UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the
Registrant ☒ Filed by a Party other than the
Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to
§240.14a-12
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CM Finance Inc
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules
14a-6(i)(1)
and
0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule
0-11
(Set forth the amount on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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(5)
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Total fee paid:
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☐
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the form or schedule and the date of its filing.
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(1)
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Amount previously paid:
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Form, schedule or registration statement no.:
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Filing party:
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Date filed:
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CM Finance Inc
601 Lexington Avenue
26th Floor
New York, NY
10022
(212)
257-5199
September 20, 2018
Dear Stockholder:
You are cordially invited to attend the 2018 Annual Meeting of Stockholders (the Annual Meeting) of CM Finance Inc to be held on November 6,
2018 at 10:00 a.m., Eastern Standard Time, at the offices of Eversheds Sutherland (US) LLP, The Grace Building, 40
th
Floor, 1114 Avenue of the Americas, New York, NY 10036. Only stockholders of
record at the close of business on September 14, 2018 are entitled to the notice of, and to vote at, the Annual Meeting, including any postponement or adjournment thereof.
Details regarding the business to be conducted are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
It is important that your shares be represented at the Annual Meeting, and you are encouraged to vote your shares as soon as possible. The enclosed proxy card
contains instructions for voting over the Internet, by telephone or by returning your proxy card via mail in the envelope provided. Your vote is important.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
Michael C. Mauer
Chairman of the Board
and Chief Executive Officer
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on November 6, 2018.
Our proxy statement and annual report on Form
10-K
for the year ended June 30, 2018 (Annual Report)
are available at the following cookies-free website that can be accessed anonymously:
www.proxyonline.com/docs/cmfinanceinc2018.pdf
CM Finance Inc
601 Lexington Avenue
26th Floor
New York, NY
10022
(212)
257-5199
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 6, 2018
To the
Stockholders of CM Finance Inc:
The 2018 Annual Meeting of Stockholders (the Annual Meeting) of CM Finance Inc, a Maryland corporation (the
Company), will be held at the offices of Eversheds Sutherland (US) LLP, The Grace Building, 40
th
Floor, 1114 Avenue of the Americas, New York, NY 10036 on November 6, 2018, at
10:00 a.m., Eastern Standard Time, for the following purposes:
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1.
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To elect two directors of the Company nominated by the Companys Board of Directors (the
Board) and named in this proxy statement who will serve for three years or until his or her successor is elected and qualified;
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2.
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To approve a proposal to authorize the Company, with the approval of the Board, to sell or otherwise issue up
to 25% of the Companys outstanding common stock at an offering price that is below the Companys then current net asset value per share (NAV); and
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3.
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To transact such other business as may properly come before the meeting, or any postponement or adjournment
thereof.
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THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THESE
PROPOSALS.
You have the right to receive notice of and to vote at the Annual Meeting if you were a stockholder of record at the close of business on
September 14, 2018. Whether or not you expect to be present in person at the Annual Meeting, please sign the enclosed proxy and return it promptly in the self-addressed envelope provided. As a registered stockholder, you may also vote your
proxy electronically by telephone or over the Internet by following the instructions included with your proxy card. Instructions are shown on the proxy card. In the event there are not sufficient votes for a quorum or to approve any of the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of the proxies by the Company.
If you have questions about the proposals or would like additional copies of the proxy statement, please contact our proxy solicitor, AST Fund Solutions, LLC,
at (877)
732-3621.
By Order of the Board,
Christopher E. Jansen
President and Secretary
New
York, New York
September 20, 2018
This is an
important meeting. To ensure proper representation at the Annual Meeting, please complete, sign, date and return the proxy card in the enclosed, self-addressed envelope. You may also vote your proxy electronically by telephone or over the Internet
by following the instructions included with your proxy card Even if you vote your shares prior to the Annual Meeting, you still may attend the Annual Meeting and vote your shares in person.
TABLE OF CONTENTS
CM Finance Inc
601 Lexington Avenue
26th Floor
New York, NY
10022
(212)
257-5199
PROXY STATEMENT
2018
ANNUAL MEETING OF STOCKHOLDERS
GENERAL
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors (the Board) of CM Finance Inc, a
Maryland corporation (the Company, we, us or our), for use at the Companys 2018 Annual Meeting of Stockholders (the Annual Meeting) to be held on November 6, 2018, at 10:00 a.m.
Eastern Standard Time at the offices of Eversheds Sutherland (US) LLP, The Grace Building, 40
th
Floor, 1114 Avenue of the Americas, New York, NY 10036 and at any postponements or adjournments
thereof. This proxy statement, the accompanying proxy card and the Companys Annual Report on Form
10-K
for the fiscal year ended June 30, 2018 are first being sent to stockholders on or about
September 20, 2018.
We encourage you to vote your shares, either by voting in person at the Annual Meeting or by granting a proxy
(i.e.,
authorizing someone to vote your shares). If you properly sign and date the accompanying proxy card, and the Company receives it in time for the Annual Meeting, the persons named as proxies will vote the shares registered directly in your name
in the manner that you specified. This proxy statement is also available via the Internet at
www.cmfn-inc.com
(under the Investor Relations section). The website also includes electronic copies of the
form of proxy and the Companys Annual Report. If your shares are registered in the name of a bank or brokerage firm, you may be eligible to vote your shares electronically via the Internet or by telephone. This program provides eligible
stockholders who receive a copy of the Companys Annual Report on Form
10-K
and proxy statement, either by paper or electronically, the opportunity to vote via the Internet or by telephone. If your voting
form does not reference Internet or telephone voting information, please complete and return the paper proxy card in the
pre-addressed,
postage-paid envelope provided.
ANNUAL MEETING INFORMATION
Date and Location
We will hold the Annual Meeting on
November 6, 2018 at 10:00 a.m. Eastern Standard Time at the offices of Eversheds Sutherland (US) LLP, The Grace Building, 40
th
Floor, 1114 Avenue of the Americas, New York, NY 10036.
Admission
Only record or beneficial owners of the
Companys common stock as of the close of business on September 14, 2018 or their proxies may attend the Annual Meeting. Beneficial owners must also provide evidence of stock holdings, such as a recent brokerage account or bank statement.
Purpose of the Annual Meeting
At the Annual
Meeting, you will be asked to vote on the following proposals:
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1.
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To elect two directors of the Company nominated by the Board and named in this proxy statement who will serve
for three years or until his or her successor is elected and qualified;
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2.
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To approve a proposal to authorize the Company, with the approval of the Board, to sell or otherwise issue up
to 25% of the Companys outstanding common stock at an offering price that is below the Companys then current net asset value per share (NAV); and
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3.
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To transact such other business as may properly come before the meeting, or any postponement or adjournment
thereof.
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VOTING INFORMATION
Record Date and Quorum Required
The record date of the
Annual Meeting is the close of business on September 14, 2018 (the Record Date). You may cast one vote for each share of common stock that you own as of the Record Date.
A quorum of stockholders must be present for any business to be conducted at the Annual Meeting. The presence at the Annual Meeting, in person or by proxy, of
stockholders entitled to cast a majority of the votes entitled to be cast as of the Record Date will constitute a quorum. Abstentions will be treated as shares present for quorum purposes. On the Record Date, there were 13,650,124 shares outstanding
and entitled to vote. Thus, 6,825,063 must be represented by stockholders present at the Annual Meeting or by proxy to have a quorum.
If a quorum is not
present at the Annual Meeting, the stockholders who are represented may adjourn the Annual Meeting until a quorum is present. The persons named as proxies will vote those proxies for such adjournment, unless marked to be voted against any proposal
for which an adjournment is sought, to permit further solicitation of proxies.
Submitting Voting Instructions for Shares Held Through a Broker
If you hold shares of common stock through a broker, bank or other nominee, you must follow the voting instructions you receive from your broker, bank
or nominee. If you hold shares of common stock through a broker, bank or other nominee and you want to vote in person at the meeting, you must obtain a legal proxy from the record holder of your shares and present it at the meeting. If you do not
submit voting instructions to your broker, bank or other nominee, your broker, bank or other nominee will not be permitted to vote your shares on any proposal considered at the meeting.
Authorizing a Proxy for Shares Held in Your Name
If you
are a record holder of shares of common stock, you may authorize a proxy to vote on your behalf by mail, as described on the enclosed proxy card. Authorizing a proxy will not limit your right to vote in person at the meeting. A properly completed,
executed and submitted proxy will be voted in accordance with your instructions, unless you subsequently revoke the proxy. If you authorize a proxy without indicating your voting instructions, the proxyholder will vote your shares according to the
Boards recommendations.
Revoking Your Proxy
If you are a stockholder of record, you can revoke your proxy by (1) delivering a written revocation notice prior to the Annual Meeting to our Secretary,
Christopher E. Jansen, at 601 Lexington Avenue, 26
th
Floor, New York, New York 10022; (2) delivering a later-dated proxy that we receive no later than the opening of the polls at the meeting; or
(3) voting in person at the meeting. If you hold shares of common stock through a broker, bank or other nominee, you must follow the instructions you receive from your nominee in order to revoke your voting instructions. Attending the Annual
Meeting does not revoke your proxy unless you also vote in person at the meeting.
2
Vote Required
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Proposal
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Vote Required
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Broker
Discretionary
Voting Allowed
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Effect of Abstentions
and Broker Non-
Votes
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Proposal 1
To elect two directors of the Company nominated by the Companys Board and named in this proxy statement who will serve for three years or until his or her successor is elected and
qualified.
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Affirmative vote of the holders of a plurality of the shares of stock outstanding and entitled to vote thereon at the Annual Meeting.
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No
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Because directors are elected by a plurality of the votes, an abstention will have no effect on the outcome of the vote.
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Proposal 2
To approve a proposal to authorize the Company, with the approval of the Board, to sell or otherwise issue up to 25% of the Companys outstanding common stock at an offering price that
is below the Companys then current NAV per share.
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Pursuant to the Investment Company Act of 1940 (the 1940 Act), approval of this proposal requires the affirmative vote of:
(i) a majority of the outstanding shares of common stock of the Company; and (ii) a majority of the outstanding shares of common stock of the Company which are not held by affiliated persons of the Company, which
includes our directors, officers, employees and 5% stockholders.
For purposes of
this proposal, the 1940 Act defines a majority of the outstanding shares of common stock as: (A) 67% or more of the shares of common stock present at the Annual Meeting if the holders of more than 50% of the outstanding shares of common
stock of the Company are present or represented by proxy; or (B) 50% of the outstanding shares of common stock of the Company, whichever is the less.
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No
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Abstentions and broker
non-votes,
if any, will have the effect of a vote against this
proposal.
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INFORMATION REGARDING THIS SOLICITATION
The Company will bear the expense of the solicitation of proxies for the Annual Meeting, including the cost of preparing, printing, and mailing this proxy
statement, the accompanying Notice of Annual Meeting of Stockholders, and the proxy card. We have requested that brokers, nominees, fiduciaries and other persons holding shares in their names, or in the name of their nominees, which are beneficially
owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners. We will reimburse such persons for their reasonable expenses in so doing.
