|
|
|
|
|
Name of Beneficial Owner
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percent of
Class(1)
|
Directors and Named Executive Officers:
|
|
|
|
|
Interested Directors
|
|
|
|
|
Michael J Arougheti
|
|
1,080,365
|
|
*
|
R. Kipp deVeer
|
|
225,000(2)
|
|
*
|
Robert L. Rosen
|
|
38,006
|
|
*
|
Bennett Rosenthal
|
|
255,138(3)
|
|
*
|
Independent Directors
|
|
|
|
|
Steve Bartlett
|
|
11,200(4)
|
|
*
|
Ann Torre Bates
|
|
22,275(5)
|
|
*
|
Daniel G. Kelly, Jr.
|
|
18,978
|
|
*
|
Steven B. McKeever
|
|
13,730
|
|
*
|
Eric B. Siegel
|
|
46,868(6)
|
|
*
|
Named Executive Officers Who Are Not Directors
|
|
|
|
|
Mitchell Goldstein
|
|
238,184(7)
|
|
*
|
Michael L. Smith
|
|
151,012
|
|
*
|
Penni F. Roll
|
|
67,452(8)
|
|
*
|
All Directors, Executive Officers and Certain Other Officers as a Group (16 persons)
|
|
2,168,208(9)
|
|
*
|
-
*
-
Represents
less than 1%.
-
(1)
-
Based
on shares of common stock outstanding as of April 8, 2019.
-
(2)
-
The
shares of the Company's common stock held by Mr. deVeer have been pledged as security in connection with a line of credit with a third party financial
institution unaffiliated with the Company.
3
-
(3)
-
Consists
of 255,138 shares of common stock indirectly beneficially owned by Mr. Rosenthal through BAR Holdings, LLC of which Mr. Rosenthal is
the manager.
-
(4)
-
The
shares of the Company's common stock held by Mr. Bartlett have been pledged as security in connection with a line of credit with a third party financial
institution unaffiliated with the Company.
-
(5)
-
Consists
of (i) 20,000 shares of common stock owned directly; and (ii) 2,275 shares of common stock indirectly beneficially owned by Ms. Bates
through her spouse.
-
(6)
-
Consists
of (i) 36,630 shares of common stock owned directly; (ii) 8,166 shares of common stock indirectly beneficially owned by Mr. Siegel
through his spouse; and (iii) 2,072 shares of common stock indirectly beneficially owned by Mr. Siegel as a custodian for the account of one of his children. Mr. Siegel has shared
voting and investment authority with respect to shares held by his spouse. Mr. Siegel disclaims beneficial ownership of the 2,072 shares of common stock indirectly beneficially owned by
Mr. Siegel as a custodian for the account of one of his children, except to the extent of his pecuniary interest therein.
-
(7)
-
139,869
shares of the Company's common stock held by Mr. Goldstein have been pledged as security in connection with margin trading accounts.
-
(8)
-
Consists
of (i) 11,147 shares of common stock owned directly; and (ii) 56,305 shares of common stock indirectly beneficially owned by Ms. Roll
through a trust for the benefit of Ms. Roll, her spouse and her children.
-
(9)
-
Includes
shares owned by officers of the Company that are not "Named Executive Officers," as defined in Item 402 of Regulation S-K, as promulgated
under the Securities Act of 1933 ("Regulation S-K").
4
PROPOSAL 1: AUTHORIZATION OF THE COMPANY TO SELL OR OTHERWISE ISSUE SHARES OF ITS COMMON STOCK AT A PRICE
BELOW ITS THEN CURRENT NET ASSET VALUE PER SHARE SUBJECT TO THE CONDITIONS SET FORTH IN THIS PROPOSAL
The Company is a closed-end investment company that has elected to be regulated as a business development company ("BDC") under the Investment
Company Act. As a BDC, the Company is generally prohibited from issuing its common stock at a price below the then current net asset value per share ("NAV") unless it meets certain conditions,
including obtaining stockholder approval.
As
a result, the Company is seeking the approval of its common stockholders so that it may, in one or more public or private offerings of its common stock, sell or otherwise issue shares
of its common stock, not exceeding 25% of its then outstanding common stock, at a price below NAV, subject to the conditions set forth in this proposal. If approved, the authorization would be
effective for common stock issued during a twelve-month period expiring on the anniversary of the date of this Special Meeting. The Company has sought and received stockholder approval for similar
proposals for each of the last 10 years.
