Filed pursuant to Rule 424(b)(2)
File No. 333-269186
PROSPECTUS
SUPPLEMENT
(to Prospectus dated March
13, 2023)
Saratoga Investment Corp.
$150,000,000
Common Stock
We are a specialty finance
company that invests primarily in senior and unitranche leveraged loans and mezzanine debt
issued by private U.S. middle-market companies, both through direct lending and through participation in loan syndicates,
and, to a lesser extent, equity issued by private U.S. middle-market companies. Our investment objective is to create
attractive risk-adjusted returns by generating current income and, to a lesser extent, capital appreciation from our
investments.
We have elected to be treated
as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”).
We are externally managed and advised by Saratoga Investment Advisors, LLC (“Saratoga Investment Advisors”), a New York-based
investment firm affiliated with Saratoga Partners, a middle-market private equity investment firm.
We have entered into an equity
distribution agreement, dated July 30, 2021 and as amended from time to time, with Ladenburg Thalmann & Co. Inc. and Compass
Point Research & Trading, LLC, each an “Agent” and, collectively, the “Agents,” relating to the sale of shares
of common stock in an “at-the-market” offering (the “ATM Program”) offered by this prospectus supplement and the
accompanying prospectus. The equity distribution agreement provides that we may offer and sell shares of our common stock having an aggregate
offering price of up to $150,000,000 from time to time through the Agents. Sales of our common stock, if any, under this prospectus supplement
and the accompanying prospectus may be made in negotiated transactions or transactions that are deemed to be “at-the-market”
offering as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made
directly on the New York Stock Exchange (“NYSE”) or similar securities exchange or sales made to or through a market maker
other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.
The Agents will receive a
commission from us up to 1.5% of the gross sales price of any shares of our common stock sold through the Agents under the equity distribution
agreement. The Agents are not required to sell any specific number or dollar amount of common stock, but will use its commercially reasonable
efforts consistent with its sales and trading practices to sell the shares of our common stock offered by this prospectus supplement and
the accompanying prospectus. See “Plan of Distribution” beginning on page S-11 of this prospectus supplement. The sales price
per share of our common stock offered by this prospectus supplement and the accompanying prospectus, less the Agents’ commission,
will not be less than the net asset value (“NAV”) per share of our common stock at the time of such sale. Saratoga Investment
Advisors may, from time to time and in its sole discretion, contribute proceeds necessary to ensure that no sales are made at a price
below the then-current NAV per share.
From July 30, 2021 to February
28, 2023, we sold a total of 4,840,361 shares of our common stock under the ATM Program for gross proceeds of approximately $124.0 million
and net proceeds of approximately $122.4 million, after deducting commissions to the Agents on shares sold and offering expenses. As a
result and as of the date hereof, up to approximately $26.0 million in aggregate amount of our common stock remains available for sale
under the ATM Program.
Our common stock is traded
on the NYSE under the symbol “SAR.” On June 5, 2023, the last reported sales price on the NYSE for our common stock was $27.74
per share. We are required to determine the NAV per share of our common stock on a quarterly basis. Our NAV per share of our common stock
as of February 28, 2023 was $29.18.
This prospectus supplement
and the accompanying prospectus, including the information incorporated by reference, contain important information about us that a prospective
investor should know before investing in our common stock. We may also authorize one or more free writing prospectuses to be provided
to you in connection with this offering. You should carefully read this prospectus supplement, the accompanying prospectus, and any related
free writing prospectus, and the documents incorporated by reference, before investing in our common stock. We file annual, quarterly
and current reports, proxy statements and other information with the Securities and Exchange Commission, or the “SEC.”
This information is available free of charge by contacting us at 535 Madison Avenue, New York, New York 10022, by telephone at (212) 906-7800,
or on our website at www.saratogainvestmentcorp.com. Information contained on our website is not incorporated by reference into
this prospectus supplement or the accompanying prospectus, and you should not consider that information to be part of this prospectus
supplement or the accompanying prospectus. The SEC also maintains a website at www.sec.gov that contains information about us.
Investing in our common stock involves a high
degree of risk and should be considered speculative. For example, our investment in the subordinated notes of one collateralized loan
obligation fund, Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”), represents a first loss position in a portfolio
that is composed predominantly of senior secured first lien term loans. A first loss position means that we will suffer the first economic
losses if losses are incurred on loans held by the collateralized loan obligation fund or losses are otherwise incurred by the collateralized
loan obligation fund, including its incurrence of operating expenses in excess of its operating income. For more information regarding
the risks you should consider, including the risk of leverage, please see “Risk Factors” beginning on page S-7 of this
prospectus supplement and page 11 of the accompanying prospectus.
Neither the SEC nor any state securities commission
has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
Ladenburg Thalmann |
Compass
Point |
Prospectus Supplement dated June 7, 2023.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PROSPECTUS
ABOUT THIS PROSPECTUS SUPPLEMENT
We have filed with the SEC a registration statement on Form N-2 (File No.
333-269186) utilizing a shelf registration process relating to the securities described in this prospectus supplement, which registration
statement was declared effective on March 13, 2023. This document is in two parts. The first part is this prospectus supplement, which
describes the terms of this offering of common stock and also adds to and updates information contained in the
accompanying prospectus and the documents incorporated by reference into this prospectus supplement and the accompanying prospectus.
The second part is the accompanying prospectus, which gives more general information about us and
the securities we may offer from time to time, some of which may not apply to this offering. To
the extent the information contained in this prospectus supplement differs from or is additional to the information contained in the accompanying
prospectus or the information included in any document filed prior to the date of this prospectus supplement and incorporated by reference,
the information in this prospectus supplement shall control. Generally, when we refer to this “prospectus”, we are referring
to both this prospectus supplement and the accompanying prospectus combined, together with any free writing prospectus that we have authorized
for use in connection with this offering and the documents incorporated by reference. You should carefully read this prospectus
supplement, the accompanying prospectus, and any related free writing prospectus, and the documents
incorporated by reference, particularly the information described under the headings “Risk Factors” in this prospectus
supplement and “Risk Factor” in the accompanying prospectus and our most recently filed
Annual Report on Form 10-K, before investing in our common stock.
You should rely only on
the information included or incorporated by reference in this prospectus supplement, the accompanying prospectus, or in any free writing
prospectuses prepared by, or on behalf of us, that relates to this offering of common stock. Neither we nor the Agents have authorized
any other person to provide you with different information or to make representations as to matters not stated in this prospectus supplement,
the accompanying prospectus or in any free writing prospectus prepared by, or on behalf of, us that relates to this offering of common
stock. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give
you. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement, the accompanying
prospectus and any free writing prospectus prepared by, or on behalf of, us that relates to this offering of common stock do not constitute
an offer to sell, or a solicitation of an offer to buy, any shares of our common stock by any person in any jurisdiction where it is
unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such
an offer or solicitation. You should not assume that the information included in this prospectus supplement, the accompanying prospectus
or in any free writing prospectus is complete and accurate as of any date other than their respective dates, or that any information
incorporated by reference herein or therein is complete and accurate as of any date other than the date of the document incorporated
by reference containing such information, regardless of the time of delivery of this prospectus supplement or of any of our common stock.
To the extent required by law, we will amend or supplement the information contained in this prospectus
supplement and the accompanying prospectus to reflect any material changes subsequent to the date of this prospectus supplement and the
accompanying prospectus and prior to the completion of any offering pursuant to this prospectus supplement and the accompanying prospectus.
PROSPECTUS SUPPLEMENT SUMMARY
This
summary highlights some of the information included elsewhere, or incorporated by reference in this prospectus supplement or the accompanying
prospectus. It is not complete and may not contain all of the information that you should consider before making your investment decision
to investment in the common stock offered hereby. To understand the terms of the common stock offered hereby before making your investment
decision, you should carefully read this entire prospectus supplement, the accompanying prospectus, any free writing prospectus relating
to this offering and the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, as provided
in sections titled “Available Information” and “Incorporation by Reference” beginning on page S-13 in
this prospectus supplement and beginning on page 81 of the accompanying prospectus.
You should read carefully
the more detailed information set forth under “Risk Factors” in this prospectus supplement, “Risk Factors” and
the other information included in this prospectus supplement, the accompanying prospectus,
and the documents incorporated by reference. Unless otherwise noted, the terms “we,” “us,” “our,”
the “Company” and “Saratoga” refer to Saratoga Investment Corp. and its wholly owned subsidiaries, Saratoga Investment
Funding II LLC, Saratoga Investment Corp. SBIC LP, Saratoga Investment Corp. SBIC II LP, and
Saratoga Investment Corp. SBIC III LP and does not refer to Saratoga Investment Corp. CLO 2013-1 Ltd. In addition, the terms “Saratoga
Investment Advisors” and “investment adviser” refer to Saratoga Investment Advisors, LLC, our external investment adviser.
Overview
We are a specialty finance
company that provides customized financing solutions to U.S middle-market businesses. We primarily invest in senior and unitranche leveraged
loans and mezzanine debt and, to a lesser extent, equity issued by private U.S. middle-market companies, which we define as companies
having annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of between $2 million and $50 million,
both through direct lending and through participation in loan syndicates. Our investment objective is to create attractive risk-adjusted
returns by generating current income and long-term capital appreciation from our investments. Our investments generally provide financing
for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners,
management teams and financial sponsors. Our investment activities are externally managed and advised by Saratoga Investment Advisors,
a New York-based investment firm affiliated with Saratoga Partners, a middle-market private equity investment firm.
Our portfolio is comprised primarily
of investments in leveraged loans issued by middle-market companies. Leveraged loans are generally senior debt instruments that rank ahead
of subordinated debt with below investment grade or “junk” ratings or, if not rated, would be rated below investment grade
or “junk” and, as a result, carry a higher risk of default. Leveraged loans also have the benefit of security interests on
the assets of the portfolio company, which may rank ahead of, or be junior to, other security interests. Term loans are loans that do
not allow the borrowers to repay all or a portion of the loans prior to maturity and then re-borrow such repaid amounts under
the loan again. We also invest in mezzanine debt and make equity investments in middle-market companies. Mezzanine debt is typically unsecured
and subordinated to senior debt of the portfolio company.
While
our primary focus is to generate current income and capital appreciation from our debt and equity investments in middle-market companies,
we may invest up to 30.0% of our portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments
may include investments in distressed debt, including securities of companies in bankruptcy, foreign debt, private equity, securities
of public companies that are not thinly traded, joint ventures and structured finance vehicles such as collateralized loan obligation funds. Although
we have no current intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that
are excluded from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, which includes private equity funds, to no more than 15% of its net assets.
As
of February 28, 2023, we had total assets of $1.1 billion and investments in 49 portfolio companies, excluding an investment in the subordinated
notes of one collateralized loan obligation fund, Saratoga CLO, which had a fair value of $21.2 million as of February 28, 2023,
investments in the Class F-2-R-3 Note of the Saratoga CLO which as of February 28, 2023 had a fair value of $8.8 million, and investments
in the Saratoga Senior Loan Fund I JV LLC (“SLF JV”) and its subsidiaries, a joint venture which as of February 28, 2023 had
a fair value of $30.7 million. The overall portfolio composition as of February 28, 2023 consisted of 82.1% of first lien term loans,
1.5% of second lien term loans, 2.1% of unsecured loans, 4.3% of structured finance securities and 10.0% of equity interests. As of February
28, 2023, the weighted average yield on all of our investments, including our investment in the subordinated notes of Saratoga CLO and
Class F-2-R-3 Note was approximately 12.1%. The weighted average yield of our investments is not the same as a return on investment
for our stockholders and, among other things, is calculated before the payment of our fees and expenses. As of February 28, 2023, our
total return based on market value was 10.35% and our total return based on NAV per share was 9.46%. As of February 28, 2022, our
total return based on market value was 28.19% and our total return based on NAV was 15.88%. Total return based on market value is the
change in the ending market value of the Company’s common stock plus dividends distributed during the period assuming participation
in the Company’s dividend reinvestment plan divided by the beginning market value of the Company’s common stock. Total return
based on NAV is the change in ending NAV per share plus dividends distributed per share paid during the period assuming participation
in the Company’s dividend reinvestment plan divided by the beginning NAV per share. While total return based on NAV and total return
based on market value reflect fund expenses, they do not reflect any sales load that may be paid by investors. As of February 28, 2023,
approximately 96.94% of our first lien debt investments were fully collateralized in the sense that the portfolio companies in which we
held such investments had an enterprise value or our investment had an asset coverage equal to or greater than the principal amount of
the related debt investment. The Company uses enterprise value to assess the level of collateralization of its portfolio companies. The
enterprise value of a portfolio company is determined by analyzing various factors, including EBITDA, cash flows from operations less
capital expenditures and other pertinent factors, such as recent offers to purchase a portfolio company’s securities or other liquidation
events. As a result, while we consider a portfolio company to be collateralized if its enterprise value exceeds the amount of our loan,
we do not hold tangible assets as collateral in our portfolio companies that we would obtain in the event of a default. Our investment
in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at February 28, 2023, was composed of
$658.0 million in aggregate principal amount of predominantly senior secured first lien term loans. A first loss position means that
we will suffer the first economic losses if losses are incurred on loans held by the Saratoga CLO. As a result, this investment is subject
to unique risks.
We are an externally managed, closed-end, non-diversified management
investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with various regulatory
requirements, including limitations on our use of debt. We finance our investments through borrowings. However, as a BDC, we are only
generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing,
or, if we obtain the required approvals from our directors who are not “independent persons” (as defined in Section 2(a)(19)
of the 1940 Act) of the Company (“independent directors”) and/or stockholders, 150%. On April 16, 2018, as permitted
by the Small Business Credit Availability Act, which was signed into law on March 23, 2018, our board of directors, including a majority
of our independent directors, approved of our becoming subject to a minimum asset coverage ratio of 150.0% under Sections 18(a)(1)
and 18(a)(2) of the 1940 Act. The 150% asset coverage ratio became effective on April 16, 2019.
We
have elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”), under Subchapter
M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, we generally will not be subject to U.S.
federal income tax on any net ordinary income or capital gains that we timely distribute to our stockholders if we meet certain source-of-income,
annual distribution and asset diversification requirements.
In addition, we have three wholly
owned subsidiaries that are each licensed as a small business investment company (“SBIC”) and regulated by the Small
Business Administration (“SBA”). On March 28, 2012, our wholly owned subsidiary, Saratoga Investment Corp. SBIC
LP (“SBIC LP”), received an SBIC license from the SBA. On August 14, 2019, our wholly owned subsidiary, Saratoga
Investment Corp. SBIC II LP (“SBIC II LP”), also received an SBIC license from the SBA. On September 29, 2022, our wholly
owned subsidiary, Saratoga Investment Corp. SBIC III LP (“SBIC III LP” and, together with SBIC LP and SBIC II LP, the “SBIC
Subsidiaries”), also received an SBIC license from the SBA, which provides up to $175.0 million in additional long-term capital
in the form of SBA-guaranteed debentures. As a result, Saratoga’s SBA relationship increased from $325.0 million to $350.0
million of committed capital. The SBIC Subsidiaries are regulated by the SBA. For two or more SBICs under common control, the maximum
amount of outstanding SBA debentures cannot exceed $350.0 million. Our wholly owned SBIC Subsidiaries are able to borrow
funds from the SBA against the SBIC’s regulatory capital (which generally approximates equity capital in the respective SBIC) and
is subject to customary regulatory requirements, including, but not limited to, periodic examination by the SBA.
We received exemptive relief from
the SEC to permit us to exclude the senior securities issued by the SBIC Subsidiaries from the definition of senior securities in the
asset coverage requirement under the 1940 Act. This allows the Company increased flexibility under the asset coverage requirement by permitting
it to borrow up to $350.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.
The Company has established wholly
owned subsidiaries, SIA-ARC, Inc., SIA-Avionte, Inc., SIA-AX, Inc., SIA-G4, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-PP, Inc., SIA-TG, Inc.,
SIA-TT, Inc., SIA-Vector, Inc. and SIA-VR, Inc., which are structured as Delaware entities. The entities are treated as corporations for
U.S. federal income tax purposes and are intended to facilitate our compliance with the requirements to be treated as a RIC under the
Code by holding equity or equity-like investments in portfolio companies organized as limited liability companies, or LLCs (or other
forms of pass through entities). In February 2022, SIA-GH, Inc., SIA-TT Inc. and SIA-VR, Inc. received an approved plan of liquidation
following the sale of equity held by each of the portfolio companies. These entities are consolidated for accounting purposes but are
not consolidated for U.S. federal income tax purposes and may incur U.S. federal income tax expense as a result of their ownership of
portfolio companies.
On
October 26, 2021, the Company and TJHA JV I LLC entered into a Limited Liability Company Agreement to co-manage SLF
JV. SLF JV is a joint venture that invests in the debt or equity interests of collateralized loan obligations, loans, notes and other
debt instruments.
Corporate History and Information
We commenced
operations, at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public offering of shares of common
stock on March 28, 2007. Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated
with GSC Group, Inc. In connection with the consummation of a recapitalization transaction on July 30, 2010, we engaged Saratoga
Investment Advisors to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.
The recapitalization transaction
consisted of (i) the private sale of 986,842 shares of our common stock for $15.0 million in aggregate purchase price to
Saratoga Investment Advisors and certain of its affiliates and (ii) the entry into a $40.0 million senior secured revolving
credit facility with Madison Capital Funding LLC (the “Madison Credit Facility”). We used the net proceeds from the private
sale of shares of our common stock and a portion of the funds available to us under the Madison Credit Facility to pay the full amount
of principal and accrued interest, including default interest, outstanding under our revolving securitized credit facility with Deutsche
Bank AG, New York Branch (“Deutsche Bank”). Specifically, in July 2009, we had exceeded permissible borrowing limits
under the revolving securitized credit facility with Deutsche Bank, which resulted in an event of default under the revolving securitized
credit facility. As a result of the event of default, Deutsche Bank had the right to accelerate repayment of the outstanding indebtedness
under the revolving securitized credit facility and to foreclose and liquidate the collateral pledged under the revolving securitized
credit facility. The revolving securitized credit facility with Deutsche Bank was terminated in connection with our payment of all amounts
outstanding thereunder on July 30, 2010. In January 2011, we registered for public resale by Saratoga Investment Advisors and
certain of its affiliates the 986,842 shares of our common stock issued to them in the recapitalization.
As
noted above, our wholly owned subsidiaries, SBIC LP, SBIC II LP, and SBIC III LP, received an SBIC license from the SBA on March 28, 2012,
August 14, 2019, and September 29, 2022.
Saratoga Investment Advisors
General
Saratoga Investment Advisors was
formed in 2010 as a Delaware limited liability company and became our investment adviser in July 2010. Saratoga Investment Advisors
is led by four principals, Christian L. Oberbeck, Michael J. Grisius, Thomas V. Inglesby, and Charles G. Phillips, with 35, 33,
36 and 26 years of experience in leveraged finance, respectively, and the Chief Financial Officer and Chief Compliance Officer, Henri
Steenkamp, who has 24 years of experience in financial services and leveraged finance. Our investment adviser is affiliated with Saratoga
Partners, a middle-market private equity investment firm. Saratoga Partners was established in 1984 to be the middle-market private investment
arm of Dillon Read & Co. Inc. and has been independent of Dillon Read & Co. Inc. and its successor entity, SBC Warburg Dillon
Read, since 1998. Saratoga Partners has a 34-year history of private investments in middle-market companies and focuses on public
and private equity, preferred stock, and senior and mezzanine debt investments.
