Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
¨
No
þ
Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
¨
No
þ
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
¨
Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
¨
No
¨
Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
þ
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
¨
No
x
The aggregate market value of the Registrant’s
common stock held by non-affiliates of the registrant as of March 31, 2016 was $211,431,851. The registrant had 29,466,768 shares
of common stock outstanding as of January 27, 2017.
Fifth Street Senior Floating Rate Corp.,
a Delaware corporation, or together with its subsidiaries, where applicable, the Company, which may also be referred to as “we”,
“us” or “our”, is filing this Amendment No. 2, or the Amendment No. 2, to its Annual Report on Form 10-K
for the fiscal year ended September 30, 2016, which was initially filed with the Securities and Exchange Commission, or the SEC,
on December 13, 2016 and subsequently amended on December 23, 2016, or, collectively, the Form 10-K, to provide the information
required by Items 10 through 14 of Part III. Our definitive proxy statement will not be filed within 120 days after September 30,
2016, the end of the fiscal year covered by the Form 10-K. Accordingly, reference to our proxy statement on the cover page has
been deleted.
In addition, pursuant to the rules of the
SEC, we have also included as exhibits currently dated certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.
This Amendment No. 2 also updates, amends and supplements Part IV, Item 15 of the Form 10-K to include the filing of new Exhibits
31.1, 31.2, certifications of our Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.We are amending and refiling Item 15.3 of Part IV solely to reflect the inclusion of those certifications.
Because no financial statements are contained within this Amendment No. 2 and this Amendment No. 2 does not contain or amend any
disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted.
Because no financial statements are contained within this Amendment No. 2, we are not including certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
No other changes have been made to the Form
10-K. This Amendment No. 2 does not modify or update in any way disclosures made in the Form 10-K. Among other things, forward-looking
statements made in the Form 10-K have not been revised to reflect events that occurred or facts that became known to us after filing
of the Form 10-K, and such forward-looking statements should be read in their historical context. Furthermore, this Amendment No.
2 should be read in conjunction with the Form 10-K and with our subsequent filings with the SEC.
PART III
|
Item 10.
|
Directors, Executive
Officers and Corporate Governance
|
Directors
Name
|
|
Age
|
|
Length of time served; Term of office
|
Interested Directors
|
|
|
|
|
Bernard D. Berman
|
|
46
|
|
Director since 2013; term expires in 2018
|
Patrick J. Dalton
|
|
48
|
|
Director since 2017; term expires in 2019
|
Independent Directors
|
|
|
|
|
James Castro-Blanco
|
|
57
|
|
Director since 2016; term expires in 2019
|
Richard W. Cohen
|
|
62
|
|
Director since 2016; term expires in 2019
|
Richard P. Dutkiewicz
|
|
61
|
|
Director since 2013; term expires in 2018
|
Jeffrey R. Kay
|
|
48
|
|
Director since 2013; term expires in 2017
|
Douglas F. Ray
|
|
49
|
|
Director since 2014; term expires in 2017
|
Biographical information regarding
our directors is set forth below. We have divided the directors into two groups — independent directors, or Independent
Directors, and interested directors. Interested directors are “interested persons” of the Company, as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended, or the 1940 Act.
Officers
The following persons serve as our
officers in the following capacities:
Name
|
|
Age
|
|
Position
|
Patrick J. Dalton
|
|
48
|
|
Chief Executive Officer
|
Steven M. Noreika
|
|
41
|
|
Chief Financial Officer
|
Kerry S. Acocella
|
|
36
|
|
Chief Compliance Officer and Secretary
|
Biographical Information
Independent Directors
James Castro-Blanco.
Mr. Castro-Blanco has been a member of our board of directors, or the Board, since October 2016. Mr. Castro-Blanco has over 20
years of experience as an attorney in both the private and public sectors. Since December 2010, Mr. Castro-Blanco has served as
the chief deputy county attorney for Westchester County, New York, where he advises numerous elected officials, boards and commissions
and is the lead attorney on high profile matters involving Westchester County. He has also served as a member of the board of directors
of Fifth Street Finance Corp., or FSC, since August 2014. FSC is a specialty finance company that provides custom-tailored financing
solutions to small and mid-sized companies, primarily in connection with investments by private equity sponsors, and shares an
investment adviser with us. Mr. Castro-Blanco also served as counsel with Wilson Elser Moskowitz Edelman & Dicker LLP from
January 2007 to December 2010, where he provided business and risk management advice to businesses and individuals. In 2006, Mr.
Castro-Blanco was appointed a special master by a United States District Court Judge to investigate and report upon alleged financial
improprieties in the management of a pension plan where he served until 2009. Mr. Castro-Blanco also served as a former assistant
United States attorney from February 1994 to November 1996, where Mr. Castro-Blanco investigated and prosecuted individuals and
organizations involved in RICO, money-laundering and other financial crimes. Prior to that, he was an attorney with Pillsbury Winthrop
Shaw Pittman LLP from September 1991 to February 1994, where he worked on antitrust and complex corporate litigation matters.
Mr. Castro-Blanco graduated
from Brooklyn Law School where he was the Articles Editor of the Law Review. Mr. Castro-Blanco also holds a B.A. from the State
University of New York at Albany. Mr. Castro-Blanco has served on the Board of Trustees for St. John’s Riverside Hospital
and is the chair of the Liability Committee, helping guide the institution through the myriad changes in today’s healthcare
environment. He has also been a board member of several charities providing scholarship monies to deserving students and has served
as the president of the largest Hispanic bar association on the East Coast of the United States.
