| Content |
Table of Contents As filed with the Securities and Exchange Commission on January 31, 2025 Securities Act File No. 333-[ ● ]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
Registration Statement
under
☒
the Securities Act of 1933
☐
Pre-Effective Amendment No.
☐
Post-Effective Amendment No.
GREAT ELM CAPITAL CORP.
(Registrant's Exact Name as Specified in Charter)
3801 PGA
Boulevard, Suite 603
Palm Beach Gardens, Florida 33410
(Address of Principal Executive Offices)
(Registrant's Telephone Number, including Area Code)
Matt Kaplan
President
and Chief Executive Officer
Great Elm Capital Corp.
3801 PGA Boulevard, Suite 603
Palm Beach Gardens, Florida 33410
(Name and Address of Agent for Service)
COPIES TO:
Christopher Healey
Davis Polk & Wardwell LLP
th Street NW
Washington, DC 20005
Hillary A. Coleman
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Approximate Date of Commencement of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
☐
Check box if the only securities being registered on this Form are being offered pursuant to dividend or
interest reinvestment plans.
☒
Check box if any securities being registered on this Form will be offered on a delayed or continuous basis in
reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan.
Table of Contents
☒
Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective
amendment thereto.
☐
Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective
amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act.
☐
Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General
Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act.
It is proposed that this filing will become effective (check appropriate box):
☐
when declared effective pursuant to Section 8(c) of the Securities Act.
If appropriate, check the following box:
☐
This [post-effective] amendment designates a new effective date for a previously filed [post-effective
amendment] [registration statement].
☐
This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is: .
☐
This Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, and the
Securities Act registration statement number of the earlier effective registration statement for the same offering is: .
☐
This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the
Securities Act registration statement number of the earlier effective registration statement for the same offering is: .
Check each
box that appropriately characterizes the Registrant:
☐
Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)).
☒
Business Development Company (closed-end company that intends or has
elected to be regulated as a business development company under the Investment Company Act).
☐
Interval Fund (Registered Closed-End Fund or a Business Development
Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act).
☒
A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form).
☐
Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act).
☐
Emerging Growth Company (as defined by Rule 12b-2 under the Securities
Exchange Act of 1934 (“Exchange Act”)).
☐
If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.
☐
New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months
preceding this filing).
Table of Contents
The information in this preliminary prospectus is not complete and may be changed. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 31, 2025
GREAT ELM CAPITAL CORP.
2,092,033 Shares of Common Stock
We are an
externally managed non-diversified closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under
the Investment Company Act of 1940, as amended (the “Investment Company Act”). We seek to generate current income and capital appreciation through debt and income-generating equity investments, including investments in specialty finance
businesses. Our external investment manager, Great Elm Capital Management, LLC (“GECM”) provides the administrative services necessary for us to operate.
This prospectus relates to the potential sale from time to time of up to 2,092,033 shares (the “Secondary Shares”) of our common
stock, par value $0.01 per share (“common stock”), by the selling stockholders identified under “Selling Stockholders” (the “selling stockholders”). We will not receive any proceeds from the sale of the Secondary Shares
by the selling stockholders. Sales of the Secondary Shares by the selling stockholders, which may occur at prices below the net asset value per share of our common stock, may adversely affect the market price of our common stock and may make it more
difficult for us to raise capital. The selling stockholders may sell the Secondary Shares covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the selling stockholders may sell the
Secondary Shares under “Plan of Distribution.” Our common stock is listed on the NASDAQ Global Market (“Nasdaq”) under the ticker symbol “GECC.” You should read this prospectus and any applicable prospectus supplement
carefully before you invest in our common stock.
On January 30, 2025, the last reported sale price of our common stock on Nasdaq was
$10.68. We are required to determine the net asset value (“NAV”) per share of our common stock on a quarterly basis. On September 30, 2024, our net asset value per share was $12.04. Shares of closed-end investment companies that are listed on an exchange, including BDCs, frequently trade at a discount to their NAV per share. If our shares trade at a discount to our NAV, it may increase the risk of
loss for purchasers in this offering.
Investing in our common stock involves a high degree of risk. See “Risk Factors”
beginning on page of this prospectus to read about factors you should consider, including the risk of leverage, before investing in our common stock.
This prospectus sets forth concisely important information you should know before investing in our common stock. Please read it and the
documents we refer you to carefully in their entirety before you invest and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission. We
maintain a website at http://www.greatelmcc.com and we make all of our annual, quarterly and current reports, proxy statements and other publicly filed information, and all information incorporated by reference herein, available, free of charge, on
or through such website. Information on our website is not incorporated or a part of this prospectus. You may also obtain free copies of our annual and quarterly reports and make stockholder inquiries by contacting us at Great Elm Capital Corp.,
3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410, by calling us collect at (617) or by sending an email to investorrelations@greatelmcap.com. The Securities and Exchange Commission
maintains a website at http://www.sec.gov where such information is available without charge.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus is dated , 2025.
Table of Contents
TABLE OF CONTENTS
Page
About This Prospectus
ii
Prospectus Summary
Fees and Expenses
Financial Highlights
Senior Securities
Share Price Data
Risk Factors
Cautionary Note Regarding Forward-Looking Information
Use of Proceeds
The Company
Portfolio Companies
Management
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosure about Market Risk
Plan of Distribution
Selling Stockholders
Related Party Transactions and Certain Relationships
Control Persons and Principal Stockholders
Determination of Net Asset Value
Dividend Reinvestment Plan
Certain Material U.S. Federal Income Tax Considerations
Description of Our Common Stock
Custodian, Transfer and Distribution Paying Agent and
Registrar
Legal Matters
Independent Registered Public Accounting Firm
Where You Can Find More Information
Incorporation By Reference
i
Table of Contents
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the SEC, using a “shelf” registration process. The prospectus
relates to the Secondary Shares, which the selling stockholders may sell from time to time. We will not receive any of the proceeds from these sales. Expenses incurred in registering these shares, including legal and accounting fees, will be borne
by the Company. You should read this prospectus carefully before you invest in our common stock. It is important for you to read and consider all of the information contained in this prospectus before making your investment decision. See “Where
You Can Find More Information” in this prospectus.
We have not, and the selling stockholders have not, authorized any other
person to provide you with additional information, or with information different from that contained in this prospectus. Neither we nor the selling stockholders take responsibility for, nor provide any assurance as to the reliability of, any other
information that others may give to you. The selling stockholders are not making an offer to sell the Secondary Shares in any jurisdiction where the offer or sale is not permitted. This prospectus does not constitute an offer to sell or a
solicitation of any offer to buy any security other than the Secondary Shares to which it relates. You should assume that the information appearing in this prospectus is accurate only as of the date on its front cover. Our business, financial
condition, results of operations and prospects may have changed since such date. To the extent required by law, we will amend or supplement the information contained in this prospectus. We encourage you to consult your own counsel, accountant and
other advisors for legal, tax, business, financial and related advice regarding an investment in our securities.
The terms
“we,” “us,” “our,” “the Company” and “GECC” in this prospectus refer to Great Elm Capital Corp., a Maryland corporation, and its subsidiaries.
ii
Table of Contents
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you
may want to consider. You should read carefully the more detailed information set forth under “Risk Factors” in this prospectus and the other information included in this prospectus and the documents to which we have referred.
Great Elm Capital Corp.
We are a
Maryland corporation that was formed in April 2016. We operate as a closed-end, externally managed, non-diversified management investment company that has elected to be
regulated as a BDC under the Investment Company Act. In addition, for tax purposes, we elected to be treated as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”), beginning
with our tax year starting October 1, 2016.
We entered into an investment management agreement with GECM, dated as of
September 27, 2016, and subsequently amended and restated as of August 1, 2022 (the “Investment Management Agreement”), pursuant to which and subject to the overall supervision of our Board of Directors (the “Board”),
GECM provides investment advisory services to GECC. For providing these services, GECM receives a fee from us, consisting of two components: (1) a base management fee and (2) an incentive fee.
We seek to generate current income and capital appreciation through debt and income-generating equity investments, including investments in
specialty finance businesses.
In addition, we invest in collateralized loan obligations (“CLOs”) and warehouse loan facilities
through our joint venture, CLO Formation JV, LLC. Further, we make debt and equity investments in companies and operating platforms that originate and/or service commercial specialty finance businesses, including factoring, equipment finance,
inventory leasing and merchant cash advance. We also invest directly (including via participation) in the investments made by such businesses.
We also make investments throughout other portions of a company's capital structure, including subordinated debt, mezzanine debt, and
equity or equity-linked securities.
We source these transactions directly with issuers and in the secondary markets through relationships
with industry professionals.
Great Elm Capital Management, LLC
We are managed by GECM, whose investment team has an aggregate of more than 100 years of experience in financing and investing in leveraged
middle-market companies. GECM's team is led by Matt Kaplan, GECM's Portfolio Manager and our President and Chief Executive Officer. GECM's investment committee includes Matt Kaplan, Adam M. Kleinman, Jason W. Reese, Nichole Milz and
Dan Cubell. Great Elm Group, Inc. (“GEG”) is the parent company of GECM.
GECM has entered into a shared services agreement (the
“Shared Services Agreement”) with Imperial Capital Asset Management, LLC (“ICAM”), pursuant to which ICAM makes available to GECM certain back-office employees of ICAM to provide services to GECM in exchange for reimbursement by
GECM of the allocated portion of such employees' time.
We entered into an investment management agreement with GECM, dated as of
September 27, 2016, and subsequently amended and restated as of August 1, 2022 (the “Investment Management Agreement”), pursuant
Table of Contents
to which, GECM provides investment advisory services to GECC. GECM's investment advisory services are subject to the overall supervision of our Board. For providing these services, GECM
receives a fee from us, consisting of two components: (1) a base management fee and (2) an incentive fee.
The base management
fee is calculated at an annual rate of 1.50% based on the average value of our total assets (determined in conformity with generally accepted accounting principles in the United States (“GAAP”) (other than cash or cash equivalents but
including assets purchased with borrowed funds or other forms of leverage)) at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears.
The incentive fee consists of two components that are independent of each other, with the result that one component may be payable even if the
other is not. One component of the incentive fee is based on income (the “Income Incentive Fee”) and the other component is based on capital gains (the “Capital Gains Incentive Fee”). See “The Company—Investment
Management Agreement.”
Pursuant to the administration agreement, dated as of September 27, 2016 (the “Administration
Agreement”), by and between us and GECM, GECM furnishes us with administrative services and we pay GECM our allocable portion of overhead and other expenses incurred by GECM in performing its obligations under the Administration Agreement,
including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
Risk Factors
Investment in our securities involves a number of significant risks relating to our investments and our business and structure that
you should consider before investing in our securities.
Our business is subject to a number of risks and uncertainties, including the following:
•
We face competition for investment opportunities. Limited availability of attractive investment opportunities in
the market could cause us to hold a larger percentage of our assets in liquid securities until market conditions improve.
•
Our portfolio is limited in the number of portfolio companies which may subject us to a risk of significant loss
if one or more of these companies defaults on its obligations under any of its debt instruments.
•
Our portfolio is concentrated in a limited number of industries, which subjects us to a risk of significant loss
if there is a downturn in a particular industry in which a number of our investments are concentrated.
•
Defaults by our portfolio companies may harm our operating results.
•
A failure to detect fraud with respect to our specialty finance investments.
•
We may not realize gains from our equity investments.
•
By investing in companies that are experiencing significant financial or business difficulties, we are exposed to
distressed lending risks.
•
Certain of the companies we target may have difficulty accessing the capital markets to meet their future capital
needs, which may limit their ability to grow or to repay their outstanding indebtedness upon maturity.
Table of Contents
•
Investing in middle market companies involves a high degree of risk and our financial results may be affected
adversely if one or more of our portfolio investments defaults on its loans or notes or fails to perform as we expect.
•
An investment strategy that includes privately held companies presents challenges, including the lack of
available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
•
Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S.
investments.
•
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
•
Our failure to maintain our status as a BDC would reduce our operating flexibility.
•
Regulations governing our operations as a BDC affect our ability to raise additional capital and the way in which
we do so. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.
•
We will be subject to corporate level U.S. federal income tax if we are unable to qualify as a RIC under the
Code.
•
We may be subject to risks associated with investments in collateralized loan obligations.
•
We may incur additional debt, which could increase the risk in investing in our Company.
•
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery
systems and management continuity planning, could impair our ability to conduct business effectively.
•
There are significant potential conflicts of interest that could impact our investment returns.
As a BDC with less than $100 million in annual investment income, we are not subject to the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Some investors may find our securities less attractive because we are not subject to such auditor attestation requirement, which could lead to a
less active and more volatile trading market for our securities.
See “Risk Factors” and the other information included in
this prospectus for a discussion of factors you should carefully consider before deciding to invest in our securities.
Our Corporate Information
Our offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410 and our phone number is (617) GECM's offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410.
We file annual, quarterly and current reports, proxy statements and other information about us with the SEC. We maintain a website at
http://www.greatelmcc.com and we make all of our annual, quarterly and current reports, proxy statements and other publicly filed information, and all information incorporated by reference herein, available, free of charge, on or through such
website. Information on our website is not incorporated in a part of this prospectus. You may also obtain free copies of our annual and quarterly reports and make stockholder inquiries by contacting us at Great Elm Capital Corp., 3801 PGA Boulevard,
Suite 603, Palm Beach Gardens, Florida 33410 or by calling us collect at (617) The SEC maintains a website at http://www.sec.gov where such information is available without charge.
Table of Contents
FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an investor in shares of our common stock will bear
directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less
than shown. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “us” or that “we” will pay fees or expenses, common stockholders will indirectly bear such fees or
expenses.
Stockholder Transaction Expenses:
Sales Load (as a percentage of offering price)
—
Offering Expenses (as a percentage of offering price)
—
Dividend Reinvestment Plan Expenses
—
Total Stockholder Transaction Expenses (as a percentage of offering price)
—
Annual Expenses (as a percentage of net assets attributable to common shares):
Base Management Fee
Incentive Fee
Interest Payments on Borrowed Funds
Other Expenses
Total Annual Expenses
In the event that any shares of common stock are sold to or through underwriters, a corresponding prospectus
supplement will disclose the applicable sales load.
In the event that any shares of common stock are sold to or through underwriters, a corresponding prospectus
supplement will disclose the estimated amount of total offering expenses (which may include offering expenses borne by third parties on our behalf), the offering price and the offering expenses borne by us as a percentage of the offering price.
The expenses of the dividend reinvestment plan are included in “other expenses” in the table above.
We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a
cash distribution, our stockholders who have not opted out of our dividend reinvestment plan will have their cash distributions (net of any applicable withholding tax) automatically reinvested in additional shares of our common stock, rather than
receiving the cash distributions. For additional information, see “Dividend Reinvestment Plan.”
We are externally managed by GECM and our base management fee is calculated at an annual rate of 1.50% based on
the average value of our total assets (other than cash or cash equivalents, but including assets purchased with borrowed funds or other forms of leverage). Consequently, if we have borrowings outstanding, the base management fee as a percentage of
net assets attributable to common shares would be higher than if we did not utilize leverage.
See “The Company-Investment Management Agreement.”
Assumes borrowings representing approximately 155% of our average net assets at an average annual interest rate
of 7.70%. The amount of leverage that we may employ at any particular time will depend on, among other things, our Board's and GECM's assessment of market and other factors at the time of any proposed borrowing.
“Other Expenses” represent our estimates for the fiscal year ending December 31, 2025.
Example
The
following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. This example and
Table of Contents
the expenses in the table above should not be considered a representation of our future expenses, and actual expenses (including the cost of debt, if any, and other expenses) may be greater or
less than those shown.
Year
Years
Years
Years
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual
return (assumes no return from net realized capital gains) (none of which is subject to the capital gains incentive fee)
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual
return resulting entirely from net realized capital gains (all of which is subject to the capital gains incentive fee)
This example and the expenses in the table above should not be considered a representation of our future
expenses as actual expenses (including cost of debt, if any, and other expenses) that we may incur in the future and such actual expenses may be greater or less than those shown.
While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less
than 5%. The incentive fee under the Investment Management Agreement, which, assuming a 5% annual return, would either not be payable or have an immaterial impact on the expense amounts shown above, is not included in the example. Under the
Investment Management Agreement, no incentive fee would be payable if we have a 5% annual return. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material
amount, our expenses, and returns to our investors, would be higher. The example assumes that all dividends and other distributions are reinvested at net asset value. Under certain circumstances, reinvestment of dividends and other distributions
under our dividend reinvestment plan may occur at a price per share that differs from net asset value. See “Dividend Reinvestment Plan” for additional information regarding our dividend reinvestment plan.
Table of Contents
FINANCIAL HIGHLIGHTS
Information regarding our financial highlights for the fiscal years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016 is
incorporated by reference herein from our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February
29, 2024 . Information regarding our financial highlights for the fiscal years ended December 31, 2023, 2022, 2021, 2020 and 2019 has been audited by Deloitte
& Touche LLP, an independent registered public accounting firm whose report thereon is incorporated by reference in this prospectus under the heading “Independent Registered Public Accounting Firm” from our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February . Information regarding our financial highlights for the nine months ended September 30, 2024 is incorporated by reference herein from our Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2024, filed on October
Table of Contents
SENIOR SECURITIES
Information about our senior securities, including our outstanding long-term debt, as of the fiscal years ended December 31, 2023, 2022,
2021, 2020, 2019, 2018, 2017 and 2016 is located in the notes to our consolidated financial statements under the caption “Debt” in our most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 2023, filed on February , and is incorporated herein by reference, along
with any amendments reflected in subsequent filings with the SEC. Information about our senior securities, including our outstanding long-term debt, for the period between the end of our latest fiscal year and the date of our latest statement of
assets and liabilities is located in the notes to our unaudited consolidated financial statements under the caption “Debt” in our most recent Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2024, filed on October , and is incorporated herein by reference. The
report of Deloitte & Touche LLP, our independent registered public accounting firm, related to our consolidated statements of assets and liabilities, including the consolidated schedules of investments, as of December 31, 2023, and the
related consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31, 2023, and financial highlights for each of the five years in the period then ended, and the
related notes, which include the senior securities table in “Note 5—Debt”, is incorporated by reference in this prospectus under the heading “Independent Registered Public Accounting Firm.”
Table of Contents
SHARE PRICE DATA
Our common stock is traded on Nasdaq under the symbol “GECC.” The following table sets forth: (i) net asset value
(“NAV”) per share of our common stock as of the applicable period end, (ii) the range of high and low closing sales prices of our common stock as reported on Nasdaq during the applicable period, (iii) the closing high and low
sales prices as a premium (discount) to NAV during the relevant period, and (iv) the distributions per share of our common stock declared during the applicable period.
Closing Sales
Price(1)
Premium
(Discount) of
High Sales
Price to
NAV(1)(2)
(Discount) of
Low Sales
Price to
NAV(1)(2)
Distributions
Declared(3)
Period
NAV(1)
High
Low
Fiscal Year ending December 31, 2024
Fourth Quarter
N/A
—
—
Third Quarter
Second Quarter
First Quarter
Fiscal Year ending December 31, 2023
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal Year ending December 31, 2022
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High and low closing sales prices for the first quarter in the fiscal year ending December 31, 2022 have
been adjusted retroactively for the reverse stock split effected on February 28, 2022.
Calculated as of the respective high or low closing sales price divided by the quarter-end NAV.
We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other
distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a cash distribution, our stockholders who have not opted out of our dividend reinvestment plan will have
their cash distributions (net of any applicable withholding tax) automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.
Shares of business development companies may trade at a market price that is less than the value of the net assets attributable to those
shares. As disclosed in the table above, our common stock has historically traded for an amount less than or approximately equal to our net asset value. The possibility that our shares of common stock will trade at a discount or premium to net asset
value is separate and distinct from the risk that our net asset value will decrease. See “Risk Factors — Risks Relating to Offerings Pursuant to this Prospectus – Shares of closed-end investment
companies, including BDCs, frequently trade at a discount from their NAV.”
For all periods presented in the table above, there was
no return of capital included in any distribution.
The last reported closing price for our common stock on January 30, 2025, was
$10.68 per share. As of January 30, 2025, we had 10 record holders of our common stock.
Table of Contents
RISK FACTORS
Investing in our securities involves a number of significant risks. Before you invest in the Secondary Shares, you should be aware of
various risks with an investment, including those described below and elsewhere in this prospectus, any accompanying prospectus supplement, any related free writing prospectus we may authorize in connection with a specific offering, “Part 1,
Item IA. Risk Factors” in our most recent Annual Report on Form 10-K, which is incorporated by reference herein in its entirety, “Part II, Item IA. Risk Factors” in our most recent Quarterly
Report on Form 10-Q, which is incorporated by reference herein in its entirety, and any other document incorporated by reference herein. You should carefully consider these risk factors, together with all of
the other information included in this prospectus, any accompanying prospectus supplement, and any related free writing prospectus we may authorize in connection with a specific offering, before you decide whether to make an investment in our
Secondary Shares. The risks set out and described in these documents are not the only risks we face. The risks described below, as well as additional risks and uncertainties presently unknown by us or currently not deemed significant, could
negatively affect our business, financial condition and results of operations. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the
following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, our net asset value (“NAV”) and the trading price of our securities could decline,
and you may lose all or part of your investment. Please also read carefully the section titled “Cautionary Note Regarding Forward-Looking Information.”
Risks Relating to Our Investments
Our portfolio
companies may experience financial distress and our investments in such companies may be restructured.
Our portfolio companies may
experience financial distress from time to time. Debt investments in such companies may cease to be income-producing, may require us to bear certain expenses to protect our investment and may subject us to uncertainty as to when, in what manner and
for what value such distressed debt will eventually be satisfied, including through liquidation, reorganization or bankruptcy. Any restructuring can fundamentally alter the nature of the related investment, and restructurings may not be subject to
the same underwriting standards that GECM employs in connection with the origination of an investment. In addition, we may write-down the value of our investment in any such company to reflect the status of financial distress and future prospects of
the business. Any restructuring could alter, reduce or delay the payment of interest or principal on any investment, which could delay the timing and reduce the amount of payments made to us. For example, if an exchange offer is made or plan of
reorganization is adopted with respect to the debt securities we currently hold, there can be no assurance that the securities or other assets received by us in connection with such exchange offer or plan of reorganization will have a value or
income potential similar to what we anticipated when our original investment was made or even at the time of restructuring. Restructurings of investments might also result in extensions of the term thereof, which could delay the timing of payments
made to us, or we may receive equity securities, which may require significantly more of our management's time and attention or carry restrictions on their disposition.
We face increasing competition for investment opportunities. Limited availability of attractive investment opportunities in the market could cause us to
hold a larger percentage of our assets in liquid securities until market conditions improve.
We compete for investments with other
BDCs and investment funds (including specialty finance companies, private equity funds, mezzanine funds and small business investment companies), as well as traditional financial services companies such as commercial banks and other sources of
funding. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors have a lower cost of capital and access to funding sources that are not
available to us,
Table of Contents
including from the Small Business Administration. In addition, increased competition for attractive investment opportunities allows debtors to demand more favorable terms and offer fewer
contractual protections to creditors. Some of our competitors have higher risk tolerances or different risk assessments than we do. These characteristics could allow our competitors to consider a wider variety of investments, establish more
relationships and offer better pricing and more flexible structuring than we are able to offer. We may lose investment opportunities if we do not match our competitors' pricing, terms and structure. If we are forced to match our
competitors' pricing, terms and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant part of our competitive advantage stems from the fact that the market for
investments in lower middle-market companies is underserved by traditional commercial banks and other financing sources. A significant increase in the number and/or the size of our competitors in this target market would force us to accept less
attractive investment terms. GECM may, at its discretion, decide to pursue such opportunities if it believes that they are in our best interest; however, GECM may decline to pursue available investment opportunities that, although otherwise
consistent with our investment policies and objectives, in GECM's view present unacceptable risk/return profiles. Under such circumstances, we may hold a larger percentage of our assets in liquid securities until market conditions improve in
order to avoid having assets remain uninvested. Furthermore, many of our competitors have greater experience operating under, or are not subject to, the regulatory restrictions that the Investment Company Act imposes on us as a BDC. We believe that
competitors will make first and second-lien loans with interest rates and returns that are lower than the rates and returns that we target. Therefore, we do not seek to compete solely on the interest rates and returns offered to prospective
portfolio companies.
We are invested in a limited number of portfolio companies which may subject us to a risk of significant loss if one or more
of these companies defaults on its obligations under any of its debt instruments.
Our portfolio is likely to hold a limited number
of portfolio companies. Beyond the asset diversification requirements associated with qualifying as a RIC, we do not have fixed guidelines for diversification, and our investments are likely to be concentrated in relatively few companies. As our
portfolio is less diversified than the portfolios of some funds, we are more susceptible to failure if a single investment fails. Similarly, the aggregate returns we realize may be significantly adversely affected if a small number of investments
perform poorly or if we need to write down the value of any one investment.
Our portfolio is subject to change over time and may be concentrated in
a limited number of industries, which subjects us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.
Our portfolio is likely to be concentrated in a limited number of industries. A downturn in any particular industry in which we are invested
could significantly impact our aggregate realized returns. We may concentrate our investments in issuers that are part of the specialty finance industry, which represents approximately 13% of our total investments at fair value as of
September 30, 2024. Such concentration may change as a result of additional investments in, or divestments in, the specialty finance industry and/or fluctuations in the fair value of our investments in the specialty finance industry and other
industries.
In addition, we may from time to time invest a relatively significant percentage of our portfolio in industries in which GECM
does not necessarily have extensive historical research coverage. If an industry in which we have significant investments suffers from adverse business or economic conditions, as these industries have to varying degrees, a material portion of our
investment portfolio could be affected adversely, which, in turn, could adversely affect our financial position and results of operations.
We are
exposed to risks relating to our specialty finance investments.
There is no guarantee that our controls to monitor and detect
fraud with respect to our specialty finance business will be effective and, as a result, we could face exposure to the credit risk associated with such
Table of Contents
investments. With respect to our asset-based loans, we generally limit our lending to a percentage of the customer's borrowing base assets that we believe can be readily liquidated in the
event of financial distress of the borrower. With respect to our factoring products, we purchase the underlying invoices of our customers and become the direct payee under such invoices, thus transferring the credit risk in such transactions from
our customers to the underlying account debtors on such invoices. In the event one or more of our customers fraudulently represents the existence or valuation of borrowing base assets in the case of an asset-based loan, or the existence or validity
of an invoice we purchase in the case of a factoring transaction, we may advance more funds to such customer than we otherwise would and lose the benefit of the structural protections of our products with respect to such advances. In such event we
could be exposed to material additional losses with respect to such loans or factoring products.
Any unrealized losses we experience in our
portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
As a BDC, we
are required to carry our investments at fair value as determined in good faith by our Board. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair
value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. Decreases in the
fair values of our investments are recorded as unrealized depreciation. Any unrealized losses in our portfolio could be an indication of a portfolio company's inability to meet its repayment obligations to us with respect to the affected
investments. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.
Our debt investments may be risky, and we could lose all or part of our investments.
Our debt portfolios, including those held by our specialty finance companies, are subject to credit and interest rate risk. “Credit
risk” refers to the likelihood that an issuer will default in the payment of principal and/or interest on an instrument. Financial strength and solvency of an issuer are the primary factors influencing credit risk. In addition, subordination,
lack or inadequacy of collateral or credit enhancement for a debt instrument may affect its credit risk. Credit risk may change over the life of an instrument, and securities which are rated by rating agencies are often reviewed and may be subject
to downgrade. “Interest rate risk” refers to the risks associated with market changes in interest rates. Factors that may affect market interest rates include, without limitation, inflation, slow or stagnant economic growth or recession,
unemployment, money supply and the monetary policies of the Federal Reserve Board and central banks throughout the world, international disorders and instability in domestic and foreign financial markets. The Federal Reserve Board has since raised
the federal funds rate and may raise, maintain or lower the federal funds rate in the future. These developments, along with domestic and international debt and credit concerns, could cause interest rates to be volatile, which may negatively impact
our ability to access the debt markets on favorable terms. Interest rate changes may also affect the value of a debt instrument indirectly (especially in the case of fixed rate securities) and directly (especially in the case of instruments whose
rates are adjustable). In general, rising interest rates will negatively impact the price of a fixed-rate debt instrument and falling interest rates will have a positive effect on price. Adjustable rate instruments may also react to interest rate
changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including, among other factors, the index chosen, frequency of reset and reset caps or floors). Interest rate
sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules. We expect that we will periodically experience imbalances in the interest rate sensitivities of our assets and liabilities
and the relationships of various interest rates to each other. In a changing interest rate environment, we may not be able to manage this risk effectively, which in turn could adversely affect our performance.
