FILE
NO. 812-14897
Before
the
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
In
the Matter of the Application of:
PROSPECT
CAPITAL CORPORATION
PRIORITY
INCOME FUND, INC.
TP
FLEXIBLE INCOME FUND, INC.
PROSPECT
CAPITAL MANAGEMENT L.P.
PRIORITY
SENIOR SECURED INCOME MANAGEMENT, LLC
PROSPECT
FLEXIBLE INCOME MANAGEMENT, LLC
AMENDED
AND RESTATED APPLICATION FOR AN ORDER
PURSUANT TO SECTION 6(c) OF THE INVESTMENT COMPANY ACT OF 1940
GRANTING AN EXEMPTION FROM SECTION 12(d)(3) OF THE ACT AND
RULE 12d3-1 UNDER THE ACT
All
Communications, Notices and Orders to:
Prospect
Capital Corporation
10 East 40
th
Street, 42
nd
Floor
New York, NY 10016
Attention:
Sean Dailey
(646)
380-1716
Copies
to:
Steven
B. Boehm, Esq.
Eversheds Sutherland (US) LLP
700 6
th
Street NW
Washington, DC 20001
(202)
383-0176
June
7, 2019
UNITED
STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
In
the Matter of
PROSPECT
CAPITAL CORPORATION
PRIORITY INCOME FUND, INC.
TP FLEXIBLE INCOME FUND, INC.
PROSPECT
CAPITAL MANAGEMENT L.P.
PRIORITY
SENIOR SECURED INCOME MANAGEMENT, LLC
PROSPECT FLEXIBLE INCOME MANAGEMENT, LLC
10 East 40
th
Street, 42
nd
Floor
New
York, NY 10016
File
No. 812-14897
Investment Company Act of 1940
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AMENDED
AND RESTATED APPLICATION FOR AN ORDER PURSUANT TO SECTION 6(c) OF THE INVESTMENT COMPANY ACT OF 1940 GRANTING AN EXEMPTION
FROM SECTION 12(d)(3) OF THE ACT AND RULE 12d3-1 UNDER THE ACT
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INTRODUCTION
In
this amended and restated application (the “Application”), (i) Prospect Capital Corporation (“PSEC”),
a Maryland corporation organized as a closed-end management investment company that has elected to be regulated as a business
development company under the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder
(the “1940 Act”), (ii) Priority Income Fund, Inc. (“PRIS”), a Maryland corporation organized as a closed-end
management investment company that has registered as an investment company under the 1940 Act, (iii) TP Flexible Income Fund,
Inc. (“FLEX” and, together with PSEC, PRIS and any Future Regulated Fund
1
, each, a “Company”
and collectively, the “Companies”), a Maryland corporation organized as a closed-end management investment company
that has elected to be regulated as a business development company under the 1940 Act, (iv) Prospect Capital Management L.P. (“PCM”),
a Delaware limited partnership that is registered as an investment adviser under the Investment Advisers Act of 1940, as amended
(the “Advisers Act”), that serves as the investment adviser of PSEC, (v) Priority Senior Secured Income Management,
LLC (“PRISM”), a Delaware limited liability company that is registered as an investment adviser under the Advisers
Act, that serves as the investment adviser of PRIS, and (vi) Prospect Flexible Income Management, LLC (“PFIM” and,
together with PCM, PRISM and any future investment adviser that controls, is controlled by or is under common control with PCM
and is registered as an investment adviser under the Advisers Act, each, an “Adviser”), a Delaware limited liability
company that is registered as an investment adviser under the Advisers Act, that serves as the investment adviser of FLEX (each
Adviser, together with each Company, the “Applicants”), apply for and request an order of the Securities and Exchange
Commission (the “Commission”) pursuant to Section 6(c) of the 1940 Act, exempting the Applicants(1) from the provisions
of Section 12(d)(3) of the 1940 Act and Rule 12d3-1 thereunder in order to permit the Companies to acquire the securities of various
investment managers, each of which the Applicants believe will be an issuer that derives more than 15% of its gross revenues from
“securities related activities,” as such term is defined in Rule 12d3-1(d)(1) under the 1940 Act, in excess of the
quantitative limitations set forth in Rule 12d3-1(b).
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1
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For purposes of this Application, “Future Regulated
Fund” means any closed-end management investment company (a) that is registered under the 1940 Act or has elected to be
regulated as a business development company and (b) whose investment adviser is an Adviser. For purposes of this Application,
“Applicants” means each Adviser and each Company or any successor to an Adviser or Company, respectively. For the
purposes of the requested order, “successor” is limited to an entity or entities that result from a reorganization
into another jurisdiction or a change in the type of business organization.
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This
application for exemption is made on the grounds that such exemption is appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the policy and provisions of the 1940 Act. The relief requested
by the Applicants will be referred to herein as “Relief.” No form having been specifically prescribed for this application,
the Applicants proceed under Rule 0-2 of the General Rules and Regulations of the Commission under the 1940 Act.
BACKGROUND
A.
General
PSEC
is a Maryland corporation organized as a closed-end management investment company that has elected to be regulated as a business
development company under Section 54 of the 1940 Act
2
. PSEC’s investment objective is to generate both current
income and long-term capital appreciation through debt and equity investments. PSEC invests primarily in senior and subordinated
debt and equity of private companies in need of capital for acquisitions, divestitures, growth, development, recapitalizations
and other purposes. PSEC had $5.85 billion in total assets under management as of March 31, 2019.
PRIS
is a Maryland corporation organized as a closed-end management investment company that has registered as an investment company
under the 1940 Act. PRIS’s investment objective is to generate current income and, as a secondary objective, long-term capital
appreciation. PRIS had $475 million in total assets under management as of March 31, 2019.
FLEX
is a Maryland corporation organized as a closed-end management investment company that has elected to be regulated as a business
development company under the 1940 Act. FLEX’s investment objective is to generate current income and, as a secondary objective,
long-term capital appreciation. FLEX had $25 million in total assets under management as of March 31, 2019.
