Code of Ethics. As required by the NASDAQ Stock Market corporate governance listing standards, the Audit Committee of our Board of Directors is also required to review and approve any transactions with related parties (as such term is defined in Item 404 of Regulation S-K).
Board Consideration of the Investment Advisory and Management Agreement
Our Board of Directors determined at a meeting held on April 29, 2010, to re-approve the Investment Advisory Agreement. In its consideration of the re-approval of the Investment Advisory Agreement, the Board of Directors focused on information it had received relating to, among other things:
| the nature, quality and extent of the advisory and other services to be provided to us by TICC Management; |
| comparative data with respect to advisory fees or similar expenses paid by other business development companies with similar investment objectives; |
| our historical and projected operating expenses and expense ratio compared to business development companies with similar investment objectives; |
| any existing and potential sources of indirect income to TICC Management or BDC Partners from their relationships with us and the profitability of those relationships, including through the Investment Advisory Agreement and the Administration Agreement; |
| information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement; |
| the organizational capability and financial condition of TICC Management and its affiliates; |
| TICC Managements practices regarding the selection and compensation of brokers that may execute our portfolio transactions and the brokers provision of brokerage and research services to TICC Management; and |
| 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 fees payable to TICC Management pursuant to the Investment Advisory Agreement were reasonable in relation to the services to be provided. The Board of Directors did not assign relative weights to the above factors or the other factors considered by it. In addition, the Board of Directors did not reach any specific conclusion on each factor considered, but conducted an overall analysis of these factors. Individual members of the Board of Directors may have given different weights to different factors.
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Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Companys directors and executive officers, and any persons holding more than 10% of its common stock, are required to report their beneficial ownership and any changes therein to the SEC and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file such reports by those due dates. Based solely on a review of copies of such reports and written representations delivered to the Company by such persons, the Company believes that there were no violations of Section 16(a) by such persons during 2009.
PROPOSAL II: RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee and the independent directors of the Board of Directors have selected PricewaterhouseCoopers LLP to serve as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2010. This selection is subject to ratification or rejection by the stockholders of the Company.
PricewaterhouseCoopers LLP has advised us that neither the firm nor any present member or associate of it has any material financial interest, direct or indirect, in the Company or its affiliates. It is expected that a representative of PricewaterhouseCoopers LLP will be present at the Annual Meeting and will have an opportunity to make a statement if he or she chooses and will be available to answer questions.
Fiscal Year Ended December 31, 2009 |
Fiscal Year Ended December 31, 2008 | |||||
Audit Fees |
$ | 351,200 | $ | 350,000 | ||
Audit-Related Fees |
| 66,500 | ||||
Tax Fees |
30,000 | 28,500 | ||||
All Other Fees |
| | ||||
Total Fees: |
$ | 381,200 | $ | 445,000 |
Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by PricewaterhouseCoopers in connection with statutory and regulatory filings.
Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit Fees. These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax Fees. Tax fees consist of fees billed for professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance.
All Other Fees. All other fees would include fees for products and services other than the services reported above.
Audit Committee Report
The Audit Committee of the Board of Directors of TICC Capital Corp. operates under a written charter adopted by the Board of Directors. The Audit Committee is currently composed of Messrs. Novak and OBrien and Ms. Pankopf.
Management is responsible for the Companys internal controls and the financial reporting process. The Companys independent registered public accounting firm is responsible for performing an independent audit of
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the Companys financial statements in accordance with auditing standards generally accepted in the United States and expressing an opinion on the conformity of those audited financial statements in accordance with accounting principles generally accepted in the United States. The Audit Committees responsibility is to monitor and oversee these processes. The Audit Committee is also directly responsible for the appointment, compensation and oversight of the Companys independent registered public accounting firm.
Pre-Approval Policy
The Audit Committee has established a pre-approval policy that describes the permitted audit, audit-related, tax and other services to be provided by PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm. The policy requires that the Audit Committee pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such service does not impair the auditors independence.
Any requests for audit, audit-related, tax and other services that have not received general pre-approval must be submitted to the Audit Committee for specific pre-approval, irrespective of the amount, and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the Audit Committee. However, the Audit Committee may delegate pre-approval authority to one or more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent registered public accounting firm to management.
Review with Management
The Audit Committee has reviewed the audited financial statements and met and held discussions with management regarding the audited financial statements. Management has represented to the Audit Committee that the Companys financial statements were prepared in accordance with accounting principles generally accepted in the United States.
Review and Discussion with Independent Registered Public Accounting Firm
The Audit Committee has discussed with PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm, matters required to be discussed by Statement of Auditing Standards No. 61 (Communication with Audit Committees). The Audit Committee received and reviewed the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board and has discussed with the auditors the auditors independence. The Audit Committee has also considered the compatibility of non-audit services with the auditors independence.
