Filed pursuant to Rule 497
Registration Statement No. 333-151930

SUBJECT TO COMPLETION, DATED APRIL 21, 2009

 

PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated April 16, 2009)

 

           Shares

 

 

Common Stock

 

 

We are offering           shares of our common stock to fund investments in lower middle market companies in accordance with our investment objective and strategies and for working capital and general corporate purposes. These shares are being offered at a discount from our most recently determined net asset value per share pursuant to authority granted by our stockholders at the annual meeting of stockholders held on May 7, 2008. Our current authority to offer shares at a price below net asset value per share ends on May 6, 2009, unless our stockholders vote to extend this authority at our 2009 annual meeting of stockholders on May 6, 2009. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share. See “Risk Factors” beginning on page S-6 and “Sales of Common Stock Below Net Asset Value” on page S-12 of this prospectus supplement and on page 13 of the accompanying prospectus.

 

Our common stock is listed on the Nasdaq Global Market under the symbol “TCAP,” and we have applied to list the shares of common stock offered by this prospectus supplement, subject to notice of issuance. The last reported sale price on April 20, 2009 was $11.44 per share. Our net asset value per share was $13.22 as of December 31, 2008, or $12.97 per share taking into account the effect of the 133,000 shares of restricted common stock we issued to certain employees in February 2009.

 

Please read this prospectus supplement, and the accompanying prospectus, before investing, and keep it for future reference. This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our common stock. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. This information is available free of charge by contacting us at 3700 Glenwood Avenue, Suite 530, Raleigh, North Carolina 27612, or by telephone by calling collect at (919) 719-4770, or on our website at www.tcap.com. The information on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus. The SEC also maintains a website at www.sec.gov that contains such information.

 

 

Investing in our common stock is speculative and involves numerous risks, and you could lose your entire investment if any of the risks occurs. Among these risks is the risk associated with the use of leverage. For more information regarding these risks, please see “Risk Factors” beginning on page S-6 of this prospectus supplement and on page 13 of the accompanying prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission, nor any other regulatory body, has approved or disapproved of these securities or determined if either this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

The underwriters have the option to purchase up to an additional          shares of common stock at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus supplement solely to cover any over-allotments. If the over-allotment option is exercised in full, the total public offering price will be $      , and the total underwriting discount (5.00%) will be $     . The proceeds to us would be $      , before deducting estimated expenses payable by us of $     .

 

The underwriters expect to deliver the shares on or about          , 2009.

 

Morgan Keegan & Company, Inc.

 

BB&T Capital Markets

A Division of Scott & Stringfellow, LLC

 

RBC Capital Markets

 

The date of this prospectus supplement is          , 2009.

TABLE OF CONTENTS

 

PROSPECTUS SUPPLEMENT

 

 

ABOUT THIS PROSPECTUS

 

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of the common stock we are offering and certain other matters relating to us. The second part, the accompanying prospectus, gives more general information about the common stock which we may offer from time to time, some of which may not apply to the common stock offered by this prospectus supplement. For information about our common stock, see “Description of Our Securities” in the accompanying prospectus.

 

If information varies between this prospectus supplement and the accompanying prospectus, you should rely only on such information in this prospectus supplement. The information contained or incorporated by reference in this prospectus supplement supersedes any inconsistent information included or incorporated by reference in the accompanying prospectus. In various places in this prospectus supplement and the accompanying prospectus, we refer you to other sections of such documents for additional information by indicating the caption heading of such other sections. The page on which each principal caption included in this prospectus supplement and the accompanying prospectus can be found is listed in the table of contents above. All such cross references in this prospectus supplement are to captions contained in this prospectus supplement and not in the accompanying prospectus, unless otherwise stated.

 

Unless we have indicated otherwise, all information in this prospectus supplement assumes that the underwriters do not exercise their option to purchase additional shares from us to cover any over-allotments. Unless we have indicated otherwise, or the context otherwise requires, references in this prospectus supplement to “$” or “dollar” are to the lawful currency of the United States.

 

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND ANY DOCUMENTS INCORPORATED BY REFERENCE IS ACCURATE ONLY AS OF THE RESPECTIVE DATES OF SUCH INFORMATION, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS OR ANY SALES OF THE SHARES OF COMMON STOCK. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THOSE DATES.

 

PROSPECTUS SUMMARY

	•	Focusing on Underserved Markets.  We believe that broad-based consolidation in the financial services industry coupled with operating margin and growth pressures have caused financial institutions to de-emphasize services to lower middle market companies in favor of larger corporate clients and capital market transactions. We believe these dynamics have resulted in the financing market for lower middle market companies to be underserved, providing us with greater investment opportunities.
	•	Providing Customized Financing Solutions.  We offer a variety of financing structures and have the flexibility to structure our investments to meet the needs of our portfolio companies. Typically we invest in senior and subordinated debt securities, coupled with equity interests. We believe our ability to customize financing arrangements makes us an attractive partner to lower middle market companies.
	•	Leveraging the Experience of Our Management Team.  Our senior management team has more than 100 years of combined experience advising, investing in, lending to and operating companies across changing market cycles. The members of our management team have diverse investment backgrounds, with prior experience at investment banks, specialty finance companies, commercial banks, and privately and publicly held companies in the capacity of executive officers. We believe this diverse experience provides us with an in-depth understanding of the strategic, financial and operational opportunities associated with lower middle market companies. We believe this understanding allows us to select and structure better investments and to efficiently monitor and provide managerial assistance to our portfolio companies.
	•	Applying Rigorous Underwriting Policies and Active Portfolio Management.  Our senior management team has implemented rigorous underwriting policies that are followed in each transaction. These policies include a thorough analysis of each potential portfolio company’s competitive position, financial performance, management team operating discipline, growth potential and industry attractiveness, allowing us to better assess the company’s prospects. After investing in a company, we monitor the investment closely, typically receiving monthly, quarterly and annual financial statements. We analyze and discuss in detail the company’s financial performance with management in addition to attending regular board of directors meetings. We believe that our initial and ongoing portfolio review process allows us to monitor effectively the performance and prospects of our portfolio companies.
	•	Taking Advantage of Low Cost Debentures Guaranteed by the SBA.  Our license to do business as an SBIC allows us to issue fixed-rate, low interest debentures which are guaranteed by the SBA and sold in the capital markets, potentially allowing us to increase our net interest income beyond the levels achievable by other BDCs utilizing traditional leverage.
	•	Investing Across Multiple Industries.  While we focus our investments in lower middle market companies, we seek to invest across various industries. We monitor our investment portfolio to ensure we have acceptable industry balance, using industry and market metrics as key indicators. By monitoring our investment portfolio for industry balance we seek to reduce the effects of economic downturns associated with any particular industry or market sector. However, we may from time to time hold securities of a single portfolio company that comprise more than 5.0% of our total assets and/or more than 10.0% of the outstanding voting securities of the portfolio company. For that reason, we are classified as a non-diversified management investment company under the 1940 Act.
	•	Utilizing Long-Standing Relationships to Source Deals.  Our senior management team maintains extensive relationships with entrepreneurs, financial sponsors, attorneys, accountants, investment bankers, commercial bankers and other non-bank providers of capital who refer prospective portfolio companies to us. These relationships historically have generated significant investment opportunities. We believe that our network of relationships will continue to produce attractive investment opportunities.