The
Board, including a majority of the directors who have no financial interest in this proposal and a majority of the independent directors, has approved this proposal as in the best
interests of the Company and its stockholders and recommends it to the stockholders for their approval. For these purposes, directors will not be deemed to have a financial interest solely by reason
of their ownership
of the Company's common stock. The Board believes that having the flexibility for the Company to sell its common stock below NAV in certain instances is in the Company's best interests and the best
interests of its stockholders. This would, among other things, provide access to the capital markets to pursue attractive investment opportunities during periods of volatility and improve capital
resources to enable the Company to compete more effectively for high quality investment opportunities (which may include acquisitions of other companies or investment portfolios) and to add financial
flexibility to comply with regulatory requirements and debt facility covenants, including the applicable debt to equity ratio. Upon obtaining the requisite stockholder approval, the Company will
comply with the conditions described below in connection with any offering undertaken pursuant to this proposal. See below for a discussion of the risks of dilution.
Background and Reasons to Offer Common Stock Below NAV
Market Conditions Have Created, and May in the Future Create, Attractive Investment and Acquisition
Opportunities
From time to time, capital markets may experience periods of disruption and instability. For example, between 2008 and 2009, the global capital
markets were unstable as evidenced by periodic disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the
broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and foreign governments, these events contributed to worsening general
economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial
services firms in particular. As a result of the disruption and volatility in the credit markets during this time, the Company saw a reduction in capital available to certain specialty finance
companies and other capital providers, causing a reduction in competition. These conditions also coincided with lower stock prices for BDCs, with BDCs trading below NAV. The Company believes that
favorable investment opportunities to invest at attractive risk-adjusted returns, including opportunities to make acquisitions of other companies or investment portfolios at attractive values, may be
created during these periods of disruption and volatility. For example, the Company completed its acquisition of Allied Capital Corporation during a period of disruption and volatility, which was
accretive to the Company as described in further detail below.
5
While
market conditions have largely recovered from the events of 2008 and 2009, there have been continuing periods of volatility, some lasting longer than others. In particular, the
Company has seen periods during the last few years where BDCs, including the Company, have traded below NAV due to such stock market volatility[. While the Company's shares of common stock
are currently trading above NAV, there can be no assurance that they will continue to do so] and there can be no assurance that these adverse market conditions will not repeat themselves
or worsen in the future. If adverse market conditions re-occur or increase in severity and duration, the Company and other companies in the financial services sector may not have access to sufficient
debt and equity capital in order to take advantage of attractive investment opportunities, including opportunities to make acquisitions of other companies or investment portfolios, that are created
during these periods. In addition, the debt capital that will be available, if any, may be at a higher cost and on less favorable terms and conditions in the future. Stockholder approval of the
proposal to sell shares of the Company's common stock below NAV, subject to the conditions set forth in this proposal, would provide the Company with the flexibility to invest in such attractive
investment opportunities, which typically need to be made expeditiously.
As a BDC and a regulated investment company ("RIC") for tax purposes, the Company is limited in its ability to increase its capital through
retained earnings. RICs generally must distribute substantially all of their earnings to stockholders as dividends in order to achieve pass-through tax treatment, which prevents the Company from
retaining meaningful amounts of earnings to support operations, which may include making new investments (including investments into existing portfolio companies). Further, BDCs must meet a debt to
equity ratio of less than approximately 1:1 (or 2:1 if certain conditions are satisfied) in order to incur debt or issue senior securities, which requires the Company to finance its investments with
at least as much equity as debt and senior securities in the aggregate. Effective on June 21, 2019 (unless we receive earlier stockholder approval), the Company's debt to equity ratio will
increase from a maximum of 1:1 to a maximum of 2:1. In addition, certain of the Company's debt facilities also require that it maintain the applicable debt to equity ratio. Therefore, to continue to
increase and maintain the Company's investment portfolio, the Company endeavors to maintain consistent access to capital through the public and private debt markets and the public equity markets
enabling it to take advantage of investment opportunities as they arise.
Exceeding
the applicable debt to equity ratio could have severe negative consequences for a BDC, including the inability to pay dividends, breach of debt covenants and failure to qualify
for tax treatment as a RIC. Although the Company does not currently expect that it will exceed the applicable debt to equity ratio, the markets it operates in and the general economy may be volatile
and uncertain. Even though the underlying performance of a particular portfolio company may not indicate an impairment or its inability to repay all principal and interest in full, volatility in the
capital markets may negatively impact the valuations of investments and create unrealized losses on certain investments. Any such write-downs in value, as well as unrealized losses based on the
underlying performance of the Company's portfolio companies, if any, will negatively impact stockholders' equity and the resulting debt to equity ratio. Issuing additional equity would allow the
Company to realign its debt to equity
ratio and avoid these negative consequences. In addition to meeting legal requirements applicable to BDCs, having a more favorable debt to equity ratio would also generally strengthen the Company's
balance sheet, potentially improve access to the debt markets and give it more flexibility to fully execute its business strategy.