Some of the loans in which we may invest may be “covenant-lite” loans, which means the loans contain fewer covenants than other
loans (in some cases, none) and may not include terms which allow the lender to
Table of Contents
monitor the performance of the borrower and declare a default if certain criteria are breached. An investment by us in a covenant-lite loan may potentially hinder the ability to reprice credit
risk associated with the issuer and reduce the ability to restructure a problematic loan and mitigate potential loss. We may also experience delays in enforcing our rights under covenant-lite loans. As a result of these risks, our exposure to losses
may be increased, which could result in an adverse impact on our net income and NAV.
We also may invest in assets other than secured and
senior secured debt instruments and income generating equity investments, including subordinated debt, mezzanine debt, U.S. government securities, preferred equity and other structured securities. These investments entail additional risks that could
adversely affect our investment returns.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of
operations and reduce our returns on equity.
We are subject to the risk that investments intended to be held over long periods
are, instead, repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, repay debt or repurchase our common stock, depending on expected future investment opportunities. These temporary
investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts. Any future investment may also be at lower yields than the debt that was repaid. As a
result, our results of operations could be materially adversely affected if one or more of our portfolio companies elects to prepay amounts owed by them.
We are not in a position to exercise control over certain of our portfolio companies or to prevent decisions by management of such portfolio companies
that could decrease the value of our investments.
Although we may be deemed, under the Investment Company Act, to control certain
of our portfolio companies because we own more than 25% of the common equity of those portfolio companies, we generally do not hold controlling equity positions in our portfolio companies. As a result, we are subject to the risk that a portfolio
company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity of the debt and
equity investments that we hold in certain of our portfolio companies, we may not be able to dispose of such investments if we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of such investments.
We have made, and in the future intend to pursue additional, investments in specialty finance businesses, which may require reliance on the
management teams of such businesses.
We have made, and may make additional, investments in companies and operating platforms that
originate and/or service commercial specialty finance businesses, including factoring, equipment finance, inventory leasing, merchant cash advance and hard money real estate lending and may also invest directly (including via participation) in the
investments made by such businesses. The form of investment may vary and may require reliance on management teams to provide the resources necessary to originate new receivables, manage portfolios of performing receivables, and work-out portfolios of stressed or non-performing receivables.
Defaults
by our portfolio companies may harm our operating results.
A portfolio company's failure to satisfy financial or operating
covenants imposed by us or other lenders could lead to defaults and, potentially, termination of our investments and foreclosure on our secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio
company's ability to meet its obligations under the debt or equity securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of financial
covenants, with a defaulting portfolio company. If any of these occur, it could materially and adversely affect our operating results and cash flows.
Table of Contents
If we invest in companies that experience significant financial or business difficulties, we may be
exposed to certain distressed lending risks.
As part of our lending activities, we may purchase notes or loans from companies that
are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to us,
they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. We cannot
assure you that we will correctly evaluate the value of the assets collateralizing our investments or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a portfolio company,
we may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the investment advanced by us to the borrower.
Certain of the companies in which we invest may have difficulty accessing the capital markets to meet their future capital needs, which may limit their
ability to grow or to repay their outstanding indebtedness upon maturity.
Senior Secured Loans and Notes. There is a risk
that the collateral securing our loans and notes may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions,
including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company's financial
condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan or note. Consequently, the fact that a loan or note is secured does not guarantee that we
will receive principal and interest payments according to the loan's or note's terms, or at all, or that we will be able to collect on the loan or note should we be forced to enforce our remedies.
Mezzanine Loans. Our mezzanine debt investments will be generally subordinated to senior loans and will be generally unsecured. As
such, other creditors may rank senior to us in the event of an insolvency, which could likely result in a substantial or complete loss on such investment in the case of such insolvency. This may result in an above average amount of risk and loss of
principal.
Unsecured Loans and Notes. We may invest in unsecured loans and notes. If the issuer defaults or has an event of
insolvency, other creditors may rank senior, be structurally senior or have lien protection that effectively renders their claim superior to our rights under our unsecured notes or loans, which could likely result in a substantial or complete loss
on such investment in the case of such insolvency. This may result in an above average amount of risk and loss of principal.
Unfunded
Commitments. From time to time, we purchase revolving credit loans with unfunded commitments in the ordinary course of business. In the event multiple borrowers of such revolving credit loans were to draw these commitments at the same time,
including during a market downturn, it could have an adverse impact on our cash reserves and liquidity position at a time when it may be more difficult for us to sell other assets. Additionally, under Rule 18f-4 under the Investment Company Act, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC
has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it
becomes due. Unfunded commitment agreements entered into by a BDC in compliance with this condition will not be considered for purposes of computing asset coverage for purposes of compliance with the Investment Company Act with respect to our use of
leverage as well as derivatives and/or other financial contracts.
Table of Contents
Equity Investments. When we invest in senior secured loans or mezzanine loans, we may
acquire equity securities, including warrants, as well. In addition, we may invest directly in the equity securities of portfolio companies. The equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly,
we may not be able to realize gains from our equity interests, and any gains that we realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
In addition, investing in middle-market companies involves a number of significant risks, including:
•
these companies may have limited financial resources and may be unable to meet their obligations under their debt
securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;
•
they typically have shorter operating histories, narrower product lines and smaller market shares than larger
businesses, which tend to render them more vulnerable to competitors' actions and market conditions, as well as general economic downturns;
•
they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the
death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on our stockholders;
•
they generally have less predictable operating results, may from time to time be parties to litigation, may be
engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;
•
we, our executive officers, directors and GECM, its affiliates and/or any of their respective principals and
employees, may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies and may, as a result, incur significant costs and expenses in connection with such litigation;
•
changes in laws and regulations (including the tax laws), as well as their interpretations, may adversely affect
their business, financial structure or prospectus;
•
they may have difficulty accessing the capital markets to meet future capital needs, which may limit their
ability to grow or to repay their outstanding indebtedness upon maturity; and
•
a portion of our income may be non-cash income, such as contractual PIK
interest, which represents interest added to the debt balance and due at the end of the instrument's term, in the case of loans, or issued as additional notes in the case of bonds. Instruments bearing PIK interest typically carry higher
interest rates as a result of their payment deferral and increased credit risk. When we recognize income in connection with PIK interest, there is a risk that such income may become uncollectable if the borrower defaults.
Investing in middle-market companies involves a high degree of risk and our financial results may be affected adversely if one or more of our portfolio
investments defaults on its loans or notes or fails to perform as we expect.
A portion of our portfolio consists of debt and
equity investments in privately owned middle-market companies. Investing in middle-market companies involves a number of significant risks. Compared to larger publicly owned companies, these middle-market companies may be in a weaker financial
position and experience wider variations in their operating results, which may make them more vulnerable to economic downturns and other business disruptions.
Typically, these companies need more capital to compete; however, their access to capital is limited and their cost of capital is often higher
than that of their competitors. Our portfolio companies face intense competition from larger companies with greater financial, technical and marketing resources and their success
Table of Contents
typically depends on the managerial talents and efforts of an individual or a small group of persons. Therefore, the loss of any of their key employees, as well as increased competition in the
labor market, could affect a portfolio company's ability to compete effectively and harm its financial condition. Further, some of these companies conduct business in regulated industries that are susceptible to regulatory changes. These
factors could impair the cash flow of our portfolio companies and result in other events, such as bankruptcy. These events could limit a portfolio company's ability to repay its obligations to us. Deterioration in a borrower's financial
condition and prospects may be accompanied by deterioration in the value of the loan's collateral and the fair market value of the loan.
Most of the loans in which we invest are not structured to fully amortize during their lifetime. In order to create liquidity to pay the final
principal payment, borrowers typically must raise additional capital or sell their assets, which could potentially result in the collateral being sold for less than its fair market value. If they are unable to raise sufficient funds to repay us, the
loan will go into default, which will require us to foreclose on the borrower's assets, even if the loan was otherwise performing prior to maturity. This will deprive us from immediately obtaining full recovery on the loan and prevent or delay
the reinvestment of the loan proceeds in other, more profitable investments. Moreover, there are no assurances that any recovery on such loan will be obtained. Most of these companies cannot obtain financing from public capital markets or from
traditional credit sources, such as commercial banks. Accordingly, loans made to these types of companies pose a higher default risk than loans made to companies that have access to traditional credit sources.
An investment strategy that includes privately held companies presents challenges, including the lack of available information about these companies, a
dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
We invest in privately held companies. Generally, little public information exists about these companies, and we are required to rely on
GECM's or our specialty finance partners' ability to obtain adequate information to evaluate the potential returns from investing in these companies. If we are unable to uncover all material information about these companies, we may not
make a fully informed investment decision, and may lose money on our investments. Also, privately held companies frequently have shorter operating histories, less diverse product lines and smaller market presence than larger competitors, which tend
to render them more vulnerable to competitors' actions and market conditions, as well as general economic downturns. Further, privately-held companies typically depend on the management talents and efforts of a small group of persons, and
therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse effect on such portfolio company and, in turn, on us. These factors could adversely affect our investment returns as compared
to companies investing primarily in the securities of public companies.
Our portfolio companies may incur debt that ranks equally with, or senior
to, our investments in such companies.
Our portfolio companies may have, or may be permitted to incur, other debt that ranks
equally with, or in some cases senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with
respect to the debt instruments in which we invested. Also, in insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would
typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking
equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant
portfolio company.
Additionally, some of our portfolio companies may be highly leveraged, which may have adverse consequences to these
companies and to us as an investor. These companies may be subject to restrictive
Table of Contents
financial and operating covenants and the leverage may impair these companies' ability to finance their future operations and capital needs. As a result, these companies' flexibility to
respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company's income and net assets will tend to increase or decrease at a greater rate than if borrowed money
were not used.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to
lender liability claims.
Even though we may have structured investments as secured investments, if one of our portfolio companies
were to go bankrupt, depending on the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and
transfer any lien securing such subordinated claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where
the senior investment is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender
liability claims for actions taken by us with respect to a borrower's business or instances where we exercise control over the borrower. It is possible that we could become subject to a lender's liability claim, including as a result of
actions taken in rendering managerial assistance or actions to compel and collect payments from the borrower outside the ordinary course of business. To the extent GECC provides significant managerial assistance to the portfolio companies, this risk
is exacerbated.
Second priority liens on collateral securing loans and notes that we invest in may be subject to control by senior creditors with
first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
We may purchase loans or notes that are secured by a second priority security interest in the same collateral pledged by a portfolio company to
secure senior debt owed by the portfolio company to commercial banks or other traditional lenders. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior
lender's consent. Prior to and as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged to the senior lender, the senior lender will require assurances that it will control the
disposition of any collateral in the event of bankruptcy or other default. In many such cases, the senior lender will require us or the indenture trustee to enter into an “intercreditor agreement” prior to permitting the portfolio company
to borrow. Typically the intercreditor agreements expressly subordinate our second lien debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other
proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any collateral document; (4) the release of the security interests in
respect of any collateral; and (5) the waiver of defaults under any security agreement. Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral
securing some of our loans and notes.
The reference rates for our loans may be manipulated or changed.
Actions by market participants or by government agencies, including central banks, may affect prevailing interest rates and the reference rates
for loans to our portfolio companies. Actions by governments may create inflation in asset prices that over-state the value of our portfolio companies and their assets and drive cycles of capital market activities (like mergers and acquisitions) at
a rate and at prices in excess of those that would prevail in an unaffected market.
We cannot assure you that actions by market
participants or by government agencies will not materially adversely affect trading markets or our portfolio companies or us or our and our portfolio companies' respective business, prospects, financial condition or results of operations.
Table of Contents
We may mismatch the interest rate and maturity exposure of our assets and liabilities.
Our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those
funds. We cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which could reduce our net
investment income. Typically, our fixed-rate investments are financed primarily with equity and/or long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques
may include various interest rate hedging activities to the extent permitted by the Investment Company Act. If we do not implement these techniques properly, we could experience losses on our hedging positions, which could be material.
If interest rates fall, our portfolio companies are likely to refinance their obligations to us at lower interest rates. Our proceeds from
these refinancings are likely to be reinvested at lower interest rates than our refinanced loans resulting in a material decrease in our net investment income.
We may not realize gains from our equity investments.
Our portfolio may include common stock, warrants or other equity securities. We may also take back equity securities in exchange for our debt
investments in workouts of troubled investments. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure
to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make non-control, equity investments in portfolio companies. The equity interests we invest in may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our
equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity
event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We may seek puts or similar rights to give it the right to sell our equity securities back to the portfolio
company. We may be unable to exercise these put rights if the issuer is in financial distress or otherwise lacks sufficient liquidity to purchase the underlying equity investment.
Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates investments in debt securities of foreign companies. Investing in foreign companies may expose us to
additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less
available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of
uniform accounting and auditing standards and greater price volatility. Such investments will generally not represent “qualifying assets” under Section 55(a) of the Investment Company Act.
Any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation
to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for
investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we offer no assurance that we will, in fact, hedge currency risk, or that if it does, such strategies will be effective.
Table of Contents
We may hold a significant portion of our portfolio assets in cash, cash equivalents, money market
mutual funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less, which may have a negative impact on our business and operations.
We may hold a significant portion of our portfolio assets in cash, cash equivalents, money market mutual funds, U.S. government securities,
repurchase agreements and high-quality debt instruments maturing in one year or less for many reasons, including, among others:
•
as part of GECM's strategy in order to take advantage of investment opportunities as they arise;
•
when GECM believes that market conditions are unfavorable for profitable investing;
•
when GECM is otherwise unable to locate attractive investment opportunities;
•
as a defensive measure in response to adverse market or economic conditions; or
•
to meet RIC qualification requirements.
We may also be required to hold higher levels of cash, money market mutual funds or other short-term securities in order to pay our expenses
or make distributions to stockholders in the ordinary course of business given the relatively high percentage of our total investment income represented by non-cash income, including PIK income and accretion
of original issue discount (“OID”). During periods when we maintain exposure to cash, money market mutual funds, or other short-term securities, we may not participate in market movements to the same extent that it would if we were fully
invested, which may have a negative impact on our business and operations and, accordingly, our returns may be reduced.
We may be subject to risks
associated with investments in collateralized loan obligations.
We invest in collateralized loan obligations (“CLOs”)
and warehouse loan facilities through our joint venture, CLO Formation JV, LLC. Such investments may present risks similar to those of the other types of investments in which we may invest and, in fact, such risks may be of greater significance in
the case of CLOs and warehouse loan facilities. Moreover, investing in such products may entail a variety of unique risks. Among other risks, CLO and warehouse facility investments may be subject to prepayment risk. In addition, the performance of a
CLO or warehouse facility will be affected by a variety of factors, including its priority in the capital structure of the issuer thereof, the availability of any credit enhancement, the level and timing of payments and recoveries on and the
characteristics of the underlying receivables, loans or other assets that are being securitized, remoteness of those assets from the originator or transferor, the adequacy of and ability to realize upon any related collateral and the capability of
the servicer of the securitized assets. In addition, we may face additional risks related to CLOs and warehouse facilities. A CLO is typically a bankruptcy-remote securitization entity that owns senior secured, second lien or unsecured corporate
loans. CLOs make payments to investors as payments are received with respect to their underlying asset pools. If proceeds of the underlying asset pools are not large enough to provide payments on all investors, securities held by the more junior
investors in the CLOs will likely suffer a principal loss. In an event of default, typically the most senior tranche of debt may direct the CLO manager to liquidate the CLO. In the event of a liquidation, the unrated or most subordinated tranches of
a CLO will not receive any payment until all principal and interest on the senior debt is paid in full. In addition, the value of the underlying collateral in the asset pools may decrease in value. CLO securities are illiquid instruments, and we may
not be able to sell such securities at favorable prices, if at all.
We and/or our portfolio companies may be materially and adversely impacted by
global climate change.
Climate change is widely considered to be a significant threat to the global economy. Our business
operations and our portfolio companies may face risks associated with climate change, including risks related to the impact of climate-related legislation and regulation (both domestically and internationally), risks related to climate-related
business trends (such as the process of transitioning to a lower-carbon economy), and risks stemming from the physical impacts of climate change, such as the increasing frequency or severity of extreme weather events and rising sea levels and
temperatures.
Table of Contents
The lack of liquidity in our investments may adversely affect our business.
As we generally make investments in private companies, substantially all of these investments are subject to legal and other restrictions on
resale or are otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the needed. In addition, if we are required to liquidate all or a portion of our
portfolio quickly, we could realize significantly less than the value at which we have recorded our investments or could be unable to dispose of our investments in a timely manner. In addition, we may face other restrictions on our ability to
liquidate an investment in a portfolio company to the extent that we or an affiliate of GECM has material non-public information regarding such portfolio company.
Risks Relating to Our Business and Structure
Capital markets experience periods of disruption and instability. These market conditions have historically materially and adversely affected debt and
equity capital markets in the United States and abroad, which had, and may in the future have, a negative impact on our business and operations.
The global capital markets are subject to disruption which may result from, among other things, a lack of liquidity in the debt capital
markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market or the failure of major financial institutions. Despite actions of the
U.S. federal government and foreign governments, such events have historically materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial
services firms in particular. Equity capital may be difficult to raise because, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than NAV. In addition, our ability to incur indebtedness or issue
preferred stock is limited by applicable regulations such that our asset coverage, as defined in the Investment Company Act, must equal at least 150% immediately after each time we incur indebtedness or issue preferred stock. The debt capital that
may be available, if at all, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.
Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness, and any failure to do
so could have a material adverse effect on our business. The expected illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at which we have
recorded our investments.
In addition, significant changes in the capital markets, including recent volatility and disruption, have had,
and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes,
could have a material adverse impact on our business, financial condition and results of operations.
We may experience fluctuations in our
quarterly results.
Our quarterly operating results will fluctuate due to a number of factors, including the level of expenses,
variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. Our quarterly operating results will also fluctuate due to a
number of other factors, including the interest rates payable on the debt investments we make and the default rates on such investments. As a result of these factors, results for any period should not be relied upon as being indicative of
performance in future periods.
Our success depends on the ability of our investment adviser to attract and retain qualified personnel in a
competitive environment.
Our growth requires that GECM retain and attract new investment and administrative personnel in a
competitive market. GECM's ability to attract and retain personnel with the requisite credentials, experience and
Table of Contents
skills depends on several factors, including, but not limited to, its ability to offer competitive wages, benefits and professional growth opportunities. Many of the entities, including
investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies, which compete for experienced personnel with GECM, have greater resources than GECM.
We depend on the diligence, skill, judgment, network of business contacts and personal reputations of certain key personnel of GECM and our
future success depends on their continued service. The departure or misconduct of any of these individuals, or of a significant number of the investment professionals or partners of GECM, could have a material adverse effect on our business,
financial condition or results of operations.
Our ability to grow depends on our ability to raise equity capital and/or access debt financing.
We intend to periodically access the capital markets to raise cash to fund new investments. We expect to continue to be treated as
a RIC and operate in a manner so as to qualify for the U.S. federal income tax treatment applicable to RICs. Among other things, in order to maintain our RIC status, we must distribute to our stockholders on a timely basis generally an amount equal
to at least 90% of our investment company taxable income (as defined by the Code), and, as a result, such distributions will not be available to fund new investments. As a result, we must borrow from financial institutions or issue additional
securities to fund our growth. Unfavorable economic or capital market conditions, including interest rate volatility, may increase our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend
credit to us. There has been and will continue to be uncertainty in the financial markets in general. An inability to successfully access the capital or credit markets for either equity or debt could limit our ability to grow our business and fully
execute our business strategy and could decrease our earnings, if any.
If the fair value of our assets declines substantially, we may
fail to maintain the asset coverage ratios imposed upon us by the Investment Company Act or our lenders. Any such failure, or a tightening or general disruption of the credit markets, would affect our ability to issue senior securities, including
borrowings, and pay dividends or other distributions, which could materially impair our business or our ability to qualify for RIC tax treatment under the Code.
In addition, with certain limited exceptions we are only allowed to borrow or issue debt securities or preferred stock such that our asset
coverage, as defined in the Investment Company Act, equals at least 150% immediately after such borrowing, which, in certain circumstances, may restrict our ability to borrow or issue debt securities or preferred stock. The amount of leverage that
we may employ will depend on GECM's and our Board's assessments of market and other factors at the time of any proposed borrowing or issuance of debt securities or preferred stock. We cannot assure you that we will be able to obtain lines
of credit at all or on terms acceptable to us.
Economic recessions or downturns could impair our portfolio companies and harm our operating
results.
The economy is subject to periodic downturns that, from time to time, result in recessions or more serious adverse
macroeconomic events. Our portfolio companies are susceptible to economic slowdowns or recessions and may be unable to repay loans or notes during these periods. Therefore, our non-performing assets may
increase and the value of our portfolio may decrease during these periods as we are required to record the market value of our investments. Adverse economic conditions may also decrease the value of collateral securing some of our investments and
the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.
Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by
lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.
Table of Contents
A portfolio company's failure to satisfy financial or operating covenants in its
agreements with us or other lenders could lead to defaults and, potentially, acceleration of the time when the debt obligations are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize
the portfolio company's ability to meet its obligations under the debt that we hold. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In
addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided significant managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors.
Global
economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.
The condition of the global financial market, as well as various social and political tensions in the United States and around the world, may
contribute to increased market volatility, may have long-term effects on the U.S. and worldwide financial markets, may cause economic uncertainties or deterioration in the United States and worldwide, and may subject our investments to heightened
risks.
These heightened risks could also include to: increased risk of default; greater social, trade, economic and political instability
(including the risk of war or terrorist activity); greater governmental involvement in the economy; greater governmental supervision and regulation of the securities markets and market participants resulting in increased expenses related to
compliance; greater fluctuations in currency exchange rates; controls or restrictions on foreign investment and/or trade, capital controls and limitations on repatriation of invested capital and on the ability to exchange currencies; inability to
purchase and sell investments or otherwise settle transactions (i.e., a market freeze); and unavailability of hedging techniques. During times of political uncertainty and/or change, global markets often become more volatile. Markets experiencing
political uncertainty and/or change could have substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations in inflation rates typically have negative effects on such countries' economies
and markets. Tax laws could change materially, and any changes in tax laws could have an unpredictable effect on us, our investments and our investors.
We may acquire other funds, portfolios of assets or pools of debt and those acquisitions may not be successful.
We may acquire other funds, portfolios of assets or pools of debt investments. Any such acquisition program has a number of risks, including
among others:
•
management's attention will be diverted from running our existing business by efforts to source, negotiate,
close and integrate acquisitions;
•
our due diligence investigation of potential acquisitions may not reveal risks inherent in the acquired business
or assets;
•
we may over-value potential acquisitions resulting in dilution to stockholders, incurrence of excessive
indebtedness, asset write downs and negative perception of our common stock;
•
the interests of our existing stockholders may be diluted by the issuance of additional shares of our common
stock or preferred stock;
•
we may borrow to finance acquisitions, and there are risks associated with borrowing as described in this
prospectus;
•
GECM has an incentive to increase our assets under management in order to increase its fee stream, which may not
be aligned with your interests;
•
we and GECM may not successfully integrate any acquired business or assets; and
Table of Contents
•
GECM may compensate the existing managers of any acquired business or assets in a manner that results in the
combined company taking on excessive risk.
Our failure to maintain our status as a BDC would reduce our operating flexibility.
We elected to be regulated as a BDC under the Investment Company Act. The Investment Company Act imposes numerous constraints on
the operations of BDCs and their external advisers. For example, BDCs are required to invest at least 70% of their gross assets in specified types of securities, primarily in private companies or illiquid U.S. public companies below a certain market
capitalization, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Furthermore, any failure to comply with the requirements imposed on BDCs by the Investment Company Act could
cause the SEC to bring an enforcement action against us and/or expose us to claims of private litigants. In addition, upon approval of a majority of our voting securities (as defined under the Investment Company Act), we may elect to withdraw our
status as a BDC. If we decide to withdraw our BDC election, or if we otherwise fail to qualify, or to maintain our qualification, as a BDC, we may be subject to substantially greater regulation under the Investment Company Act as a closed-end management investment company. Compliance with such regulations would significantly decrease our operating flexibility and would significantly increase our costs of doing business.
Regulations governing our operations as a BDC affect our ability to raise additional capital and the way in which we do so. As a BDC, the necessity of
raising additional capital may expose us to risks, including the typical risks associated with leverage.
We may issue debt
securities or preferred stock and/or borrow money from banks or other financial institutions, referred to collectively as “senior securities,” up to the maximum amount permitted under the Investment Company Act. Under the provisions of the
Investment Company Act applicable to BDCs, we are permitted to issue senior securities (e.g., notes and preferred stock) in amounts such that our asset coverage ratio, as defined in the Investment Company Act, equals at least 150% of gross assets
less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion
of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions
to our stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss.
Our Board may change our investment objectives, operating policies and strategies without prior notice or stockholder approval, the effects of which may
be adverse.
Our Board has the authority to modify or waive our investment objectives, current operating policies, investment
criteria and strategies without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, NAV and operating results.
We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representing
such income.
For U.S. federal income tax purposes, we may be required to include in income certain amounts before our receipt of
the cash attributable to such amounts, such as OID on a debt instrument, which generally is required to be taken into account for U.S. federal income tax purposes throughout the term of the debt instrument on a constant yield basis. Also, we may be
required to include in income other amounts that we will not receive in cash, including, for example, non-cash income from deferred payment securities and hedging and foreign currency transactions. In
addition, we intend to seek debt investments in the secondary market that represent attractive risk-adjusted returns, taking into account both stated interest rates and current market discounts to par
Table of Contents
value. Such market discount may be included in income before we receive any corresponding cash payments (depending on whether certain elections are made). Certain of our debt investments earn PIK
interest, resulting in income without receipt of cash.
Since we may recognize income before or without receiving cash representing such
income, we may have difficulty meeting the U.S. federal income tax requirement to distribute generally an amount equal to at least 90% of our investment company taxable income to maintain our ability to generally avoid being subject to U.S. federal
income tax at the corporate level. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution
requirements. If we are not able to obtain cash from other sources, we may fail to qualify as a RIC and thus be subject to additional corporate-level income taxes.
However, in order to satisfy the Annual Distribution Requirement (as defined below) for a RIC, we may, but have no current intention to,
declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal
income tax purposes. As a result, a stockholder would be taxed on 100% of the fair market value of the shares received as part of the dividend on the date a stockholder received it in the same manner as a cash dividend, even though most of the
dividend was paid in shares of our common stock.
We may expose ourselves to risks associated with the inclusion of non-cash income prior to receipt of cash.
To the extent we invest in debt instruments that
result in OID for U.S. federal income tax purposes, including PIK loans, zero coupon bonds, and debt securities with attached warrants, investors will be exposed to the risks associated with the inclusion of such non-cash income in taxable and accounting income prior to receipt of cash.
The deferred nature of
payments on PIK loans creates specific risks. Interest payments deferred on a PIK loan are subject to the risk that the borrower may default when the deferred payments are due in cash at the maturity of the loan. Since the payment of PIK income does
not result in cash payments to us, we may also have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations (and thus hold higher cash or cash
equivalent balances, which could reduce returns) to pay our expenses or make distributions to stockholders in the ordinary course of business, even if such loans do not default. An election to defer PIK interest payments by adding them to principal
increases our gross assets and, thus, increases future base management fees to GECM and, because interest payments will then be payable on a larger principal amount, the PIK election also increases GECM's future Income Incentive Fees at a
compounding rate. The deferral of interest on a PIK loan increases its loan-to-value ratio, which is a measure of the riskiness of a loan.