In addition to the solicitation of proxies by the use of the mail, proxies may be solicited in person and by telephone or facsimile transmission by directors,
officers or regular employees of the Company (for which no director, officer or regular employee will receive any additional or special compensation).
The Company has engaged the services of AST Fund Solutions, LLC for the purpose of assisting in the solicitation of proxies at an anticipated cost of
approximately $25,000 plus reimbursement of certain expenses and fees for additional services requested. Please note that AST Fund Solutions, LLC may solicit stockholder proxies by telephone on behalf of the Company. They will not attempt to
influence how you vote your shares, but only ask that you take the time to authorize your proxy. You may also be asked if you would like to authorize your proxy over the telephone and to have your voting instructions transmitted to the
Companys proxy tabulation firm.
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report addressed to those stockholders. This process, which is commonly referred
to as householding, potentially means extra convenience for stockholders and cost savings for companies.
A number of brokerages and other
institutional holders of record have implemented householding. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. If you have
received notice from your broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in
householding and would prefer to receive a separate proxy statement, please notify your broker. Stockholders who currently receive multiple copies of the proxy statement at their addresses and would like to request information about householding of
their communications should contact their brokers or other intermediary holder of record. You can notify us by sending a written request to: Christopher E. Jansen, Secretary, CM Finance Inc, 601 Lexington Avenue, 26
th
Floor, New York, NY 10022.
4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 14, 2018, the beneficial ownership of each current director, each nominee for director, the
Companys executive officers, each person known to us to beneficially own 5% or more of the outstanding shares of our common stock, and the executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the SEC) and includes voting or
investment power with respect to the securities. Common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of September 14, 2018 are deemed to be outstanding and beneficially owned by the person
holding such options or warrants. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Percentage of ownership is based on 13,650,124 shares of common stock outstanding as of
September 14, 2018.
Unless otherwise indicated, to our knowledge, each stockholder listed below has sole voting and investment power with respect to
the shares beneficially owned by the stockholder, except to the extent authority is shared by their spouses under applicable law. Unless otherwise indicated, the address of all executive officers and directors is c/o CM Finance Inc, 601 Lexington
Avenue, 26
th
Floor, New York, NY 10022.
The Companys directors are divided into two
groupsinterested directors and independent directors. Interested directors are interested persons as defined in Section 2(a)(19) of the 1940 Act.
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Name and Address of Beneficial Owner
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Number of Shares
Owned Beneficially(1)
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Percentage
of Class
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Interested Directors
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Michael C. Mauer
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104,000
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(2)
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*
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Christopher E. Jansen
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87,669
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(3)
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*
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Independent Directors
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Keith Lee
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10,003
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*
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Robert Ryder
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33,062
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*
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Julie Persily
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11,240
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*
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Robert Wagner
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5,365
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*
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Executive Officers
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Rocco DelGuercio
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2,086
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*
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Executive officers and directors as a group
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253,425
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1.86
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%
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5% Holders
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Caxton Corporation
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722,746
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(4)
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5.29
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%
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Cyrus Opportunities Master Fund II, Ltd.
Crescent 1, L.P.
CRS Master Fund, L.P.
Cyrus Select Opportunities Master Fund, Ltd.
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3,818,186
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(5)
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27.97
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%
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Stifel Venture Corp.
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2,181,818
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(6)
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15.98
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%
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(1)
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Beneficial ownership has been determined in accordance with Rule
13d-3
of the Securities Exchange Act of 1934, as amended.
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(2)
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Includes one share held by Mr. Mauers daughter, one share held by Mr. Mauers son and one
share held by Mr. Mauers wife.
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(3)
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Includes 10,000 shares held by Patricia McInerney Jansen Childrens Trust, of which Mr. Jansen is a
Trustee, one share held by Mr. Jansens daughter and one share held by Mr. Jansens wife.
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(4)
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Based on information obtained in a Schedule 13G filed by Caxton Corporation on January 2, 2018. The
principal business address of Caxton Corporation is 731 Alexander Road, Building 2, Suite 500, Princeton, New Jersey 08540.
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(5)
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Based on an amended Schedule 13G as filed on February 12, 2018. Includes 2,077,092 shares held by Cyrus
Opportunities Master Fund II, Ltd., 717,819 shares held by Crescent 1, L.P., 645,274 shares held by CRS Master Fund, L.P., and 378,001 shares held by Cyrus Select Opportunities Master Fund, Ltd. Pursuant to an irrevocable proxy, the shares held by
each of Cyrus Opportunities Master Fund II, Ltd., Crescent 1, L.P., CRS Master Fund, L.P. and Cyrus Select Opportunities Master Fund, Ltd. (together, the Cyrus Funds) must be voted in the same manner that our other stockholders,
excluding Stifel Venture Corp. (Stifel), vote their shares. The principal business address of the Cyrus Funds is 399 Park Avenue, 39
th
Floor, New York, New York 10022.
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(6)
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Based on information obtained in a Schedule 13D filed jointly by Stifel Financial Corp. and Stifel on
February 18, 2014. All shares are owned directly by Stifel, which is a direct wholly owned subsidiary of Stifel Financial Corp. Pursuant to an irrevocable proxy, Stifel has granted us the right to vote the shares of our common stock held by it
in excess of 4.9% of our total outstanding common stock in the same percentages that our other stockholders vote their shares. The principal business address of Stifel Financial Corp. and Stifel Venture Corp. is One Financial Plaza, 501 North
Broadway, St. Louis, Missouri 63102.
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The following table sets forth as of September 14, 2018, the dollar range of our securities
owned by our directors and executive officers.
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Name
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Dollar Range of Equity
Securities Beneficially Owned(1)(2)
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Interested Director:
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Michael C. Mauer
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Over $100,000
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Christopher E. Jansen
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Over $100,000
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Independent Directors:
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Keith Lee
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$50,001$100,000
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Robert Ryder
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Over $100,000
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Julie Persily
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Over $100,000
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Robert Wagner
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$10,001$50,000
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Executive Officers:
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Rocco DelGuercio
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$10,001$50,000
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(1)
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The dollar range of equity securities beneficially owned is based on the closing price for our common stock of
$[] on September 14, 2018 on the NASDAQ Global Select Market. Beneficial ownership has been determined in accordance with Rule
16a-1(a)(2)
of the Securities Exchange Act of 1934, as amended.
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(2)
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Dollar ranges are as follows: None, $1 $10,000, $10,001 $50,000,
$50,001 $100,000, or Over $100,000.
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6
PROPOSAL 1: ELECTION OF DIRECTORS
Our business and affairs are managed under the direction of our Board. Pursuant to our articles of incorporation, the number of directors on our Board is
currently fixed at six directors and is divided into three classes. Each director holds office for the term to which he or she is elected and until his or her successor is duly elected and qualified. At each Annual Meeting, the successors to the
class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the Annual Meeting of Stockholders held in the third year following the year of their election and until their successors have been duly
elected and qualified or any directors earlier resignation, death or removal.
Each of Christopher E. Jansen and Robert Wagner has been nominated
for
re-election
for a three-year term expiring in 2021. Neither Mr. Jansen nor Mr. Wagner is being nominated to serve as a director pursuant to any agreement or understanding between each of them and
the Company.
A stockholder can vote for or withhold his or her vote for the nominees.
In the absence of instructions to the contrary, it is the
intention of the persons named as proxies to vote such proxy FOR the election of the nominees named in this proxy statement. If any of the nominees should decline or be unable to serve as a director, it is intended that the proxy will be voted for
the election of such person as is nominated by the Board as a replacement.
The Board has no reason to believe that any nominee will be unable or unwilling to serve.
Required Vote
This proposal requires the
affirmative vote of the holders of a plurality of the shares of stock outstanding and entitled to vote thereon. Stockholders may not cumulate their votes. If you vote withhold authority with respect to any of the nominees, your shares
will not be voted with respect to the person indicated. Because directors are elected by a plurality of the votes, an abstention will have no effect on the outcome of the vote and, therefore, is not offered as a voting option for this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES NAMED IN THIS PROXY STATEMENT.
Information about Directors and Executive Officers
Board of Directors
We have adopted provisions in
our articles of incorporation that divide our Board into three classes. At each annual meeting, directors will be elected for staggered terms of three years (other than the initial terms, which extend for up to three years), with the term of office
of only one of these three classes of directors expiring each year. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualifies.
7
Information regarding Mr. Jansen and Mr. Wagner, each of whom is being nominated for election as a
director of the Company by the stockholders at the Annual Meeting, as well as information about our current directors whose terms of office will continue after the Annual Meeting, is as follows:
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Name
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Year of
Birth
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Position
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Director
Since
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Term
Expires
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Interested Directors
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Michael C. Mauer
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1961
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Chief Executive Officer and Chairman of the Board
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2013
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2019
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Christopher E. Jansen
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1959
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President, Secretary and Director
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2013
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2018
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Independent Directors
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Keith Lee
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1971
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Director
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2013
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2020
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Julie Persily
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1965
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Director
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2013
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2020
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Robert Ryder
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1960
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Director
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2013
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2019
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Robert Wagner
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1962
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Director
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2013
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2018
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The address for each of our directors is c/o CM Finance Inc, 601 Lexington Avenue, 26
th
Floor, New York, New York 10022.
Executive Officers Who Are Not Directors
Information regarding our executive officers who are not directors is as follows:
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Name
|
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Year of
Birth
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Position
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Rocco DelGuercio
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1963
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Chief Financial Officer, Chief Compliance Officer and Treasurer
|
The address for each of our executive officers is c/o CM Finance Inc, 601 Lexington Avenue, 26
th
Floor, New York, New York 10022.
Biographical Information
The Board considered whether each of the directors is qualified to serve as a director, based on a review of the experience, qualifications, attributes and
skills of each director, including those described below. The Board considered whether each director has significant experience in the investment or financial services industries and has held management, board or oversight positions in other
companies and organizations. For the purposes of this presentation, our directors have been divided into two groups independent directors and interested directors. Interested directors are interested persons as defined
in the 1940 Act.
Independent Directors
Keith
Lee
serves as a member of our board of directors. Mr. Lee is the Chief Executive Officer of Feenix Venture Partners, LLC (Feenix), an investment firm that makes equity, debt and hybrid investments in small businesses that
need growth capital. Prior to Feenix, Mr. Lee was a Partner and Managing Director in charge of Capital Markets at H/2 Capital Partners, a multi-billion dollar investment manager focused on commercial real estate related debt investments.
He served on H/2s Executive and Investment Committees. Mr. Lee has over 20 years of experience working with global financial institutions on the buy and sell side. Prior to H/2, Mr. Lee was a Managing Director and Head of Structured
Financing-Americas at UBS Investment Bank. He also held senior positions at Goldman Sachs and Lehman Brothers in principal funding and investments and as head of US CLO Origination. Mr. Lee has an MBA from the University of Chicago, Booth
School of Business and a BA in Economics and Philosophy from Knox College and serves on Knoxs board of trustees. We believe Mr. Lees extensive experience with financial institutions and his knowledge of capital markets and
structured financing brings important and valuable skills to our board of directors.