During 2009, the Audit Committee met with members of senior management and the independent registered public accounting firm to review the certifications provided by the Chief Executive Officer and Chief Financial Officer under the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the rules and regulations of the SEC and the overall certification process. At these meetings, company officers reviewed each of the Sarbanes-Oxley certification requirements concerning internal control over financial reporting and any fraud, whether or not material, involving management or other employees with a significant role in internal control over financial reporting. In March 2010, the Audit Committee received reports from management and PricewaterhouseCoopers LLP regarding the effectiveness of internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley.
Conclusion
Based on the Audit Committees discussion with management and the independent registered public accounting firm, the Audit Committees review of the audited financial statements, the representations of
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management and the report of the independent registered public accounting firm to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited financial statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 for filing with the SEC. The Audit Committee also recommended the selection of PricewaterhouseCoopers LLP to serve as the independent registered public accounting firm for the year ending December 31, 2010.
Respectfully Submitted, |
The Audit Committee |
Steven P. Novak |
G. Peter OBrien |
Tonia L. Pankopf |
Unless marked to the contrary, the shares represented by the enclosed proxy card will be voted for ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2010
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2010.
PROPOSAL III: APPROVAL TO AUTHORIZE THE COMPANY
TO ISSUE WARRANTS, OPTIONS OR RIGHTS TO SUBSCRIBE TO, CONVERT TO, OR
PURCHASE THE COMPANYS COMMON STOCK IN ONE OR MORE OFFERINGS
The Companys Board of Directors believes it would be in the best interests of the Company to have the ability to issue warrants, options or rights to subscribe to, convert to, or purchase shares of the Companys common stock, which may include convertible preferred stock and convertible debentures, under appropriate circumstances in connection with the capital raising and financing activities of the Company. Sections 18(d) and 61(a) of the 1940 Act restrict the ability of a BDC such as the Company to issue warrants, options or rights to subscribe or to convert to voting securities of the Company. If warrants, options or rights are to be issued, the proposal must be approved by the stockholders of the BDC. Thus, the Companys Board of Directors has approved and recommends to the stockholders for their approval the proposal to issue warrants, options or rights to subscribe to, convert to or purchase shares of the Companys common stock, which warrants, options or rights may or may not be accompanied by other securities of the Company.
If this proposal is approved, any issuances of warrants, options or rights to subscribe to, convert to or purchase shares of the Companys common stock would be made in accordance with Section 61(a)(3) of the 1940 Act, pursuant to which the Company would be permitted to issue securities that may be converted into or exercised for shares of our common stock at a conversion or exercise price per share not less than our current market price at the date such securities are issued. This conversion or exercise price may, however, be less than our NAV per share (i) at the date such securities are issued or (ii) at the date such securities are converted into or exercised for shares of our common stock.
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Background and Reasons
The Companys management and the Board of Directors have determined that it would be advantageous to the Company to have the ability to issue warrants, options or rights to subscribe to, convert to or purchase common stock, which may include convertible preferred stock and convertible debentures, in connection with the financing and capital raising activities of the Company. In this regard, the debt and equity capital markets in the United States continue to be severely impacted by recent significant write-offs in the financial services sector relating to sub-prime mortgages and the repricing of credit risk in the broadly syndicated loan market, among other reasons. These events, along with the deterioration of the housing market, have led to continuing general negative economic conditions, which continue to impact the broader capital and credit markets and to reduce the availability of debt and equity capital for the market as a whole and financial firms in particular. In the past, we were able to readily access the capital and credit markets to finance our investment activities. However, due to the continued uncertainty in the debt and equity markets, we are concerned that debt or equity capital may not be available to us on favorable terms, or at all. As a result, our ability to issue warrants, options or rights to subscribe to, convert to, or purchase shares of the Companys common stock, which may include convertible preferred stock and convertible debentures, may be an effective way for us to raise capital in the current environment.
The Company has no immediate plans to issue any such warrants, options or rights. However, in order to provide flexibility for future issuances, which typically must be undertaken quickly, the Board of Directors has approved and is seeking stockholder approval of this proposal to issue warrants, options or rights to subscribe to, convert to or purchase shares of common stock either accompanied by or not accompanied by other securities of the Company. The final terms of any warrants, options or rights (subject to the requirements noted in Section 61 of the 1940 Act), including exercise/conversion price, term and exercise/conversion requirements would be determined by the Board of Directors at the time of issuance. Also, the nature and amount of consideration that would be received by the Company at the time of issuance and the use of any such consideration will be considered and approved by the Board of Directors at the time of issuance. You should be aware that the authority sought under this proposal has no expiration.
Conditions to Issuance
If the Companys stockholders approve this proposal, it will only be able to issue warrants or securities to subscribe for or convert into shares of its common stock pursuant to such stockholder approval so long as the issuance of such securities meets the following conditions:
(i) the exercise or conversion feature of the warrants, options or rights must expire within 10 years of issuance;
(ii) the exercise or conversion price for the warrants, options or rights must not be less than the current market value of the common stock at the date of the issuance of the warrants, options or rights; and
(iii) a majority of the Companys directors who are not interested persons of the Company as defined in the 1940 Act shall have approved each individual issuance of warrants, options or rights and determined that each such issuance is in the best interests of the Company and its stockholders.