More generally, market prices of OID instruments are more volatile because they are impacted to a greater extent by interest rate changes than
instruments that pay interest periodically in cash. Ordinarily, OID would also create the risk of non-refundable cash payments to GECM based on non-cash accruals that
may never be realized; however, this risk is mitigated since the Investment Management Agreement requires GECM to defer any incentive fees on Accrued Unpaid Income (as defined below), the effect of which is that Income Incentive Fees otherwise
payable with respect to Accrued Unpaid Income become payable only if, as, when and to the extent cash is received by us or our consolidated subsidiaries in respect thereof.
Additionally, as described above, we may be required to make distributions of non-cash income to
stockholders without receiving any cash so as to satisfy certain requirements necessary to maintain our ability to generally avoid being subject to corporate level income taxation. Such required cash distributions may have to be paid from the sale
of our assets without investors being given any notice of this fact. The required recognition of non-cash income, including OID, for U.S. federal income tax purposes may have a negative impact on liquidity
Table of Contents
because it represents a non-cash component of our taxable income that must, nevertheless, be distributed to investors to avoid us being subject to
corporate level taxation.
We may choose to pay distributions in our own stock, in which case stockholders may be required to pay tax in excess of
the cash they receive.
We may distribute a portion of our taxable distributions in the form of shares of our stock. In accordance
with certain applicable U.S. Treasury regulations and other related administrative pronouncements issued by the Internal Revenue Service (the “IRS”), a RIC may be eligible to treat a distribution of its own stock as fulfilling its RIC
distribution requirements if each stockholder is permitted to elect to receive its entire distribution in either cash or stock of the RIC, subject to the satisfaction of certain guidelines. If too many stockholders elect to receive cash, each
stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the distribution
paid in stock generally will be equal to the amount of cash that could have been received instead of stock. Taxable stockholders receiving such distributions will be required to include the full amount of the distribution as ordinary income (or as
long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of their share of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S.
stockholder may be subject to tax with respect to such distributions in excess of any cash received. If a U.S. stockholder sells the stock it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount
included in income with respect to the distribution, depending on the market price of our stock at the time of the sale, which would result in a capital loss, the deductibility of which is subject to limitations. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distributions, including in respect of all or a portion of such distribution that is payable in stock. In addition, if a
significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on distributions, such sales may put downward pressure on the trading price of our stock.
We may expose our self to risks if we engage in hedging transactions.
If we engage in hedging transactions, we may expose our self to risks associated with such transactions. We may utilize instruments such as
forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging
against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. Such hedging transactions may also limit the
opportunity for gain if the values of the underlying portfolio positions increase. It may not be possible to hedge against an exchange rate or interest rate fluctuation that is generally anticipated because we may not be able to enter into a hedging
transaction at an acceptable price. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged.
Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be
possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result
of factors not related to currency fluctuations.
We will be subject to corporate-level U.S. federal income tax if we are unable to meet certain RIC
qualification and distribution requirements under the Code.
No assurance can be given that we will be able to qualify for and
maintain RIC status and generally avoid corporate-level U.S. federal income taxation. To maintain RIC tax treatment under the Code, we must meet certain annual distribution, source of income and asset diversification requirements.
Table of Contents
The Annual Distribution Requirement (as defined below) for a RIC will be satisfied if we
distribute to our stockholders on an annual basis at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we may use debt financing, we may be subject to
asset coverage ratio requirements under the Investment Company Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution
requirement. If we are unable to make the required distributions, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.
The source of income requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from
the sale of stock or securities or similar sources.
The asset diversification requirement will be satisfied if we meet certain asset
diversification requirements at the end of each quarter of our taxable year. Failure to meet the asset diversification requirements could result in us having to dispose of investments quickly in order to prevent the loss of RIC status. Because most
of our investments will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. Further, the illiquidity of our investments may make them difficult or impossible to dispose of in
a timely manner.
If we fail to qualify for RIC tax treatment for any reason and become subject to corporate U.S. federal income tax, the
resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions and the value of our shares of common stock.
We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our
business.
Legislative or other actions relating to taxes could have a negative effect on us. The rules dealing with U.S. federal
income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. We cannot predict with certainty how any changes in the tax laws might affect us, our
stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax
treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Investors are urged to consult with their tax advisors regarding tax legislative, regulatory
or administrative developments and proposals and their potential effect on an investment in our securities.
The incentive fee structure and the
formula for calculating the management fee may incentivize GECM to pursue speculative investments, advise us to use leverage when it may be unwise to do so, or advise us to refrain from reducing debt levels when it would otherwise be appropriate to
do so.
The incentive fee payable by us to GECM creates an incentive for GECM to pursue investments on our behalf that are riskier
or more speculative than would be the case in the absence of such a compensation arrangement. The incentive fee payable to GECM is calculated based on a percentage of our return on invested capital. In addition, GECM's base management fee is
calculated on the basis of our gross assets, including assets acquired through the use of leverage. This may encourage GECM to use leverage to increase the aggregate amount of and the return on our investments, even when it may not be appropriate to
do so, and to refrain from reducing debt levels when it would otherwise be appropriate to do so. The use of leverage increases our likelihood of default, which would impair the value of our securities. In addition, GECM will receive the incentive
fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there will be no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result,
GECM may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in us investing in more speculative securities than would otherwise be
the case, which could result in higher investment losses, particularly during economic downturns.
Table of Contents
We may invest in the securities and instruments of other investment companies, including
private funds, and we will bear our ratable share of any such investment company's expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to GECM with respect to the assets
invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our stockholders will bear its share of the management and incentive fee payable to GECM, as well as indirectly bearing the
management and performance fees and other expenses of any investment companies in which we invest.
In addition, if we purchase our debt
instruments and such purchase results in our recording a net gain on the extinguishment of debt for financial reporting and tax purposes, such net gain will be included in our pre-incentive fee net investment
income for purposes of determining the Income Incentive Fee payable to GECM under the Investment Management Agreement.
Finally, the
incentive fee payable by us to GECM also may create an incentive for GECM to invest on our behalf in instruments that have a deferred interest feature such as investments with PIK provisions. Under these investments, we would accrue the interest
over the life of the investment but would typically not receive the cash income from the investment until the end of the term or upon the investment being called by the issuer. Our net investment income used to calculate the income portion of our
incentive fee, however, includes accrued interest. The portion of the incentive fee that is attributable to deferred interest, such as PIK, will not be paid to GECM until we receive such interest in cash. Even though such portion of the incentive
fee will be paid only when the accrued income is collected, the accrued income is capitalized and included in the calculation of the base management fee. In other words, when deferred interest income (such as PIK) is accrued, a corresponding Income
Incentive Fee (if any) is also accrued (but not paid) based on that income. After the accrual of such income, it is capitalized and added to the debt balance, which increases our total assets and thus the base management fee paid following such
capitalization. If any such interest is reversed in connection with any write-off or similar treatment of the investment, we will reverse the Income Incentive Fee accrual and an Income Incentive Fee will not
be payable with respect to such uncollected interest. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become
uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees.
We may be obligated to pay our investment
adviser certain fees even if we incur a loss.
Our Investment Advisory Agreement entitles the Adviser to receive an income-based
incentive fee regardless of any capital losses. In such case, we may be required to pay the Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter.
In addition, any income-based incentive fee may be computed and paid on income that may include interest that has been accrued but not yet
received. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. The Adviser is not under
any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such
circumstances would result in our paying an incentive fee on income we never received.
A general increase in interest rates will likely have the
effect of making it easier for GECM to receive incentive fees, without necessarily resulting in an increase in our net earnings.
Given the structure of the Investment Management Agreement, any general increase in interest rates will likely have the effect of making it
easier for GECM to meet the quarterly hurdle rate for payment of Income Incentive Fees under the Investment Management Agreement without any additional increase in relative performance on the part of GECM. In addition, in view of the catch-up provision applicable to Income Incentive
Table of Contents
Fees under the Investment Management Agreement, GECM could potentially receive a significant portion of the increase in our investment income attributable to such a general increase in interest
rates. If that were to occur, our increase in net earnings, if any, would likely be significantly smaller than the relative increase in GECM's Income Incentive Fee resulting from such a general increase in interest rates.
GECM has the right to resign on 60 days' notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption
in our operations that could adversely affect our financial condition, business and results of operations.
GECM has the right,
under the Investment Management Agreement, to resign at any time upon not more than 60 days' written notice, whether we have found a replacement or not. If GECM resigns, we may not be able to find a new investment adviser or hire internal
management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption; our financial condition,
business and results of operations, as well as our ability to pay distributions are likely to be adversely affected; and the market price of our common stock may decline. In addition, the coordination of our internal management and investment
activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates. Even if we are able to retain comparable
management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective and current investment portfolio may result in additional costs and time delays that may adversely affect our
financial condition, business and results of operations.
We incur significant costs as a result of being a publicly traded company.
As a publicly traded company, we incur legal, accounting and other expenses, including costs associated with the periodic reporting
requirements applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act of 2010 and other
rules implemented by our government.
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter
our business strategy.
We and our portfolio companies are subject to applicable local, state and federal laws and regulations. New
legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and you, potentially with retroactive effect.
Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourself of new or different opportunities. Such changes could result in
material differences to the strategies and plans and may result in our investment focus shifting from the areas of expertise of GECM to other types of investments in which the investment committee may have less expertise or little or no experience.
Thus, any such changes, if they occur, could have a material adverse effect on our results of operations.
There is, and will be, uncertainty as to
the value of our portfolio investments.
Under the Investment Company Act, we are required to carry our portfolio investments at
market value or, if there is no readily available market value, at fair value as determined by us in accordance with our written valuation policy, with our Board having final responsibility for overseeing, reviewing and approving, in good faith, our
estimate of fair value. Often, there will not be a public market for the securities of the privately held companies in which we invest. As a result, we will value these securities on a quarterly basis at fair value based on input from management,
third-party independent valuation firms and our audit committee, with the oversight, review and approval of our Board. We consult with an independent valuation firm in valuing all securities in which we invest classified as “Level 3,”
other than investments which are less than 1% of NAV as of the applicable quarter end.
Table of Contents
The determination of fair value and consequently, the amount of unrealized gains and losses
in our portfolio, are subjective and dependent on a valuation process approved and overseen by our Board. Factors that may be considered in determining the fair value of our investments include, among others, estimates of the collectability of the
principal and interest on our debt investments and expected realization on our equity investments, as well as external events, such as private mergers, sales and acquisitions involving comparable companies. Because such valuations, and particularly
valuations of private securities and private companies and small cap public companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. Our determinations of fair value may differ materially from
the values that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our NAV on a given date to materially misstate the value that we may ultimately realize on one or
more of our investments. As a result, investors purchasing our securities based on an overstated NAV would pay a higher price than the value of our investments might warrant. Conversely, investors selling securities during a period in which the NAV
understates the value of our investments will receive a lower price for their securities than the value of our investments might otherwise warrant.
Our financial condition and results of operations depend on our ability to effectively manage and deploy capital.
Our ability to achieve our investment objective depends on our ability to effectively manage and deploy capital, which depends, in turn, on
GECM's ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that meet our investment criteria.
Accomplishing our investment objective on a cost-effective basis is largely a function of GECM's handling of the investment process, its
ability to provide competent, attentive and efficient services and its access to investments offering acceptable terms. In addition to monitoring the performance of our existing investments, GECM may also be called upon, from time to time, to
provide managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow the rate of investment.
Even if we are able to grow and build out our investment operations, any failure to manage our growth effectively could have a material
adverse effect on our business, financial condition, results of operations and prospects. Our results of operations will depend on many factors, including the availability of opportunities for investment, readily accessible short and long-term
funding alternatives in the financial markets and economic conditions.
We may hold assets in cash or short-term treasury securities in
situations where we or GECM expects downward pricing in the high yield market. Our strategic decision not to be fully invested may, from time to time, reduce funds available for distribution and cause downward pressure on the price of our common
stock.
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management
continuity planning, could impair our ability to conduct business effectively.
The occurrence of a disaster such as a
cyber-attack, a natural catastrophe, an epidemic or pandemic, an industrial accident, a terrorist attack or war, events anticipated or unanticipated in our disaster recovery systems, or a failure in externally provided data systems, could have an
adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage and retrieval systems or destroy data. Our
ability to effectively conduct our business could be severely compromised. The financial markets we operate in are dependent upon third-party data systems to link buyers and sellers and provide pricing information.
We depend heavily upon computer systems to perform necessary business functions. Our computer systems could be subject to cyber-attacks and
unauthorized access, such as physical and electronic break-ins or
Table of Contents
unauthorized tampering. Like other companies, we expect to experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and
disruptions. These failures and disruptions may be more likely to occur as a result of employees working remotely. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed
and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory
penalties and/or customer dissatisfaction or loss, respectively.
We are dependent on information systems and systems failures could significantly
disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.
Our
business is dependent on our and third parties' communications and information systems. Further, in the ordinary course of our business we or GECM may engage third party service providers to provide us with services necessary for the operation
of our business. Any failure or interruption of such systems or services could cause delays or other problems in our business activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to
operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. Such events, in turn, could have a material adverse effect on our
business, financial condition and operating results and adversely impact our business, financial condition or results of operations.
Ineffective
internal controls could impact our business and operating results.
Our internal control over financial reporting may not prevent
or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the
preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation,
our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
Terrorist attacks, acts of war,
natural disasters or an epidemic or pandemic may affect the market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition.
Terrorist acts, acts of war, natural disasters or an epidemic or pandemic may disrupt our operations, as well as the operations of the
businesses in which we invest. Such acts, including, for example, Russia's February 2022 invasion of Ukraine and conflicts in the Middle East, have created, and continue to create, economic and political uncertainties and have contributed to
global economic instability. Additionally, a public health epidemic or pandemic, poses the risk that we, GECM, our portfolio companies or other business partners may be prevented from conducting business activities for an indefinite period of time,
including due to shutdowns that may be requested or mandated by governmental authorities. While it is not possible at this time to estimate the impact that any such event could have on our business, the continued occurrence thereof and the measures
taken by the governments of countries affected in response thereto could disrupt the supply chain and the manufacture or shipment of products and adversely impact our business, financial condition or results of operations.
Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and
create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. Losses from
terrorist attacks and natural disasters are generally uninsurable.
There are significant potential conflicts of interest that could impact our
investment returns.
Conflicts may arise in allocating and structuring investments, time, services, expenses or resources among the
investment activities of GECC, GECM, other GECM-affiliated entity and the employees of GECM. Certain
Table of Contents
of our executive officers and directors, and the members of the investment committee of GECM, serve or may serve as officers, directors or principals of entities, including ICAM or funds managed
by ICAM, and affiliates of GECM and investment funds managed by our affiliates, that operate in the same or related lines of business as GECC. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not
be in our or our stockholders' best interests or that may require them to devote time to services for other entities, which could interfere with the time available to provide services to us. For example, Matt Kaplan, our President and Chief
Executive Officer, is a portfolio manager at GECM and a member of its investment committee. Further, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with GECM and any
advisers that may in the future become affiliated with GEG. GEG, the parent company of GECM, currently holds approximately 12.5% of our outstanding common stock.
Although funds managed by GECM may have different primary investment objectives than us, they may from time to time invest in asset classes
similar to those we target. GECM is not restricted from raising an investment fund with investment objectives similar to ours. Any such funds may also, from time to time, invest in asset classes similar to those targeted by, and eligible for
purchase by, us. GECM will endeavor to allocate investment opportunities in a fair and equitable manner, and in any event consistent with any duties owed to us and such other funds. It is possible that we may not be given the opportunity to
participate in investments made by investment funds managed by investment managers affiliated with GECM. To the extent that we compete with entities managed by GECM or any of its affiliates for a particular investment opportunity, GECM will allocate
investment opportunities across the entities for which such opportunities are appropriate, consistent with (1) its internal investment allocation policies (which provides that no allocation decisions may be based on the fees or allocations paid
by a particular client), (2) the requirements of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and (3) restrictions under the Investment Company Act regarding co-investments with affiliates, including the requirements of the Exemptive Relief Order (as defined below).
Our participation in any negotiated co-investment opportunities (other than those in which the only
term negotiated is price) with investment funds managed by investment managers under common control with GECM (as well as with proprietary accounts of an affiliate of GECM) is subject to compliance with the SEC order dated October 2, 2024 (the
“Exemptive Relief Order”). The allocation of all or a portion of an investment opportunity to co-investors could result in lower returns for us than had we taken the full opportunity for ourself.
There may be certain investment opportunities that fall outside the scope of the Relief or otherwise may not be permitted to be allocated to us. Accordingly, we may not be able to participate in all investment opportunities that GECM determines
would otherwise be suitable for us.
We pay management and incentive fees to GECM, and reimburse GECM for certain expenses it incurs. In
addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments.
GECM's management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets purchased
with borrowed funds and other forms of leverage) and GECM may have conflicts of interest in connection with decisions that could affect our total assets, such as decisions as to whether to incur indebtedness. The use of leverage increases the
likelihood of default on our debt or other leverage, which would disfavor investors in our common stock.
The part of the incentive fee
payable by us that relates to our pre-incentive fee net investment income is computed on income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only
once corresponding income is received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become
uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees. On April 6, 2022, our Board and the independent directors approved the amendment to the Investment Management Agreement (the
“Amendment”) to eliminate $163.2 million of realized and unrealized
Table of Contents
losses incurred prior to April 1, 2022 from the calculation of the Capital Gains Incentive Fee and reset the Capital Gains Commencement Date (as defined below) and the mandatory deferral
commencement date, effectively resetting the incentive fee total return hurdle, which was subsequently approved by our stockholders on August 1, 2022.
The Investment Management Agreement renews for successive annual periods if approved by our Board or by the affirmative vote of the holders of
a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons. However, we and GECM each have the right to terminate the agreement without penalty upon 60
days' written notice to the other party. Moreover, conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms for compensation. Except in limited circumstances,
any material change to the Investment Management Agreement must be submitted to our stockholders for approval under the Investment Company Act, and we may from time to time decide it is appropriate to seek stockholder approval to change the terms of
the agreement.
Pursuant to the Administration Agreement, we pay GECM our allocable portion of overhead and other expenses incurred by
GECM in performing its obligations under the Administration Agreement, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
As a result of the arrangements described above, there may be times when our management team has interests that differ from those of our
stockholders, giving rise to a conflict. We and GECM have adopted compliance policies and procedures that are reasonably designed to address the various conflicts of interest that may arise in good faith.
Our stockholders may have conflicting investment, tax and other objectives with respect to their investments in us. The conflicting interests
of individual stockholders may relate to or arise from, among other things, the nature of our investments, the structure or the acquisition of our investments, and the timing of disposition of our investments. As a consequence, conflicts of interest
may arise in connection with decisions we make, including with respect to the nature or structuring of our investments, that may be more beneficial for one stockholder than for another stockholder, especially with respect to stockholders'
individual tax situations. In selecting and structuring investments appropriate for us, GECM will consider our investment and tax objectives and our stockholders, as a whole, not the investment, tax or other objectives of any stockholder
individually.
Our investment adviser's liability is limited under the investment advisory and management agreement, and we are required to
indemnify our investment adviser against certain liabilities, which may lead our investment adviser to act in a riskier manner on our behalf than it would when acting for its own account.
GECM has not assumed any responsibility to us other than to render the services described in the Investment Management Agreement, and it will
not be responsible for any action of our board of directors in declining to follow GECM's advice or recommendations. Pursuant to the Investment Management Agreement, GECM, its members and their respective officers, managers, partners, agents,
employees, controlling persons and members and any other persons affiliated with it will not be liable to us for their acts under the Investment Management Agreement, absent willful misfeasance, bad faith, gross negligence or reckless disregard in
the performance of their duties. We have agreed to indemnify, defend and protect GECM, its members and their respective officers, managers, partners, agents, employees, controlling persons and members and any other persons or entities affiliated
with it with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance of any of GECM's duties or obligations under the Investment Management Agreement or otherwise as an investment adviser
for us, and not arising out of willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties under the Investment Management Agreement. These protections may lead GECM to act in a riskier manner when
acting on our behalf than it would when acting for its own account.
Table of Contents
Risks Relating to Our Common Stock
Our common stock price may be volatile and may decrease substantially, and an investor may lose money in connection with an investment in our shares.
The trading price of our common stock will likely fluctuate substantially. The price of our common stock may increase or decrease,
depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:
•
price and volume fluctuations in the overall stock market from time to time;
•
investor demand for our shares;
•
significant volatility in the market price and trading volume of securities of BDCs or other companies in our
sector, which are not necessarily related to the operating performance of these companies;
•
exclusion of our common stock from certain indices, such as the Russell 2000 Financial Services Index, which
could reduce the ability of certain investment funds to own our common stock and put short-term selling pressure on our common stock;
•
changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs or
BDCs;
•
failure to qualify as a RIC, or the loss of RIC status;
•
changes in market interest rates and decline in the prices of debt;
•
any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities
analysts;
•
changes, or perceived changes, in the value of our portfolio investments;
•
departures of GECM's key personnel;
•
operating performance of companies comparable to GECC; or
•
general economic conditions and trends and other external factors.
In addition, sales of a substantial number of shares of our common stock in the public market, or the market perception that the holders of a
large number of shares intend to sell shares, could reduce the market price of our common stock. If the price of shares of our common stock decreases for any of these or other reasons, an investor may lose money if he were to sell his shares of our
common stock.
In addition, following periods of volatility in the market price of a company's securities, securities class action
litigation has often been brought against that company. Due to the potential volatility of the price of our securities, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and
divert management's attention and resources from our business.
Provisions of the Maryland General Corporation Law and our organizational
documents could deter takeover attempts and have an adverse impact on the prices of our common stock.
The Maryland General
Corporation Law and our organizational documents contain provisions that may discourage, delay or make more difficult a change in control of GECC or the removal of our directors. Our Board has adopted a resolution that any business combination
between us and any other person is exempted from the provisions of the Maryland Business Combination Act, provided that the business combination is first approved by our Board, including a majority of the directors who are not interested persons as
defined in the Investment Company Act. This resolution may be altered or repealed in whole or in part at any time; however, our Board will adopt resolutions so as to make us subject to the provisions of the Maryland Business Combination Act only if
our Board determines that it would be in our best interests and if the SEC staff does not object to our
Table of Contents
determination that GECC being subject to the Business Combination Act does not conflict with the Investment Company Act. If this resolution is repealed, or the Board does not otherwise approve a
business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Our Board could amend our bylaws to repeal our current exemption from the Maryland Control Share
Acquisition Act. The Maryland Control Share Acquisition Act also may make it more difficult for a third party to obtain control of GECC and increase the difficulty of consummating such a transaction.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that
may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland,
or, if that Court does not have jurisdiction, the U.S. District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for: (a) any derivative action or proceeding brought on our behalf, (b) any action
asserting a claim of breach of any duty owed by any of our directors or officers or other employees to us or to our stockholders, (c) any action asserting a claim against us or any of our directors or officers or other employees arising
pursuant to any provision of the MGCL or our charter or bylaws or (d) any action asserting a claim against us or any of our directors or officers or other employees that is governed by the internal affairs doctrine. Any person or entity
purchasing or otherwise acquiring or holding any interest in shares of our common stock shall be deemed to have notice of and to have consented and waived any objection to this exclusive forum provision of our bylaws, as the same may be amended from
time to time. Our board of directors, without stockholder approval, adopted this exclusive forum provision so that we can respond to such litigation more efficiently, reduce the costs associated with our responses to such litigation, particularly
litigation that might otherwise be brought in multiple forums, and make it less likely that plaintiffs' attorneys will be able to employ such litigation to coerce us into otherwise unjustified settlements. However, this exclusive forum
provision may limit a stockholder's ability to bring a claim in a judicial forum that such stockholder believes is favorable for disputes with us or our directors, officers or other employees, if any, and may discourage lawsuits against us and
our directors, officers or other employees, if any. We believe the risk of a court declining to enforce this exclusive forum provision is remote, as the General Assembly of Maryland has specifically amended the MGCL to authorize the adoption of such
provision. However, if a court were to find such provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings notwithstanding that the MGCL expressly provides that the charter or bylaws of a
Maryland corporation may require that any claim of the sort mentioned above be brought in courts sitting in one or more specified jurisdictions, we may incur additional costs that we do not currently anticipate associated with resolving such matters
in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
Our Board is authorized to
reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.
Under the Maryland General Corporation Law and our organizational documents, our Board is authorized to classify and reclassify any authorized
but unissued shares of stock into one or more classes of stock, including preferred stock. Prior to issuance of shares of each class or series, our Board is required by Maryland law and our charter to set the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, our Board could authorize the issuance of shares of preferred stock with
terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve premium prices for holders of our common stock or otherwise be in their best interest. The cost of any such
reclassification would be borne by our common stockholders. Certain matters under the Investment Company Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote
as a separate class from the holders of common stock on a proposal to cease
Table of Contents
operations as a BDC. In addition, the Investment Company Act provides that holders of preferred stock are entitled to vote separately from holders of common stock to elect two preferred stock
directors. The issuance of preferred stock convertible into shares of common stock may also reduce the net income and NAV per share of our common stock upon conversion. These effects, among others, could have an adverse effect on an investment in
our common stock.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount
from their NAV.
Shares of closed-end investment companies, including BDCs, frequently
trade at a discount from their NAV. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share of common stock may decline. It is not possible to
accurately predict whether any shares of our common stock will trade at, above, or below net asset value. In the recent past, the stocks of BDCs as an industry, including at times shares of our common stock, have traded below net asset value.
When our common stock is trading below its net asset value per share, we will generally not be able to issue additional shares of our common
stock at its market price without first obtaining approval for such issuance from our stockholders and our independent directors. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below
the then-current NAV per share of our common stock if our Board determines that such sale is in the best interests of GECC and our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not
be less than a price that, in the determination of our Board, equals the fair value of such securities (less any distributing commission or discount calculated). If we raise additional funds by issuing more common stock or senior securities
convertible into, or exchangeable for, our common stock, then the percentage of our existing stockholders' ownership at that time will decrease, and they may experience dilution.
Our stockholders may not receive distributions or our distributions may not grow over time and a portion of our distributions may be a return of
capital.
We intend to make distributions to our stockholders out of assets legally available for distribution (i.e., not subject
to any legal restrictions under Maryland law on the distribution thereof). We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this document. Due to the asset
coverage test applicable to us under the Investment Company Act as a BDC, we may be limited in our ability to make distributions.
When we
make distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of an investor's basis in our stock and, assuming that an investor holds our stock as a capital asset, thereafter as a capital gain. Stockholders who periodically
receive the payment of a distribution consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Stockholders should not assume that the source of a distribution from us is net profit.
We currently intend to distribute realized net capital gains (i.e., net long term capital gains in excess of short term capital losses), if
any, at least annually, though we may in the future decide to retain such capital gains for investment and elect to treat such gains as deemed distributions to our stockholders. If this happens, you will be treated as if you had received an actual
distribution of the capital gains we retain and reinvested the net after tax proceeds in GECC. In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we
paid on the capital gains deemed distributed to you.
Our current intention is to make any distributions in additional shares of our
common stock under our dividend reinvestment plan out of assets legally available therefor, unless you elect to receive your distributions
Table of Contents
and/or long-term capital gains distributions in cash. If you hold shares in the name of a broker or financial intermediary, you should contact the broker or financial intermediary regarding your
election to receive distributions in cash.
We can offer no assurance that we will achieve results that will permit the payment of any
cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the Investment Company Act or if distributions are limited by
the terms of any of our borrowings.
Stockholders may experience dilution in their ownership percentage if they do not participate in our dividend
reinvestment plan.
All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment
plan are generally automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time. Stockholders who receive distributions in shares of
common stock may experience accretion to the NAV of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the
proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.
