None of our officers receives direct compensation from the Company. As a result, we do not engage any compensation
consultants. Mr. Gross, our Chief Executive Officer and President, and Mr. Spohler, our Chief Operating Officer, through their ownership interest in Solar Capital Partners, our investment adviser, are entitled to a portion of any profits
earned by Solar Capital Partners, which includes any fees payable by us to Solar Capital Partners under the terms of the Advisory Agreement, less expenses incurred by Solar Capital Partners in performing its services under the Advisory Agreement.
Messrs. Gross and Spohler do not receive any additional compensation from Solar Capital Partners in connection with the management of our portfolio.
Mr. Peteka, our Chief Financial Officer, Treasurer and Secretary and, through Alaric Compliance Services, LLC, Guy Talarico, our Chief
Compliance Officer, are paid by Solar Capital Management, our administrator, subject to reimbursement by us of an allocable portion of such compensation for services rendered by such persons to the Company. To the extent that Solar Capital
Management outsources any of its functions, we will pay the fees associated with such functions on a direct basis without profit to Solar Capital Management.
We have
entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that
Solar Capital shall indemnify the director who is a party to the
We have entered into a license agreement with Solar Capital Partners, pursuant to which Solar
Capital Partners has agreed to grant us a
non-exclusive,
royalty-free license to use the name Solar Capital. In addition, pursuant to the terms of the Administration Agreement, Solar Capital
Management provides us with the office facilities and administrative services necessary to conduct our
day-to-day
operations.
Our board of directors determined at a meeting held on November 2, 2017, to approve the Advisory Agreement between the Company and Solar
Capital Partners. In its consideration of the approval of the Advisory Agreement, the board of directors focused on information it had received relating to, among other things:
Based on the information reviewed and the discussions detailed above, the board of directors, including a majority of the directors who are
not interested persons as defined in the 1940 Act, concluded that the fees payable to Solar Capital Partners pursuant to the Advisory Agreement were reasonable, and comparable to the fees paid by other management investment companies
with similar investment objectives, in relation to the services to be provided. The board of directors did not assign relative weights to the above factors or the other factors considered by it. Individual members of the board of directors may have
given different weights to different factors.
Pursuant to Section 16(a) of the Exchange Act, the Companys directors and executive officers, and any persons holding more than 10%
of its common stock, are required to report their beneficial ownership and any changes therein to the SEC and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file
such reports by those due dates. Based solely on a review of copies of such reports and written representations delivered to the Company by such persons, the Company believes that there were no violations of Section 16(a) by such persons during
the fiscal year ended December 31, 2017.
The Audit Committee and the independent directors of the board of directors have selected KPMG LLP to serve as the independent registered
public accounting firm for the Company for the fiscal year ending December 31, 2018.
KPMG LLP has advised us 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 KPMG LLP will be present at the Meeting and will have an opportunity to make
a statement if he or she chooses and will be available to answer questions.
Audit Committee Report
The Audit Committee of our board of directors operates under a written charter adopted by the board of directors. The Audit Committee is
currently composed of Messrs. Hochberg, Wachter and Potter.
19
Management is responsible for the Companys internal controls and the financial reporting
process. The Companys independent registered public accounting firm is responsible for performing an independent audit of the Companys financial statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States) and expressing an opinion in conformity with U.S. generally accepted accounting principles. 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.
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 KPMG LLP, the Companys independent registered public accounting firm (KPMG). The policy requires that the Audit Committee
pre-approve
the 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.
Any requests for audit, audit-related, tax and other services that have not received general
pre-approval
must be submitted to the Audit Committee for specific
pre-approval,
irrespective of the amount, and cannot commence until such approval has been granted.
Normally,
pre-approval
is provided at regularly scheduled meetings of the Audit Committee. However, the Audit Committee 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. The Audit Committee
pre-approved
100%
of services described in this policy.
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 the standards of the Public Company Accounting Oversight Board (United States).
Review and Discussion with Independent Registered Public Accounting Firm
The Audit Committee has reviewed and discussed the Companys audited financial statements with management and KPMG, with and without
management present. The Audit Committee included in its review results of KPMGs examinations, the Companys internal controls, and the quality of the Companys financial reporting. The Audit Committee also reviewed the Companys
procedures and internal control processes designed to ensure full, fair and adequate financial reporting and disclosures, including procedures for certifications by the Companys Chief Executive Officer and Chief Financial Officer that are
required in periodic reports filed by the Company with the SEC. The Audit Committee is satisfied that the Companys internal control system is adequate and that the Company employs appropriate accounting and auditing procedures.