Our Relationship
with Saratoga Investment Advisors
We
utilize the personnel, infrastructure, relationships and experience of Saratoga Investment Advisors to enhance the growth of our business.
We currently have no employees and each of our executive officers is also an officer of Saratoga Investment Advisors.
We have entered into an investment
advisory and management agreement (the “Management Agreement”) with Saratoga Investment Advisors. Pursuant to the 1940 Act,
the initial term of the Management Agreement was for two years from its effective date of July 30, 2010, with automatic, one-year renewals,
to be approved at an in-person meeting of the board of directors, a majority of whom must be independent directors. Our board of directors
approved the renewal of the Management Agreement for an additional one-year term at an in-person meeting held on July 5, 2022.
Pursuant to the Management Agreement, Saratoga Investment Advisors implements our business strategy on a day-to-day basis and
performs certain services for us under the direction of our board of directors. Saratoga Investment Advisors is responsible for, among
other duties, performing all of our day-to-day functions, determining investment criteria, sourcing, analyzing and executing
investment transactions, asset sales, financings and performing asset management duties.
Saratoga
Investment Advisors has formed an investment committee to advise and consult with its senior management team with respect to our investment
policies, investment portfolio holdings, financing and leveraging strategies and investment guidelines. We believe that the collective
experience of the investment committee members across a variety of fixed income asset classes will benefit us. The investment committee
must unanimously approve all investments in excess of $1.0 million made by us. In addition, all sales of our investments must be
approved by all four of our investment committee members. The current members of the investment committee are Messrs. Oberbeck, Grisius,
Inglesby, and Phillips.
Risks Relating to our Business
Our business
is subject to numerous risks, as described in the section titled “Risk Factors” in this prospectus supplement, “Risk
Factors” in the accompanying prospectus and in any free writing prospectuses we have authorized for use in connection with this
offering, and under similar headings in the documents that are incorporated by reference into this prospectus supplement and the accompanying
prospectus, including the section titled “Risk Factors” included in our most recent Annual Report on Form 10-K, as well
as in any of our subsequent SEC filings.
THE OFFERING
Common stock offered by us |
Shares of our common stock having an aggregate offering price of up to $150,000,000. |
Common stock outstanding as of June 5, 2023 |
11,847,742 shares |
Use of proceeds |
We intend to use substantially all of the net proceeds from this offering to make investments in middle-market companies in accordance with our investment objective and strategies described in this prospectus supplement, and for general corporate purposes. We may also use a portion of the net proceeds to reduce any of our outstanding borrowings. Pending such use, we will invest the net proceeds primarily in high quality, short-term debt securities consistent with our business development company election and our election to be taxed as a RIC. See “Use of Proceeds.” |
Manner of offering |
“At-the-market” offering that may be made from time to time through the Agents using commercially reasonable efforts. See “Plan of Distribution.”
On July 30, 2021, we established the ATM Program to which this prospectus
supplement relates.
From July 30, 2021 to February 28, 2023, we sold a total of 4,840,361 shares
of our common stock under the ATM Program for gross proceeds of approximately $124.0 million and net proceeds of approximately $122.4
million, after deducting commissions to the Agents on shares sold and offering expenses. As a result and as of the date hereof, up to
approximately $26.0 million in aggregate amount of our common stock remains available for sale under the ATM Program.
|
Distribution |
We pay quarterly distributions to our
stockholders, if any, out of assets legally available for distribution. Our distributions, if any, will be determined by our board
of directors. Our ability to declare distributions depends on our earnings, our overall financial condition (including our liquidity
position), qualification for or maintenance of our RIC tax treatment and such other factors as our board of directors may deem relevant
from time to time.
When we make distributions, we will be required
to determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or capital.
To the extent there is a return of capital, investors will be required to reduce their basis in our stock for U.S. federal income tax
purposes. In the future, our distributions may include a return of capital. See “Price Range of Common Stock and Distributions”
in the accompanying prospectus and in our most recently Annual Report on Form 10-K incorporated
herein by reference. |
Taxation |
We elected to be treated for U.S. federal income tax purposes as a RIC
under Subchapter M of the Code. Accordingly, we generally will not be subject to U.S. federal income tax on any net ordinary income or
realized net capital gains that we distribute to our stockholders as dividends. To maintain our RIC tax treatment, we must meet specified
source-of- income and asset-diversification requirements and distribute annually 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. Depending on the level of taxable income earned
in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a
non-deductible 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared
prior to filing the final tax return related to the year which generated such taxable income. See “Certain U.S. Federal Income
Tax Considerations” in the accompanying prospectus. |
NYSE symbol of common stock |
“SAR” |
FEES AND EXPENSES
The following table is intended
to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you
that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever
this prospectus supplement contains a reference to fees or expenses paid by “you,” “us” or “Saratoga Investment
Corp.,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors
in Saratoga Investment Corp.
Stockholder transaction expenses (as a percentage of offering price): | | | |
Sales load paid | | | 1.50 | %(1) |
Offering expenses borne by us | | | 0.30 | %(2) |
Dividend reinvestment plan expenses | | | None | (3) |
| | | | |
Total stockholder transaction expenses paid | | | - | % |
Annual estimated expenses (as a percentage of average net assets attributable to common stock for the year ended February 28, 2023): | | | | |
Management fees | | | 4.7 | %(4) |
Incentive fees payable under the Management Agreement | | | 1.4 | %(5) |
Interest payments on borrowed funds | | | 9.5 | %(6) |
Other expenses | | | 2.9 | %(7) |
Total annual expenses | | | 18.5 | %(8) |
| (1) | Represents the commission with respect to the shares of our common stock being sold in this offering,
which we will pay to the Agents in connection with sales of shares of our common stock effected by the Agents under the equity distribution
agreement. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying
prospectus. |
| (2) | The offering expenses of this offering are estimated to be approximately
$500,000, of which we have incurred an estimated $350,000 as of June 5, 2023. |
| (3) | The expenses associated with the administration of our dividend reinvestment plan are included in “Other
expenses.” The participants in the dividend reinvestment plan will pay a pro rata share of brokerage commissions incurred with respect
to open market purchases, if any, made by the administrator under the plan. For more details about the plan, see “Dividend Reinvestment
Plan.” |
| (4) | Our base management fee under the Management Agreement with Saratoga Investment
Advisors is based on our gross assets, which is defined as our total assets, including those acquired using borrowings for investment
purposes, but excluding cash and cash equivalents. See “Management and Other Agreements” in the accompanying prospectus. The
fact that our base management fee is payable based upon our gross assets, rather than our net assets (i.e., total assets after deduction
of any liabilities, including borrowings) means that our base management fee as a percentage of net assets attributable to common stock
will increase when we utilize leverage. |
| (5) | The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears
and equals 20% of our “pre-incentive fee net investment income” for the immediately preceding quarter, subject to a preferred
return, or “hurdle,” and a “catch up” feature. For this purpose, “pre-incentive fee net investment
income” means interest income, dividend income and any other income (including any other fees, such as commitment, origination,
structuring, diligence, managerial and consulting fees or other fees that we receive from portfolio companies) accrued by us during the
fiscal quarter, minus our operating expenses for the quarter (including the base management fee, expenses payable under the administration
agreement described below, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the
incentive fee). |
The second part of the incentive fee is determined and payable in arrears
as of the end of each fiscal year (or upon termination of the Management Agreement) and equals 20% of our “incentive fee capital
gains,” which equals our realized capital gains on a cumulative basis from May 31, 2010 through the end of the year, if any,
computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any
previously paid capital gain incentive fee. Under the Management Agreement, the capital gains portion of the incentive fee is based on
realized gains and realized and unrealized losses from May 31, 2010. Therefore, realized and unrealized losses incurred prior to
such time will not be taken into account when calculating the capital gains portion of the incentive fee, and Saratoga Investment Advisors
will be entitled to 20% of incentive fee capital gains that arise after May 31, 2010. In addition, the cost basis for computing realized
gains and losses on investments held by us as of May 31, 2010 will equal the fair value of such investments as of such date. See
“Management and Other Agreements” in the accompanying prospectus.
| (6) | We may borrow funds from time to time to make investments to the extent
we determine that the economic situation is conducive to doing so. The 9.5% figure in the table includes all expected borrowing costs
that we expect to incur over the next twelve months in connection with the Encina Credit Facility. The costs associated with our outstanding
borrowings are indirectly borne by our stockholders. We do not expect to issue any preferred stock during the next twelve months and,
therefore, have not included the cost of issuing and servicing preferred stock in the table. In addition, all of the commitment fees,
interest expense, amortized financing costs of our Credit Facility, SBA debentures and our 7.00% notes due 2025, our 7.75% notes due 2025,
our 4.375% notes due 2026, our 4.35% notes due 2027, our 6.00% notes due 2027, our 6.25% notes due 2027, our 8.00% notes due 2027 (the
“8.00% 2027 Notes”), and our 8.125% notes due 2027 (the “8.125% 2027 Notes”), and the fees and expenses of issuing
and servicing any other borrowings or leverage that we expect to incur during the next twelve months are included in the table and expense
example presentation below. On April 16, 2018, our board of directors, including a majority of our independent directors, approved
the Company becoming subject to a minimum asset coverage ratio of 150%. The 150% asset coverage ratio became effective on April 16,
2019. See “Business — Business Development Company Regulations” in Part I, Item 1 and “Risk Factors
— Risks Related to Our Business and Structure — Effective April 16, 2019, our asset coverage requirement was reduced from
200% to 150%, which could increase the risk of investing in the Company” in Part 1, Item 1A of our most recent Annual Report
on Form 10-K incorporated herein by reference. |
| (7) | “Other expenses” are based on estimated amounts for the current fiscal year and include our
overhead expenses, including payments under our administration agreement based on our allocable portion of overhead and other expenses
incurred by Saratoga Investment Advisors in performing its obligations under the administration agreement. See “Administration Agreement”
in the accompanying prospectus. |
| (8) | This figure includes all of the fees and expenses of our wholly owned subsidiaries,
the SBIC Subsidiaries and Saratoga Investment Funding II LLC, except SLF JV. As SLF JV is structured as a private joint venture, with
control and management shared equally between us and TJHA, no management fees are paid by SLF JV. Furthermore, this table reflects all
of the fees and expenses borne by us with respect to our investment in Saratoga CLO. |
Example
The following example demonstrates the projected dollar amount of total
cumulative expenses over various periods with respect to a hypothetical $1,000 investment in our common stock, assuming an asset coverage
ratio of 165.9% (the Company’s actual asset coverage as of February 28, 2023) and total annual expenses of 18.52% of net assets
attributable to common stock as set forth in the fees and expenses table above, and (x) a 5.0% annual return resulting entirely from net
realized capital gains (none of which is subject to the incentive fee) and (y) a 5.0% annual return resulting entirely from net realized
capital gains (all of which is subject to the incentive fee based on capital gains). Transaction expenses are included in the following
example. This example and the expenses in the table above should not be considered a representation of our future expenses, and actual
expenses (including cost of debt, if any, and other expenses) may be greater or less than those shown.
| | 1 Year | | | 3 Years | | | 5 Years | | | 10 Years | |
Assuming a 5% annual return resulting entirely from net realized capital gains (none of which is subject to the capital gains incentive fee)(1) | | $ | 190 | | | $ | 598 | | | $ | 1,049 | | | $ | 2,388 | |
Assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee based on capital gains)(2) | | $ | 200 | | | $ | 630 | | | $ | 1,104 | | | $ | 2,513 | |
| (1) | Assumes
that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation. |
| (2) | Assumes
no unrealized capital depreciation and a 5% annual return resulting entirely from net realized capital gains and therefore subject to
the incentive fee based on capital gains. Because our investment strategy involves investments that generate primarily current income,
we believe that a 5% annual return resulting entirely from net realized capital gains is unlikely. |
This example and 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.
The foregoing table is to assist you in understanding the various costs
and expenses that an investor in our common stock will bear directly or indirectly. 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%. Both examples assume that the 5% annual
return is generated entirely through net realized capital gains and, as a result, will trigger the payment of capital gains portion of
the incentive fee under the Management Agreement. Any potential income portion of the incentive fee under the Management Agreement is
not included in the example. If we achieve sufficient returns on our investments, including through net realized capital gains, to trigger
an incentive fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes
reinvestment of all dividends and distributions at NAV, under certain circumstances, reinvestment of dividends and other distributions
under our dividend reinvestment plan may occur at a price per share that differs from NAV.
RISK FACTORS
Investing in our common
stock involves a number of significant risks. In addition to the other information contained in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference, you should carefully consider the risk factor set forth below, the risk factors
incorporated by reference in the accompanying prospectus and as described in the section titled “Risk Factors” in our most
recently filed Annual Report on Form 10-K, as well as subsequent filings with the SEC, which are incorporated by reference into this prospectus supplement
and the accompanying prospectus in their entirety, before making an investment in common stock. In addition to the other information contained
in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference, you should carefully consider
the risk factors set forth below, the risk factors incorporated by reference in the accompanying prospectus and as described in the section
titled “Risk Factors” in our most recent Annual Report on Form 10-K, as well as subsequent filings with the SEC, which are incorporated by reference into this prospectus
supplement and the accompanying prospectus in their entirety, before making an investment in the Company’s common stock. If any
of the risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case,
our 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 “Note about Forward-Looking Statements” in this prospectus supplement and the section titled “Special
Note Regarding Forward-Looking Statements” in the accompanying prospectus.
Our common stock is subject to a risk of
subordination relative to holders of our debt instruments and holders of our preferred stock.
Rights of holders of our
common stock are subordinated to the rights of holders of our indebtedness and to the rights of holders of our preferred stock. Therefore,
dividends, distributions and other payments to holders of our common stock in liquidation or otherwise may be subject to prior payments
due to the holders of our indebtedness or our preferred stock. In addition, under some circumstances the 1940 Act may provide debt holders
with voting rights that are superior to the voting rights of holders of our equity securities.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
Information included or
incorporated by reference in this prospectus supplement, the accompanying prospectus and in any free writing prospectus relating to this
offering of common stock may contain forward-looking statements, which can be identified by the use of forward-looking terminology
such as “may,” “predict,” “will,” “continue,” “likely,” “would,”
“could,” “should,” “expect,” “anticipate,” “potential,” “estimate,”
“indicate,” “seek,” “believe,” “target,” “intend” or “project”
or the negative of these words or other variations on these words or comparable terminology. The matters described in the section titled
“Risk Factors” in the accompanying prospectus and our most recent Annual Report on Form 10-K, which is incorporated by
reference in this prospectus supplement and the accompanying prospectus, as well as subsequent filings with the SEC, or in any free writing
prospectus relating to this offering and certain other factors noted throughout or incorporated by reference in this prospectus supplement,
the accompanying prospectus and in any free writing prospectus relating to this offering constitute cautionary statements identifying
important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause
actual results to differ materially from those in such forward-looking statements. We undertake no obligation to revise or update
any forward-looking statements but advise you to consult any additional disclosures that we may make directly to you or through reports
that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K. Accordingly, there are or will be important factors that could cause our actual results to differ materially
from those expressed or implied by the forward-looking statements. The forward-looking statements included or incorporated by
reference in this prospectus supplement, the accompanying prospectus, and in any free writing prospectus relating to this offering of
common stock may include statements as to:
|
● |
our future operating results; |
|
● |
market conditions and our ability to access debt and equity capital and our ability to manage our capital resources effectively; |
|
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the timing of cash flows, if any, from the operations of our portfolio companies; |
|
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our business prospects and the operational and financial performance of our portfolio companies, including their ability to achieve their objectives as a result of the current economic conditions; |
|
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the introduction, withdrawal, success and timing of business initiatives and strategies; |
|
● |
changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets; |
|
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the relative and absolute investment performance and operations of our investment adviser; |
|
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the impact of increased competition; |
|
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our ability to turn potential investment opportunities into transactions and thereafter into completed and successful investments; |
|
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the dependence of our future success on the general economy and its impact on the industries in which we invest; |
|
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the ability of our portfolio companies to achieve their objectives; |
|
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our contractual arrangements and other relationships with third parties; |
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our expected financings and investments; |
|
● |
our regulatory structure and tax treatment, including our ability to operate as a BDC, or to operate our SBIC Subsidiaries, and to continue to qualify to be taxed as a RIC; |
|
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the adequacy of our cash resources and working capital; |
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the timing of cash flows, if any, from the operations of our portfolio companies; |
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the impact of interest rate volatility, including the decommissioning of LIBOR, on our results, particularly because we use leverage as part of our investment strategy; |
|
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the impact of supply chain constraints and labor difficulties on our portfolio companies and the global economy; |
|
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the elevated level of inflation, and its impact on our portfolio companies and on the industries in which we invest; |
|
● |
the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our investment adviser; |
|
● |
the impact of changes to tax legislation and, generally, our tax position; |
|
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our ability to access capital and any future financings by us; |
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the ability of our investment adviser to attract and retain highly talented professionals; and |
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the ability of our investment adviser to locate suitable investments for us and to monitor and effectively administer our investments. |
You should not place undue
reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties
and other unpredictable factors, many of which are beyond our control. In addition to other information included or incorporated by reference
in this prospectus supplement, please read carefully the sections titled “Business,” “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K and
other documents that we may file with the SEC, as well as the sections entitled “Risk Factors” in this prospectus supplement
and “Note About Forward-Looking Statements” in the accompanying prospectus, before making any investment in common stock.
USE OF PROCEEDS
Sales of our common stock, if any, under this prospectus supplement and
the accompanying prospectus may be made in negotiated transactions or transactions that are deemed to be an “at-the-market”
offering as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or
sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated
prices. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying
prospectus. Actual sales, if any, of our common stock under this prospectus supplement and the accompanying prospectus may be less than
the amount set forth in this paragraph depending on, among other things, the market price of our common stock at the time of any such
sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this prospectus
supplement. However, the sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus,
less the Agents’ commission, will not be less than the NAV per share of our common stock at the time of such sale. Assuming the
sale of the remaining $26.0 million in aggregate amount of our common stock available under the ATM Program pursuant to this prospectus
supplement and the accompanying prospectus, we anticipate that our net proceeds of this offering remaining available to us, after deducting
the commissions payable to the Agents and estimated expenses payable by us, will be approximately $25.5 million.
We intend to use substantially
all of the net proceeds from the sale of our securities to make investments in middle-market companies in accordance with our investment
objective and strategies described in the accompanying prospectus, and for general corporate purposes. We may also use a portion of the
net proceeds to reduce any of our outstanding borrowings.
We anticipate that substantially
all of the net proceeds from any offering of our common stock will be used as described above within six to twelve months. Pending such
use, we will invest the net proceeds primarily in high quality, short-term debt securities consistent with our business development company
election and our election to be taxed as a RIC. See “Regulation—Business Development Company Regulations—Temporary Investments”
in the accompanying prospectus. Our ability to achieve our investment objective may be limited to the extent that the net proceeds from
an offering, pending full investment, are held in interest-bearing deposits or other short-term instruments.
PLAN OF DISTRIBUTION
Ladenburg Thalmann &
Co. Inc. and Compass Point Research & Trading, LLC (which we refer to as each an “Agent” and, collectively, the “Agents”)
are acting as our sales agents in connection with the offer and sale of shares of our common stock up to an aggregate offering price of
$150.0 million pursuant to this prospectus supplement and the accompanying prospectus. From July 30, 2021 to February 28, 2023, we sold
a total of 4,840,361 shares of our common stock under the ATM Program for gross proceeds of approximately $124.0 million and net proceeds
of approximately $122.4 million, after deducting commissions to the Agents on shares sold and offering expenses. As a result and as of
the date hereof, up to approximately $26.0 million in aggregate amount of our common stock remains available for sale under the ATM Program.