Existing stockholders may incur dilution if, in the future, we sell shares of our common stock in one or more offerings at prices below the then current
NAV per share of our common stock.
The Investment Company Act prohibits us from selling shares of our common stock at a price
below the current NAV per share of such stock, with certain exceptions. Our shares might trade at premiums that are unsustainable or at discounts from NAV.
Shares of BDCs like us may, during some periods, trade at prices higher than their NAV per share and, during other periods, as frequently
occurs with closed-end investment companies, trade at prices lower than their NAV per share. The perceived value of our investment portfolio may be affected by a number of factors including perceived prospects
for individual companies we invest in, market conditions for common stock generally, for initial public offerings and other exit events for venture capital backed companies, and the mix of companies in our investment portfolio over time. Negative or
unforeseen developments affecting the perceived value of companies in our investment portfolio could result in a decline in the trading price of our common stock relative to our NAV per share.
The possibility that our shares will trade at a discount from NAV or at premiums that are unsustainable are risks separate and distinct from
the risk that our NAV per share will decrease. The risk of purchasing shares of a BDC that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period of time
because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in NAV per share.
If we were to sell shares of our common stock below its then current NAV per share, such sales would result in an immediate dilution to the
NAV per share of our common stock. This dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in the stockholders' interest in our
earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual
dilutive effect cannot be predicted.
In addition, if we issue warrants or securities to subscribe for or convertible into shares of our
common stock, subject to certain limitations, the exercise or conversion price per share could be less than NAV per share
Table of Contents
at the time of exercise or conversion (including through the operation of anti-dilution protections). Because we would incur expenses in connection with any issuance of such securities, such
issuance could result in a dilution of the NAV per share at the time of exercise or conversion. This dilution would include reduction in NAV per share as a result of the proportionately greater decrease in the stockholders' interest in our
earnings and assets and their voting interest than the increase in our assets resulting from such issuance.
Future offerings of debt securities,
which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock.
In the future, we may attempt to increase our capital resources by making offerings of debt or equity securities, including
commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock or common stock, subject to the restrictions of the Investment Company Act. Upon a liquidation of our company, holders of our debt securities and shares
of preferred stock and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings by us may dilute the holdings of our existing stockholders or
reduce the value of our common stock, or both. Any preferred stock we may issue would have a preference on distributions that could limit our ability to make distributions to the holders of our common stock. Because our decision to issue securities
in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing
the market price of our common stock and diluting their stock holdings in us. In addition, proceeds from a sale of common stock will likely be used to increase our total assets or to pay down our borrowings, among other uses. This would increase our
asset coverage ratio and permit us to incur additional leverage under rules pertaining to BDCs by increasing our borrowings or issuing senior securities such as preferred stock or additional debt securities.
Risks Relating to Indebtedness
We may borrow
additional money, which would magnify the potential for loss on amounts invested and may increase the risk of investing with us.
We have existing indebtedness and may in the future borrow additional money, including borrowings under the Loan, Guarantee and Security
Agreement, as amended (the “Loan Agreement”), dated as of May 5, 2021, with City National Bank (“CNB”), each of which magnifies the potential for loss on amounts invested and may increase the risk of investing with us.
Although the terms of some of the agreements governing our existing indebtedness contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the
indebtedness incurred in compliance with these restrictions could be substantial and could be secured. Our ability to service our existing and potential future debt depends largely on our financial performance and is subject to prevailing economic
conditions and competitive pressures. The amount of leverage that we could employ at any particular time will depend on GECM's and our Board's assessment of market and other factors at the time of any proposed borrowing.
Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated
with investing in our securities. Holders of such debt securities would have fixed dollar claims on our consolidated assets that would be superior to the claims of our common stockholders or any preferred stockholders.
If the value of our consolidated assets decreases while we have debt outstanding, leveraging would cause our NAV to decline more sharply than
it otherwise would have had we not leveraged. Similarly, any decrease in our consolidated income while we have debt outstanding would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively
affect our ability to make common stock distributions. We cannot assure you that our leveraging strategy will be successful.
Table of Contents
Illustration. The following tables illustrate the effect of leverage on returns from
an investment in our common stock assuming various annual returns, net of expenses. The first table assumes the actual amount of senior securities outstanding as of September 30, 2024. The second table assumes the maximum amount of senior
securities outstanding as permitted under our asset coverage ratio of 150%. The calculations in the tables below are hypothetical and actual returns may be higher or lower than those appearing below.
Table 1
Assumed Return on Our Portfolio (net of
expenses)
Corresponding net return to common stockholder
Assumes $333.3 million in total portfolio assets, excluding short term investments, $195.2 million in
senior securities outstanding, $125.8 million in net assets, and an average cost of funds of 7.7%. Actual interest payments may be different.
In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our
September 30, 2024 total portfolio assets of at least 4.51%.
Table 2
Assumed Return on Our Portfolio (net of
expenses)
Corresponding net return to common stockholder
Assumes $389.7 million in total portfolio assets, excluding short term investments, $251.7 million in
senior securities outstanding, $125.8 million in net assets, and an average cost of funds of 7.7%. Actual interest payments may be different.
In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our
September 30, 2024 total portfolio assets of at least 4.97%.
Incurring additional indebtedness could increase the risk in
investing in our Company.
In 2018, our stockholders approved of the reduction of our required minimum asset coverage ratio from
200% to 150%, permitting us to incur additional leverage. The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks
associated with investing in our securities.
As of September 30, 2024, we had approximately $235.3 million of total outstanding
indebtedness in the aggregate under five series of senior securities (unsecured notes)—the GECCM Notes, the GECCO Notes, the GECCZ Notes, the GECCI Notes and the GECCH Notes —and our asset coverage ratio was 166.2%. On October 12,
2024, we redeemed all of the issued and outstanding GECCM Notes at 100% of the principal amount plus accrued and unpaid interest thereon from September 30, 2024 through, but not excluding, the redemption date, October 12, 2024.
On May 5, 2021, we entered into the Loan Agreement, which provides for a senior secured revolving line of credit of up to
$25 million (subject to a borrowing base). As of September 30, 2024, there were no borrowings outstanding under the Loan Agreement. We may request to increase the revolving line in an aggregate amount not to exceed $25 million, which
increase is subject to the sole discretion of CNB.
If we are unable to meet the financial obligations under any of the Loan Agreement or
any series of our outstanding unsecured notes, the holders of such indebtedness would have a superior claim to our assets over our common stockholders, and the lenders or noteholders may seek to recover against our assets in the event of a default
by us. If the value of our assets decreases, leveraging would cause NAV to decline more sharply than it
Table of Contents
otherwise would have had we not leveraged, thereby magnifying losses. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have had we
not borrowed. Such a decline would also negatively affect our ability to make distributions with respect to our common stock. Our ability to service any debt depends largely on our financial performance and is subject to prevailing economic
conditions and competitive pressures.
Moreover, as the base management fee payable to GECM, our investment advisor, is payable based on
the average value of our total assets, including those assets acquired through the use of leverage, GECM will have a financial incentive to incur leverage, which may not be consistent with our stockholders' interests. In addition, our common
stockholders bear the burden of any increase in our fees or expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to GECM.
If our asset coverage ratio falls below the required limit, we will not be able to incur additional debt until we are able to comply with the
asset coverage ratio applicable to us. This could have a material adverse effect on our operations, and we may not be able to make distributions to stockholders. The actual amount of leverage that we employ will depend on GECM's and our
Board's assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
Incurring additional leverage may magnify our exposure to risks associated with changes in interest rates, including fluctuations in interest rates
which could adversely affect our profitability.
If we incur additional leverage, including through the offering of Notes hereby,
general interest rate fluctuations may have a more significant negative impact on our financial condition and results of operations than they would have absent such additional incurrence, and, accordingly, may have a material adverse effect on our
investment objectives and rate of return on investment capital. A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest. Because we may borrow
money to make investments and may issue debt securities, preferred stock or other securities, our net investment income is dependent upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities,
preferred stock or other securities and the rate at which we invest these borrowed funds.
We expect that a majority of our investments in
debt will continue to be at floating rates with a floor. As a result, significant increase in market interest rates could result in an increase in our non-performing assets and a decrease in the value of our
portfolio because our floating-rate loan portfolio companies may be unable to meet higher payment obligations. In periods of rising interest rates, our cost of funds would increase, resulting in a decrease in our net investment income. Incurring
additional leverage will magnify the impact of an increase to our cost of funds. In addition, a decrease in interest rates may reduce net income, because new investments may be made at lower rates despite the increased demand for our capital that
the decrease in interest rates may produce. To the extent our additional borrowings are in fixed-rate instruments, we may be required to invest in higher-yield securities in order to cover our interest expense and maintain our current level of
return to stockholders, which may increase the risk of an investment in our securities.
In addition to regulatory requirements that restrict our
ability to raise capital, the Loan Agreement contains various covenants that may limit our ability to react to changes in the economy or, if not complied with, could accelerate repayment under the Loan Agreement should we borrow under such
agreement, thereby materially and adversely affecting our liquidity, financial condition and results of operations.
The Loan
Agreement requires us to comply with certain financial and operational covenants. In particular, the Loan Agreement contains covenants that limit, among other restrictions, our ability to sell assets, incur additional indebtedness, including secured
indebtedness, make investments, pay dividends on or make distributions in respect of, or repurchase or redeem, our capital stock or make other restricted payment,
Table of Contents
consolidate, merge, sell or otherwise dispose of all or substantially all of our assets, and enter into transactions with our affiliates. We are also required to comply with certain financial
covenants relating to our net assets and asset coverage.
These, and any similar provisions in any future indebtedness, could limit our
ability to borrow money for our working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes; make it more difficult for us to satisfy our obligations with respect to our indebtedness; require us to
dedicate a substantial portion of our cash flow from operations to the payment of interest and the repayment of our indebtedness, thereby reducing funds available to us for other purposes; limit our flexibility in planning for, or reacting to,
changes in our operations or business; make us more highly leveraged than some of our competitors, which may place us at a competitive disadvantage; or make us more vulnerable to downturns in our business, our industry or the economy.
As of the date of this prospectus, we are in compliance in all material respects with the covenants of the Loan Agreement. However, our
continued compliance with these covenants depends on many factors, some of which are beyond our control. For example, depending on the condition of the public debt and equity markets and pricing levels, unrealized depreciation in our portfolio may
increase in the future. Any such increase could result in our inability to comply with our obligation to restrict the level of indebtedness that we are able to incur in relation to the value of our assets or to maintain a minimum level of
stockholders' equity.
Accordingly, although we believe we will continue to be in compliance, there are no assurances that we will
continue to comply with the covenants in the Loan Agreement. Failure to comply with these covenants could result in a default under the Loan Agreement that, if we were unable to obtain a waiver from the lenders, such lenders could accelerate
repayment under such indebtedness and thereby have a material adverse impact on our business, financial condition and results of operations.
We may
not be able to generate sufficient cash to service all of our indebtedness and to fund our working capital and capital expenditures, and may be forced to take other actions to satisfy our obligations under our indebtedness that may not be
successful.
Our ability to satisfy our debt obligations depends upon, among other things:
•
our future financial and operating performance, which will be affected by prevailing economic, industry and
competitive conditions and financial, business, legislative, regulatory and other factors, many of which are beyond our control;
•
our future ability to refinance or restructure our debt obligations, which depends on, among other things, the
condition of capital markets, our financial condition and the terms of existing or future debt agreements; and
•
our future ability to borrow under the Loan Agreement, the availability of which depends on, among other things,
our compliance with the covenants contained therein.
We cannot assure you that our business will generate cash flow
from operations, or that we will be able to draw under the Loan Agreement or otherwise, in an amount sufficient to fund our liquidity needs, including the payment of principal and interest on our indebtedness. If our cash flows and capital resources
are insufficient to service our indebtedness, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not
permit us to meet our scheduled debt service obligations.
If we cannot make scheduled payments on our indebtedness, we will be in default
and holders of such indebtedness could declare all outstanding principal and interest to be due and payable, terminate any commitments to loan money, our secured lenders (including the lenders under the Loan Agreement) could foreclose against the
assets securing their loans and we could be forced into bankruptcy or liquidation.
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
Some of the statements in this prospectus, any accompanying prospectus supplement, any related free writing prospectus and the documents
incorporated by reference herein may constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements involve a number of risks and uncertainties, including
statements concerning:
•
our, or our portfolio companies', future business, operations, operating results or prospects;
•
the return or impact of current and future investments;
•
the impact of a protracted decline in the liquidity of credit markets on our business;
•
the impact of fluctuations in interest rates on our business;
•
the impact of changes in laws or regulations governing our operations or the operations of our portfolio
companies;
•
our contractual arrangements and relationships with third parties;
•
our current and future management structure;
•
the general economy, including recessionary trends, and its impact on the industries in which we invest;
•
the financial condition of and ability of our current and prospective portfolio companies to achieve their
objectives;
•
serious disruptions and catastrophic events;
•
our expected financings and investments, including interest rate volatility;
•
the adequacy of our financing resources and working capital;
•
the ability of our investment adviser to locate suitable investments for us and to monitor and administer our
investments;
•
the timing of cash flows, if any, from the operations of our portfolio companies;
•
the timing, form and amount of any dividend distributions;
•
the effect of social, economic, and political conditions and geopolitical events, including as a result of
changes in U.S. presidential administrations or Congress;
•
the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and
•
our ability to maintain our qualification as a RIC and as a BDC.
We use words such as “anticipate,” “believe,” “expect,” “intend,” “will,”
“should,” “could,” “may,” “plan” and similar words to identify forward-looking statements. The forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those
implied or expressed in the forward-looking statements for any reason, including the factors set forth under “Risk Factors.”
Any forward-looking statement speaks only as of the date on which it is made in this prospectus, any accompanying prospectus supplement, any
related free writing prospectus and any documents we may incorporate by reference herein, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional
Table of Contents
disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC and which are incorporated by reference herein. See “Where You Can
Find More Information” and “Incorporation By Reference.”
You should understand that, under Sections 27A(b)(2)(B) of the
Securities Act of 1933, as amended (the “Securities Act”) and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this prospectus or in any report that we file under the Exchange Act.
Table of Contents
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of the Secondary Shares offered under this prospectus. We will not
receive any proceeds from the sale of the Secondary Shares by the selling stockholders.
Table of Contents
THE COMPANY
Overview
We are a Maryland corporation
that was formed in April 2016. We operate as a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a BDC
under the Investment Company Act. In addition, for tax purposes, we elected to be treated as a RIC under the Code, beginning with our tax year starting October 1, 2016.
We seek to generate both income and capital appreciation through debt and income-generating equity investments, including investments in
specialty finance businesses. To achieve our investment objective, we invest in secured and senior secured debt instruments of middle market companies, as well as income-generating equity investments in specialty finance companies, that we believe
offer sufficient downside protection and have the potential to generate attractive returns. We generally define middle market companies as companies with enterprise values between $100 million and $2 billion.
In addition, we make debt and equity investments in companies and operating platforms that originate and/or service commercial specialty
finance businesses, including factoring, equipment finance, inventory leasing, merchant cash advance and hard money real estate lending. We also invest directly (including via participation) in the investments made by such businesses.
We also make investments throughout other portions of a company's capital structure, including subordinated debt, mezzanine debt, and
equity or equity-linked securities. We source these transactions directly with issuers and in the secondary markets through relationships with industry professionals.
Our Portfolio as of September 30, 2024
A list of the industries in which we have invested as of September 30, 2024 may be found in “Management's Discussion and
Analysis of Financial Condition and Results of Operations.” Set forth below is a brief description of each company representing greater than 5% of our assets as of September 30, 2024.
First Brands, Inc.
First Brands,
Inc. (“First Brands”) is a global automotive parts company that develops, markets and sells premium products through a portfolio of market- leading brands, offering best-in-class technology, industry-leading engineering capabilities and superior customer service. First Brands manufactures automotive and industrial components for the
automotive aftermarket, original equipment and industrial markets and has built long standing relationships with key aftermarket customers including multiple national retail chains and automotive and industrial equipment makers. First Brands stands
as a market leader in the expansive and stable automotive aftermarket industry. First Brands' Brake Component segment leads the market with its Centric, Raybestos, Specialty and private label offerings, capturing around 26% of the aftermarket
brake components market. First Brands' Filter Products segment also holds a leading market position, thanks to its FRAM and Champion Laboratory and private label brands, which together hold a 30% market share. First Brands' Wiper Segment
is the top supplier of aftermarket wiper blades, boasting a commanding 37% market share through its Trico, ANCO, Michelin and private label products.
Great Elm Specialty Finance, LLC
GESF is a specialty finance company and through its subsidiaries, provides a variety of financing options along a “continuum of
lending” to middle-market borrowers, including receivables factoring, asset-based and asset-backed lending, lender finance and equipment financing. GESF expects to generate both revenue and cost synergies across its specialty finance company
subsidiaries. The Company owns approximately 87.5% of GESF.
Table of Contents
CLO Formation JV, LLC
CLO Formation JV, LLC is a joint venture owned 71.25% by the Company and 28.75% by strategic partners, to make investments in collateralized
loan obligation entities and related warehouse facilities.
Investment Manager and Administrator
GECM's investment team has more than 100 years of experience in the aggregate financing and investing in leveraged middle-market
companies. GECM's team is led by Matt Kaplan, GECM's Portfolio Manager and our President and Chief Executive Officer. GECM's investment committee includes Matt Kaplan, Adam M. Kleinman, Jason W. Reese, Nichole Milz and Dan Cubell. GEG
is the parent company of GECM. The address for GECM is 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410.
Investment Selection
GECM employs a team of investment professionals with experience in leveraged and specialty finance. The research team performs fundamental
research at both the industry and company level. Through in-depth industry coverage, GECM's investment team seeks to develop a thorough understanding of the fundamental market, sector drivers, mergers and
acquisition activity, security pricing and trading and new issue trends. GECM's investment team believes that understanding industry trends is an important element of investment success.
We have recently expanded our investment allocation in specialty finance companies as well as in participation opportunities generated by both
unrelated and related specialty finance companies. GECM believes investments in specialty finance companies along the “continuum of lending” provide attractive risk adjusted returns that are expected to be largely uncorrelated to the
liquid credit markets. The “continuum of lending” as seen by GECM is the various stages of capital that are provided to under-banked small and medium sized businesses and includes inventory and purchase order financing, receivables
factoring, asset-based and asset-backed lending, and equipment financing. GECM believes that ownership interests in multiple specialty finance companies will create a natural competitive advantage for each business and generate both revenue and cost
synergies across companies.
Idea Generation, Origination and Refinement
Idea generation and origination is maximized through long-standing and extensive relationships with industry contacts, brokers, commercial and
investment bankers, as well as current and former clients, portfolio companies and investors. GECM's investment team is expected to supplement these lead sources by also utilizing broader research efforts, such as attendance at prospective
borrower industry conferences and an active calling effort to brokers and investment bankers. GECM's investment team focuses their idea generation and origination efforts on middle-market companies. In screening potential investments,
GECM's investment team utilizes a value-oriented investment philosophy with analysis and research focused on the preservation of capital. GECM has identified several criteria that it believes are important in identifying and investing in
prospective portfolio companies. GECM's process requires focus on the terms of the applicable contracts and instruments. GECM's criteria provide general guidelines for GECM's investment committee's decisions; however, not all of
these criteria will be met by each prospective portfolio company in which they choose to invest.
Asset Based Investments. Investments in businesses based on the value of the collateral or the issuer's assets. This type of investment focuses on expected realizable value of the issuer's assets.
Enterprise Value Investments. Investments in businesses whose enterprise value represents the opportunity for principal to be repaid by
refinancing or in connection with a merger or acquisition transaction. These investments focus on the going concern value of the enterprise.
Table of Contents
Other Debt Investments. Investments in businesses which have the ability to pay
interest and principal on outstanding debt out of expected free cash flow from their business. These investments focus on the sustainability and defensibility of cash flows from the business.
Due Diligence
GECM's due diligence
typically includes:
•
analysis of the credit documents by GECM's investment team (including the members of the team with legal
training and years of professional experience). GECM will engage outside counsel when necessary as well;
•
review of historical and prospective financial information;
•
research relating to the prospective portfolio company's management, industry, markets, customers, products
and services and competitors and customers;
•
verification of collateral or assets;
•
interviews with management, employees, customers and vendors of the prospective portfolio company; and
•
informal or formal background and reference checks.
Upon the completion of due diligence and a decision to proceed with an investment in a company, the investment professionals leading the
diligence process present the opportunity to GECM's investment committee, which then determines whether to pursue the potential investment.
Approval of Investment Transactions
GECM's procedures call for each new investment under consideration by the GECM analysts to be preliminarily reviewed at periodic meetings
of GECM's investment team. GECM's investment team then prepares a summary of the investment, including a financial model and risk cases and a legal review checklist. GECM's investment committee then will hold a formal review meeting,
and following approval of a specific investment, authorization is given to GECM's trader, including execution guidelines.
GECM's investment analysts provide regular updates of the positions for which they are responsible to members of GECM's investment
committee.
GECM's investment analysts and portfolio manager will jointly decide when to sell a position in consultation with members
of the GECM investment committee. The sale decision will then be given to GECM's trader, who will execute the trade.
Ongoing Relationship with
Portfolio Companies
As a BDC, we offer, and sometimes provide upon request, significant managerial assistance to certain of our
portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of our portfolio companies and
providing other organizational and financial guidance.
GECM's investment team monitors our portfolio companies on an ongoing basis.
They monitor the financial trends of each portfolio company and its respective industry to assess the appropriate course of action for each investment. GECM's ongoing monitoring of a portfolio company will include both a qualitative and
quantitative analysis of the company and its industry.
Table of Contents
Valuation Procedures
We value our assets, an essential input in the determination of our NAV, consistent with GAAP and as required by the Investment Company Act.
Staffing
We do not currently have
any employees. Mr. Kaplan is our President and Chief Executive Officer and Portfolio Manager for GECM, as well as a Managing Director of ICAM. Under the Administration Agreement, by and between us and GECM, GECM provides the services of our
Chief Financial Officer and Chief Compliance Officer.
GECM has entered into a shared services agreement with ICAM, pursuant to which ICAM
will make available to GECM certain employees of ICAM to provide back-office services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees' time.
Competition
We compete for investments
with other BDCs and investment funds (including private equity funds, hedge funds, mutual funds, mezzanine funds and small business investment companies), as well as traditional financial services companies such as commercial banks, direct lending
funds and other sources of funding. Additionally, because there is competition for investment opportunities among alternative investment vehicles, those entities have begun to invest in areas they have not traditionally invested in, including making
investments in the types of portfolio companies we target. Many of these entities have greater financial and managerial resources than we do.
Exemptive Relief
We have received
exemptive relief from the SEC that will allow us to co-invest, together with other investment vehicles managed by GECM (as well as with proprietary accounts of an affiliate of GECM), in specific investment
opportunities in accordance with the terms and conditions of the Exemptive Relief Order.
Investment Management Agreement
Management Services
GECM serves as our
investment adviser and is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our Board, GECM manages our day-to-day operations and provides investment advisory and management services to us. Under the terms of the Investment Management Agreement by and between us and GECM, GECM:
•
determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner
of implementing such changes;
•
identifies, evaluates and negotiates the structure of our investments (including performing due diligence on our
prospective portfolio companies);
•
closes and monitors our investments; and
•
determines the securities and other assets that we purchase, retain or sell.
GECM's services to us under the Investment Management Agreement are not exclusive, and GECM is free to furnish similar services to other
entities.
Table of Contents
Management and Incentive Fees
Under the Investment Management Agreement, GECM receives a fee from us, consisting of two components: (1) a base management fee and
(2) an incentive fee.
The base management fee is calculated at an annual rate of 1.50% of our average adjusted gross assets,
including assets purchased with borrowed funds. The base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two
most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the then current calendar quarter. Base management fees for any partial quarter are prorated.
The incentive fee consists of two components that are independent of each other, with the result that one component may be payable even if the
other is not. One component of the incentive fee is the Income Incentive Fee and the other component is the Capital Gains Incentive Fee.
Income
Incentive Fee
The Income Incentive Fee is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the quarter. Pre-incentive fee net investment income means interest income, dividend income and any other income (including
any other fees such as commitment, origination, diligence and consulting fees or other fees that we receive from portfolio companies, but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating
expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes any accretion of original issue discount, market discount, PIK interest, PIK dividends or other types of deferred or accrued income, including in connection with zero
coupon securities, that we and our consolidated subsidiaries have recognized in accordance with GAAP, but have not yet received in cash (collectively, “Accrued Unpaid Income”).
Pre-incentive fee net investment income does not include any realized capital gains or unrealized
capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss. For example, if we receive pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses.
Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets
(defined in accordance with GAAP) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 1.75% per quarter (7.00% annualized). If market interest rates rise, we may be able to invest in debt
instruments that provide for a higher return, which would increase our pre-incentive fee net investment income and make it easier for GECM to surpass the fixed hurdle rate and receive an incentive fee based on
such net investment income.
We pay the incentive fee with respect to our pre-incentive fee net
investment income in each calendar quarter as follows:
•
no incentive fee in any calendar quarter in which the pre-incentive fee
net investment income does not exceed the hurdle rate;
•
100% of our pre-incentive fee net investment income with respect to that
portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate, but is less than 2.1875% in any calendar quarter (8.75% annualized). We refer to this portion of our pre-incentive fee net investment income as the “catch up” provision. The “catch up” is meant to provide GECM with 20% of the pre-incentive fee net
investment income as if a hurdle rate did not apply if our net investment income exceeds 2.1875% in any calendar quarter; and
Table of Contents
•
20% of the amount of our pre-incentive fee net investment income, if any,
that exceeds 2.1875% in any calendar quarter (8.75% annualized). The following is a graphical representation of the calculation of the income related portion of the incentive fee:
These calculations are adjusted for any share issuances or repurchases during the quarter and will be
appropriately prorated for any period of less than three months. Any Income Incentive Fee otherwise payable with respect to Accrued Unpaid Income (collectively, the “Accrued Unpaid Income Incentive Fees”) will be deferred, on a security by
security basis, and will become payable only if, as, when and to the extent cash is received by us or our consolidated subsidiaries in respect thereof. Any Accrued Unpaid Income that is subsequently reversed in connection with a write-down, write-off, impairment or similar treatment of the investment giving rise to such Accrued Unpaid Income will, in the applicable period of reversal, (1) reduce pre-incentive fee net investment income and (2) reduce the amount of Accrued Unpaid Income deferred pursuant to the terms of the Investment Management Agreement. Subsequent payments of Income Incentive
Fees deferred pursuant to this paragraph do not reduce the amounts payable for any quarter pursuant to the other terms of the Investment Management Agreement.
We will defer cash payment of any Income Incentive Fee otherwise payable to the investment adviser in any quarter (excluding Accrued Unpaid
Income Incentive Fees with respect to such quarter) that exceeds (1) 20% of the Cumulative Pre-Incentive Fee Net Return (as defined below) during the most recent twelve full calendar quarter period ending on
or prior to the date such payment is to be made (the “Trailing Twelve Quarters”) less (2) the aggregate incentive fees that were previously paid to the investment adviser during such Trailing Twelve Quarters (excluding Accrued Unpaid
Income Incentive Fees during such Trailing Twelve Quarters and not subsequently paid). “Cumulative Pre-Incentive Fee Net Return” during the relevant Trailing Twelve Quarters means the sum of (a) pre-incentive fee net investment income in respect of such Trailing Twelve Quarters less (b) net realized capital losses and net unrealized capital depreciation, if any, in each case calculated in
accordance with GAAP, in respect of such Trailing Twelve Quarters.