8
Julie Persily
serves as a member of our board of directors. Ms. Persily has also served as a
director of Runway Growth Credit Fund Inc., a private
closed-end
management investment company that has elected to be regulated as a BDC, since 2016; and SEACOR Marine Holdings Inc. (NYSE: SMHI), a global
marine and support transportation services company, since April 2018. Ms. Persily retired in 2011 after serving as the
Co-Head
of Leveraged Finance and Capital Markets of Nomura Securities North America,
a unit of Nomura Holdings Inc. (NYSE: NMR), a securities and investment banking company, since July 2010. Ms. Persily previously served in various capacities at Citigroup Inc. (NYSE: C), a financial services company, including as the
Co-Head
of the Leveraged Finance Group from December 2006 to November 2008, the Head of Acquisition Finance Group from December 2001 to November 2006 and as Managing Director from July 1999 to November 2001. From
1990 to 1999, Ms. Persily served in various capacities including as a Managing Director, Leveraged Finance at BT Securities Corp., a financial services company and a subsidiary of Bankers Trust Corp., which was acquired by Deutsche Bank in
April 1999. From 1987 to 1989, Ms. Persily served as an analyst at Drexel Burnham Lambert, a securities and investment banking company. Ms. Persily received a B.A. in psychology and economics from Columbia College and a M.B.A in financing
and accounting from Columbia Business School. We believe Ms. Persilys extensive experience with structuring, negotiating and marketing senior loans, high yield and mezzanine financings brings important and valuable skills to our board of
directors.
Robert Ryder
serves as a member of our board of directors. Mr. Ryder currently serves as the chief executive officer of Horsepower
Advisors, a consulting company focused on improving business performance. Mr. Ryder previously served from 2007 to July 2015 as Executive Vice President and Chief Financial Officer of Constellation Brands, Inc. (NYSE: STZ), a wine, beer and
spirits company. From 2005 to 2006, Mr. Ryder served as Executive Vice President and Chief Financial and Administrative Officer of IMG, an international sports marketing and media company. From 2002 to 2005, Mr. Ryder was Senior Vice
President and Chief Financial Officer of American Greetings Corporation (NYSE: AM), a publicly traded, multinational consumer products company. From 1989 to 2002, Mr. Ryder held several management positions of increasing responsibility with
PepsiCo, Inc (NYSE: PEP). These included control, strategic planning, mergers and acquisitions, CFO and Controller positions serving at PepsiCos corporate headquarters and at its
Frito-Lay
International
and
Frito-Lay
North America divisions. Mr. Ryder began his career at Price Waterhouse & Co., where he left as a manager in 1989. Mr. Ryder received a B.S. in Accounting from the University
of Scranton and is a certified public accountant. We believe Mr. Ryders extensive experience with public companies, public boards and knowledge of accounting and public company regulatory issues brings important and valuable skills to our
board of directors.
Robert Wagner
serves as a member of our board of directors. In recent years, Mr. Wagner has been a self-employed
management consultant, working closely with client management on company strategy, financing, investor relations and compensation policies since 2013. In February 2012, Mr. Wagner retired from Silver Point Capital, L.P., a credit opportunity
hedge fund, where he had served as a senior management leader and operating committee member and Director of Marketing and Investor Relations since May 2006. While at Silver Point Capital, L.P., Mr. Wagner ran its Global Markets team, a
deal-sourcing and relationship development team, and served on the firms private-side, direct lending investment committee. From 1999 to 2005, Mr. Wagner served as a Managing Director and a senior leader in the fixed income division at
Goldman, Sachs & Co. (NYSE: GS), a global investment banking, securities and investment management firm. From 1993 to 1999, Mr. Wagner served as a Managing Director and team leader of the leveraged loan capital markets group at BT
Securities Corp., a financial services company and a subsidiary of Bankers Trust Corp., which was acquired by Deutsche Bank in April 1999. Mr. Wagner served in a similar capacity at Bank of America from 1989 to 1993. Mr. Wagner has also
served as a director of the Loan Syndication & Trading Association on multiple occasions, most recently from 2006 to 2010. Mr. Wagner received a B.B.A. in Finance and Accounting from the University of Michigan and an M.S. in Journalism
from Columbia UniversityGraduate School of Journalism. We believe Mr. Wagners extensive experience in deal-sourcing, investor relations and credit underwriting brings important and valuable skills to our board of directors.
9
Interested Directors
Michael C. Mauer
has served as our Chief Executive Officer and Chairman of our board of directors and as
Co-Chief
Investment Officer of CM Investment Partners LLC (our Adviser) since February 2014. Mr. Mauer has also served as Chairman and Chief Executive Officer of CM Credit Opportunities BDC I
Inc., a private
closed-end
management investment company that intends to elect to be regulated as a business development company (BDC), since 2017. From January 2012 to February 2014,
Mr. Mauer served as the Managing Partner and
Co-Chief
Investment Officer of CM Investment Partners, LP. Mr. Mauer is also a member of our Advisers investment committee and board of managers.
Mr. Mauer served as a Senior Managing Director and head of the leveraged loan effort at Cyrus Capital Partners, L.P. (Cyrus Capital) from September 2011 to February 2014. Mr. Mauer resigned from Cyrus Capital upon our election
to be regulated as a BDC. From July 2009 to September 2010, Mr. Mauer worked for Icahn Capital where he was a Senior Managing Director and a member of the investment team. In addition, he was in charge of the firms Marketing and Investor
Relations. Prior to that, Mr. Mauer was a Managing Director at Citigroup Inc. (NYSE: C), a financial services company, from 2001 to 2009. During that time he led several businesses including Global
Co-Head
of Leveraged Finance and Global
Co-Head
of Fixed Income Currency and Commodity Distribution. In addition, during this period he was a senior member of Citigroup
Inc.s credit committee responsible for all underwriting and principal commitments of leveraged finance capital worldwide. From 1988 to 2001, Mr. Mauer held several positions at JPMorgan including Head of North American Investment Grade
and Leverage Loan Syndicate, Sales and Trading businesses. Mr. Mauer began his career in 1982 at Price Waterhouse & Co., where he was a Senior Accountant and a C.P.A. Mr. Mauer received a B.S. from the University of Scranton and
an M.B.A. from Columbia University. We believe Mr. Mauers extensive investing, finance, and restructuring experience bring important and valuable skills to our board of directors.
Christopher E. Jansen
has served as our President, Secretary and a member of our board of directors and as
Co-Chief
Investment Officer of our Adviser since February 2014. Mr. Jansen has also served as President and Secretary of CM Credit Opportunities BDC I Inc., a private
closed-end
management investment company that intends to elect to be regulated as a BDC, since 2017. From June 2012 to February 2014, Mr. Jansen served as a Partner and
Co-Chief
Investment Officer of CM Investment Partners, LP. Mr. Jansen is also a member of our Advisers investment committee and board of managers. Mr. Jansen also served as a Senior Managing
Director at Cyrus Capital from April 2012 to February 2014. Mr. Jansen resigned from Cyrus Capital upon our election to be regulated as a BDC. Formerly, Mr. Jansen was a senior advisor at Sound Harbor Partners from April 2011 to March
2012. Prior to that, Mr. Jansen was a founding Managing Partner and Senior Portfolio Manager for Stanfield Capital Partners from inception in 1998 until the sale of the company in 2010. As a member of Stanfield Capital Partners Management
Committee, Mr. Jansen was involved in planning the strategic direction of the firm. Additional responsibilities included the oversight and administration of the investment process and the implementation of portfolio management procedures of the
companys Collateralized Loan Obligation and bank loan businesses. During his tenure at Stanfield, Jansen was responsible for the management of 15 different portfolios aggregating in excess of $7 billion in assets. These portfolios were
comprised of large corporate loans, middle-market loans, second lien loans, high yield bonds and structured finance securities. Prior to Stanfield Capital Partners, Mr. Jansen was Managing Director and Portfolio Manager at Chancellor Senior
Secured Management from 1990 to 1998. While at Chancellor, Jansen was responsible for the management of 11 different portfolios aggregating in excess of $4 billion in assets. These portfolios were comprised of large corporate loans,
middle-market loans and second lien loans. From 1983 to 1990, Mr. Jansen held various positions at Manufacturers Hanover Trust Company, including as Vice President in the Banks Acquisition Finance Group and LBO Management Group.
Mr. Jansen received a B.A. from Rutgers College and a M.M. from the Kellogg School of Management at Northwestern University. We believe Mr. Jansens extensive investing, finance, and restructuring experience bring important and
valuable skills to our board of directors.
Executive Officers Who Are Not Directors
Rocco DelGuercio
has served as our Chief Financial Officer and Treasurer since June 2016 and as our Chief Compliance Officer since September 2016.
Mr. DelGuercio has also served as Chief Financial Officer, Chief
10
Compliance Officer, and Treasurer of CM Credit Opportunities BDC I Inc., a private
closed-end
management investment company that intends to elect to be
regulated as a BDC, since 2017. Mr. DelGuercio has also served as Chief Financial Officer of our Adviser since June 2016 and as Chief Compliance Officer of our Adviser since September 2016. Mr. DelGuercio spent over 10 years at Credit
Suisse Assets Management and served in various capacities, including as Chief Financial Officer and Treasurer of Credit Suisse Park View BDC, Inc., a BDC, and Credit Suisse Asset Management Income Fund Inc. and Credit Suisse High Yield Bond Fund,
each a
closed-end
management investment company. Mr. DelGuercio also served as the Chief Financial Officer and Treasurer of ten
open-end
management investment
companies managed by Credit Suisse Assets Management. From February 2012 to April 2013, Mr. DelGuercio was an independent contractor consulting for a 12 billion dollar money manager and a large global service provider. Prior to that,
Mr. DelGuercio served as Director of Legg Mason & Co., LLC from March 2004 to January 2012. Mr. DelGuercio earned a B.A. in Liberal Arts from The College of Staten Island, a B.A. in Business from Chadwick University and an M.B.A.
in Finance from New York Institute of Technology.
Board of Directors and Its Leadership Structure
Our business and affairs are managed under the direction of our Board. Pursuant to our articles of incorporation, the number of directors on our Board is
currently fixed at six directors and divided into three classes. Four of the members of our Board are not interested persons of the Company, or its affiliates as defined in Section 2(a)(19) of the 1940 Act. We refer to these
individuals as our independent directors. The Board elects our officers, who serve at the discretion of the Board. The responsibilities of the Board include quarterly valuation of our assets, corporate governance activities, oversight of
our financing arrangements and oversight of our investment activities.