Upon written instructions
from us, each Agent will use its commercially reasonable efforts consistent with its sales and trading practices to sell, as our sales
agents, our common stock under the terms and subject to the conditions set forth in our equity distribution agreement with the Agents
dated July 30, 2021, as amended from time to time. We will instruct the Agents as to the amount of common stock to be sold by it. We may
instruct the Agents not to sell common stock if the sales cannot be effected at or above the price designated by us in any instruction.
The sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus, less the Agents’
commission, will not be less than the NAV per share of our common stock at the time of such sale. Saratoga Investment Advisors may, from
time to time and in its sole discretion, contribute proceeds necessary to ensure that no sales are made at a price below the then-current
NAV per share. We or Ladenburg Thalmann & Co. Inc. on behalf of the Agents may suspend the offering of shares of common stock
upon proper notice and subject to other conditions.
Sales of our common stock,
if any, under this prospectus supplement and the accompanying prospectus may be made in negotiated transactions or transactions that are
deemed to be an “at-the-market” offering as defined in Rule 415 under the Securities Act, including sales made directly
on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange at prices related to the
prevailing market prices or at negotiated prices.
The Agents will provide written
confirmation of a sale to us no later than the opening of the trading day on the NYSE following each trading day in which shares of our
common stock are sold under the equity distribution agreement. Each confirmation will include the number of shares of common stock sold
on the preceding day, the net proceeds to us and the compensation payable by us to the Agents in connection with the sales.
The Agents will receive a
commission from us equal to the lesser of (i) 1.5% of the gross sales price per share from such sale and (ii) the difference
between the gross sale price per share from such sale and our most recently determined NAV per share, with respect to any shares of our
common stock sold through the Agents under the equity distribution agreement. We estimate that the total expenses for the offering, excluding
compensation payable to the Agents under the terms of the equity distribution agreement, will be approximately $500,000. In addition to
the commission payable to the Agents, we have agreed to reimburse the Agents for their reasonable out-of-pocket expenses, including fees
and disbursements of counsel, incurred by the Agents in connection with this offering; provided that such reimbursements shall not exceed
$25,000.
Settlement for sales of shares
of common stock will occur on the third trading day following the end of the month in which such sales are made, or on some other date
that is agreed upon by us and the Agents in connection with a particular transaction, in return for payment of the net proceeds to us.
There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
We will report at least quarterly
the number of shares of our common stock sold through the Agents under the equity distribution agreement and the net proceeds to us.
In connection with the sale
of the common stock on our behalf, the Agents may be deemed to be “underwriters” within the meaning of the Securities Act,
and the compensation of the Agents may be deemed to be underwriting commissions or discounts. We have agreed to provide indemnification
and contribution to the Agents against certain civil liabilities, including liabilities under the Securities Act.
The offering of our shares
of common stock pursuant to the equity distribution agreement will terminate upon the earlier of (i) the sale of the dollar amount
of common stock subject to the equity distribution agreement or (ii) the termination of the equity distribution agreement. The equity
distribution agreement may be terminated by us in our sole discretion under the circumstances specified in the equity distribution agreement
by giving notice to the Agents. In addition, Ladenburg Thalmann & Co. Inc., on behalf of the Agents, may terminate the equity
distribution agreement under the circumstances specified in the equity distribution agreement by giving notice to us.
Potential Conflicts of Interest
The Agents and their affiliates
have provided, or may in the future provide, various investment banking, commercial banking, financial advisory, brokerage and other services
to us and our affiliates for which services they have received, and may in the future receive, customary fees and expense reimbursement.
On July 13, 2018, pursuant to an underwriting agreement with Ladenburg
Thalmann & Co. Inc,. as representative of the several underwriters, including, among others, Compass Point Research & Trading,
LLC, we issued 1,150,000 shares of our common stock for net proceeds of $27.4 million after deducting underwriting commissions of
approximately $1.15 million and offering costs of approximately $0.2 million.
On October 27, 2022, pursuant
to an underwriting agreement with Ladenburg Thalmann & Co. Inc. as representative of the several underwriters, including, among others,
Compass Point Research & Trading, LLC, we issued $40.0 million in aggregate principal amount
of our 8.00% 2027 Notes for net proceeds of $38.7 million after deducting underwriting commissions of approximately $1.3 million. Offering
costs incurred were approximately $0.2 million. On November 10, 2022, the underwriters partially exercised their option to purchase an
additional $6.0 million in aggregate principal amount of the 8.00% 2027 Notes. Net proceeds to us were $5.8 million after deducting underwriting
commissions of approximately $0.2 million.
On December 13, 2022, pursuant
to an underwriting agreement with Ladenburg Thalmann & Co. Inc. as representative of the several underwriters, including, among others,
Compass Point Research & Trading, LLC, we issued $52.5 million in aggregate principal amount
of our 8.125% 2027 Notes for net proceeds of $50.8 million after deducting underwriting commissions of approximately $1.6 million. Offering
costs incurred were approximately $0.1 million. On December 21, 2022, the underwriters fully exercised their option to purchase an additional
$7.875 million in aggregate principal amount of the 8.125% 2027 Notes. Net proceeds to us were $7.6 million after deducting underwriting
commissions of approximately $0.2 million.
On April 14, 2023, pursuant to
an underwriting agreement with Ladenburg Thalmann & Co. Inc. as representative of the several underwriters, including, among others,
Compass Point Research & Trading, LLC, we issued $50.0 million in aggregate principal amount
of 8.50% notes due 2028 (the “8.50% 2028 Notes”) for net proceeds of $48.2 million, after deducting underwriting discounts
and commissions of approximately $1.6 million and estimated offering expenses of approximately $0.2 million. On April 25, 2023, the underwriters
fully exercised their option to purchase an additional $7.5 million in aggregate principal amount of the 8.50% 2028 Notes. Net proceeds
to us were $7.3 million after deducting underwriting commissions of approximately $0.2 million.
The Agents and their affiliates
may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business for which they
may receive customary fees and reimbursement of expenses. In the ordinary course of their various business activities, the Agents and
their 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 such investment and
securities activities may involve securities and/or instruments of our company. The Agents and their affiliates may also make investment
recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time
hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
The principal business address
of Ladenburg Thalmann & Co. Inc. is 277 Park Avenue, 26th Floor, New York, NY 10172. The principal business address of BB&T
Capital Markets is 901 East Byrd Street, Suite 300, Richmond, VA 23219. The principal business address of B. Riley FBR, Inc.
is 299 Park Avenue, 7th Floor, New York, New York 10171.
LEGAL MATTERS
Certain legal matters regarding the securities offered by this prospectus
supplement will be passed upon for us by Eversheds Sutherland (US) LLP, Washington, D.C. Certain legal matters in connection with this
offering will be passed upon for the Agents by Blank Rome LLP, New York, New York.
AVAILABLE INFORMATION
This prospectus supplement and the accompanying
prospectus constitute part of a universal shelf registration statement on Form N-2 that we have filed with the SEC, together
with any and all amendments and related exhibits, under the Securities Act. This prospectus supplement and the accompanying prospectus
do not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration
statement and the documents incorporated by reference herein and therein as permitted by the rules and regulations of the SEC. For further
information with respect to us and the common stock we are offering under this prospectus supplement and the accompanying prospectus,
we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained
in this prospectus supplement and the accompanying prospectus concerning the contents of any contract or any other document are not necessarily
complete. If a contract or other document has been filed as an exhibit to the registration statement, please see the copy of the contract
or document that has been filed. Each statement in this prospectus supplement, the accompanying prospectus and the documents incorporated
by reference herein and therein relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit.
As a public company, we file with or submit to
the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements
of the Exchange Act. The SEC maintains an Internet site that contains reports, proxy and information statements and other information
filed electronically by us with the SEC, which are available free of charge on the SEC’s website at www.sec.gov. This
information is also available free of charge on our website at www.saratogainvestmentcorp.com. Except for the documents incorporated
by reference into this prospectus supplement and the accompanying prospectus, information contained on our website is not incorporated
into this prospectus supplement or the accompanying prospectus and you should not consider such information to be part of this prospectus
supplement or the accompanying prospectus.
INCORPORATION BY REFERENCE
We incorporate by reference in this prospectus
supplement the documents listed below and any reports and other documents we file with the SEC pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this prospectus supplement and prior to the termination of this offering (such reports
and other documents deemed to be incorporated by reference into this prospectus supplement and to be part hereof from the date of filing
of such reports and other documents); provided, however, that information “furnished” under Item 2.02 or Item 7.01
of Form 8-K, or other information “furnished” to the SEC pursuant to the Exchange Act will not be incorporated by reference
into this prospectus supplement:
| ● | our Annual Report on Form 10-K for
the fiscal year ended February 28, 2023 filed with the SEC on May 2, 2023; |
|
● |
our Current
Report on Form 8-K filed with the SEC on April 14, 2023 |
Any statement contained in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus supplement
and the accompanying prospectus to the extent that a statement contained in this prospectus supplement, in the accompanying prospectus
or in any other subsequently filed document which also is or is deemed to be incorporated by reference in this prospectus supplement modifies
or supersedes such earlier statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus supplement.
We will provide without charge to each person,
including any beneficial owner, to whom a copy of this prospectus supplement is delivered, upon written or oral request of any such person,
a copy of any or all of the information that has been incorporated by reference in this prospectus supplement but not delivered with
this prospectus supplement, excluding exhibits to a document unless an exhibit has been specifically incorporated by reference in that
document. To obtain copies of these filings, see “Available Information” in this prospectus supplement.
PROSPECTUS
$500,000,000
Common Stock
Preferred Stock
Subscription Rights
Debt Securities
Warrants
We are a specialty finance
company that invests primarily in senior and unitranche leveraged loans and mezzanine debt issued by private U.S. middle-market companies,
both through direct lending and through participation in loan syndicates, and, to a lesser extent, equity issued by private U.S. middle-market companies.
Our investment objective is to create attractive risk-adjusted returns by generating current income and, to a lesser extent,
capital appreciation from our investments.
We are externally managed
and advised by Saratoga Investment Advisors, LLC, a New York-based investment firm affiliated with Saratoga Partners, a middle-market private
equity investment firm.
We may offer, from time
to time, in one or more offerings or series, up to $500,000,000 of our common stock, preferred stock, subscription rights to purchase
shares of our common stock, debt securities, and warrants representing rights to purchase shares of our common stock, preferred stock
or debt securities, which we refer to, collectively, as our “securities.” The preferred stock, subscription rights, warrants
and debt securities offered hereby may be convertible or exchangeable into shares of our common stock. The securities may be offered
at prices and on terms to be described in one or more supplements to this prospectus.
Absent approval by the majority
of our common stockholders, the offering price per share of our common stock less any underwriting commissions or discounts will not
be less than the net asset value (“NAV”) per share of our common stock at the time we make the offering unless we issue shares
in connection with a rights offering to our existing stockholders or under such other circumstances as the Securities and Exchange Commission
(the “SEC”) may permit. We do not currently have stockholder approval of issuances below NAV. In addition, we cannot issue
shares of our common stock below NAV unless our board of directors determines that it would be in our and our stockholders’ best
interests to do so. Sales of common stock at prices below NAV per share dilute the interests of existing stockholders, have the effect
of reducing our NAV per share and may reduce our market price per share. In addition, sales of common stock below NAV may have a negative
impact on total returns and could have a negative impact on the market price of our shares of common stock. See “Sales of Common
Stock Below Net Asset Value.”
Our securities may be offered
directly to one or more purchasers, or through agents designated from time to time by us, or to or through underwriters or dealers. The
prospectus supplement relating to an offering will identify any agents or underwriters involved in the sale of our securities, and will
disclose any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our
underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution.” We may not sell any of our
securities through agents, underwriters or dealers without delivery of this prospectus and a prospectus supplement describing the method
and terms of the offering of such securities.
We generally invest in
securities that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred
to as “high yield” or “junk,” have speculative characteristics with respect to our capacity to pay interest and
repay principal. See “Risk Factors” in Part I, Item 1A in our most recent Annual Report on Form 10-K and in Part II,
Item 1A of our most recent Quarterly Report on Form 10-Q for more information.
Our common stock is traded
on the New York Stock Exchange (“NYSE”) under the symbol “SAR.” On February 17, 2023, the last reported sales
price on the NYSE for our common stock was $27.77 per share. We are required to determine the NAV per share of our common stock on a
quarterly basis. Our NAV per share of our common stock as of November 30, 2022 was $28.25.
This prospectus describes
some of the general terms that may apply to an offering of our securities. We will provide the specific terms of these offerings and
securities in one or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided
to you in connection with these offerings. The prospectus supplement and any related free writing prospectus may also add, update, or
change information contained in this prospectus. You should carefully read this prospectus, the applicable prospectus supplement, and
any related free writing prospectus, and the documents incorporated by reference, before buying any of the securities being offered.
We file annual, quarterly and current reports, proxy statements and other information with the SEC, which is available free of charge
upon written or oral request by contacting us by mail at 535 Madison Avenue, New York, New York 10022, by accessing our website at http://www.saratogainvestmentcorp.com
or by calling us collect at (212) 906-7800. The SEC also maintains a website at http://www.sec.gov that contains
such information, including the documents incorporated by reference into this prospectus. Information contained on our website is not
incorporated by reference into this prospectus or any supplements to this prospectus, and you should not consider that information to
be part of this prospectus or any supplements to this prospectus. The contact information provided above may be used by you to make investor
inquiries. This prospectus should be retained for future reference.
An investment in our
securities is very risky and highly speculative. Shares of closed-end investment companies, including business development companies
(“BDCs”), frequently trade at a discount to their NAV. In addition, the companies in which we invest are subject to special
risks. See “Risk Factors” beginning on page 11 of this prospectus, in Part I, Item 1A of our most recent Annual Report on
Form 10-K, in Part II, Item 1A of our most recent Quarterly Report on Form 10-Q and in, or incorporated by reference into,
the applicable prospectus supplement and in any free writing prospectuses we may authorize for use in connection with a specific offering,
and under similar headings in the other documents that are incorporated by reference into this prospectus, to read about factors you
should consider, including the risk of leverage, before investing in our securities.
Neither the SEC 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 may not
be used to consummate sales of securities unless accompanied by a prospectus supplement.
The date of this prospectus is March 13,
2023
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
This prospectus is part
of a registration statement that we have filed with the SEC, using the “shelf” registration process. Under this shelf registration
statement, we may offer, from time to time, in one or more offerings, up to $500,000,000 of our common stock, preferred stock, subscription
rights to purchase shares of our common stock, debt securities or warrants representing rights to purchase shares of our common stock,
preferred stock or debt securities, on terms to be determined at the time of the offering. Our securities may be offered at prices
and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of
our securities and the offerings thereof that we may make pursuant to this prospectus. Each time we use this prospectus to offer our
securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. We may also
authorize one or more free writing prospectuses to be provided to you that may contain material information relating to such offerings.
In a prospectus supplement or free writing prospectus, we may also add, update or change any of the information contained in this prospectus
or in the documents we have incorporated by reference into this prospectus. This prospectus, together with the applicable prospectus
supplement, any related free writing prospectus, and the documents incorporated by reference into this prospectus and the applicable
prospectus supplement, will include all material information relating to the applicable offering. Before buying any of the securities
being offered, you should carefully read both this prospectus and the applicable prospectus supplement and any related free writing prospectus,
together with any exhibits and the additional information described in the sections titled “Available Information,” “Incorporation
of Certain Information by Reference,” “Summary” and “Risk Factors” in this prospectus.
This prospectus may contain
estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that
are based on industry publications and reports. This information involves many assumptions and limitations, and you are cautioned not
to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these
industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a
variety of factors, including those described in the section titled “Risk Factors” in this prospectus, in Part I, Item 1A
our most recent Annual Report on Form 10-K and in Part II, Item 1A of our most recent Quarterly Report on Form 10-Q, that
could cause results to differ materially from those expressed in these publications and reports.
This prospectus includes
summaries of certain provisions contained in some of the documents described in this prospectus, but reference is made to the actual
documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the
documents referred to herein have been filed, will be filed, or will be incorporated by reference as exhibits to the registration statement
of which this prospectus is a part, and you may obtain copies of those documents as described in the section titled “Available
Information” in this prospectus.
You should rely only
on the information included or incorporated by reference in this prospectus, any prospectus supplement or in any free writing prospectus
prepared by or on behalf of us or to which we have referred you. We have not authorized any dealer, salesperson or other person to provide
you with different information or to make representations as to matters not stated in this prospectus or in any free writing prospectus
prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. If anyone provides you with different or inconsistent information, you
should not rely on it. This prospectus, any applicable prospectus supplement and any free writing prospectus prepared by or on behalf
of us or to which we have referred you do not constitute an offer to sell, or a solicitation of an offer to buy, any securities by any
person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction
to whom it is unlawful to make such an offer or solicitation. You should not assume that the information included or incorporated by
reference in this prospectus or any prospectus supplement or in any such free writing prospectus is accurate as of any date other than
their respective dates.
PROSPECTUS SUMMARY
This summary highlights some of the information
included elsewhere in this prospectus or incorporated by reference. It
may not contain all the information that is important to you. For a more complete understanding of offerings pursuant to this prospectus,
we encourage you to read this entire prospectus and the documents to which we have referred in this prospectus, together with any accompanying
prospectus supplements or free writing prospectuses, including the risks set forth under the caption “Risk Factors” in Part I,
Item 1A of our most recent Annual Report on Form 10-K, in Part II, Item 1A of our most recent Quarterly Report on
Form 10-Q, in this prospectus, the applicable prospectus supplement and any related free writing prospectus, and under similar headings
in any other documents that are incorporated by reference into this prospectus and the applicable prospectus supplement, and the information
set forth under the caption “Available Information” in this prospectus.
Unless otherwise noted, the terms “we,”
“us,” “our,” the “Company” and “Saratoga” refer to Saratoga Investment Corp. and its
wholly owned subsidiaries, Saratoga Investment Funding LLC, Saratoga Investment Funding II LLC, Saratoga Investment Corp. SBIC LP, Saratoga
Investment Corp. SBIC II LP, and Saratoga Investment Corp. SBIC III LP, and does not refer to Saratoga Investment Corp. CLO 2013-1 Ltd.
In addition, the terms “Saratoga Investment Advisors” and “investment adviser” refer to Saratoga Investment Advisors,
LLC, our external investment adviser.
Overview
We are a specialty finance
company that provides customized financing solutions to U.S. middle-market businesses. We primarily invest in senior and unitranche
leveraged loans and mezzanine debt and, to a lesser extent, equity issued by private U.S. middle-market companies, which we
define as companies having annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of between $2 million
and $50 million, both through direct lending and through participation in loan syndicates. Our investment objective is to create
attractive risk-adjusted returns by generating current income and long-term capital appreciation from our investments. Our
investments generally provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives
in partnership with business owners, management teams and financial sponsors. Our investment activities are externally managed and advised
by Saratoga Investment Advisors, a New York-based investment firm affiliated with Saratoga Partners, a middle market private
equity investment firm.