Capital Gains Incentive Fee
The Capital Gains Incentive Fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment
Management Agreement, as of the termination date), commencing with the partial calendar year from April 1, 2022 to December 31, 2022, and is calculated at the end of each applicable year by subtracting (a) the sum of our and our
consolidated subsidiaries' cumulative aggregate realized capital losses (excluding, for the avoidance of doubt, any realized capital losses arising from unrealized capital depreciation occurring prior to April 1, 2022) and aggregate
unrealized capital depreciation from (b) our and our consolidated subsidiaries' cumulative aggregate realized capital gains, in each case calculated from and after April 1, 2022 (the “Capital Gains Commencement Date”). If
such amount is negative, then there is no Capital Gains Incentive Fee for such year. If such amount is positive at the end of such year, then the Capital Gains Incentive Fee for such year is equal to 20% of such amount, less the aggregate amount of
Capital Gains Incentive Fees paid in all prior years.
The cumulative aggregate realized capital gains are calculated as the sum of the
differences, if positive, between (a) the net sales price of each investment in our portfolio when sold and (b) the accreted or amortized cost basis of such investment. The cumulative aggregate realized capital losses are calculated as the
sum of the amounts by which (a) the net sales price of each investment in our portfolio when sold is less than (b) the accreted or amortized cost basis of such investment. The aggregate unrealized capital depreciation is calculated
Table of Contents
as the sum of the differences, if negative, between (a) the fair value of each investment in our portfolio as of the applicable Capital Gains Incentive Fee calculation date and (b) the
accreted or amortized cost basis of such investment.
Examples of Quarterly Incentive Fee Calculations
The following hypothetical calculations illustrate the calculation of the Income Incentive Fee under the Investment Management Agreement.
Amounts shown are a percentage of total net assets.
Assumption 1
Assumption 2
Assumption 3
Investment income
Hurdle rate (7% annualized)
“Catch up” provision (8.75% annualized)
Pre-incentive fee net investment income
Incentive fee
—
Investment income includes interest income, dividends and other fee income.
Pre-incentive fee net investment income is net of management fees and
other expenses and excludes organizational and offering expenses. In these examples, management fees are 0.38% (1.50% annualized) of net assets and other expenses are assumed to be 5.02% of net assets.
The pre-incentive fee net investment income is below the hurdle rate
and thus no incentive fee is earned.
The pre-incentive fee net investment income ratio of 2.15% is between
the hurdle rate and the top of the “catch up” provision thus the corresponding incentive fee is calculated as 100% X (2.15% — 1.75%).
The pre-incentive fee net investment income ratio of 3.00% is greater
than both the hurdle rate and the “catch up” provision thus the corresponding incentive fee is calculated as (i) 100% X (2.1875% — 1.75%) or 0.4375% (the “catch up”); plus (ii) 20% X (3.00% — 2.1875%).
Table of Contents
The following hypothetical calculations illustrate the calculation of the Capital Gains
Incentive Fee under the Investment Management Agreement.
In millions
Assumption 1
Assumption 2
Year 1
Investment in Company A
Investment in Company B
Investment in Company C
—
Year 2
Proceeds from sale of investment in Company A
Fair market value (“FMV”) of investment in Company B
FMV of investment in Company C
—
Year 3
Proceeds from sale of investment in Company C
—
FMV of investment in Company B
Year 4
Proceeds from sale of investment in Company B
—
FMV of investment in Company B
—
Year 5
Proceeds from sale of investment in Company B
—
Capital Gains Incentive Fee:
Year 1
—
—
Year 2
Year 3
—
Year 4
Year 5
—
—
There is no Capital Gains Incentive Fee in Year 1 as there have been no realized capital gains.
Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses or
aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as $30.0 million X 20%.
Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses and
there is $5.0 million in aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($30.0 million - $5.0 million) X 20% less $6.0 million (aggregate Capital Gains
Incentive Fee paid in prior years).
Aggregate realized capital gains are $31.0 million. There are no aggregate realized capital losses or
aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) $31.0 million X 20% less $6.0 million (aggregate Capital Gains Incentive Fee paid in prior years).
There is no Capital Gains Incentive Fee in Year 5 as there are no aggregate realized capital gains for which
Capital Gains Incentive Fee has not already been paid in prior years.
Aggregate realized capital gains are $30.0 million. There are no aggregate realized capital losses and
there is $5.0 million in aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($30.0 million - $5.0 million) X 20%. There have been no Capital Gains Incentive Fees
paid in prior years.
Aggregate realized capital gains are $35.0 million. There are no aggregate realized capital losses and
there is $6.0 million in aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($35.0 million - $6.0 million) X 20% less $5.0 million (aggregate Capital Gains
Incentive Fee paid in prior years).
Table of Contents
Aggregate realized capital gains are $35.0 million. There are no aggregate realized capital losses or
aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) $35.0 million X 20% less $5.8 million (aggregate Capital Gains Incentive Fee paid in prior years).
Aggregate realized capital gains are $35.0 million. Aggregate realized capital losses are
$10.0 million. There is no aggregate unrealized capital depreciation. Capital Gains Incentive Fee is calculated as the greater of (i) zero and (ii) ($35.0 million - $10.0 million) X 20% less $7.0 million (aggregate Capital Gains
Incentive Fee paid in prior years).
As illustrated in Year 3 of Assumption 1 above, if GECC were to be wound up on a
date other than December 31 of any year, we may have paid aggregate capital gain incentive fees that are more than the amount of such fees that would be payable if GECC had been wound up on December 31 of such year.
For the year ended December 31, 2023, we incurred $3.5 million in base management fees and $3.1 million in income-based fees accrued
during the period. There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2023.
For the year ended December 31, 2022, we incurred $3.2 million in base management fees and $0.6 million in income-based fees accrued
during the period, exclusive of the waiver granted by GECM of $4.9 million in incentive fees earned in previous periods. The incentive fees were deferred in accordance with the Investment Management Agreement. There were no capital gains
incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2022.
For the
year ended December 31, 2021, we incurred $3.2 million in base management fees and $(4.3) million in income-based fees accrued during the period. The incentive fees were deferred in accordance with the Investment Management Agreement.
There were no capital gains incentive fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2021.
Payment of Expenses
The services of all
investment professionals and staff of GECM, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and
paid for by GECM. GECM has policies and procedures in place to calculate reimbursement of administrative expenses insofar as they relate to compensation and overhead of administrator personnel and rent on a quarterly basis. Compensation of
administrator personnel is allocated based on time allocation for the period. Other overhead expenses are based on a combination of time allocation and total headcount. We bear all other costs and expenses of our operations and transactions,
including (without limitation):
•
our organizational expenses;
•
fees and expenses, including reasonable travel expenses, actually incurred by GECM or payable to third parties
related to our investments, including, among others, professional fees (including the fees and expenses of counsel, consultants and experts) and fees and expenses relating to, or associated with, evaluating, monitoring, researching and performing
due diligence on investments and prospective investments (including payments to third party vendors for financial information services);
•
out-of-pocket fees and expenses,
including reasonable travel expenses, actually incurred by GECM or payable to third parties related to the provision of managerial assistance to our portfolio companies that we agree to provide such services to under the Investment Company Act
(exclusive of the compensation of any investment professionals of GECM);
•
interest or other costs associated with debt, if any, incurred to finance our business;
•
fees and expenses incurred in connection with our membership in investment company organizations;
Table of Contents
•
brokers' commissions;
•
investment advisory and management fees;
•
fees and expenses associated with calculating our NAV (including the costs and expenses of any independent
valuation firm);
•
fees and expenses relating to offerings of our common stock and other securities;
•
legal, auditing or accounting expenses;
•
federal, state and local taxes and other governmental fees;
•
the fees and expenses of GECM, in its role as the administrator, and any sub-administrator, our transfer agent or sub-transfer agent, and any other amounts payable under the Administration Agreement, or any similar administration agreement or sub-administration agreement to which we may become a party;
•
the cost of preparing stock certificates or any other expenses, including clerical expenses of issue, redemption
or repurchase of our securities;
•
the expenses of and fees for registering or qualifying our common stock for sale and of maintaining our
registration and registering us as a broker or a dealer;
•
the fees and expenses of our directors who are not interested persons (as defined in the Investment Company Act);
•
the cost of preparing and distributing reports, proxy statements and notices to stockholders, the SEC and other
governmental or regulatory authorities;
•
costs of holding stockholders' meetings;
•
listing fees;
•
the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any
obligations enumerated by our bylaws or charter insofar as they govern agreements with any such custodian;
•
our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and
any other insurance premiums;
•
our allocable portion of the costs associated with maintaining any computer software, hardware or information
technology services (including information systems, Bloomberg or similar terminals, cyber security and related consultants and email retention) that are used by us or by GECM or its respective affiliates on our behalf (which allocable portion shall
exclude any such costs related to investment professionals of GECM providing services to us);
•
direct costs and expenses incurred by us or GECM in connection with the performance of administrative services on
our behalf, including printing, mailing, long distance telephone, cellular phone and data service, copying, secretarial and other staff, independent auditors and outside legal costs;
•
all other expenses incurred by us or GECM in connection with administering our business (including payments under
the Administration Agreement) based upon our allocable portion of GECM's overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Financial Officer and Chief
Compliance Officer and their respective staffs (including reasonable travel expenses); and
•
costs incurred by us in connection with any claim, litigation, arbitration, mediation, government investigation
or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and
other extraordinary expenses not incurred in the ordinary course of our business.
Table of Contents
Duration and Termination
Our Board initially approved the Investment Management Agreement on August 8, 2016, and most recently approved the Investment Management
Agreement on July 23, 2024. The Investment Management Agreement renews for successive annual periods subject to annual approval by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities,
including, in either case, approval by a majority of our directors who are not “interested persons.” The Investment Management Agreement will automatically terminate if it is assigned. The Investment Management Agreement may be terminated
by either party without penalty upon 60 days' written notice to the other. The Investment Management Agreement is currently in effect.
Conflicts of interest may arise if GECM seeks to change the terms of the Investment Management Agreement, including, for example, the terms
for compensation. Except in limited circumstances, any material change to the Investment Management Agreement must be submitted to stockholders for approval under the Investment Company Act and we may from time to time decide it is appropriate to
seek stockholder approval to change the terms of the Investment Management Agreement.
Indemnification
We agreed to indemnify GECM, its stockholders and their respective officers, managers, partners, agents, employees, controlling persons,
members and any other person affiliated with it, to the fullest extent permitted by law, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations,
for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of GECM's services under the Investment Management Agreement or otherwise as our
investment adviser.
Organization of the Investment Adviser
GECM is a Delaware limited liability company and is registered as an investment adviser under the Advisers Act. GECM's principal
executive offices are located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410.
Board Approval of the Investment Management Agreement
On July 23, 2024, our Board approved the renewal of the Investment Management Agreement through September 26, 2025. In its
consideration of the Investment Management Agreement, our Board focused on information it had received relating to, among other things:
•
the nature, quality and extent of the advisory and other services to be provided to us by GECM;
•
the investment performance of us and GECM;
•
the extent to which economies of scale would be realized as we grow, and whether the fees payable under the
Investment Management Agreement reflect these economies of scale for the benefit of our stockholders;
•
comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment
objectives;
•
our projected operating expenses and expense ratio compared to BDCs with similar investment objectives;
•
existing and potential sources of indirect income to GECM from its relationship with us and the profitability of
those income sources;
•
information about the services to be performed and the personnel performing such services under the Investment
Management Agreement;
Table of Contents
•
the organizational capability and financial condition of GECM and its affiliates; and
•
the possibility of obtaining similar services from other third party service providers or through an internally
managed structure.
In connection with their consideration of the renewal of the Investment Management Agreement, our
Board gave weight to each of the factors described above, but did not identify any one particular factor as controlling their decision. After deliberation and consideration of all of the information provided, including the factors described above,
the Board, including all of its independent members, concluded that the Investment Management Agreement should be approved and continued.
Regulation
as a Business Development Company
We may not change the nature of our business so as to cease to be, or withdraw our election as, a
BDC unless authorized by the “vote of a majority of the outstanding voting securities”, as required by the Investment Company Act. A “vote of a majority of the outstanding voting securities of a company” is defined under the
Investment Company Act as the lesser of:
•
67% or more of such company's voting securities present at a meeting if more than 50% of the outstanding
voting securities of such company are present or represented by proxy, or
•
more than 50% of the outstanding voting securities of such company.
A majority of our directors must be persons who are not “interested persons”, as that term is defined in the Investment Company Act.
Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our
stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person's office.
We are currently permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common
stock if our asset coverage, calculated pursuant to the Investment Company Act, is at least equal to 150% immediately after each such issuance (i.e., we are able to borrow up to two dollars for every dollar we have in assets less all liabilities and
indebtedness not represented by senior securities issued by us). In addition, while certain types of indebtedness and senior securities remain outstanding, we may be required to make provisions to prohibit distributions to our stockholders or the
repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes
without regard to asset coverage. We may also be prohibited under the Investment Company Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in
some cases, prior approval by the SEC. Our participation in any negotiated co-investment opportunities (other than those in which the only term negotiated is price) with investment funds, vehicles or accounts
managed by investment managers under common control with GECM (as well as with proprietary accounts of an affiliate of GECM) is subject to compliance with the Exemptive Order.
For example, we may sell shares of our common stock at a price below the then current NAV of our common stock if our Board determines that
such sale is in our and our stockholders' best interests, and our stockholders approve our policy and practice of making such sales. In any such case, under such circumstances, the price at which shares of our common stock are sold may be the
fair value of such shares of common stock. We may be examined by the SEC for compliance with the Investment Company Act.
We are generally
unable to sell shares of our common stock at a price below NAV per share. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage. We may, however, sell shares of our common
stock at a price below NAV per share:
•
in connection with a rights offering to our existing stockholders,
Table of Contents
•
with the consent of the majority of our common stockholders, or
•
under such other circumstances as the SEC may permit.
We may not acquire any assets other than “qualifying assets” unless, at the time we make such acquisition, the value of our
qualifying assets represents at least 70% of the value of our total assets. The principal categories of qualifying assets relevant to our business are:
•
securities purchased in transactions not involving any public offering, the issuer of which is an eligible
portfolio company;
•
securities received in exchange for or distributed with respect to securities described in the bullet above or
pursuant to the exercise of options, warrants or rights relating to such securities; and
•
cash, cash items, government securities or high quality debt securities (within the meaning of the Investment
Company Act), maturing in one year or less from the time of investment.
An “eligible portfolio company” is
generally a U.S. domestic company that is not an investment company (other than a small business investment company wholly-owned by a BDC) and that:
•
does not have a class of securities with respect to which a broker may extend margin credit at the time the
acquisition is made;
•
is controlled by the BDC and has an affiliate of the BDC on its board of directors;
•
does not have any class of securities listed on a national securities exchange;
•
is a public company that lists its securities on a national securities exchange with a market capitalization of
less than $250.0 million; or
•
meets such other criteria as may be established by the SEC.
We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the Investment Company Act.
Under these limits, we generally cannot acquire more than 3% of the voting stock of any investment company (as defined in the Investment Company Act), invest more than 5% of the value of our total assets in the securities of one investment company
or invest more than 10% of the value of our total assets in the securities of investment companies in the aggregate.
“Control”,
as defined by the Investment Company Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company.
In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose
of making investments in eligible portfolio companies, or in other securities that are consistent with its purpose as a BDC.
To include
certain securities described above as “qualifying assets” for the purpose of the 70% test, a BDC must offer to the issuer of those securities managerial assistance such as providing guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company. We offer to provide managerial assistance to our portfolio companies.
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents,
U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which are referred to, collectively, as “temporary investments”, so that 70% of our assets, as applicable, are qualifying
assets. We make purchases that are consistent with our purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the Investment Company Act. We will invest in U.S. Treasury bills or in repurchase
agreements that are fully collateralized by cash or
Table of Contents
securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor of a specified security and the simultaneous agreement by the seller to
repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in
such repurchase agreements. However, if more than 25% of our gross assets constitute repurchase agreements from a single counterparty, we would not meet the diversification tests in order to qualify as a RIC for U.S. federal income tax purposes.
Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit.
We are permitted, under
specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock, if our asset coverage, as defined in the Investment Company Act, is at least equal to 150% immediately after each such issuance. In
addition, while any senior securities remain outstanding, we must make provisions to prohibit cash distributions to our stockholders or the repurchase of our common stock unless we meet the applicable asset coverage ratios at the time of the
distribution or repurchase. We may also borrow amounts up to 5% of the value of our gross assets for temporary or emergency purposes without regard to asset coverage.
Code of Ethics
We and GECM have each
adopted a code of ethics, which applies to the management at each company, respectively, pursuant to Rule 17j-l under the Investment Company Act and Rule 204A-1 under
the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain transactions by our or GECM's personnel, respectively. Each code of ethics is included as an exhibit to this prospectus and available on
the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You may also obtain copies of the respective codes of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov.
Proxy Voting Policies and Procedures
We
have delegated our proxy voting responsibility to GECM. The Proxy Voting Policies and Procedures of GECM are set forth below. The guidelines are reviewed periodically by GECM and our non-interested directors,
and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below, “we,” “our” and “us” refers to GECM.
Introduction
As an investment adviser
registered under the Advisers Act, GECM has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, GECM recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the
best interests of its clients.
These policies and procedures for voting proxies for GECM's investment advisory clients are intended
to comply with Section 206 of, and Rule under, the Advisers Act.
Proxy Policies
GECM votes proxies relating to our portfolio securities in what it perceives to be the best interest of its clients. GECM reviews on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by its clients. Although GECM generally votes against
proposals that may have a negative impact on its clients' portfolio securities, GECM may vote for such a proposal if there exists compelling long-term reasons to do so.
GECM proxy voting decisions are made by the senior officers who are responsible for monitoring each of its clients' investments. To
ensure that our vote is not the product of a conflict of interest, GECM requires that:
Table of Contents
(i) anyone involved in the decision-making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any
interested party regarding a proxy vote; and (ii) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from
interested parties.
Proxy Voting Records
You may obtain information about how GECM voted proxies during the twelve-month period ended March 31, 2024 without charge, upon request,
by making a written request for proxy voting information to: Chief Compliance Officer, Great Elm Capital Corp., c/o Great Elm Capital Management, LLC, 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410, or by calling (617) and on the SEC's website at http://www.sec.gov.
Certain U.S. Federal Income Tax Matters
We have elected to be treated and intend to qualify each year as a regulated investment company (“RIC”) under Subchapter M of the
Code. To continue to qualify as a RIC, we must, among other things, (a) derive in each taxable year at least 90% of our gross income from dividends, interest (including tax-exempt interest), payments with
respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, other income (including but not limited to gain from options, futures and forward contracts) derived with respect to our
business of investing in stock, securities or currencies, or net income derived from an interest in a “qualified publicly traded partnership” (a “QPTP”); and (b) diversify our holdings so that, at the end of each quarter of
each taxable year (i) at least 50% of the market value of our total assets is represented by cash and cash items, U.S. Government securities, the securities of other RICs and other securities, with other securities limited, in respect of any
one issuer, to an amount not greater than 5% of the value of our total assets and not more than 10% of the outstanding voting securities of such issuer (subject to the exception described below), and (ii) not more than 25% of the market value
of our total assets is invested in securities (other than U.S. Government securities and the securities of other regulated investment companies) (A) of any one issuer, (B) of any two or more issuers that we control and that are determined
to be engaged in the same business or similar or related trades or businesses, or (C) of one or more QPTPs. We may generate certain income that might not qualify as qualifying income for purposes of the 90% annual gross income requirement
described above. We will monitor our transactions to endeavor to prevent our disqualification as a RIC.
If we fail to satisfy the 90%
annual gross income requirement or the asset diversification requirements discussed above in any taxable year, we may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and certain additional
conditions are met, in which case an additional penalty tax would be payable with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the asset diversification
requirements where we correct the failure within a specified period. If the applicable relief provisions are not available or cannot be met, all of our income would be subject to corporate-level U.S. federal income tax as described below. We cannot
provide assurance that we would qualify for any such relief should we fail the 90% annual gross income requirement or the asset diversification requirements discussed above.
As a RIC, in any taxable year with respect to which we timely distribute at least 90% of the sum of:
•
our investment company taxable income (which includes, among other items, dividends, interest and the excess of
any net short-term capital gain over net long-term capital loss and other taxable income (other than any net capital gain), reduced by deductible expenses) determined without regard to the deduction for dividends and distributions paid; and
•
net tax exempt interest income (which is the excess of our gross tax exempt interest income over certain
disallowed deductions)
Table of Contents
(collectively, the “Annual Distribution Requirement”), we (but not our
stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gain (generally, net long-term capital gain in excess of short-term capital loss) that we distribute to our stockholders.
However, due to limits on the deductibility of certain expenses, we may, in certain years, have aggregate taxable income subject to the Annual Distribution Requirement that is in excess of the aggregate net income actually earned by us in those
years.
To the extent that we meet the Annual Distribution Requirement but retain our net capital gains for investment or any investment
company taxable income, we will be subject to U.S. federal income tax on such income at the regular corporate income tax rates. We may choose to retain our net capital gains for investment or any investment company taxable income, and pay the
associated federal corporate income tax, including the federal excise tax described below.
A 4% U.S. federal excise tax is imposed on a
RIC if the RIC does not meet certain additional distribution requirements for each calendar year. To avoid this tax, we must distribute (or be deemed to have distributed) during each calendar year an amount equal to the sum of:
•
at least 98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;
•
at least 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary
losses) for a one-year period generally ending on October 31 of the calendar year (unless an election is made by us to use our taxable year); and
•
certain undistributed amounts from previous years on which we paid no U.S. federal income tax (collectively, the
“Excise Tax Exemption Requirement”).
While we generally intend to distribute any income and capital gains in
the manner necessary to minimize imposition of the 4% federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of the tax. In that event, we will be liable for the tax
only on the amount by which we do not meet the Excise Tax Exemption Requirement.
If, in any particular taxable year, we do not satisfy
the Annual Distribution Requirement or fail to qualify as a RIC (for example, because we fail the 90% annual gross income requirement described above), and relief is not available as discussed above, all of our taxable income (including our net
capital gains) will be subject to tax at regular corporate rates without any deduction for distributions to stockholders, and distributions generally will be taxable to the stockholders as ordinary dividends to the extent of our current and
accumulated earnings and profits.
We may decide to be taxed as a regular corporation even if we qualify as a RIC if we determine that
being so taxed for a particular year would be in our best interests.
If we realize a net capital loss during any year in which we are a
RIC, the excess of our net short-term capital loss over our net long-term capital gain is treated as a short-term capital loss arising on the first day of our next taxable year and the excess of our net long-term capital loss over our net short-term
capital gain is treated as a long-term capital loss arising on the first day of our next taxable year. If future capital gain is offset by carried forward capital losses, such future capital gain is not subject to fund-level U.S. federal income tax,
regardless of whether amounts corresponding to such gain are distributed to stockholders. Accordingly, we do not expect to distribute any such offsetting capital gain. A RIC cannot carry back or carry forward any net operating losses to offset its
investment company taxable income.
Table of Contents
Our Investments
Certain of our investment practices are subject to special and complex U.S. federal income tax provisions that may, among other things:
•
disallow, suspend or otherwise limit the allowance of certain losses or deductions, including the dividends
received deduction, net capital losses, business interest expenses and certain underwriting and similar fees;
•
convert lower taxed long-term capital gain and qualified dividend income into higher taxed short-term capital
gain or ordinary income;
•
convert ordinary loss or a deduction into capital loss (the deductibility of which is more limited);
•
cause us to recognize income or gain without a corresponding receipt of cash;
•
adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur;
•
adversely alter the characterization of certain complex financial transactions; and
•
produce income that will not qualify for purposes of the 90% annual gross income requirement described above.
We will monitor our transactions and may make certain tax elections, borrow money or dispose of securities (even if it
is not advantageous to dispose of such securities) to mitigate the effect of these rules, prevent disqualification of us as a RIC and prevent or mitigate imposition of corporate-level U.S. federal income tax. However, no assurances can be given as
to our eligibility for any such tax elections or that any such tax elections that are made will fully mitigate the effects of these rules.
Investments we make in securities issued at a discount or providing for deferred interest or PIK interest may be subject to special tax rules
that will affect the amount, timing and character of distributions to stockholders. For example, if we buy a debt security whose “stated redemption price at maturity” (generally, the sum of all payments required under the note other than
payments of “qualified stated interest”, which generally is stated interest that is unconditionally payable in cash or in property other than debt instruments of the issuer at least annually at a single fixed rate) exceeds its issue price
by an amount that does not satisfy a de minimis test, we will generally be required to accrue the excess amount on a daily basis in accordance with a constant yield-to-maturity method (unless otherwise accelerated) and to distribute such income on a timely basis each year (in advance of receipt of corresponding cash) to
maintain our tax treatment as a RIC and to avoid U.S. federal income and excise taxes. Because in these and certain other circumstances we may recognize income before or without receiving cash representing such income or incur expenses that are not
fully deductible for tax purposes, we may have difficulty making distributions in the amounts necessary to satisfy the requirements for avoiding U.S. federal income and excise taxes. Accordingly, we may have to sell some of our investments at times
we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax
treatment and thereby be subject to corporate-level income tax.
Furthermore, a portfolio company in which we invest may face financial
difficulty that requires us to work-out, modify or otherwise restructure our investment in the portfolio company. Any such restructuring may result in unusable capital losses and future non-cash income. Any such restructuring may also result in our recognition of a substantial amount of non-qualifying income for purposes of the 90% gross income requirement or
our receiving assets that would not count toward the asset diversification requirements.
Gain or loss recognized by us from warrants
acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.
Table of Contents
If we invest in foreign securities, we may be subject to withholding and other foreign taxes
with respect to those securities. Stockholders will generally not be entitled to claim a U.S. foreign tax credit or deduction with respect to foreign taxes paid by us.
If we acquire shares in a “passive foreign investment company” (a “PFIC”), we may be subject to U.S. federal income tax
(plus an interest charge) on a portion of any “excess distribution” or gain from the disposition of such shares even if such amounts are distributed by us to our stockholders. If we invest in a PFIC and elect to treat the PFIC as a
“qualified electing fund” under the Code (a “QEF”), in lieu of the foregoing treatment, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is
not distributed to us. Alternatively, subject to certain limitations, we can elect to mark-to-market at the end of each taxable year our shares in a PFIC; in this case,
we will recognize as ordinary income any increase in the value of such shares, and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income. Our ability to make either election will depend on
factors beyond our control. Under either election, we may be required to recognize in a year income in excess of distributions we receive from PFICs and proceeds we receive from dispositions of PFIC stock during that year, and such income will
nevertheless generally be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% excise tax.
If we directly or indirectly hold 10% or more of the shares (by vote or value) in a foreign corporation that is treated as a controlled
foreign corporation (“CFC”), we may be required to include in our gross income our pro rata share of such CFC's “subpart F income” and “global intangible low-taxed income,”
whether or not the corporation makes an actual distribution during such year. In general, a foreign corporation will be classified as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value,
is owned (directly, indirectly or constructively) by U.S. Stockholders. A “U.S. Stockholder”, for purposes of this paragraph, is any U.S. person that possesses (directly, indirectly or constructively) 10% or more of the combined voting
power of all classes of shares or 10% or more of the value of a corporation. If we are required to include our pro rata share of “subpart F income” or “global intangible low-taxed income”
in our gross income for a taxable year, we will be required to include such income in our investment company taxable income regardless of whether we receive any actual distributions from such CFC, and we must distribute an amount equal to such
income to satisfy the Annual Distribution Requirement and the Excise Tax Exemption Requirement.
Although the Code generally provides that
income inclusions from QEFs and inclusions of subpart F income and global intangible low-taxed income from CFCs will be qualifying income for purposes of the 90% gross income requirement to the extent such
income is distributed to a RIC in the year it is included in the RIC's income, the Code does not specifically provide whether income inclusions from a QEF or inclusions of subpart F income and global intangible low-taxed income during the RIC's taxable year with respect to which no distribution is received would be qualifying income for the 90% gross income requirement. The U.S. Treasury, however, has issued
regulations that treat such income as qualifying for purposes of the 90% gross income requirement, provided the income is derived with respect to a corporation's business of investing in stock, securities or currencies.