Through his extensive work as
an attorney in the public and private sectors, including his involvement in investigating and reporting on financial improprieties,
Mr. Castro-Blanco brings valuable legal, business and financial expertise to his Board service. The foregoing qualifications led
to the Board’s conclusion that Mr. Castro-Blanco should serve as a member of the Board.
Richard W. Cohen
. Mr.
Cohen has been a member of the Board since April 2016. Mr. Cohen is the Chairman of Lowey Dannenberg Cohen & Hart, P.C. (“Lowey”),
a law firm that represents investors and directors in public companies, including closed-end funds. Mr. Cohen joined Lowey as an
attorney in 1998 and has served as a director since 2005. He previously served as the President of Lowey from 2008 to 2014. Mr.
Cohen was a director of Crossroads Capital, Inc., a business development company, from July 2015 to June 2016 and served as a member
of the valuation, audit and nominating committees. Mr. Cohen also served as a director of MGT Capital Company, a holding company,
where he was also a member of its audit committee, from 2012 to 2013. Mr. Cohen is admitted to practice law in New York and Pennsylvania,
and the bars of the U.S. Supreme Court, the U.S. Courts of Appeals for the 1st, 2nd, 3rd, 6th and 11th Circuits, and the U.S. District
Courts for the Southern and Eastern Districts of New York, the Eastern District of Michigan and the Eastern District of Pennsylvania.
Mr. Cohen received his undergraduate degree from Georgetown University and his Juris Doctor from the New York University School
of Law.
Richard P. Dutkiewicz
. Mr.
Dutkiewicz has been a member of the Board since May 2013. He is an independent financial and operational adviser. Prior to his
current position, he was a managing director at Capital Insight, LLC, a private investment bank, from March 2013 to November 2013.
Previously, he was an independent financial and management consultant affiliated with Exxedus Capital Partners from September 2012
to March 2013. From May 2010 to April 2013, Mr. Dutkiewicz served on the Board of Directors of Motor Sport Country Club Holdings,
Inc., which sells balancing technology for rotating devices in the automotive industry. Mr. Dutkiewicz has also been a member of
the FSC board of directors since February 2010. From April 2010 to March 2012, Mr. Dutkiewicz was the executive vice president
and chief financial officer of Real Mex Restaurants, Inc., which filed for bankruptcy in October 2011. Mr. Dutkiewicz previously
served as chief financial officer of Einstein Noah Restaurant Group, Inc. from October 2003 to April 2010. From May 2003 to October
2003, Mr. Dutkiewicz was vice president-information technology of Sirenza Microdevices, Inc. In May 2003, Sirenza Microdevices,
Inc. acquired Vari-L Company, Inc. From January 2001 to May 2003, Mr. Dutkiewicz was vice president-finance, and chief financial
officer of Vari-L Company, Inc. From April 1995 to January 2001, Mr. Dutkiewicz was vice president-finance, chief financial officer,
secretary and treasurer of Coleman Natural Products, Inc., located in Denver, Colorado. Mr. Dutkiewicz’s previous experience
includes senior financial management positions at Tetrad Corporation, MicroLithics Corporation and various divisions of United
Technologies Corporation. Mr. Dutkiewicz began his career as an Audit Manager at KPMG LLP. Mr. Dutkiewicz received a B.B.A. degree
from Loyola University of Chicago and passed the CPA exam in 1978.
Through his prior experiences
as a vice president and chief financial officer at several public companies, including executive vice president and chief financial
officer of Real Mex Restaurants, Inc. and chief financial officer of Einstein Noah Restaurant Group, Inc., Mr. Dutkiewicz brings
business expertise, finance and audit skills to his Board service with the Company. Mr. Dutkiewicz’s expertise, experience
and skills closely align with the Company’s operations, and his prior investment experience with managing public companies
facilitates an in-depth understanding of our investment business. Moreover, due to Mr. Dutkiewicz’s knowledge of and experience
in finance and accounting, the Board determined that Mr. Dutkiewicz is an “audit committee financial expert” as defined
under SEC rules, and that he is qualified to serve as chairman of the Audit Committee of the Board. The foregoing qualifications
led to the Board’s conclusion that Mr. Dutkiewicz should serve as a member of the Board.
Jeffrey R. Kay
. Mr.
Kay has been a member of the Board since May 2013. Mr. Kay has over 20 years of marketing and entrepreneurial experience. Over
the past ten years, Mr. Kay has founded and operated two different successful businesses providing marketing services and consulting
to Fortune 500 companies. Currently, he is the founder and managing director of Brandfan, Inc., a marketing firm that specializes
in working with consumer-oriented companies to build revenue-generating digital marketing partnerships. From March 2011 to July
2012, Mr. Kay was the vice president of business development for Fanscape, Inc., a division of Omnicom Group specializing in social
media marketing, during which time he also established and managed the company’s New York office. From March 2003 to December
2010, Mr. Kay was senior vice president, strategy & concept development at Eastwest Marketing Group, Inc., an independent consumer-oriented
marketing services and consulting firm. Mr. Kay’s previous experience includes founding and operating Performance Marketing
Communications, an independent consumer-oriented marketing services agency, and holding management positions at various marketing
agencies. Mr. Kay graduated from the University of Maryland College of Business and Management with a B.S. in Marketing and Business
Administration.