In addition, if such securities are accompanied by other securities when issued, the securities cannot be separately transferable unless no class of such securities and the other securities that accompany them has been publicly distributed.
Prior to the time of issuance, the Board of Directors may determine to issue warrants or securities to subscribe for or convert into shares of the Companys common stock in a registered public offering or in a private placement either with or without an obligation to seek to register the resale of our common stock resulting from such issuance at the request of the holders. The Board of Directors may also determine to use an underwriter or placement agent to
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assist in selling such securities if it concludes that doing so would assist in marketing such securities on favorable terms. Any such sale would be anticipated to result in a potential increase in the number of outstanding shares of the Companys common stock. However, Section 61(a) of the 1940 Act limits the number of warrants, options or rights to subscribe to, convert to, or purchase the Companys common stock that can be issued pursuant to this proposal. Specifically, the amount of voting securities that would result from the exercise or conversion of all of the Companys warrants, options or rights to subscribe to, convert to, or purchase the Companys common stock at the time of issuance shall not exceed 25% of the Companys outstanding voting securities.
In addition, it is possible that the Board of Directors will authorize the issuance of warrants or securities to subscribe for or convert into shares of the Companys common stock that contain anti-dilution protections, to the extent permissible under the 1940 Act, and that, as a result of such anti-dilution protections, the price at which such securities may be exercisable for or convertible into shares of the Companys common stock may be adjusted to a price less than the current market value per share of the Companys common stock or the net asset value per share of the Companys common stock at the time of such adjustment or at the time of their issuance. Such anti-dilution protections, if granted, would generally benefit the holder of such warrants or securities to subscribe for or convert into shares of the Companys common stock by providing for an adjustment in the number of shares that may be received thereon in the event the total number of outstanding shares of the Companys common stock increases.
Key Stockholder Considerations
Before voting on this proposal or giving proxies with regard to this matter, stockholders should consider the potentially dilutive effect of the issuance of warrants, options or rights to subscribe to, convert to, or purchase shares of the Companys common stock and the expenses associated with such issuances on the NAV per outstanding share of the Companys common stock. Because the exercise or conversion price per share at the time of exercise or conversion could be less than the net asset value per share of our common stock at the time of exercise or conversion, and because we would incur expenses in connection with any such issuance of warrants or convertible debt, such exercise or conversion could result in a dilution of net asset value per share of our common stock at the time of such exercise. Any exercise of warrants or securities to subscribe for or convert into shares of the Companys common stock at an exercise or conversion price that is below NAV at the time of such exercise or conversion, would result in an immediate dilution to existing common stockholders. This dilution would include reduction in NAV as a result of the proportionately greater decrease in a stockholders interest in the earnings and assets of the Company and voting interest in the Company than the increase in the assets of the Company resulting from such issuance.
The Company cannot state precisely the amount of any such dilution because it does not know at this time what number of shares of common stock would be issuable upon exercise or conversion of any such securities that are ultimately issued. Because the exercise or conversion price per share could be less than NAV at the time of exercise or conversion (including through the operation of anti-dilution protections) and because the Company would incur expenses in connection with any issuance of such securities, such issuance could result in a dilution of NAV at the time of exercise or conversion. The amount of any decrease in NAV is not predictable because it is not known at this time what the exercise or conversion price and NAV will be at the time of exercise or conversion or what number or amount (if any) of such securities will be issued. Such dilution, however, could be substantial.
This proposal does not limit the Companys ability to issue securities to subscribe for or convert into shares of its common stock at an exercise or conversion price below NAV at the time of exercise or conversion (including through the operation of anti-dilution protections) so long as such issuance is within the 25% limitation set forth under Section 61(a) of the 1940 Act described above. The only requirement with respect to the exercise or conversion price is that it be not less than the lesser of the market value per share of the Companys common stock and the net asset value per share of the Companys common stock on the date of issuance.
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The 1940 Act establishes a connection between common stock sale price and NAV because, when stock is issued at a price below NAV, the resulting increase in the number of outstanding shares is not accompanied by a proportionate increase in the net assets of the issuer. The Board of Directors of the Company will consider the potential dilutive effect of the issuance of warrants or securities to subscribe for or convert into shares of the Companys common stock when considering whether to authorize any such issuance.
If this proposal is approved, no further authorization from stockholders will be solicited by the Company prior to the issuance of any warrants, options or rights to subscribe to, convert to or purchase shares of common stock for a period of one year subsequent to the date of such stockholder approval. To the extent the Board of Directors determines that it is in the best interests of the Company and its stockholders to issue warrants, options or rights subsequent to that time, the Company will seek further stockholder authorization prior to doing so.
Required Vote
Approval of this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy. Abstentions and Broker Non-Votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.
