U.S. Code of Federal Regulations
Regulations most recently checked for updates: Dec 01, 2022
(a) General rule. You must not self-deal to the prejudice of an Enterprise, the RBIC, its shareholders, partners or, members, or the Agency. Unless you obtain a prior written exemption from the Agency for special instances in which a Financing may further the purposes of the Act despite presenting a conflict of interest, you must not directly or indirectly:
(1) Provide Financing to any of your Associates, except for an Enterprise that satisfies all of the following conditions:
(i) Your Associate relationship with the Enterprise is described by paragraph (8) or (9) of the definition of Associate in § 4290.50,
(ii) No Person triggering the Associate relationship identified in paragraph (a)(1)(i) of the definition of Associate in § 4290.50 is a Close Relative or Secondary Relative of any Person described in paragraphs (1), (2), (4), or (5) of the definition of Associate in § 4290.50, and
(iii) No single Associate of yours has either a voting interest or an economic interest in the Enterprise exceeding 20 percent, and no two or more of your Associates have either a voting interest or an economic interest exceeding 33 percent. Economic interests shall be computed on a fully diluted basis, and both voting and economic interests shall exclude any interest owned through the RBIC.
(2) Provide Financing to an Associate of another RBIC if one of your Associates has received or will receive any direct or indirect Financing or a Commitment from that RBIC or any other RBIC (including Financing or Commitments received under any understanding, agreement, or cross dealing, reciprocal or circular arrangement).
(3) Borrow money from:
(i) An Enterprise Financed by you;
(ii) An officer, director, or owner of at least a 10 percent equity interest in such Enterprise; or
(iii) A Close Relative of any such officer, director, or equity owner.
(4) Provide Financing to an Enterprise to discharge an obligation to your Associate or free other funds to pay such obligation. This paragraph (a)(4) does not apply if the obligation is to an Associate Lending Institution and is a line of credit or other obligation incurred in the normal course of business.
(b) Rules applicable to Associates. Without the Agency's prior written approval, your Associates must not, directly or indirectly:
(1) Borrow money from any Person described in paragraph (a)(3) of this section.
(2) Receive from an Enterprise any compensation or anything of value in connection with Assistance you provide (except as permitted under § 4290.825(c)), or anything of value for procuring, attempting to procure, or influencing your action with respect to such Assistance.
(c) Applicability of other laws. You are also bound by Federal or State laws applicable to you that govern conflicts of interest and fiduciary obligations.
(d) Financings with Associates - (1) Financings with Associates requiring prior approval. Without the Agency's prior written approval, you may not Finance any Enterprise in which your Associate has either a voting equity interest or total equity interests (including potential interests) of at least five percent, or effective control, except as otherwise permitted under paragraph (a)(1) of this section.
(2) Other Financings with Associates. If you and an Associate provide Financing to the same Enterprise, either at the same time or at different times, you must be able to demonstrate to the Agency's satisfaction that the terms and conditions are (or were) fair and equitable to you, taking into account any differences in the timing of each party's financing transactions.
(3) Exceptions to paragraphs (d)(1) and (d)(2) of this section. A Financing that falls into one of the following categories is exempt from the prior approval requirement in paragraph (d)(1) of this section or is presumed to be fair and equitable to you for the purposes of paragraph (d)(2) of this section, as appropriate:
(i) Your Associate is a Lending Institution that is providing financing under a credit facility in order to meet the operational needs of the Enterprise and the terms of such financing are usual and customary.
(ii) Your Associate invests in the Enterprise on the same terms and conditions and at the same time as you.
(iii) Both you and your Associate are RBICs.
(e) Use of Associates to manage Portfolio Concerns. To protect your investment, you may designate an Associate to serve as an officer, director, or other participant in the management of a Portfolio Concern. You must identify any such Associate in your records available for the Agency's review under § 4290.600. Without the Agency's prior written approval, such Associate must not:
(1) Have any other direct or indirect financial interest in the Portfolio Concern that exceeds, or has the potential to exceed, the percentages of the Portfolio Concern's equity set forth in paragraph (a)(1) of this section.
(2) Receive any income or anything of value from the Portfolio Concern unless it is for your benefit, with the exception of director's fees, expenses, and distributions based upon the Associate's ownership interest in the Concern.
(f) 1940 and 1980 Act Companies: SEC exemptions. If you are a 1940 or 1980 Act Company and you receive an exemption from the Securities and Exchange Commission for a transaction described in this § 4290.730, you need not obtain the Agency's approval of the transaction. However, you must promptly notify the Agency of the transaction.
(g) Restriction on options obtained by RBIC's management and employees. Your employees, officers, directors, managing members or general partners, or the general partners or managing members of the Investment Adviser/Manager that is providing services to you or to your general partner or managing member, may obtain options in a Portfolio Concern only if:
(1) They participate in the Financing on a pari passu basis with you; or
(2) The Agency gives prior written approval; or
(3) The options received are compensation for service as a member of the board of directors of the Portfolio Concern, and such compensation does not exceed that paid to other outside directors. In the absence of such directors, fees must be reasonable when compared with amounts paid to outside directors of similar companies.