Mr. Kay’s executive experience
brings extensive business, entrepreneurial and marketing expertise to his Board service. His experience as a marketing executive
for several consumer-oriented companies also provides guidance to the Company’s investor relations efforts. The foregoing
qualifications led to the Board’s conclusion that Mr. Kay should serve as a member of the Board.
Douglas F. Ray
. Mr.
Ray has been a member of the Board since September 2014. Since August 1995, Mr. Ray has worked for Seavest Investment Group, a
private investment and wealth management firm based in White Plains, New York. He currently serves as the chief executive officer
and president of Seavest Investment Group. Mr. Ray has more than 15 years of experience acquiring, developing, financing and managing
a diverse portfolio of real estate investments, including three healthcare properties funds. Mr. Ray previously served on the Board
of Directors of Nat Nast, Inc., a luxury men’s apparel company. Mr. Ray has also been a member of the FSC Board of Directors
since December 2007. Prior to joining Seavest Investment Group, Mr. Ray worked in Washington, D.C. on the staff of U.S. Senator
Arlen Specter and as a research analyst with the Republican National Committee. Mr. Ray holds a B.A. from the University of Pittsburgh.
Through his broad experience
as an officer and director of several companies, in addition to skills acquired with firms engaged in investment banking, banking
and financial services, Mr. Ray brings to the Company extensive financial and risk assessment abilities. Mr. Ray’s service
on the Board also provides him with a specific understanding of the Company, its operations and the business and regulatory issues
facing business development companies. The foregoing qualifications led to the Board’s conclusion that Mr. Ray should serve
as a member of the Board.
Interested Directors
Bernard
D. Berman
. Mr. Berman has been a member of the Board since May 2013 and the Chairman of the Board since January
2014. Mr. Berman also served as president of the Company from May 2013 to January 2014. Mr. Berman has also been a member of the
FSC Board of Directors since February 2009 and the Chairman of the FSC Board of Directors since September 2014. He was also FSC’s
president from February 2010 to September 2014, secretary from October 2007 to September 2014, and chief compliance officer from
April 2009 to May 2013. From September 2014 until his resignation in June 2015, Mr. Berman served on the board of directors of
Fifth Street Asset Management Inc. (NASDAQ: FSAM), or FSAM, the publicly traded asset manager that indirectly owns our
investment
adviser. Mr. Berman also serves as the co-president and chief compliance officer of FSAM. Mr. Berman also serves as the president
of our investment adviser and has served on its investment committee since its founding in November 2007. Prior to joining the
group of affiliated companies, including our investment adviser, or, collectively, Fifth Street, in 2004, Mr. Berman was a corporate
attorney from 1995 to 2004, during which time he negotiated and structured a variety of investment transactions. Mr. Berman received
a J.D. from Boston College Law School and a B.S. in Finance from Lehigh University.
Mr. Berman’s prior position
as a corporate attorney allows him to bring to the Board and Company the benefit of his experience negotiating and structuring
various investment transactions as well as an understanding of the legal, business, compliance and regulatory issues facing business
development companies. Mr. Berman’s previous service on the Board also provides him with a specific understanding of the
Company and its operations. The foregoing qualifications led to the Board’s conclusion that Mr. Berman should serve as a
member of the Board.
Patrick J. Dalton
. Mr.
Dalton has been our chief executive officer and a member of the Board since January 2017. He also serves as the Co-President of
FSAM, the chief executive officer of FSC and has been a member of FSC’s board of directors since January 2017. Mr. Dalton
has over 20 years of credit and investment experience. Mr. Dalton joined the Company from Gordon Brothers Finance Company, where
he served as the President, Chief Executive Officer, Chair of the Investment Committee and member of the board of directors from
September 2012 to February 2016. Prior to that role, he served as President and Chief Operating Officer at Apollo Investment Corporation,
a publicly-traded business development company (NASDAQ: AINV), from November 2008 to February 2012; Chief Investment Officer and
Portfolio Manager at Apollo Investment Management, L.P. from 2007 to 2012; and a partner at Apollo Global Management from 2004
to 20012. Before joining Apollo Investment Corporation, Mr. Dalton was a Vice President with Goldman, Sachs & Co., Chase Securities,
Inc. and Chase Manhattan Bank. Mr. Dalton received an M.B.A. in 1997 from Columbia University Graduate School of Business and a
B.S. in Finance from Boston College in 1990.
Mr. Dalton’s prior credit
and investment experience, including his experience as an officer of a publicly-traded business development company, led to the
Board’s conclusion that Mr. Dalton should serve as a member of the Board.
Officers Who Are Not
Directors
Steven M. Noreika
. Mr.