Our functional currency is the U.S. dollar for U.S. federal income tax purposes. Under Section 988 of the Code, gains or losses
attributable to fluctuations in exchange rates between the time we accrue income, expenses or other liabilities denominated in a foreign currency and the time we actually collect such income or pay such expenses or liabilities are generally treated
as ordinary income or loss. Similarly, gains or losses on foreign currency forward contracts and the disposition of debt denominated in a foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and
disposition dates, are also generally treated as ordinary income or loss.
If we borrow money, we may be prevented by loan covenants from
declaring and paying dividends in certain circumstances. Limits on our ability to pay dividends may prevent us from meeting the Annual Distribution Requirement, and may, therefore, jeopardize our qualification for taxation as a RIC, or subject us to
the 4% excise tax.
Table of Contents
Even if we are authorized to borrow funds and/or to sell assets in order to satisfy
distribution requirements, under the Investment Company Act, we are not permitted to make cash distributions to our stockholders while our debt obligations and senior securities are outstanding unless certain “asset coverage” tests are
met. This may also jeopardize our qualification for taxation as a RIC or subject us to the 4% excise tax.
Moreover, our ability to
dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and (2) other requirements relating to our status as a RIC, including the asset diversification requirements. If we dispose
of assets to meet the Annual Distribution Requirement, the asset diversification requirements, or to reduce or eliminate the 4% excise tax, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
Some of the income that we might otherwise earn, such as lease income, management fees, or income recognized in a work-out or restructuring of a portfolio investment, may cause us not to satisfy the 90% gross income requirement. To manage the risk that such income might disqualify us as a RIC as a result of us failing to
satisfy the 90% gross income requirement, one or more of our subsidiaries treated as U.S. corporations for U.S. federal income tax purposes may be employed to earn such income. Such corporations will be required to pay U.S. corporate income tax (and
possible state or local tax) on their earnings, which ultimately will reduce the yield to our stockholders on such income and fees.
Failure to Qualify
as a RIC
If we were unable to qualify for treatment as a RIC, and relief is not available as discussed above, we would be subject to
tax on all of our taxable income at regular corporate rates, and we would not be able to deduct distributions to stockholders. Distributions would generally be taxable to our stockholders as ordinary dividend income eligible for reduced maximum
rates for non-corporate U.S Holders (as defined below) (subject to certain limitations) to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code,
corporate U.S. Holders (as defined below) would be eligible for the dividends received deduction from domestic corporations. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to
the extent of the stockholder's tax basis, and any remaining distributions would be treated as a capital gain. If we were to fail to meet the RIC requirements for more than two consecutive years and then to seek to requalify as a RIC, we would
be required to recognize gain to the extent of any unrealized appreciation in our assets unless we made a special election to pay corporate level tax on any such unrealized appreciation recognized during the succeeding five-year period. Our
qualification and taxation as a RIC depends upon our ability to satisfy, on a continuing basis, through actual, annual operating results, various distribution, income- and asset-related requirements, and other requirements imposed under the Code. No
assurance can be given that we will be able to meet the complex and varied tests required to qualify as a RIC or to avoid corporate level tax. In addition, because the relevant laws may change, compliance with one or more of the RIC requirements may
become impossible or impracticable.
Administration Agreement
Our Board approved the Administration Agreement on August 8, 2016. Pursuant to the Administration Agreement, GECM furnishes us with, or
otherwise arranges for the provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping services at such office facilities and other such services as the administrator. Under the
Administration Agreement, GECM will, from time to time, provide, or otherwise arrange for the provision of, other services GECM determines to be necessary or useful to perform its obligations under the Administration Agreement, including retaining
the services of financial, compliance, accounting and administrative personnel that perform services on our behalf, including personnel to serve as our Chief Financial Officer and Chief Compliance Officer. Under the Administration Agreement, GECM
also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and
reports filed with the SEC. In addition, GECM assists us in determining and
Table of Contents
publishing our NAV, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses
and the performance of administrative and professional services rendered to us by others. Payments made by us to GECM under the Administration Agreement are equal to an amount based upon our allocable portion of GECM's overhead in performing
its obligations under the Administration Agreement, including our allocable portion of the cost of our officers (including our Chief Compliance Officer, Chief Financial Officer and their respective staffs). The Administration Agreement may be
terminated by either party without penalty upon 60 days' written notice to the other party.
We bear all costs and expenses,
including rental expenses, that are incurred in our operation and transactions and not specifically assumed by GECM pursuant to the Investment Management Agreement.
The Administration Agreement provides that, to the fullest extent permitted by law, absent willful misfeasance, bad faith or gross negligence
in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GECM, its stockholders and their respective officers, managers, partners, agents, employees, controlling persons, members and any other person or
entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from or otherwise based upon the
rendering of GECM's services under the Administration Agreement or otherwise as our administrator.
Great Elm License Agreement
We have a license agreement with GEG pursuant to which GEG grants us a non-exclusive, royalty-free
license to use the name “Great Elm Capital Corp.” Under the license agreement, we have a right to use the Great Elm Capital Corp. name and the logo for so long as GECM, or an affiliate thereof, remains our investment adviser. Other than
with respect to this limited license, we have no legal right to the “Great Elm Capital Corp.” name. The license agreement may be terminated by either party without penalty upon 60 days' written notice to the other.
Brokerage Allocation and Other Practices
Since we acquire and dispose of many of our investments in privately negotiated transactions, many of the transactions that we engage in do not
require the use of brokers or the payment of brokerage commissions. Subject to policies established by our Board, GECM is primarily responsible for selecting brokers and dealers to execute transactions with respect to the publicly traded securities
portion of our portfolio transactions and the allocation of brokerage commissions. GECM does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for us under the circumstances, taking into
account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm's risk and skill in positioning blocks of securities.
The aggregate amount of brokerage commissions paid by us during the three most recent fiscal years is approximately $142,000. Such
commissions include approximately $141,000 in brokerage commissions paid to Imperial Capital, LLC, an affiliated person of ICAM, beginning when ICAM became an affiliated person of the Company during the quarter ended December 31, 2021 through
December 31, 2023. Brokerage commissions paid to Imperial Capital, LLC represent nearly 100% of our aggregate brokerage commissions during the most recent fiscal year and the dollar amount of transactions on which such brokerage commissions
were paid represents nearly 100% of the aggregate dollar amount of transactions involving the payment of commissions during such fiscal year.
Properties
Our executive offices are
located at 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410, and are provided by GECM in accordance with the terms of the Administration Agreement.
Table of Contents
Legal Proceedings
From time to time, we, our investment adviser or administrator may be a party to certain legal proceedings in the ordinary course of business,
including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Information regarding our legal proceedings is incorporated by reference herein from our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February , as well as any amendments reflected in subsequent filings with the SEC, and our most recent Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2024, filed on October , as well as any amendments reflected in subsequent filings with the
SEC.
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 GECM 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.
Table of Contents
PORTFOLIO COMPANIES
The information included under (i) the caption “Consolidated Schedule of Investments” in Part IV, Item 15 of our most recent
Annual Report on Form 10-K for the fiscal year ended December
31, 2023, filed on February , as well as any amendments reflected in subsequent filings with
the SEC, or (ii) the caption “Consolidated Schedule of Investments (unaudited)” in Part I, Item 1 of our most recent Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2024, filed on October , as well as any amendments reflected in subsequent
filings with the SEC, whichever is most recently filed, is incorporated herein by reference.
Table of Contents
MANAGEMENT
Information about our management included under the captions “Directors, Executive Officers and Corporate Governance,”
“Executive Compensation” and “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III, Item 10, Item 11 and Item 12, respectively, of our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on February , any amendments reflected in subsequent filings with the SEC, and information about our management included under the caption “Management” in our most recent Proxy Statement for our Annual Meeting of Stockholders filed on April , is incorporated herein by reference.
Our Board of Directors
Set forth below is the dollar range of equity securities beneficially owned by each of our directors as of December 31, 2024. We are not part
of a “family of investment companies,” as that term is defined in the Investment Company Act.
Name of Director
Dollar Range of Equity
Securities of GECC
Independent Directors
Mark Kuperschmid
Over $100,000
Richard Cohen
$10,001—$50,000
Chad Perry
None
Interested Directors
Matthew A. Drapkin
Over $100,000
Erik A. Falk
None
Dollar ranges are as follows: None, or over $100,000.
The dollar range of equity securities beneficially owned is based on the closing price for our common stock of
$10.99 on December 31, 2024.
Our Portfolio Manager
GECM manages our portfolio. We consider Matt Kaplan, our President and Chief Executive Officer, to be our portfolio manager. GECM's
investment team does not receive any direct compensation from us in connection with the management of our portfolio. GECM's investment personnel may be compensated through: (1) annual base salary; (2) cash bonuses; and (3) equity
in GEG.
Matt Kaplan has been our President and Chief Executive Officer since March 2022. Mr. Kaplan has served as a Portfolio
Manager since October 2020 and as President since August 2023 for GECM, as well as a Managing Director of ICAM focused on investment opportunities across the capital structure. Mr. Kaplan joined ICAM in 2020 after spending four years at Citadel
LLC from 2015 to 2019 investing in special situations and event-driven credit and equities. Previously, Mr. Kaplan served as a Senior Vice President of Imperial Capital UK from 2014 to 2015, advising on special situations and complex
transactions, including the liquidation of a failed bank. Prior to Imperial Capital UK, Mr. Kaplan worked in research with Imperial Capital US from 2007 to 2014. Mr. Kaplan earned a B.S. in Managerial Economics from the University of
California, Davis and holds the Chartered Financial Analyst designation from the CFA Institute.
Table of Contents
Other Accounts Managed
As of December 31, 2024, Matt Kaplan was primarily responsible for the day-to-day management of two pooled investment funds for institutional investors.
Name of
Investment
Committee
Voting
Member
Type of
Accounts
Total No. of
Other Accounts
Managed
Total Other
Assets
(in
millions)
No. of Other Accounts
where Advisory Fee is
Based on Performance
Total Assets in
Other Accounts
where Advisory Fee
is Based on
Performance
(in millions)
Matt Kaplan
Registered Investment Companies:
None
None
None
None
Other Pooled Investment Vehicles:
$ 14.0
Other Accounts:
None
None
None
None
Portfolio Manager's Material Conflicts of Interest
Certain of our executive officers and directors, and the members of the investment committee of GECM, serve or may serve as officers, directors
or principals of entities, including ICAM or funds managed by ICAM, and affiliates of GECM and investment funds managed by our affiliates, that operate in the same or related lines of business as GECC. Accordingly, they may have obligations to
investors in those entities, the fulfillment of which might not be in our or our stockholders' best interests or that may require them to devote time to services for other entities, which could interfere with the time available to provide
services to us. For example, Matt Kaplan, our President and Chief Executive Officer, is a portfolio manager at GECM and a member of its investment committee. Further, we may not be given the opportunity to participate in certain investments made by
investment funds managed by advisers affiliated with GECM and any advisers that may in the future become affiliated with GEG. GEG, the parent company of GECM, currently holds approximately 12.5% of our outstanding common stock.
Although funds managed by GECM may have different primary investment objectives than us, they may from time to time invest in asset classes
similar to those we target. GECM is not restricted from raising an investment fund with investment objectives similar to ours. Any such funds may also, from time to time, invest in asset classes similar to those targeted by, and eligible for
purchase by, us. GECM will endeavor to allocate investment opportunities in a fair and equitable manner, and in any event consistent with any duties owed to us and such other funds. It is possible that we may not be given the opportunity to
participate in investments made by investment funds managed by investment managers affiliated with GECM. To the extent that we compete with entities managed by GECM or any of its affiliates for a particular investment opportunity, GECM will allocate
investment opportunities across the entities for which such opportunities are appropriate, consistent with (1) its internal investment allocation policies (which provides that no allocation decisions may be based on the fees or allocations paid
by a particular client), (2) the requirements of the Advisers Act, and (3) restrictions under the Investment Company Act regarding co-investments with affiliates, including the requirements of the
Exemptive Relief Order (as defined below).
Our participation in any negotiated co-investment opportunities (other than those in which the only term negotiated is price) with investment funds managed by investment managers under common control with GECM (as well as with proprietary accounts of an affiliate of GECM) is subject to compliance
with the Exemptive Relief Order. The allocation of all or a portion of an investment opportunity to co-investors could result in lower returns for us than had the we taken the full opportunity for ourself.
There may be certain investment opportunities that fall outside the scope of the Exemptive Order or otherwise may not be permitted to be allocated to us. Accordingly, we may not be able to participate in all investment opportunities that GECM
determines would otherwise be suitable for us.
Table of Contents
We pay management and incentive fees to GECM, and reimburse GECM for certain expenses it
incurs. In addition, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments.
GECM's management fee is based on a percentage of our total assets (other than cash or cash equivalents but including assets purchased
with borrowed funds and other forms of leverage) and GECM may have conflicts of interest in connection with decisions that could affect our total assets, such as decisions as to whether to incur indebtedness. The use of leverage increases the
likelihood of default on our debt or other leverage, which would disfavor investors in our common stock.
The part of the incentive fee
payable by us that relates to our pre-incentive fee net investment income is computed on income that may include interest that is accrued but not yet received in cash, but payment is made on such accrual only
once corresponding income is received in cash. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become
uncollectible, which would result in the reversal of any previously accrued and unpaid incentive fees. On April 6, 2022, our Board and the independent directors approved the amendment to the Investment Management Agreement (the
“Amendment”) to eliminate $163.2 million of realized and unrealized losses incurred prior to April 1, 2022 from the calculation of the Capital Gains Incentive Fee and reset the Capital Gains Commencement Date (as defined above)
and the mandatory deferral commencement date, effectively resetting the incentive fee total return hurdle, which was subsequently approved by our stockholders on August 1, 2022.
As a result of the arrangements described above, there may be times when our management team has interests that differ from those of our
stockholders, giving rise to a conflict. We and GECM have adopted compliance policies and procedures that are reasonably designed to address the various conflicts of interest that may arise in good faith.
Ownership of Securities
As of
December 31, 2024, Matt Kaplan owned between $500,001 and $1,000,000 of shares of our common stock, which is calculated based on the closing price for shares of our common stock of $10.99 on December 31, 2024.
Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information included under the caption “Management's Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 7 of our most recent Annual Report on Form 10-K for the fiscal year ended December
31, 2023, filed on February , as well as any amendments reflected in subsequent filings with
the SEC, and Part I, Item 2 of our most recent Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2024, filed on October , as well as any amendments reflected in subsequent filings with the
SEC, is incorporated herein by reference.
Table of Contents
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information included under the caption “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A
of our most recent Annual Report on Form 10-K for the fiscal year ended December
31, 2023, filed on February , as well as any amendments reflected in subsequent filings with
the SEC, and Part I, Item 3 of our most recent Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2024, filed on October , as well as any amendments reflected in subsequent filings with the
SEC, is incorporated herein by reference.
Table of Contents
PLAN OF DISTRIBUTION
The Secondary Shares covered by this prospectus may be offered and sold from time to time by the selling stockholders. The term “selling
stockholders” includes pledgees, donees, assignees, transferees or other successors-in-interest selling shares received after the date of this prospectus from any
of the selling stockholders as a gift, pledge, partnership distribution or other non-sale related transfer. Each selling stockholder will act independently of us in making decisions with respect to the timing,
manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing
or at prices related to the then-current market price or in negotiated transactions. Each selling stockholder may sell its shares by one or more of, or a combination of, the following methods:
•
an underwritten offering;
•
purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this
prospectus;
•
ordinary brokerage transactions and transactions in which the broker solicits purchasers;
•
block trades in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
•
an over-the-counter distribution
in accordance with Nasdaq rules;
•
in privately negotiated transactions;
•
in options transactions; and
•
any other method permitted by applicable law.
In addition, any Secondary Shares that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. If the selling stockholder uses one or more underwriters in the sale, such underwriter(s) will acquire the Secondary Shares for their own account. The underwriter(s) may resell the Secondary Shares in one or more
transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale.
To
the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution, including the names of any underwriters, the purchase price and the proceeds a selling stockholder will receive from
the sale, any underwriting discounts and other items constituting underwriters' compensation, any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers, and any other information we believe to be
material.
In connection with distributions of the Secondary Shares or otherwise, one or more selling stockholders may enter into hedging
transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the common stock in the course of hedging the positions they assume
with the applicable selling stockholder. A selling stockholder may also sell the common stock short and redeliver the shares to close out such short positions. A selling stockholder may also enter into option or other transactions with
broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant
to this prospectus (as supplemented or amended to reflect such transaction). A selling stockholder may also pledge shares to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution may
effect sales of the pledged shares pursuant to this prospectus (as supplemented or amended to reflect such transaction).
In effecting
sales, broker-dealers or agents engaged by one or more selling stockholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the selling stockholder in amounts to be
negotiated immediately prior to the sale. In offering the Secondary
Table of Contents
Shares, any broker-dealers who execute sales for the selling stockholder may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. The
compensation of any broker-dealer may be deemed to be underwriting discounts and commissions. The specific terms of the lock-up provisions, if any, in respect of any given offering will be described in the
applicable prospectus supplement.
In order to comply with the securities laws of certain states, if applicable, the Secondary Shares must
be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the Secondary Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption
from the registration or qualification requirement is available and is complied with.
We advised the selling stockholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of such selling stockholder and its affiliates. In addition, we will make copies of this prospectus available to the
selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act.
At the time a particular
offer of Secondary Shares is made, if required, a prospectus supplement will be distributed that will set forth the number of Secondary Shares being offered, the method of distribution and the terms of the offering, including the name or names of
any underwriters, dealers or agents, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed
selling price to the public.
The selling stockholders have advised us that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their shares pursuant to the registration statement of which this prospectus forms a part. Upon our notification by the selling stockholders that any material arrangement has
been entered into with an underwriter or broker-dealer for the sale of shares through a block trade, special offering, exchange distribution, secondary distribution or a purchase by an underwriter or broker-dealer pursuant to the registration
statement of which this prospectus forms a part, we will file a supplement to this prospectus, if required, pursuant to Rule 497 under the Securities Act, disclosing certain material information, including:
•
the name of the selling stockholder;
•
the number of Secondary Shares being offered;
•
the terms of the offering;
•
the names of the participating underwriters, broker-dealers or agents;
•
any discounts, commissions or other compensation paid to underwriters or broker-dealers and any discounts,
commissions or concessions allowed or reallowed or paid by any underwriters to dealers;
•
the public offering price; and
•
other material terms of the offering.
In addition, upon being notified by the selling stockholders that a donee, pledgee, transferee or other successor-in-interest intends to sell shares, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a selling stockholder.
If underwriters are used in a firm commitment underwriting, the selling stockholders will execute an underwriting agreement with those
underwriters relating to the Secondary Shares that the selling stockholders will offer. Unless otherwise set forth in a prospectus supplement, the obligations of the underwriters to purchase the Secondary Shares will be subject to conditions. The
underwriters, if any, will purchase such shares on a firm commitment basis and will be obligated to purchase all of such Secondary Shares.
Table of Contents
The Secondary Shares subject to the underwriting agreement will be acquired by the
underwriters for their own account and may be resold by them from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Underwriters may be
deemed to have received compensation from the selling stockholders in the form of underwriting discounts or commissions and may also receive commissions from the purchasers of these shares of common stock for whom they may act as agent. Underwriters
may sell these shares to or through dealers. These dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agent. Any public offering
price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.
The selling stockholders
may authorize underwriters to solicit offers by institutions to purchase the shares of common stock subject to the underwriting agreement from the selling stockholders at the public offering price stated in a prospectus supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified date in the future. If the selling stockholders sell Secondary Shares pursuant to these delayed delivery contracts, the prospectus supplement will state that as well as the
conditions to which these delayed delivery contracts will be subject and the commissions payable for that solicitation.
The applicable
prospectus supplement will set forth whether or not underwriters may over-allot or effect transactions that stabilize, maintain or otherwise affect the market price of the Secondary Shares at levels above those that might otherwise prevail in the
open market, including, for example, by entering stabilizing bids, effecting syndicate covering transactions or imposing penalty bids. Underwriters are not required to engage in any of these activities, or to continue such activities if commenced.
The selling stockholders and any underwriters, dealers or agents participating in a distribution of the shares may be deemed to be
“underwriters” within the meaning of the Securities Act, and any profit on the sale of the shares by the selling stockholders and any commissions received by broker-dealers may be deemed to be underwriting commissions under the Securities
Act.
In the ordinary course of their business activities, any underwriter, broker-dealer or agent and their respective affiliates may
make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any
time hold long and short positions in such securities and instillments. Such investment and securities activities may involve our Secondary Shares and other instruments. Any underwriter, broker-dealer or agent and their respective affiliates may
also engage in transactions with or perform services for us or provide other types of financing to us in the ordinary course of their business.
The selling stockholders will pay all fees and expenses incurred in connection with the registration and offering of the Secondary Shares
pursuant to the Registration Rights Agreement, including all registration and filing fees, any other regulatory fees, printing and delivery expenses, listing fees and expenses, fees and expenses of counsel, independent certified public accountants,
any special experts retained by us, and any underwriting discounts and commissions and transfer taxes.
We and the selling stockholders
each may agree to indemnify an underwriter, broker-dealer or agent against certain liabilities related to the sale by the selling stockholders of our common stock, including liabilities arising under the Securities Act.
To the extent required, this prospectus may be amended and/or supplemented from time to time to describe a specific plan of distribution.
Instead of selling the Secondary Shares under this prospectus, the selling stockholders may sell Secondary Shares in compliance with Rule 144 under the Securities Act, if available, or pursuant to other available exemptions from the registration
requirements of the Securities Act.
To comply with applicable state securities laws, the Secondary Shares will be sold, if necessary, in
such jurisdictions only through registered or licensed brokers or dealers. In addition, the Secondary Shares may not be sold in some states absent registration or pursuant to an exemption from applicable state securities laws.
Table of Contents
SELLING STOCKHOLDERS
This prospectus relates to 2,092,033 shares being offered for resale on behalf of the selling stockholders identified below. We are
registering the shares to permit the selling stockholders to resell the shares when and as they deem appropriate. The following table sets forth:
•
the name of the selling stockholders;
•
the number and percent of shares of our common stock that the selling stockholders beneficially owned prior to
the offering for resale of the shares under this registration statement;
•
the number of shares of our common stock that may be offered for resale for the account of the selling
stockholders under this registration statement, some or all of which shares may be sold pursuant to this prospectus and any prospectus supplement; and
•
the number and percent of shares of our common stock to be beneficially owned by the selling stockholders after
an offering under this registration statement (assuming all of the offered resale shares are sold by the selling stockholder
The number of shares in the column “Number of Shares Being Offered” represents all of the shares that each selling stockholder may
offer under this registration statement. We do not know how long a selling stockholder will hold the shares before selling them or how many shares it will sell and we currently have no agreements, arrangements or understandings with the stockholder
regarding the sale of any of the shares under this registration statement. The shares offered by this prospectus may be offered from time to time by the selling stockholder listed below.
This table is prepared solely based on information supplied to us by the listed stockholder and any public documents filed with the SEC, and
assumes the sale of all of the resale shares. For the purposes of calculating percentages of beneficial ownership, as of the close of business on January 30, 2025, 11,544,415 shares of common stock were issued and outstanding.
Shares Beneficially
Owned Prior to Offering
Number of Shares
Being Offered
Shares Beneficially
Owned After Offering
Stockholder
Number
Percent
Number
Percent
Prosper Peak Holdings, LLC
—
—
Summit Grove Partners, LLC
—
—
Prosper Peak Holdings, LLC (“PPH”) is a special purpose vehicle which is owned 25% by GEG. GECM, the
investment manager of the Company, is a wholly-owned subsidiary of GEG.
On June 21, 2024, the Company entered into a Share Purchase Agreement with PPH, pursuant to which PPH
purchased, and the Company issued, 997,506 shares of the Company's common stock, par value $0.01, at a net asset value of $12.03 per share or an aggregate purchase price of $11,999,997.
Summit Grove Partners, LLC (“SGP”) is a special purpose vehicle which is owned 25% by GEG. GECM, the
investment manager of the Company, is a wholly-owned subsidiary of GEG.
On December 11, 2024, the Company entered into a Share Purchase Agreement with SGP, pursuant to which the
Purchaser purchased, and the Company issued, 1,094,527 shares of the Company's common stock, par value $0.01, at a net asset value of $12.06 per share or an aggregate purchase price of $13,199,995.62.
Shares of our common stock sold by the selling stockholders will generally be freely tradable. Sales of substantial amounts of our common
stock, including by the selling stockholders, or the availability of such common stock for sale, whether or not sold, could adversely affect the prevailing market prices for our common stock.
Table of Contents
RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS
Mr. Kaplan serves as a Portfolio Manager and as President for GECM. Mr. Drapkin serves as Vice Chairman of the board of directors of
GEG. Mr. Kleinman serves as General Counsel and Chief Compliance Officer of GECM and President, General Counsel and Chief Compliance Officer of GEG, the parent company of GECM, in addition to being our Chief Compliance Officer and Secretary.
GEG owns approximately 12.5% of our outstanding shares of common stock as of January 30, 2025.
Certain of our executive officers and
directors, and the members of the investment committee of GECM, serve or may serve as officers, directors or principals of entities, including ICAM or funds managed by ICAM, that operate in the same or related lines of business as GECC or of
investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities that may require them to devote time to services for other entities, which could interfere with the time available to provide services
to us. Further, we may not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with GECM and any advisers that may in the future become affiliated with GEG. GECC's participation
in any negotiated co-investment opportunities (other than those in which the only term negotiated is price) with investment funds managed by investment managers under common control with GECM (as well as with
proprietary accounts of an affiliate of GECM) is subject to compliance with the Exemptive Relief Order.
Mr. Drapkin is a director of
GEG and the Chief Executive Officer & Portfolio Manager of Northern Right, a beneficial owner of more than 5% of GEG's common stock and an owner of GEG PIK notes. Mr. Drapkin does not receive compensation from us in his role as a
director and is an “interested person” as defined under Section 2(a)(19) of the Investment Company Act.
We entered into a
license agreement with GEG pursuant to which GEG granted us a non-exclusive, royalty-free license to use the name “Great Elm Capital Corp.” Under the license agreement, we have a right to use the
“Great Elm Capital Corp.” name and logo for so long as GECM, or an affiliate thereof, remains our investment adviser.
We are
party to the Investment Management Agreement with GECM, which is wholly-owned by GEG. Subject to the overall supervision of our Board, GECM manages our day-to-day operations and provides investment advisory and management services to us pursuant to the Investment Management Agreement. We pay GECM a fee for investment management services, which consisted of (1) base management fees of $3.5 million
and $3.2 million for the years ended December 31, 2023 and 2022, respectively, and (2) an accrued and unpaid aggregate incentive fee of approximately $2.6 million as of September 30, 2024. For the year ended
December 31, 2023, we incurred $3.1 million in Income Incentive Fees accrued during the period. There were no Capital Gains Incentive Fees earned by GECM as calculated under the Investment Management Agreement for the year ended
December 31, 2023. For the year ended December 31, 2022, we incurred $0.6 million in Income Incentive Fees accrued during the period, exclusive of the waiver granted by the investment manager of $4.9 million in incentive fees
earned in previous periods. There were no Capital Gains Incentive Fees earned by GECM as calculated under the Investment Management Agreement for the year ended December 31, 2022. GECM waived all accrued and unpaid incentive fees pursuant to
the Investment Management Agreement as of March 31, 2022. In connection with the incentive fee waiver, we recognized the reversal of these accrued fees during the period ending March 31, 2022, resulting in a corresponding increase in net
income and increase in NAV in such period (subject to any offsetting additional expenses or losses).
We are also party to the
Administration Agreement with GECM. Pursuant to the Administration Agreement, GECM furnishes us with, or otherwise arranges for the provision of, office facilities, equipment, clerical, bookkeeping, finance, accounting, compliance and record keeping
services at such office facilities and other such services as our administrator. We bear all costs and expenses that are incurred in our operation and transactions
and not specifically assumed by GECM pursuant to the Investment Management Agreement. For the fiscal years
Table of Contents
ended December 31, 2023 and 2022 we reimbursed GECM in the amount of $1.1 million and $0.9 million, respectively, for services provided under the Administration Agreement. For the
nine months ended September 30, 2024 and 2023, we reimbursed GECM in the amount of approximately $1.2 million and $1.1 million, respectively, for services provided under the Administration Agreement.