Oversight of our investment activities extends to oversight of the risk management
processes employed by our Adviser as part of its
day-to-day
management of our investment activities. The Board anticipates reviewing risk management processes at both
regular and special board meetings throughout the year, consulting with appropriate representatives of our Adviser as necessary and periodically requesting the production of risk management reports or presentations. The goal of the Boards risk
oversight function is to ensure that the risks associated with our investment activities are accurately identified, thoroughly investigated and responsibly addressed. Stockholders should note, however, that the Boards oversight function cannot
eliminate all risks or ensure that particular events do not adversely affect the value of investments.
The Board has established an audit committee, a
compensation committee, a nominating and corporate governance committee and a valuation committee and may establish additional committees from time to time as necessary. While our Board is ultimately responsible for risk oversight, the committees
assist our Board in fulfilling its responsibility with respect to risk oversight. As discussed in greater detail below, committees assist our Board in the following ways:
|
|
|
the audit committee of the Board (Audit Committee) assists with respect to risk management in the
areas of financial reporting, internal controls, and compliance with legal and regulatory requirements;
|
|
|
|
the nominating and governance committee of the Board (the Nominating and Corporate Governance
Committee) assists with respect to management of risks associated with Board organization and membership, and other corporate governance matters, as well as company culture and ethical compliance;
|
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|
|
the valuation committee of the Board (the Valuation Committee) assists with respect to management
risks related to the valuation of our investment portfolio; and
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|
|
|
the compensation committee of the Board (the Compensation Committee) assists with respect to
management of risks related to executive succession.
|
The scope of the responsibilities assigned to each of these committees is
discussed in greater detail below. Mr. Mauer serves as our Chief Executive Officer and Chairman of the Board and the Managing Member and
Co-Chief
Investment Officer of our Adviser and Mr. Jansen
serves as our President and Secretary, is a member
11
of our Board, and is a member of and the
Co-Chief
Investment Officer of our Adviser. We believe that Mr. Mauers history with our Adviser and its
predecessor, CM Investment Partners, LP, his familiarity with its investment platform, and his extensive knowledge of and experience in the financial services industry qualify him to serve as the Chairman of our Board.
The Board does not have a lead independent director. We are aware of the potential conflicts that may arise when a
non-independent
director is Chairman of the Board, but believe these potential conflicts are offset by our strong corporate governance practices. Our corporate governance practices include regular meetings of
the independent directors in executive session without the presence of interested directors and management, the establishment of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and Valuation Committee,
each of which is comprised solely of independent directors, and the appointment of a Chief Compliance Officer, with whom the independent directors meet without the presence of interested directors and other members of management, for administering
our compliance policies and procedures.
The Board believes that its leadership structure is appropriate in light of our characteristics and circumstances
because the structure allocates areas of responsibility among the individual directors and the committees in a manner that affords effective oversight. Specifically, the Board believes that the relationship of Messrs. Mauer and Jansen with our
Adviser provides an effective bridge between the Board and management, and encourages an open dialogue between management and our Board, ensuring that these groups act with a common purpose. The Board also believes that its small size creates a
highly efficient governance structure that provides ample opportunity for direct communication and interaction between our management, our Adviser and the Board.
Board Meetings
Our Board met six times during the fiscal
year ended June 30, 2018. Each director attended at least 75% of the total number of meetings of the Board and committees on which the director served that were held while the director was a member. The Boards standing committees are set
forth below. We require each director to make a diligent effort to attend all Board and committee meetings, as well as each Annual Meeting of Stockholders. All of our directors attended our 2017 Annual Meeting of Stockholders.
Audit Committee
The members of the Audit Committee are
Mr. Lee, Ms. Persily, Mr. Ryder and Mr. Wagner, each of whom is independent for purposes of the 1940 Act and NASDAQ corporate governance regulations. Mr. Ryder serves as chairman of the Audit Committee. Our Board has
determined that Mr. Ryder is an audit committee financial expert as that term is defined under Item 407 of Regulation
S-K
of the Securities Act. The Board has adopted a charter of the Audit
Committee, which is available in print to any stockholder who requests it and it is also available on the Companys website at
www.cmfn-inc.com
. The Audit Committee met five times during the fiscal
year ended June 30, 2018.
The Audit Committee is responsible for approving our independent accountants, reviewing with our independent accountants
the plans and results of the audit engagement, approving professional services provided by our independent accountants, reviewing the independence of our independent accountants and reviewing the adequacy of our internal accounting controls.
Compensation Committee
The members of the Compensation
Committee are Mr. Lee, Ms. Persily, Mr. Ryder and Mr. Wagner, each of whom is independent for purposes of the 1940 Act and the NASDAQ corporate governance regulations. Ms. Persily serves as chairperson of the Compensation
Committee. The Compensation Committee is responsible for overseeing our compensation policies generally, evaluating executive officer performance, overseeing and setting compensation for our directors and, as applicable, our executive officers and,
as applicable, preparing the
12
report on executive officer compensation that SEC rules require to be included in our annual proxy statement. Currently, none of our executive officers is compensated by us, and as such, the
compensation committee is not required to produce a report on executive officer compensation for inclusion in our annual proxy statement.
The
Compensation Committee has the sole authority to retain and terminate any compensation consultant assisting the Compensation Committee, including sole authority to approve all such compensation consultants fees and other retention terms. The
Compensation Committee may delegate its authority to subcommittees or the chairperson of the Compensation Committee when it deems appropriate and in our best interests.
The Compensation Committee met one time during the fiscal year ended June 30, 2018.
Nominating and Corporate Governance Committee
The
members of the Nominating and Corporate Governance Committee are Mr. Lee, Ms. Persily, Mr. Ryder and Mr. Wagner, each of whom is independent for purposes of the 1940 Act and the NASDAQ corporate governance regulations.
Mr. Lee serves as chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for selecting, researching and nominating directors for election by our stockholders, selecting
nominees to fill vacancies on the board or a committee of the board, developing and recommending to the board a set of corporate governance principles and overseeing the evaluation of the board and our management.
The Nominating and Corporate Governance Committee will consider nominees to the Board recommended by a stockholder if such stockholder complies with the
advance notice provisions of our bylaws. Our bylaws provide that a stockholder who wishes to nominate a person for election as a director at a meeting of stockholders must deliver written notice to our corporate secretary. This notice must contain,
as to each nominee, all of the information relating to such person as would be required to be disclosed in a proxy statement meeting the requirements of Regulation 14A under the Securities Exchange Act of 1934, as amended, and certain other
information set forth in the bylaws. In order to be eligible to be a nominee for election as a director by a stockholder, such potential nominee must deliver to our corporate secretary a written questionnaire providing the requested information
about the background and qualifications of such person, and would be in compliance with all of our publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines.
The Nominating and Corporate Governance Committee has not adopted a formal policy with regard to the consideration of diversity in identifying individuals for
election as members of the Board, but the committee will consider such factors as it may deem are in our best interests and those of our stockholders. Those factors may include a persons differences of viewpoint, professional experience,
education and skills, as well as his or her race, gender and national origin. In addition, as part of the boards annual self-assessment, the members of the Nominating and Corporate Governance Committee will evaluate the membership of the Board
and whether the board maintains satisfactory policies regarding membership selection.
A charter of the Nominating and Corporate Governance Committee is
available in print to any stockholder who requests it, and it is also available on the Companys website at
www.cmfn-inc.com
. The Nominating and Corporate Governance Committee met one time during
the fiscal year ended June 30, 2018.
Valuation Committee
The Valuation Committee is composed of Mr. Lee, Ms. Persily, Mr. Ryder and Mr. Wagner, each of whom is not an interested person for
purposes of the 1940 Act and is independent for purposes of the NASDAQ corporate governance regulations. Mr. Wagner serves as the chairman of the Valuation Committee. The Valuation Committee is responsible for aiding our board of directors in
fair value pricing of our debt and equity investments that are not publicly traded or for which current market values are not readily available. The Board
13
and the Valuation Committee utilize the services of an independent valuation firm to help them determine the fair value of these securities. The Board has engaged an independent valuation firm to
review, on a periodic basis, at least once annually, the valuation for each of our Level 3 investments. We invest primarily in investments classified as Level 3. The Board, including the members of the Valuation Committee, also meet with
the independent valuation firm periodically review the methodology of the independent valuation firm. The Valuation Committee reviews subsequent transactions to test the accuracy of the independent valuation firms valuations. The Valuation
Committee met four times during the fiscal year ended June 30, 2018.
Compensation of Directors
The following table shows information regarding the compensation received by our independent directors for the fiscal year ended June 30, 2018. No
compensation is paid to directors who are interested persons for their service as directors.
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Name
|
|
Aggregate Cash
Compensation
from CM Finance Inc(1)
|
|
|
Total Compensation
from CM Finance Inc
Paid to Director(1)
|
|
Interested Directors
|
|
|
|
|
|
|
|
|
Michael C. Mauer
|
|
$
|
|
|
|
$
|
|
|
Christopher E. Jansen
|
|
$
|
|
|
|
$
|
|
|
Independent Directors
|
|
|
|
|
|
|
|
|
Keith Lee
|
|
$
|
97,500
|
|
|
$
|
97,500
|
|
Julie Persily
|
|
$
|
97,500
|
|
|
$
|
97,500
|
|
Robert Ryder
|
|
$
|
102,500
|
|
|
$
|
102,500
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|
Robert Wagner
|
|
$
|
97,500
|
|
|
$
|
97,500
|
|
(1)
|
For a discussion of the independent directors compensation, see below. We do not have a profit-sharing or
retirement plan, and directors do not receive any pension or retirement benefits.
|
The independent directors receive an annual fee of
$75,000. They also receive $2,500 plus reimbursement of reasonable
out-of-pocket
expenses incurred in connection with attending in person or telephonically each regular
board of directors meeting and each special telephonic meeting. They also receive $1,000 plus reimbursement of reasonable
out-of-pocket
expenses incurred in connection
with each committee meeting attended in person and each telephonic committee meeting. The chair of the Audit Committee receives an annual fee of $7,500. The chairs of the Valuation Committee, the Nominating and Corporate Governance Committee and the
Compensation Committee receive an annual fee of $2,500, $2,500 and $2,500, respectively. We have obtained directors and officers liability insurance on behalf of our directors and officers. Independent directors have the option of having
their directors fees paid in shares of our common stock issued at a price per share equal to the greater of NAV or the market price at the time of payment. No compensation is paid to directors who are interested persons for their
service as directors.
Corporate Governance
Corporate Governance Documents
We maintain a
corporate governance webpage at the Investor Relations link at
www.cmfn-inc.com
.
Our Corporate
Governance Procedures, Code of Ethics and Business Conduct, Code of Ethics and Board committee charters are available at our corporate governance webpage at
www.cmfn-inc.com
and are also available to
any stockholder who requests them by writing to our Secretary, Christopher E. Jansen, at CM Finance Inc, 601 Lexington Avenue, 26
th
Floor, New York, NY 10022.
14
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. The Company monitors the status of its directors and officers through the activities of the 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 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 BDC 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 or our Adviser.
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. Mauer and Jansen, who are interested persons of the Company due to their positions as officers of the Company and as officers of our Adviser.