	•	Established Companies With Positive Cash Flow.  We seek to invest in established companies with a history of generating revenues and positive cash flows. We typically focus on companies with a history of profitability and minimum trailing twelve month EBITDA of $2.0 million. We do not invest in start-up companies, distressed situations, “turn-around” situations or companies that we believe have unproven business plans.
	•	Experienced Management Teams With Meaningful Equity Ownership.  Based on our prior investment experience, we believe that a management team with significant experience with a portfolio company or relevant industry experience and meaningful equity ownership is more committed to a portfolio company. We believe management teams with these attributes are more likely to manage the companies in a manner that protects our debt investment and enhances the value of our equity investment.
	•	Strong Competitive Position.  We seek to invest in companies that have developed strong positions within their respective markets, are well positioned to capitalize on growth opportunities and compete in industries with barriers to entry. We also seek to invest in companies that exhibit a competitive advantage, which may help to protect their market position and profitability.
	•	Varied Customer and Supplier Base.  We prefer to invest in companies that have a varied customer and supplier base. Companies with a varied customer and supplier base are generally better able to endure economic downturns, industry consolidation and shifting customer preferences.
	•	Significant Invested Capital.  We believe the existence of significant underlying equity value provides important support to investments. We will look for portfolio companies that we believe have sufficient value beyond the layer of the capital structure in which we invest.

Common stock offered by us		shares
Common stock outstanding prior to this offering		7,047,663 shares
Common stock to be outstanding after this offering(1)		shares
Over-allotment option		shares
Use of proceeds		We expect that the net proceeds from this offering (without exercise of the over-allotment option) will be approximately $      million.
		We intend to use the net proceeds from selling our common stock to make investments in lower middle market companies in accordance with our investment objective and strategies and for working capital and general corporate purposes. See “Use of Proceeds” in this prospectus supplement for more information.
Dividends and distributions		Our dividends and other distributions, if any, are determined and declared by our Board of Directors from time to time. On February 17, 2009, our Board of Directors declared a capital gains distribution of $0.05 per share. On March 11, 2009, our Board of Directors declared a quarterly dividend of $0.40 per share representing an annualized dividend yield of approximately 14.0% based on our closing price of our common stock on the Nasdaq Global Market on April 20, 2009. Our ability to declare dividends depends on our earnings, our overall financial condition (including our liquidity position), maintenance of our Regulated Investment Company (“RIC”) status, compliance with applicable Business Development Company (“BDC”) regulations, our compliance with applicable Small Business Investment Company (“SBIC”) regulations and such other factors as our Board of Directors may deem relevant from time to time. We typically pay quarterly dividends and may pay other distributions to our stockholders out of assets legally available for distribution.
Taxation		We have elected to be treated as a RIC. Accordingly, we generally will not pay corporate-level federal income taxes on any net ordinary income or capital gains that we distribute to our stockholders as dividends. To maintain our RIC tax treatment, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90.0% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.
Risk factors		See the “Risk Factors” section beginning on page S-6 of this prospectus supplement and on page 13 of the accompanying prospectus.
Nasdaq Global Market symbol		“TCAP”

(1)		The number of shares of common stock to be outstanding after this offering is based on 7,047,663 shares outstanding as of April 20, 2009 and, unless we indicate otherwise, excludes (i) 656,200 shares of common stock reserved for issuance under our equity incentive plan, and (ii)           shares of common stock that the underwriters have an option to purchase pursuant to their over-allotment option.

 

The following table is intended to assist you in understanding our and Triangle SBIC’s consolidated costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement contains a reference to fees or expenses paid by “you,” “us” or “Triangle,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.

 

 

 

Example

 

The following example is required by the Securities and Exchange Commission and demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in us. In calculating the following expense amounts, we assumed we would have no additional leverage and that our operating expenses would remain at the levels set forth in the table above.

 

 

The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or lesser than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. The table above does not reflect additional SBA leverage that we intend to employ in the future. “Other expenses” are based on estimated amounts for the current fiscal year. In addition, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the dividend payment date, which may be at, above or below net asset value. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this prospectus supplement and in the accompanying prospectus, before you decide whether to make an investment in our common stock. The risks set forth below and on page 13 of the accompanying prospectus are not the only risks we face. If any of the adverse events or conditions described below occurs, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value (“NAV”) and the trading price of our common stock could decline; we could reduce or eliminate our dividend; and you could lose all or part of your investment.

 

Recent developments may increase the risks associated with our business and an investment in us.

 

The U.S. economy and financial markets have been experiencing a high level of volatility, disruption and stress, which was exacerbated by the failure of several major financial institutions in the last few months of 2008. In addition, the U.S. economy has entered a recession, which is likely to be severe and prolonged. Similar conditions have occurred in the financial markets and economies of numerous other countries and could worsen, both in the U.S. and globally. These conditions have raised the level of many of the risks described in the accompanying prospectus and could have an adverse effect on our portfolio companies and on their results of operations, financial conditions, access to credit and capital. The stress in the credit market and upon banks have led other creditors to tighten credit and the terms of credit. In certain cases, senior lenders to our customers can block payments by our customers in respect of our loans to such customers. In turn, these could have adverse effects on our business, financial condition, results of operations, dividend payments, access to capital, valuation of our assets and our stock price.