The Audit Committee also has discussed with KPMG matters relating to KPMGs assessment about the quality, as well as the acceptability,
of the Companys accounting principles as applied in its financial reporting as required by PCAOB Auditing Standard 16 (Communications with Audit Committees). In addition, the Audit Committee has discussed with KPMG their independence from
management and the Company, as well as the matters in the written disclosures received from KPMG and required by Public Company Accounting Oversight Board Rule 3520 (Auditor Independence). The Audit Committee received a letter from KPMG confirming
their independence and discussed it with them. The Audit Committee discussed and reviewed with KPMG the Companys critical accounting policies and practices, internal controls, other material written communications to management, and the scope
of KPMGs audits and all fees paid to KPMG during the fiscal year. The Audit
20
Committee has adopted guidelines requiring review and
pre-approval
by the Audit Committee of audit and
non-audit
services performed by KPMG for the Company. The Audit Committee has reviewed and considered the compatibility of KPMGs performance of
non-audit
services with the maintenance of KPMGs independence
as the Companys independent registered public accounting firm.
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 of directors
include the audited financial statements in the Companys Annual Report on Form
10-K
for the year ended December 31, 2017 for filing with the SEC. The Audit Committee also recommended the selection
of KPMG to serve as the independent registered public accounting firm for the year ending December 31, 2018.
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Respectfully Submitted,
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The Audit Committee
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Steven Hochberg
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David S. Wachter
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Leonard A. Potter
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The material contained in the foregoing Audit Committee Report is not soliciting material, is not deemed
filed with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
21
PROPOSAL II:
APPROVAL TO AUTHORIZE THE COMPANY TO SELL SHARES OF ITS COMMON STOCK
AT A PRICE OR PRICES BELOW THE COMPANYS THEN CURRENT NET ASSET VALUE
PER SHARE IN ONE OR MORE OFFERINGS, IN EACH CASE SUBJECT TO
THE APPROVAL OF ITS BOARD OF DIRECTORS AND COMPLIANCE WITH
THE CONDITIONS SET FORTH IN THE PROXY STATEMENT.
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 then current net asset value (NAV) per share of such stock, exclusive of sales compensation, unless its stockholders approve such a
sale and the Companys board of directors make certain determinations. Shares of the Companys common stock have traded at a price both above and below their NAV since they have begun trading on the NASDAQ Global Select Market.
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 otherwise issue shares of its common stock, not exceeding 25% of its then outstanding common stock immediately prior to each such offering, at a price below its then current NAV, subject to certain conditions
discussed below. The Companys board of directors believes that having the flexibility for the Company to sell its common stock below NAV in certain instances is in the best interests of stockholders. If the Company were unable to access the
capital markets as attractive investment opportunities arise, the Companys ability to grow over time and continue to pay distributions to stockholders could be adversely affected.
While the Company has no immediate plans to sell shares of its common stock below NAV, it is seeking stockholder approval now in order to
maintain access to the markets if the Company determines it should sell shares of common stock below NAV. These sales typically must be undertaken quickly. The final terms of any such sale will be determined by the board of directors at the time of
sale. Also, because the Company has no immediate plans to sell any shares of its common stock, it is impracticable to describe the transaction or transactions in which such shares of common stock would be sold. Instead, any transaction where the
Company sells such shares of common stock, including the nature and amount of consideration that would be received by the Company at the time of sale and the use of any such consideration, will be reviewed and approved by the board of directors at
the time of sale. There will be no limit on the percentage below NAV per share at which shares may be sold by the Company under this proposal. However, the Company does not presently intend to sell shares of its common stock at a price that is more
than 20% lower than the Companys then current NAV absent extenuating circumstances, including, but not limited to, circumstances that would require the Company to raise equity capital in order to avoid defaulting on its debt obligations. If
this proposal is approved, no further authorization from the stockholders will be solicited prior to any such sale in accordance with the terms of this proposal. If approved, as required under the 1940 Act, the authorization would be effective for
securities sold during a period beginning on the date of such stockholder approval and expiring on the earlier of the anniversary of the date of the Meeting or the date of the Companys 2019 Annual Meeting of Stockholders. Stockholders approved
similar proposals at the 2011, 2012, 2013, 2014, 2015, 2016, and 2017 Annual Meetings of Stockholders.