Annual Evaluation
Our directors perform an
evaluation, at least annually, of the effectiveness of the Board and its committees. This evaluation includes an annual questionnaire and Board and Board committee discussion.
Communication with the Board
We believe that
communications between our Board, our stockholders and other interested parties are an important part of our corporate governance process. Stockholders with questions about the Company are encouraged to contact the Companys Investor Relations
department at (212)
257-5199.
However, if stockholders believe that their questions have not been addressed, they may communicate with the Companys Board by sending their communications to CM Finance Inc
601 Lexington Avenue, 26
th
Floor, New York, NY 10022, Attn.: Board of Directors. All stockholder communications received in this manner will be delivered to one or more members of the Board.
All communications involving accounting, internal accounting controls and auditing matters, possible violations of, or
non-compliance
with, applicable legal and regulatory requirements or policies, or retaliatory acts against anyone who makes such a complaint or assists in the investigation of such a complaint, will be
referred to our Audit Committee.
The acceptance and forwarding of a communication to any director does not imply that the director owes or assumes any
fiduciary duty to the person submitting the communication, all such duties being only as prescribed by applicable law.
Code of Business Conduct and
Ethics
Our code of ethics, which is signed by directors and executive officers of the Company, requires that directors and executive officers
avoid any conflict, or the appearance of a conflict, between an individuals personal interests and the interests of the Company. Pursuant to the code of ethics, which is available on our website under the Investor Relations link at
www.cmfn-inc.com
, each director and executive officer must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to the Audit Committee. Certain actions or
relationships that might give rise to a conflict of interest are reviewed and approved by the Board.
15
Compensation Committee Interlocks and Insider Participation
All members of the Compensation Committee are independent directors and none of the members is a present or past employee of the Company. No member of the
Compensation Committee: (i) has had any relationship with the Company requiring disclosure under Item 404 of Regulation
S-K
under the Securities Exchange Act of 1934, as amended; or (ii) is an
executive officer of another entity, at which one of our executive officers serves on the Board.
CONFLICTS OF
INTEREST AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has procedures in place for the review, approval and monitoring of
transactions involving the Company and certain persons related to the Company. As a BDC, the 1940 Act restricts the Company from participating in certain transactions with certain persons affiliated with the Company, including our officers,
directors, and employees and any person controlling or under common control with us.
In order to ensure that we do not engage in any prohibited
transactions with any persons affiliated with the Company, our officers screen each of our transactions for any possible affiliations, close or remote, between the proposed portfolio investment, the Company, companies controlled by us and our
employees and directors. The Company will not enter into any transactions unless and until we are satisfied that the transaction is not prohibited by the 1940 Act or, if such prohibitions exist, the Company has taken appropriate actions to seek
Board review and approval or exemptive relief from the SEC for such transaction.
The Company is party to an investment advisory agreement (the
Investment Advisory Agreement) with our Adviser, in which certain of the Companys directors and executive officers have ownership and financial interests. Messrs. Mauer and Jansen, together, hold a 42% interest in our Adviser.
Stifel, a wholly-owned subsidiary of Stifel Financial Corp., holds a 20% interest in our Adviser and approximately 16% of our total outstanding common stock. The Cyrus Funds, managed by Cyrus Capital, also hold, in the aggregate, a 38% indirect
economic interest, but no voting interest, in our Adviser and approximately 28% of our total outstanding common stock.
Stifel Arrangement
Stifel owns approximately 16% of our total outstanding common stock, and also owns a 20% interest in our Adviser. As a result, Stifel will benefit
from our performance and our investments. Pursuant to an irrevocable proxy, Stifel has granted us the right to vote the shares of our common stock held by it in excess of 4.9% of our total outstanding common stock in the same percentages as our
other stockholders. Stifel has the right to nominate for election a member of the Board, who will be considered interested (that is, not independent for purposes of the 1940 Act). Stifel has not exercised its right to nominate for
election a member of the Board. In addition, Stifel has the right to appoint a representative to our Advisers three-member board of managers and a member of our Advisers investment committee. Stifel has appointed Michael Nitka to
our Advisers investment committee. Stifel does not have any rights to exercise a controlling influence over our
day-to-day
operations or the operations or
investment management function of the Adviser.
Four members of the Investment Team are dual employees of the Adviser and Stifel Nicolaus &
Company, Incorporated or its affiliates pursuant to a personnel sharing arrangement with Stifel Nicolaus & Company, Incorporated. Although the members of the Investment Team that are dual employees dedicate substantially all of their time
to the business and activities of the Adviser, they may continue to engage in investment advisory activities for Stifel Nicolaus & Company, Incorporated and its affiliates from time to time. This arrangement could result in a conflict of
interest and may distract these investment professionals from their responsibilities to us. Messrs. Mauer and Jansen monitor the activities of the members of the Investment Team for any conflicts of interest and will seek to resolve them on our
behalf, subject to the oversight of the Board. In addition, Mr. Nitka,
16
Stifels designee to the Advisers investment committee, is a managing director and head of the Credit Investments Group at Stifel Nicolaus & Company, Incorporated. Should any
conflicts arise as a result of Mr. Nitkas membership on the Advisers investment committee and his role at Stifel Nicolaus & Company, Incorporated, Mr. Nitka will recuse himself from consideration of any potential
conflict related to Stifel Nicolaus & Company, Incorporated and its affiliates.
Subject to certain restrictions, Stifel will use its
commercially reasonable efforts to present to the Adviser the opportunity to review and bid on all Stifel Nicolaus & Company, Incorporated-originated leveraged finance and high yield corporate debt opportunities consistent with our
investment strategy. Subject to the approval of the Board, as necessary under the 1940 Act, and certain other limitations, Stifel may invest in the same portfolio companies that we invest in, and (regardless of whether our investment arose from
a Stifel-originated opportunity) Stifel may, through such investments, have interests that conflict with ours, including receiving fees from the portfolio company directly as well as through its interest in our Adviser. We believe that we may
co-invest
with Stifel and its affiliates upon approval of the required majority of our directors as defined in Section 57(o) of the 1940 Act.
Cyrus Capital Relationship
The Cyrus Funds,
managed by Cyrus Capital, own approximately 28% of our outstanding common stock, and also hold a 38% indirect economic interest, but no voting interest, in our Adviser. As a result, Cyrus Capital benefits from our performance and our investments.
Pursuant to an irrevocable proxy, the Cyrus Funds shares of our common stock must be voted in the same percentages as our other stockholders (excluding Stifel) vote their shares. Cyrus Capital does not have any rights to exercise a controlling
influence over our operations or the operations or investment management function of our Adviser. As a result of the relationship with Cyrus Capital and the Cyrus Funds, we could be presumed to be an affiliate of the Cyrus Funds under the 1940 Act.
We believe we may
co-invest
with the Cyrus Funds upon approval of the required majority of our directors as defined in Section 57(o) of the 1940 Act. In addition, the Cyrus Funds may, through
such
co-investments,
have interests that conflict with ours, including receiving fees from the portfolio company directly as well as through its economic interest in our Adviser. Cyrus Capital may also provide
us with investment opportunities.
Pursuant to a services agreement between our Adviser and Cyrus Capital (the Services Agreement), our
Adviser can utilize the expertise of the investment professionals of Cyrus Capital to provide investment services to us from time to time on an as needed basis as part of our Advisers Investment Team and in connection with our Advisers
obligations to us under the Investment Advisory Agreement. If our Adviser determines it is in our best interests to utilize the expertise of any of the investment professionals of Cyrus Capital, such investment professionals will also continue to
engage in investment advisory activities for the private investment funds managed by Cyrus Capital, including the Cyrus Funds, which could result in a conflict of interest, and may distract them from their responsibilities to us. Our Adviser
currently utilizes the investment professionals that perform analyst functions provided under the Services Agreement for less than 10% of the aggregate time dedicated to the business by our Advisers Investment Team. In addition, we may receive
other administrative services from our Adviser, pursuant to the Administration Agreement, which, in turn, upon request by the Adviser, may be provided to us on behalf of the Adviser by Cyrus Capital under the terms of the Services Agreement.
Other Conflicts of Interest
We may also have
conflicts of interest arising out of the investment advisory activities of our Adviser. Our Adviser may in the future manage other investment funds, accounts or investment vehicles that invest or may invest in assets eligible for purchase by us. To
the extent that we compete with entities managed by our Adviser or any of its affiliates for a particular investment opportunity, our Adviser will allocate investment opportunities across the entities for which such opportunities are appropriate,
consistent with (a) its internal investment allocation policies, (b) the requirements of the Investment Advisers Act of 1940, as amended, and (c) certain restrictions under the 1940 Act regarding
co-investments
with affiliates.
17
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the disclosure requirements of Item 405 of SEC Regulation
S-K
require that our directors and executive officers, and any persons holding more than 10% of any class of our equity securities report their ownership of such equity securities and any subsequent changes in that
ownership to the SEC and to us. Based solely on a review of the written statements and copies of such reports furnished to us by our executive officers, directors and greater than 10% beneficial owners, we believe that, during the fiscal year ended
June 30, 2018, all Section 16(a) filing requirements applicable to the executive officers, directors and stockholders were timely satisfied.
EXECUTIVE COMPENSATION
Currently, none of our executive officers are compensated by us. We currently have no employees, and each of our executive officers is also an employee of CM
Investment Partners LLC. Each of Messrs. Mauer and Jansen has a direct ownership and financial interest in, and may receive compensation and/or profit distributions from, the Adviser. None of Mr. Mauer, Mr. Jansen, Mr. Muns or
Mr. Nitka receives any direct compensation from us. See Conflicts of Interest and Certain Relationships and Related Transactions. Services necessary for our business are provided by individuals who are employees of CM Investment
Partners LLC, pursuant to the terms of the investment advisory and management agreement and the administration agreement. Rocco DelGuercio, our Chief Financial Officer, Treasurer and Chief Compliance Officer, is paid by the Adviser, as our
administrator, subject to reimbursement by us of an allocable portion of such compensation for services rendered by Mr. DelGuercio to us. To the extent that the Adviser outsources any of its functions, we will pay the fees associated with such
functions on a direct basis without profit to the Adviser.
18
PROPOSAL 2: AUTHORIZE THE COMPANY TO SELL OR OTHERWISE ISSUE UP TO
25% OF THE COMPANYS OUTSTANDING COMMON STOCK AT AN OFFERING PRICE PER SHARE THAT IS BELOW THE COMPANYS THEN CURRENT NAV
The Company is a
closed-end
investment company that has elected to be regulated as a BDC under the 1940 Act. The 1940 Act prohibits the Company from selling shares of its common stock at a price below the current NAV of such stock,
with certain exceptions. One such exception would permit the Company to sell or otherwise issue shares of its common stock during the next year at a price below the Companys then current NAV if its stockholders approve such a sale and the
Companys directors make certain determinations.