 

 

Our Board of Directors determines the fair value of our portfolio investments on a quarterly basis based on input from management, our audit committee and, as to certain of our investments, a third party independent valuation firm. The last such determination of fair value was as of December 31, 2008, and, while the Board of Directors will review our net asset value per share in connection with this offering, it will not have the benefit of input from the independent valuation firm when it does so. Moreover, our financial statements have not been audited by our independent registered public accounting firm for any periods since December 31, 2008. The fair value of various individual investments in our portfolio and/or the aggregate fair value of our investments may have changed significantly since that time. If our Board of Directors determines that the fair value of our investment portfolio at March 31, 2009 was less than such fair value at December 31, 2008, then we will record an unrealized loss on our investment portfolio and report a lower net asset value per share than is reflected in the Selected Condensed Financial Data and the financial statements included elsewhere in this prospectus supplement and the accompanying prospectus. If our Board of Directors determines that the fair value of our investment portfolio at March 31, 2009 was greater than such fair value at December 31, 2008, we will record an unrealized gain on our investment portfolio and report a greater net asset value per share than so reflected elsewhere in this prospectus supplement and the accompanying prospectus. Upon publication of this information in connection with our announcement of operating results for our fiscal quarter ended March 31, 2009, the market price of our common stock may fluctuate materially, and may be substantially less than the price per share you pay for our common stock in this offering.

 

 

As of December 31, 2008, the fair value of our non-accrual assets was approximately $2.9 million, which comprised 1.6% of the total fair value of our portfolio. The fair value of these non-accrual assets was less than cost as of December 31, 2008. In addition, as of December 31, 2008, we had, on a fair value basis, approximately $10.2 million of debt investments or 5.6% of the total fair value of our portfolio, which were current with respect to scheduled interest and principal payments, but which were carried at less than cost. In light of current economic conditions, certain of our portfolio companies may be unable to service our debt

investments on a timely basis. These conditions may also decrease the value of collateral securing some of our debt investments, as well as the value of our equity investments. As a result, the number of non-performing assets in our portfolio may increase, and the overall value of our portfolio may decrease, which could lead to financial losses in our portfolio and a decrease in our investment income, net investment income, dividends and assets.

 

 

We have obtained approval from our stockholders for us to be able to sell an unlimited number of shares of our common stock at any level of discount from net asset value per share in certain circumstances during the one-year period ending May 6, 2009 as described in the accompanying prospectus. The issuance or sale by us of shares of our common stock at a discount to net asset value poses a risk of dilution to our stockholders. In particular, stockholders who do not purchase additional shares at or below the discounted price in proportion to their current ownership will experience an immediate decrease in net asset value per share (as well as in the aggregate net asset value of their shares if they do not participate at all). These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we experience in our assets, potential earning power and voting interests from such issuance or sale. In addition, such sales may adversely affect the price at which our common stock trades. For additional information and hypothetical examples of these risks, see “Sales of Common Stock Below Net Asset Value” in this prospectus supplement and in the accompanying prospectus.

 

Some of the statements in this prospectus constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this prospectus may include statements as to:

 

 

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this prospectus involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Risk Factors” and elsewhere in this prospectus. Other factors that could cause actual results to differ materially include:

 

 

We have based the forward-looking statements included in this prospectus on information available to us on the date of this prospectus, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. We note that the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995 does not apply to statements made in this prospectus.

 

The net proceeds from the sale of           shares of our common stock in this offering are $ ($      million if the underwriters exercise their over-allotment option in full) after deducting underwriting discounts of $      (or $      million if the underwriters exercise their over-allotment option in full) and estimated offering expenses of approximately $      payable by us. We intend to invest the net proceeds in lower middle market companies in accordance with our investment objective and strategies, and for working capital and general corporate purposes. Pending such use, we will invest the net proceeds of this offering primarily in short-term securities consistent with our BDC election and our election to be taxed as a RIC. See “Regulation — Temporary Investments” in the accompanying prospectus.

 

The following table sets forth our capitalization:

 

 

This table should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included in this prospectus supplement and the accompanying prospectus.

 

 

We have paid and intend to continue to distribute quarterly dividends to our stockholders out of assets legally available for distribution. Our distributions, if any, will be determined by our Board of Directors.

 

In order to maintain RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute during each calendar year an amount at least equal to the sum of:

 

 

In addition, although we currently intend to distribute realized net capital gains (which we define as net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may decide in the future to retain such capital gains for investment. In such event, the consequences of our retention of net capital gains are as described under “Material U.S. Federal Income Tax Considerations” in the accompanying prospectus. We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings.

 

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend then each stockholder’s dividend will be automatically reinvested in additional shares of our common stock, unless the stockholder has specifically “opted out” of the dividend reinvestment plan so as to receive cash dividends. See “Dividend Reinvestment Plan” in the accompanying prospectus. To the extent prudent and practicable, we intend to declare and pay dividends on a quarterly basis.

 

With respect to the dividends paid to stockholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies were treated as taxable income and distributed to stockholders. For the fiscal year ended December 31, 2008, we declared total dividends of approximately $10.0 million.

 

Tax characteristics of all distributions will be reported to stockholders, as appropriate, on Form 1099-DIV after the end of the year. Our ability to pay distributions could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.

 

Our common stock is quoted on the Nasdaq Global Market under the symbol “TCAP.” The following table sets forth, for the entire public trading history of our common stock, our NAV per share of common stock and the high and low prices per share of our common stock as reported on the Nasdaq Global Market.

Our common stock has historically traded at prices both above and below its NAV. There can be no assurance, however, that such premium or discount, as applicable, to NAV will be maintained.

 

 

 

 

On April 20, 2009, the last reported sales price of our common stock was $11.44 per share, and our most recently determined NAV per share was $13.22 as of December 31, 2008. The NAV per share on December 31, 2008, taking into account the 133,000 shares of restricted common stock issued to certain employees in February 2009, was $12.97. As of April 20, 2009, we had approximately 76 stockholders of record.

 

The table below sets forth each class of our outstanding securities as of December 31, 2008:

 

 

 

 

At our annual meeting of stockholders held on May 7, 2008, our stockholders approved our ability to sell an unlimited number of shares of our common stock at any level of discount from NAV per share during the one year period following such approval, such period to end on May 6, 2009. In order to sell shares pursuant to this authorization, a majority of our directors who have no financial interest in the sale and a majority of our independent directors must (a) find that the sale is in our best interests and in the best interests of our stockholders, and (b) in consultation with any underwriter or underwriters of the offering, make a good faith determination as of a time either immediately prior to the first solicitation by us or on our behalf of firm commitments to purchase such shares, or immediately prior to the issuance of such shares, that the price at which such shares are to be sold is not less than a price which closely approximates the market value of such shares, less any distributing commission or discount.