However, notwithstanding such stockholder approvals, since the Companys initial public offering on February
9, 2010,
the Company has not sold any shares of its common stock in an offering that resulted in proceeds to the Company of less than the Companys then current NAV per share.
Generally, common stock offerings by BDCs are priced based on the market price of the currently outstanding shares of common stock, less a
small discount of approximately 5% (which may be higher or lower depending on market conditions), which means that such offerings are generally priced below the then current market price of the BDCs common stock. Accordingly, even when shares
of the Companys common stock trade at a market price below NAV this proposal would permit the Company to offer and sell shares of its common stock in accordance with pricing standards that market conditions generally require, subject to the
conditions described below in connection with any offering undertaken pursuant to this proposal. This Proxy
22
Statement is not an offer to sell securities. Securities may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from SEC registration
requirements.
1940 Act Conditions for Sales below NAV
The Companys ability to issue shares of its common stock at a price below NAV is governed by the 1940 Act. If stockholders approve this
proposal, the Company will only sell shares of its common stock at a price below NAV per share if the following conditions are met:
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a majority of the Companys directors who are not interested persons of the Company as defined in the 1940 Act, and who have no financial interest in the sale, shall have approved the sale and
determined that it is in the best interests of the Company and its stockholders; and
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a majority of such directors, who are not interested persons of the Company, 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, which could be substantial.
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Board Approval
On February 22,
2018, the Companys board of directors, including a majority of the
non-interested
directors who have no financial interest in this proposal, approved this proposal as in the best interests of the Company
and its stockholders and is recommending that the Companys stockholders vote in favor of this proposal to offer and sell shares of the Companys common stock at prices that may be less than NAV. In evaluating this proposal, our board of
directors, including the
non-interested
directors, considered and evaluated factors including the following, as discussed more fully below:
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possible long-term benefits to the Companys stockholders; and
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possible dilution to the Companys NAV
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Prior to approving this proposal, our board of
directors met to consider and evaluate information that our management provided on the merits of our possibly raising additional capital and the merits of publicly offering shares of the Companys common stock at a price below NAV. Our board of
directors considered the objectives of a possible offering, the mechanics of an offering, establishing size parameters for an offering, the possible effects of dilution, common stock trading volume, and other matters, including that the
Companys common stock has frequently traded both above and below NAV in recent years. The board of directors evaluated a full range of offering sizes. However, the board of directors has not yet drawn any definite conclusions regarding the
size of a contemplated capital raise at this time, to the extent the Companys common stock were to trade below NAV. In determining whether or not to offer and sell common stock, including below NAV, the board of directors has a duty to act in
the Companys best interests and its stockholders and must comply with the other requirements of the 1940 Act.
23
Reasons to Offer Common Stock below NAV
The Companys board of directors believes that having the flexibility for the Company to sell its common stock below NAV in certain
instances is in the Companys best interests and the best interests of its stockholders. If the Company were unable to access the capital markets when attractive investment opportunities arise, the Companys ability to grow over time and
to continue to pay distributions to stockholders could be adversely affected. In reaching that conclusion, the Companys board of directors considered the following possible benefits to its stockholders:
Current Market Conditions Have Attractive Opportunities
Current market opportunities have created, and we believe will continue to create for the foreseeable future, favorable opportunities to
invest, including opportunities that, all else being equal, may increase the Companys NAV over the longer-term, even if financed with the issuance of common stock below NAV. Stockholder approval of this proposal, subject to the conditions
detailed below, is expected to provide the Company with the flexibility to invest in such opportunities. We believe that current market conditions provide attractive opportunities to use capital.
Market conditions also have beneficial effects for capital providers, including reduced competition, more favorable pricing of credit risk,
more conservative capital structures and more creditor-friendly contractual terms. Accordingly, we believe that the Company could benefit from access to capital in this constrained credit market and that the current environment should provide
attractive investment opportunities. The Companys ability to take advantage of these opportunities will depend upon its access to capital.