On August 16, 2023, GEG, the parent company of GECM, purchased $4.5 million of GECCZ Notes from the underwriters in an SEC registered
offering at the public offering price. No underwriting discount or commissions (sales load) was paid to the underwriters in connection with GECCZ Notes they sold to GEG. As of March 11, 2024, GEG no longer holds any GECCZ Notes.
On February 8, 2024, we entered into a Share Purchase Agreement with Great Elm Strategic Partnership, LLC (“GESP”), pursuant to
which GESP purchased, and we issued, 1,850,424 shares of our common stock, par value $0.01 per share, at a price of $12.97 per share, which represented our net asset value per share as of February 7, 2024, for an aggregate purchase price of
$24 million. GESP is a special purpose vehicle which is owned 25% by GEG. GECM, the investment manager of GECC, is a wholly-owned subsidiary of GEG. GESP has agreed that, for as long as it owns more than 3% of our common stock and to the extent
required by the Investment Company Act, it will vote the shares it holds in the same proportion as the vote of all other holders of our common stock.
On June 21, 2024, we entered into a Share Purchase Agreement with Prosper Peak Holdings, LLC (“PPH”), pursuant to which PPH
purchased, and we issued, 997,506 shares of our common stock, par value $0.01 per share, at a price of $12.03 per share, which represented our net asset value per share as of June 20, 2024, for an aggregate purchase price of approximately
$12 million. PPH is a special purpose vehicle which is owned 25% by GEG. GECM, the investment manager of GECC, is a wholly-owned subsidiary of GEG. PHH has agreed that, for as long as it owns more than 3% of our common stock and to the extent
required by the Investment Company Act, it will vote the shares it holds in the same proportion as the vote of all other holders of our common stock.
On December 11, 2024, we entered into a Share Purchase Agreement with Summit Grove Partners, LLC (“SGP”), pursuant to which SGP
purchased, and we issued, 1,094,527 shares of our common stock, par value $0.01 per share, at a price of $12.06 per share, which represented our net asset value as of December 10, 2024, for an aggregate purchase price of approximately
$13 million. SGP is a special purpose vehicle which is owned 25% by GEG. GECM, the investment manager of GECC, is a wholly-owned subsidiary of GEG. SGP has agreed that, for as long as it owns more than 3% of our common stock and to the extent
required by the Investment Company Act, it will vote the shares it holds in the same proportion as the vote of all other holders of our common stock.
Certain of our interested directors as well as GEG's directors are indirectly invested in PPH and SGP and may invest in future capital
raising vehicles.
GECM has entered into the Shared Services Agreement, pursuant to which ICAM makes available to GECM certain back-office
employees of ICAM to provide services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees' time. Pursuant to the Shared Services Agreement, GECM also makes available to ICAM certain employees of GECM to
provide services to ICAM in exchange for reimbursement by ICAM of the allocated portion of such employees' time.
We have established
a written policy to govern the review of potential related party transactions. GECM, our Chief Compliance Officer, and any other officers designated by us are required to review the facts and circumstances of transactions with certain affiliates,
and to screen any such transactions, for potential compliance issues under Section 57(h) of the Investment Company Act.
Table of Contents
CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the close of business on January 30, 2025, certain information regarding the beneficial ownership
of our common stock by:
•
each of the directors and executive officers;
•
all of our current executive officers and directors as a group; and
•
each person known by us to be beneficial owners of 5% or more of our outstanding common stock.
Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act, and includes voting or investment power with respect to the securities. Ownership information for those persons who beneficially own more than 5% of our common stock is based upon Schedule 13G and Schedule 13D filings filed by such
persons with the SEC and other information obtained from such persons, if available.
Except as indicated in the footnotes to this table
and under applicable community property laws, to our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock. For the purposes of calculating percent ownership, as of the close of
business on January 30, 2025, 11,544,415 shares of common stock were issued and outstanding.
The address for each of our current
directors and executive officers is c/o Great Elm Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410.
Shares Beneficially
Owned
Percent of
Class
Interested Directors
Erik A. Falk
—
Matthew A. Drapkin
Independent Directors
Mark Kuperschmid
Richard Cohen
Chad Perry
—
Executive Officers
Matt Kaplan
Adam Kleinman
Keri Davis
Directors and executive officers as a group (8 persons)
5% Beneficial Owners
Great Elm Strategic Partnership I, LLC
Great Elm Group, Inc.
Prosper Peak Holdings, LLC
Summit Grove Partners, LLC
Entities affiliated with Northern Right Capital Management, L.P.
Less than one percent.
Includes the 798,471 shares identified in footnote (6) below.
Includes 13,972 shares held by Benmark Investments LLC (1568 Columbus Ave., Burlingame, California 94010).
Mr. Kuperschmid disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
Based on information provided to the Company and furnished in a Schedule 13G filed with the SEC on
February 13, 2024 by GESP. GESP reported sole voting and dispositive power over 1,850,424 shares of our common stock. The address for GESP is 800 South Street, Suite 230, Waltham, Massachusetts 02453.
Table of Contents
Based on information provided to the Company and furnished in a Schedule 13D/A filed with the SEC on
December 13, 2024 by GEG. GEG reported sole voting and dispositive power over 1,440,722 shares of our common stock. The address for GEG is 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410.
Based on information provided to the Company and furnished in a Schedule 13G filed with the SEC on
June 24, 2024 by PPH. PPH reported sole voting and dispositive power over 997,506 shares of our common stock. The address for PPH is 800 South Street, Suite 230, Waltham, Massachusetts 02453.
Based on information provided to the Company and furnished in a Schedule 13D/A filed with the SEC on January
21, 2025, jointly by Northern Right Capital Management, L.P. (“Northern Right”), Northern Right Capital (QP), L.P. (“Northern Right QP”), Northern Right Long Only Master Fund LP (“Northern Right Long Only”), Northern
Right Fund GP LLC (“Northern Right Fund GP”), BC Advisors, LLC (“BCA”) and Matthew A. Drapkin. Each of BCA and Mr. Drapkin reported shared voting and dispositive power over 798,471 shares of our common stock.
Mr. Drapkin also reported sole voting and dispositive power over 75,716 shares of our common stock. Northern Right QP reported sole voting and dispositive power over 352,189 shares of our common stock. Each of Northern Right Long Only and
Northern Right Fund GP reported sole voting and dispositive power over 77,142 shares of our common stock. Northern Right reported sole voting and dispositive power over 369,140 shares of our common stock and also reported shared voting and
dispositive power over 429,331 shares of our common stock. The address for Northern Right is 9 Old Kings Hwy S., 4th Floor, Darien, CT 06820.
Based on information provided to the Company and furnished in a Schedule 13G filed with the SEC on
December 12, 2024 by SGP. SGP reported sole voting and dispositive power over 1,094,527 shares of our common stock. The address for SGP is 800 Boylston Street, Suite 900, Boston, MA 02199.
Table of Contents
DETERMINATION OF NET ASSET VALUE
We determine our NAV each quarter by subtracting our total liabilities from the fair value of our gross assets.
We value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our
Board. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous)
market for the asset that (1) are independent of us; (2) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts
that are usual and customary); (3) are able to transact for the asset; and (4) are willing to transact for the asset (that is, they are motivated but not forced or otherwise compelled to do so).
Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to
represent fair value. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers or market makers. However, short-term debt investments with remaining
maturities within 90 days are generally valued at amortized cost, which approximates fair value.
Debt and equity securities for which
market quotations are not readily available or for which market quotations are deemed not to represent fair value, are valued at fair value using a valuation process consistent with our Board-approved policy. Our Board approves in good faith the
valuation of our portfolio as of the end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ
significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and
other events may impact the market quotations used to value some of our investments.
Determination of fair value involves subjective
judgments and estimates. Accordingly, the notes to our financial statements will express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.
Table of Contents
DIVIDEND REINVESTMENT PLAN
We have adopted a dividend reinvestment plan that provides for reinvestment of our dividends and other distributions on behalf of our
stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our Board authorizes, and we declare, a cash distribution, our stockholders who have not opted out of our dividend reinvestment plan will have their cash
distributions (net of any applicable withholding tax) automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.
No action will be required on the part of a registered stockholder to have his or her cash distribution reinvested in our common stock. A
registered stockholder may elect to receive an entire distribution in cash by notifying Equiniti Trust Company, LLC, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator no
later than the record date for distributions to stockholders. The plan administrator will set up an account for common stock acquired through the plan for each stockholder who has not elected to receive distributions in cash and hold such common
stock in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to each applicable record date, the plan administrator will, instead of
crediting shares to the participant's account, issue a certificate registered in the participant's name for the number of whole shares of our common stock and a check for any fractional share.
Those stockholders whose common stock are held by a broker or other financial intermediary may receive distributions in cash by notifying
their broker or other financial intermediary of their election.
We intend to use primarily newly issued common stock to implement the
plan to the extent our common stock is trading at a premium to NAV per share of the common stock. In the case that such newly issued common stock is used to implement the plan, the number of common stock to be issued to a stockholder is determined
by dividing the total dollar amount of the distribution payable to such stockholder by 95% of the market price per share of our common stock at the close of trading on the date fixed by the Board for such purposes. Market price per share on that
date will be the closing price for such common stock on the national securities exchange on which our common stock is then listed or, if no sale is reported for such day, at the average of their electronically reported bid and asked prices.
Notwithstanding the foregoing, we reserve the right to instruct the plan administrator to purchase our common stock in the open market in connection with our implementation of the plan. Shares purchased in open market transactions by the plan
administrator will be allocated to each stockholder who has not so elected to receive cash distributions in cash in the manner set forth above for issuance of new common stock, substituting where applicable the average purchase price, excluding any
brokerage charges or other charges, of all common stock purchased in the open market in lieu of the market price per share. The number of shares of our common stock to be outstanding after giving effect to payment of the distribution cannot be
established until the value per share at which additional common stock will be issued has been determined and elections of our stockholders have been tabulated.
The plan administrator's fees under the plan will be paid by us. If a participant elects by written notice to the plan administrator to
have the plan administrator sell part or all of the common stock held by the plan administrator in the participant's account and remit the proceeds to the participant, the plan administrator is authorized to deduct a transaction fee of $15 plus
a per share brokerage commission from the proceeds.
Stockholders who receive distributions in the form of stock are generally subject to
the same federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. A stockholder's basis for determining gain or loss upon the sale of stock received in a distribution from us generally will
be equal to the total dollar amount of the distribution payable to the stockholder. Any stock received in a distribution will have a new holding period for tax purposes commencing on the day following the day on which the common stock is credited to
the U.S. stockholder's account.
We may terminate the plan upon notice in writing mailed to each participant at least 30 days prior
to any record date for the payment of any distribution by us. All correspondence concerning the plan should be directed to the plan administrator by mail at 48 Wall Street, Floor 23, New York, NY 10005 or by phone at (800)
Table of Contents
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations applicable to the ownership and disposition of the Secondary Shares by a
“U.S. Holder” or a “Non-U.S. Holder” (each as defined below). This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements,
judicial decisions and final, temporary and proposed Treasury regulations, all as in effect as of the date of this registration statement and all of which are subject to change or to differing interpretation, possibly with retroactive effect. Any
such change or differing interpretation could alter the tax consequences to stockholders described in this registration statement. The discussion does not purport to deal with all of the U.S. federal income tax consequences which may be important to
particular stockholders in light of their individual investment circumstances (such as the effects of Section 451 of the Code, which conforms the timing of certain income accruals to financial statements) or to some types of stockholders
subject to special tax rules, including stockholders subject to an alternative minimum tax, financial institutions, broker-dealers, insurance companies, tax-exempt organizations, partnerships or other
pass-through entities for U.S. federal income tax purposes and investors therein, stockholders holding the Secondary Shares in connection with a hedging, straddle, conversion or other integrated transaction, Non-U.S. Holders engaged in a trade or business in the United States, U.S. expatriates or stockholders who have ceased to be U.S. citizens or to be taxed as resident aliens, stockholders who mark-to-market the Secondary Shares for U.S. federal income tax purposes or stockholders who contribute assets to us in exchange for the Secondary Shares. This discussion
assumes that the stockholders hold the Secondary Shares as capital assets for U.S. federal income tax purposes (generally, assets held for investment). No attempt is made to present a detailed explanation of all U.S. federal income tax principles
affecting our stockholders, and the discussion set forth herein does not constitute tax advice. No ruling has been or will be sought from the IRS, regarding any matter discussed herein. Tax counsel has not rendered any legal opinion regarding any
tax consequences relating to us or our stockholders. This summary does not include any discussion of the tax laws of any state, local or non-U.S. government that may be applicable to us or a particular
stockholder nor does it discuss any U.S. federal tax consequences other than U.S. federal income tax consequences (such as U.S. federal estate or gift tax consequences). Stockholders are urged to consult their tax advisors to determine the U.S.
federal, state, local and foreign tax consequences to them of investing in the Secondary Shares.
The discussion set forth herein does not constitute
tax advice and potential investors are urged to consult their tax advisors to determine the specific U.S. federal, state, local and foreign tax consequences to them of investing in us.
Taxation of GECC
A discussion of taxation of GECC is
included under “The Company-Certain Federal Income Tax Matters.” The discussion below assumes that we qualify as a RIC for U.S. federal income tax purposes.
Taxation of U.S. Holders
For purposes of this
discussion, a “U.S. Holder” is a beneficial owner of the Secondary Shares that is, for U.S. federal income tax purposes:
•
an individual who is a citizen or resident of the United States;
•
a corporation created or organized in or under the laws of the United States, any state therein or the District
of Columbia; or
•
an estate or trust, the income of which is subject to U.S. federal income taxation regardless of its source.
If a partnership or other entity or arrangement classified as a partnership for U.S. tax purposes holds the Secondary Shares, the tax
treatment of the partnership and each partner generally will depend on the activities of the partnership and the activities of the partner. Partnerships acquiring the Secondary Shares, and partners in such
Table of Contents
partnerships, should consult their tax advisors. Prospective investors that are not U.S. Holders should refer to the section “Non-U.S. Holders”
below and are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of an investment in the Secondary Shares, including the potential application of U.S. withholding taxes.
Distributions we pay to you from our ordinary income or from an excess of net short-term capital gain over net long-term capital loss (together referred to
hereinafter as “ordinary income dividends”) are generally taxable to you as ordinary income to the extent of our earnings and profits. Due to our expected investments, in general, distributions will not be eligible for any dividends
received deduction allowed to corporate U.S. Holders and will not qualify for the reduced rates of tax for qualified dividend income allowed to individuals. Distributions made to you from an excess of net long-term capital gain over net short-term
capital loss (“capital gain dividends”), including capital gain dividends credited to you but retained by us, are taxable to you as long-term capital gain if they have been properly designated by us, regardless of the length of time you
have owned the Secondary Shares. For non-corporate U.S. Holders, capital gains dividends are currently taxed at preferential rates.
Distributions in excess of our earnings and profits will first reduce the adjusted tax basis of your Secondary Shares and, after the adjusted tax basis is
reduced to zero, will constitute capital gain to you.
If we retain any net capital gain, we may designate the retained amounts as undistributed capital
gain in a notice to U.S. Holders. If a designation is made, a U.S. Holder would include in income, as long-term capital gain, its proportionate share of the undistributed amounts, but would be allowed a credit or refund, as the case may be, for its
proportionate share of the corporate tax paid by us. A U.S. Holder that is not subject to U.S. federal income tax or otherwise is not required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the
appropriate form in order to claim a refund for its share of the taxes we paid. In addition, the tax basis of the Secondary Shares owned by a U.S. Holder would be increased by an amount equal to the difference between (i) the amount included in
the U.S. Holder s income as long-term capital gain and (ii) the U.S. Holder's proportionate share of the corporate tax paid by us.
Dividends
and other taxable distributions are taxable to you even though they are reinvested in additional Secondary Shares. We have the ability to declare a large portion of a dividend in shares of our stock. In August of 2017, the IRS promulgated guidance
stating that as long as 20% of the dividend is paid in cash and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, U.S. Holders will be taxed on 100% of the dividend
in the same manner as a cash dividend, even though most of the dividend was paid in shares of our stock.
If we pay you a dividend in January which was
declared in the previous October, November or December to stockholders of record on a specified date in one of these months, then the dividend will be treated for tax purposes as being paid by us and received by you on December 31 of the year
in which the dividend was declared.
A U.S. Holder will recognize gain or loss on the sale or exchange of the Secondary Shares in an amount equal to the
difference between the U.S. Holder's adjusted basis in the Secondary Shares sold or exchanged and the amount realized on their disposition. Generally, gain recognized by a U.S. Holder on the sale or other disposition of the Secondary Shares
will result in capital gain or loss, and will result in a long-term capital gain or loss if those shares have been held for more than one year at the time of sale. Any loss upon the sale or exchange of the Secondary Shares held for six months or
less will be treated as a long-term capital loss to the extent of any capital gain dividends received (including amounts credited as an undistributed capital gain dividend) by you. A loss realized on a sale or exchange of the Secondary Shares will
be disallowed if other substantially identical shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are disposed of. In this case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Present law taxes both long-term and short-term capital gains of corporations at the rates applicable to
ordinary income.
Table of Contents
Non-corporate U.S. Holders with income in excess of certain
thresholds are, in general, subject to an additional 3.8% surtax on their “net investment income,” which ordinarily includes taxable distributions from us and taxable gain on the disposition of the Secondary Shares.
Distributions in respect to the Secondary Shares and gross proceeds from the disposition the Secondary Shares are generally subject to information reporting,
unless you are an exempt recipient. We (or another applicable withholding agent) may be required to withhold U.S. federal income tax (“backup withholding”), from all taxable distributions or such gross proceeds to any non-corporate U.S. Holder (1) who fails to furnish us (or the other withholding agent) with a correct taxpayer identification number or a certificate that such U.S. Holder is exempt from backup withholding or
(2) with respect to whom the IRS notifies us (or the other withholding agent) that such U.S. Holder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual's
taxpayer identification number is his or her social security number. Any amount withheld under the backup withholding rules is allowed as a credit against the U.S. Holder's U.S. federal income tax liability and may entitle such U.S. Holder to a
refund, provided that proper information is timely provided to the IRS.
Certain provisions of the Code referred to as “FATCA” generally require
withholding at a rate of 30% on dividends in respect of the Secondary Shares held by or through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not satisfied. The IRS has issued
proposed Treasury Regulations that eliminate this withholding on payments of gross proceeds, which withholding would have otherwise applied. Pursuant to the preamble to the proposed Treasury Regulations, an applicable withholding agent may (but is
not required to) rely on this proposed change until final Treasury Regulations are issued or until such proposed Treasury Regulations are rescinded. We will not pay any additional amounts in respect to any amounts withheld.
Under U.S. Treasury regulations, if a U.S. Holder recognizes a loss with respect to shares of $2 million or more for a non-corporate U.S. Holder or $10 million or more for a corporate U.S. Holder in any single taxable year (or a greater loss over a combination of years), the U.S. Holder must file with the IRS a disclosure
statement on Form 8886. Direct stockholders of portfolio securities in many cases are excepted from this reporting requirement, but under current guidance, stockholders of a RIC are not excepted. Future guidance may extend the current exception from
this reporting requirement to stockholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Significant monetary
penalties apply to a failure to comply with this reporting requirement. U.S. Holders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
U.S. Holders should consult their tax advisors with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences
of an investment in the Secondary Shares.
Taxation of Non-U.S. Holders
The following discussion only applies to Non-U.S. Holders. For purposes of this discussion, a “Non-U.S. Holder” is a beneficial owner of the Secondary Shares that is, for U.S. federal income tax purposes:
•
a nonresident alien individual;
•
a foreign corporation; or
•
a foreign estate or trust.
A Non-U.S. Holder does not include nonresident alien individuals present in the United States for 183 days or more in
the taxable year of disposition of the Secondary Shares, or former citizens or residents of the United States, who should consult their tax advisors regarding the U.S. federal income tax consequences of owning and disposing of the Secondary Shares.
Table of Contents
If a non-U.S. investor is a partnership for U.S. federal income tax
purposes, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the partnership's activities. Whether an investment in the Secondary Shares is appropriate for a Non-U.S. Holder will depend upon that stockholder's particular circumstances. An investment in the Secondary Shares by a Non-U.S. Holder may have adverse tax
consequences. Non-U.S. Holders should consult their tax advisors before investing in the Secondary Shares.
Distributions of ordinary income dividends to Non-U.S. Holders, subject to the discussion below, will generally be
subject to withholding of U.S. federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current and accumulated earnings and profits. Different tax consequences may result if the Non-U.S. Holder is engaged in a trade or business in the United States (and, if required by an applicable income tax treaty, such Non-U.S. Holder conducts such trade or
business through a permanent establishment in the United States). Special certification requirements apply to a Non-U.S. Holder that is a foreign trust, and such entities are urged to consult their tax
advisors.
Actual or deemed distributions of our net capital gain to a Non-U.S. Holder, and gain recognized by a Non-U.S. Holder upon the sale of the Secondary Shares, generally will not be subject to U.S. federal withholding tax and will not be subject to U.S. federal income tax unless the distributions or gain, as the case
may be, are effectively connected with a U.S. trade or business of the Non-U.S. Holder (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. Holder in the United States).
In general, no U.S. withholding taxes will be imposed on dividends paid by RICs
to Non-U.S. Holders to the extent dividends are designated as “interest-related dividends” (and the Non-U.S. Holder does not own ten percent or more, actually
or constructively, of the underlying payor of the interest, by vote), or “short-term capital gain dividends.” Under this exemption, interest-related dividends and short-term capital gain dividends generally represent distributions of
interest or short-term capital gain that would not have been subject to U.S. withholding tax at the source if they had been received directly by a Non-U.S. Holder, and that satisfy certain other requirements.
No assurance can be given that we will distribute any interest-related or short-term capital gain dividends.
If we distribute our net capital gains in
the form of deemed rather than actual distributions (which we may do in the future), a Non-U.S. Holder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholder's
allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the Non-U.S. Holder must obtain a U.S. taxpayer identification number and file a U.S.
federal income tax return even if the Non-U.S. Holder is not otherwise required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return. For a corporate Non-U.S. Holder, distributions (both actual and deemed), and gains realized upon the sale of the Secondary Shares that are effectively connected with a U.S. trade or business (or, where an applicable treaty applies,
are attributable to a permanent establishment in the United States) may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable tax treaty).
Accordingly, investment in the shares may not be appropriate for certain Non-U.S. Holders.
A Non-U.S. Holder who is a non-resident alien individual, and who is otherwise subject to withholding of U.S. federal income tax, may be subject to backup withholding of U.S.
federal income tax on dividends unless the Non-U.S. Holder provides us or the dividend paying agent with an IRS Form W-8BEN or IRS Form W-8BEN-E or otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. Holder or otherwise establishes an exemption from backup
withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to you may be refunded or credited against your U.S. federal income tax liability, if any, provided that the required information is furnished to the
IRS. Non-U.S. Holders may also be subject to information reporting.
Certain provisions of the Code referred to as
“FATCA” generally require withholding at a rate of 30% on dividends in respect of the Secondary Shares held by or through certain foreign financial institutions (including
Table of Contents
investment funds), unless such institution enters into an agreement with the Treasury to report, on an annual basis, information with respect to interests in, and accounts maintained by, the
institution to the extent such interests or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to withhold on certain payments.
Accordingly, the entity through which the Secondary Shares are held will affect the determination of whether such withholding is required. Similarly, dividends in respect to the Secondary Shares held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies to
us (or another applicable withholding agent) that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity's “substantial United States owners,” which
will in turn be provided to the Secretary of the Treasury. The IRS has issued proposed Treasury Regulations that eliminate this withholding on payments of gross proceeds, which withholding would have otherwise applied. Pursuant to the preamble to
the proposed Treasury Regulations, an applicable withholding agent may (but are not required to) rely on this proposed change until final Treasury Regulations are issued or until such proposed Treasury Regulations are rescinded. An intergovernmental
agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements. We will not pay any additional amounts to stockholders in respect of any amounts withheld,
including amounts withheld pursuant to FATCA. Non-U.S. Holders are encouraged to consult their tax advisors regarding the possible implications of the legislation on their investment in the Secondary Shares.
Table of Contents
DESCRIPTION OF OUR COMMON STOCK
The following description is based on relevant portions of the Maryland General Corporation Law and our charter (“Charter”) and
bylaws (“Bylaws”). This summary is not necessarily complete, and we refer you to the Maryland General Corporation Law and our charter and bylaws for a more detailed description of the provisions summarized below.
Our authorized stock consists of 100,000,000 shares of stock, par value $0.01 per share, all of which are initially designated as common
stock. Our common stock is listed on Nasdaq under the ticker symbol “GECC.” There are no outstanding options or warrants to purchase our common stock. No common stock has been authorized for issuance under any equity compensation plans.
Our fiscal year-end is December 31. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations.
As of January 30, 2025, there were 11,544,415 shares of stock outstanding.
Under our Charter, our Board is authorized to classify and reclassify any unissued stock into other classes or series of stock, including a
class or series of preferred stock, without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our Charter provides that a majority of our entire Board, without any action by our stockholders, may amend the Charter
from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.
Common Stock
All of our common stock has
equal rights as to earnings, assets, voting, and dividends and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by
our Board and declared by us out of assets legally available therefor. Shares of our common stock have no preemptive, conversion or redemption rights, generally have no appraisal rights and are freely transferable, except where their transfer is
restricted by federal and state securities laws or by contract. In the event of our liquidation, dissolution or winding up, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for
distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all
matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative
voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock can elect all of our directors, and holders of less than a majority of such common stock will be unable to elect any director.
Preferred Stock
Our Charter authorizes
our Board to classify and reclassify any unissued common stock into other classes or series of stock, including preferred stock. The cost of any such reclassification would be indirectly borne by our existing stockholders. Under the terms of our
Charter, our Board is authorized to issue preferred stock in one or more classes or series without stockholder approval. Prior to issuance of preferred stock of each class or series, the Board is required by Maryland law and by our Charter to set
the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the Board could authorize the
issuance of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their
best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the Investment Company Act. The Investment Company Act requires, among other things, that (1) immediately
Table of Contents
after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of our common stock is made, the aggregate involuntary liquidation
preference of such preferred stock, together with the aggregate involuntary liquidation preference or aggregate value of all other senior securities, must not exceed an amount equal to 50% of our gross assets after deducting the amount of such
dividend, distribution or purchase price, as the case may be, and (2) the holders of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if distributions
on such preferred stock are in arrears by two full years or more. Certain matters under the Investment Company Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock, if
any, would vote as a separate class from the holders of common stock on a proposal to cease operations as a BDC. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future
financings and acquisitions. However, we do not currently have any plans to issue preferred stock.
Limitation on Liability of Directors and Officers;
Indemnification and Advance of Expenses
Maryland law permits a Maryland corporation to include in its charter a provision eliminating
the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and
deliberate dishonesty established by a final judgment and that is material to the cause of action. Our Charter contains such a provision which eliminates directors' and officers' liability to the maximum extent permitted by Maryland law,
subject to the requirements of the Investment Company Act.