 

The offering being made pursuant to this prospectus supplement is at a price below our most recently determined NAV per share. In making a determination that this offering is in our and our stockholders’ best interests, our Board of Directors considered a variety of factors including matters such as:

 

 

Certain Restrictions

 

We will not sell shares under this post-effective amendment to the registration statement of which this prospectus supplement forms a part (the “current amendment”), if the cumulative dilution to the Company’s NAV per share from offerings under the current amendment would exceed 15.0%. This will be measured separately for each offering (starting with this offering) pursuant to the current amendment by calculating the percentage dilution or accretion to aggregate NAV from each offering, and then adding or subtracting, as the case may be, the individual dilution or accretion percentages from each offering to arrive at a cumulative dilution percentage. For an illustration of this limitation, we have provided the following examples:

 

First Offering Under the Current Amendment:  For purposes of illustration only, assume that, at the time of this offering, we have 7,000,000 shares outstanding and net assets of $91,000,000, yielding an NAV per share of $13.00. If we then sell 2,100,000 newly issued shares of our common stock in this offering at net proceeds to us of $9.00 per share (a 30.8% discount to NAV), immediately after this offering we will have a

total of 9,100,000 shares outstanding and net assets of $109,900,000, yielding an NAV per share of $12.08, which represents dilution of 7.1% to our NAV. The following table provides an illustration of this example:

 

 

Second Offering Under the Current Amendment:  If, subsequent to this offering, we undertake one or more additional offerings of our common stock to the public at a price below NAV pursuant to the current amendment, we are required to ensure that each subsequent offering or offerings do not cause our aggregate dilution to NAV to exceed 15.0%. For example, assume that, at the time of a second offering, we have 9,100,000 shares outstanding and net assets of $122,850,000, yielding an NAV per share of $13.50. If we then sell 3,000,000 newly issued shares of our common stock in the second offering at net proceeds to us of $10.00 per share (a 25.9% discount to NAV), immediately after the subsequent offering we will have a total of 12,100,000 shares outstanding and net assets of $152,850,000, yielding an NAV per share of $12.63, which represents dilution from the second offering of 6.4% to our NAV. After completion of the second offering, the aggregate dilution to our NAV per share from the above two hypothetical offerings would be 13.5%, which would be less than the 15.0% aggregate dilution limitation. The following table provides an illustration of this second offering example:

 

 

Third Offering Under the Current Amendment:  If we undertake a third offering pursuant to the current amendment, the dilution resulting from this offering could not exceed 1.5%. In this example, assume that, at the time of a third offering, we have 12,100,000 shares outstanding and net assets of $157,300,000, yielding an NAV per share of $13.00. Assuming net proceeds per share to us of $10.00 per share, we could sell a maximum of 824,000 shares under a third offering (representing dilution of 1.5%) before we would reach the 15.0% aggregate dilution limitation. In order to resume sales below NAV, we would need to file another post effective amendment with the SEC. If the staff of the SEC should declare that post effective amendment effective, we could resume sales below NAV. If we file another post effective amendment with the SEC which

is declared effective, the 15.0% threshold for any further offerings of our common stock we make at a price per share below NAV would reset. The following table provides an illustration of this third offering example:

 

 

Impact on Stockholders and Investors

 

Sales by us of our common stock at a discount from NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.

 

The following three headings and accompanying tables will explain and provide hypothetical examples on the impact of an offering at a price less than NAV per share on three different set of investors:

 

 

Impact On Existing Stockholders Who Do Not Participate in the Offering

 

Our existing stockholders who do not participate in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or lower price we obtain in the offering (after expenses and commissions) face the greatest potential risks. These stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares they hold and their NAV per share. These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we will experience in our assets, potential earning power and voting interests due to the offering. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.

The following table illustrates the level of NAV dilution that would be experienced by a current stockholder who does not participate in this offering. It is not possible to predict the level of market price decline that may occur.

 

 

 

 

Impact On Existing Stockholders Who Do Participate in this Offering

 

Our existing stockholders who participate in this offering or who buy additional shares in the secondary market at the same or lower price as we obtain in this offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our shares immediately prior to the offering. The level of NAV dilution will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than such percentage will experience NAV dilution but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares such stockholder purchases increases. Even a stockholder who overparticipates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder does not participate, in which case such a stockholder will experience NAV dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.

The following table illustrates the level of dilution and accretion in this offering for a current stockholder that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e.,     shares, which is 0.5% of this offering rather than its 1.0% proportionate share) and (2) 150% of such percentage (i.e.,           shares, which is 1.5% of the offering rather than its 1.0% proportionate share).

 

 

 

 

Impact On New Investors

 

Investors who are not currently stockholders and who participate in an offering below NAV but whose investment per share is greater than the resulting NAV per share due to selling compensation and expenses paid by the issuer will experience an immediate decrease, albeit small, in the NAV of their shares and their NAV per share compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV per share due to selling compensation and expenses paid by the issuer being significantly less than the discount per share will experience an immediate increase in the NAV of their shares and their NAV per share compared to the price they pay for their shares. These investors will experience a disproportionately greater participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or

potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.

 

The following table illustrates the level of dilution or accretion for new investors that will be experienced by a new investor who purchases the same percentage (1.0%) of the shares in this offering as the stockholder in the prior examples held immediately prior to this offering. These stockholders or investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases. It is not possible to predict the level of market price decline that may occur.

 

 

 

 

Subject to the terms and conditions of an underwriting agreement dated April   , 2009, the underwriters named below have agreed severally to purchase from us the number of shares of common stock indicated in the following table.

 

 

The underwriting agreement provides that the obligations of the underwriters are subject to approval of certain legal matters by counsel, delivery of customary closing certificates and certain other conditions. The underwriters are obligated to purchase all of the shares of common stock listed in the table above if any of these shares are purchased.

 

The underwriters propose to offer shares of our common stock directly to the public at the public offering price set forth on the cover page of this prospectus supplement. Any shares sold by the underwriters to securities dealers will be sold at the public offering price less a selling concession not to exceed $      per share. The underwriters may allow a concession of not more than $      per share to other brokers and dealers.