Unless marked to the contrary, the shares represented by the enclosed proxy card will be voted for the proposal to authorize the Company to issue warrants, options or rights to subscribe to, convert to, or purchase the Companys common stock in one or more offerings.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE THE COMPANY TO ISSUE WARRANTS, OPTIONS OR RIGHTS TO SUBSCRIBE TO, CONVERT TO, OR PURCHASE THE COMPANYS COMMON STOCK IN ONE OR MORE OFFERINGS.
PROPOSAL IV: STOCKHOLDER PROPOSAL
We expect the following proposal to be presented by a stockholder at the Annual Meeting. Following SEC rules, other than minor formatting changes, we are reprinting the proposal and supporting statement as they were submitted to us. We take no responsibility for them. On oral or written request to the Companys Corporate Secretary, Patrick F. Conroy, at 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830, telephone (203) 983-5275, we will provide information about the sponsors shareholdings. The following proposal was submitted by William C. Martin, 254 Witherspoon Street, Princeton, NJ 08542.
Proposal
RESOLVED, that the Investment Advisory Agreement between TICC Capital Corp. and TICC Management, LLC shall be terminated effective as soon as is legally permissible thereunder.
Supporting Statement
The case for terminating the investment advisory agreement with TICCs investment adviser, TICC Management, is clear.
First, TICC Management has delivered poor investment results:
| Net asset value declined -41% from $13.77 per share in Q4 2006 to $8.07 at Q3 2009. |
| Annual distributions fell -58% from $1.44 per share in 2007 to $0.60 per share at present. |
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| TICC shares declined -63% from their peak of $16.46 in 2006 to $6.11 as of 12/29/09. |
Second, TICC Management has in my view demonstrated poor investment judgment:
| TICC Management failed to impose LIBOR interest rate floors under the bulk of its loans. This led to substantial interest rate declines and negative marks to asset value when LIBOR rates fell precipitously in 2008. |
| In 2007, TICC abandoned its policy requiring it to invest at least 80% of the value of its net assets in technology-related companies. Around the same time, TICC invested $15 million in WAICCS Las Vegas, LLC, a Las Vegas land development that has depreciated to a value of just $2.1 million at September 30, 2009. |
| TICC Management has failed to repurchase TICC shares though they trade at a substantial discount to net asset value, missing an accretive investment opportunity. |
Unfortunately, despite all of this, TICC Management is anything but poorly compensated:
| Over the past three years, TICC Management reaped over $20 million in fees. This is equal to 12.5% of TICCs market capitalization. |
| TICC Management was paid approximately $4 million in 2009, equal to 15 cents per share (25% of the current annual distribution). |
| TICC Management collected more than $700,000 in incremental fees in 2008 and 2009 from the $22.8 million in capital that was raised in the highly dilutive rights offering in May 2008. This is a clear example of how compensation is not aligned with shareholder interests. After all, why should TICC Management earn more when they dilute shareholders? |
Even worse, running TICC is only a part-time job for the senior team at TICC Management; each of them works on at least one other investment fund from which TICC shareholders derive absolutely no economic benefit.
If shareholders vote to terminate the current advisory agreement, this will send a clear message to the TICC Board that it should implement a new advisory agreement that truly aligns the advisers actions with shareholder interests. This new agreement should be structured so that the adviser is only rewarded if net asset value and distributions are increasing, while reducing compensation if TICC raises dilutive capital or if the portfolio loses money. Additionally, a portion of the advisers compensation should consist of long term equity which vests only if TICCs share price trades at a valuation in excess of book value.
If you agree with my views, please vote FOR this proposal.
Response of the Board of Directors
The Board of Directors recommends a vote AGAINST the foregoing stockholder proposal for the following reasons:
Investment Performance
We do not believe that TICC Management has delivered poor investment results.
We believe that any commentary on our investment performance should be based upon independent, industry-specific analysis. Specifically, we believe that our financial performance has exceeded that of the substantial majority of our competitors. We have reviewed publicly available market data as of December 31, 2009, as well as analyst reports covering the BDC market from Stifel, Nicolaus & Co., Inc. (Stifel Nicolaus)
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and Macquarie Capital (Macquarie), and have included in the table below several relevant metrics from the Stifel Nicolaus and Macquarie reports which we believe reflect favorably on our performance, specifically with regard to investment income, dividend yield and share price.