Greater Investment Opportunities Due to Larger Capital Resources
The Companys board of directors believes that additional capital raised through an offering of shares of its common stock, even at a
price below NAV, may help it generate additional deal flow. Based on discussions with management, the Companys board of directors believes that greater deal flow, which may be achieved with more capital, even if such capital is obtained
through the issuance of common stock below NAV, would enable the Company to be a more significant participant in the private debt and equity markets and to compete more effectively for attractive investment opportunities. Management has represented
to the Companys board of directors that such investment opportunities may be funded with proceeds of an offering of shares of the Companys common stock at a price below NAV. However, management has not identified specific companies in
which to invest the proceeds of an offering given that specific investment opportunities will change depending on the timing of an offering, if any.
Higher Market Capitalization and Liquidity May Make the Companys Common Stock More Attractive to Investors
If the Company issues additional shares, its market capitalization and the amount of its publicly tradable common stock will increase, which
may afford all holders of its common stock greater liquidity even if such additional liquidity is created through the issuance of shares below NAV. A larger market capitalization may make the Companys stock more attractive to a larger number
of investors who have limitations on the size of companies in which they invest. Furthermore, a larger number of shares outstanding may increase the Companys trading volume, which could decrease the volatility in the secondary market price of
its common stock.
Maintenance or Possible Increase of Distributions
A larger and more diversified portfolio could provide the Company with more consistent cash flow, which may support the maintenance and/or
growth of its distributions. The Company generally makes distributions to its stockholders quarterly and, for the year ended December 31, 2017, the Company declared total distributions of
24
$1.60 per share of its common stock. Although management will continue to seek to generate income sufficient to pay the Companys distributions in the future, the proceeds of future
offerings, and the investments thereof, could enable the Company to maintain and/or possibly grow its distributions, which may include a return of capital.
Reduced Expenses Per Share
An offering that increases the Companys total assets may reduce its expenses per share due to the spreading of fixed expenses over a
larger asset base. The Company must bear certain fixed expenses, such as certain administrative, governance and compliance costs that do not generally vary based on its size. On a per share basis, these fixed expenses will be reduced when supported
by a larger asset base.
Status as a BDC and RIC and Maintaining a Favorable
Debt-to-Equity
Ratio
As a BDC and a regulated investment company (RIC) for tax
purposes, the Company is dependent on its ability to raise capital through the sale of common stock. RICs generally must distribute substantially all of their earnings from dividends, interest and short-term gains to stockholders as distributions in
order to achieve pass-through tax treatment, which prevents the Company from using those earnings to support new investments. Further, for the same reason BDCs, in order to borrow money or issue preferred stock, must maintain a debt to equity ratio
of not more than 1:1, which requires the Company to finance its investments with at least as much common equity as debt and preferred stock in the aggregate. Therefore, to continue to build the Companys investment portfolio, and thereby
support maintenance and growth of the Companys distributions, the Company endeavors to maintain consistent access to capital through the public and private equity markets enabling it to take advantage of investment opportunities as they arise.
Exceeding the required 1:1
debt-to-equity
ratio would
have severe negative consequences for a BDC, including an inability to pay distributions, possible breaches of debt covenants and failure to qualify for tax treatment as a RIC. Although the Company does not currently expect that it will exceed the
required 1:1
debt-to-equity
ratio, the markets the Company operates in and the general economy remain volatile and uncertain. Even though the underlying performance of a
particular portfolio company may not indicate impairment or an inability to repay indebtedness in full, the volatility in the debt capital markets may continue to impact the valuations of debt investments negatively and result in further unrealized
write-downs of debt investments. Any such asset write-downs, as well as unrealized write-downs based on the underlying performance of the Companys portfolio companies, if any, will negatively impact its stockholders equity and the
resulting
debt-to-equity
ratio. Issuing new equity will improve the Companys
debt-to-equity
ratio. In addition to meeting legal requirements applicable to BDCs, having a more favorable
debt-to-equity
ratio will also generally strengthen the Companys balance sheet and give it more flexibility in its operations.