Pursuant to this provision, 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 issue shares of its common stock in an amount up to 25% of the outstanding common stock as of the date when this proposal is approved by the stockholders at an offering
price per share that is below its then current NAV, subject to certain conditions discussed below. Under this proposal, there is no limit on the discount at which the Company may sell its shares. If approved, the authorization would be effective for
a period expiring on the earlier of the one year anniversary of the date of the Companys 2018 Annual Meeting of Stockholders and the date of the Companys 2019 Annual Meeting of Stockholders, which is expected to be held in November 2019.
The latest date at which such authorization would expire is November 6, 2019.
Effect of Approval
Generally, equity securities sold in public securities offerings are priced based on market prices, quoted on exchanges such as NASDAQ, rather than NAV per
share. The Company is seeking the approval of a majority of its common stockholders of record to offer and sell shares of its common stock at prices that, net of underwriting discount or commissions, may be less than NAV so as to permit management
the flexibility in pricing new share issuances it may require from time to time during the authorized period as a result of market conditions.
Shares of
BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from NAV per share or at premiums that are unsustainable over the
long term are separate and distinct from the risk that our NAV per share will decrease. Although shares of the Companys common stock have had a limited trading history, they have traded at both a premium to NAV per share and at a discount to
the net assets attributable to those shares. Given the volatility in the stock market, we cannot predict whether our common stock will trade at a premium to NAV or trade at a discount to NAV in the future.
The following table, representing the public trading history of our common stock for the three most recent fiscal years and the most recent quarter, lists the
high and low closing sales prices for our common stock and the sales price as a percentage of NAV per share. On September 14, 2018, the last reported closing sale price of our common stock was $[] per share which represents a discount of
approximately []% to the NAV reported as of June 30, 2018.
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|
|
Fiscal Year Ended
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|
NAV
Per Share(1)
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|
|
Closing Sales
Price(2)
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|
|
Premium or
Discount of
High Sales
to NAV(3)
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|
|
Premium or
Discount of
Low Sales
to NAV(3)
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|
High
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Low
|
|
June 30, 2019
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|
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|
|
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|
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First quarter (through August 27, 2018)
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$
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*
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$
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9.35
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$
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8.75
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*
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%
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*
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%
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June 30, 2018
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|
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|
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|
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Fourth quarter
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[]
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9.875
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|
|
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7.90
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|
|
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[
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]%
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[
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]%
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Third quarter
|
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12.55
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|
|
|
8.70
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|
|
|
7.75
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|
|
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(30.68
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)%
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|
|
(38.25
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)%
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Second quarter
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12.50
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9.65
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7.70
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|
|
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(22.80
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)%
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|
(38.40
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)%
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First quarter
|
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|
12.39
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|
|
|
10.30
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|
|
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9.25
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|
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(16.87
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)%
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(25.34
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)%
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19
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|
|
Fiscal Year Ended
|
|
NAV
Per Share(1)
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|
Closing Sales
Price(2)
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|
Premium or
Discount of
High Sales
to NAV(3)
|
|
|
Premium or
Discount of
Low Sales
to NAV(3)
|
|
|
High
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|
|
Low
|
|
June 30, 2017
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|
|
|
|
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|
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|
|
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|
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Fourth quarter
|
|
$
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12.41
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|
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$
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10.70
|
|
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$
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10.00
|
|
|
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(13.78
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)%
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|
|
(19.42
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)%
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Third quarter
|
|
|
12.32
|
|
|
|
10.40
|
|
|
|
9.35
|
|
|
|
(15.58
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)%
|
|
|
(24.11
|
)%
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Second quarter
|
|
|
12.13
|
|
|
|
10.05
|
|
|
|
8.95
|
|
|
|
(17.15
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)%
|
|
|
(26.22
|
)%
|
First quarter
|
|
|
11.86
|
|
|
|
10.14
|
|
|
|
8.98
|
|
|
|
(14.50
|
)%
|
|
|
(24.28
|
)%
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter
|
|
|
11.90
|
|
|
|
9.66
|
|
|
|
7.87
|
|
|
|
(18.82
|
)%
|
|
|
(33.87
|
)%
|
Third quarter
|
|
|
11.96
|
|
|
|
10.44
|
|
|
|
6.92
|
|
|
|
(12.71
|
)%
|
|
|
(42.14
|
)%
|
Second quarter
|
|
|
12.17
|
|
|
|
12.01
|
|
|
|
10.02
|
|
|
|
(1.31
|
)%
|
|
|
(17.67
|
)%
|
First quarter
|
|
|
13.65
|
|
|
|
13.74
|
|
|
|
10.05
|
|
|
|
0.66
|
%
|
|
|
(26.37
|
)%
|
(1)
|
NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share
on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.
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(2)
|
Closing sales price is determined as the high or low closing sales price noted within the respective quarter,
not adjusted for dividends.
|
(3)
|
Calculated as of the respective high or low sales price divided by the quarter end NAV.
|
*
|
NAV has not yet been calculated for this period.
|
Reasons for Approval
As a BDC and a regulated investment
company (RIC) for tax purposes, the Company is dependent on its ability to raise capital through the issuance of common stock. 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 using those earnings to support new investments. Further, BDCs must comply with an asset coverage ratio that prohibits the Company from incurring debt or issuing senior securities
if their asset coverage, as defined in the 1940 Act, is below 200% (or 150% if certain conditions are satisfied).
On May 2, 2018, the Board,
including a required majority (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small
Business Credit Availability Act. As a result, the Companys asset coverage requirements for senior securities will be changed from 200% to 150%, effective as of May 2, 2019. To continue to build the Companys investment portfolio,
and thereby support maintenance and growth of the Companys dividends, the Company strives to maintain consistent access to capital through the public and private equity markets enabling it to take advantage of investment opportunities as they
arise.
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 result in unrealized write-downs of those investments. These unrealized write-downs, as well as unrealized write-downs based on the
underlying performance of the Companys portfolio companies, if any, negatively impact stockholders equity and the resulting asset to debt ratio.
Exceeding the 200% asset coverage ratio (or 150% asset coverage ratio beginning on May 2, 2019) could have severe negative consequences for a BDC,
including the inability to pay dividends, breaching debt covenants and failure to qualify for tax treatment as a RIC. Although the Company does not currently expect that it will exceed this equity ratio, the markets it operates in and the general
economy may be volatile and uncertain. Volatility in the capital markets could result in negative pressure on investment valuations, potentially negatively impacting the Companys stockholders equity and the Companys asset to debt
ratio.
20
As a result of dislocations and more frequent volatility in the credit markets over the past several years, the
Company has seen a reduction in competition, a widening of interest spreads and generally more conservative capital structures and deal terms. The Company believes that these conditions have in the past created, and may in the future create,
favorable opportunities to invest at attractive risk-adjusted returns. While the current market has improved from various periods of market dislocation and volatility, there can be no assurance that they will not worsen again in the future. If these
adverse market conditions return, 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 favorable investment opportunities. 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.
Without the approval of a
majority of its common stockholders to sell its common stock at prices below its current NAV, the Company would be precluded from selling shares of its common stock to raise capital during periods where the market price for its common stock is below
its current NAV. It may also be precluded from selling shares when the market price for its common stock is not sufficiently above its current NAV so that the price at which shares would be sold, net of underwriting discounts or commissions, would
not be less than its current NAV.
The Company believes that having the flexibility to issue its common stock below NAV in certain instances will benefit
all of its stockholders. The Company expects that it will be periodically presented with attractive opportunities that require the Company to make an investment commitment quickly. As discussed above, the Company may not have sufficient access to
capitalize on investment opportunities presented to it unless it is able to quickly raise additional capital. In the future, the market value of the Companys common stock may trade below NAV resulting in a net price per share below NAV, which
has not been uncommon for BDCs like the Company. Alternatively, the Companys NAV could increase without a commensurate increase in the Companys stock price.
If any of these events were to occur, absent the approval of this proposal by stockholders, the Company may not be able to effectively access the capital
markets to enable it to take advantage of attractive investment opportunities. The ability to issue shares below NAV also minimizes the likelihood that the Company would consider selling assets it would not otherwise sell at times that may be
disadvantageous to the Company.
Further, to the extent the Company issues shares of its common stock below NAV in a publicly registered transaction, the
Companys market capitalization and the number of shares of its publicly tradable common stock will increase, thus potentially affording all common stockholders greater liquidity.
Conditions to Sales Below NAV
If this proposal is
approved, the Company will only sell shares of its common stock at a net price below NAV during the specified one year period if the following conditions are met:
|
|
|
filing a new post-effective amendment to an effective registration statement if the cumulative dilution to NAV
per share from offerings under the registration statement exceeds 15%;
|
|
|
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both a majority of the Companys independent directors who have no financial interest (other than ownership
of shares of the Companys common stock) in the sale and a majority of such directors who are not interested persons of the Company have determined that such sale would be in the best interests of the Company and its stockholders;
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|
majority of the Companys independent 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 securities or immediately prior to the issuance of
such securities, that the price at which such securities are to be sold is not less than a price which closely approximates the market value of those securities, less any underwriting commission or discount; and
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21
|
|
|
following such issuance and taking into account any other issuances, not more than 25% of the Companys then
outstanding shares as of the date of stockholder approval will have been issued at a price less than the Companys then current NAV.
|
For purposes of determining whether the cumulative dilution to NAV per share from multiple offerings under a registration statement would exceed 15%, an
offering pursuant to the registration statement would be measured separately by calculating the percentage dilution or accretion to aggregate NAV from that offering and then summing the percentage from each offering. For example, if the most
recently determined NAV per share at the time of the first offering is $10.00 and the Company had 10 million shares of common stock outstanding, the sale of 2 million shares of common stock with net proceeds of $5.00 per share (a 50%
discount) would produce dilution of 8.33%. If the Company subsequently determined that its NAV per share increased to $10.50 on the then 12 million shares of common stock outstanding and then made an additional offering, the Company could, for
example, sell approximately an additional 2.4 million shares of common stock at net proceeds of $6.30 per share, which would produce dilution of 6.67%, before the Company would reach the aggregate 15% limit.
Key Stockholder Considerations
Before voting on this
proposal or giving proxies with regard to this matter, common stockholders should consider the dilutive effect on the NAV per outstanding share of common stock of the issuance of shares of the Companys common stock at an offering price that is
below the NAV per share. Any sale of common stock at a price below NAV would result in an immediate dilution to existing common stockholders. This dilution would include reduction in the NAV as a result of the issuance of shares at a price below the
NAV and a proportionately greater decrease in a stockholders 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 Board of the
Company will consider the potential dilutive effect of the issuance of shares at a price below the NAV when considering whether to authorize any such issuance.
When stock is sold at a sale price below NAV per share, the resulting increase in the number of outstanding shares is not accompanied by a proportionate
increase in the net assets of the issuer. 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, and thus any future
issuance of common stock at a price below NAV will dilute a stockholders holdings of common stock as a percentage of shares outstanding to the extent the stockholder does not purchase sufficient shares in the offering or otherwise to maintain
the stockholders percentage interest.