BDCs -all market caps | |||||||||
Mean(5) | Median | TICC | |||||||
Net investment margin(1) |
7.5 | % | 7.3 | % | 9.7 | % | |||
Most recent quarter dividend yield(2) |
7.8 | % | 9.3 | % | 9.9 | % | |||
Price changelast twelve months(3) |
42.0 | % | 14.0 | % | 59.0 | % | |||
BDCs market cap < $250 million | |||||||||
Average(5) | Median | TICC | |||||||
Dividend yieldcurrent(2) |
8.6 | % | 9.3 | % | 9.9 | % | |||
Total returnlast twelve months(6) |
48.1 | % | 28.3 | % | 82.0 | % | |||
Price changelast twelve months(4) |
31.4 | % | 17.1 | % | 59.2 | % |
(1) | Reflects annualized net interest income (or fully taxable equivalent, if available) divided by average earning assets. |
(2) | Reflects the dividend for the quarter ended December 31, 2009 on an annualized basis divided by the share price as of December 31, 2009. |
(3) | Reflects the change in share price from December 31, 2008 to December 31, 2009, divided by the share price as of December 31, 2008 (rounded to the closest full percent). |
(4) | Reflects the change in share price from December 31, 2008 to December 31, 2009, divided by the share price as of December 31, 2008 (rounded to the closest tenth of a percent). |
(5) | Reflects a simple unweighted average calculation. |
(6) | Reflects the change in share price from December 31, 2008 to December 31, 2009, plus distributions during the year ended December 31, 2009, divided by the share price as of December 31, 2008, assuming reinvestment of any dividends paid under each companys respective dividend reinvestment plan during the year ended December 31, 2009. |
We believe that a significant portion of our performance is attributable to the decision made in 2007 by our investment adviser, TICC Management, to aggressively de-leverage the Companys balance sheet. We note that those actions were undertaken well in advance of the ensuing credit crisis that adversely affected many of our competitors by either causing them irreparable damage or forcing them to sell their businesses at unattractive valuations. In particular, the Company had net investment income for the years ended December 31, 2008 and 2009 of approximately $22.2 million and $13.5 million, respectively, notwithstanding the adverse economic conditions during that timeframe. In our view, it is inappropriate and disingenuous to ignore the historic effects of the financial crisis in any assessment of our performance. Furthermore, to focus on certain selected statistics measured over arbitrary timelines, without a perspective on the entire industry, can be misleading.
Investment Judgment
We do not believe that TICC Management demonstrated poor investment judgment by virtue of having failed to impose LIBOR floors under the bulk of its loans.
LIBOR floors represent only one of many potential variables in the negotiation of any debt transaction. TICC Management has sourced, negotiated, structured and closed approximately 70 transactions on behalf of the Company since its inception, and we can state with some certainty that the imposition of a LIBOR floor almost always carries with it an economic concession with respect to some other element of a particular transaction. TICC Management has historically endeavored to negotiate loans with low levels of leverage (debt-to-EBITDA), full and complete covenant structures, strong collateral and many other provisions which have served to protect and extend the Companys interests in the context of its loans. The robustness of those structures has been tested repeatedly during one of the most difficult credit environments in recent history, and we have been very pleased with the results. While we would be delighted to accept any offer for the inclusion of a LIBOR floor ceteris paribus in any of our past or future transactions, we believe that TICC Management has focused its negotiations on those elements
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which have provided us with the most mutually beneficial overall loan structures. Moreover, in the current credit environment, the prospective exchange of a protective provision for an economic one seems broadly inopportune.
The foregoing stockholder proposal also notes the Companys investment in WAICCS Las Vegas, LLC and mentions that it has declined in value since the investment was made. We note that, as with almost any portfolio investing in almost any type of security, be it equity, debt, real estate, commodities, etc., not every individual investment is likely to produce a profitable return. We certainly acknowledge that, like other asset managers, TICC Management has made several investments which did not perform as we would have liked. We believe TICC Management has made a great many more investments which have produced very satisfactory returns. We would reiterate the point made above concerning the Companys overall investment performance over various time periods as evidence that TICC Management has demonstrated very good investment judgment during one of the most difficult periods in recent market history.
The foregoing stockholder proposal further notes that TICC Management has failed to repurchase TICC shares though they trade at a substantial discount to net asset value, missing an accretive investment opportunity. We believe that the TICC Management has taken advantage of numerous accretive investment opportunities over the last several quarters, and that many of those investments carry prospective returns significantly in excess of that which likely could have been produced by a share repurchase. There can be no assurance that such returns will actually be achieved however. Moreover, we believe that the most certain effect of such repurchases would have been to increase pro rata each portfolio position as a percentage of the Companys total assets, thereby increasing the risk associated with a less varied portfolio. As the use of the Companys current liquid assets, as opposed to pro rata liquidation of the Companys portfolio investments, would cause each of the Companys remaining portfolio investments to represent a proportionately larger share of its total assets, the Company has taken a cautious approach in this regard. Moreover, since the de-leveraging of the Companys balance sheet discussed above, TICC Management has paid particular attention to investing among a greater number of smaller holdings. We believe that these efforts have been broadly successful, although TICC Management and the Companys Board of Directors remain very attentive to the issue of the strategic allocation of capital. Lastly, we note that the Companys Board of Directors has in place a share repurchase plan, and that the Companys management team, at the direction of the Board, continues to evaluate share repurchases as appropriate.
Compensation of TICC Management
We do not believe that TICC Management is inappropriately compensated.