 

Other than in the United States, no action has been taken by us or by the underwriters that would permit a public offering of the shares of common stock included in this offering in any jurisdiction where action for that purpose is required. The shares of common stock included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus supplement or any other offering material or advertisements in connection with the offer and sales of any shares of common stock be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction.

 

The underwriters have advised us that they do not intend to confirm sales to any account over which it exercises discretionary authority.

 

Underwriting Discount and Expenses

 

The following table summarizes the underwriting discount to be paid to the underwriters by us.

 

 

The maximum commission or discount to be received by any Financial Industry Regulatory Authority, or FINRA, member or independent broker-dealer will not exceed 10.0% for the sale of any securities being registered, including 0.5% for due diligence. We will pay all expenses of the offering that we incur. We estimate that our total expenses for this offering, excluding the underwriting discount, will be approximately $     .

 

Over-allotment Option

 

We have granted to the underwriters an option to purchase up to          additional shares of our common stock at the public offering price, less the underwriting discount, set forth on the cover page of this prospectus supplement. The underwriters may exercise the option on or before the 30th day after the date of this prospectus supplement. The underwriters may exercise the option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise the option, each underwriter will become obligated, as long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock approximately proportionate to that underwriter’s initial

commitment as indicated in the table above. We will be obligated, pursuant to the option, to sell these additional shares of common stock to the underwriters to the extent the option is exercised.

 

Passive Market Making Pursuant to Regulation M

 

In connection with this transaction, the underwriters may engage in passive market making transactions in the common stock on the Nasdaq Global Market, prior to the pricing and completion of this offering. Passive market making is permitted by SEC Regulation M and consists of displaying bids on the Nasdaq Global Market no higher than the bid prices of independent market makers and making purchases at prices no higher than these independent bids and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker’s average daily trading volume in the common stock during a specified period and must be discontinued when such limit is reached. Passive market making may cause the price of the common stock to be higher than the price that otherwise would exist in the open market in the absence of such transactions.

 

Indemnification

 

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of any of these liabilities.

 

Stabilization, Short Positions and Penalty Bids

 

The underwriters may engage in over-allotment, syndicate covering transactions, stabilizing transactions and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock:

 

 

Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effort that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

 

Lock-Up Provisions/Agreements

 

Except for the shares of our common stock offered hereby and shares of common stock issued or purchased pursuant to our dividend reinvestment plan or our Amended and Restated 2007 Equity Incentive Plan, we and our directors and executive officers, individually, have agreed that, for a period of 90 days from the public offering date set forth on the final prospectus, we and each of the directors and executive officers, will not, except under certain circumstances, without the prior written consent of Morgan Keegan & Company, Inc., on behalf of the underwriters, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of our common stock or any securities convertible into or exerciseable or exchangeable for our common stock, or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the risk of owning our common stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of our common stock or such other securities, in cash or otherwise, subject to certain exceptions.

 

The 90 day lock-up period described in the preceding paragraph will automatically be extended if (i) during the last 17 days of the 90 day lock-up period, we issue an earnings release or material news or a material event relating to us occurs, or (ii) prior to the expiration of the lock-up period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16 day period beginning on the last day of the lock-up period, then the lock-up period shall automatically be extended and the restrictions described above shall continue to apply until the expiration of the 18 day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as applicable, unless the representative of the underwriters waives, in writing, such extension.

 

Other Relationships

 

The underwriters and their affiliates have provided in the past to us, and may from time to time in the future provide, certain commercial banking, financial advisory, investment banking and other services, for which they will be entitled to receive separate fees. The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us or our portfolio companies in the ordinary course of business.

 

Certain legal matters will be passed upon for us by Bass, Berry & Sims PLC, Memphis, Tennessee, and Venable LLP, Baltimore, Maryland, will pass upon certain matters of Maryland law. Certain legal matters in connection with this offering will be passed upon for the underwriters by Jones Day, Atlanta, Georgia.

 

Ernst & Young LLP, Raleigh, North Carolina, is the independent registered public accounting firm for Triangle Capital Corporation.

 

We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the common stock offered by this prospectus supplement. The registration statement contains additional information about us and the common stock being offered by this prospectus supplement.

 

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SEC’s website at http://www.sec.gov.

PROSPECTUS

 

$300,000,000

 

 

Common Stock

 

We may offer, from time to time, up to $300,000,000 worth of our common stock, $0.001 par value per share in one or more offerings. Our common stock may be offered at prices and on terms to be disclosed in one or more supplements to this prospectus.

 

We may offer shares of common stock at a discount to net asset value per share in certain circumstances. On May 7, 2008, our common stockholders voted to allow us to issue common stock at a price below net asset value per share for a period of one year ending May 6, 2009. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing our net asset value per share and may reduce our market price per share.

 

Our stockholders did not specify a maximum discount below net asset value at which we are able to issue our common stock; however, we do not intend to issue shares of our common stock below net asset value unless our board of directors determines that it would be in our stockholders’ best interests to do so. Shares of closed-end investment companies such as us frequently trade at a discount to their net asset value. This risk is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our common stock will trade above, at or below net asset value. You should read this prospectus and the applicable prospectus supplement carefully before you invest in our common stock.

 

Our common stock may be offered directly to one or more purchasers through agents designated from time to time by us, or to or through underwriters or dealers. The prospectus supplement relating to the offering will identify any agents or underwriters involved in the sale of our common stock, and will disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution.” We may not sell any of our common stock through agents, underwriters or dealers without delivery of a prospectus supplement describing the method and terms of the offering of such common stock.

 

We are a specialty finance company that provides customized financing solutions to lower middle market companies located throughout the United States, with an emphasis on the Southeast. Our investment objective is to seek attractive returns by generating current income from our debt investments and capital appreciation from our equity related investments. We are an internally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940.

 

Our common stock is listed on the Nasdaq Global Market under the symbol “TCAP.” On April 9, 2009, the last reported sale price of our common stock on the Nasdaq Global Market was $10.40 per share.

 

 

Investing in our common stock is speculative and involves numerous risks, and you could lose your entire investment if any of the risks occurs. Among these risks is the risk associated with the use of leverage. For more information regarding these risks, please see “Risk Factors” beginning on page 13.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

Please read this prospectus and the accompanying prospectus supplement, if any, before investing, and keep it for future reference. It concisely sets forth important information about us that a prospective investor ought to know before investing in our common stock. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. This information is available free of charge by contacting us at 3700 Glenwood Avenue, Suite 530, Raleigh, North Carolina 27612, or by telephone at (919) 719-4770 or on our website at www.tcap.com. The Securities and Exchange Commission also maintains a website at www.sec.gov that contains such information.