Noreika has served as our chief financial officer since July 2015 and previously served as our chief financial officer from November
2013 to July 2014 and our controller from July 2013 to November 2013. Mr. Noreika also currently serves as the chief financial
officer of Fifth Street Management, our investment adviser, and the chief financial officer of FSC CT, our administrator. Mr. Noreika
has also served as FSC’s chief financial officer since July 2015 and was previously controller of FSC from January 2013 to
July 2014. In addition, Mr. Noreika was the chief accounting officer of FSAM from July 2014 to July 2015. Mr. Noreika joined Fifth
Street in September 2008, when he began serving as chief financial officer of Fifth Street Management, and has held various finance
and accounting positions with such entities. Prior to joining Fifth Street, from 2002 to 2008, Mr. Noreika was a manager of internal
financial reporting at Time Warner Inc., where he was responsible for various aspects of financial reporting, financial systems
design and implementation. Prior to that, he managed audit and tax engagements at Marcum & Kliegman, LLP (now Marcum LLP) for
clients in various industries, predominantly financial services, real estate, new media and entertainment. Mr. Noreika is a Certified
Public Accountant and holds a B.B.A. in Accounting from Pace University. He is also a holder of the Chartered Financial Analyst
designation.
Kerry S. Acocella
. Ms.
Acocella has served as our chief compliance officer and secretary since October 2015. She has also served as chief compliance officer
of Fifth Street Management since October 2015 and as chief compliance officer and secretary of FSC since October 2015. Ms. Acocella
has also served as secretary of FSAM since October 2015. Ms. Acocella serves as Executive Director, Legal for Fifth Street Management
and has held positions within the Fifth Street Legal Department since February 2013. Prior to that Ms. Acocella was Senior Corporate
Counsel — Corporate and Securities for Weight Watchers International, Inc. from August 2010 to February 2013. Ms.
Acocella began her career as a corporate attorney with Morrison & Foerster LLP where she practiced in the mergers and acquisitions
and securities areas from 2005 to 2010. Ms. Acocella holds a B.S. in Psychology from the University of Georgia and a J.D. from
the Benjamin N. Cardozo School of Law, Yeshiva University.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, requires the Company’s directors and executive officers, and persons
who own 10% or more of the Company common stock, to file reports of ownership and changes in ownership of its equity securities
with the SEC. Directors, executive officers and 10% or more holders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on a review of the copies of those forms furnished to us, or written
representations that no such forms were required, we believe that our directors, executive officers and 10% or more beneficial
owners complied with all Section 16(a) filing requirements during the fiscal year ended September 30, 2016.
Code of Business Conduct and Ethics
The Company has adopted a Code of
Business Conduct and Ethics which applies to, among others, executive officers, including its principal executive officer and principal
financial officer, as well as every officer, director and the investment personnel of the Company. Requests for copies should be
sent in writing to Kerry S. Acocella, Chief Compliance Officer, Fifth Street Senior Floating Rate Corp., 777 West Putnam Avenue,
3
rd
Floor, Greenwich, CT 06830. The Code of Business Conduct and Ethics is also available at
http://fsfr.fifthstreetfinance.com
.
If the Company makes any substantive
amendment to, or grants a waiver from, a provision of the Code of Business Conduct and Ethics, the Company will promptly disclose
the nature of the amendment or waiver on its website at
http://fsfr.fifthstreetfinance.com
.
Director Nominations
On September 6, 2016, we amended
our bylaws and, among other amendments, augmented the advance notice provisions of the bylaws by modifying the advance notice period
and requiring stockholders to provide additional disclosure, in each case, with respect to such stockholder’s intention to
present director nominations or business proposals at stockholder meetings. Under our bylaws in order for a stockholder’s
notice of the nomination of a candidate to be elected director to be timely, the notice must be received by our Secretary not earlier
than 150 days and not later than 120 days prior to the anniversary of the previous year’s annual meeting of stockholders,
provided that if the annual meeting is to be held more than 30 days prior to or later than such anniversary date, notice must be
received not later than the close of business on the 10th day following the day on which notice of the date of the meeting was
mailed or such public disclosure of the meeting was made, whichever comes first. Stockholder director nominations must also comply
with the other requirements contained in our bylaws, including supporting documentation and other information and representations.
Audit Committee
Our Audit Committee is responsible
for selecting, engaging and discharging our independent accountants, reviewing the plans, scope and results of the audit engagement
with our independent accountants, approving professional services provided by our independent accountants (including compensation
thereof), reviewing the independence of our independent accountants and reviewing the adequacy of our internal control over financial
reporting, as well as establishing guidelines and making recommendations to the Board regarding the valuation of our loans and
investments.
The members of our Audit Committee
are Messrs. Dutkiewicz, Kay and Ray, each of whom is not an interested person of the Company as defined in the 1940 Act and is
independent for purposes of the NASDAQ listing rules. Mr. Dutkiewicz serves as the chairman of the Audit Committee. The Board has
determined that Mr. Dutkiewicz is an “audit committee financial expert” as defined under SEC rules.
The charter of the Audit Committee
is available in print to any stockholder who requests it and is also available on our website at
http://fsfr.fifthstreetfinance.com
.
|
Item 11.
|
Executive Compensation
|
Our executive officers do not receive
direct compensation from us. The compensation of the principals and other investment professionals of our investment adviser is
paid by our investment adviser and/or FSC CT LLC, or FSC CT, our administrator. Further, we are prohibited under the 1940 Act from
issuing equity incentive compensation, including stock options, stock appreciation rights, restricted stock and stock, to our officers
or directors, or any employees it may have in the future. Compensation paid to the chief financial officer and chief compliance
officer and their staffs and other support personnel is set by our administrator, FSC CT, and is subject to reimbursement by us
of an allocable portion of such compensation for services rendered to us.