Our Charter authorizes us, and our Bylaws obligate us, to the maximum extent
permitted by Maryland law and subject to the requirements of the Investment Company Act, to indemnify any present or former director or officer of GECC or any individual who, while a director or officer of GECC and at our request, serves or has
served another corporation, partnership, limited liability company, real estate investment trust, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, member, manager or trustee, who is made, or threatened
to be made, a party to, or witness in, a proceeding by reason of his or her service in such capacity from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as
such and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. Our Charter and Bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of ours in any of the
capacities described above and any of our employees or agents or any employees or agents of our predecessor. In accordance with the Investment Company Act, we will not indemnify any person for any liability to which such person would be subject by
reason of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter requires otherwise, which ours does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to or in which they may be made, or threatened to be made, a party
or witness by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith
or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or omission was unlawful. Under Maryland law, a Maryland corporation may not indemnify a director or officer in a suit by the corporation or in its right in which the director or officer was
adjudged liable to the corporation or in a suit in which the director or officer was adjudged liable on the basis that a personal benefit was improperly received. Nevertheless, a court may order indemnification if it determines that the director or
officer is fairly and reasonably entitled to indemnification,
Table of Contents
even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for
an adverse judgment in a suit by the corporation or in its right, or for a judgment of liability on the basis that a personal benefit was improperly received, is limited to expenses. In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.
Our insurance policy does not currently provide coverage for claims, liabilities and expenses that may arise out of activities that our
present or former directors or officers have performed for another entity at our request. There is no assurance that such entities will in fact carry such insurance. However, in the event that our present or former directors or officers serve
another entity as a director, officer, partner or trustee, we expect to obtain insurance providing coverage for such persons for any claims, liabilities or expenses that may arise out of their activities while serving in such capacities.
Certain Provisions of the Maryland General Corporation Law and Our Charter and Bylaws
The Maryland General Corporation Law and our Charter and Bylaws contain provisions that could make it more difficult for a potential acquirer
to acquire us by means of a tender offer, proxy contest or otherwise. These provisions are expected to discourage certain coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to negotiate
first with our Board. We believe that the benefits of these provisions outweigh the potential disadvantages of discouraging any such acquisition proposals because, among other things, the negotiation of such proposals may improve their terms.
Classified Board of Directors
Our Board
is divided into three classes of directors serving staggered three-year terms. Upon expiration of their terms, directors of each class will be elected to serve for a three-year term ending at the third annual meeting of stockholders following his or
her election and until his or her successor is duly elected and qualifies. Each year, one class of directors will be elected by the stockholders. A classified board may render a change in control of us or removal of our incumbent management more
difficult. We believe, however, that the longer time required to elect a majority of a classified Board will help to ensure the continuity and stability of our management and policies.
Election of Directors
Our Charter and
Bylaws provide that the affirmative vote of a plurality of the votes cast in the election of directors at a meeting of stockholders duly called and at which a quorum is present will be required to elect a director. Our Board has the exclusive right
to amend the Bylaws to alter the vote required to elect directors.
Number of Directors; Vacancies; Removal
Our Charter provides that the number of directors will be set only by the Board in accordance with our Bylaws. Our Bylaws provide that a
majority of our entire Board may at any time increase or decrease the number of directors. However, unless our Bylaws are amended, the number of directors may never be less than one nor more than nine. We have elected to be subject to the provision
of Subtitle 8 of Title 3 of the Maryland General Corporation Law regarding the filling of vacancies on the Board. Accordingly, except as may be provided by our Board in setting the terms of any class or series of preferred stock, any and all
vacancies on our Board may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder
of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the Investment Company Act.
Table of Contents
Our Charter provides that, subject to the rights of holders of preferred stock, a director
may be removed only for cause, as defined in our Charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors.
Action by Stockholders
Under the
Maryland General Corporation Law, unless a corporation's charter provides otherwise (which our Charter does not), stockholder action can be taken only at an annual or special meeting of stockholders or by unanimous written consent in lieu of a
meeting. These provisions, combined with the requirements of our Bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until
the next annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
Our Bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to our Board and the proposal of
business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our Board or (3) by a stockholder who was a stockholder of record at the record date set by our Board
for the purpose of determining stockholders entitled to vote at the meeting, at the time of giving notice by the stockholders as provided for in our Bylaws and at the time of the meeting (and any postponement or adjournment thereof), who is entitled
to vote at the meeting in the election of each individual so nominated or on such other business and who has complied with the advance notice provisions of our Bylaws. With respect to special meetings of stockholders, only the business specified in
our notice of the meeting may be brought before the meeting. Nominations of persons for election to the Board at a special meeting may be made only (1) by or at the direction of our Board or (2) provided that the meeting has been called
for the purpose of electing directors, by a stockholder who was a stockholder of record at the record date set by our Board for the purpose of determining stockholders entitled to vote at the special meeting, at the time of giving notice as provided
for in our Bylaws and at the time of the meeting (and any postponement or adjournment thereof), who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice provisions of the
Bylaws. The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other
proposed business and, to the extent deemed necessary or desirable by our Board, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of
stockholders. Although our Bylaws do not give our Board any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if proper procedures are not followed. They may also have the effect of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or
to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
Calling of Special Meetings of Stockholders
Our Bylaws provide that special meetings of stockholders may be called by our Board and certain of our officers. Additionally, our Bylaws
provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by the secretary of the corporation upon the written request
of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.
Approval of Extraordinary Corporate
Action; Amendment of Charter and Bylaws
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter,
merge, convert to another form of entity, sell all or substantially all of its assets, engage in a share exchange or engage in similar
Table of Contents
transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the
votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our Charter
generally provides for approval of amendments and extraordinary transactions by stockholders entitled to cast a majority of the votes entitled to be cast on the matter.
However, our Charter provides that approval of the following matters requires the affirmative vote of stockholders entitled to cast at least
80% of the votes entitled to be cast on the matter:
•
amendments to the provisions of our Charter relating to the classification of our Board, the power of our Board
to fix the number of directors and to fill vacancies on our Board, the vote required to elect or remove a director, the vote required to approve our dissolution, amendments to our Charter and extraordinary transactions and our Board exclusive power
to amend our Bylaws;
•
Charter amendments that would convert us from a closed-end company to an open-end company or make our common stock a redeemable security (within the meaning of the Investment Company Act);
•
our liquidation or dissolution or any amendment to our Charter to effect any such liquidation or dissolution;
•
any merger, consolidation, conversion, share exchange or sale or exchange of all or substantially all of our
assets that the Maryland General Corporation Law requires be approved by our stockholders; or
•
any transaction between us, on the one hand, and any person or group of persons acting together that is entitled
to exercise or direct the exercise, or acquire the right to exercise or direct the exercise, directly or indirectly (other than solely by virtue of a revocable proxy), of one-tenth or more of the voting power
in the election of our directors generally, or any person controlling, controlled by or under common control with, employed by or acting as an agent of, any such person or member of such group, on the other hand.
However, if such amendment, proposal or transaction is approved by a majority of our continuing directors (in addition to approval by our
Board), such amendment, proposal or transaction may be approved by a majority of the votes entitled to be cast on such a matter, except that any transaction that would not otherwise require stockholder approval under the Maryland General Corporation
Law will not require further stockholder approval unless our Charter, our Bylaws or the Maryland General Corporation Law requires such approval. In either event, in accordance with the requirements of the Investment Company Act, any such amendment,
proposal or transaction that would have the effect of changing the nature of our business so as to cause us to cease to be, or to withdraw our election as, a BDC would be required to be approved by a majority of our outstanding voting securities, as
defined under the Investment Company Act. The “continuing directors” are defined in our Charter as (1) certain of our current directors named therein or (2) any successor directors whose nomination for election by the
stockholders or whose election by the directors to fill vacancies is approved by a majority of continuing directors or the successor continuing directors then in office.
Our Charter and Bylaws provide that our Board will have the exclusive power to make, alter, amend or repeal any provision of our Bylaws.
No Appraisal Rights
Except with respect
to appraisal rights arising in connection with the Maryland Control Acquisition Share Act discussed below, as permitted by the Maryland General Corporation Law, our Charter provides that stockholders will not be entitled to exercise appraisal rights
unless a majority of our entire Board determines that such rights shall apply.
Table of Contents
Control Share Acquisitions
The Maryland Control Share Acquisition Act provides that control shares of a Maryland corporation acquired in a control share acquisition have
no voting rights except to the extent approved by the affirmative vote of stockholders entitled to cast two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, by officers or
by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the
acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power:
•
one-tenth or more but less than one-third;
•
one-third or more but less than a majority; or
•
a majority or more of all voting power.
The requisite stockholder approval must be obtained each time an acquirer crosses one of the thresholds of voting power set forth above.
Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of issued and outstanding control shares,
subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of directors of
the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions,
including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the
statute, then the corporation may redeem for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to redeem control shares is subject to certain conditions and
limitations, including, as provided in our Bylaws, compliance with the Investment Company Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by
the acquirer or, if a meeting of stockholders at which the voting rights of the shares are considered and not approved is held, as of the date of such meeting. If voting rights for control shares are approved at a stockholders meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per
share paid by the acquirer in the control share acquisition.
The Maryland Control Share Acquisition Act does not apply (a) to stock
acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation. Our Bylaws contain a provision exempting from the
Maryland Control Share Acquisition Act any and all acquisitions by any person of our common stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future.
Business Combinations
Under Maryland
law, the Maryland Business Combination Act provides that certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most
recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested stockholder is defined as:
Table of Contents
•
any person who beneficially owns 10% or more of the voting power of the corporation's outstanding voting
stock; or
•
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.
A person is not an interested stockholder under this statute if the Board approved in advance the transaction by which the stockholder
otherwise would have become an interested stockholder. However, in approving a transaction, the Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must
be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
•
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
•
two-thirds of the votes entitled to be cast by holders of voting stock of
the corporation other than common stock held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under
Maryland law, for their stock in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its stock.
The Maryland Business Combination Act permits various exemptions from its provisions, including business combinations that are exempted by the
Board before the time that the interested stockholder becomes an interested stockholder. Our Board has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination
Act, provided that the business combination is first approved by the Board, including a majority of the directors who are not interested persons as defined in the Investment Company Act. This resolution may be altered or repealed in whole or in part
at any time; however, our Board will adopt resolutions so as to make us subject to the provisions of the Maryland Business Combination Act only if our Board determines that it would be in our best interests and if the SEC staff does not object to
our determination that GECC being subject to the Business Combination Act does not conflict with the Investment Company Act. If this resolution is repealed, or the Board does not otherwise approve a business combination, the statute may discourage
others from trying to acquire control of GECC and increase the difficulty of consummating any offer.
Forum Selection Clause
Our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any
derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of any duty owed by any of our directors or officers or other employees to us or to our stockholders, (c) any action asserting a claim
against us or any of our directors or officers or other employees arising pursuant to any provision of the Maryland General Corporation Law or our Charter or Bylaws or (d) any action asserting a claim against us or any of our directors or
officers or other employees that is governed by the internal affairs doctrine shall be, in each case, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of
Maryland, Baltimore Division.
Table of Contents
Waiver of Corporate Opportunity Doctrine
Our Charter provides that, we, by resolution of our Board, may renounce any interest or expectancy of ours in (or in being offered an
opportunity to participate in) business opportunities that are presented to us or developed by or presented to one of more of our directors or officers.
Conflict with Investment Company Act
Our
Bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, including, without limitation, the Maryland Control Share Acquisition Act (if we amend our Bylaws to be subject to such Act) and the Maryland
Business Combination Act, or any provision of our Charter or Bylaws conflicts with any provision of the Investment Company Act, the applicable provision of the Investment Company Act will control.
Table of Contents
CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR
Our securities and cash are held in safekeeping by The Northern Trust Company located at 50 South LaSalle Street, Chicago, Illinois
60603. Equiniti Trust Company, LLC acts as our transfer agent, distribution paying agent and registrar. The principal business address of our transfer agent is 48 Wall Street, Floor 23, New York, NY 10005.
Table of Contents
LEGAL MATTERS
Certain legal matters with respect to the Secondary Shares offered by this prospectus will be passed upon for us by Venable LLP, Baltimore,
Maryland. Certain legal matters in connection with an offering will be passed upon for the underwriters, if any, by the counsel named in the applicable prospectus supplement.
Table of Contents
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements of Great Elm Capital Corp. incorporated by reference in this registration statement have been audited by
[ ], an independent registered public accounting firm, as stated in their report. Such financial statements are incorporated by reference in reliance upon the report of such firm given upon their authority as experts in
accounting and auditing. The principal business address of [ ] is [ ].
Table of Contents
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form N-2, together with all amendments and
related exhibits, under the Securities Act, with respect to the Secondary Shares offered by this prospectus. The registration statement contains additional information about us and the Secondary Shares being offered by this prospectus.
We file annual, quarterly and current reports, proxy statements and other information about us with the SEC meeting the informational
requirements of the Exchange Act. You may also obtain free copies of these materials and make stockholder inquiries by contacting us at Great Elm Capital Corp., 3801 PGA Boulevard, Suite 603, Palm Beach Gardens, Florida 33410 or by calling us
collect at (617) We maintain a website at http://www.greatelmcc.com and we make all of our annual, quarterly and current reports, proxy statements and other publicly filed information, and all
information incorporated by reference herein, available, free of charge, on or through such website. Information on our website is not incorporated or a part of this prospectus. The SEC also maintains a website at http://www.sec.gov where such
information is available without charge.
Table of Contents
INCORPORATION BY REFERENCE
This prospectus is part of a registration statement that we have filed with the SEC. We are allowed to “incorporate by reference”
the information that we file with the SEC, which means that we can disclose important information to you by referring you to such information incorporated by reference. The information incorporated by reference is considered to comprise a part of
this prospectus from the date we file any such document. Any reports filed by us with the SEC subsequent to the date of this prospectus and before the date that any offering of any securities by means of this prospectus and any accompanying
prospectus supplement, if any, is terminated will automatically update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus.
We incorporate by reference into this prospectus our filings listed below and any future filings that we may file with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this prospectus until all of the Secondary Shares offered by this prospectus and any accompanying prospectus supplement, if any, have been sold or we otherwise terminate the
offering of those securities; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K or other information “furnished” to the SEC which is not deemed filed
is not incorporated by reference in this prospectus and any accompanying prospectus supplement, if any. Information that we file with the SEC subsequent to the date of this prospectus will automatically update and may supersede information in this
prospectus, any accompanying prospectus supplement, if any, and other information previously filed with the SEC. The prospectus incorporates by reference the documents set forth below that have been previously filed with the SEC:
•
Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2023, filed on February , including the portions of our Definitive Proxy
Statement on Schedule 14A that are incorporated by reference into Part III of our Annual Report on Form 10-K for the fiscal year ended December
31, 2023, filed on February
•
Our Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2024, filed on May , June
30, 2024, filed on August , and September
30, 2024, filed on October
•
Our Current Reports on Form 8-K filed with the SEC on February February April April May June June July August August September September December and December
•
The description of our common stock set forth in the registration statement on Form 8-A filed on September
27, 2016 , as updated by Exhibit 4.10 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2020, filed on March , and all amendments and reports filed for the purpose of updating that description.
See “Where You Can Find More Information” for information on how to obtain a copy of these filings.
Table of Contents
GREAT ELM CAPITAL CORP.
Common Stock
PROSPECTUS
No dealer, salesperson or other person is authorized to make any representations other than those contained in this prospectus and
supplemental literature authorized by Great Elm Capital Corp. and referred to in this prospectus, and, if given or made, such information and representations must not be relied upon. This prospectus is not an offer to sell nor is it seeking an offer
to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale
of these securities. You should not assume that the delivery of this prospectus or that any sale made pursuant to this prospectus implies that the information contained in this prospectus will remain fully accurate and correct as of any time
subsequent to the date of this prospectus.
,
2025
Table of Contents
PART C — OTHER INFORMATION
Item 25.
Financial Statements and Exhibits Financial Statements
The consolidated financial statements of Great Elm Capital Corp. (the “Registrant”) included in the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2023, which includes the Financial Highlights for years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016, and the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024, are incorporated by reference in Part A of this registration statement.
Exhibits
Unless otherwise indicated, all
references are to exhibits to the applicable filing by the Registrant under File No. 814-01211 with the Securities and Exchange Commission (the “SEC”).
Exhibit
Number
Description
(a)
Articles of Amendment and Restatement of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on November
(a)(1)
Articles of Amendment of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 8-K filed
on March
(b)
Bylaws of the Registrant (incorporated by reference to Exhibit 2 to the Registration Statement on Form N-14 (File No. filed on August
(d)(1)
Indenture, dated as of September 18, 2017, by and between the Registrant and Equiniti Trust Company, LLC (formerly known as American Stock Transfer & Trust Company, LLC), as trustee (the “Trustee”) (incorporated by reference to Exhibit 4.1 to the Form 8-K/A filed on September
(d)(2)
Form of certificate of the Registrant's common stock (incorporated by reference to Exhibit 5 to the Registration Statement on Form N-14 (File No. filed on August
(d)(3)
Global Note (6.75% Notes due 2025), dated January 19, 2018 (incorporated by reference to Exhibit (D)(1) to the post-effective amendment to the Registration Statement on Form N-2 (File No. filed on January
(d)(4)
Second Supplemental Indenture, dated as of January 19, 2018, by and between the Registrant and the Trustee (incorporated by reference to Exhibit (d)(3) to the post-effective amendment to the Registration Statement on Form N-2 (File No. filed on January
(d)(5)
Global Note (5.875% Notes due 2026), dated as of June 23, 2021 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on June
(d)(6)
Fourth Supplemental Indenture, dated as of June 23, 2021 by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on June
(d)(7)
Global Note (8.75% Notes due 2028), dated as of August 16, 2023 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on August
(d)(8)
Fifth Supplemental Indenture, dated as of August 16, 2023, by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on August
(d)(9)
Global Note (8.50% Notes due 2029), dated April 17, 2024 (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on April
(d)(10)
Global Note (8.50% Notes due 2029), dated July 9, 2024 (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on July
C-1
Table of Contents
Exhibit
Number
Description
(d)(11)
Sixth Supplemental Indenture, dated as of April 17, 2024, by and between the Registrant and the Trustee (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on April
(d)(12)
Global Note (8.125% Notes due 2029) (incorporated by reference to Exhibit 4.2 to the Form 8-K filed on
September
(d)(13)
Form of Seventh Supplemental Indenture, by and between the Registrant and the Trustee (incorporated by reference to Exhibit (d)(3) to the Form N-2/A filed on September
(e)
Form of Dividend Reinvestment Plan (incorporated by reference to Exhibit 13(d) to the pre-effective amendment
to the Registration Statement on Form N-14 (File No. filed on September
(g)
Amended and Restated Investment Management Agreement (incorporated by reference to Exhibit (g) to the Registration Statement on Form N-2 (File No. filed on June
(j)
Custody Agreement, dated as of July 1, 2023, by and between the Registrant and The Northern Trust Company (incorporated by reference to Exhibit 10.5 to the Form 10-K filed on February
(k)(1)
Administration Agreement, dated as of September 27, 2016, by and between the Registrant and GECM (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on November
(k)(2)
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Form 8-K filed
on November
(k)(3)
Loan, Guarantee and Security Agreement, dated May 5, 2021, between the Registrant and City National Bank (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May
(k)(4)
Third Amendment, dated as of November 22, 2023 to Loan, Guarantee and Security Agreement, as of May 5, 2021, by and among the Registrant and City National Bank, as amended (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on November
(k)(5)
Second Amended and Restated Limited Liability Company Agreement of CLO Formation JV, LLC dated as of August 20, 2024 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on August
(l)(1)**
Opinion of Venable LLP
(n)(1)**
Consent of [ ], Registered Independent Accounting Firm.
(n)(2)**
Consent of Venable LLP (included in Exhibit (l)(1))
(n)(3)
Power of Attorney (included on signature page hereto)
(r)(1)
Code of Ethics of Registrant (incorporated by reference to Exhibit 14.1 to the Form 10-K filed on February
(r)(2)
Code of Ethics of GECM (incorporated by reference to Exhibit 14.2 to the Form 10-K filed on February
(s)*
Calculation of Filing Fee Table
Filed herewith.
To be filed either by amendment or as an exhibit to a report filed under the Securities Exchange Act of 1934
and incorporated herein by reference.
The agreements included or incorporated by reference as exhibits to this
registration statement contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and
(i) were not
C-2
Table of Contents
intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been
qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from
“materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.
Item 26.
Marketing Arrangements
The information contained under the heading “Plan of Distribution” on this Registration Statement is incorporated herein by reference
and any information concerning any underwriters for a particular offering will be contained in the prospectus supplement related to that offering.
Item 27.
Other Expenses of Issuance and Distribution*
SEC registration fee
Nasdaq Global Select Additional Listing Fees
Accounting fees and expenses
Legal fees and expenses
Printing and engraving
Miscellaneous fees and expenses
Total
These amounts (other than the SEC registration fee and Nasdaq fee) are estimates.
Item 28.
Persons Controlled by or Under Common Control
Entity
Ownership
Jurisdiction of Organization
Great Elm Specialty Finance, LLC
Delaware
CLO Formation JV, LLC – GECC
Delaware
Item 29.
Number of Holders of Securities
The following table sets forth the number of record holders of our securities as of January 30, 2025.
Title of Class
Number of Record Holders
Common Stock, par value $0.01 per share
5.875% Notes due 2026
8.75% Notes due 2028
8.50% Notes due 2029
8.125% Notes due 2029
Item 30.
Indemnification
Reference is made to Section 2-418 of the Maryland General Corporation Law, Article VII of the
Registrant's Charter and Article XI of the Registrant's Bylaws.
Maryland law permits a Maryland corporation to include in its
charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment and that is material to the cause of action. The Registrant's Charter
C-3
Table of Contents
contains such a provision which eliminates directors' and officers' liability to the maximum extent permitted by Maryland law, subject to the requirements of the Investment Company Act.
The Registrant's Charter authorizes the Registrant, and the Registrant's Bylaws obligate the Registrant, to the maximum extent
permitted by Maryland law and subject to the requirements of the Investment Company Act, to indemnify any present or former director or officer or any individual who, while serving as the Registrant's director or officer and at the
Registrant's request, serves or has served another corporation, partnership, limited liability company, real estate investment trust, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, member,
manager or trustee and who is made, or threatened to be made, a party to, or witness in the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that person may become subject or which that
person may incur by reason of his or her service in any such capacity and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. The Charter and Bylaws also permit the Registrant to indemnify and advance
expenses to any person who served a predecessor of the Registrant in any of the capacities described above and any of the Registrant's employees or agents or any employees or agents of the Registrant's predecessor. In accordance with the
Investment Company Act, the Registrant will not indemnify any person for any liability to which such person would be subject by reason of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Maryland law requires a corporation (unless its charter provides otherwise, which the
Registrant's Charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland
law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to or in which
they may be made, or threatened to be made, a party or witness by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to
the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the
case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. Under Maryland law, a Maryland corporation may not indemnify a director or officer in a suit by the corporation or in its
right in which the director or officer was adjudged liable to the corporation or in a suit in which the director or officer was adjudged liable on the basis that a personal benefit was improperly received. A court may order indemnification if it
determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was
improperly received. However, indemnification for an adverse judgment in a suit by the corporation or in its right, or for a judgment of liability on the basis that a personal benefit was improperly received, is limited to expenses. In addition,
Maryland law permits a corporation to advance reasonable expenses to a director or officer in advance of final disposition of a proceeding upon the corporation's receipt of (a) a written affirmation by the director or officer of his or her
good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if
it is ultimately determined that the standard of conduct was not met.
If the securities are sold through underwriters, we may indemnify
such underwriters and certain of their controlling persons in connection with this offering against certain liabilities, including liabilities under the Securities Act, or contribute to payments the underwriters may be required to make in respect of
those liabilities.
The law also provides for comparable indemnification for corporate officers and agents. Insofar as indemnification for
liability arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
C-4
Table of Contents
The Registrant has entered into indemnification agreements with its directors. The
indemnification agreements are intended to provide the Registrant's directors the maximum indemnification permitted under Maryland law and the Investment Company Act. Each indemnification agreement provides that the Registrant shall indemnify
the director who is a party to the agreement (an “Indemnitee”), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any
threatened, pending, or completed proceeding, other than a proceeding by or in the right of the Registrant.
Investment Adviser and Administrator
The Investment Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of the reckless disregard of its duties and obligations, GECM and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the
Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of GECM's services under the Investment Management Agreement or
otherwise as an investment adviser of the Registrant.
The Administration Agreement provides that, absent willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, GECM and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with
it are entitled to indemnification from the Registrant for any damages, liabilities, costs and expenses (including reasonable attorneys' fees and amounts reasonably paid in settlement) arising from the rendering of GECM's services under
the Administration Agreement or otherwise as administrator for the Registrant.
The law also provides for comparable indemnification for
corporate officers and agents. Insofar as indemnification for liability arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Item 31.
Business and Other Connections of Investment Adviser
For information as to the business, profession, vocation or employment of a substantial nature of each of the officers and directors of GECM,
reference is made to GECM's Form ADV, filed with the SEC under the Investment Advisers Act of 1940, as amended, and incorporated herein by reference upon filing.
Item 32.
Location of Accounts and Records
All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act and the rules thereunder
are maintained at the offices of:
the Registrant, 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410;
the Transfer Agent, Equiniti Trust Company, LLC, 48 Wall Street, Floor 23, New York, New York 10005;
the Custodian, The Northern Trust Company, 50 South LaSalle Street, Chicago, Illinois 60603; and
GECM, 3801 PGA Blvd., Suite 603, Palm Beach Gardens, Florida 33410.
Item 33.
Management Services
Not applicable.
C-5
Table of Contents
Item 34.
Undertakings
The Registrant undertakes:
Not applicable.
Not applicable.
(a) Not applicable.
(b)
That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof.
(c)
To remove from registration by means of a post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(d)
That, for the purpose of determining liability under the Securities Act to any purchaser:
If the Registrant is relying on Rule 430B:
(A)
Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (x), or (xi) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and
included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(e)
The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant
pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned
Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser: (1) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed
pursuant to Rule 424 under the Securities Act; (2) free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrants; (3) the portion of any other
free writing prospectus or advertisement pursuant to Rule 482 under the Securities Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned
Registrant; and (4) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
C-6
Table of Contents
(a)
For the purpose of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant under Rule 424(b)(1) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(b)
For the purpose of determining any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference into the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
To send by first class mail or other means designed to ensure equally prompt delivery, within two business days
of receipt of a written or oral request, any prospectus or Statement of Additional Information.
C-7
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palm Beach Gardens, and the State of Florida, on the 31st day of January, 2025.
GREAT ELM CAPITAL CORP.
By:
/s/ Matt Kaplan
Name:
Matt Kaplan
Title:
President and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Matt Kaplan and Keri Davis (with full
power to each of them to act alone) his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign on his or her behalf individually and in each capacity stated below any and all amendments (including
post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents
and either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated as of January 31, 2025.
Name
Capacity
/s/ Matt Kaplan
Matt Kaplan
President and Chief Executive Officer (Principal Executive Officer)
/s/ Keri Davis
Keri Davis
Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
/s/ Mark Kuperschmid
Mark Kuperschmid
Director
/s/ Matthew Drapkin
Matthew Drapkin
Director
/s/ Richard Cohen
Richard Cohen
Director
/s/ Chad Perry
Chad Perry
Director
/s/ Erik A. Falk
Erik A. Falk
Director
C-8
Exhibit (s)
Calculation of Filing Fee Table
Form N-2
(Form Type)
Great Elm Capital
Corp.
(Exact Name of Registration as Specified in its Charter)
Table 1: Newly Registered Securities
Security
Type
Security
Class Title
Fee
Calculation
or Carry
Forward
Rule
Amount
Registered
Proposed
Maximum
Offering
Price Per
Security
Maximum
Aggregate
Offering
Price
Fee
Rate
Amount of
Registration
Fee
Fees to be Paid
Equity
Common Stock, par value $0.01 per share
457(c)
0. 00015310
Fee Previously
Paid
—
—
—
—
—
—
—
—
Total Offering Amount
Total Fees to Be Paid
Total Fees Previously Paid Net Fee Due
—
Net Fee Due
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933, as amended, based on the average of the high and low sales prices of the shares of common stock on January 30, 2025 as reported on the Nasdaq Global Market.
Great Elm Capital (NASDAQ:GECCZ)
Gráfica de Acción Histórica
De Dic 2024 a Ene 2025
Great Elm Capital (NASDAQ:GECCZ)
Gráfica de Acción Histórica
De Ene 2024 a Ene 2025 |