Trading History
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 the Companys shares of common stock will trade at a discount from NAV, or at premiums that are unsustainable
over the long term, are separate and distinct from the risk that the Companys NAV will decrease. Since the Companys initial public offering on February 9, 2010, its shares of common stock have traded at both a discount and a premium
to the net assets attributable to those shares. As of March 27, 2018, the Companys shares of common stock traded at a [discount/premium] equal to approximately [ ]% of the net assets attributable to those shares
based upon its NAV as of December 31, 2017. It is not possible to predict whether the shares that may be offered pursuant to this approval will trade at, above, or below NAV. The following table lists the high and low closing sales prices for
our common stock for each fiscal quarter since the beginning of 2016, such sales prices as a percentage of NAV per share and quarterly distributions per share.
25
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Premium or
(Discount)
of High Closing
Price to NAV
(2)
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Premium or
(Discount)
of
Low Closing
Price to
NAV
(2)
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Declared
Distributions
(3)
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Price Range
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NAV
(1)
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High
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Low
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Fiscal 2018
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First Quarter (through March 27, 2018)
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*
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$
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[
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]
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$
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[
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]
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*
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*
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$
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0.41
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Fiscal 2017
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Fourth Quarter
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$
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21.81
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$
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22.46
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$
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20.08
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3.0
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%
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(7.9
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)%
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$
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0.40
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Third Quarter
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21.80
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22.08
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20.40
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1.3
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(6.4
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0.40
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Second Quarter
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21.79
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22.91
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21.13
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5.1
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(3.0
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)
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0.40
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First Quarter
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21.75
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22.61
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21.09
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4.0
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(3.0
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)
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0.40
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Fiscal 2016
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Fourth Quarter
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$
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21.74
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$
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21.42
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$
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19.43
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(1.5
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)%
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(10.6
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)%
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$
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0.40
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Third Quarter
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21.72
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20.71
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19.02
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(4.7
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)
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(12.4
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0.40
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Second Quarter
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21.51
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19.07
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16.91
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(11.3
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)
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(21.4
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0.40
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First Quarter
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21.08
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17.70
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15.60
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(16.0
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(26.0
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0.40
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(1)
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NAV per share is determined as of the last day 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)
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Calculated as of the respective high or low closing price divided by NAV and subtracting 1.
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(3)
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Represents the cash distribution for the specified quarter.
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*
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Not determinable at the time of filing.
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26
Key Stockholder Considerations and Risk Factors
Dilutive Effect on NAV
Before voting on this proposal or giving proxies with regard to this matter, stockholders should consider the dilutive effect of the issuance
of shares of the Companys common stock at a price that is less than the NAV per share and the expenses associated with such issuance on the NAV per outstanding share of the Companys common stock. 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 per share as a result of the issuance of shares at a price below the NAV per share and a disproportionately greater decrease
in a current 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. It would also decrease the amount of net investment
income per share available to stockholders through distributions. There will be no limit on the percentage below NAV per share at which shares may be sold by the Company under this proposal. However, the Company does not presently intend to sell
shares of its common stock at a price that is more than 20% lower than the Companys then current NAV, absent extenuating circumstances. The board of directors of the Company has considered the potential dilutive effect of the issuance of
shares at a price below the NAV per share and will consider again such dilutive effect when considering whether to authorize any specific issuance of shares of common stock below NAV. The Company will not be required to obtain any additional
authorization from stockholders for such offerings until the 2019 Annual Meeting of Stockholders even if the dilution from such offerings is substantial.
Dilutive Effect on Market Price and Ownership Percentage
In addition, stockholders should consider the risk that the approval of this proposal could cause the market price of the Companys common
stock to decline in anticipation of sales of its common stock below NAV, thus causing the Companys shares to trade at a discount to NAV. The 1940 Act establishes a connection between common share sale price and NAV because, when stock is sold
at a sale price below NAV per share, the resulting increase in the number of outstanding shares reduces NAV per share. 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 will dilute such stockholders holdings of common stock as a percentage of shares outstanding to the extent stockholders do not purchase
sufficient shares in the offering or otherwise to maintain their percentage interest. Further, if current stockholders of the Company do not purchase any shares to maintain their percentage interest, regardless of whether such offering is above or
below the then-current NAV, their voting power will be diluted.
Other Dilutive Considerations
The precise extent of any such dilution cannot be estimated before the terms of a common stock offering are set. As a general proposition,
however, the amount of potential dilution will increase as the size of the offering increases. Another factor that will influence the amount of dilution in an offering is the amount of net proceeds that we receive from such offering. The board of
directors would expect that the net proceeds to us, which is typically 95% of the market price, will be equal to the price that investors pay per share less the amount of any underwriting discounts and commissions.