Our portfolio is comprised
primarily of investments in leveraged loans issued by middle market companies. Leveraged loans are generally senior debt instruments
that rank ahead of subordinated debt with below investment grade or “junk” ratings or, if not rated, would be rated below
investment grade or “junk” and, as a result, carry a higher risk of default. Leveraged loans also have the benefit of security
interests on the assets of the portfolio company, which may rank ahead of, or be junior to, other security interests. Term loans are
loans that do not allow the borrowers to repay all or a portion of the loans prior to maturity and then re-borrow such repaid
amounts under the loan again. We also invest in mezzanine debt and make equity investments in middle market companies. Mezzanine debt
is typically unsecured and subordinated to senior debt of the portfolio company.
While our primary focus
is to generate current income and capital appreciation from our debt and equity investments in middle market companies, we may invest
up to 30.0% of our portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include
investments in distressed debt, including securities of companies in bankruptcy, foreign debt, private equity, securities of public companies
that are not thinly traded and structured finance vehicles such as collateralized loan obligation funds. Although we have no current
intention to do so, to the extent we invest in private equity funds, we will limit our investments in entities that are excluded from
the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of
1940, as amended (“1940 Act”), which includes private equity funds, to no more than 15% of its net assets.
As of November 30, 2022,
we had total assets of $1.0 billion and investments in 50 portfolio companies, excluding an investment in the subordinated notes of one
collateralized loan obligation fund, Saratoga Investment Corp. CLO 2013-1, Ltd. (“Saratoga CLO”), which had a fair value
of $19.4 million as of November 30, 2022, an investment in the Class F-2-R-3 Notes, which had a fair value of $8.5 million
as of November 30, 2022, an investment in the Class E Notes, which had a fair value of $11.0 million, as well as the unsecured notes
and equity interests in Saratoga Senior Loan Fund I JV LLC, a joint venture that we co-manage with TJHA JV I LLC (“SLF JV”),
which had a fair value of $17.6 million and $9.2 million as of November 30, 2022, respectively. The overall portfolio composition as
of November 30, 2022 consisted of 81.9% of first lien term loans, 2.4% of second lien term loans, 2.1% of unsecured term loans, 4.0%
of structured finance securities and 9.6% of equity interests. As of November 30, 2022, the weighted average yield on all of our investments,
including our investment in the subordinated notes of Saratoga CLO, the Class F-2-R-3 Notes, the Class E Notes, and SLF JV,
was approximately 10.2%. The weighted average yield of our investments is not the same as a return on investment for our stockholders
and, among other things, is calculated before the payment of our fees and expenses. For the nine months ended November 30, 2022, our
total return based on market value was 2.74% and our total return based on NAV per share was 2.98%. For the year ended February 28, 2022,
our total return based on market value was 28.19% and our total return based on NAV per share was 15.88%. Total return based on market
value is the change in the ending market value of the Company’s common stock plus dividends distributed during the period assuming
participation in the Company’s dividend reinvestment plan divided by the beginning market value of the Company’s common stock.
Total return based on NAV is the change in ending NAV per share plus dividends distributed per share paid during the period assuming
participation in the Company’s dividend reinvestment plan divided by the beginning NAV per share. While total return based on NAV
and total return based on market value reflect fund expenses, they do not reflect any sales load that may be paid by investors. As of
November 30, 2022, approximately 970% of our first lien debt investments were fully collateralized in the sense that the portfolio companies
in which we held such investments had an enterprise value or our investment had an asset coverage equal to or greater than the principal
amount of the related debt investment. The Company uses enterprise value to assess the level of collateralization of its portfolio companies.
The enterprise value of a portfolio company is determined by analyzing various factors, including EBITDA, cash flows from operations
less capital expenditures and other pertinent factors, such as recent offers to purchase a portfolio company’s securities or other
liquidation events. As a result, while we consider a portfolio company to be collateralized if its enterprise value exceeds the amount
of our loan, we do not hold tangible assets as collateral in our portfolio companies that we would obtain in the event of a default.
Our investment in the subordinated notes of Saratoga CLO represents a first loss position in a portfolio that, at November 30, 2022,
was composed of $653.4 million in aggregate principal amount of predominantly senior secured first lien term loans. A first loss position
means that we will suffer the first economic losses if losses are incurred on loans held by the Saratoga CLO. As a result, this investment
is subject to unique risks.
We
are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated
as a BDC under the 1940 Act. As a BDC, we are required to comply with various regulatory requirements, including limitations on our use
of debt. We finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that
our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing, or, if we obtain the required approvals from
our independent directors and/or stockholders, 150%. On April 16, 2018, as permitted by the Small Business Credit Availability Act,
which was signed into law on March 23, 2018, our board of directors, including
a majority of our directors who are not “interested persons” (as defined in Section 2(a)(19) of the 1940 Act) of the Company
(“independent directors”), approved of our becoming subject to a minimum asset coverage ratio of 150% under Sections 18(a)(1)
and 18(a)(2) of the 1940 Act. The 150% asset coverage ratio became effective on April 16, 2019.
We have elected to be treated
for U.S. federal income tax purposes as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue
Code of 1986, as amended (the “Code”). As a RIC, we generally will not be subject to U.S. federal income tax on any net ordinary
income or capital gains that we timely distribute to our stockholders if we meet certain source-of-income, annual distribution and asset-diversification requirements.
In addition, we have three
wholly owned subsidiaries that are each licensed as a small business investment company (“SBIC”) and regulated by the
Small Business Administration (“SBA”). On March 28, 2012, our wholly owned subsidiary, Saratoga Investment Corp.
SBIC LP (“SBIC LP”), received an SBIC license from the SBA. On August 14, 2019, our wholly owned subsidiary, Saratoga
Investment Corp. SBIC II LP (“SBIC II LP”), also received an SBIC license from the SBA, which provides up to $175.0 million
in additional long-term capital in the form of SBA-guaranteed debentures. On September 29, 2022, our wholly owned subsidiary,
Saratoga Investment Corp. SBIC III LP (“SBIC III LP” and, together with SBIC LP and SBIC II LP, the “SBIC Subsidiaries”),
also received an SBIC license from the SBA, which provides up to $175 million in additional long-term capital in the form of SBA-guaranteed
debentures. As a result, Saratoga’s SBA relationship increased from $325.0 million to $350.0 million of committed capital.
The SBIC Subsidiaries are regulated by the SBA. For two or more SBICs under common control, the maximum amount of outstanding SBA debentures
cannot exceed $350.0 million. Our wholly owned SBIC Subsidiaries are able to borrow funds from the SBA against the SBIC’s
regulatory capital (which generally approximates equity capital in the respective SBIC) and is subject to customary regulatory requirements,
including, but not limited to, periodic examination by the SBA.
We received exemptive relief
from the SEC to permit us to exclude the senior securities issued by the SBIC Subsidiaries from the definition of senior securities in
the asset coverage requirement under the 1940 Act. This allows the Company increased flexibility under the asset coverage requirement
by permitting it to borrow up to $350.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.
The Company has established
wholly owned subsidiaries, SIA-Avionte, Inc., SIA-AX, Inc., SIA-GH, Inc., SIA-MAC, Inc., SIA-ARC, Inc., SIA-PP, Inc., SIA-TG, Inc., SIA-TT,
Inc., SIA-Vector, Inc. and SIA-VR, Inc., which are structured as Delaware entities, or tax blockers, to hold equity or equity-like investments
in portfolio companies organized as limited liability companies, or LLCs (or other forms of pass through entities). Tax blockers are
consolidated for accounting purposes but are not consolidated for U.S. federal income tax purposes and may incur U.S. federal income
tax expense as a result of their ownership of portfolio companies.
Corporate History and Information
We commenced operations,
at the time known as GSC Investment Corp., on March 23, 2007 and completed an initial public offering of shares of common stock
on March 28, 2007. Prior to July 30, 2010, we were externally managed and advised by GSCP (NJ), L.P., an entity affiliated
with GSC Group, Inc. In connection with the consummation of a recapitalization transaction on July 30, 2010, we engaged Saratoga
Investment Advisors to replace GSCP (NJ), L.P. as our investment adviser and changed our name to Saratoga Investment Corp.
The recapitalization transaction
consisted of (i) the private sale of 986,842 shares of our common stock for $15.0 million in aggregate purchase price
to Saratoga Investment Advisors and certain of its affiliates and (ii) the entry into a $40.0 million senior secured revolving
credit facility with Madison Capital Funding LLC (the “Madison Credit Facility”). We used the net proceeds from the private
sale of shares of our common stock and a portion of the funds available to us under the Madison Credit Facility to pay the full amount
of principal and accrued interest, including default interest, outstanding under our revolving securitized credit facility with Deutsche
Bank AG, New York Branch (“Deutsche Bank”). Specifically, in July 2009, we had exceeded permissible borrowing limits
under the revolving securitized credit facility with Deutsche Bank, which resulted in an event of default under the revolving securitized
credit facility. As a result of the event of default, Deutsche Bank had the right to accelerate repayment of the outstanding indebtedness
under the revolving securitized credit facility and to foreclose and liquidate the collateral pledged under the revolving securitized
credit facility. The revolving securitized credit facility with Deutsche Bank was terminated in connection with our payment of all amounts
outstanding thereunder on July 30, 2010. In January 2011, we registered for public resale by Saratoga Investment Advisors and
certain of its affiliates the 986,842 shares of our common stock issued to them in the recapitalization.
As noted above, our wholly
owned subsidiaries, SBIC LP, SBIC II LP, and SBIC III LP, received an SBIC license from the SBA on March 28, 2012, August 14, 2019,
and September 29, 2022, respectively.
Saratoga Investment Advisors
General
Saratoga Investment Advisors
was formed in 2010 as a Delaware limited liability company and became our investment adviser in July 2010. Saratoga Investment Advisors
is led by four principals, Christian L. Oberbeck, Michael J. Grisius, Thomas V. Inglesby, and Charles G. Phillips, with over 36,
31, 35, and 25 years of experience in leveraged finance, respectively, and the Chief Financial Officer and Chief Compliance
Officer, Henri Steenkamp, who has 23 years of experience in financial services and leveraged finance. Our Investment Adviser is affiliated
with Saratoga Partners, a middle market private equity investment firm. Saratoga Partners was established in 1984 to be the middle market
private investment arm of Dillon Read & Co. Inc. and has been independent of Dillon Read & Co. Inc., and its successor entity,
SBC Warburg Dillon Read, since 1998. Saratoga Partners has a 34-year history of private investments in middle market companies
and focuses on public and private equity, preferred stock, and senior and mezzanine debt investments.
Our Relationship with Saratoga Investment
Advisors
We utilize the personnel,
infrastructure, relationships and experience of Saratoga Investment Advisors to enhance the growth of our business. We currently have
no employees and each of our executive officers is also an officer of Saratoga Investment Advisors.
We have entered into an
investment advisory and management agreement (the “Management Agreement”) with Saratoga Investment Advisors. Pursuant to
the 1940 Act, the initial term of the Management Agreement was for two years from its effective date of July 30, 2010, with automatic, one-year renewals,
to be approved at an in-person meeting of the board of directors, a majority of whom must not be independent directors. Our board
of directors approved the renewal of the Management Agreement for an additional one-year term at an in-person meeting held
on July 5, 2022. Pursuant to the Management Agreement, Saratoga Investment Advisors implements our business strategy on a day-to-day basis
and performs certain services for us under the direction of our board of directors. Saratoga Investment Advisors is responsible for,
among other duties, performing all of our day-to-day functions, determining investment criteria, sourcing, analyzing and executing
investment transactions, asset sales, financings and performing asset management duties.
Saratoga Investment Advisors
has formed an investment committee to advise and consult with its senior management team with respect to our investment policies, investment
portfolio holdings, financing and leveraging strategies and investment guidelines. We believe that the collective experience of the investment
committee members across a variety of fixed income asset classes will benefit us. The investment committee must unanimously approve all
investments in excess of $1.0 million made by us. In addition, all sales of our investments must be approved by all four of our
investment committee members. The current members of the investment committee are Messrs. Oberbeck, Grisius, Inglesby, and Phillips.
See “Business”
in Part I, Item 1 in our most recent Annual Report on Form 10-K for additional information about us.
Risk Associated with Our Business
Our business is subject
to numerous risks, as described in the section titled “Risk Factors” in the applicable prospectus supplement and in any free
writing prospectuses we have authorized for use in connection with a specific offering, and under similar headings in the documents that
are incorporated by reference into this prospectus, including the section titled “Risk Factors” included in our most recent
Annual Report on Form 10-K, in our most recent Quarterly Report on Form 10-Q, as well as in any of our subsequent SEC filings.
Corporate Information
Our principal executive
offices are located at 535 Madison Avenue, New York, New York 10022, and our telephone number is (212) 906-7800. Our corporate website
is located at http://www.saratogainvestmentcorp.com. Information contained on our website is not incorporated by reference into
this prospectus or any supplements to this prospectus, and you should not consider that information to be part of this prospectus or
any supplements to this prospectus.
THE OFFERING
We may offer, from time
to time, up to $500,000,000 of our securities, on terms to be determined at the time of the offering. Our securities may be offered at
prices and on terms to be disclosed in one or more prospectus supplements.
Our securities may be offered
directly to one or more purchasers by us or through agents designated from time to time by us, or to or through underwriters or dealers.
The prospectus supplement relating to the offering will disclose the terms of the offering, including the name or names of any agents
or underwriters involved in the sale of our securities by us, the purchase price, and any fee, commission or discount arrangement between
us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of
Distribution.” We may not sell any of our securities directly or through agents, underwriters or dealers without delivery of a
prospectus supplement describing the method and terms of the offering of our securities.
Set forth below is additional
information regarding the offering of our securities:
The New York Stock Exchange |
“SAR” |
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Use of Proceeds |
We intend to use substantially all of the net proceeds
from the sale of our securities to make investments in middle-market companies in accordance with our investment objective and strategies
described in this prospectus, and for general corporate purposes. We may also use a portion of the net proceeds to reduce any of
our outstanding borrowings. Pending such use, we will invest the net proceeds primarily in high quality, short-term debt securities
consistent with our BDC election and our election to be taxed as a RIC. See “Use of Proceeds.” |
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Dividends and Distributions |
We
pay quarterly distributions to our stockholders out of assets legally available for distribution.
Our distributions, if any, will be determined by our board of directors. Our ability to declare
distributions depends on our earnings, our overall financial condition (including our liquidity
position), qualification for or maintenance of our RIC status and such other factors as our
board of directors may deem relevant from time to time.
When we make distributions, we will be required
to determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or
capital. To the extent there is a return of capital, investors will be required to reduce their adjusted tax basis in our stock for
U.S. federal income tax purposes. In the future, our distributions may include a return of capital. See “Price Range of Common
Stock and Distributions.” |
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Dividend Reinvestment Plan |
We maintain an “opt out” dividend reinvestment
plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically
reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment
plan so as to receive cash dividends. Stockholders who receive distributions in the form of our common stock will be subject to the
same U.S. federal, state and local tax consequences as stockholders who elect to receive their distributions in cash, and will need
to pay any such taxes from other sources in light of the fact that their distributions will be reinvested in additional shares of
the Company’s common stock. See “Dividend Reinvestment Plan” for a description of the plan and information on how
to “opt out” of the plan. |
Taxation |
We elected to be treated
for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. Accordingly, we generally will
not be subject to U.S. federal income tax on any net ordinary income or realized net capital gains that we
timely distribute to our stockholders as dividends. To maintain our RIC tax treatment, we must meet specified
source-of-income and asset diversification requirements and distribute annually to our stockholders 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. Depending on the level of taxable income earned in a tax year, we may choose to carry
forward taxable income in excess of current year distributions into the next tax year and pay a non-deductible
4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a
dividend declared prior to filing the final tax return related to the year which generated such taxable income.
See “Certain U.S. Federal Income Tax Considerations.” |
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Effective
Trading at a Discount |
Shares
of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV. The risk that our shares may trade
at a discount to our NAV is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our
shares will trade above, at or below NAV. See “Risk Factors.” |
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Sales
of Common Stock Below NAV |
The offering price per share of our common
stock, less any underwriting commissions or discounts, will not be less than the NAV per share of our common stock at the time
of the offering, except (i) with the requisite approval of our common stockholders or (ii) under such other circumstances as
the SEC may permit. In addition, we cannot issue shares of our common stock below NAV unless our board of directors determines
that it would be in our stockholders’ best interests to do so. We did not seek stockholder authorization to issue common
stock at a price below NAV per share at our 2022 annual meeting of stockholders.
Sales by us of our common stock at a discount
from our NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new
investors who participate in the offering. See “Sales of Common Stock Below Net Asset Value.” |
Leverage
|
We borrow funds to
make additional investments. We use this practice, which is known as “leverage,” to attempt to
increase returns to our stockholders, but it involves significant risks. See “Risk Factors,” “Senior
Securities,” and “Regulation” below. We are currently allowed to borrow amounts such that
our asset coverage, as calculated pursuant to the 1940 Act, equals at least 150% after such borrowing (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). See “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 and Part I, Item 2 of our most recent Quarterly Report on Form 10-Q.
The amount of leverage that we employ at
any particular time will depend on our investment adviser’s investment committee’s and our board of directors’
assessment of market and other factors at the time of any proposed borrowing. In addition, the SBA regulations currently limit the
amount that is available to be borrowed by any SBIC and guaranteed by the SBA to 300.0% of an SBIC’s regulatory capital or
$175.0 million, whichever is less. For two or more SBICs under common control, the maximum amount of outstanding SBA debentures cannot
exceed $350.0 million.
For more information, see “Risk Factors”
in Part I, Item 1A of our most recent Annual Report on Form 10-K and “Business” in Part I, Item 1 in our most recent
Annual Report on Form 10-K. |
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Available Information |
We have filed with the SEC a registration
statement on Form N-2, of which this prospectus is a part, under the Securities Act. This registration statement contains additional
information about us and the securities being offered by this prospectus. We are also required to file periodic reports, current
reports, proxy statements and other information with the SEC. This information is available on the SEC’s website at http://www.sec.gov.
We maintain a website at http://www.saratogainvestmentcorp.com
and make all of our periodic and current reports, proxy statements and other information available, free of charge, on or through
our website. Information contained on our website is not incorporated by reference into this prospectus or any supplements to this
prospectus, and you should not consider that information to be part of this prospectus or any supplements to this prospectus. You
may also obtain such information free of charge by contacting us by mail at 535 Madison Avenue, New York, New York 10022 or by calling
us collect at (212) 906-7800 3940. |
|
|
Incorporation of Certain Information
by Reference |
This prospectus
is part of a registration statement that we have filed with the SEC. We may “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 those documents. The
information incorporated by reference is considered to comprise a part of this prospectus from the date we file that information.
Any reports filed by us with the SEC subsequent to the date of this prospectus until we have sold all of the securities offered by
this prospectus or the offering is otherwise terminated will automatically update and, where applicable, supersede any information
contained in this prospectus or incorporated by reference in this prospectus. See “Incorporation of Certain Information by
Reference” in this prospectus. |
FEES AND EXPENSES
The following table is intended
to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution
you that some of the percentages indicated in the table below are estimates and may vary. Moreover, the information set forth below does
not include any transaction costs and expenses that investors will incur in connection with each offering of our securities pursuant
to this prospectus. As a result, investors are urged to read the “Fees and Expenses” table contained in any corresponding
prospectus supplement to fully understanding the actual transaction costs and expenses they will incur in connection with each such offering.
Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you,”
“us” or “Saratoga Investment Corp.,” or that “we” will pay fees or expenses, stockholders will indirectly
bear such fees or expenses as investors in Saratoga Investment Corp.