The
companies in which the Companies would invest pursuant to the Relief will be private companies engaged exclusively in the investment
management and/or brokerage business (each, an “Investment Manager”). None of the Investment Managers will be part
of a larger financial institution.
Each
Company intends to provide debt capital to Investment Managers, including Investment Managers that are expected to be registered
under the Advisers Act or broker-dealers registered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The debt capital to be provided by a Company and/or its affiliates will involve a transaction whereby in exchange
for a non-voting, non-controlling loan, each Investment Manager will issue a participating convertible debt security to such Company
(each, a “Note” and such loan, a “Loan”). Each Note will have a coupon and will provide for repayment
of principal at the Note’s maturity in the event that it is not converted into equity of the underlying Investment Manager
at such time. The participation-based payment structure of each of the Notes will be based on the revenues of the underlying Investment
Manager or on its assets under management. If converted into equity, in general it is expected that in most cases the equity received
from the conversion of the Notes would consist of non-voting securities and in any case would not represent more than 25% of the
outstanding voting securities, or otherwise constitute control, of the underlying Investment Manager. The Applicants believe that
each Note will be an “investment security” as defined in Section 3(a)(2) of the 1940 Act. The Notes will not be actively
or publicly traded; rather, they will be purchased by a Company in highly negotiated “one-off” private transactions
and, generally, held to maturity.
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2
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Section 2(a)(48) of the 1940 Act defines a business development
company to be any closed-end investment company that operates for the purpose of making investments in securities described in
Sections 55(a)(1) through 55(a)(3) of the 1940 Act, makes available significant managerial assistance with respect to the issuers
of such securities and has elected to be subject to the provisions of Sections 55 through 65 of the 1940 Act.
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Each
Company has elected to be treated as a registered investment company under Subchapter M of the Internal Revenue Code of 1987,
as amended (the “Code”).
B.
The Advisers
PSEC
is externally managed by PCM. PCM is a Delaware limited partnership and an investment adviser registered with the Commission pursuant
to Section 203 of the Advisers Act. PCM is led by John F. Barry III and M. Grier Eliasek. Mr. Barry is the Chairman and Chief
Executive Officer of PSEC and controls PCM.
PRIS
is externally managed by PRISM. PRISM is a Delaware limited liability company and an investment adviser registered with the Commission
pursuant to Section 203 of the Advisers Act.
FLEX
is externally managed by PFIM. PFIM is a Delaware limited liability company and an investment adviser registered with the Commission
pursuant to Section 203 of the Advisers Act.
C.
The Companies’ Investments
Each
Company’s respective investment strategies are as described in such Company’s registration statement on Form N-2,
other filings such Company has made with the Commission under the Securities Act of 1933, as amended, the Exchange Act, and such
Company’s reports to shareholders (collectively, the “Investment Strategies”).
Due
to the fact that most of the issuers of the Notes are expected to be registered investment advisers or broker-dealers and it is
expected that most investments in the Notes will exceed the quantitative limitations set forth in Rule 12d3-1(b), absent exemptive
relief, the Applicants would not be in compliance with Section 12(d)(3) or Rule 12d3-1 of the 1940 Act. In certain instances,
and for separate business reasons, the actual issuer of the Note may not be the registered investment adviser or registered broker-dealer,
as applicable, itself but instead a company that holds an ownership interest in the registered investment adviser or registered
broker-dealer, as applicable (
i.e.
, a holding company). The prospect that Notes may be issued by an entity other than the
registered investment adviser or registered broker-dealer will be disclosed in the applicable Company’s prospectus.
The
Applicants expect that more than 15% of the revenues of each Investment Manager will be from “securities related activities”
as such term is defined in Rule 12d3-1(d)(1) of the 1940 Act. The Applicants believe the majority of each Investment Manager’s
revenue will be earned by charging fees based upon assets under management, investment performance or from securities-related
transactions. The amount of a Company’s investments in each of the Notes, which the Applicants believe will be treated as
equity securities for purposes of Rule 12d3-1, may exceed the amounts permitted in Rule 12d3-1(b). However, in certain instances
an investment by a Company may constitute less than 5% of the outstanding equity securities of an Investment Manager at the time
of the investment. In the event a Company invests in Notes of an Investment Manager that are treated as debt securities for purposes
of Rule 12d3-1, the principal amount of that debt will likely exceed 10% of the outstanding principal amount of the Investment
Manager’s debt securities. However, in certain instances an investment by a Company may constitute less than 10% of the
outstanding principal amount of an Investment Manager’s debt securities at the time of the investment.
In
addition, the Applicants believe that there may be instances in which more than 5% of the value of a Company’s total assets
will be invested in each of several Investment Managers. In order to comply with the Code’s diversification requirements
for regulated investment companies,
3
it is contemplated that, with respect to at least 50% of a Company’s total
assets, each of the investments in an Investment Manager will not constitute more than 5% of a Company’s total assets at
the time of investment. However, with respect to the remaining 50% of a Company’s total assets, such Company may make investments
that each constitute more than 5% but less than 25% of the value of such Company’s total assets, as measured at the time
of investment.
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3
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Code Section 851(b)(3) requires that at least 50% of the
value of a regulated investment company’s total assets is represented by (i) cash and cash items (including receivables),
government securities and securities of other regulated investment companies, and (ii) other securities for purposes of this calculation
limited, except and to the extent provided in subsection (e), which relates to the furnishing of capital to development corporations,
in respect of any one issuer to an amount not greater in value than 5% of the value of the total assets of the taxpayer and to
not more than 10% of the outstanding voting securities of such issuer.
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APPLICABLE
LAW AND EXEMPTIVE RELIEF REQUESTED
Section
6(c) of the 1940 Act provides that the Commission may conditionally or unconditionally exempt any person, security or transaction
from any provision of the 1940 Act or any rule thereunder, if and to the extent that such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions
of the 1940 Act.