6
ARCC's History of Raising Equity Capital While Having Stockholder Approval to Issue Shares of Common
Stock Under NAV
The Company has received annual stockholder approval to issue shares of its common stock under NAV on terms similar to what is being requested
herein for each of the last 10 years (the "Annual Under NAV Approval"), and despite the Company trading below NAV for periods during such time frame, including for most of 2018, it has only
used the flexibility specifically provided by the Annual Under NAV Approval one time (the Company's acquisitions have required separate stockholder approvals). In 2009, during a period of significant
credit market volatility when credit spreads increased materially, the Company, acting pursuant to the Annual Under NAV Approval, prudently issued shares of its common stock at a price below NAV and
invested the proceeds from such issuance at attractive returns to stockholders. These proceeds were also used to create liquidity and financial flexibility in an uncertain time of extreme volatility.
While such issuance was at a price below NAV, it resulted in less than a 2.5% dilution in the aggregate net asset value of the Company. Additionally, the Company believes that this financial
flexibility was a key component of the Company's ability to opportunistically acquire Allied Capital Corporation, which transaction was agreed to on October 26, 2009 and closed on
April 1, 2010 (the "Allied Acquisition"). The Company's NAV increased during the one-year period following the date of the Company's most recently determined NAV prior to such issuance,
increasing from $11.21 (as of June 30, 2009) to $14.11 (as of June 30, 2010). The increase in the Company's NAV from June 30, 2009 to June 30, 2010 includes a $1.11 per
share increase related to the gain on the Allied Acquisition. Furthermore, for the one-year period following the date of such issuance, the Company's total stockholder return outperformed that of
every other BDC with a market capitalization of greater than $500 million. Therefore, periods of market volatility and dislocation have created, and may create again, favorable opportunities
for the Company to make investments at attractive risk-adjusted returns, including opportunities that may increase NAV over the longer term, even if financed with the issuance of common stock below
NAV.
All
offerings of common stock since the below NAV issuance in 2009 have been at prices above NAV (other than the issuance of shares in connection with the Company's acquisition of
American Capital, Ltd. on January 3, 2017, which issuance was made pursuant to separate stockholder approval).
The Board believes that having the flexibility to issue common stock below NAV in certain instances is in the best interests of the Company and
its stockholders. This would, among other things, provide access to capital markets to pursue attractive investment and acquisition opportunities during periods of volatility, improve capital
resources to enable the Company to compete more effectively for high quality investment opportunities and add financial flexibility to comply with regulatory requirements and debt facility covenants,
including the applicable debt to equity ratio. It could also minimize the likelihood that the Company would be required to sell assets that the Company would not otherwise sell, which sales could
occur at times and at prices that are disadvantageous to the Company and its stockholders.
While
the Company has no immediate plans to issue any shares of its common stock below NAV, it is seeking stockholder approval now in order to provide flexibility if it desires in the
future to issue shares of its common stock below NAV, which typically must be undertaken quickly. The final terms of any such sale will be determined by the Board at the time of issuance and the
shares of common stock will not include preemptive rights. Also, because the Company has no immediate plans to issue any shares of its common stock below NAV, it is not possible to describe the
transaction or transactions in which such shares of common stock would be issued. Instead, any transaction in which the Company issues such shares of common stock, including the nature and amount of
consideration that would be received by the Company at the time of issuance and the use of any such consideration, will be reviewed and approved by the Board at the time of issuance. If this proposal
is approved, no further
7
authorization
from the stockholders will be solicited prior to any such issuance in accordance with the terms of this proposal. If approved, the authorization would be effective for common stock
issued during a twelve-month period expiring on the anniversary of the date of the Special Meeting.