Stockholder transaction expenses (as
a percentage of offering price): |
Sales
load paid |
|
|
— |
%(1) |
Offering
expenses borne by us |
|
|
— |
%(2) |
Dividend
reinvestment plan expenses |
|
|
None |
(3) |
|
|
|
|
|
Total
stockholder transaction expenses paid |
|
|
— |
% |
Annual
estimated expenses (as a percentage of average net assets attributable to common stock): |
|
|
|
|
Management
fees |
|
|
4.72 |
%(4) |
Incentive
fees payable under the Management Agreement |
|
|
0.08 |
%(5) |
Interest
payments on borrowed funds |
|
|
8.74 |
%(6) |
Other
expenses |
|
|
2.36 |
%(7) |
|
|
|
|
|
Total
annual expenses |
|
|
15.90 |
%(8) |
(1) |
In the event that the shares of common stock to which this
prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales
load. |
(2) |
The prospectus supplement corresponding to each offering
will disclose the applicable offering expenses and total stockholder transaction expenses. |
(3) |
The expenses associated with the administration of our
dividend reinvestment plan are included in “Other expenses.” The participants in the dividend reinvestment plan will
pay a pro rata share of brokerage commissions incurred with respect to open market purchases, if any, made by the administrator under
the plan. For more details about the plan, see “Dividend Reinvestment Plan.” |
(4) |
Our base management fee under the Management Agreement
with Saratoga Investment Advisors is based on our gross assets, which is defined as our total assets, including those acquired using
borrowings for investment purposes, but excluding cash and cash equivalents. See “Investment Advisory and Management Agreement”
in in Part I, Item 1 of our most recent Annual Report on Form 10-K. The
fact that our base management fee is payable based upon our gross assets, rather than our net assets (i.e., total assets after deduction
of any liabilities, including borrowings) means that our base management fee as a percentage of net assets attributable to common
stock will increase when we utilize leverage. |
(5) |
The incentive fee
consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of our
“pre-incentive fee net investment income” for the immediately preceding quarter, subject to a
preferred return, or “hurdle,” and a “catch up” feature. For this purpose, “pre-incentive
fee net investment income” means interest income, dividend income and any other income (including any
other fees, such as commitment, origination, structuring, diligence, managerial and consulting fees or other
fees that we receive from portfolio companies) accrued by us during the fiscal quarter, minus our operating
expenses for the quarter (including the base management fee, expenses payable under the administration agreement
described below, and any interest expense and dividends paid on any issued and outstanding preferred stock,
but excluding the incentive fee).
The second part of the incentive fee is determined
and payable in arrears as of the end of each fiscal year (or upon termination of the Management Agreement) and equals 20% of our
“incentive fee capital gains,” which equals our realized capital gains on a cumulative basis from May 31, 2010 through
the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis,
less the aggregate amount of any previously paid capital gain incentive fee. Under the Management Agreement, the capital gains portion
of the incentive fee is based on realized gains and realized and unrealized losses from May 31, 2010. Therefore, realized and
unrealized losses incurred prior to such time will not be taken into account when calculating the capital gains portion of the incentive
fee, and Saratoga Investment Advisors will be entitled to 20% of incentive fee capital gains that arise after May 31, 2010.
In addition, the cost basis for computing realized gains and losses on investments held by us as of May 31, 2010 will equal
the fair value of such investments as of such date. See “Investment Advisory and Management Agreement” in in
Part I, Item 1 of our most recent Annual Report on Form 10-K. |
(6) |
We may borrow funds from time to time to make investments to the extent
we determine that the economic situation is conducive to doing so. The 8.74% figure in the table includes all expected borrowing costs
that we expect to incur over the next twelve months in connection with the senior secured revolving credit facility with Encina Lender
Finance, LLC. The costs associated with our outstanding borrowings are indirectly borne by our stockholders. We do not expect to issue
any preferred stock during the next twelve months and, therefore, have not included the cost of issuing and servicing preferred stock
in the table. In addition, all of the commitment fees, interest expense, amortized financing costs of our Credit Facility, SBA debentures,
the 7.00% notes due 2025 (the “7.00% 2025 Notes”), the 7.75% notes due 2025 (the “7.75% 2025 Notes”), the 4.375%
notes due 2026 (the “2026 Notes”), the 4.35% notes due 2027 (the “4.35% 2027 Notes”), the 6.00% notes due 2027
(the “6.00% 2027 Notes”), the 6.25% notes due 2027 (the “6.25% 2027 Notes), the 8.00% notes due 2027 (the “8.00%
2027 Notes”), the 8.125% 2027 Notes (the “8.125% 2027 Notes”, and together with the 7.00% 2025 Notes, the 7.75% 2025
Notes, the 2026 Notes, the 4.35% 2027 Notes, the 6.00% 2027 Notes, the 6.25% 2027 Notes, and the 8.00% 2027 Notes, the “Notes”),
and the fees and expenses of issuing and servicing any other borrowings or leverage that we expect to incur during the next twelve months
are included in the table and expense example presentation below. On April 16, 2018, our board of directors, including a majority
of independent directors, approved the Company becoming subject to a minimum asset coverage ratio of 150%. The 150% asset coverage ratio
became effective on April 16, 2019. See “Business” in Part I, Item 1 and “Risk Factors—Risks Related to Our
Business and Structure— Effective April 16, 2019, our asset coverage requirement was reduced from 200% to 150%, which could increase
the risk of investing in the Company” in Part I, Item 1A of our most recent Annual Report on Form 10-K. |
(7) |
“Other
expenses” are based on estimated amounts for the quarter ended November 30, 2022 and include our overhead expenses, including
payments under our administration agreement based on our allocable portion of overhead and other expenses incurred by Saratoga Investment
Advisors in performing its obligations under the administration agreement. See “Administration Agreement.” |
(8) |
This figure
includes all of the fees and expenses of our wholly owned subsidiaries, SBIC LP, SBIC II LP, SBIC III LP, Saratoga Investment Funding
LLC, Saratoga Investment Funding II LLC, except SLF JV. As SLF JV is structured as private joint venture, with control and management
shared equally between us and TJHA, no management fees are paid by SLF JV. Furthermore, this table reflects all of the fees and expenses
borne by us with respect to our investment in Saratoga CLO. |
Example
The
following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical
investment in our common stock, assuming an asset coverage ratio of 173.2% (the Company’s actual asset coverage as of November
30, 2022) and total annual expenses of 15.90% of net assets attributable to common stock as set forth in the fees and expenses table
above, and (x) a 5.0% annual return resulting entirely from net realized capital gains (none of which is subject to the incentive
fee) and (y) a 5.0% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee
based on capital gains). Transaction expenses are included in the following example. This example and the expenses in the table above
should not be considered a representation of our future expenses, and actual expenses (including cost of debt, if any, and other expenses)
may be greater or less than those shown.
You would pay
the following expenses on a $1,000
investment in our common stock: | |
1 Year | | |
3 Years | | |
5 Years | | |
10 Years | |
assuming
a 5% annual return resulting entirely from net realized capital gains (none of which is subject to the capital gains incentive fee)(1) | |
$ | 163 | | |
$ | 514 | | |
$ | 901 | | |
$ | 2,050 | |
assuming
a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the incentive fee based on capital
gains)(2) | |
$ | 173 | | |
$ | 545 | | |
$ | 956 | | |
$ | 2,176 | |
(1) | Assumes
that we will not realize any capital gains computed net of all realized capital losses and
unrealized capital depreciation. |
(2) | Assumes
no unrealized capital depreciation and a 5% annual return resulting entirely from net realized
capital gains and therefore subject to the incentive fee based on capital gains. Because
our investment strategy involves investments that generate primarily current income, we believe
that a 5% annual return resulting entirely from net realized capital gains is unlikely. |
This
example and 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.
The
foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly
or indirectly. 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%. Both examples assume that the 5% annual return will be generated entirely through net realized capital gains
and, as a result, will trigger the payment of the capital gains portion of the incentive fee under the investment advisory agreement.
Any potential income portion of the incentive fee under the investment advisory agreement is not included in the example. If we achieve
sufficient returns on our investments, including through net realized capital gains, to trigger an incentive fee of a material amount,
our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all dividends and
distributions at NAV, under certain circumstances, reinvestment of dividends and other distributions under our dividend reinvestment
plan may occur at a price per share that differs from NAV.
RISK FACTORS
Investing
in our securities involves a high degree of risk. In addition to the other information contained in this prospectus and any accompanying
prospectus supplement, you should consider carefully the following information before making an investment in our securities. Before
deciding whether to invest in our securities, you should carefully consider the risks and uncertainties described in the section titled
“Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and discussed in the section
titled “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K and any subsequent filings we have made with the SEC that are incorporated by reference into this prospectus, together with
other information in this prospectus, the documents incorporated by reference in this prospectus or any prospectus supplement, and any
free writing prospectus that we may authorize for use in connection with this offering. The risks and uncertainties described in these
documents could materially adversely affect our business, financial condition and results of operations. The risks described in these
documents are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are
not material, may also become important factors that adversely affect our business. Past financial performance may not be a reliable
indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. If any of
these risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could
be seriously harmed. This could cause our NAV and the trading price of our securities to
decline, resulting in a loss of all or part of your investment. Please also read carefully the section titled “Special Note Regarding
Forward-Looking Statements” in this prospectus.
USE OF PROCEEDS
We intend to use substantially
all of the net proceeds from the sale of our securities to make investments in middle-market companies in accordance with our investment
objective and strategies described in this prospectus, and for general corporate purposes. We may also use a portion of the net proceeds
to reduce any of our outstanding borrowings.
We anticipate that substantially
all of the net proceeds from any offering of our securities will be used as described above within six to twelve months. Pending such
use, we will invest the net proceeds primarily in high quality, short-term debt securities consistent with our BDC election and our election
to be taxed as a RIC. See “Regulation—Business Development Company Regulations” In Part I, Item 1 of our most recent
Annual Report on Form 10-K. Our ability to achieve our investment objective may be limited to the extent that the net proceeds from an
offering, pending full investment, are held in interest-bearing deposits or other short-term instruments. The supplement to this prospectus
relating to an offering will more fully identify the use of proceeds from such an offering.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
prospectus, including the documents that we incorporate by reference herein, contains, and any applicable prospectus supplement or free
writing prospectus, including the documents we incorporate by reference therein, may contain forward-looking statements, including statements
regarding our future financial condition, business strategy, and plans and objectives of management for future operations. All statements
other than statements of historical facts, including statements regarding our future results of operations or financial condition, business
strategy and plans, and objectives of management for future operations, are forward-looking statements. Any such forward-looking statements
may involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to
be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about
us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,”
“expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,”
“seeks,” “estimates,” “would,” “should,” “targets,” “projects”
and variations of these words and similar expressions are intended to identify forward-looking statements. These forward-looking statements
involve risks and uncertainties and are based on assumptions that may be incorrect, and we cannot assure you that the projections included
in these forward-looking statements will come to pass. Accordingly, there are or will be important factors that could cause our actual
results to differ materially from those expressed or implied by the forward-looking statements. The forward-looking statements contained
or incorporated by reference in this prospectus and any applicable prospectus supplement or free writing prospectus involve risks and
uncertainties, including statements as to:
|
● |
our future operating results and the impact of the coronavirus
(“COVID-19”) pandemic thereon; |
|
● |
the introduction, withdrawal, success and timing of business
initiatives and strategies; |
|
● |
changes in political, economic or industry conditions,
the interest rate environment or financial and capital markets, which could result in changes in the value of our assets; |
|
● |
pandemics or other serious public health events, such
as the recent global outbreak of COVID-19; |
|
● |
the relative and absolute investment performance and operations
of our investment adviser; |
|
● |
the impact of increased competition; |
|
● |
our ability to turn potential investment opportunities
into transactions and thereafter into completed and successful investments; |
|
● |
the unfavorable resolution of any future legal proceedings; |
|
● |
our business
prospects and the operational and financial performance of our portfolio companies, including our and their ability to achieve our
respective objectives as a result of the current COVID-19 pandemic; |
|
● |
the impact of investments that we expect to make and future
acquisitions and divestitures; |
|
● |
our contractual arrangements and relationships with third parties; |
|
● |
the dependence of our future success on the general economy
and its impact on the industries in which we invest and the impact of the COVID-19 pandemic thereon; |
|
● |
the ability of our portfolio companies to achieve their objectives; |
|
● |
our expected financings and investments; |
|
● |
our regulatory
structure and tax status, including our ability to operate as a BDC, or to operate our small business investment company (“SBIC”)
subsidiaries, and to continue to qualify to be taxed as a RIC; |
|
● |
the adequacy of our cash resources and working capital; |
|
● |
the timing
of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon; |
|
● |
the impact of interest
rate volatility, including the decommissioning of LIBOR and rising interest environment, on our results, particularly because we
use leverage as part of our investment strategy; |
|
|
|
|
● |
the impact of supply chain
constraints and labor difficulties on our portfolio companies and the global economy; |
|
|
|
|
● |
the elevated level of inflation,
and its impact on our portfolio companies and on the industries in which we invest; |
|
● |
the impact of legislative
and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to us or our
investment adviser; |
|
● |
the impact of changes to tax legislation and, generally,
our tax position; |
|
● |
our ability to access capital and any future financings
by us; |
|
● |
the ability of our investment adviser to attract and
retain highly talented professionals; and |
|
● |
the ability of our investment
adviser to locate suitable investments for us and to monitor and effectively administer our investments and the impacts of the COVID-19
pandemic thereon. |
Although
we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove
to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions
include our ability to originate new debt investments, certain margins and levels of profitability and the availability of additional
capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this prospectus should
not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those
described or identified in “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K, in
Part II, Item 1A of our most recent Quarterly Report on Form 10-Q, and elsewhere in this prospectus, any applicable
prospectus supplement or free writing prospectus, including the documents we incorporate by reference. You should not place undue reliance
on these forward-looking statements, which are based on information available to us as of the applicable date of this prospectus, any
applicable prospectus supplement or free writing prospectus, including any documents incorporated by reference, and while we believe
such information forms, or will form, a reasonable basis for such statements, such information may be limited or incomplete, and our
statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available
relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely on these statements.
PRICE RANGE OF COMMON STOCK
AND DISTRIBUTIONS
Our
common stock is traded on the NYSE under the symbol “SAR”. The following table lists the high and low closing sale price
for our common stock, and the closing sale price as a percentage of NAV for each fiscal quarter during the last two most recently completed
fiscal years and any subsequent interim periods.
Period |
|
NAV (1) |
|
|
High
Closing Sales Price |
|
|
Low
Closing Sales Price |
|
|
Premium /
(Discount) of High Sales Price to NAV (2) |
|
|
Premium /
(Discount) of Low Sales Price to NAV (2) |
|
Year ending February 28, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
28.69 |
|
|
$ |
28.31 |
|
|
$ |
24.98 |
|
|
|
(1.3 |
)% |
|
|
(12.9 |
)% |
Second Quarter |
|
|
28.27 |
|
|
|
26.95 |
|
|
|
22.70 |
|
|
|
(4.7 |
) |
|
|
(19.7 |
) |
Third Quarter |
|
|
28.25 |
|
|
|
27.16 |
|
|
|
20.36 |
|
|
|
(3.9 |
) |
|
|
(27.9 |
) |
Fourth Quarter (through February 17,
2023) |
|
|
* |
|
|
|
27.77 |
|
|
|
25.02 |
|
|
|
* |
|
|
|
* |
|
Year ended February 28, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
28.70 |
|
|
$ |
26.54 |
|
|
$ |
22.66 |
|
|
|
(7.5 |
)% |
|
|
(21.1 |
)% |
Second Quarter |
|
|
28.97 |
|
|
|
28.90 |
|
|
|
25.70 |
|
|
|
(0.2 |
)% |
|
|
(11.3 |
) |
Third Quarter |
|
|
29.17 |
|
|
|
29.80 |
|
|
|
27.19 |
|
|
|
2.2 |
|
|
|
(6.8 |
) |
Fourth Quarter |
|
|
29.32 |
|
|
|
29.51 |
|
|
|
25.20 |
|
|
|
0.6 |
|
|
|
(14.1 |
) |
Year ended February 28, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
25.11 |
|
|
$ |
24.97 |
|
|
$ |
8.40 |
|
|
|
(0.6 |
)% |
|
|
(66.5 |
)% |
Second Quarter |
|
|
26.68 |
|
|
|
18.71 |
|
|
|
15.08 |
|
|
|
(29.9 |
) |
|
|
(43.5 |
) |
Third Quarter |
|
|
26.84 |
|
|
|
22.67 |
|
|
|
16.21 |
|
|
|
(15.5 |
) |
|
|
(39.6 |
) |
Fourth Quarter |
|
|
27.25 |
|
|
|
24.20 |
|
|
|
20.43 |
|
|
|
(11.2 |
) |
|
|
(25.0 |
) |
| * | NAV has not yet
been determined. |
(1) |
NAV per share is determined
as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales
prices. The NAVs shown are based on outstanding shares at the end of each period. |
(2) |
Calculated
as the respective high or low closing sales price divided by the quarter end NAV
and subtracting 1. |
On February 17, 2023, the
last reported sales price of our common stock was $27.77 per share. As of February 17, 2023, we had approximately 10 stockholders of
record.
Shares of BDCs may trade
at a market price that is less than the NAV of those shares. The possibilities that our shares of common stock will trade at a discount
from NAV or at premiums that are unsustainable over the long term are separate and distinct from the risk that our NAV will decrease.
It is not possible to predict whether any common stock offered pursuant to this prospectus supplement will trade at, above, or below
NAV. As of February 17, 2023, our shares of common stock traded at a discount equal to approximately (1.7)% of the net assets attributable
to those shares based upon our NAV per share of $ 28.25 as of November 30, 2022 . It is not possible to predict whether the shares offered
hereby will trade at, above, or below NAV.
We
intend to continue to pay quarterly distributions to our stockholders. Our quarterly distributions, if any, are determined by our board
of directors. We have elected to be taxed as a RIC under Subchapter M of the Code. As long as we qualify for tax treatment as a RIC,
we will not be subject to U.S. federal income tax on our investment company taxable income or net capital gain, to the extent that such
income or gain is distributed, or deemed to be distributed, to stockholders on a timely basis.
During
the year ended February 28, 2022, the Company paid federal tax of $1.3 million on the undistributed net capital gains it elected to retain
for the tax year ended February 28, 2021. There were no deemed distributions during the fiscal years ended February 28, 2021 and February
29, 2020.
We
may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of
these distributions from time to time. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax
consequences, including possible loss of our tax treatment as a RIC. We cannot assure stockholders that they will receive any distributions
at a particular level.
We
have adopted a dividend reinvestment plan that provides for reinvestment of our distributions on behalf of our stockholders, unless a
stockholder elects to receive cash. As a result, if our board of directors authorizes, and we declare, a cash distribution, then our
stockholders who have not “opted out” of our dividend reinvestment plan will have their cash distribution automatically reinvested
in additional shares of our common stock, rather than receiving the cash distribution. Under the terms of our dividend reinvestment plan,
dividends will primarily be paid in newly issued shares of common stock. However, we reserve the right to purchase shares in the open
market in connection with the implementation of the plan. This feature of the plan means that, under certain circumstances, we may issue
shares of our common stock at a price below NAV per share, which could cause our stockholders to experience dilution.