Impact on Existing Stockholders Who Do Not Participate in the Offering
Our existing stockholders who do not participate in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or
lower price we obtain in the offering (after expenses and commissions) face the greatest potential risks. All stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares they hold. Stockholders who do not
participate in the offering will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than stockholders who do participate in the offering. All stockholders may also
experience a decline in the market price of their shares, which often reflects, to some degree, announced or potential decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV
increases. Further, if the stockholder does not purchase any shares to maintain the stockholders percentage interest, regardless of whether such offering is at a price above or below the then current NAV, the stockholders voting power,
as well as other interests, will be diluted.
Examples of Dilutive Effect
The following table illustrates the reduction to NAV and dilution that would be experienced by a nonparticipating stockholder in different hypothetical
offerings of different sizes and levels of discount from
22
NAV, although it is not possible to predict the level of market price decline that may occur. Sales prices and discounts are hypothetical in the presentation below.
The examples assume that Company XYZ has 13,500,000 common shares outstanding, $300,000,000 in total assets and $100,000,000 in total liabilities. The current
NAV and NAV per share are thus $200,000,000 and $14.81. The table illustrates the dilutive effect on nonparticipating Stockholder A of (1) an offering of 1,350,000 shares (10% of the outstanding shares) at $13.33 per share after offering
expenses and commissions (a 10% discount from NAV), (2) an offering of 3,375,000 shares (25% of the outstanding shares) at $12.59 per share after offering expenses and commissions (a 15% discount from NAV), (3) an offering of 3,375,000 shares (25%
of the outstanding shares) at $11.11 per share after offering expenses and commissions (a 25% discount from NAV), and (4) an offering of 3,375,000 shares (25% of the outstanding shares) at $0.00 per share after offering expenses and commissions
(a 100% discount from NAV). Under this proposal, there is no limit on the discount at which the Company may sell it shares.
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|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
Prior to
Sale
Below NAV
|
|
|
Example 1
10% Offering
at 10% Discount
|
|
|
Example 2
25% Offering
at 15% Discount
|
|
|
Example 3
25% Offering
at 25% Discount
|
|
|
Example 4
25% Offering
at 100% Discount
|
|
|
Following
Sale
|
|
|
%
Change
|
|
|
Following
Sale
|
|
|
%
Change
|
|
|
Following
Sale
|
|
|
%
Change
|
|
|
Following
Sale
|
|
|
%
Change
|
|
Offering Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per Share to Public
|
|
|
|
|
|
$
|
14.04
|
|
|
|
|
|
|
$
|
13.26
|
|
|
|
|
|
|
$
|
11.70
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
Net Proceeds per Share to Issuer
|
|
|
|
|
|
$
|
13.33
|
|
|
|
|
|
|
$
|
12.59
|
|
|
|
|
|
|
$
|
11.11
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
Decrease to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
13,500,000
|
|
|
|
14,850,000
|
|
|
|
10.0
|
%
|
|
|
16,875,000
|
|
|
|
25.0
|
%
|
|
|
16,875,000
|
|
|
|
25.0
|
%
|
|
|
16,875,000
|
|
|
|
25.0
|
%
|
NAV per Share
|
|
$
|
14.81
|
|
|
$
|
14.68
|
|
|
|
(0.91
|
)%
|
|
$
|
14.37
|
|
|
|
(3.0
|
)%
|
|
$
|
14.07
|
|
|
|
(5.0
|
)%
|
|
|
11.85
|
%
|
|
|
(20.0
|
)%
|
Share Dilution to Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Held by Stockholder A
|
|
|
135,000
|
|
|
|
135,000
|
|
|
|
0.00
|
%
|
|
|
135,000
|
|
|
|
0.00
|
%
|
|
|
135,000
|
|
|
|
0.00
|
%
|
|
|
135,000
|
|
|
|
0.00
|
%
|
Percentage of Shares Held by Stockholder A
|
|
|
1.0
|
%
|
|
|
0.91
|
%
|
|
|
(9.09
|
)%
|
|
|
0.8
|
%
|
|
|
(20.00
|
)%
|
|
|
0.8
|
%
|
|
|
(20.00
|
)%
|
|
|
0.8
|
%
|
|
|
(20.00
|
)%
|
Total Asset Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by Stockholder A
|
|
$
|
2,000,000
|
|
|
$
|
1,981,818
|
|
|
|
(1.00
|
)%
|
|
$
|
1,940,000
|
|
|
|
(3.0
|
)%
|
|
$
|
1,900,000
|
|
|
|
(5.0
|
)%
|
|
$
|
1,600,000
|
|
|
|
(20.0
|
)%
|
Total Investment by Stockholder A (Assumed to Be $10.00 per Share)
|
|
$
|
2,000,000
|
|
|
$
|
2,000,000
|
|
|
|
0.00
|
%
|
|
$
|
2,000,000
|
|
|
|
0.00
|
%
|
|
$
|
2,000,000
|
|
|
|
0.00
|
%
|
|
$
|
2,000,000
|
|
|
|
0.00
|
%
|
Total Dilution to Stockholder A (Change in Total NAV Held By Stockholder)
|
|
|
|
|
|
$
|
(18,182
|
)
|
|
|
(1.00
|
)%
|
|
$
|
(60,000
|
)
|
|
|
(3.00
|
)%
|
|
$
|
(100,000
|
)
|
|
|
(5.00
|
)%
|
|
$
|
(400,000
|
)
|
|
|
(20.00
|
)%
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Share Held by Stockholder A
|
|
|
14.81
|
|
|
$
|
14.68
|
|
|
|
|
|
|
$
|
14.37
|
|
|
|
|
|
|
$
|
14.07
|
|
|
|
|
|
|
$
|
11.85
|
|
|
|
|
|
Investment per Share Held by Stockholder A (Assumed to be $10.00 per Share on Shares Held Prior
to Sale)
|
|
$
|
14.81
|
|
|
$
|
14.81
|
|
|
|
|
|
|
$
|
14.81
|
|
|
|
|
|
|
$
|
14.81
|
|
|
|
|
|
|
$
|
14.81
|
|
|
|
|
|
Dilution per Share Held by Stockholder A
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
$
|
(0.74
|
)
|
|
|
|
|
|
$
|
(2.96
|
)
|
|
|
|
|
Dilution per Share Held by Stockholder A
|
|
|
|
|
|
|
(0.91
|
)%
|
|
|
|
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
(5.0
|
)%
|
|
|
|
|
|
|
(20.0
|
)%
|
|
|
|
|
23
Required Vote
Approval of this proposal requires the affirmative vote of (i) a majority of the outstanding shares of common stock entitled to vote at the Annual
Meeting; and (ii) a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting which are not held by affiliated persons of the Company.
For purposes of this proposal, the 1940 Act defines a majority of the outstanding shares as the lesser of: (i) 67% or more of the voting
securities present at the Annual Meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy; or (ii) more than 50% of our outstanding voting securities. Abstentions and broker
non-votes
will have the effect of a vote against this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS A
VOTE FOR THE PROPOSAL TO AUTHORIZE THE COMPANY TO SELL OR OTHERWISE ISSUE UP TO 25% OF THE COMPANYS OUTSTANDING COMMON STOCK AT AN OFFERING PRICE PER SHARE THAT IS BELOW THE COMPANYS THEN CURRENT NAV.
24
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Board, including the Audit Committee and independent directors thereof, have selected RSM US LLP to serve as the Companys independent registered
public accounting firm for the fiscal year ending June 30, 2019.
RSM US LLP has advised the Company that neither the firm nor any present member or
associate of it has any material financial interest, direct or indirect, in the Company or its affiliates. It is expected that a representative of RSM US LLP will be present at the Annual Meeting and will have an opportunity to make a statement if
he or she chooses and will be available to answer questions.
Ernst & Young LLP previously served as the Companys independent registered
public accounting firm; however, subsequent to the completion of the Companys fiscal year ended June 30, 2017, the Audit Committee of the Board conducted a review of the selection of the Companys independent registered public
accounting firm. As part of this process, the Company contacted other independent registered public accounting firms and solicited input from them on their ability to provide the audit services that the Company requires. The Company contacted these
other independent registered public accounting firms for the audit of its annual financial statements for the fiscal year ending June 30, 2018.
On
August 24, 2017, the Board elected to not renew their engagement of Ernst & Young LLP as the Companys independent registered public accounting firm for the fiscal year ended June 30, 2018. The Boards decision was
approved by the Audit Committee of the Board. On August 24, 2017, upon the recommendation of the Audit Committee of the Board, the Board appointed RSM US LLP to serve as the Companys new independent registered public accounting firm to
audit the Companys consolidated financial statements for the fiscal year ended June 30, 2018.
Ernst & Young LLPs reports on the
Companys financial statements for the fiscal years ended June 30, 2017 and 2016 contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Companys fiscal years ended June 30, 2017 and 2016, and through September 6, 2017, there were no (a) disagreements with
Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would have caused
it to make reference to the subject matter of such disagreements in its reports on the financial statements for such years or (b) reportable events, as described under Item 304(a)(1)(v) of Regulation
S-K.
During the Companys fiscal years ended June 30, 2017 and 2016, and through September 6, 2017, the Company did not consult with RSM US LLP
regarding: (1) the application of accounting principles to a specified transaction, either completed or proposed; (2) the type of audit opinion that might be rendered on the Companys financial statements, and RSM US LLP did not
provide any written report or oral advice that Ernst & Young LLP concluded was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue; or (3) any matter
that was either the subject of a disagreement or a reportable event.
The following table presents fees for professional services rendered by RSM US LLP
for the fiscal year ended June 30, 2018. Aggregate audit and tax fees in the table below consist of fees billed and/or accrued:
|
|
|
|
|
|
|
Fiscal Year Ended
June 30, 2018
|
|
Audit Fees
|
|
$
|
186,353
|
|
Audit-Related Fees
|
|
|
|
|
Tax Fees
|
|
|
|
|
All Other Fees
|
|
|
58,240
|
|
|
|
|
|
|
Total Fees:
|
|
$
|
244,593
|
|
|
|
|
|
|
25
The following table presents fees for professional services rendered by Ernst & Young LLP for the fiscal
years ended June 30, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
June 30, 2018
|
|
|
Fiscal Year Ended
June 30, 2017
|
|
Audit Fees
|
|
$
|
158,000
|
|
|
$
|
310,560
|
|
Audit-Related Fees
|
|
|
8,400
|
|
|
|
|
|
Tax Fees
|
|
|
30,480
|
|
|
|
37,040
|
|
All Other Fees
|
|
|
118,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees:
|
|
$
|
315,380
|
|
|
$
|
347,600
|
|
|
|
|
|
|
|
|
|
|
Services rendered by RSM US LLP and Ernst & Young LLP in connection with fees presented above were as follows:
Audit Fees.
Audit fees include fees for services that normally would be provided by the accountant in connection with
statutory and regulatory filings or engagements and that generally only the independent accountant can provide. In addition to fees for the audit of our annual financial statements and the review of our quarterly financial statements in accordance
with generally accepted auditing standards, this category contains fees for comfort letters, consents, and assistance with and review of documents filed with the SEC.