Trading History
The following table sets forth, for each fiscal quarter during the last three fiscal years and the first quarter of the current fiscal year, the
Company's NAV, the range of high and low closing sales prices of its common stock as reported on The NASDAQ Global Select Market and the closing sales price as a premium (discount) to NAV. On
, 2019, the last reported closing sales price of the Company's common stock on The NASDAQ Global Select Market was
$ per share, which represented a of
approximately % to the NAV reported by the Company as of December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
Sales Price
Premium
(Discount)
to NAV(2)
|
|
Low
Sales Price
Premium
(Discount)
to NAV(2)
|
|
|
|
|
|
Price Range
|
|
|
|
NAV(1)
|
|
High
|
|
Low
|
|
Year ending December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
16.50
|
|
$
|
14.84
|
|
$
|
12.54
|
|
|
(10.1
|
)%
|
|
(24.0
|
)%
|
Second Quarter
|
|
$
|
16.62
|
|
$
|
15.38
|
|
$
|
13.87
|
|
|
(7.5
|
)%
|
|
(16.6
|
)%
|
Third Quarter
|
|
$
|
16.59
|
|
$
|
16.40
|
|
$
|
13.96
|
|
|
(1.2
|
)%
|
|
(15.9
|
)%
|
Fourth Quarter
|
|
$
|
16.45
|
|
$
|
16.86
|
|
$
|
15.16
|
|
|
2.5
|
%
|
|
(7.8
|
)%
|
Year ending December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
16.50
|
|
$
|
17.81
|
|
$
|
16.42
|
|
|
7.9
|
%
|
|
(0.5
|
)%
|
Second Quarter
|
|
$
|
16.54
|
|
$
|
17.64
|
|
$
|
16.18
|
|
|
6.7
|
%
|
|
(2.2
|
)%
|
Third Quarter
|
|
$
|
16.49
|
|
$
|
16.52
|
|
$
|
15.67
|
|
|
0.2
|
%
|
|
(5.0
|
)%
|
Fourth Quarter
|
|
$
|
16.65
|
|
$
|
16.61
|
|
$
|
15.69
|
|
|
(0.2
|
)%
|
|
(5.8
|
)%
|
Year ending December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
16.84
|
|
$
|
16.28
|
|
$
|
15.25
|
|
|
(3.3
|
)%
|
|
(9.4
|
)%
|
Second Quarter
|
|
$
|
17.05
|
|
$
|
17.09
|
|
$
|
15.90
|
|
|
0.2
|
%
|
|
(6.8
|
)%
|
Third Quarter
|
|
$
|
17.16
|
|
$
|
17.51
|
|
$
|
16.45
|
|
|
2.0
|
%
|
|
(4.1
|
)%
|
Fourth Quarter
|
|
$
|
17.12
|
|
$
|
17.58
|
|
$
|
14.71
|
|
|
2.7
|
%
|
|
(14.1
|
)%
|
Year ending December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter (through , 2019)
|
|
|
*
|
|
$
|
|
|
$
|
|
|
|
*
|
|
|
*
|
|
-
(1)
-
NAV
is determined as of the last day in the relevant quarter and therefore may not reflect NAV on the date of the high and low closing sales prices. The NAVs shown
are based on outstanding shares of common stock at the end of the relevant quarter.
-
(2)
-
Calculated
as the respective high or low closing sales price less NAV, divided by NAV (in each case as of the applicable quarter).
-
*
-
NAV
has not yet been calculated for this period. NAV for the first quarter of 2019 will be available with the filing of the Company's Quarterly Report on
Form 10-Q for such quarter, which will be filed on or before May 10, 2019.
The
Company's common stock has historically traded at prices both above and below its NAV. It is not possible to predict whether its common stock will trade at, above or below NAV in the
future.
8
Examples of Dilutive Effect of the Issuance of Shares Below NAV
The following three headings and accompanying tables explain and provide hypothetical examples on the impact of a public offering of the
Company's common stock at a price less than NAV on three different types of investors:
-
-
existing stockholders who do not purchase any shares in the offering;
-
-
existing stockholders who purchase a relatively small amount of shares in the offering or a relatively large amount of shares in the offering;
and
-
-
new investors who become stockholders by purchasing shares in the offering.
A
placement of common stock at a price less than NAV to a third party in a private placement would have an impact substantially similar to the impact on existing stockholders who do not
purchase any shares in the public offering described below.
The Company's existing stockholders who do not participate in an offering below NAV or who do not buy additional shares in the secondary market
at the same or lower price as the Company obtains in the offering (after expenses and commissions) face the greatest potential risks. These stockholders will experience an immediate dilution in the
net asset value of the shares of common stock they hold. These stockholders will also experience a disproportionately greater decrease
in their participation in the Company's earnings and assets and their voting power than the increase the Company will experience in its assets, potential earning power and voting interests due to such
offering. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV. This decrease
could be more pronounced as the size of the offering and level of discounts increases. Further, if current stockholders do not purchase any shares to maintain their percentage interest, regardless of
whether such offering is above or below NAV, their voting power will be diluted.
The
following chart illustrates the level of NAV dilution that would be experienced by a nonparticipating stockholder in three different hypothetical offerings of different sizes and
levels of discount from NAV. It is not possible to predict the level of market price decline that may occur. These examples are provided for illustrative purposes only.
