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
SECOND 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 40th Street, 42nd Floor
New York, NY 10016
Attention: Sean Dailey
(646) 380-1716
Copies to:
Steven B. Boehm, Esq.
Eversheds Sutherland (US) LLP
700 6th Street NW
Washington, DC 20001
(202) 383-0176
October 11, 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 40th Street, 42nd Floor
New York, NY 10016
File No. 812-14897
Investment Company Act of 1940
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SECOND
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 Fund1,
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).
1 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.
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 Act2. 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 $5.80 billion in total assets under management as of June
30, 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 $551 million in total assets under management as of June 30, 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, 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 (each, an “Investment Manager”). None of the Investment
Managers will be part of a larger financial institution.
Each Company intends
to provide debt or equity capital to Investment Managers. 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.
The equity capital
to be provided by a Company and/or its affiliates will involve a transaction whereby a Company makes an equity contribution to
an Investment Manager and receives securities of the Investment Manager in return (each such investment an “Equity Contribution,”
and, together with Loans, “Investments”). Each Equity Contribution would not represent more than 25% of the outstanding
voting securities, or otherwise constitute control, of the underlying Investment Manager.
2
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.
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 Investments are expected to be registered investment advisers or broker-dealers and it is expected
that most Investments 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 Investment 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 Investments 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 Investment, 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 a Note.
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.
3
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.
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 Investment 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.”4
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.6
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.”7
4
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).”)
5
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.
6
See Investment Company Act Release No. 13725 (January 17, 1984).
7
Id.
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.
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 making Investments
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.11
In general, the
Applicants believe that there are very few possible situations where a Company and the entities in which it makes Investments
would have even the possibility of having commercial or other relationships other than actually making an Investment 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 an Investment 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).
8
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).
9
Id.
10
Id.
11
See Investment Company Act Release No. 13725.
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 an Investment 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
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 an Investment 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.”15
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.16
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.
12
See id.
13
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.
14
See, e.g., American Medical Association, SEC No-action letter (pub. avail. April 23, 1978).
15
See Investment Company Act Release No. 13725.
16
See Investment Company Act Release No. 13725.
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.
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
17
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).
18
HSBC Securities (USA) Inc., et al., Investment Company Act Release Nos. 24011 (Sept. 14, 1999) (order) and 23963
(Aug. 23, 1999) (notice).
19
Baker, Fentress & Company, et al., Investment Company Act Release Nos. 21949 (May 10, 1996) (order) and 21890 (April 15, 1996)
(notice).
20
In the Matter of Millennium India Acquisition Company, Inc.; (File No. 812-13464) Investment Company Act Release No. 28121; (January
6, 2008).
21
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).
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.
While the Cantilever
relief did not cover equity investments, the 1940 Act does not distinguish equity and debt investments in any meaningful way,
and the Applicants are unaware of any policy justification for limiting relief for to debt investments. The Commission has previously
provided relief to similarly situated business development companies to hold equity interests in investment managers.23
The Applicants
also note that the Cantilever relief did not specifically cover investments in registered broker-dealers. Section 12(d)(3) permits
a BDC to own 100 percent of a broker-dealer. We believe that there is no policy justification for permitting a BDC to own 100
percent of a broker-dealer but not, for example, an interest of less than 100% in a broker-dealer. A minority interest in a broker-dealer
does not present any greater risk than a 100 percent interest in a broker-dealer.
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 an
Investment is outstanding in an Investment Manager, 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 (and any follow-on investment) and (ii) a Company’s providing managerial assistance to such Investment Manager.
The managerial assistance provided by a Company or any of its Affiliates will not include any activity involving any Investment
Manager’s investment or brokerage process or investment decisions.
2. So long as an
Investment is outstanding in an Investment Manager, no such Investment Manager or 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. 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 an
Investment is outstanding in an Investment Manager, none of the Applicants and none of their respective Affiliates will use any
such Investment Manager or any Affiliate thereof as a broker-dealer for the purchase or sale of any portfolio securities.
22
In the Matter of Cantilever Capital, LLC and Cantilever Group, LLC; (File No. 812-13781) Investment Company Act Release
No. 29925 (January 24, 2012).
23
American Capital Ltd., et al. (File No. 812-14222) (July 29, 2014) (order); Ares Capital Corporation, et al. (File
No. 812-13847) (March 29, 2012) (order); Kohlberg Capital Corporation (File No. 812-13882) (March 27, 2012) (order).
4. So long as an
Investment is outstanding in an Investment Manager, no such Investment Manager or its Affiliates will provide any services to
the Applicants or any of their respective Affiliates.
5. So long as an
Investment is outstanding in an Investment Manager, 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 its Affiliates other than as a result of making an Investment. So long as an Investment 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, (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 or equity 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).24
24
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 make Investments in 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.
October 11, 2019
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PROSPECT CAPITAL CORPORATION
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By:
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/s/ M. Grier Eliasek
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Name:
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M. Grier Eliasek
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Title:
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President & Chief Operating Officer
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PRIORITY INCOME FUND, INC.
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By:
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/s/ M. Grier Eliasek
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Name:
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M. Grier Eliasek
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Title:
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Chief Executive Officer
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TP FLEXIBLE INCOME FUND, INC.
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By:
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/s/ M. Grier Eliasek
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Name:
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M. Grier Eliasek
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Title:
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Chief Executive Officer
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PROSPECT CAPITAL MANAGEMENT L.P.
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By:
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/s/ M. Grier Eliasek
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Name:
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M. Grier Eliasek
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Title:
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Authorized Person
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PRIORITY SENIOR SECURED INCOME MANAGEMENT, LLC
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By:
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/s/ M. Grier Eliasek
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Name:
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M. Grier Eliasek
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Title:
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President & Chief Operating Officer
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Prospect Flexible Income Management, LLC
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By:
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/s/ M. Grier Eliasek
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Name:
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M. Grier Eliasek
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Title:
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President & Chief Operating Officer
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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 October 11, 2019 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.
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/s/ M. Grier Eliasek
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M. Grier Eliasek
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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)
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