During fiscal year 2016, we reimbursed
FSC CT approximately $0.5 million for the allocable portion of compensation expenses incurred by FSC CT for our chief financial
officer, chief compliance officer and other support personnel, pursuant to the Administration Agreement (as defined below).
Director Compensation
The following table sets forth compensation
of our directors for the fiscal year ended September 30, 2016:
Name
|
|
Fees Earned
or Paid in
Cash
(1)(2)
|
|
|
Total
|
|
Interested Directors
|
|
|
|
|
|
|
|
|
Bernard D. Berman
|
|
|
—
|
|
|
|
—
|
|
Patrick J. Dalton
(3)
|
|
|
—
|
|
|
|
—
|
|
Ivelin M. Dimitrov
(4)
|
|
|
—
|
|
|
|
—
|
|
Todd G. Owens
(5)
|
|
|
—
|
|
|
|
—
|
|
Independent Directors:
|
|
|
|
|
|
|
|
|
James Castro-Blanco
(6)
|
|
$
|
—
|
|
|
$
|
—
|
|
Richard W. Cohen
|
|
$
|
42,500
|
|
|
$
|
42,500
|
|
Brian S. Dunn
(7)
|
|
$
|
87,683
|
|
|
$
|
87,683
|
|
Richard P. Dutkiewicz
|
|
$
|
148,642
|
|
|
$
|
148,642
|
|
Jeffrey R. Kay
|
|
$
|
143,004
|
|
|
$
|
143,004
|
|
Douglas F. Ray
|
|
$
|
124,471
|
|
|
$
|
124,471
|
|
|
(1)
|
For a discussion of the Independent Directors’
compensation, see below.
|
|
(2)
|
We do not maintain a stock or option plan, non-equity
incentive plan or pension plan for its directors.
|
|
(3)
|
Mr. Dalton was not a member of the Board during the
fiscal year ended September 30, 2016. Mr. Dalton joined the Board on January 2, 2017.
|
|
(4)
|
Mr. Dimitrov stepped down from his roles of Chief
Executive Officer and member of Board on January 2, 2017.
|
|
(5)
|
Mr. Owens stepped down from his roles of President
and member of the Board on January 2, 2017.
|
|
(6)
|
Mr. Castro-Blanco was not a member of the Board
during the fiscal year ended September 30, 2016. Mr. Castro-Blanco joined the Board on October 19, 2016.
|
|
(7)
|
Mr. Dunn was a member of the Board until April 2016,
and the fees represent those fees earned until his departure from the Board.
|
For the fiscal year ended September
30, 2016, the Independent Directors received an annual retainer fee of $55,000, payable once per year to Independent Directors
that attend at least 75% of the meetings held while the director was a member of the Board during the previous fiscal year. In
addition, the Independent Directors received $2,000 for each Board meeting in which the director attended in person and $1,000
for each Board meeting in which the director participated other than in person, and reimbursement of reasonable out-of-pocket expenses
incurred in connection with attending each Board meeting. The Independent Directors also received $1,000 for each Board committee
meeting in which they attended in person and $500 for each Board committee meeting in which they participated other than in person,
plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each committee meeting not held concurrently
with a Board meeting. The Independent Directors serving on the Co-Investment Committee, which is responsible for reviewing and
approving certain co-investment transactions under the conditions of the exemptive order we received from the SEC, also received
$500 for each Co-Investment Committee meeting in which they attended in person and $300 for each Co-Investment Committee meeting
in which they participated other than in person, plus reimbursement of reasonable out-of-pocket expenses incurred in connection
with attending each Co-Investment Committee meeting not held concurrently with a Board meeting. Messrs. Berman, Dutkiewicz and
Ray were members of the 2016 Annual Meeting Committee, which was responsible for various administrative matters relating to our
2016 annual meeting of stockholders, and each received a one-time retainer of $5,000 for their service on this committee.
In addition, for the fiscal year
ended September 30, 2016, the chairman of the Audit Committee received an annual retainer of $25,000, the chairman of the Nominating
and Corporate Governance Committee and the Compensation Committee each received an annual retainer of $2,500, the chairman of the
Co-Investment Committee received an annual retainer of $15,000 and the chairman of the Demand Review Committee received a $10,000
annual retainer. No compensation was paid to directors who are interested persons of the Company as defined in the 1940 Act.
Item 12.
Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth,
as of January 27, 2017 the beneficial ownership information of each current director and the nominees for director, as well as
our executive officers, each person known to it to beneficially own 5% or more of the outstanding shares of its common stock, and
the executive officers and directors as a group. Percentage of beneficial ownership is based on 29,466,768 shares of our common
stock outstanding as of January 27, 2017.
Beneficial ownership is determined
in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Ownership information
for those persons who beneficially own 5% or more of the shares of our common stock is based upon filings by such persons with
the SEC and other information obtained from such persons, if available.
Unless otherwise indicated,
we believe that each beneficial owner set forth in the table below has sole voting and investment power over the shares beneficially
owned by such beneficial owner. The directors are divided into two groups — interested directors and independent
directors. Interested directors are “interested persons” of the Company as defined in Section 2(a)(19) of the 1940
Act. The address of all executive officers and directors is c/o Fifth Street Senior Floating Rate Corp., 777 West Putnam Avenue,
3rd Floor, Greenwich, CT 06830.