To
maintain our qualification as a RIC, we must, among other things, distribute at least 90.0% of our net ordinary income and our net short-term
capital gains in excess of our net long-term capital losses, if any. In order to avoid certain excise taxes imposed on RICs, we currently
intend to distribute during each calendar year an amount at least equal to the sum of (1) 98.0% of our net ordinary income for the
calendar year, (2) 98.2% of our capital gain net income for the calendar year and (3) any net ordinary income and capital gain
net income that we recognized for preceding years, but were not distributed during such years, and on which we paid no U.S. federal income
tax. We may retain for investment some or all of our net capital gain (i.e., net long-term capital gains in excess of net short-term
capital losses) and treat such amounts as deemed distributions to our stockholders. If we do this, you will be treated as if you received
an actual distribution of the capital gain we retain and then reinvested the net after-tax proceeds in our common stock. You
also may 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 gain deemed distributed to you. Please refer to “Certain U.S. Federal Income Tax Considerations” for further
information regarding the consequences of our retention of net capital gain. 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 1940 Act or if distributions are limited by the
terms of any of our borrowings. See “Regulation” and “Certain U.S. Federal Income Tax Considerations.”
We
may make distributions that are payable in cash or shares of our common stock at the election of each stockholder. In accordance with
Treasury regulations and published guidance issued by the Internal Revenue Service, a publicly offered RIC may treat distributions of
its own stock as counting towards its RIC distribution requirements if each stockholder may elect to receive his, her, or its entire
distribution in either cash or stock of the RIC. This published guidance indicates that the rule will apply where the aggregate amount
of cash to be distributed to all stockholders is not less than 20% of the aggregate declared distribution. Under the published guidance,
if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the
stockholders electing to receive cash (with the balance of the distribution paid in stock). If we decide to make any distributions that
are payable in part in shares of our stock, U.S. stockholders receiving such distributions generally will be required to include the
full amount of the distribution (whether received in cash, shares of our stock, or a combination thereof) 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 our current and accumulated
earnings and profits. As a result, a U.S. stockholder may be required to pay tax with respect to such distributions in excess of any
cash received. If a U.S. stockholder sells the stock it receives 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. Furthermore,
with respect to non-U.S. stockholders, we may be required to withhold U.S. federal tax with respect to such distributions,
including in respect of all or a portion of such distributions that are 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 such distributions, it may put downward pressure on
the trading price of shares of our stock.
Distributions in excess
of our current and accumulated profits and earnings would be treated first as a return of capital to the extent of the stockholder’s
adjusted tax basis, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our
distributions will be made annually as of the end of our fiscal year based upon our taxable income for the full year and distributions
paid for the full year. Therefore, a determination made on a quarterly basis may not be representative of the actual tax attributes of
our distributions for a full year. Each year, a statement on Form 1099-DIV identifying the source of the distribution will
be sent to our U.S. stockholders of record. Our board of directors presently intends to declare and pay quarterly dividends. Our ability
to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and
loan covenants.
FINANCIAL HIGHLIGHTS
The
information in Part II, Item 5 of our most recent Annual Report on Form 10-K and the information in Note 14 to our unaudited
consolidated financial statements appearing in our most recent Quarterly Report on Form 10-Q is incorporated by reference
herein.
DIVIDEND REINVESTMENT PLAN
We have adopted a dividend
reinvestment plan (the “Plan”) that provides that, unless you elect to receive your dividends or other distributions in cash,
they will be automatically reinvested by the Plan Administrator, Broadridge Financial Solutions, Inc., in additional shares of our common
stock. If you elect to receive your dividends or other distributions in cash, you will receive them in cash paid by check mailed directly
to you by the Plan Administrator. The reinvestment of our distributions does not relieve stockholders of any tax that may be payable
on such distributions. For U.S. federal income tax purposes, stockholders will be treated as receiving the amount of the distributions
made by us, which amount generally will be either equal to the amount of the cash distribution the stockholder would have received if
the stockholder had elected to receive cash or, for shares issued by us, the fair market value of the shares issued to the stockholder.
No action is required on
the part of a registered stockholder to have their cash dividend reinvested in shares of our common stock. When the share price of our
common stock is trading above NAV, we intend to primarily use newly issued shares to implement the plan. However, we reserve the right
to purchase shares in the open market in connection with our implementation of the plan even if the share price of our common stock is
trading below NAV. Unless you or your brokerage firm decides to opt out of the Plan, the number of shares of common stock you will receive
will be determined as follows:
(1)
If we use newly issued shares under the Plan, we will issue the new shares at a price equal to 95% of the average of the market prices
of our common stock at the close of trading on the ten trading days immediately preceding and ending on the date fixed by our board of
directors for the payment of the dividend.
(2)
If we use shares purchased in the open market under the Plan, the Plan Administrator will receive the dividend or distribution in cash
and will purchase common stock in the open market, on the NYSE or elsewhere, for the participants’ accounts. Shares purchased in
the open market will be allocated to a participant based on the average purchase price, excluding any brokerage charges or other charges,
of all shares purchased with respect to the dividend.
You may withdraw from the
Plan at any time by giving written notice to the Plan Administrator, or by telephone in accordance with such reasonable requirements
as we and the Plan Administrator may agree upon. If you withdraw or the Plan is terminated, you will receive a certificate for each whole
share in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you wish, the
Plan Administrator will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Administrator maintains
all common stockholders’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information
you may need for tax records. Common stock in your account will be held by the Plan Administrator in non-certificated form.
The Plan Administrator will forward to each participant any proxy solicitation material and will vote any shares so held only in accordance
with proxies returned to us. Any proxy you receive will include all common stock you have received under the Plan.
There is no brokerage charge
for reinvestment of your dividends or distributions in common stock.
Automatically reinvesting
dividends and distributions does not mean that you do not have to pay U.S. federal income taxes due upon the reinvestment of such dividends
and distributions. See “Certain U.S. Federal Income Tax Considerations”.
If you hold your common
stock with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment
may be effected on different terms than those described above. Consult your financial advisory for more information.
Neither us nor the Plan
Administrator nor its nominee or nominees shall be liable for any act done in good faith, or for any good faith omission to act, including
without limitation, any claims of liability arising out of failure to terminate a participant’s account upon the participant’s
death prior to receipt of notice in writing of such death, and with respect to the price at which shares are purchased or sold for the
participant’s account.
The Plan Administrator’s
fees under the Plan will be borne by us. There is no direct service charge to participants in the Plan; however, we reserve the right
to amend or terminate the Plan, including amending the Plan to include a service charge payable by the participants, if in the judgment
of the board of directors the change is warranted. Any amendment to the Plan, except amendments necessary or appropriate to comply with
applicable law or the rules and policies of the SEC or any other regulatory authority, require us to provide at least 30 days written
notice to each participant. Additional information about the Plan may be obtained from Broadridge Financial Solutions, Inc., 1717 Arch
St., Suite 1300, Philadelphia, PA 19103.
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 and Part I, Item 2 of our most recent Quarterly Report on Form 10-Q is incorporated
herein by reference.
SENIOR SECURITIES
Information
about our senior securities as of the fiscal years ended February 28, 2022 to February 28, 2007 is located in Note 8 to our audited
consolidated financial statements in our most recent Annual Report on Form 10-K, and is incorporated by reference into the registration
statement of which this prospectus is a part. Information about our senior securities as of November 30, 2022 is located in Note 8 to
our unaudited consolidated financial statements in our most recent Quarterly Report on Form 10-Q, and is incorporated by reference
into the registration statement of which this prospectus is a part. The report of our independent registered public accounting firm on
the audited consolidated financial statements as of February 28, 2022 and February 28, 2021 and for each of the three years ended February
28, 2022, February 28, 2021 and February 29, 2020 is included in our most recent Annual Report on Form 10-K, filed on May 4,
2022, and is incorporated by reference into the registration statement of which this prospectus is a part.
THE COMPANY
The information in the sections
entitled “Business” in Part I, Item 1 and “Properties” in Part I, Item 2 and “Legal
Proceedings” in Part I, Item 3 in our most recent Annual Report on Form 10-K is incorporated herein by reference.
PORTFOLIO COMPANIES
The following table sets
forth certain information as of November 30, 2022 for each portfolio company in which we had a debt or equity investment. Other than
these investments, our only relationships with our portfolio companies are the managerial assistance we may separately provide to our
portfolio companies, which services would be ancillary to our investments, and the board observer or participation rights we may receive.
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
Non-control/Non-affiliate investments - 231.7% (b) | |
| |
| |
| |
| | | |
| | | |
| | | |
| | | |
|
Altvia MidCo, LLC. | |
Alternative Investment Management Software | |
First Lien Term Loan (3M USD TERM SOFR+8.50%), 12.91% Cash, 7/18/2027 | |
7/18/2022 | |
$ | 8,000,000 | | |
| 7,924,459 | | |
$ | 7,920,000 | | |
| 2.4 | % | |
|
Altvia MidCo, LLC. (h) | |
Alternative Investment Management Software | |
Series A-1 Preferred Shares | |
7/18/2022 | |
$ | 2,000,000 | | |
| 2,000,000 | | |
| 2,000,000 | | |
| 0.6 | % | |
590 Burbank St. Suite 220 Broomfield, CO 80020 |
| |
| |
Total Alternative Investment Management Software | |
| |
| | | |
| 9,924,459 | | |
| 9,920,000 | | |
| 3.0 | % | |
|
Schoox, Inc. (h), (i) | |
Corporate Education Software | |
Series 1 Membership Interest | |
12/8/2020 | |
| 1,050 | | |
| 475,698 | | |
| 3,723,862 | | |
| 1.1 | % | |
701 Brazos St #539, Austin, TX 78701 |
| |
| |
Total Corporate Education Software | |
| |
| | | |
| 475,698 | | |
| 3,723,862 | | |
| 1.1 | % | |
|
GreyHeller LLC (h) | |
Cyber Security | |
Common Stock | |
11/10/2021 | |
| 7,857,689 | | |
| 1,906,275 | | |
| 2,484,154 | | |
| 0.7 | % | |
8111 Lyndon B Johnson Fwy #147, Dallas, TX 75251 |
| |
| |
Total Cyber Security | |
| |
| | | |
| 1,906,275 | | |
| 2,484,154 | | |
| 0.7 | % | |
|
New England Dental Partners | |
Dental Practice Management | |
First Lien Term Loan (3M USD LIBOR+8.00%), 12.78% Cash, 11/25/2025 | |
11/25/2020 | |
$ | 6,555,000 | | |
| 6,511,617 | | |
| 6,547,134 | | |
| 1.9 | % | |
|
New England Dental Partners | |
Dental Practice Management | |
Delayed Draw Term Loan (3M USD LIBOR+8.00%), 12.78% Cash, 11/25/2025 | |
11/25/2020 | |
$ | 4,650,000 | | |
| 4,625,008 | | |
| 4,644,420 | | |
| 1.4 | % | |
1 Technology Park Drive, Bourne, MA 02536 |
| |
| |
Total Dental Practice Management | |
| |
| | | |
| 11,136,625 | | |
| 11,191,554 | | |
| 3.3 | % | |
|
Exigo, LLC (d) | |
Direct Selling Software | |
First Lien Term Loan (1M USD LIBOR+5.75%), 9.89% Cash, 3/16/2027 | |
3/16/2022 | |
$ | 24,875,000 | | |
| 24,682,800 | | |
| 24,484,463 | | |
| 7.3 | % | |
|
Exigo, LLC (j) | |
Direct Selling Software | |
Delayed Draw Term Loan (1M USD LIBOR+5.75%), 9.89% Cash, 3/16/2027 | |
3/16/2022 | |
$ | - | | |
| - | | |
| (65,417 | ) | |
| 0.0 | % | |
|
Exigo, LLC (j) | |
Direct Selling Software | |
Revolving Credit Facility (1M USD LIBOR+5.75%), 9.89% Cash, 3/16/2027 | |
3/16/2022 | |
$ | 208,333 | | |
| 208,333 | | |
| 191,979 | | |
| 0.1 | % | |
|
Exigo, LLC (h), (i) | |
Direct Selling Software | |
Common Units | |
3/16/2022 | |
| 1,041,667 | | |
| 1,041,667 | | |
| 1,101,027 | | |
| 0.3 | % | |
1600 Viceroy Drive, Suite 125 , Dallas, TX 75235 |
| |
| |
Total Direct Selling Software | |
| |
| | | |
| 25,932,800 | | |
| 25,712,052 | | |
| 7.7 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
C2 Educational Systems (d) | |
Education Services | |
First Lien Term Loan (3M USD LIBOR+8.50%), 13.28% Cash, 5/31/2023 | |
5/31/2017 | |
$ | 18,500,000 | | |
| 18,492,604 | | |
| 18,524,050 | | |
| 5.5 | % | |
|
C2 Education Systems, Inc. (h) | |
Education Services | |
Series A-1 Preferred Stock | |
5/18/2021 | |
| 3,127 | | |
| 499,904 | | |
| 603,868 | | |
| 0.2 | % | |
6465 East Johns Crossing, Suite 100, Duluth, GA 30097 |
Zollege PBC | |
Education Services | |
First Lien Term Loan (3M USD LIBOR+5.50%), 10.28% Cash, 5/11/2026 | |
5/11/2021 | |
$ | 16,000,000 | | |
| 15,894,425 | | |
| 14,827,200 | | |
| 4.4 | % | |
|
Zollege PBC (j) | |
Education Services | |
Delayed Draw Term Loan (3M USD LIBOR+5.50%), 10.28% Cash, 5/11/2026 | |
5/11/2021 | |
$ | 500,000 | | |
| 496,563 | | |
| 390,050 | | |
| 0.1 | % | |
|
Zollege PBC (h) | |
Education Services | |
Class A Units | |
5/11/2021 | |
| 250,000 | | |
| 250,000 | | |
| 159,497 | | |
| 0.0 | % | |
1335 E. Whitestone Blvd., Cedar Park, TX 78613 |
| |
| |
Total Education Services | |
| |
| | | |
| 35,633,496 | | |
| 34,504,665 | | |
| 10.2 | % | |
|
Destiny Solutions Inc. (h), (i) | |
Education Software | |
Limited Partner Interests | |
5/16/2018 | |
| 3,068 | | |
| 3,969,291 | | |
| 8,742,860 | | |
| 2.6 | % | |
40 Holly Street, Suite 800, Toronto, ON, Canada |
GoReact | |
Education Software | |
First Lien Term Loan (3M USD LIBOR+7.50%), 12.28% Cash, 1/17/2025 | |
1/17/2020 | |
$ | 8,000,000 | | |
| 7,938,400 | | |
| 7,795,200 | | |
| 2.3 | % | |
|
GoReact (j) | |
Education Software | |
Delayed Draw Term Loan (3M USD LIBOR+7.50%), 12.28% Cash, 1/17/2025 | |
1/18/2022 | |
$ | 1,000,000 | | |
| 1,000,000 | | |
| 961,600 | | |
| 0.3 | % | |
256 Center St, Orem, UT 84057 |
Identity Automation Systems (h) | |
Education Software | |
Common Stock Class A-2 Units | |
8/25/2014 | |
| 232,616 | | |
| 232,616 | | |
| 146,008 | | |