 

 

The date of this prospectus is April 16, 2009.

 

TABLE OF CONTENTS

 

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or SEC, using the “shelf” registration process. Under the shelf registration process, we may offer, from time to time, up to $300,000,000 worth of our common stock on terms to be determined at the time of the offering. This prospectus provides you with a general description of the common stock that we may offer. Each time we use this prospectus to offer common stock, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. Please carefully read this prospectus and any accompanying prospectus supplement together with the additional information described under “Available Information” and “Risk Factors” before you make an investment decision.

 

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or any accompanying supplement to this prospectus. You must not rely on any unauthorized information or representations not contained in this prospectus or any accompanying prospectus supplement as if we had authorized it. This prospectus and any accompanying prospectus supplement do not constitute an offer to sell or a solicitation of any offer to buy any security other than the registered securities to which they relate, nor do they constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. The information contained in this prospectus and any accompanying prospectus supplement is accurate as of the dates on their covers.

 

PROSPECTUS SUMMARY

	•	Focusing on Underserved Markets.  We believe that broad-based consolidation in the financial services industry coupled with operating margin and growth pressures have caused financial institutions to

		de-emphasize services to lower middle market companies in favor of larger corporate clients and capital market transactions. We believe these dynamics have resulted in the financing market for lower middle market companies to be underserved, providing us with greater investment opportunities.

	•	Providing Customized Financing Solutions.  We offer a variety of financing structures and have the flexibility to structure our investments to meet the needs of our portfolio companies. Typically we invest in senior and subordinated debt securities, coupled with equity interests. We believe our ability to customize financing arrangements makes us an attractive partner to lower middle market companies.
	•	Leveraging the Experience of Our Management Team.  Our senior management team has more than 100 years of combined experience advising, investing in, lending to and operating companies across changing market cycles. The members of our management team have diverse investment backgrounds, with prior experience at investment banks, specialty finance companies, commercial banks, and privately and publicly held companies in the capacity of executive officers. We believe this diverse experience provides us with an in depth understanding of the strategic, financial and operational opportunities associated with lower middle market companies. We believe this understanding allows us to select and structure better investments and to efficiently monitor and provide managerial assistance to our portfolio companies.
	•	Applying Rigorous Underwriting Policies and Active Portfolio Management.  Our senior management team has implemented rigorous underwriting policies that are followed in each transaction. These policies include a thorough analysis of each potential portfolio company’s competitive position, financial performance, management team operating discipline, growth potential and industry attractiveness, allowing us to better assess the company’s prospects. After investing in a company, we monitor the investment closely, typically receiving monthly, quarterly and annual financial statements. We analyze and discuss in detail the company’s financial performance with management in addition to attending regular board of directors meetings. We believe that our initial and ongoing portfolio review process allows us to monitor effectively the performance and prospects of our portfolio companies.
	•	Taking Advantage of Low Cost Debentures Guaranteed by the SBA.  Our license to do business as an SBIC allows us to issue fixed-rate, low interest debentures which are guaranteed by the SBA and sold in the capital markets, potentially allowing us to increase our net interest income beyond the levels achievable by other BDCs utilizing traditional leverage.
	•	Investing Across Multiple Industries.  While we focus our investments in lower middle market companies, we seek to invest across various industries. We monitor our investment portfolio to ensure we have acceptable industry balance, using industry and market metrics as key indicators. By monitoring our investment portfolio for industry balance we seek to reduce the effects of economic downturns associated with any particular industry or market sector. However, we may from time to time hold securities of a single portfolio company that comprise more than 5.0% of our total assets and/or more than 10.0% of the outstanding voting securities of the portfolio company. For that reason, we are classified as a non-diversified management investment company under the 1940 Act.
	•	Utilizing Long-Standing Relationships to Source Deals.  Our senior management team maintains extensive relationships with entrepreneurs, financial sponsors, attorneys, accountants, investment bankers, commercial bankers and other non-bank providers of capital who refer prospective portfolio companies to us. These relationships historically have generated significant investment opportunities. We believe that our network of relationships will continue to produce attractive investment opportunities.

	•	Established Companies With Positive Cash Flow.  We seek to invest in established companies with a history of generating revenues and positive cash flows. We typically focus on companies with a history

		of profitability and minimum trailing twelve month EBITDA of $2.0 million. We do not invest in start-up companies, distressed situations, “turn-around” situations or companies that we believe have unproven business plans.

	•	Experienced Management Teams With Meaningful Equity Ownership.  Based on our prior investment experience, we believe that a management team with significant experience with a portfolio company or relevant industry experience and meaningful equity ownership is more committed to a portfolio company. We believe management teams with these attributes are more likely to manage the companies in a manner that protects our debt investment and enhances the value of our equity investment.
	•	Strong Competitive Position.  We seek to invest in companies that have developed strong positions within their respective markets, are well positioned to capitalize on growth opportunities and compete in industries with barriers to entry. We also seek to invest in companies that exhibit a competitive advantage, which may help to protect their market position and profitability.
	•	Varied Customer and Supplier Base.  We prefer to invest in companies that have a varied customer and supplier base. Companies with a varied customer and supplier base are generally better able to endure economic downturns, industry consolidation and shifting customer preferences.
	•	Significant Invested Capital.  We believe the existence of significant underlying equity value provides important support to investments. We will look for portfolio companies that we believe have sufficient value beyond the layer of the capital structure in which we invest.