The foregoing stockholder proposal states that over the past three years, TICC Management reaped over $20 million in fees. This is equal to 12.5% of [the Companys] market capitalization. Among other reasons, this statistic may be misleading as the fees referred to are cumulative over a three year period while the market capitalization base is a moment in time and is driven by many variables present in the broader marketplace. In addition, there is no logical or operational relationship between these factors. Therefore we do not believe that these figures indicate that TICC Management is inappropriately compensated for its services. We point out that every asset manager must maintain staff to research, negotiate, execute and monitor its investments. For an externally-managed BDC (such as the Company), the costs of those services are manifested in the fees paid by that BDC to its investment adviser. In the case of an internally-managed BDC, those costs take the form of the salaries, bonuses and benefits (including stock options) paid to the BDCs employees. The desirability of one approach versus the other can be debated extensively, but clearly the total fee base for any BDC must be seen in the context of what those costs would have been for similar services delivered by other market participants (either internal staff or an external service provider). We do agree that management fees, or salaries, bonuses and benefits, usually do represent the largest component of total costs for any investment company, including BDCs. We believe that the statistics provided in the table below, which were collected from reports prepared by Stifel Nicolaus, indicate that the expense ratio of the Company, calculated for the year ended December 31, 2009, is well within the norms of the industry, and in fact is quite favorable.
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Expense ratio(2) | |||||||||
Average(1) | Median | TICC | |||||||
BDCs market cap < $250 million (14 total) |
4.7 | % | 4.0 | % | 3.3 | % | |||
BDCsall market caps (24 total) |
5.8 | % | 5.2 | % | 3.3 | % | |||
BDCsall externally managed (14 total) |
5.0 | % | 5.0 | % | 3.3 | % |
(1) | Reflects a simple unweighted average calculation based on the number of companies in category. |
(2) | Reflects total quarterly expenses, including interest expense, over average assets. |
The foregoing stockholder proposal also states that TICC Management was paid approximately $4 million in 2009, equal to 15 cents per share (25% of the current annual distribution). Again, these figures do not indicate that TICC Management is inappropriately compensated for its services, and we would reference the arguments stated above. We note that in comparison to management fee structures throughout the BDC industry, TICC Managements fee structure is competitive, with a relatively high variable hurdle rate and, in particular, that it is one of the few without a catch-up provision.
The proposal refers to a highly dilutive rights offering in May 2008. While the offering was modestly dilutive, we note that the capital raised in that share offering was used to more quickly repay the Companys indebtedness (as discussed above). Moreover, the capital raise allowed the Company to take a significantly more measured and deliberate approach to the very timely de-leveraging of its portfolio, eliminating the need for the type of fire sale liquidations which beset many of our competitors during that period.
We disagree with the proponents contention that running TICC is only a part-time job for the senior team at TICC Management; each of them works on at least one other investment fund from which TICC shareholders derive absolutely no economic benefit. As we have noted in our public filings for many years, the investment management team at TICC Management that manages the Company also manages one other fund. We strongly believe that the Company has benefited, and continues to benefit, from the deal flow and knowledge of the syndicated loan market that is a direct result of their management of that second fund. We respectfully note that the group of other investment managers whose activities would fall under that definition of part time (by virtue of managing more than a single fund) would include the significant majority of the most successful asset managers.
In addition, publicly available financial data reflects the fact that the Company is one of only a very few BDCs that are debt free as of the end of December 31, 2009. We note that TICC Managements aggressive and (at the time) highly unusual de-leveraging of the Companys balance sheet, discussed above, obviously resulted in dramatically lower ongoing fees to TICC Management by reducing the total asset base upon which the fees are calculated. That action has also admittedly reduced earnings on a per share basis while making the Companys net asset value less volatile, other things held equal, but it has proved to be a prescient effort that has clearly protected the interests of our shareholders.
Summary
We believe that certain of the issues raised in the foregoing stockholder proposal serve to highlight the wholly legitimate distinction between the short-term and long-term interests of our stockholders. We note that the members of and other investment professionals retained by TICC Management, along with the Chairman of the Companys Board of Directors, are among the Companys largest shareholders and have never sold a share of stock. We agree that an aggressive share repurchase program would likely have a beneficial short-term effect on the Companys share price, and would certainly be particularly attractive to a short-term investor who may have bought in at a low price during the market disruptions of the past few years. We do not believe, however, that such a program would serve the interests of our stockholders with a longer-term perspective.
More critically, we do not believe that the immediate termination of the Investment Advisory Agreement between the Company and TICC Management, as proposed, would have any benefit to the Company or its
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stockholders. Instead, we expect that such a termination would cause very substantial harm. TICC Management has originated and manages every aspect of our portfolio, and maintains an extraordinarily close working relationship with many of our portfolio companies. Unlike a fund which invests in the liquid securities of public companies, our portfolio consists primarily of illiquid senior loans to private technology-related companies. We consider this to be a very worthwhile strategy where we have developed a strong and persistent competitive advantage. That strategy is highly dependent on the institutional knowledge and market expertise of our investment adviser, TICC Management. In the absence of the involvement of TICC Managements investment management team, the Company would be left to try to replicate a body of knowledge built up over many years while at the same time attempting to make real-time decisions upon which a great deal of economic value could depend. As the Company has no other investment staff outside of that provided by TICC Management, we are concerned about how the Company would actually be run if the foregoing stockholder proposal to terminate the Investment Advisory Agreement is successful. We are also left, with considerable trepidation, to respectfully question how much our collective stockholders value might be eroded in that circumstance.