Name
|
|
Number of Shares of Common
Stock Owned Beneficially
|
|
|
Percentage
of Company Common
Stock Outstanding
|
|
Interested Directors:
|
|
|
|
|
|
|
|
|
Bernard D. Berman
(1)
|
|
|
83,500
|
|
|
|
*
|
|
Patrick J. Dalton
|
|
|
0
|
|
|
|
*
|
|
Independent Directors:
|
|
|
|
|
|
|
|
|
James Castro-Blanco
|
|
|
1,587
|
|
|
|
*
|
|
Richard W. Cohen
|
|
|
11,000
|
|
|
|
*
|
|
Richard P. Dutkiewicz
(1)
|
|
|
4,000
|
|
|
|
*
|
|
Jeffrey R. Kay
|
|
|
1,465
|
|
|
|
*
|
|
Douglas F. Ray
|
|
|
5,000
|
|
|
|
*
|
|
Executive Officers Who Are Not Directors:
|
|
|
|
|
|
|
|
|
Steven M. Noreika
|
|
|
1,297
|
|
|
|
*
|
|
All Officers and Directors as a Group
(2)
|
|
|
107,849
|
|
|
|
*
|
|
5% Holders
|
|
|
|
|
|
|
|
|
Leonard M. Tannenbaum
(1)(3)
|
|
|
7,882,811.622
|
|
|
|
26.8
|
%
|
*Represents less than 1%
|
(1)
|
Accounts owned include shares held in a brokerage
account that may be pledged as loan collateral on a margin basis.
|
|
(2)
|
Amount only includes Section 16(a) reporting persons
of the Companies.
|
|
(3)
|
The address for Leonard M. Tannenbaum is 777 West
Putnam Avenue, 3rd Floor, Greenwich, CT 06830. As reported on Schedule 13D/A filed by Mr. Tannenbaum on December 8, 2016, of the
Company’s shares over which Mr. Tannenbaum has sole voting and dispositive power, (i) 5,098,783.622 shares are held by him
directly; (ii) 95,634 shares are held by the Leonard M. Tannenbaum Foundation, for which Mr. Tannenbaum serves as the President;
and (iii) 10,875 shares are held as custodian for his three children (in the amounts of 7,500 shares, 2,000 shares and 1,375 shares).
The 2,677,519 shares over which Mr. Tannenbaum has shared voting and dispositive power are directly held by Fifth Street Holdings
L.P.
|
As indicated above, certain of our
officers and directors hold shares in margin accounts. As of January 27, 2017, no shares in such margin accounts were pledged as
loan collateral. Our insider trading policy prohibits share pledges, except in limited cases with the pre-approval of our chief
compliance officer.
The following table sets forth,
as of January 27, 2017, the dollar range of our equity securities that is beneficially owned by each of our directors.
Name
|
|
Dollar Range
of Equity Securities
Beneficially Owned
(1)(2)(3)
|
|
Interested Directors:
|
|
|
|
|
Bernard D. Berman
|
|
|
Over $100,000
|
|
Patrick J. Dalton
|
|
|
None
|
|
Independent Directors:
|
|
|
|
|
James Castro-Blanco
|
|
|
$10,001 – $50,000
|
|
Richard W. Cohen
|
|
|
Over $100,000
|
|
Richard P. Dutkiewicz
|
|
|
$50,001 – $100,000
|
|
Jeffrey R. Kay
|
|
|
$10,001 – $50,000
|
|
Douglas F. Ray
|
|
|
$10,0001 – $50,000
|
|
|
(1)
|
Beneficial ownership has been determined in accordance
with Rule 16a-1(a)(2) of the Exchange Act.
|
|
(2)
|
The dollar range of equity securities beneficially
owned in us is based on the closing price per share for our common stock of $10.20 on January 27, 2017 on the NASDAQ Global
Select Market.
|
|
(3)
|
The dollar range of equity securities beneficially
owned are: none, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
|
|
Item 13.
|
Certain Relationships and Related Transactions, and
Director Independence
|
Transactions with Related Persons
We have entered into an investment
advisory agreement, or the Investment Advisory Agreement, with Fifth Street Management, our investment adviser. Messrs. Berman
and Dalton, interested members of the Board, have a direct or indirect pecuniary interest in Fifth Street Management. Fifth Street
Management is a registered investment adviser under the Investment Advisers Act of 1940, as amended, that is partially and indirectly
owned by FSAM.
Under the Investment Advisory Agreement,
fees payable to Fifth Street Management equal (a) a base management fee of 1.00% of the value of our gross assets, which includes
any borrowings for investment purposes and excludes cash and cash equivalents, and (b) an incentive fee based on our performance.
The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of our “Pre-Incentive
Fee Net Investment Income” for the immediately preceding quarter, subject to a preferred return, or “hurdle,”
and a “catch up” feature. The second part is determined and payable in arrears as of the end of each fiscal year (or
upon termination of the Investment Advisory Agreement) and equals 20% of our “Incentive Fee Capital Gains,” which equals
its realized capital gains on a cumulative basis from inception through the end of the year, if any, computed net of all realized
capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital
gain incentive fee.
The Investment Advisory Agreement
may be terminated by either party without penalty upon no fewer than 60 days’ written notice to the other. We incurred investment
advisory fees of $11.3 million for fiscal year 2016 under the Investment Advisory Agreement.