Section
12(d)(3) of the 1940 Act prohibits a registered investment company from acquiring any security issued by any person who is a broker,
dealer, engaged in the business of underwriting, or a registered investment adviser. Section 60 of the 1940 Act extends the prohibitions
of Section 12(d)(3) to issuers that have elected to be treated as business development companies under the 1940 Act. Rule 12d3-1
provides two exemptions from Section 12(d)(3)’s prohibitions. First, paragraph (a) of Rule 12d3-1 provides an exemption
from Section 12(d)(3) to permit an investment company to purchase the securities of an issuer (except the securities of its own
investment adviser, promoter or principal underwriter or their affiliates), provided that the issuer’s revenues from “securities
related activities” in its most recent fiscal year do not exceed 15% of the issuer’s gross revenues. In addition,
paragraph (b) of Rule 12d3-1 establishes a separate exemption to permit an investment company to acquire any security of an issuer
that derives more than 15% of its gross revenues from securities related activities, provided that, among other things, immediately
after the acquisition of an equity or debt security of the issuer: (i) the investment company has not invested more than 5% of
the value of its total assets in securities of that issuer; and (ii) the investment company owns not more than 5% of the outstanding
securities of that class of the issuer’s securities or 10% of the outstanding principal amount of the issuer’s debt
securities, as applicable. Subparagraph (d)(1) of Rule 12d3-1 defines “securities related activities” to mean a person’s
activities as a broker, dealer, underwriter or registered investment adviser or investment adviser to a registered investment
company.
The
Applicants hereby apply for an order pursuant to Section 6(c) of the 1940 Act exempting the Companies from the provisions of Section
12(d)(3) of the 1940 Act to the extent necessary to permit each Company to invest in the equity and debt securities of various
Investment Managers, each of which the Applicants believe will be an issuer that derives more than 15% of its gross revenues from
“securities related activities,” in excess of the quantitative limitations set forth in Rule 12d3-1(b). The Companies
will comply with all other requirements of Rule 12d3-1. Prior to any Loan in an Investment Manager, a Company will require such
Investment Manager to contractually agree to be bound by the terms of the conditions of this Application.
DISCUSSION
A.
Purposes of Section 12(d)(3)
The
Commission has stated that “[w]hile the reasons for Congress prohibiting investment company investments in securities related
businesses are not addressed in much detail in the 1940 Act’s legislative history, it appears that Congress had two purposes.”
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First, Congress wished to limit, at least to some extent, the exposure of registered investment companies to entrepreneurial
risks peculiar to securities related businesses.” The Commission further stated that “[a] second purpose of the provision
appears to have been to prevent potential conflicts of interest and reciprocal practices.”
5
Section 12(d)(3)
is one of several provisions of the 1940 Act designed to limit, and in some instances eliminate, interrelationships between investment
companies and brokers, dealers, underwriters and investment advisers.
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However, as the Commission acknowledged in
the proposing release to Rule 12d3-1, the “evidence indicates that today [Section 12(d)(3)] often prevents investment companies
from making investments that may be in the best interests of their shareholders.”
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1.
Avoiding the Entrepreneurial Risks of Securities Related Businesses
.
The
Applicants do not believe that the Companies’ respective investments in various Investment Managers raise the same type
of entrepreneurial risks that may have concerned Congress in enacting Section 12(d)(3). The Commission has stated in regards to
the entrepreneurial risks that, “aside from general partnership interests, investments in securities related businesses
need not be subject to any special standards not applicable to investments in other businesses, except to address the potential
for conflicts of interest and reciprocal practices.”
8
The Commission has noted that since 1940 the ownership
structure of most securities related issuers has changed from a partnership to a corporate form, resulting in the limited liability
status of these entities.
9
The Commission has further stated that “[a]side from general partnership interests,
investments in securities issued by securities related businesses need not be subject to any special standards not applicable
to investments in other businesses, except to address the potential for conflicts of interests and reciprocal practices.”
10
The Applicants do not believe there is a large number of Investment Managers in existence in the United States that are
not organized as corporations or other limited liability entities; however, the Companies will invest only in Investment Managers
organized as corporations or other limited liability entities.
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4
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Investment Company Act Release No. 13725 (January 17, 1984).
See also
Stadulis and Levin,
SEC Regulation of Investment Company Investments in Securities Related Business under the
Investment Company Act of 1940
, 2 Villanova J. Law & Investment Management 9 (Spring 2000) for the statement that “[t]he
legislative history of the Investment Company Act is virtually silent concerning the intended scope and purpose of section 12(d)(3).”)
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5
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Continuing, “[t]he provisions of the section generally
are intended to prevent … cross-control situations which might result in investment companies being organized, operated,
managed, or their portfolio securities selected in the interests of brokers, dealers, underwriters, and investment advisers, whether
or not these entities are affiliated persons of the companies.”
Id
.
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6
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See
Investment Company Act Release No. 13725 (January
17, 1984).
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8
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Continuing, “[i]n 1940, securities related businesses,
for the most part, were organized as privately held general partnerships. By investing in such businesses, investment companies
exposed themselves to potential losses which were not present in other types of investments; if the business failed, the investment
company as a general partner was held accountable for the partnership’s liabilities.” Investment Company Act Release
No. 19716 (September 16, 1993).
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Congress’
concerns regarding entrepreneurial risk will also be mitigated by disclosure to investors in each Company’s ongoing public
filings with the Commission, as such disclosure will describe the fact that such Company’s business includes purchasing
Notes in Investment Managers. As a result, investors in a Company will be informed of the risks, including entrepreneurial risk,
of investing in such Company. Therefore, only persons or entities that explicitly intend and desire to have exposure to Investment
Managers will purchase shares in a Company, and, as such, the Applicants believe that a Company’s investments in Investment
Managers will be in the best interests of such Company’s shareholders.
2.
Elimination of Reciprocal Practices Between Investment Companies and Securities Related Businesses
.
In
addition to limiting the entrepreneurial risks of investing in securities related businesses, the practical effect of Section
12(d)(3) is to eliminate the possibility of certain conflicts of interest and reciprocal practices between investment companies
and securities related businesses.