Required Vote
Approval of this proposal requires the affirmative vote of a majority of the outstanding voting securities as of the Record Date. For purposes of this proposal, the 1940 Act defines a majority of the outstanding voting securities as: (i) 67% or more of the voting securities present at the Annual Meeting if the holders of more than 50% of the outstanding voting securities of the Company are present or represented by proxy; or (ii) 50% of the outstanding voting securities of the Company, whichever is less. Abstentions and Broker Non-Votes will have the effect of a vote against this proposal.
In the event this proposal is approved, our Investment Advisory Agreement with TICC Management would terminate effective 60 days after the date of the Annual Meeting, in accordance with the terms of the Investment Advisory Agreement. If that occurs, our Board of Directors will take appropriate steps to ensure that the Companys portfolio remains properly managed, which may include negotiating a different investment advisory agreement with TICC Management or another third-party investment adviser. Any such subsequent investment advisory agreement will be subject to shareholder approval in accordance with the requirements of the 1940 Act.
Unless marked to the contrary, the shares represented by the enclosed proxy card will be voted against the foregoing stockholder proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE FOREGOING STOCKHOLDER PROPOSAL.
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OTHER BUSINESS
The Board of Directors knows of no other business to be presented for action at the Annual Meeting. If any matters do come before the Annual Meeting on which action can properly be taken, it is intended that the proxies shall vote in accordance with the judgment of the person or persons exercising the authority conferred by the proxy at the Annual Meeting. The submission of a proposal does not guarantee its inclusion in the Companys proxy statement or presentation at the Annual Meeting unless certain securities law requirements are met.
SUBMISSION OF STOCKHOLDER PROPOSALS
The Company expects that the 2011 Annual Meeting of Stockholders will be held in June 2011, but the exact date, time, and location of such meeting have yet to be determined. A stockholder who intends to present a proposal at that annual meeting must submit the proposal in writing to the Company at its address in Greenwich, Connecticut, and the Company must receive the proposal no later than January 4, 2011, in order for the proposal to be considered for inclusion in the Companys proxy statement for that meeting. The submission of a proposal does not guarantee its inclusion in the Companys proxy statement or presentation at the meeting.
For any proposal that is not submitted for inclusion in next years proxy statement (as described in the preceding paragraph) but is instead sought to be presented directly at next years annual meeting, SEC rules permit management to vote proxies in its discretion if (a) the Company receives notice of the proposal before the close of business on March 20, 2011 and advises stockholders in next years proxy statement about the nature of the matter and how management intends to vote on such matter, or (b) does not receive notice of the proposal prior to the close of business on March 20, 2011.
Notices of intention to present proposals at the 2011 Annual Meeting of Stockholders should be addressed to Patrick F. Conroy, Corporate Secretary, TICC Capital Corp., 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
You are cordially invited to attend the Annual Meeting of stockholders in person. Whether or not you plan to attend the Annual Meeting, you are requested to complete, date, sign and promptly return the accompanying proxy card in the enclosed postage-paid envelope, or to vote by telephone or through the internet.
By Order of the Board of Directors |
Patrick F. Conroy |
Corporate Secretary |
Greenwich, Connecticut
May 4, 2010
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PRIVACY NOTICE
We are committed to protecting your privacy. This privacy notice, which is required by federal law, explains privacy policies of TICC Capital Corp. and its affiliated companies. This notice supersedes any other privacy notice you may have received from TICC Capital Corp., and its terms apply both to our current stockholders and to former stockholders as well.
We will safeguard, according to strict standards of security and confidentiality, all information we receive about you. With regard to this information, we maintain procedural safeguards that comply with federal standards.
Our goal is to limit the collection and use of information about you. When you purchase shares of our common stock, our transfer agent collects personal information about you, such as your name, address, social security number or tax identification number.
This information is used only so that we can send you annual reports, proxy statements and other information required by law, and to send you information we believe may be of interest to you.
We do not share such information with any non-affiliated third party except as described below.
| It is our policy that only authorized employees of our investment adviser, TICC Management, LLC, who need to know your personal information will have access to it. |
| We may disclose stockholder-related information to companies that provide services on our behalf, such as record keeping, processing your trades, and mailing you information. These companies are required to protect your information and use it solely for the purpose for which they received it. |
| If required by law, we may disclose stockholder-related information in accordance with a court order or at the request of government regulators. Only that information required by law, subpoena, or court order will be disclosed. |
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TICC CAPITAL CORP.
