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Securities Exchange Act of 1934
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RESPONSE OF THE OFFICE OF CHIEF COUNSEL |
Our Ref. No. 20031021123 |
DIVISION OF INVESTMENT MANAGEMENT |
File Nos. 0-17526 and 814-00073 |
Your letter dated November 13, 2003 requests our assurance that we would not recommend enforcement action to the Commission under Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 (the "1934 Act") if Equus Capital Partners, L.P., (the "Fund") ceases filing annual and quarterly reports under Sections 13(a) and 15(d) of the 1934 Act.
You state that the Fund is a limited partnership that elected to be regulated as a business development company by filing, in 1989, Form N-54A under the Investment Company Act of 1940 (the "1940 Act") with the Commission. The Fund was formed in 1988 with the investment objective to achieve current income and capital appreciation principally by making investments in "mezzanine" securities. The Fund issued units of limited partnership interests (the "Units") in a public offering made pursuant to a registration statement on Form N-2 under the Securities Act of 1933 (the "1933 Act"). Currently, the Fund has approximately 1,340 record holders of Units ("Limited Partners"). The Fund has three general partners, two individuals (the "Individual General Partners") and one entity, Equus Capital Corporation, which acts as the managing general partner. You state that there is currently no public market for the Units and that you do not anticipate that a public market for the Units will develop.1
You state that the Units are registered with the Commission under Section 12(g) of the 1934 Act. The Fund currently files separate quarterly reports on Form 10-Q, annual reports on Form 10-K, and current reports, when applicable, on Form 8-K. You state that the Fund is current in its filing obligations.
You state that the initial term of the Fund expired on December 31, 1999 and that the term of the Fund has been extended by the Individual General Partners on a year-to-year basis pursuant to the authority granted to them in the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). You state that, on August 29, 2003, the Fund disposed of its last investment, dissolved in accordance with the terms of its Partnership Agreement and has ceased its operations, other than in connection with the winding up of its affairs.2 You state that the Fund is in the process of determining any remaining liabilities for which reserves must be established in connection with its winding up and final liquidation. You state that the Fund will have costs associated with providing its partners with federal income tax information for the year 2003. In addition, the Fund may have certain indemnification obligations in connection with certain investments that have been sold or otherwise disposed of, and the Fund has obligations to indemnify its general partners (collectively the "Indemnification Obligations").
You state that, as of September 30, 2003, the Fund has approximately $800,000 in cash and temporary investments,3 in order to meet any contingent claim that might be asserted plus any expenses incurred in investigating or defending any such claim. You state that, as of the date of this letter, there have been no indemnity claims made against the Fund. You state that, but for the Indemnification Obligations, the Fund would have been able to make a final liquidating distribution of its remaining assets (less the actual expenses of liquidation), and would thereby terminate.
Section 15(d) of the 1934 Act requires every issuer that has filed a registration statement that becomes effective under the 1933 Act to make certain filings with the Commission as required by Section 13 of the 1934 Act. Section 13(a) of the 1934 Act requires every issuer of a security registered under Section 12 of the 1934 Act (a "Registered Issuer") to make certain filings with the Commission, in accordance with the rules and regulations prescribed by the Commission.
Specifically, Rule 13a-1 under the 1934 Act requires that Registered Issuers file annual reports on Form 10-K for each fiscal year after the last full fiscal year for which financial statements were filed in its registration statement. Rule 13a-11 under the 1934 Act requires that Registered Issuers file current reports on Form 8-K, unless substantially the same information as required by Form 8-K has been reported previously by the Registered Issuer. Rule 13a-13 under the 1934 Act generally requires a Registered Issuer to file quarterly reports on Form 10-Q for each of the first three quarters of its fiscal year. You request relief to permit the Fund to cease filing annual and quarterly reports as required by the 1934 Act.4
The Commission has indicated that it may be appropriate to modify particular issuers' reporting requirements under Sections 13 and 15 of the 1934 Act if: (1) such modification is not inconsistent with the protection of investors; and (2) full compliance with the reporting requirements would entail unreasonable effort or expense.5 The Commission staff has granted no-action relief to several issuers that have ceased or severely curtailed their operations.6
You believe that it is consistent with the protection of investors to permit the Fund to cease filing Forms 10-K and l0-Q. You assert that Forms 10-K and 10-Q are designed to provide investors with information about the continuing operations and financial status of an issuer, and to assist investors in determining whether or not to hold, buy, or sell a particular security. You argue that the Fund has no material information to impart to investors on a quarterly or annual basis because the Fund has ceased operations and has minimal assets. You also believe that there will be no market for the Units.
You also believe that continued compliance with the quarterly and annual reporting requirements under the 1934 Act would constitute an unreasonable effort or expense of the Fund and its Limited Partners because the costs of preparing and filing the reports are disproportionate to the amount of assets held by the Fund. You state that the Fund is retaining assets sufficient to meet any contingent claims that might be asserted against the Fund in the unlikely event that an Indemnity Obligation should arise. You represent that the Fund will distribute the remaining amounts less actual expenses as soon as practicable following the expiration of the Indemnity Obligations, or, if a claim should arise thereunder, as soon as practicable after resolution of that claim. You argue that requiring the Fund to continue filing annual and quarterly reports would generate substantial expenses to the Fund and would consume a large percentage of the remaining assets that would otherwise be available for return to the partners, without providing any corresponding benefit.
On the basis of the facts and representations in your letter, we will not recommend enforcement action to the Commission under Sections 13(a) and 15(d) of the 1934 Act if the Fund ceases filing annual and quarterly reports under Sections 13(a) and 15(d) of the 1934 Act. This conclusion is based in particular on your representations that the Fund will: (1) continue filing separate reports on Form 8-K to disclose any material events relating to the Fund, including its termination; (2) make a final liquidating distribution as soon as practicable following the expiration of the Indemnity Obligations, or, if a claim should arise thereunder, as soon as practicable after resolution of that claim; (3) only accept requests by Limited Partners for transfers of Units, other than transfers for no consideration pursuant to the laws of descent and distribution or otherwise required by law, until December 31, 2003; (4) resume reporting under the 1934 Act (or request and obtain further no-action relief) if the Fund is still in existence three years from the date of this letter; and (5) file a Form 15 upon termination of the Fund. This response expresses our views on enforcement action only and does not express any legal conclusions on the questions presented. Because our position is based on the facts and representations in your letter, you should note that any different facts or representations may require a different conclusion.
Robin S. Gross
Senior Counsel
The Incoming Letter is in Acrobat format.
http://www.sec.gov/divisions/investment/noaction/equus111403.htm
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