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In
general, the Applicants believe that there are very few possible situations where a Company and the entities from which it purchases
Notes would have even the possibility of having commercial or other relationships other than actually making a Loan itself. The
Investment Managers will be private companies that are expected to be primarily engaged in the business of providing investment
or securities advice or services to clients, (and possibly engaging directly or through affiliates in the broker-dealer business
to meet the distribution needs of any funds they manage or to meet wealth management needs of clients). Accordingly, it is unlikely
that the activities of an Investment Manager and its Affiliates (as defined below) would intersect with the activities of the
Applicants, other than in connection with the making of a Loan by a Company. Therefore, it will be easy administratively and practically
to prohibit the Applicants from having other commercial relationships with Investment Managers and their respective Affiliates
(as defined below). By condition, Applicants will be prohibited from having any other commercial relationships with the Investment
Managers and their Affiliates (as defined below).
One
potential risk that has been noted by the Commission is that an investment company might purchase “securities or other interests
in a broker-dealer to reward that broker-dealer for selling fund shares, rather than solely on investment merit.”
12
The Relief will not create potential conflicts of interest for the Applicants or the Companies’ shareholders because
as a condition to the Relief, no Investment Manager or its Affiliates (defined below) or client of an Investment Manager will
be permitted to, at any time that a Loan is outstanding to such Investment Manager, buy, sell or otherwise trade securities issued
by the Applicants or any of their respective affiliated persons, as such term is defined in Section 2(a)(3) of the 1940 Act.
13
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11
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See
Investment Company Act Release No. 13725.
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13
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Section 2(a)(3) of the 1940 Act defines an “affiliated
person” of another person to include (i) any person directly or indirectly owning, controlling or holding with power to
vote 5% or more of the outstanding voting securities of the other person, (ii) any person 5% or more of whose voting securities
are directly or indirectly owned, controlled, or held with the power to vote by the other person, and (iii) any person directly
or indirectly controlling, controlled by, or under common control with, the other person.
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Another
potential conflict of interest is that investment advisers and broker-dealers could be influenced to recommend to their clients
certain investment companies which invest in such investment adviser or its affiliates, and thereby use the investment companies’
assets to boost the price of the investment adviser’s securities.
14
As noted above, as a condition to the Relief,
the Investment Managers and their affiliated persons within the meaning of Section 2(a)(3) of the 1940 Act and affiliated persons
of such affiliated persons (collectively, “Affiliates”) will not be permitted to, at any time that a Loan is outstanding
to such Investment Manager, sell any securities issued by the Applicants as an underwriter, will not make a market in any securities
issued by the Applicants and will not act as agent or as a broker in connection with the sale of any shares of the Applicants
and will not recommend investing in securities of the Applicants. Further, no Investment Manager or any of its Affiliates or client
of an Investment Manager will (a) buy, sell or otherwise trade securities issued by the Applicants or any of their respective
affiliates, or (b) buy, sell or otherwise trade securities owned by the Applicants or any of their respective affiliates in transactions
involving the Applicants or any of their respective affiliates.
The
Commission has also stated that another purpose of Section 12(d)(3) is to prevent investment companies from directing “brokerage
to a broker-dealer in which the company has invested to enhance the broker-dealer’s profitability or to assist it during
financial difficulty, even though the broker-dealer may not offer the best price and execution.”
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3.
Liquidity of Investment Company Portfolio.
In
adopting Section 12(d)(3), Congress was also concerned with the liquidity of an investment company’s portfolio.
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The shareholders that invest in a Company receive disclosure (i) in such Company’s prospectus and (ii) pursuant to
its ongoing reporting requirements as a public company that describe the fact that such Company’s business is investing
in illiquid investments pursuant to the Investment Strategies. As a result, liquidity concerns do not affect the Companies.
The
Applicants believe the Companies’ proposed acquisitions of the securities of various Investment Managers does not present
the potential for the risks and abuses Section 12(d)(3) is intended to eliminate. The Applicants believe that the standards set
forth in Section 6(c) have been met.
B.
Precedent
The
Commission has previously been willing to permit investments of up to 10% of total assets by investment companies in issuers that
derive more than 15% of their gross revenues from securities related activities. First, the Commission has granted relief under
the predecessor rule to Rule 12d3-1 (rule 12d-1) to a number of securities related issuers to permit an investment company to
invest up to 10% of its assets in that issuer, so long as gross revenues from the issuer’s securities related businesses
did not exceed 25% of its total gross revenues.
17
In those applications, the issuers sought the relief due to acquisitions
of broker-dealer and investment banking firms. As a result of those acquisitions and the surge in commission revenues by major
retail securities firms, the issuers expected that they would derive more than 15% of their gross revenues from securities related
activities.
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14
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See, e.g.
, American Medical Association, SEC No-action
letter (pub. avail. April 23, 1978).
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15
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See
Investment Company Act Release No. 13725.
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16
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See
Investment Company Act Release No. 13725.
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17
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In the Proposing Release, the Commission noted that the
limits proposed for Rule 12d3-1 were modeled after the limits contained in previously granted exemptive applications.
See
Proposing Release, supra, at n. 23.
See, e.g.
, Kemper Corp., Investment Company Act Release Nos. 13319 (June 14, 1983)
(order) and 13249 (May 17, 1983) (notice); American Express Co., Investment Company Act Release Nos. 13061 (March 2, 1983) (order)
and 12987 (Jan. 21, 1983) (notice).
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The
applicants argued that, absent the requested relief, registered investment companies may be precluded from purchasing, or may
be compelled to sell, the issuers’ securities notwithstanding the fact that the acquisition of such securities did not present
the dangers which Section 12(d)(3) purports to address. The applicants further argued that, as the relief requested related only
to investments in securities by the issuer, the question whether such an investment might expose an investment company to the
entrepreneurial risks of the investment banking business must be viewed in the context of the financial position of the issuer
and all of its subsidiaries on a consolidated basis.