The
examples assume that the issuer has 30 million shares outstanding, $600 million in total assets and $150 million in total liabilities. The current net asset
value and NAV per share are thus $450 million and $15.00. The chart illustrates the dilutive effect on Stockholder A of (a) an offering of 1.5 million shares of common stock (5%
of the outstanding shares) at $14.25 per share after offering expenses and commissions (a 5% discount from NAV), (b) an offering of 3 million shares of common stock (10% of the
outstanding shares) at $13.50 per share after offering expenses and commissions (a 10% discount from NAV), (c) an offering of 6 million shares of common stock (20% of the outstanding
shares) at $12.00 per share after offering expenses and commissions (a 20% discount from NAV) and (d) an offering of 7.5 million shares of common stock (25% of the outstanding shares) at
$11.25 per share after offering expenses and commissions (a 25% discount from NAV). The prospectus pursuant to which any discounted offering is made will include a chart based on the actual number of
shares of
9
common
stock in such offering and the actual discount to the most recently determined NAV. It is not possible to predict the level of market price decline that may occur.
|
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|
|
Example 1
|
|
Example 2
|
|
Example 3
|
|
Example 4
|
|
|
|
|
|
5% Offering at
5% Discount
|
|
10% Offering at
10% Discount
|
|
20% Offering at
20% Discount
|
|
25% Offering at
25% Discount
|
|
|
|
Prior to Sale
Below NAV
|
|
Following
Sale
|
|
%
Change
|
|
Following
Sale
|
|
%
Change
|
|
Following
Sale
|
|
%
Change
|
|
Following
Sale
|
|
%
Change
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public
|
|
|
|
|
$
|
15.00
|
|
|
|
|
$
|
14.21
|
|
|
|
|
$
|
12.63
|
|
|
|
|
$
|
11.84
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
$
|
14.25
|
|
|
|
|
$
|
13.50
|
|
|
|
|
$
|
12.00
|
|
|
|
|
$
|
11.25
|
|
|
|
|
Decrease to Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
30,000,000
|
|
|
31,500,000
|
|
|
5.00
|
%
|
|
33,000,000
|
|
|
10.00
|
%
|
|
36,000,000
|
|
|
20.00
|
%
|
|
37,500,000
|
|
|
25.00
|
%
|
Net Asset Value per Share
|
|
$
|
15.00
|
|
$
|
14.96
|
|
|
(0.24
|
)%
|
$
|
14.86
|
|
|
(0.91
|
)%
|
$
|
14.50
|
|
|
(3.33
|
)%
|
$
|
14.25
|
|
|
(5.00
|
)%
|
Dilution to Nonparticipating Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
30,000
|
|
|
30,000
|
|
|
0.00
|
%
|
|
30,000
|
|
|
0.00
|
%
|
|
30,000
|
|
|
0.00
|
%
|
|
30,000
|
|
|
0.00
|
%
|
Percentage Held by Stockholder A
|
|
|
0.10
|
%
|
|
0.10
|
%
|
|
(4.76
|
)%
|
|
0.09
|
%
|
|
(9.09
|
)%
|
|
0.08
|
%
|
|
(16.67
|
)%
|
|
0.08
|
%
|
|
(20.00
|
)%
|
Total Net Asset Value Held by Stockholder A
|
|
$
|
450,000
|
|
$
|
448,929
|
|
|
(0.24
|
)%
|
$
|
445,909
|
|
|
(0.91
|
)%
|
$
|
435,000
|
|
|
(3.33
|
)%
|
$
|
427,500
|
|
|
(5.00
|
)%
|
Total Investment by Stockholder A (Assumed to Be $15.00 per Share)
|
|
$
|
450,000
|
|
$
|
450,000
|
|
|
|
|
$
|
450,000
|
|
|
|
|
$
|
450,000
|
|
|
|
|
$
|
450,000
|
|
|
|
|
Total Dilution to Stockholder A (Total Net Asset Value Less Total Investment)
|
|
|
|
|
$
|
(1,071
|
)
|
|
|
|
$
|
(4,091
|
)
|
|
|
|
$
|
(15,000
|
)
|
|
|
|
$
|
(22,500
|
)
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to be $15.00 per Share on Shares Held Prior to Sale)
|
|
$
|
15.00
|
|
$
|
15.00
|
|
|
0.00
|
%
|
$
|
15.00
|
|
|
0.00
|
%
|
$
|
15.00
|
|
|
0.00
|
%
|
$
|
15.00
|
|
|
0.00
|
%
|
Net Asset Value per Share Held by Stockholder A
|
|
|
|
|
$
|
14.96
|
|
|
|
|
$
|
14.86
|
|
|
|
|
$
|
14.50
|
|
|
|
|
$
|
14.25
|
|
|
|
|
Dilution per Share Held by Stockholder A (Net Asset Value per Share Less Investment per Share)
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
$
|
(0.14
|
)
|
|
|
|
$
|
(0.50
|
)
|
|
|
|
$
|
(0.75
|
)
|
|
|
|
Percentage Dilution to Stockholder A (Dilution per Share Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
(0.24
|
)%
|
|
|
|
|
(0.91
|
)%
|
|
|
|
|
(3.33
|
)%
|
|
|
|
|
(5.00
|
)%
|
The Company's existing stockholders who participate in an offering below NAV or who buy additional shares in the secondary market at the same or
lower price as the Company obtains in the offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, although at a lower level, to
the extent they purchase less than the same percentage of the discounted offering as their interest in shares of the Company's common stock immediately prior to the offering. The level of NAV dilution
will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than such percentage will experience NAV dilution but will, in contrast to existing
stockholders who purchase less than their proportionate share of the offering, experience accretion in NAV over their investment per share and will also experience a disproportionately greater
increase in their participation in the Company's earnings and assets and their voting power than the Company's increase in assets, potential earning power and voting interests due to such offering.