As discussed above, it should be noted that the maximum number of shares issuable below NAV that could result in such dilution is limited to
25% of the Companys then outstanding common stock immediately prior to each such offering. As a result, the maximum amount of dilution to existing stockholders will be limited to no more than 20% of the Companys then current NAV on each
offering, assuming the Company were to issue the maximum number of shares at no more than par value, or $0.01 per share. Subject to the aforementioned 25% limit that is determined prior to each offering, there is no theoretical limit on the number
of times that the Company can offer its common stock below NAV during the year following the approval of this proposal.
27
Conflict of Interest
In reaching its recommendation to the stockholders of the Company to approve this proposal, the board of directors considered a possible source
of conflict of interest due to the fact that the proceeds from the issuance of additional shares of the Companys common stock may increase the management fees that the Company pays to Solar Capital Partners as such fees are partially based on
the amount of the Companys gross assets, as well as the effect of the following factors:
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the costs of and benefits of a common stock offering below NAV compared to other possible means for raising capital or concluding not to raise capital;
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the size of a common stock offering in relation to the number of shares outstanding;
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the general condition of the securities market; and
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any impact on operating expenses associated with an increase in capital.
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The board of
directors, including a majority of the
non-interested
directors who have no financial interest in this proposal, concluded that the benefits to the stockholders from increasing the Companys capital base
outweighed any possible detriment, including from any possible increase in management fees or dilution to existing stockholders.
28
Examples of Dilutive Effect of the Issuance of Shares Below NAV
The following table illustrates the level of NAV dilution that would be experienced by a nonparticipating stockholder in four different
hypothetical offerings of different sizes and levels of discount from NAV per share, although it is not possible to predict the level of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below.
The examples assume that Company XYZ has 1,000,000 common shares outstanding, $15,000,000 in total assets and $5,000,000 in total
liabilities. The current NAV and NAV per share are thus $10,000,000 and $10.00, respectively. The table illustrates the dilutive effect on nonparticipating Stockholder A of (1) an offering of 50,000 shares (5% of the outstanding shares) at
$9.50 per share after underwriting discounts and commissions (a 5% discount from NAV); (2) an offering of 100,000 shares (10% of the outstanding shares) at $9.00 per share after underwriting discounts and commissions (a 10% discount from NAV);
(3) an offering of 200,000 shares (20% of the outstanding shares) at $8.00 per share after underwriting discounts and commissions (a 20% discount from NAV); and (4) an offering of 250,000 shares (25% of the outstanding shares) at $0.01 per
share after underwriting discounts and commissions (a 100% discount from NAV).
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Example 1
5% Offering
at 5% Discount
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Example 2
10% Offering
at 10% Discount
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Example 3
20% Offering
at 20% Discount
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Example 4
25% Offering
at 100% Discount
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Prior to Sale
Below NAV
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Following
Sale
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%
Change
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Following
Sale
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%
Change
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Following
Sale
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%
Change
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Following
Sale
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%
Change
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Offering Price
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Price per Share to the Public
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$
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10.00
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$
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9.47
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$
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8.42
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$
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0.01
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Net Proceeds per Share to Issuer
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$
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9.50
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$
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9.00
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$
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8.00
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$
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0.01
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Decrease to NAV
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Total Shares Outstanding
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1,000,000
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1,050,000
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5.00%
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1,100,000
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10.00%
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1,200,000
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20.00%
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1,250,000
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25.00%
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NAV per Share
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$
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10.00
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$
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9.98
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(0.20)%
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$
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9.91
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(0.90)%
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$
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9.67
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(3.30)%
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$
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8.00
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(20.00)%
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Dilution to Stockholder
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Shares Held by Stockholder A
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10,000
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10,000
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10,000
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10,000
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10,000
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Percentage Held by Stockholder A
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1.00
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%
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0.95
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%
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(4.76
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)%
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0.91
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%
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(9.09
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)%
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0.83
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%
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(16.67
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)%
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0.80
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%
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(20.00
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)%
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Total Asset Values
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Total NAV Held by Stockholder A
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$
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100,000
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$
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99,800
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(0.20
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)%
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$
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99,100
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(0.90
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)%
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$
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96,700
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(3.30
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)%
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$
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80,020
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(19.98
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)%
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Total Investment by
Stockholder A
(1)
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$
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100,000
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$
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100,000
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$
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100,000
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$
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100,000
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$
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100,000
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Total Dilution to Stockholder A
(2)
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$
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(200
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)
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$
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(900
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$
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(3,300
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)
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$
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(19,980
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)
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Per Share Amounts
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NAV per Share held by Stockholder A
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$
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9.98
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$
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9.91
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$
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9.67
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$
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8.00
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Investment per Share held by
Stockholder A
(3)
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$
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10.00
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$
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10.00
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$
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10.00
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$
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10.00
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$
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10.00
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Dilution per Share held by Stockholder
A
(4)
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$
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(0.02
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)
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$
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(0.09
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)
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$
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(0.33
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$
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(2.00
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)
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Percentage Dilution to Stockholder
A
(5)
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(0.20
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)%
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(0.90
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)%
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(3.30
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)%
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(19.98
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)%
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(1)
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Assumed to be $10.00 per Share.