				Type of		Principal								Fair
Portfolio Company		Industry		Investment (1)(2)		Amount				Cost				Value(3)
Non-Control / Non-Affiliate Investments:
Ambient Air Corporation (“AAC”) and Peaden-Hobbs Mechanical, LLC (“PHM”) (6%)* 620 West Baldwin Road Panama City, FL 32405		Specialty Trade Contractors		Subordinated Note-AAC (14%, Due 03/11)		$	3,182,231			$	3,074,633			$	3,074,633
				Subordinated Note-AAC (18%, Due 03/11)			1,917,045				1,888,343				1,888,343
				Common Stock-PHM (126,634 shares)							126,634				126,634
				Common Stock Warrants-AAC (455 shares)							142,361				600,100
							5,099,276				5,231,971				5,689,710
American De-Rosa Lamparts, LLC		Wholesale and		Subordinated Note
and Hallmark Lighting (8%)*		Distribution		(15.25%, Due 10/13)			8,208,166				8,064,571				6,894,500
1945 S. Tubeway Ave. Commerce, CA 90040
							8,208,166				8,064,571				6,894,500
American Direct Marketing Resources, LLC (4%)		Direct Marketing		Subordinated Note
400 Chesterfield Center, Suite 500		Services		(15%, Due 03/15)			4,035,038				3,957,113				3,957,113
Chesterfield, MO 63017
							4,035,038				3,957,113				3,957,113
APO Newco, LLC (3%)*		Commercial and		Subordinated Note
3080 Bartlett Corporate Drive		Consumer		(14%, Due 03/13)			1,993,336				1,907,664				1,907,664
Bartlett, TN 38133		Marketing Products		Unit purchase warrant (87,302 Class C units)							25,200				1,033,400
							1,993,336				1,932,864				2,941,064
ARC Industries, LLC (3%)*		Remediation		Subordinated Note
221 Dalton Avenue		Services		(19%, Due 11/10)			2,528,587				2,508,276				2,508,276
Charlotte, NC 28225
							2,528,587				2,508,276				2,508,276

				Type of		Principal								Fair
Portfolio Company		Industry		Investment (1)(2)		Amount				Cost				Value(3)
Art Headquarters, LLC (3%)* 11885 44th Street Clearwater, FL 33762		Retail, Wholesale and Distribution		Subordinated Note (14%, Due 01/10)		$	2,333,488			$	2,309,951			$	2,309,951
				Membership unit warrants (15% of units (150 units))							40,800				—
							2,333,488				2,350,751				2,309,951
Assurance Operations Corp. (4%)*		Auto Components /		Subordinated Note
9341 Highway 43		Metal Fabrication		(17%, Due 03/12)			4,026,884				3,985,742				3,261,800
Killen, AL 35645				Common Stock (57 shares)							257,143				—
							4,026,884				4,242,885				3,261,800
CV Holdings, LLC (12%)*		Specialty		Subordinated Note
1030 Riverfront Center		Healthcare Products		(16%, Due 09/13)			10,776,412				9,780,508				9,780,508
Amsterdam, NY 12010		Manufacturer		Royalty rights							874,400				874,400
							10,776,412				10,654,908				10,654,908
Cyrus Networks, LLC (8%)* 4201 Southwest Freeway		Data Center Services Provider		Senior Note (6%, Due 07/13)			5,539,867				5,524,881				5,524,881
Houston, TX 77027				2nd Lien Note (9%, Due 01/14)			1,196,809				1,196,809				1,196,809
				Revolving Line of Credit (6%)			253,144				253,144				253,144
							6,989,820				6,974,834				6,974,834
DataPath, Inc. (0%)* 350 Technology Pkwy., Suite 400 Norcross, GA 30092		Satellite Communication Manufacturer		Common Stock (210,263 shares)							101,500				—
											101,500				—
Electronic Systems Protection, Inc. (5%)* 517 North Industrial Drive Zebulon, NC 27577		Power Protection Systems Manufacturing		Subordinated Note (14%, Due 12/15)			3,059,267				3,032,533				3,032,533
				Senior Note (6%, Due 01/14)			930,635				930,635				930,635
				Common Stock (500 shares)							285,000				285,000
							3,989,902				4,248,168				4,248,168
Energy Hardware Holdings, LLC (0%)* 2730 E. Phillips Road Greer, SC 29650		Machined Parts Distribution		Voting Units (4,833 units)							4,833				292,300
											4,833				292,300
FCL Graphics, Inc. (8%)* 4600 N. Olcott Ave.		Commercial Printing Services		Senior Note (8%, Due 5/12)			1,669,200				1,663,083				1,663,083
Harwood Heights, IL 60706				Senior Note (12%, Due 5/13)			2,000,000				1,993,191				1,993,191
				2nd Lien Note (18%, Due 11/13)			3,393,186				3,382,162				3,382,162
							7,062,386				7,038,436				7,038,436
Fire Sprinkler Systems, Inc. (1%)* 705 E. Harrison Street, Suite 200		Specialty Trade Contractors		Subordinated Notes (12%, Due 04/11)			2,388,362				2,356,781				1,000,000
Corona, CA 92879				Common Stock (283 shares)							282,905				11,719
							2,388,362				2,639,686				1,011,719
Garden Fresh Restaurant Corp. (4%)* 15822 Bernardo Center Drive San Diego, CA 92127		Restaurant		2nd Lien Note (11%, Due 12/11)			3,000,000				3,000,000				3,000,000
				Membership Units (5,000 units)							500,000				583,600
							3,000,000				3,500,000				3,583,600
Gerli & Company (2%)* 75 Stark Street		Specialty Woven Fabrics		Subordinated Note (14%, Due 08/11)			3,161,439				3,092,786				1,865,000
Plains, PA 18705		Manufacturer		Common Stock Warrants (56,559 shares)							83,414				—
							3,161,439				3,176,200				1,865,000
Inland Pipe Rehabilitation Holding Company, LLC (10%)*		Cleaning and Repair Services		Subordinated Note (14%, Due 01/14)			8,095,149				7,422,265				7,422,265
350 N. Old Woodward, Ste. 100 Birmingham, MI 48009				Membership Interest Purchase Warrant (2.5)%							563,300				1,407,300
							8,095,149				7,985,565				8,829,565
Jenkins Services, LLC (10%)* 45681 Oakbrook Ct., Ste. 113		Restoration Services		Subordinated Note (17.5%, Due 04/14)			8,411,172				8,266,277				8,266,277
Sterling, VA 20166				Convertible Note (10%, Due 04/14)			1,375,000				1,336,993				1,336,993
							9,786,172				9,603,270				9,603,270