The level of accretion will increase as the excess number of shares such stockholder purchases increases. Even a stockholder who over-participates will, however, be subject to the risk that the
Company may make additional discounted offerings in which such stockholder does not participate, in which case such a stockholder will experience NAV dilution as described above in such subsequent
offerings. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV. This
decrease could be more pronounced as the size of the offering and level of discounts increases.
10
The
following chart illustrates the level of dilution and accretion in the hypothetical 20% discount offering from the prior chart (Example 3) for a stockholder that acquires
shares equal to (a) 50% of its proportionate share of the offering (i.e., 3,000 shares, which is 0.05% of an offering of 6 million shares) rather than its 0.10% proportionate
share and (b) 150% of such percentage (i.e., 9,000 shares, which is 0.15% of an offering of 6 million shares rather than its 0.10% proportionate share). The prospectus pursuant to
which any discounted offering is made will include a chart for these examples based on the actual number of shares in such offering and the actual discount from the most recently determined NAV. It is
not possible to predict the level of market price decline that may occur. These examples are provided for illustrative purposes only.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50% Participation
|
|
150% Participation
|
|
|
|
Prior to Sale
Below NAV
|
|
Following
Sale
|
|
% Change
|
|
Following
Sale
|
|
% Change
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public
|
|
|
|
|
$
|
12.63
|
|
|
|
|
$
|
12.63
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
$
|
12.00
|
|
|
|
|
$
|
12.00
|
|
|
|
|
Decrease/Increase to Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
30,000,000
|
|
|
36,000,000
|
|
|
20
|
%
|
|
36,000,000
|
|
|
20
|
%
|
Net Asset Value per Share
|
|
$
|
15.00
|
|
$
|
14.50
|
|
|
(3.33
|
)%
|
$
|
14.50
|
|
|
(3.33
|
)%
|
Dilution/Accretion to Participating Stockholder Shares Held by Stockholder A
|
|
|
30,000
|
|
|
33,000
|
|
|
10
|
%
|
|
39,000
|
|
|
30
|
%
|
Percentage Held by Stockholder A
|
|
|
0.10
|
%
|
|
0.09
|
%
|
|
(8.33
|
)%
|
|
0.11
|
%
|
|
8.33
|
%
|
Total Net Asset Value Held by Stockholder A
|
|
$
|
450,000
|
|
$
|
478,500
|
|
|
6.33
|
%
|
$
|
565,500
|
|
|
25.67
|
%
|
Total Investment by Stockholder A (Assumed to be $15.00 per Share on Shares Held Prior to Sale)
|
|
|
|
|
$
|
487,895
|
|
|
|
|
$
|
563,684
|
|
|
|
|
Total Dilution/Accretion to Stockholder A (Total Net Asset Value Less Total Investment)
|
|
|
|
|
$
|
(9,395
|
)
|
|
|
|
$
|
1,816
|
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to Be $15.00 on Shares Held Prior to Sale)
|
|
$
|
15.00
|
|
$
|
14.78
|
|
|
(1.44
|
)%
|
$
|
14.45
|
|
|
(3.64
|
)%
|
Net Asset Value per Share Held by Stockholder A
|
|
|
|
|
$
|
14.50
|
|
|
|
|
$
|
14.50
|
|
|
|
|
Dilution/Accretion per Share Held by Stockholder A (Net Asset Value per Share Less Investment per Share)
|
|
|
|
|
$
|
(0.28
|
)
|
|
|
|
$
|
0.05
|
|
|
0.40
|
%
|
Percentage Dilution/Accretion to Stockholder A (Dilution per Share Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
(1.96
|
)%
|
|
|
|
|
0.32
|
%
|
Investors who are not currently stockholders and who participate in an offering of shares of the Company's common stock below NAV, but whose
investment per share is greater than the resulting NAV due to selling compensation and expenses paid by the Company, will experience an immediate decrease, although small, in the net asset value of
their shares and their NAV compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in an offering of shares of the Company's common stock
below NAV and whose investment per share is also less than the resulting NAV due to selling compensation and expenses paid by the Company being significantly less than the discount per share, will
experience an immediate increase in the net asset value of their shares and their NAV compared to the price they pay for their shares. These investors will experience a disproportionately greater
participation in the Company's earnings and assets and their voting power than the Company's increase in assets, potential earning power and voting interests due to such offering. These investors
will, however, be subject to the risk that the Company may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience
dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential
increases and decreases in NAV. This decrease could be more pronounced as the size of the offering and level of discounts increases.