Furthermore,
the Commission has granted relief to closed-end management investment companies to purchase securities issued by affiliated persons
of the funds’ principal underwriter that were directly or indirectly engaged in a securities related business.
18
The applicants argued that the fixed nature of the investment company’s portfolio eliminated the concerns about conflicts
of interest that rule 12d3-1(c) was designed to address. The applicants also argued that investors were protected because the
terms of the securities to be purchased would be fully disclosed to investors before they made the decision to purchase the investment
company shares. The Commission also permitted a closed-end management investment company to purchase 100% of the stock of an investment
adviser and broker-dealer because the acquisition had been negotiated at arm’s length, was unanimously approved by the investment
company’s board of directors, including non-interested directors, and was subject to approval of a majority of the investment
company’s common stockholders.
19
The Commission granted further relief to a closed-end management investment
company allowing for the investment of approximately 80% of its total assets in two issuers, each of which derive more than 15%
of their gross revenues from securities related activities.
20
The applicant argued that investors in the applicant
were protected because they had the opportunity to either approve or reject the proposed investment after full disclosure and
because the concerns underlying section 12(d)(3) were not raised given the factual circumstances and the conditions to the relief.
The
Commission has also provided exemptive relief under Section 6(c) of the 1940 Act to permit unit investment trusts to invest more
than 10% of their assets in securities of issuers that derive more than 15% of their gross revenues from securities related activities.
21
The
Commission has also provided exemptive relief under Section 6(c) of the 1940 Act to permit a closed-end management investment
company, which intended to elect to be treated as a business development company under the 1940 Act (“Cantilever”),
to acquire the securities of various investment managers that each derives more than 15% of its gross revenues from securities
related activities as defined in rule 12d3-1(d)(1) under the 1940 Act, in excess of the limitations in rule 12d3-1(b).
22
Whereas Cantilever’s investments in investment managers were expected to comprise all or nearly all of Cantilever’s
investment activity, a Company’s investment in Investment Managers is not expected to represent all or nearly all of such
Company’s Investment Strategies at any given time.
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18
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HSBC Securities (USA) Inc., et al., Investment Company
Act Release Nos. 24011 (Sept. 14, 1999) (order) and 23963 (Aug. 23, 1999) (notice).
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19
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Baker, Fentress & Company, et al., Investment Company
Act Release Nos. 21949 (May 10, 1996) (order) and 21890 (April 15, 1996) (notice).
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20
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In the Matter of Millennium India Acquisition Company,
Inc.; (File No. 812-13464) Investment Company Act Release No. 28121; (January 6, 2008).
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21
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See
,
e.g.
, Corporate Income Fund, et al.,
Investment Company Act Release Nos. 23373 (Aug. 4, 1998) (order) and 23308 (July 9, 1998) (notice); Defined Asset Funds, Investment
Company Act Release Nos. 19456 (May 5, 1993) (order) and 19388 (April 7, 1993) (notice).
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22
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In the Matter of Cantilever Capital, LLC and Cantilever
Group, LLC; (File No. 812-13781) Investment Company Act Release No. 29925 (January 24, 2012).
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In
granting each of these applications, the Commission has found that the proposed investments do not raise the concerns that underlie
Section 12(d)(3). Similarly, for the reasons set forth above, together with the proposed conditions for the granting of exemptive
relief, the Applicants believe that the Companies’ proposed acquisitions of the securities of various Investment Managers
does not raise the concerns underlying Section 12(d)(3).
CONDITIONS
The
Applicants agree that any order granting the requested relief will be subject to the following conditions:
1.
So long as a Loan is outstanding in an Investment Manager or broker-dealer, none of the Applicants and none of their respective
Affiliates will engage in any transaction with such Investment Manager or broker-dealer other than (i) a Company’s investment
in the Investment Manager or broker-dealer (and any follow-on investment) and (ii) a Company’s providing managerial assistance
to such Investment Manager or broker-dealer. The managerial assistance provided by a Company or any of its Affiliates will not
include any activity involving any Investment Manager’s or broker-dealer’s investment or brokerage process or investment
decisions.
2.
So long as a Loan is outstanding in an Investment Manager or broker-dealer, no such Investment Manager or broker-dealer or its
Affiliates or client of an Investment Manager or broker-dealer will (a) buy, sell or otherwise trade securities issued by the
Applicants or any of their respective Affiliates, or (b) buy, sell or otherwise trade securities owned by the Applicants or any
of their respective Affiliates in transactions involving the Applicants or any of their respective Affiliates. Nor will any such
Investment Manager or its Affiliates sell any securities issued or owned by the Applicants or any of their respective Affiliates
as an underwriter, make a market in any securities issued or owned by the Applicants or act as agent or as a broker in connection
with the sale of any securities issued or owned by the Applicants or any of their respective Affiliates or recommend to its clients
the purchase of any such securities.
3.
So long as a Loan is outstanding in an Investment Manager or broker-dealer, none of the Applicants and none of their respective
Affiliates will use any such Investment Manager or broker-dealer or any Affiliate thereof as a broker-dealer for the purchase
or sale of any portfolio securities.
4.
So long as a Loan is outstanding in an Investment Manager or broker-dealer, no such Investment Manager or broker-dealer or its
Affiliates will provide any services to the Applicants or any of their respective Affiliates.
5.
So long as a Loan is outstanding in an Investment Manager or broker-dealer, no officer of the Applicants or member of a Company’s
board of directors or an Adviser’s general partner or managing member, as applicable (“Board”) will be affiliated
with such Investment Manager or broker-dealer or its Affiliates other than as a result of making a Loan. So long as a Loan is
outstanding in an Investment Manager or broker-dealer, the Applicants, their respective Affiliates and their respective officers
or managing members will not (1) serve on the board of directors of such Investment Manager or broker-dealer, (2) participate
in the management of such Investment Manager or broker-dealer (except for providing managerial assistance) or (3) have other indicia
of control as defined in the 1940 Act (other than typical rights of debt holders, including, but not limited to, access to certain
information). The only affiliation the Applicants (or any of their respective officers or members) will have will be as a provider
of debt capital.