				Type of		Principal								Fair
Portfolio Company		Industry		Investment (1)(2)		Amount				Cost				Value(3)
Library Systems & Services, LLC (3%)* 12850 Middlebrook Road		Municipal Business Services		Subordinated Note (12%, Due 03/11)		$	2,000,000			$	1,948,573			$	1,948,573
Germantown, MD 20874				Common Stock Warrants (112 shares)							58,995				802,500
							2,000,000				2,007,568				2,751,073
Novolyte Technologies, Inc. (8%)* 111 West Irene Road Zachory, LA 70791		Specialty Manufacturing		Subordinated Note (16%, Due 04/15)			7,048,222				6,880,696				6,880,696
				Preferred Units (600 units)							600,000				600,000
				Common Units (22,960 units)							150,000				150,000
							7,048,222				7,630,696				7,630,696
Syrgis Holdings, Inc. (6%)* 1025 Mary Laidley Drive		Specialty Chemical Manufacturer		Senior Note (7%, Due 08/12-02/14)			4,632,500				4,602,773				4,602,773
Covington, KY 41017				Common Units (2,114 units)							1,000,000				532,700
							4,632,500				5,602,773				5,135,473
TrustHouse Services Group, Inc. (5%)* 21 Armory Drive		Food Management Services		Subordinated Note (14%, Due 09/15)			4,264,494				4,186,542				4,186,542
Wheeling, WV 26003				Class A Units (1,495 units)							475,000				207,500
				Class B Units (79 units)							25,000				—
							4,264,494				4,686,542				4,394,042
Twin-Star International, Inc. (6%)* 115 S.E. 4th Avenue		Consumer Home Furnishings		Subordinated Note (15%, Due 04/14)			4,500,000				4,439,137				4,439,137
Delray Beach, FL 33483		Manufacturer		Senior Note (8%, Due 04/13)			1,301,921				1,301,921				1,301,921
							5,801,921				5,741,058				5,741,058
Waste Recyclers Holdings, LLC (13%) 261 Highway 20 East		Environmental and Facilities Services		Subordinated Note (15.5%, Due 01/13)			9,106,995				8,935,266				8,935,266
Suite A, B & D Freeport, FL 32439				Class A Preferred Units (300 Units)							2,251,100				2,251,100
				Common Unit Purchase Warrant (1,170,083 Units)							748,900				748,900
				Common Units (153,219 Units)							153,219				153,219
							9,106,995				12,088,485				12,088,485
Wholesale Floors, Inc. (4%)* 8855 N. Black Canyon Highway		Commercial Services		Subordinated Note (14%, Due 06/14)			3,500,000				3,341,947				3,341,947
Phoenix, AZ 85021				Membership Interest Purchase Warrant (4.0%)							132,800				—
							3,500,000				3,474,747				3,341,947
Yellowstone Landscape Group, Inc. (14%)*		Landscaping		Subordinated Note
220 Elm Street		Services		(15%, Due 04/14)			13,261,710				12,965,889				12,965,889
New Canaan, CT 06840
							13,261,710				12,965,889				12,965,889
Subtotal Non-Control / Non-Affiliate Investments							133,090,259				138,413,589				135,712,877
Affiliate Investments:
Asset Point, LLC (6%)* 770 Pelham Road, Suite 200		Asset Management Software Provider		Subordinated Note (15%, Due 03/13)			5,123,925				5,035,428				5,035,428
Greenville, SC 29615				Membership Units (10 units)							500,000				371,400
							5,123,925				5,535,428				5,406,828
Axxiom Manufacturing, Inc (3%)* 11927 South Highway 6		Industrial Equipment		Subordinated Note (14%, Due 01/11)			2,124,037				2,103,277				2,103,277
Fresno, TX 77545		Manufacturer		Common Stock (34,100 shares)							200,000				408,900
				Common Stock Warrant
				(1,000 shares)							—				10,600
							2,124,037				2,303,277				2,522,777
Brantley Transportation, LLC (“Brantley Transportation”) and Pine Street Holdings, LLC (“Pine Street”)(4) (4%)* 808 N. Ruth Street Monahans, TX 79756		Oil and Gas Services		Subordinated Note — Brantley Transportation (14%, Due 12/12)			3,800,000				3,690,525				3,690,525
				Common Unit Warrants — Brantley Transportation (4,560 common units)							33,600				41,800
				Preferred Units — Pine Street (200 units)							200,000				139,200
				Common Unit Warrants —
				Pine Street (2,220 units)							—				—
							3,800,000				3,924,125				3,871,525

				Type of		Principal								Fair
Portfolio Company		Industry		Investment (1)(2)		Amount				Cost				Value(3)
Dyson Corporation (12%)* 53 Freedom Road Painesville, OH 44077		Custom Forging and Fastener Supplies		Subordinated Note (15%, Due 12/13)		$	10,318,750			$	10,123,339			$	10,123,339
				Class A Units (1,000,000 units)							1,000,000				964,700
							10,318,750				11,123,339				11,088,039
Equisales, LLC (9%)* 13811 Cullen Blvd.		Energy Products and Services		Subordinated Note (15%, Due 04/12)			6,319,315				6,226,387				6,226,387
Houston, TX 77047				Class A Units (500,000 units)							500,000				2,322,400
							6,319,315				6,726,387				8,548,787
Flint Acquisition Corporation (2%)* 115 Todd Court Thomasville, NC 27360		Specialty Chemical Manufacturer		Preferred Stock (9,875 shares)							308,333				1,984,500
											308,333				1,984,500
Genapure Corporation (1%)* 1205 Industrial Blvd. 18966 Southampton, PA		Lab Testing Services		Common Stock 5,594 shares)							563,602				472,100
												563,602				472,100
Subtotal Affiliate Investments							27,686,027				30,484,491				33,894,556
Control Investments:
Fischbein, LLC (14%)* 151 Walker Road		Packaging and Materials Handling		Subordinated Note (16.5%, Due 05/13)			7,184,066				7,053,458				7,053,458
Statesville, NC 28625		Equipment Manufacturer		Membership Units (4,200,000 units)							4,200,000				5,444,400
							7,184,066				11,253,458				12,497,858
Subtotal Control Investments							7,184,066				11,253,458				12,497,858
Total Investments, December 31, 2008 (199%)*						$	167,960,352			$	180,151,538			$	182,105,291

*		Value as a percent of net assets
(1)		All debt investments are income producing. Common stock, preferred stock and all warrants are non-income producing.
(2)		Interest rates on subordinated debt include cash interest rate and, where applicable, paid-in-kind interest rate.
(3)		All investments are restricted as to resale and were valued at fair value as determined in good faith by our board of directors.
(4)		Pine Street Holdings, LLC is the majority owner of Brantley Transportation, LLC, and its sole business purpose is its ownership of Brantley Transportation, LLC.