11
The
following chart illustrates the level of dilution or accretion for new investors that would be experienced by a new investor in the same hypothetical 5%, 10%, 20% and 25% discounted
offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (0.10%) of the shares in the offering as Stockholder A in the prior examples
held immediately prior to the offering. The prospectus pursuant to which any discounted offering is made will include a chart for these examples based on the actual number of shares in such offering
and the actual discount from the most recently determined NAV. It is not possible to predict the level of market price decline that may occur. These examples are provided for illustrative purposes
only.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Example 1
|
|
Example 2
|
|
Example 3
|
|
Example 4
|
|
|
|
|
|
5% Offering at
5% Discount
|
|
10% Offering at
10% Discount
|
|
20% Offering at
20% Discount
|
|
25% Offering at
25%Discount
|
|
|
|
Prior to Sale
Below NAV
|
|
Following
Sale
|
|
% Change
|
|
Following
Sale
|
|
% Change
|
|
Following
Sale
|
|
% Change
|
|
Following
Sale
|
|
% Change
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public
|
|
|
|
|
$
|
15.00
|
|
|
|
|
$
|
14.21
|
|
|
|
|
$
|
12.63
|
|
|
|
|
$
|
11.84
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
$
|
14.25
|
|
|
|
|
$
|
13.50
|
|
|
|
|
$
|
12.00
|
|
|
|
|
$
|
11.25
|
|
|
|
|
Decrease/Increase to Net Asset Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
30,000,000
|
|
|
31,500,000
|
|
|
5
|
%
|
|
33,000,000
|
|
|
10
|
%
|
|
36,000,000
|
|
|
20
|
%
|
|
37,500,000
|
|
|
25.00
|
%
|
Net Asset Value per Share
|
|
$
|
15.00
|
|
$
|
14.96
|
|
|
(0.24
|
)%
|
$
|
14.86
|
|
|
(0.91
|
)%
|
$
|
14.50
|
|
|
(3.33
|
)%
|
$
|
14.25
|
|
|
(5.00
|
)%
|
Dilution/Accretion to New Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Investor A
|
|
|
0
|
|
|
1,500
|
|
|
|
|
|
3,000
|
|
|
|
|
|
6,000
|
|
|
|
|
|
7,500
|
|
|
|
|
Percentage Held by Investor A
|
|
|
0.00
|
%
|
|
0.00
|
%
|
|
|
|
|
0.01
|
%
|
|
|
|
|
0.02
|
%
|
|
|
|
|
0.02
|
%
|
|
|
|
Total Net Asset Value Held by Investor A
|
|
$
|
0
|
|
$
|
22,446
|
|
|
|
|
$
|
44,591
|
|
|
|
|
$
|
87,000
|
|
|
|
|
$
|
106,875
|
|
|
|
|
Total Investment by Investor A (At Price to Public)
|
|
|
|
|
$
|
22,500
|
|
|
|
|
$
|
42,632
|
|
|
|
|
$
|
75,789
|
|
|
|
|
$
|
88,816
|
|
|
|
|
Total Dilution/Accretion to Investor A (Total Net Asset Value Less Total Investment)
|
|
|
|
|
$
|
(54
|
)
|
|
|
|
$
|
1,959
|
|
|
|
|
$
|
11,211
|
|
|
|
|
$
|
18,059
|
|
|
|
|
Investment per Share Held by Investor A
|
|
$
|
0
|
|
$
|
15.00
|
|
|
|
|
$
|
14.21
|
|
|
|
|
$
|
12.63
|
|
|
|
|
$
|
11.84
|
|
|
|
|
Net Asset Value per Share Held by Investor
A
|
|
|
|
|
$
|
14.96
|
|
|
|
|
$
|
14.86
|
|
|
|
|
$
|
14.50
|
|
|
|
|
$
|
14.25
|
|
|
|
|
Dilution/Accretion per Share Held by Investor A (Net Asset Value per Share Less Investment per Share)
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
$
|
0.65
|
|
|
|
|
$
|
1.87
|
|
|
|
|
$
|
2.41
|
|
|
|
|
Percentage Dilution/Accretion to Investor A (Dilution per Share Divided by Investment per Share)
|
|
|
|
|
|
|
|
|
(0.24
|
)%
|
|
|
|
|
4.60
|
%
|
|
|
|
|
14.79
|
%
|
|
|
|
|
20.33
|
%
|
Conditions to Sales Below NAV
If stockholders approve this proposal, the Company will only issue shares of its common stock at a price below NAV pursuant to this stockholder
proposal if the following conditions are met:
-
-
a "required majority" of the Company's directors have determined that any such sale would be in the best interests of the Company and its
stockholders; and
-
-
a "required majority" of the Company's directors, in consultation with the underwriter or underwriters of the offering if it is to be
underwritten, have determined in good faith, and as of a time immediately prior to the first solicitation by or on behalf of the Company of firm commitments to purchase such common stock or
immediately prior to the issuance of such common stock, that the price at which such shares of common stock are to be sold is not less than a price which closely approximates the market value of those
shares of common stock, less any distributing commission or discount.
Under