Audit-Related Fees.
Audit related fees are assurance related services that traditionally are performed by the independent accountant, such
as attest services that are not required by statute or regulation.
Tax Fees.
Tax fees include professional fees for tax compliance and
tax advice.
All Other Fees.
Fees for other services would include fees for products and services other than the services reported
above.
Pre-Approval
Policy
The Audit Committee has established a
pre-approval
policy that describes the permitted audit, audit-related, tax and
other services to be provided by RSM US LLP, the Companys independent registered public accounting firm. The policy requires that the Audit Committee
pre-approve
all audit and
non-audit
services performed by the independent auditor in order to assure that the provision of such service does not impair the auditors independence. In accordance with the
pre-approval
policy, the Audit Committee includes every year a discussion and
pre-approval
of such services and the expected costs of such services for the year.
Any requests for audit, audit-related, tax and other services that have not received general
pre-approval
at the first
Audit Committee meeting of the year 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 may delegate
pre-approval
authority to one or more of its
members. The member or members to whom such authority is delegated 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.
26
AUDIT COMMITTEE REPORT
Management is responsible for the Companys internal controls and the financial reporting process. The independent auditors are responsible for
performing an independent audit of the Companys financial statements in accordance with auditing standards generally accepted in the United States and expressing an opinion on the conformity of those audited financial statements in accordance
with accounting principles generally accepted in the United States. The Audit Committees responsibility is to monitor and oversee these processes. The Audit Committee is also directly responsible for the appointment, compensation and oversight
of the Companys independent registered public accounting firm.
Review with Management
The Audit Committee has reviewed the audited financial statements and met and held discussions with management regarding the audited financial statements.
Management has represented to the Audit Committee that the Companys financial statements were prepared in accordance with accounting principles generally accepted in the United States.
Review and Discussion with Independent Registered Public Accounting Firm
The Audit Committee has discussed with RSM US LLP, the Companys independent registered public accounting firm during the year ended June 30, 2018,
matters required to be discussed by Statement of Auditing Standards No. 61, as amended (AICPA,
Professional Standards
, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. SAS No. 61,
as amended, requires our independent registered public accounting firm to discuss with our Audit Committee, among other things, the following:
|
|
|
methods used to account for significant unusual transactions;
|
|
|
|
the effect of significant accounting policies in controversial or emerging areas for which there is a lack of
authoritative guidance or consensus;
|
|
|
|
the process used by management in formulating particularly sensitive accounting estimates and the basis for the
auditors conclusions regarding the reasonableness of those estimates; and
|
|
|
|
disagreements with management over the application of accounting principles, the basis for managements
accounting estimates and the disclosures in the consolidated financial statements.
|
The Audit Committee received and reviewed the
written disclosures and the letter from the independent registered public accounting firm required by the applicable Public Company Accounting Oversight Board rule regarding the independent accountants communications with audit committees
concerning independence and has discussed with the auditors the auditors independence. The Audit Committee has also considered the compatibility of
non-audit
services with the auditors
independence.
Conclusion
Based on the Audit
Committees discussion with management and the independent registered public accounting firm, the Audit Committees review of the audited financial statements, the representations of management and the report of the independent registered
public accounting firm to the Audit Committee, the Audit Committee recommended that the Board include the audited financial statements in the Companys Annual Report on Form
10-K
for the year ended
June 30, 2018 for filing with the SEC. The Audit Committee also recommended the selection of RSM US LLP to serve as the Companys independent registered public accounting firm for the fiscal year ending June 30, 2019 and the Board
approved such recommendation.
The Audit Committee
Robert
Ryder, Chairman
Keith Lee
Julie Persily
Robert Wagner
27
OTHER BUSINESS
The Board knows of no other business to be presented for action at the Annual Meeting. If any matters do come before the Annual Meeting on which action can
properly be taken, it is intended that the proxies shall vote in accordance with the judgment of the person or persons exercising the authority conferred by the proxy at the Annual Meeting. The submission of a proposal does not guarantee its
inclusion in the Companys proxy statement or presentation at the Annual Meeting unless certain securities law requirements are met.
SUBMISSION OF STOCKHOLDER PROPOSALS
The Company expects that the 2019 Annual Meeting of Stockholders will be held in November 2019, but the exact date, time, and location of such meeting have
yet to be determined. A stockholder who intends to present a proposal at that annual meeting pursuant to the SECs Rule
14a-8
must submit the proposal in writing to the Company at its address in New York,
New York and the Company must receive the proposal on or before May [23], 2019, in order for the proposal to be considered for inclusion in the Companys proxy statement for that meeting. The submission of a proposal does not guarantee its
inclusion in the Companys proxy statement or presentation at the meeting.
Stockholder proposals or director nominations to be presented at the 2019
Annual Meeting of Stockholders, other than stockholder proposals submitted pursuant to the SECs Rule
14a-8,
must be delivered to, or mailed and received at, the principal executive offices of the Company
not less than 120 days or more than 150 days in advance of the one year anniversary of the date the Companys proxy statement was released to stockholders in connection with the previous years Annual Meeting of Stockholders. For the
Companys 2019 Annual Meeting of Stockholders, the Company must receive such proposals and nominations between April [23], 2019 and May [23], 2019. If the date of the Annual Meeting has been changed by more than thirty (30) calendar days
from the date contemplated at the time of the previous years proxy statement, stockholder proposals or director nominations must be so received not later than the tenth day following the day on which such notice of the date of the 2019 Annual
Meeting of Stockholders or such public disclosure is made. Proposals must also comply with the other requirements contained in the Companys Bylaws, including supporting documentation and other information. Proxies solicited by the Company will
confer discretionary voting authority with respect to these proposals, subject to SEC rules governing the exercise of this authority.
PRIVACY PRINCIPLES
We are committed to maintaining the privacy of our stockholders and to safeguarding their nonpublic personal information. The
following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not receive any nonpublic personal information relating to our stockholders, although certain nonpublic personal information of our
stockholders may become available to us. We do not disclose any nonpublic personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for
example, to a transfer agent or third-party administrator).
We restrict access to nonpublic personal information about our stockholders to employees of CM
Investment Partners LLC and its affiliates with a legitimate business need for the information. We intend to maintain physical, electronic and procedural safeguards designed to protect the nonpublic personal information of our stockholders.
By Order of the Board
Christopher E. Jansen
President, Secretary and Treasurer
New York, New York
September 20, 2018
28
|
|
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PROXY CARD
|
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|
|
|
|
|
|
|
|
|
SIGN, DATE
AND
VOTE
ON THE REVERSE SIDE
|
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|
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|
|
YOUR VOTE IS IMPORTANT NO
MATTER
HOW MANY SHARES
YOU OWN.
PLEASE CAST YOUR
PROXY
VOTE
TODAY!
|
|
|
|
PROXY VOTING OPTIONS
|
|
|
|
|
|
1.
MAIL
your signed and voted proxy back in
the
postage paid envelope
provided
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
ONLINE
at
proxyonline.com
using your proxy
control number
found below up until 11:59 p.m.
Eastern
Time the day before the meeting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3. By
PHONE
when you dial toll-free
1-888-227-9349
to reach an automated touchtone voting line up until
11:59 p.m. Eastern Time the day before the meeting
|
|
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|
|
|
|
|
|
|
|
|
|
|
4. By
PHONE
with a
live operator
when you call
toll-free 1-877-732-3621
Monday through Friday 9 a.m.
to 10 p.m. Eastern Time up until the day before the
meeting
date
|
|
|
|
|
|
|
CONTROL
|
|
12345678910
|
|
|
PLEASE CAST YOUR PROXY VOTE
TODAY!
|
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|
NUMBER
|
|
|
CM Finance Inc
PROXY FOR AN ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 6, 2018
The undersigned, revoking prior proxies, hereby appoints Michael C. Mauer and Rocco DelGuerico, and each of them, as
attorneys-in-fact
and proxies of the undersigned, granted in connection with the voting of the shares subject hereto with full power of substitution, to vote shares held in the name of the undersigned on the
record date at the Annual Meeting of Shareholders of CM Finance Inc (the Company) to be held at 10:00 a.m. Eastern Time on November 6, 2018, at the offices of Eversheds Sutherland (US) LLP, The Grace Building, 1114 Avenue of the
Americas, 40
th
Floor, New York, NY 10036 or at any adjournment or postponement thereof.
This
proxy is solicited on behalf of the Company, and each of the Proposals (set forth on the reverse side of this proxy card) has been unanimously approved by the Board of Directors and recommended for approval by shareholders.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with
the Board of Directors recommendation.
Do you have questions?
If you
have any questions about how to vote your proxy or about the meeting in general, please call toll-free
1-877-732-3621
.
Representatives are available to assist you
Monday through Friday 9 a.m. to 10 p.m. Eastern Time. Important Notice Regarding the Availability of Proxy Materials for this Annual Meeting of Shareholders to Be Held on November 6, 2018. Our
proxy statement and annual report on Form
10-K
for the year-ended June 30, 2018 are available at: www.proxyonline.com/docs/cmfinanceinc2018.pdf
|
|
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|
|
[PROXY ID NUMBER HERE]
|
|
[BAR CODE HERE]
|
|
[CUSIP HERE]
|
CM Finance Inc
YOUR SIGNATURE IS REQUIRED
FOR YOUR VOTE TO BE COUNTED.
The signer(s) acknowledges receipt with this Proxy Statement of the Company. Your
signature(s) on this should be exactly as your name(s) appear on this Proxy (reverse side). If the shares are held jointly, each holder should sign this Proxy.
Attorneys-in-fact,
executors, administrators, trustees or guardians should indicate the full title and capacity in which they are signing.
PROXY CARD
|
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SIGNATURE (AND TITLE IF APPLICABLE)
|
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|
DATE
|
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|
|
SIGNATURE (IF HELD
JOINTLY)
|
|
|
|
DATE
|
|
|
TO
VOTE, MARK CIRCLES BELOW IN BLUE OR BLACK INK AS FOLLOWS. Example:
🌑
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FOR
|
|
WITHHOLD
|
|
|
|
1
|
|
|
To elect two directors of the Company nominated by the Companys Board of Directors (the Board) and
named in this proxy statement who will serve for three years or until his or her successor is elected and qualified;
|
|
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|
|
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|
|
1.1
|
|
|
Christopher E. Jansen
|
|
○
|
|
○
|
|
|
|
1.2
|
|
|
Robert Wagner
|
|
○
|
|
○
|
|
|
|
|
|
|
|
|
FOR
|
|
AGAINST
|
|
ABSTAIN
|
|
2
|
|
|
To approve a proposal to authorize the Company, with the approval of the Board, to sell or otherwise issue up to 25% of
the Companys outstanding common stock at an offering price that is below the Companys then current net asset value per share (NAV); and
|
|
○
|
|
○
|
|
○
|
THANK YOU FOR VOTING
|
|
|
|
|
[PROXY ID NUMBER HERE]
|
|
[BAR CODE HERE]
|
|
[CUSIP HERE]
|
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