| 0.0 | % | |
|
Identity Automation Systems (h) | |
Education Software | |
Common Stock Class A-1 Units | |
3/6/2020 | |
| 43,715 | | |
| 171,571 | | |
| 213,157 | | |
| 0.1 | % | |
7102 N Sam Houston Pkwy W, Ste 300, Houston, TX 77064 |
Ready Education | |
Education Software | |
First Lien Term Loan (3M USD TERM SOFR+6.00%), 10.41% Cash, 8/5/2027 | |
8/5/2022 | |
$ | 27,000,000 | | |
| 26,737,018 | | |
| 26,730,000 | | |
| 8.0 | % | |
100 Summit Drive Burlington, MA 01803 |
| |
| |
Total Education Software | |
| |
| | | |
| 40,048,896 | | |
| 44,588,825 | | |
| 13.3 | % | |
|
TG Pressure Washing Holdings, LLC (h) | |
Facilities Maintenance | |
Preferred Equity | |
8/12/2019 | |
| 488,148 | | |
| 488,148 | | |
| 405,613 | | |
| 0.1 | % | |
500 West 67th Street, Loveland, CO 80538 |
| |
| |
Total Facilities Maintenance | |
| |
| | | |
| 488,148 | | |
| 405,613 | | |
| 0.1 | % | |
|
Davisware, LLC | |
Field Service Management | |
First Lien Term Loan (3M USD LIBOR+7.00%), 11.78% Cash, 7/31/2024 | |
9/6/2019 | |
$ | 6,000,000 | | |
| 5,967,251 | | |
| 5,934,600 | | |
| 1.8 | % | |
|
Davisware, LLC (j) | |
Field Service Management | |
Delayed Draw Term Loan (3M USD LIBOR+7.00%), 11.78% Cash, 7/31/2024 | |
9/6/2019 | |
$ | 1,977,790 | | |
| 1,966,562 | | |
| 1,956,232 | | |
| 0.6 | % | |
514 Market Loop Rd., West Dundee, IL 60118 |
| |
| |
Total Field Service Management | |
| |
| | | |
| 7,933,813 | | |
| 7,890,832 | | |
| 2.4 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
B. Riley Financial, Inc. (a), (m) | |
Financial Services | |
Senior Unsecured Loan 6.75% Cash, 5/31/2024 | |
10/18/2022 | |
$ | 165,301 | | |
| 165,301 | | |
| 164,508 | | |
| 0.0 | % | |
1211 N Miller Street, Anaheim, CA, 92806 |
GDS Software Holdings, LLC | |
Financial Services | |
First Lien Term Loan (3M USD LIBOR+7.00%), 11.78% Cash, 12/30/2026 | |
12/30/2021 | |
$ | 22,713,926 | | |
| 22,592,997 | | |
| 22,277,819 | | |
| 6.6 | % | |
|
GDS Software Holdings, LLC | |
Financial Services | |
Delayed Draw Term Loan (3M USD LIBOR+7.00%), 11.78% Cash, 12/30/2026 | |
12/30/2021 | |
$ | 3,286,074 | | |
| 3,256,113 | | |
| 3,222,981 | | |
| 1.0 | % | |
|
GDS Software Holdings, LLC (h) | |
Financial Services | |
Common Stock Class A Units | |
8/23/2018 | |
| 250,000 | | |
| 250,000 | | |
| 510,438 | | |
| 0.2 | % | |
5307 East Mockingbird Lane Suite 1001, Dallas, TX 75206 |
| |
| |
Total Financial Services | |
| |
| | | |
| 26,264,411 | | |
| 26,175,746 | | |
| 7.8 | % | |
|
Ascend Software, LLC | |
Financial Services Software | |
First Lien Term Loan (3M USD LIBOR+7.50%), 12.28% Cash, 12/15/2026 | |
12/15/2021 | |
$ | 6,000,000 | | |
| 5,949,123 | | |
| 5,889,600 | | |
| 1.8 | % | |
|
Ascend Software, LLC (j) | |
Financial Services Software | |
Delayed Draw Term Loan (3M USD LIBOR+7.50%), 12.28% Cash, 12/15/2026 | |
12/15/2021 | |
$ | 2,300,000 | | |
| 2,278,586 | | |
| 2,180,400 | | |
| 0.6 | % | |
160 NE 6th Ave, Suite 400, Portland, OR 97323 |
| |
| |
Total Financial Services Software | |
| |
| | | |
| 8,227,709 | | |
| 8,070,000 | | |
| 2.4 | % | |
|
Axiom Parent Holdings, LLC (h) | |
Healthcare Services | |
Common Stock Class A Units | |
6/19/2018 | |
| 400,000 | | |
| 400,000 | | |
| 1,251,380 | | |
| 0.4 | % | |
8401 New Trails Drive Suite 100, Woodlands, TX, 77381 |
ComForCare Health Care (d) | |
Healthcare Services | |
First Lien Term Loan (3M USD LIBOR+6.25%), 11.03% Cash, 1/31/2025 | |
1/31/2017 | |
$ | 25,000,000 | | |
| 24,923,185 | | |
| 25,000,000 | | |
| 7.4 | % | |
2520 S Telegraph Rd #201, Bloomfield Hills, MI 48302 |
| |
| |
Total Healthcare Services | |
| |
| | | |
| 25,323,185 | | |
| 26,251,380 | | |
| 7.8 | % | |
|
HemaTerra Holding Company, LLC (d) | |
Healthcare Software | |
First Lien Term Loan (3M USD TERM SOFR+8.25%), 12.66% Cash, 1/31/2026 | |
4/15/2019 | |
$ | 55,623,000 | | |
| 55,201,050 | | |
| 55,578,502 | | |
| 16.6 | % | |
|
HemaTerra Holding Company, LLC | |
Healthcare Software | |
Delayed Draw Term Loan (3M USD TERM SOFR+8.25%), 12.66% Cash, 1/31/2026 | |
4/15/2019 | |
$ | 13,930,000 | | |
| 13,856,418 | | |
| 13,918,856 | | |
| 4.1 | % | |
180 Ostend Street, Suite 267A, Baltimore, MD 21230 |
TRC HemaTerra, LLC (h) | |
Healthcare Software | |
Class D Membership Interests | |
4/15/2019 | |
| 2,487 | | |
| 2,816,693 | | |
| 4,350,225 | | |
| 1.3 | % | |
180 Ostend Street, Suite 267A, Baltimore, MD 21230 |
Procurement Partners, LLC | |
Healthcare Software | |
First Lien Term Loan (3M USD LIBOR+5.50%), 10.28% Cash, 11/12/2025 | |
11/12/2020 | |
$ | 35,125,000 | | |
| 34,878,261 | | |
| 34,355,763 | | |
| 10.2 | % | |
|
Procurement Partners, LLC | |
Healthcare Software | |
Delayed Draw Term Loan (3M USD LIBOR+5.50%), 10.28% Cash, 11/12/2025 | |
11/12/2020 | |
$ | 4,300,000 | | |
| 4,262,142 | | |
| 4,205,830 | | |
| 1.3 | % | |
17035 W. Wisconsin Ave, Suite 100, Brookfield, WI 53005 |
Procurement Partners Holdings LLC (h) | |
Healthcare Software | |
Class A Units | |
11/12/2020 | |
| 550,986 | | |
| 550,986 | | |
| 751,911 | | |
| 0.2 | % | |
17035 W. Wisconsin Ave, Suite 100, Brookfield, WI 53005 |
| |
| |
Total Healthcare Software | |
| |
| | | |
| 111,565,550 | | |
| 113,161,087 | | |
| 33.7 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
Roscoe Medical, Inc. (h) | |
Healthcare Supply | |
Common Stock | |
3/26/2014 | |
| 5,081 | | |
| 508,077 | | |
| - | | |
| 0.0 | % | |
6753 Engle Road, Middleburg Heights, OH 44130 |
| |
| |
Total Healthcare Supply | |
| |
| | | |
| 508,077 | | |
| - | | |
| 0.0 | % | |
|
Book4Time, Inc. (a), (d) | |
Hospitality/Hotel | |
First Lien Term Loan (3M USD LIBOR+7.50%), 12.28% Cash, 12/22/2025 | |
12/22/2020 | |
$ | 3,136,517 | | |
| 3,115,448 | | |
| 3,136,517 | | |
| 0.9 | % | |
|
Book4Time, Inc. (a) | |
Hospitality/Hotel | |
Delayed Draw Term Loan (3M USD LIBOR+7.50%), 12.28% Cash, 12/22/2025 | |
12/22/2020 | |
$ | 2,000,000 | | |
| 1,982,829 | | |
| 2,000,000 | | |
| 0.6 | % | |
|
Book4Time, Inc. (a), (h), (i) | |
Hospitality/Hotel | |
Class A Preferred Shares | |
12/22/2020 | |
| 200,000 | | |
| 156,826 | | |
| 256,275 | | |
| 0.1 | % | |
306 Town Centre Blvd, Suite 400, Markham (Toronto), ON, Canada |
Knowland Group, LLC (h), (k) | |
Hospitality/Hotel | |
Second Lien Term Loan (3M USD LIBOR+8.00%), 12.78% Cash/1.00% PIK, 5/9/2024 | |
11/9/2018 | |
$ | 15,878,989 | | |
| 15,878,989 | | |
| 9,741,760 | | |
| 2.9 | % | |
1735 N Lynn St, Suite 600, Arlington, VA 22209 |
Sceptre Hospitality Resources, LLC | |
Hospitality/Hotel | |
First Lien Term Loan (3M USD TERM SOFR+7.25%), 11.66% Cash, 9/2/2026 | |
4/27/2020 | |
$ | 23,000,000 | | |
| 22,789,543 | | |
| 22,783,800 | | |
| 6.8 | % | |
|
Sceptre Hospitality Resources, LLC (j) | |
Hospitality/Hotel | |
Delayed Draw Term Loan (3M USD TERM SOFR+7.25%), 11.66% Cash, 9/2/2026 | |
9/2/2021 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
1900 W Loop S #700, Houston, TX 77027 |
| |
| |
Total Hospitality/Hotel | |
| |
| | | |
| 43,923,635 | | |
| 37,918,352 | | |
| 11.3 | % | |
|
Granite Comfort, LP (d) | |
HVAC Services and Sales | |
First Lien Term Loan (3M USD TERM SOFR+8.02%), 12.43% Cash, 11/16/2025 | |
11/16/2020 | |
$ | 43,000,000 | | |
| 42,666,886 | | |
| 42,570,000 | | |
| 12.7 | % | |
|
Granite Comfort, LP (j) | |
HVAC Services and Sales | |
Delayed Draw Term Loan (3M USD TERM SOFR+8.02%), 12.43% Cash, 11/16/2025 | |
11/16/2020 | |
$ | 6,500,000 | | |
| 6,439,613 | | |
| 6,435,000 | | |
| 1.9 | % | |
717 Fifth Ave, Fl. 12A, New York, NY 10022 |
| |
| |
Total HVAC Services and Sales | |
| |
| | | |
| 49,106,499 | | |
| 49,005,000 | | |
| 14.6 | % | |
|
Vector Controls Holding Co., LLC (d) | |
Industrial Products | |
First Lien Term Loan (3M USD LIBOR+6.50%), 11.28% Cash, 3/6/2025 | |
3/6/2013 | |
$ | 3,477,686 | | |
| 3,477,686 | | |
| 3,477,687 | | |
| 1.0 | % | |
|
Vector Controls Holding Co., LLC (h) | |
Industrial Products | |
Warrants to Purchase Limited Liability Company Interests, Expires 11/30/2027 | |
5/31/2015 | |
| 343 | | |
| - | | |
| 5,612,524 | | |
| 1.7 | % | |
2200 10th St. #300, Plano, TX 75074 |
| |
| |
Total Industrial Products | |
| |
| | | |
| 3,477,686 | | |
| 9,090,211 | | |
| 2.7 | % | |
|
AgencyBloc, LLC | |
Insurance Software | |
First Lien Term Loan (1M USD BSBY+8.00%), 11.97% Cash, 10/1/2026 | |
10/1/2021 | |
$ | 13,500,000 | | |
| 13,396,690 | | |
| 13,444,650 | | |
| 4.0 | % | |
501 Washington Street, Cedar Falls, IA 50613 |
Panther ParentCo LLC (h) | |
Insurance Software | |
Class A Units | |
10/1/2021 | |
| 2,500,000 | | |
| 2,500,000 | | |
| 3,155,741 | | |
| 0.9 | % | |
501 Washington Street, Cedar Falls, IA 50613 |
| |
| |
Total Insurance Software | |
| |
| | | |
| 15,896,690 | | |
| 16,600,391 | | |
| 4.9 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
LogicMonitor, Inc. (d) | |
IT Services | |
First Lien Term Loan (3M USD LIBOR+5.00%), 9.78% Cash, 5/17/2023 | |
3/20/2020 | |
$ | 43,000,000 | | |
| 42,913,067 | | |
| 43,000,000 | | |
| 12.8 | % | |
820 State Street, Floor 1, Santa Barbara, CA 93101 |
| |
| |
Total IT Services | |
| |
| | | |
| 42,913,067 | | |
| 43,000,000 | | |
| 12.8 | % | |
|
ActiveProspect, Inc. (d) | |
Lead Management Software | |
First Lien Term Loan (3M USD LIBOR+6.00%), 10.78% Cash, 8/8/2027 | |
8/8/2022 | |
$ | 12,000,000 | | |
| 11,899,180 | | |
| 11,895,600 | | |
| 3.5 | % | |
|
ActiveProspect, Inc. (j) | |
Lead Management Software | |
Delayed Draw Term Loan (3M USD LIBOR+6.00%), 10.78% Cash, 8/8/2027 | |
8/8/2022 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
4009 Marathon Blvd, Austin, TX 78756 |
| |
| |
Total Lead Management Software | |
| |
| | | |
| 11,899,180 | | |
| 11,895,600 | | |
| 3.5 | % | |
|
Centerbase, LLC | |
Legal Software | |
First Lien Term Loan (1M USD TERM SOFR+7.75%), 11.88% Cash, 1/18/2027 | |
1/18/2022 | |
$ | 21,300,960 | | |
| 21,097,037 | | |
| 20,691,753 | | |
| 6.2 | % | |
8350 N. Central Expy #1950, Dallas, TX 75206 |
| |
| |
Total Legal Software | |
| |
| | | |
| 21,097,037 | | |
| 20,691,753 | | |
| 6.2 | % | |
|
Madison Logic, Inc. (d) | |
Marketing Orchestration Software | |
First Lien Term Loan (1M USD LIBOR+5.50%), 9.64% Cash, 11/22/2026 | |
12/10/2021 | |
$ | 28,698,795 | | |
| 28,586,044 | | |
| 28,675,836 | | |
| 8.5 | % | |
|
Madison Logic, Inc. (j) | |
Marketing Orchestration Software | |
Revolving Credit Facility (1M USD LIBOR+5.50%), 9.64% Cash, 11/22/2026 | |
12/10/2021 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
126 East 56th Street, 32nd Floor, New York, NY 10022 |
| |
| |
Total Marketing Orchestration Software | |
| |
| | | |
| 28,586,044 | | |
| 28,675,836 | | |
| 8.5 | % | |
|
ARC Health OpCo LLC (d) | |
Mental Healthcare Services | |
First Lien Term Loan (3M USD TERM SOFR+8.49%), 12.90% Cash, 8/5/2027 | |
8/5/2022 | |
$ | 6,500,000 | | |
| 6,422,385 | | |
| 6,418,750 | | |
| 1.9 | % | |
|
ARC Health OpCo LLC (d), (j) | |
Mental Healthcare Services | |
Delayed Draw Term Loan (3M USD TERM SOFR+8.49%), 12.90% Cash, 8/5/2027 | |
8/5/2022 | |
$ | 7,726,978 | | |
| 7,632,170 | | |
| 7,630,391 | | |
| 2.3 | % | |
|
ARC Health OpCo LLC (h) | |
Mental Healthcare Services | |
Class A Preferred Shares | |
8/5/2022 | |
| 2,587,236 | | |
| 2,794,214 | | |
| 2,794,215 | | |
| 0.8 | % | |
230 West Monroe Street, Suite 1920, Chicago, IL 60606 |
| |
| |
Total Mental Healthcare Services | |
| |
| | | |
| 16,848,769 | | |
| 16,843,356 | | |
| 5.0 | % | |
|
Chronus LLC | |
Mentoring Software | |
First Lien Term Loan (3M USD LIBOR+5.25%), 10.03% Cash, 8/26/2026 | |
8/26/2021 | |
$ | 15,000,000 | | |
| 14,880,506 | | |
| 14,874,000 | | |
| 4.4 | % | |
|
Chronus LLC | |
Mentoring Software | |
First Lien Term Loan (3M USD LIBOR+6.00%), 10.78% Cash, 8/26/2026 | |
8/26/2021 | |
$ | 3,000,000 | | |
| 2,971,230 | | |
| 2,974,800 | | |
| 0.9 | % | |
|
Chronus LLC (h) | |
Mentoring Software | |
Series A Preferred Stock | |
8/26/2021 | |
| 3,000 | | |
| 3,000,000 | | |
| 3,564,437 | | |
| 1.1 | % | |
15395 SE 30th Place, Suite 140, Bellevue, WA 98007 |
| |
| |
Total Mentoring Software | |
| |
| | | |
| 20,851,736 | | |
| 21,413,237 | | |
| 6.4 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
Omatic Software, LLC | |
Non-profit Services | |
First Lien Term Loan (3M USD TERM SOFR+8.00%), 12.41% Cash/1.00% PIK, 5/29/2023 | |
5/29/2018 | |
$ | 13,089,665 | | |
| 13,036,832 | | |
| 13,035,998 | | |
| 3.9 | % | |
3200 North Carolina Avenue, North Charleston, SC 29405 |
| |
| |
Total Non-profit Services | |
| |
| | | |
| 13,036,832 | | |
| 13,035,998 | | |
| 3.9 | % | |
|
Emily Street Enterprises, L.L.C. | |
Office Supplies | |
Senior Secured Note (3M USD LIBOR+8.50%), 13.28% Cash, 2/31/2023 | |
12/28/2012 | |
$ | 3,300,000 | | |
| 3,300,000 | | |
| 3,249,510 | | |
| 1.0 | % | |
|
Emily Street Enterprises, L.L.C. (h) | |
Office Supplies | |
Warrant Membership Interests Expires 12/28/2022 | |
12/28/2012 | |
| 49,318 | | |
| 400,000 | | |
| 354,649 | | |
| 0.1 | % | |
15878 Gaither Drive, Gaithersburg, MD 20877 |
| |
| |
Total Office Supplies | |
| |
| | | |
| 3,700,000 | | |
| 3,604,159 | | |
| 1.1 | % | |
|
Apex Holdings Software Technologies, LLC | |
Payroll Services | |
First Lien Term Loan (3M USD LIBOR+8.00%), 12.78% Cash, 9/21/2024 | |
9/21/2016 | |
$ | 15,500,000 | | |
| 15,493,229 | | |
| 15,489,150 | | |
| 4.6 | % | |
500 Colonial Center Parkway, Suite 650, Roswell, GA 30076 |
| |
| |
Total Payroll Services | |
| |
| | | |
| 15,493,229 | | |
| 15,489,150 | | |
| 4.6 | % | |
|
Buildout, Inc. | |
Real Estate Services | |
First Lien Term Loan (3M USD LIBOR+7.00%), 11.78% Cash, 7/9/2025 | |
7/9/2020 | |
$ | 14,000,000 | | |
| 13,915,108 | | |
| 13,843,200 | | |
| 4.1 | % | |
|
Buildout, Inc. | |
Real Estate Services | |
Delayed Draw Term Loan (3M USD LIBOR+7.00%), 11.78% Cash, 7/9/2025 | |
2/12/2021 | |
$ | 38,500,000 | | |
| 38,229,236 | | |
| 38,068,800 | | |
| 11.4 | % | |
|
Buildout, Inc. (h), (i) | |
Real Estate Services | |
Limited Partner Interests | |
7/9/2020 | |
| 1,160 | | |
| 1,205,308 | | |
| 1,307,141 | | |
| 0.4 | % | |
222 S. Riverside Plaza #810, Chicago, IL 60606 |
| |
| |
Total Real Estate Services | |
| |
| | | |
| 53,349,652 | | |
| 53,219,141 | | |
| 15.9 | % | |
|
Wellspring Worldwide Inc. | |
Research Software | |
First Lien Term Loan (3M USD BSBY+7.25%), 11.84% Cash, 6/27/2027 | |
6/27/2022 | |
$ | 9,600,000 | | |
| 9,499,135 | | |
| 9,493,440 | | |
| 2.8 | % | |
954 W. Washington Boulevard, Suite 750, Chicago, IL 60607 |
Archimedes Parent LLC (h) | |
Research Software | |
Class A Common Units | |
6/27/2022 | |
| 1,000,000 | | |
| 1,000,000 | | |
| 1,000,000 | | |
| 0.3 | % | |
954 W. Washington Boulevard, Suite 750, Chicago, IL 60607 |
| |
| |
Total Research Software | |
| |
| | | |
| 10,499,135 | | |
| 10,493,440 | | |
| 3.1 | % | |
|
LFR Chicken LLC | |
Restaurant | |
First Lien Term Loan (1M USD LIBOR+7.00%), 11.14% Cash, 11/19/2026 | |
11/19/2021 | |
$ | 12,000,000 | | |
| 11,901,087 | | |
| 11,817,600 | | |
| 3.6 | % | |
|
LFR Chicken LLC (j) | |
Restaurant | |
Delayed Draw Term Loan (1M USD LIBOR+7.00%), 11.14% Cash, 11/19/2026 | |
11/19/2021 | |
$ | 9,000,000 | | |
| 8,922,513 | | |
| 8,863,200 | | |
| 2.6 | % | |
|
LFR Chicken LLC (h) | |
Restaurant | |
Series B Preferred Units | |
11/19/2021 | |
| 497,183 | | |
| 1,000,000 | | |
| 1,108,405 | | |
| 0.3 | % | |
1270 N Elgin Pwky, Suite C-14, Shalimar, FL 32579 |
TMAC Acquisition Co., LLC | |
Restaurant | |
Unsecured Term Loan 8.00% PIK, 9/1/2023 | |
3/1/2018 | |
$ | 2,979,312 | | |
| 2,979,312 | | |
| 2,815,105 | | |
| 0.8 | % | |
6220 Shiloh Rd #100, Alpharetta, GA 30005 |
| |
| |
Total Restaurant | |
| |
| | | |
| 24,802,912 | | |
| 24,604,310 | | |
| 7.3 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
Pepper Palace, Inc. (d) | |
Specialty Food Retailer | |
First Lien Term Loan (3M USD LIBOR+6.25%), 11.03% Cash, 6/30/2026 | |
6/30/2021 | |
$ | 33,575,000 | | |
| 33,313,811 | | |
| 24,325,088 | | |
| 7.2 | % | |
|
Pepper Palace, Inc. (j) | |
Specialty Food Retailer | |
Delayed Draw Term Loan (3M USD LIBOR+6.25%), 11.03% Cash, 6/30/2026 | |
6/30/2021 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
|
Pepper Palace, Inc. (j) | |
Specialty Food Retailer | |
Revolving Credit Facility (3M USD LIBOR+6.25%), 11.03% Cash, 6/30/2026 | |