We have entered into an
administration agreement with FSC CT, or the Administration Agreement, which is a wholly-owned subsidiary of Fifth Street
Management. Pursuant to the Administration Agreement, FSC CT provides us the administrative services necessary for our
operations, which include providing us with office facilities, equipment, clerical, bookkeeping and record keeping services
at such facilities and such other services as FSC CT, subject to review by the Board, shall from time to time deem to be
necessary or useful to perform its obligations under the Administration Agreement. FSC CT also provides our portfolio
collection functions for interest income, fees and warrants and is responsible for the financial and other records that we
are required to maintain and prepares, prints and disseminates reports to our stockholders and reports and all other
materials filed with the SEC. In addition, FSC CT assists us in determining and publishing our net asset value, overseeing
the preparation and filing of our tax returns, and generally overseeing the payment of our expenses and the performance of
administrative and professional services rendered to us by others. For providing these services, facilities and personnel, we
reimburse FSC CT the allocable portion of overhead and other expenses incurred by FSC CT in performing its obligations under
the Administration Agreement, including our allocable portion of the rent of our principal executive offices at market
rates and our allocable portion of the costs of compensation and related expenses of our chief financial officer and chief
compliance officer and their staffs. Such reimbursement is at cost, with no profit to, or markup by, FSC CT. FSC CT may also
offer to provide, on our behalf, managerial assistance to our portfolio companies. The Administration Agreement may be
terminated by either party without penalty upon 60 days’ written notice to the other party. We incurred approximately
$1.2 million of administration fees for fiscal year 2016 under the Administration Agreement.
We have also entered into a license
agreement with Fifth Street Capital LLC pursuant to which Fifth Street Capital LLC has agreed to grant us a non-exclusive, royalty-free
license to use the name “Fifth Street.” Under this agreement, we have a right to use the “Fifth Street”
name for so long as Fifth Street Management or one of its affiliates remains our investment adviser.
Review, Approval or Ratification of Transactions
with Related Persons
The Independent Directors are required
to review, approve or ratify any transactions with related persons (as such term is defined in Item 404 of Regulation S-K).
Material Conflicts of Interest
Certain of our executive officers,
directors and/or members of Fifth Street Management serve or may serve as officers, directors or principals of entities that operate
in the same or a related line of business as we do or of investment funds managed by our investment adviser or its affiliates.
For example, Fifth Street Management presently serves as investment adviser to us and FSC and will encounter certain investment
opportunities that satisfy the investment criteria for both us and FSC. We target private, leveraged, middle-market companies with
approximately $20 million to $120 million of EBITDA and targets investment sizes generally ranging from $3 million to $30 million.
We had total assets of approximately $624 million as of September 30, 2016 and invest in senior secured loans, including first
lien, unitranche and second lien debt instruments, that pay interest at rates which are determined periodically on the basis of
a floating base lending rate, similar to those that FSC targets for investment. FSC is a specialty finance company that lends to
and invests in small and mid-sized companies with annual revenues between $10 million and $120 million, primarily in connection
with investments by private equity sponsors, and targets investment sizes generally ranging from $10 million to $100 million. FSC
had total assets of approximately $2.3 billion as of September 30, 2016. In addition, although not the primary focus of FSC’s
investment portfolio, FSC’s investments also include floating rate senior loans. Therefore, there may be certain investment
opportunities that satisfy the investment criteria for both us and FSC. In addition, certain of our executive officers and Independent
Directors serve in substantially similar capacities for both us and FSC. Fifth Street Management and its affiliates also manage
private investment funds, and may manage other funds in the future, that have investment mandates that are similar, in whole and
in part, with ours. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be
in the best interests of us or our stockholders.
In order to address potential conflicts
of interest, Fifth Street Management has adopted an investment allocation policy that governs the allocation of investment opportunities
among the investment funds managed by Fifth Street Management and its affiliates. To the extent an investment opportunity is appropriate
for either or both of FSC and us and/or any other investment fund managed by affiliates of Fifth Street Management, and co-investment
is not possible, Fifth Street Management will adhere to its investment allocation policy in order to determine to which entity
to allocate the opportunity. The 1940 Act prohibits a business development companies from making certain negotiated co-investments
with affiliated funds, including with one another, unless they receive an order from the SEC permitting them to do so. As such,
we were substantially limited in our ability to co-invest in privately negotiated transactions with affiliated funds until we obtained
an exemptive order from the SEC on September 9, 2014. The exemptive relief permits us to participate in negotiated co-investment
transactions, subject to the conditions of the relief granted by the SEC, with certain affiliates, each of whose investment adviser
is Fifth Street Management, or an investment adviser controlling, controlled by or under common control with Fifth Street Management,
in a manner consistent with their investment objectives, positions, policies, strategies and restrictions as well as regulatory
requirements and other pertinent factors.
If we are unable to rely on the
exemptive relief for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy
is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more
than one entity’s investment strategy, on an alternating basis. Although Fifth Street Management’s investment professionals
will endeavor to allocate investment opportunities in a fair and equitable manner, we and our common stockholders could be adversely
affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or
affiliated with, our executive officers, directors and members of Fifth Street Management.