the Investment Company Act, a "required majority" of directors means both a majority of the Company's directors who have no financial interest in the transaction and a majority of
the
12
Company's
independent directors. For these purposes, directors will not be deemed to have a financial interest solely by reason of their ownership of the Company's common stock.
Prior
to the time of issuance, the Board may determine to issue shares of the Company's common stock below NAV in a registered public offering or in a private placement either with or
without an obligation to seek to register their resale at the request of the holders. The Board may also determine
to use an underwriter or placement agent to assist in selling such shares of common stock if it concludes that doing so would assist in marketing such shares of common stock on favorable terms.
Key Stockholder Considerations
Before voting on this proposal or giving proxies with regard to this matter, stockholders should consider the potentially dilutive effect of the
issuance of shares of the Company's common stock at a price that is less than NAV and the expenses associated with such issuance. Any sale of common stock at a price below NAV would result in an
immediate dilution to existing common stockholders who do not participate in such sale on at least a pro rata basis. This dilution would include reduction in NAV as a result of the issuance of shares
at a price below NAV and a proportionately greater decrease in a stockholder's interest in the earnings and assets of the Company and voting interest in the Company than the increase in the assets of
the Company resulting from such issuance.
The
Investment Company Act establishes a connection between common stock sale price and NAV because, when common stock is sold or otherwise issued at a sale price below NAV, the
resulting increase in the number of outstanding shares is not accompanied by a proportionate increase in the net assets of the issuer. The Board will consider the potential dilutive effect of the
issuance of shares of common stock at a price below NAV when considering whether to authorize any such issuance pursuant to the stockholder approval being sought here.
Stockholders
should also consider that they will have no subscription, preferential or preemptive rights to additional shares of the common stock proposed to be authorized for issuance
pursuant to this proposal, and thus any future issuance of common stock at a price below NAV will dilute such stockholders' holdings of common stock as a percentage of shares outstanding to the extent
such stockholders do not purchase sufficient shares of common stock in the offering or otherwise to maintain their percentage interest. Further, if current stockholders of the Company do not purchase
any shares of common stock to maintain their percentage interest, regardless of whether such offering is above or below the then current NAV, their voting power will be diluted.
As
discussed above, it should be noted that the maximum number of shares of common stock issuable below NAV that could result in such dilution is limited to 25% of the Company's then
outstanding common stock.
The
affirmative vote of holders of at least a "majority," as defined in the Investment Company Act, of (1) the outstanding shares of the Company's common stock and (2) the
outstanding shares of the Company's common stock held by persons that are not affiliated persons of the Company, is required to approve this proposal. Under the Investment Company Act, the vote of
holders of a "majority"
means the vote of the holders of the lesser of (a) 67% or more of the outstanding shares of the Company's common stock present or represented by proxy at the Special Meeting if the holders of
more than 50% of the shares of the Company's common stock are present or represented by proxy or (b) more than 50% of the outstanding shares of the Company's common stock. Abstentions and
broker non-votes, if any, will have the effect of a vote against this proposal.
The Board recommends voting FOR this proposal to authorize the Company to sell or otherwise issue shares of its common stock at a price below its then current NAV
subject to the limitations set forth in this proposal.
13