6.
The Applicants’ respective Chief Compliance Officers will monitor and report to the applicable Applicant’s Board no
less than annually on compliance with these conditions.
7.
The Applicants will comply with the provisions of Rule 12d3-1, except for paragraph (b) solely to the extent necessary to permit
a Company to invest (x) more than 5% of the value of its total assets in equity securities issued by a registered investment adviser
or broker-dealer, (y) in more than 5% of the outstanding equity securities of a registered investment adviser or broker-dealer,
and (z) in more than 10% of the outstanding principal amount of a registered investment adviser’s or broker-dealer’s
debt securities, provided that, (i) immediately after a Company makes an investment permitted by (x) and/or (y), not more than
50% of the value of such Company’s total assets will consist of investments permitted by (x) and/or (y), (ii) in no event
will such Company acquire more than 25% of the outstanding voting securities of a registered investment adviser or broker-dealer
or otherwise control a registered investment adviser or broker-dealer, and (iii) immediately after such Company makes an investment
permitted by (z), not more than 10% of the value of such Company’s total assets will consist of investments permitted by
(z).
23
|
23
|
For the purposes of this paragraph, the terms “equity
security” and “debt securities” have the meanings given them in Rule 12d3-1.
|
AUTHORITY
Pursuant
to Rule 0-2(c)(1) under the 1940 Act, each of the Applicants declare that their respective officers and authorized persons have
authorized the execution and filing of this Application and any further amendments thereto and all requirements of their respective
charters, by-laws and partnership agreement or operating agreement have been complied with regarding the execution and filing
of this Application.
The
verification required by Rule 0-2(d) and the authorizations required by Rule 0-2(c) are attached hereto as
Appendix A
and
Appendix B
.
UPON
THE BASIS OF THE FOREGOING, it is respectfully requested that the Commission enter an order, based on the facts as set forth above,
under Section 6(c) of the 1940 Act exempting the Applicants from the provisions of Section 12(d)(3) and Rule 12d3-1 thereunder
to the extent necessary to permit a Company to provide Loans to various Investment Managers, each an issuer that derives more
than 15% of its gross revenues from securities related activities, in excess of the quantitative limitations set forth in Rule
12d3-1(b).
Pursuant
to Rule 0-2(c) of the General Rules and Regulations under the 1940 Act, the Applicants declare that this Application is signed
by M. Grier Eliasek.
June
7, 2019
|
PROSPECT
CAPITAL CORPORATION
|
|
|
|
By:
|
/s/
M. Grier Eliasek
|
|
|
Name:
|
M.
Grier Eliasek
|
|
|
Title:
|
President & Chief Operating Officer
|
|
|
|
PRIORITY
INCOME FUND, INC.
|
|
|
|
By:
|
/s/
M. Grier Eliasek
|
|
|
Name:
|
M. Grier
Eliasek
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
TP
FLEXIBLE INCOME FUND, INC.
|
|
|
|
By:
|
/s/
M. Grier Eliasek
|
|
|
Name:
|
M. Grier
Eliasek
|
|
|
Title:
|
Chief Executive Officer
|
|
PROSPECT CAPITAL MANAGEMENT L.P.
|
|
|
|
By:
|
/s/ M. Grier Eliasek
|
|
|
Name:
|
M. Grier Eliasek
|
|
|
Title:
|
Authorized Person
|
|
|
|
PRIORITY SENIOR SECURED INCOME MANAGEMENT, LLC
|
|
|
|
By:
|
/s/ M. Grier Eliasek
|
|
|
Name:
|
M. Grier Eliasek
|
|
|
Title:
|
President & Chief Operating Officer
|
|
|
|
Prospect Flexible Income Management, LLC
|
|
|
|
By:
|
/s/ M. Grier Eliasek
|
|
|
Name:
|
M. Grier Eliasek
|
|
|
Title:
|
President & Chief Operating Officer
|
Appendix
A
Verification
of Application and Statement of Facts
The
undersigned being duly sworn, deposes and says that he has duly executed the attached Application dated June 7, 201 for and on
behalf of Prospect Capital Corporation, Priority Income Fund, Inc., TP Flexible Income Fund, Inc., Prospect Capital Management
L.P., Priority Senior Secured Income Management, LLC, and Prospect Flexible Income Management, LLC; that he is the President and
Chief Operating Officer of Prospect Capital Corporation, Chief Executive Officer of Priority Income Fund, Inc., Chief Executive
Officer of TP Flexible Income Fund, Inc., an authorized person of Prospect Capital Management L.P., President and Chief Operating
Officer of Priority Senior Secured Income Management, LLC, and President and Chief Operating Officer of Prospect Flexible Income
Management, LLC; and that all action by the respective officers and authorized persons and other persons necessary to authorize
deponent to execute and file such instrument has been taken. Deponent further says that he is familiar with such instrument and
the contents thereof, and that the facts therein set forth are true to the best of his knowledge, information and belief.
|
/s/
M. Grier Eliasek
|
|
M.
Grier Eliasek
|
Appendix
B
Resolutions
of the Board of Directors of Prospect Capital Corporation
WHEREAS
,
the Board of Directors (the “Board”) of Prospect Capital Corporation (the “Corporation”) believes it to
be in the best interests of the Corporation to make an exemptive application to the Securities and Exchange Commission (the “SEC”)
for an order pursuant to Section 6(c) of the Investment Company Act of 1940, as amended (the “Act”), for an exemption
from Section 12(d)(3) of the Act and Rule 12d3-1 under the Act to permit the Corporation to acquire the securities of various
investment managers, each of which may derive more than 15% of its gross revenues from “securities related activities,”
as such term is defined in Rule 12d3-1(d)(1) under the Act, in excess of the quantitative limitations set forth in Rule 12d3-1(b)
under the Act.