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(2)
|
Represents total NAV less total investment.
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(3)
|
Assumed to be $10.00 per Share on Shares held prior to sale.
|
(4)
|
Represents NAV per Share less Investment per Share.
|
(5)
|
Represents Dilution per Share divided by Investment per Share.
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29
Potential Investors
The Company has not yet solicited any potential buyers of the shares that it may elect to issue in any future offering in order to comply with
the federal securities laws. No shares are earmarked for management or other affiliated persons of the Company. However, members of management and other affiliated persons may participate in a common stock offering, if any, on the same terms as
others.
Required Vote
Approval of
this proposal requires the affirmative vote of (1) a majority of the outstanding voting securities as of the Record Date; and (2) a majority of the outstanding voting securities as of the Record Date that are not held by affiliated persons
of the Company, which includes directors, officers, employees, and 5% stockholders. For purposes of this proposal, the 1940 Act defines a majority of the outstanding voting securities as: (1) 67% or more of the voting securities
present at the Meeting if the holders of more than 50% of the outstanding voting securities of the Company are present or represented by proxy; or (2) 50% of the outstanding voting securities of the Company, whichever is less. Abstentions and
broker
non-votes
will have the effect of a vote against this proposal.
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AUTHORIZE THE COMPANY TO SELL SHARES OF ITS COMMON STOCK AT A PRICE OR PRICES BELOW THE COMPANYS THEN CURRENT NET ASSET VALUE PER SHARE IN ONE OR MORE OFFERINGS, IN EACH CASE SUBJECT TO
THE APPROVAL OF ITS BOARD OF DIRECTORS AND COMPLIANCE WITH THE CONDITIONS SET FORTH IN THE PROXY STATEMENT.
30
OTHER BUSINESS
The board of directors knows of no other business to be presented for action at the Meeting. If any matters do come before the 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 Meeting. The submission of a proposal does not guarantee
its inclusion in the Companys proxy statement or presentation at the Meeting unless certain securities law requirements are met.
AVAILABLE INFORMATION
We
are required to file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy
statements and other information at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the
SEC, which are available on the SECs website at
http://www.sec.gov.
Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following
e-mail
address: publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549. This information will also be available free of charge by contacting us at Solar Capital Ltd.,
500 Park Avenue, New York, NY 10022, by telephone at
(212) 993-1670,
or on our website at
http://www.solarcapltd.com
.
DELIVERY OF PROXY MATERIALS
Please note that only one copy of the 2018 Proxy Statement, the 2017 Annual Report or Notice of Annual Meeting may be delivered to two or more
stockholders of record of the Company who share an address unless we have received contrary instructions from one or more of such stockholders. We will deliver promptly, upon request, a separate copy of any of these documents to stockholders of
record of the Company at a shared address to which a single copy of such documents was delivered. Stockholders who wish to receive a separate copy of any of these documents, or to receive a single copy of such documents if multiple copies were
delivered, now or in the future, should submit their request by calling us at
(212) 993-1670
or by writing to Richard L. Peteka, Corporate Secretary, Solar Capital Ltd., 500 Park Avenue, New York, New
York 10022.