FOR THE ANNUAL MEETING OF STOCKHOLDERS
JUNE 16, 2010
The undersigned stockholder of TICC Capital Corp. (the Company) acknowledges receipt of the Notice of Annual Meeting of Stockholders of the Company and hereby appoints Saul B. Rosenthal and Patrick F. Conroy, and each of them, and each with full power of substitution, to act as attorneys and proxies for the undersigned to vote all the shares of common stock of the Company which the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company to be held at the Companys corporate headquarters located at 8 Sound Shore Drive, Suite 255, Greenwich, Connecticut 06830 on June 16, 2010, at 10:00 a.m., Eastern Time, and at all postponements or adjournments thereof, as indicated on this proxy.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED BELOW; where no choice is specified, it will be voted FOR Proposals 1, 2 and 3, AGAINST Proposal 4, and in the discretion of the proxies with respect to matters described in Proposal 5.
Please vote, sign and date this proxy on the reverse side and return it promptly in the enclosed envelope.
(CONTINUED ON REVERSE SIDE)
ANNUAL MEETING OF STOCKHOLDERS
TICC CAPITAL CORP.
JUNE 16, 2010
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by TICC Capital Corp. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage paid envelope we have provided or return it to TICC Capital Corp., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD
IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE
Please Detach and Mail in the Envelope Provided
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3, AND
AGAINST PROPOSAL 4.
1. The election of the following person (except as marked to the contrary) as a director, who will serve as director of TICC Capital Corp. until 2013, or until her successor is duly elected and qualified. | FOR | WITHHOLD AUTHORITY |
Nominee: Tonia L. Pankopf | |||||
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2. The ratification of the selection of PricewaterhouseCoopers LLP as the independent registered public accounting firm for TICC Capital Corp. for the fiscal year ending December 31, 2010. | FOR | AGAINST | ABSTAIN | |||||
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3. To approve a proposal to authorize TICC Capital Corp. to issue securities to subscribe to, convert to, or purchase shares of TICC Capital Corp.s common stock in one or more offerings. | FOR | AGAINST | ABSTAIN | |||||
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4. To approve a proposal to terminate the investment advisory agreement by and between TICC Capital Corp. and its investment adviser, TICC Management, LLC, effective as soon as is legally permissible thereunder. | FOR | AGAINST | ABSTAIN | |||||
¨ | ¨ | ¨ | ||||||
5. To vote upon such other business as may properly come before the Meeting or any postponement or adjournment thereof. |
IMPORTANT: Please sign your names exactly as shown hereon and date your proxy in the blank provided. For joint accounts, each joint owner should sign. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. If the signer is a corporation or partnership, please sign in full corporate or partnership name by a duly authorized officer or partner.
SIGNATURE
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DATE
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SIGNATURE
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DATE
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IF HELD JOINTLY |
[Letterhead of Sutherland Asbill & Brennan LLP]
April 30, 2010
VIA EDGAR
Mr. Kevin Rupert
Division of Investment Management
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: | TICC Capital Corp. |
Preliminary Proxy Materials on Schedule 14A filed April 14, 2010
File No. 814-00638
Dear Mr. Rupert:
On behalf of TICC Capital Corp. (the Company), set forth below is the Companys response to the oral comments provided by the staff of the Division of Investment Management (the Staff) of the Securities and Exchange Commission (the Commission) to the Company on April 23, 2010 with respect to the Companys preliminary proxy materials on Schedule 14A (File No. 814-00638), filed with the Commission on April 14, 2010 (the Proxy Materials). The Staffs comments are set forth below and are followed by the Companys responses. In addition, the revisions to the disclosure requested by the Staff have been included in the Companys definitive proxy materials on Schedule 14A (File No. 814-00638), filed herewith.
1. | We note your revised disclosure referencing the risk associated with an increase in the pro rata potion each portfolio position represents as a percentage of the Companys total portfolio. Please revise such disclosure to clarify that the use of the Companys current liquid assets rather than undertaking a pro rata liquidation of the Companys current portfolio investments would cause each remaining portfolio investment to represent a larger portion of the Companys total assets. |
The Company has revised the above-referenced disclosure in response to the Staffs comment.
2. | We note your revised disclosure referencing a simple average calculation. Please revise such disclosure to clarify that whether the average is unweighted. |
Mr. Kevin Rupert
April 30, 2010
Page 2
The Company has revised the above-referenced disclosure in response to the Staffs comment.
3. | We note your revised disclosure referencing a subsequent investment advisory agreement. Please revise such disclosure to clarify that any such investment advisory agreement will be different than the one that is the subject of the current stockholder proposal. |
The Company has revised the above-referenced disclosure in response to the Staffs comment.
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If you have any questions or additional comments concerning the foregoing, please contact John J. Mahon at (202) 383-0515 or the undersigned at (202) 383-0176.
Sincerely,
/s/ Steven B. Boehm
Steven B. Boehm
cc: | Mr. Jonathan H. Cohen |
Chief Executive Officer
TICC Capital Corp.
John J. Mahon, Esq.
Sutherland Asbill & Brennan LLP