NOW
THEREFORE, BE IT RESOLVED,
that the respective officers of the Corporation be, and each hereby
is, authorized to prepare, execute and submit, on behalf of the Corporation, an exemptive application to the SEC for an order
pursuant to Section 6(c) of the Act, for an exemption from Section 12(d)(3) of the Act and Rule 12d3-1 under the Act to permit
the Corporation to acquire the securities of various investment managers, each of which may derive more than 15% of its gross
revenues from “securities related activities,” as such term is defined in Rule 12d3-1(d)(1) under the Act, in excess
of the quantitative limitations set forth in Rule 12d3-1(b) under the Act; and
FURTHER
RESOLVED
, that any officer of the Corporation be, and each of them hereby is, authorized, empowered and directed on behalf
of the Corporation to do and perform or cause to be done and performed, in the name of the Corporation, such acts, including filing
any necessary documents with the SEC and preparing, executing and filing on behalf of the Corporation any such other documents
or instruments, as they deem appropriate or advisable in furtherance of the above resolution, and to pay or cause to be paid by
the Corporation such costs and expenses, and to prepare or cause to be prepared, negotiate or cause to be negotiated and execute
and deliver or cause to be executed and delivered by or on behalf of the Corporation such notices, requests, demands, directions,
consents, approvals, orders, applications, certificates, agreements, amendments, further assurances or other instruments or communications,
under the corporate seal of the Corporation, as they may deem necessary or advisable in order to carry into effect the intent
of the foregoing resolutions, or to consummate the transactions contemplated thereby, or to comply with the requirements, to implement
the terms or satisfy the conditions of any filings and documents approved and authorized by the foregoing (including, without
limitation, the obtaining of any necessary or appropriate consents and/or approvals of other persons or agencies or authorities);
and
FURTHER
RESOLVED
, that all actions, transactions, events and practices regarding the Corporation (or the operation thereof), implemented
or to be implemented by the Corporation, or taken or to be taken by the Corporation, that are described in the foregoing resolutions
be, and hereby are, authorized, confirmed, ratified and approved in all respects; and
FURTHER
RESOLVED
, that any and all prior lawful actions taken by any officer of the Corporation or any person or persons designated
and authorized to act by a director or officer of the Corporation in connection with the execution, delivery and performance of
any documents or certificates related thereto or contemplated by the foregoing resolutions which would have been authorized by
the foregoing resolutions except that such actions were taken prior to the adoption of the foregoing resolutions are severally
authorized, ratified, confirmed, approved and adopted as being actions of the Corporation; and
FURTHER
RESOLVED
, that the officers of the Corporation be, and each of them hereby is, authorized, empowered and directed to certify
and deliver copies of these resolutions to such government bodies, agencies, persons, firms or corporations as the officers of
the Corporation may deem necessary and to identify by his or her signature or certificate, or in such form as may be required,
the documents and instruments presented to and approved herein and to furnish evidence of the approval, by an officer authorized
to give such approval, of any document, instrument or provision or any addition, deletion or change in any document or instrument;
and
FURTHER
RESOLVED
, that in every instance in the foregoing resolutions where an officer is authorized to take such actions or make
such changes to a document as he or she determines to be necessary, desirable or appropriate, then the taking of the action or
the execution of such document with such changes shall evidence conclusively his or her determination that such actions or changes
to such documents are necessary, desirable or appropriate (as applicable); and
FURTHER
RESOLVED
, that the foregoing resolutions shall be inserted in the minute books of the Corporation.
(Approved
by unanimous written consent of the Board of Directors on April 16, 2018).
Resolutions
of the Board of Directors of Priority Income Fund, Inc.
WHEREAS
,
the Board of Directors (the “Board”) of Priority Income Fund, Inc. (the “Corporation”) believes it to
be in the best interests of the Corporation to make an exemptive application to the Securities and Exchange Commission (the “SEC”)
for an order pursuant to Section 6(c) of the Investment Company Act of 1940, as amended (the “Act”), for an exemption
from Section 12(d)(3) of the Act and Rule 12d3-1 under the Act to permit the Corporation to acquire the securities of various
investment managers, each of which may derive more than 15% of its gross revenues from “securities related activities,”
as such term is defined in Rule 12d3-1(d)(1) under the Act, in excess of the quantitative limitations set forth in Rule 12d3-1(b)
under the Act.
NOW
THEREFORE, BE IT RESOLVED,
that the respective officers of the Corporation be, and each hereby
is, authorized to prepare, execute and submit, on behalf of the Corporation, an exemptive application to the SEC for an order
pursuant to Section 6(c) of the Act, for an exemption from Section 12(d)(3) of the Act and Rule 12d3-1 under the Act to permit
the Corporation to acquire the securities of various investment managers, each of which may derive more than 15% of its gross
revenues from “securities related activities,” as such term is defined in Rule 12d3-1(d)(1) under the Act, in excess
of the quantitative limitations set forth in Rule 12d3-1(b) under the Act; and
FURTHER
RESOLVED
, that any officer of the Corporation be, and each of them hereby is, authorized, empowered and directed on behalf
of the Corporation to do and perform or cause to be done and performed, in the name of the Corporation, such acts, including filing
any necessary documents with the SEC and preparing, executing and filing on behalf of the Corporation any such other documents
or instruments, as they deem appropriate or advisable in furtherance of the above resolution, and to pay or cause to be paid by
the Corporation such costs and expenses, and to prepare or cause to be prepared, negotiate or cause to be negotiated and execute
and deliver or cause to be executed and delivered by or on behalf of the Corporation such notices, requests, demands, directions,
consents, approvals, orders, applications, certificates, agreements, amendments, further assurances or other instruments or communications,
under the corporate seal of the Corporation, as they may deem necessary or advisable in order to carry into effect the intent
of the foregoing resolutions, or to consummate the transactions contemplated thereby, or to comply with the requirements, to implement
the terms or satisfy the conditions of any filings and documents approved and authorized by the foregoing (including, without
limitation, the obtaining of any necessary or appropriate consents and/or approvals of other persons or agencies or authorities);
and
FURTHER
RESOLVED
, that all actions, transactions, events and practices regarding the Corporation (or the operation thereof), implemented
or to be implemented by the Corporation, or taken or to be taken by the Corporation, that are described in the foregoing resolutions
be, and hereby are, authorized, confirmed, ratified and approved in all respects; and
FURTHER
RESOLVED
, that any and all prior lawful actions taken by any officer of the Corporation or any person or persons designated
and authorized to act by a director or officer of the Corporation in connection with the execution, delivery and performance of
any documents or certificates related thereto or contemplated by the foregoing resolutions which would have been authorized by
the foregoing resolutions except that such actions were taken prior to the adoption of the foregoing resolutions are severally
authorized, ratified, confirmed, approved and adopted as being actions of the Corporation; and
FURTHER
RESOLVED
, that the officers of the Corporation be, and each of them hereby is, authorized, empowered and directed to certify
and deliver copies of these resolutions to such government bodies, agencies, persons, firms or corporations as the officers of
the Corporation may deem necessary and to identify by his or her signature or certificate, or in such form as may be required,
the documents and instruments presented to and approved herein and to furnish evidence of the approval, by an officer authorized
to give such approval, of any document, instrument or provision or any addition, deletion or change in any document or instrument;
and
FURTHER
RESOLVED
, that in every instance in the foregoing resolutions where an officer is authorized to take such actions or make
such changes to a document as he or she determines to be necessary, desirable or appropriate, then the taking of the action or
the execution of such document with such changes shall evidence conclusively his or her determination that such actions or changes
to such documents are necessary, desirable or appropriate (as applicable); and
FURTHER
RESOLVED
, that the foregoing resolutions shall be inserted in the minute books of the Corporation.