Fifth Street Management’s
investment allocation policy is also designed to manage and mitigate the conflicts of interest associated with the allocation of
investment opportunities if we are able to co-invest, either pursuant to SEC interpretive positions or our exemptive order, with
other accounts managed by our investment adviser and its affiliates. Generally, under the investment allocation policy, co-investments
will be allocated pursuant to the conditions of the exemptive order. Under the investment allocation policy, a portion of each
opportunity that is appropriate for us and any affiliated fund will be offered to us and such other eligible accounts as determined
by Fifth Street Management generally based on asset class, fund size and liquidity, among other factors. If there is a sufficient
amount of securities to satisfy all participants, the securities will be allocated among the participants in accordance with their
order size and if there is an insufficient amount of securities to satisfy all participants, the securities will be allocated pro
rata based on each participating party’s capital available for investment in the asset class being allocated, up to the amount
proposed to be invested by each. In accordance with Fifth Street Management’s investment allocation policy, we might not
participate in each individual opportunity, but will, on an overall basis, be entitled to participate equitably with other entities
managed by Fifth Street Management and its affiliates. Fifth Street Management seeks to treat all clients fairly and equitably
such that none receive preferential treatment vis-à-vis the others over time, in a manner consistent with its fiduciary
duty to each of them; however, in some instances, especially in instances of limited liquidity, the factors may not result in pro
rata allocations or may result in situations where certain funds receive allocations where others do not.
Pursuant to the Administration Agreement,
FSC CT, which is a wholly-owned subsidiary of Fifth Street Management, furnishes the Company with the facilities, including its
principal executive offices, and administrative services necessary to conduct its day-to-day operations. The Company pays FSC CT
its allocable portion for overhead and other expenses incurred by FSC CT in performing its obligations under the Administration
Agreement, including the Company’s allocable portion of the rent at market rates and the compensation of the Company’s
chief financial officer and chief compliance officer and their respective staffs.
Director Independence
In accordance with rules of NASDAQ,
the Board annually determines the independence of each director. No director is considered independent unless the Board has determined
that he or she has no material relationship with the Company. We monitor the status of its directors and officers through the activities
of our Nominating and Corporate Governance Committee and through a questionnaire to be completed by each director no less frequently
than annually, with updates periodically if information provided in the most recent questionnaire has materially changed.
In order to evaluate the materiality
of any such relationship, the Board uses the definition of director independence set forth in the NASDAQ listing rules. Section
5605 provides that a director of a business development company shall be considered to be independent if he or she is not an “interested
person” of the Company, as defined in Section 2(a)(19) of the 1940 Act. Section 2(a)(19) of the 1940 Act defines an “interested
person” to include, among other things, any person who has, or within the last two years had, a material business or professional
relationship with the Company.
The Board has determined that each
of the directors is independent and has no relationship with the Company, except as a director and stockholder of the Company,
with the exception of Messrs. Berman and Dalton. Messrs. Berman and Dalton are interested persons due to their positions at our
investment adviser and/or at the Company.
|
Item 14.
|
Principal Accountant Fees and Services
|
Upon the recommendation of our Audit
Committee, the Board has appointed PricewaterhouseCoopers LLP, or PwC, as our independent registered public accounting firm for
the fiscal year ending September 30, 2017, subject to ratification by our stockholders.
Independent
Auditor’s Fees
The following table presents fees
for professional services rendered by PwC for the fiscal years ended September 30, 2016 and 2015.
|
|
2016
|
|
|
2015
|
|
Audit Fees
|
|
$
|
493,601
|
|
|
$
|
435,067
|
|
Audit-Related Fees
|
|
$
|
—
|
|
|
$
|
160,000
|
|
Aggregate Non-Audit Fees:
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
$
|
25,000
|
|
|
$
|
40,000
|
|
All Other Fees
|
|
$
|
—
|
|
|
|
—
|
|
Total Aggregate Non-Audit Fees
|
|
$
|
25,000
|
(1)
|
|
$
|
40,000
|
(2)
|
Total Fees
|
|
$
|
518,601
|
|
|
$
|
635,067
|
|
|
(1)
|
Non-audit fees represent 4.8% of total fees.
|
|
(2)
|
Non-audit fees represent 6.2% of total fees.
|
Audit Fees
. Audit
fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services
that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings.
Audit-Related Fees
. Audit-related
services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit
or review of our financial statements and are not reported under “Audit Fees.” These services include attest services
that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.
Tax Fees
. Tax
fees consist of fees billed for professional services for tax compliance. These services include assistance regarding federal,
state and local tax compliance.
All Other Fees.
All
other fees would include fees for products and services other than the services reported above.
Pre-Approval Policies and Procedures
Our Audit Committee has established a pre-approval
policy that describes the permitted audit, audit-related, tax and other services to be provided by PwC, our independent registered
public accounting firm. Pursuant to the policies, our Audit Committee pre-approves the audit and non-audit services performed by
the independent registered public accounting firm in order to assure that the provision of such service does not impair the firm’s
independence.
Any requests for audit, audit-related, tax,
and other services that have not received general pre-approval must be submitted to the Audit Committee for specific pre-approval,
irrespective of the amount, and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly
scheduled meetings of the Audit Committee. However, the Audit Committee has delegated certain pre-approval authority to a subcommittee
comprised of one of its members, Mr. Dutkiewicz, the chairman of the Audit Committee, who shall report any pre-approval decisions
to the Audit Committee at its next scheduled meeting. The Audit Committee does not delegate its responsibilities to pre-approve
services performed by the independent registered public accounting firm to management.