(Approved
by unanimous written consent of the Board of Directors on April 16, 2018).
Resolutions
of the Board of Directors of TP Flexible Income Fund, Inc.
WHEREAS
,
the Board of the Directors (the “Board”) of TP Flexible Income Fund, Inc., (the “Corporation”) believes
it to be in the best interests of the Corporation to make an exemptive application to the Securities and Exchange Commission (the
“SEC”) for an order pursuant to Section 6(c) of the Investment Company Act of 1940, as amended (the “Act”),
for an exemption from Section 12(d)(3) of the Act and Rule 12d3-1 under the Act to permit the Corporation to acquire the securities
of various investment managers, each of which may derive more than 15% of its gross revenues from “securities related activities,”
as such term is defined in Rule 12d3-1(d)(1) under the Act, in excess of the quantitative limitations set forth in Rule 12d3-1(b)
under the Act.
NOW
THEREFORE, BE IT RESOLVED,
that the respective officers of the Corporation be, and each hereby
is, authorized to prepare, execute and submit, on behalf of the Corporation, an exemptive application to the SEC for an order
pursuant to Section 6(c) of the Act, for an exemption from Section 12(d)(3) of the Act and Rule 12d3-1 under the Act to permit
the Corporation to acquire the securities of various investment managers, each of which may derive more than 15% of its gross
revenues from “securities related activities,” as such term is defined in Rule 12d3-1(d)(1) under the Act, in excess
of the quantitative limitations set forth in Rule 12d3-1(b) under the Act; and
FURTHER
RESOLVED
, that any officer of the Corporation be, and each of them hereby is, authorized, empowered and directed on behalf
of the Corporation to do and perform or cause to be done and performed, in the name of the Corporation, such acts, including filing
any necessary documents with the SEC and preparing, executing and filing on behalf of the Corporation any such other documents
or instruments, as they deem appropriate or advisable in furtherance of the above resolution, and to pay or cause to be paid by
the Corporation such costs and expenses, and to prepare or cause to be prepared, negotiate or cause to be negotiated and execute
and deliver or cause to be executed and delivered by or on behalf of the Corporation such notices, requests, demands, directions,
consents, approvals, orders, applications, certificates, agreements, amendments, further assurances or other instruments or communications,
under the corporate seal of the Corporation, as they may deem necessary or advisable in order to carry into effect the intent
of the foregoing resolutions, or to consummate the transactions contemplated thereby, or to comply with the requirements, to implement
the terms or satisfy the conditions of any filings and documents approved and authorized by the foregoing (including, without
limitation, the obtaining of any necessary or appropriate consents and/or approvals of other persons or agencies or authorities);
and
FURTHER
RESOLVED
, that all actions, transactions, events and practices regarding the Corporation (or the operation thereof), implemented
or to be implemented by the Corporation, or taken or to be taken by the Corporation, that are described in the foregoing resolutions
be, and hereby are, authorized, confirmed, ratified and approved in all respects; and
FURTHER
RESOLVED
, that any and all prior lawful actions taken by any officer of the Corporation or any person or persons designated
and authorized to act by a director or officer of the Corporation in connection with the execution, delivery and performance of
any documents or certificates related thereto or contemplated by the foregoing resolutions which would have been authorized by
the foregoing resolutions except that such actions were taken prior to the adoption of the foregoing resolutions are severally
authorized, ratified, confirmed, approved and adopted as being actions of the Corporation; and
FURTHER
RESOLVED
, that the officers of the Corporation be, and each of them hereby is, authorized, empowered and directed to certify
and deliver copies of these resolutions to such government bodies, agencies, persons, firms or corporations as the officers of
the Corporation may deem necessary and to identify by his or her signature or certificate, or in such form as may be required,
the documents and instruments presented to and approved herein and to furnish evidence of the approval, by an officer authorized
to give such approval, of any document, instrument or provision or any addition, deletion or change in any document or instrument;
and
FURTHER
RESOLVED
, that in every instance in the foregoing resolutions where an officer is authorized to take such actions or make
such changes to a document as he or she determines to be necessary, desirable or appropriate, then the taking of the action or
the execution of such document with such changes shall evidence conclusively his or her determination that such actions or changes
to such documents are necessary, desirable or appropriate (as applicable); and
FURTHER
RESOLVED
, that the foregoing resolutions shall be inserted in the minute books of the Corporation.
(Approved
by unanimous written consent of the Board of Directors on June 6, 2019)
15
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