6/30/2021 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
|
Pepper Palace, Inc. (h) | |
Specialty Food Retailer | |
Membership Interest | |
6/30/2021 | |
| 1,000,000 | | |
| 1,000,000 | | |
| - | | |
| 0.0 | % | |
3275 Newport Highway, Sevierville, TN 37876 |
| |
| |
Total Specialty Food Retailer | |
| |
| | | |
| 34,313,811 | | |
| 24,325,088 | | |
| 7.2 | % | |
|
ArbiterSports, LLC (d) | |
Sports Management | |
First Lien Term Loan (3M USD LIBOR+6.50%), 11.28% Cash, 2/21/2025 | |
2/21/2020 | |
$ | 26,000,000 | | |
| 25,882,301 | | |
| 25,810,200 | | |
| 7.7 | % | |
|
ArbiterSports, LLC | |
Sports Management | |
Delayed Draw Term Loan (3M USD LIBOR+6.50%), 11.28% Cash, 2/21/2025 | |
2/21/2020 | |
$ | 1,000,000 | | |
| 1,000,000 | | |
| 992,700 | | |
| 0.3 | % | |
235 W Sego Lily, Suite 200, Sandy, UT 84070 |
| |
| |
Total Sports Management | |
| |
| | | |
| 26,882,301 | | |
| 26,802,900 | | |
| 8.0 | % | |
|
Avionte Holdings, LLC (h) | |
Staffing Services | |
Class A Units | |
1/8/2014 | |
| 100,000 | | |
| 100,000 | | |
| 2,080,370 | | |
| 0.6 | % | |
1270 Eagan Industrial Rd, Suite #150, St Paul, MN 55121 |
| |
| |
Total Staffing Services | |
| |
| | | |
| 100,000 | | |
| 2,080,370 | | |
| 0.6 | % | |
|
JDXpert | |
Talent Acquisition Software | |
First Lien Term Loan (3M USD LIBOR+8.50%), 13.28% Cash, 5/2/2027 | |
5/2/2022 | |
$ | 6,000,000 | | |
| 5,943,524 | | |
| 6,039,000 | | |
| 1.9 | % | |
|
JDXpert (j) | |
Talent Acquisition Software | |
Delayed Draw Term Loan (3M USD LIBOR+8.50%), 13.28% Cash, 5/2/2027 | |
5/2/2022 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
801 Corporate Center Drive, Suite 130, Raleigh, NC 27607 |
Jobvite, Inc. (d) | |
Talent Acquisition Software | |
First Lien Term Loan (6M USD TERM SOFR+8.00%), 12.70% Cash, 8/5/2028 | |
8/5/2022 | |
$ | 20,000,000 | | |
| 19,852,834 | | |
| 20,000,000 | | |
| 6.0 | % | |
20N. Meridian St., Suite #300, Indianapolis, IN 46204 |
| |
| |
Total Talent Acquisition Software | |
| |
| | | |
| 25,796,358 | | |
| 26,039,000 | | |
| 7.9 | % | |
|
National Waste Partners (d) | |
Waste Services | |
Second Lien Term Loan 10.00% Cash, 11/13/2022 | |
2/13/2017 | |
$ | 9,000,000 | | |
| 9,000,000 | | |
| 9,000,000 | | |
| 2.7 | % | |
2538 E University Drive, Suite 165, Phoenix AZ 85034 |
| |
| |
Total Waste Services | |
| |
| | | |
| 9,000,000 | | |
| 9,000,000 | | |
| 2.7 | % | |
|
Sub Total Non-control/Non-affiliate investments | |
| |
| |
| |
| | | |
| 776,943,715 | | |
| 777,907,062 | | |
| 231.7 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
Affiliate investments - 28.6% (b) | |
| |
| |
| |
| | |
| | |
| | |
| | |
|
Artemis Wax Corp. (d), (f) | |
Consumer Services | |
Delayed Draw Term Loan (1M USD LIBOR+9.00%), 13.14% Cash, 5/20/2026 | |
5/20/2021 | |
$ | 30,000,000 | | |
| 29,760,680 | | |
| 29,967,000 | | |
| 8.9 | % | |
|
Artemis Wax Corp. (f) | |
Consumer Services | |
Delayed Draw Term Loan (1M USD LIBOR+6.50%), 10.64% Cash, 5/20/2026 | |
5/19/2022 | |
$ | 18,000,000 | | |
| 17,832,599 | | |
| 17,980,200 | | |
| 5.5 | % | |
|
Artemis Wax Corp. (f), (j) | |
Consumer Services | |
Delayed Draw Term Loan (1M USD LIBOR+7.50%), 11.64% Cash, 5/20/2026 | |
5/19/2022 | |
$ | 9,500,000 | | |
| 9,407,532 | | |
| 9,489,550 | | |
| 2.8 | % | |
|
Artemis Wax Corp. (f), (h) | |
Consumer Services | |
Series B-1 Preferred Stock | |
5/20/2021 | |
| 934,463 | | |
| 1,500,000 | | |
| 4,977,250 | | |
| 1.5 | % | |
|
Artemis Wax Corp. (f), (h) | |
Consumer Services | |
Series C Preferred Stock | |
5/20/2021 | |
| 6,163 | | |
| 6,162,526 | | |
| 6,162,526 | | |
| 1.8 | % | |
101 Clinton St. #4D, Brooklyn, NY 11201 |
| |
| |
Total Consumer Services | |
| |
| | | |
| 64,663,337 | | |
| 68,576,526 | | |
| 20.5 | % | |
|
ETU Holdings, Inc. (f) | |
Corporate Education Software | |
First Lien Term Loan (3M USD LIBOR+9.00%), 13.78% Cash, 8/18/2027 | |
8/18/2022 | |
$ | 7,000,000 | | |
| 6,932,059 | | |
| 6,930,000 | | |
| 2.1 | % | |
|
ETU Holdings, Inc. (f) | |
Corporate Education Software | |
Second Lien Term Loan 15.00% PIK, 2/18/2028 | |
8/18/2022 | |
$ | 5,089,583 | | |
| 5,039,831 | | |
| 5,038,688 | | |
| 1.5 | % | |
|
ETU Holdings, Inc. (f), (h) | |
Corporate Education Software | |
Series A-1 Preferred Stock | |
8/18/2022 | |
| 3,000,000 | | |
| 3,000,000 | | |
| 3,000,000 | | |
| 0.9 | % | |
5th Floor, The Tower, Trinity Technology & Enterprise Campus, Pearse Street, Dublin D02 K1W7 |
| |
| |
Total Corporate Education Software | |
| |
| | | |
| 14,971,890 | | |
| 14,968,688 | | |
| 4.5 | % | |
|
Axero Holdings, LLC (f) | |
Employee Collaboration Software | |
First Lien Term Loan (3M USD LIBOR+10.00%), 14.78% Cash, 6/30/2026 | |
6/30/2021 | |
$ | 5,500,000 | | |
| 5,455,829 | | |
| 5,529,150 | | |
| 1.6 | % | |
|
Axero Holdings, LLC (f) | |
Employee Collaboration Software | |
Delayed Draw Term Loan (3M USD LIBOR+10.00%), 14.78% Cash, 6/30/2026 | |
6/30/2021 | |
$ | 1,100,000 | | |
| 1,089,888 | | |
| 1,105,830 | | |
| 0.3 | % | |
|
Axero Holdings, LLC (f), (j) | |
Employee Collaboration Software | |
Revolving Credit Facility (3M USD LIBOR+10.00%), 14.78% Cash, 6/30/2026 | |
2/3/2022 | |
$ | - | | |
| - | | |
| - | | |
| 0.0 | % | |
|
Axero Holdings, LLC (f), (h) | |
Employee Collaboration Software | |
Series A Preferred Units | |
6/30/2021 | |
| 2,000,000 | | |
| 2,000,000 | | |
| 2,425,000 | | |
| 0.7 | % | |
|
Axero Holdings, LLC (f), (h) | |
Employee Collaboration Software | |
Series B Preferred Units | |
6/30/2021 | |
| 2,000,000 | | |
| 2,000,000 | | |
| 3,446,470 | | |
| 1.0 | % | |
401 Park Avenue South, 10th Floor, New York, NY 10016 |
| |
| |
Total Employee Collaboration Software | |
| |
| | | |
| 10,545,717 | | |
| 12,506,450 | | |
| 3.6 | % | |
|
Sub Total Affiliate investments | |
| |
| |
| |
| | | |
| 90,180,944 | | |
| 96,051,664 | | |
| 28.6 | % | |
|
Company(1) | |
Industry | |
Investment
Interest Rate/
Maturity | |
Original Acquisition Date | |
Principal/ Number of Shares | | |
Cost | | |
Fair Value (c) | | |
% of
Net Assets | | |
Company Address |
Control investments - 32.2% (b) | |
| |
| |
| |
| | | |
| | | |
| | | |
| | | |
|
Netreo Holdings, LLC (g) | |
IT Services | |
First Lien Term Loan (3M USD LIBOR+6.50%), 11.28% Cash/2.00% PIK, 12/31/2025 | |
7/3/2018 | |
$ | 5,511,426 | | |
| 5,491,258 | | |
| 5,414,976 | | |
| 1.6 | % | |
|
Netreo Holdings, LLC (d), (g), (j) | |
IT Services | |
Delayed Draw Term Loan (3M USD LIBOR+6.50%), 11.28% Cash/2.00% PIK, 12/31/2025 | |
5/26/2020 | |
$ | 19,661,882 | | |
| 19,583,424 | | |
| 19,317,799 | | |
| 5.8 | % | |
|
Netreo Holdings, LLC (g), (h) | |
IT Services | |
Common Stock Class A Unit | |
7/3/2018 | |
| 4,600,677 | | |
| 8,344,500 | | |
| 17,661,450 | | |
| 5.3 | % | |
8717 Research Drive, Suite 150, Irvine, CA 92618 |
| |
| |
Total IT Services | |
| |
| | | |
| 33,419,182 | | |
| 42,394,225 | | |
| 12.7 | % | |
|
Saratoga Investment Corp. CLO 2013-1, Ltd. (a), (e), (g) | |
Structured Finance Securities | |
Other/Structured Finance Securities 0.00%, 4/20/2023 | |
1/22/2008 | |
$ | 111,000,000 | | |
| 29,969,356 | | |
| 19,427,844 | | |
| 5.8 | % | |
535 Madison Avenue New York, NY 10022 |
Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note (a), (g) | |
Structured Finance Securities | |
Other/Structured Finance Securities (3M USD LIBOR+10.00%), 14.78% Cash, 4/20/2023 | |
8/9/2021 | |
$ | 9,375,000 | | |
| 9,375,000 | | |
| 8,501,620 | | |
| 2.5 | % | |
535 Madison Avenue New York, NY 10022 |
Saratoga Investment Corp Senior Loan Fund 2022-1 Ltd Class E Note (a), (g) | |
Structured Finance Securities | |
Other/Structured Finance Securities (3M USD TERM SOFR+8.55%), 12.96% Cash, 10/20/2033 | |
10/28/2022 | |
$ | 12,250,000 | | |
| 11,392,500 | | |
| 10,969,982 | | |
| 3.3 | % | |
535 Madison Avenue New York, NY 10022 |
| |
| |
Total Structured Finance Securities | |
| |
| | | |
| 50,736,856 | | |
| 38,899,446 | | |
| 11.6 | % | |
|
Saratoga Senior Loan Fund I JV, LLC (a), (g), (j) | |
Investment Fund | |
Unsecured Loan 10.00%, 6/15/2023 | |
2/17/2022 | |
$ | 17,618,954 | | |
| 17,618,954 | | |
| 17,618,954 | | |
| 5.2 | % | |
|
Saratoga Senior Loan Fund I JV, LLC (a), (g), (h) | |
Investment Fund | |
Membership Interest | |
2/17/2022 | |
| 17,583,486 | | |
| 17,583,486 | | |
| 9,162,701 | | |
| 2.7 | % | |
535 Madison Avenue New York, NY 10022 |
| |
| |
Total Investment Fund | |
| |
| | | |
| 35,202,440 | | |
| 26,781,655 | | |
| 7.9 | % | |
|
Sub Total Control investments | |
| |
| |
| |
| | | |
| 119,358,478 | | |
| 108,075,326 | | |
| 32.2 | % | |
|
Total Investments - 292.5% | |
| |
| |
| |
| | | |
$ | 986,483,137 | | |
$ | 982,034,052 | | |
| 292.5 | % | |
|
| |
Number of Shares | | |
Cost | | |
Fair Value | | |
%
of Net Assets | |
Cash and cash equivalents and cash and cash equivalents,
reserve accounts - 14.0% (b) | |
| | |
| | |
| | |
| |
U.S. Bank Money Market (l) | |
| 47,047,642 | | |
$ | 47,047,642 | | |
$ | 47,047,642 | | |
| 14.0 | % |
Total cash and cash equivalents and
cash and cash equivalents, reserve accounts | |
| 47,047,642 | | |
$ | 47,047,642 | | |
$ | 47,047,642 | | |
| 14.0 | % |
| (1) | Securities are
exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and are
restricted securities. |
| (a) | Represents an
investment that is not a “qualifying asset” under Section 55(a) of the Investment
Company Act of 1940, as amended (the 1940 Act”). As of November 30, 2022, non-qualifying
assets represent 8.6% of the Company’s portfolio at fair value. As a BDC, the Company
generally has to invest at least 70% of its total assets in qualifying assets. |
| (b) | Percentages are
based on net assets of $335,763,600 as of November 30, 2022. |
| (c) | Because there
is no “readily available market quotations” (as defined in the 1940 Act) for
these investments, except for B. Riley Financial, Inc., the fair values of these investments
were determined using significant unobservable inputs and approved in good faith by our board
of directors. These investments have been included as Level 3 in the Fair Value Hierarchy
(see Note 3 to the consolidated financial statements). B. Riley Financial, Inc.’s fair
value is based on quoted prices in active markets, identical assets or liabilities that the
Company has the ability to access. These investments have been included as Level 1 in the
Fair Value Hierarchy (see Note 3 to the consolidated financial statements). |
| (d) | These securities
are either fully or partially pledged as collateral under the Company’s senior secured
revolving credit facility (see Note 8 to the consolidated financial statements). |
| (e) | This investment
does not have a stated interest rate that is payable thereon. As a result, the 0.00% interest
rate in the table above represents the effective interest rate currently earned on the investment
cost and is based on the current cash interest and other income generated by the investment. |
| (f) | As defined in
the 1940 Act, this portfolio company is an “affiliate” as we own between 5.0%
and 25.0% of the outstanding voting securities. Transactions during the nine months ended
November 30, 2022 in which the issuer was an affiliate are as follows: |
Company | |
Purchases | | |
Sales | | |
Total Interest
from
Investments | | |
Management
Fee Income | | |
Net Realized
Gain (Loss)
from
Investments | | |
Net Change in
Unrealized
Appreciation
(Depreciation) | |
Artemis Wax Corp. | |
$ | 27,440,000 | | |
$ | - | | |
$ | 3,418,378 | | |
$ | - | | |
$ | - | | |
$ | 2,452,903 | |
Axero Holdings, LLC | |
| 1,089,000 | | |
| - | | |
| 609,408 | | |
| - | | |
| - | | |
| 1,411,823 | |
ETU Holdins, Inc. | |
| 14,880,000 | | |
| - | | |
| 480,690 | | |
| - | | |
| - | | |
| (3,202 | ) |
Total | |
$ | 43,409,000 | | |
$ | - | | |
$ | 4,508,476 | | |
$ | - | | |
$ | - | | |
$ | 3,861,524 | |
| (g) | As defined in
the 1940 Act, we “control” this portfolio company because we own more than 25%
of the portfolio company’s or holding company’s outstanding voting securities.
In addition, we “control” Saratoga Investment Corp Senior Loan Fund 2022-1 Ltd.
(“SLF 2022”) because SLF 2022 is a wholly owned subsidiary of Saratoga Senior
Loan Fund I JV, LLC, of which we own more than 25% of the outstanding voting shares. Transactions
during the nine months ended November 30, 2022 in which the issuer was both an affiliate
and a portfolio company that we control are as follows: |
Company | |
Purchases | | |
Sales | | |
Total Interest
from
Investments | | |
Management
Fee Income | | |
Net Realized
Gain (Loss)
from
Investments | | |
Net Change in
Unrealized
Appreciation
(Depreciation) | |
Netreo Holdings, LLC | |
$ | 5,960,000 | | |
$ | - | | |
$ | 1,695,950 | | |
$ | - | | |
$ | - | | |
$ | (1,668,472 | ) |
Saratoga Investment Corp. CLO 2013-1, Ltd. | |
| - | | |
| - | | |
| 1,228,486 | | |
| 2,451,242 | | |
| - | | |
| (6,923,291 | ) |
Saratoga Investment Corp Senior Loan Fund 2022-1, Ltd. | |
| 11,392,500 | | |
| - | | |
| 148,285 | | |
| - | | |
| - | | |
| (422,518 | ) |
Saratoga Investment Corp. CLO 2013-1, Ltd. Class F-2-R-3 Note | |
| - | | |
| - | | |
| 855,965 | | |
| - | | |
| - | | |
| (873,380 | ) |
Saratoga Senior Loan Fund I JV, LLC | |
| 4,493,954 | | |
| - | | |
| 1,062,625 | | |
| - | | |
| - | | |
| - | |
Saratoga Senior Loan Fund I JV, LLC | |
| 4,458,486 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (7,311,849 | ) |
Total | |
$ | 26,304,940 | | |
$ | - | | |
$ | 4,991,311 | | |
$ | 2,451,242 | | |
$ | - | | |
$ | (17,199,510 | ) |
| (h) | Non-income producing
at November 30, 2022. |
| (i) | Includes securities
issued by an affiliate of the company. |
| (j) | All or a portion
of this investment has an unfunded commitment as of November 30, 2022. (See Note 9 to the
consolidated financial statements). |
| (k) | As of November
30, 2022, the investment was on non-accrual status. The fair value of these investments was
approximately $9.7 million, which represented 2.9% of the Company’s portfolio (see
Note 2 to the consolidated financial statements). |
| (l) | Included within
cash and cash equivalents and cash and cash equivalents, reserve accounts in the Company’s
consolidated statements of assets and liabilities as of November 30, 2022. |
| (m) | The fair value
of these investments are based on quoted prices in active markets, identical assets or liabilities
that the Company has the ability to access. These investments have been included as Level
1 in the Fair Value Hierarchy (see Note 3 to the consolidated financial statements). |
BSBY - Bloomberg Short-Term Bank Yield
LIBOR - London Interbank Offered Rate
SOFR - Secured Overnight Financing Rate
1M USD BSBY - The 1 month USD BSBY rate as of November 30, 2022 was
3.97%.
3M USD BSBY - The 3 month USD BSBY rate as of November 30, 2022 was
4.59%.
1M USD LIBOR - The 1 month USD LIBOR rate as of November 30, 2022
was 4.14%.
3M USD LIBOR - The 3 month USD LIBOR rate as of November 30, 2022
was 4.78%.
1M USD TERM SOFR - The 1 month USD TERM SOFR rate as of November 30,
2022 was 4.13%
3M USD TERM SOFR - The 3 month USD TERM SOFR rate as of November 30,
2022 was 4.41%
6M USD TERM SOFR - The 6 month USD TERM SOFR rate as of November 30,
2022 was 4.70%
PIK - Payment-in-Kind (see Note 2 to the consolidated financial statements).
For a brief description of each portfolio company
in which the fair value of our investment represents greater than 5% of our total assets as of November 30, 2022, see Note 3 to our unaudited
consolidated financial statements in our most recent Quarterly Report on Form 10-Q, which is incorporated by reference herein.
MANAGEMENT
The information in the section
entitled “Directors, Executive Officers and Corporate Governance” in Part III, Item 10 of our most recent Annual Report on
Form 10-K is incorporated herein by reference.
MANAGEMENT AND OTHER AGREEMENTS
The information in the sections
entitled “Investment Advisory and Management Agreement,” “Administration Agreement” and “License Agreement”
in the “Business” section of Part I, Item 1 of our most recent Annual Report on Form 10-K, in the notes to our
audited consolidated financial statements under the caption “Note 7. Agreements and Related Party Transactions” in our most
recent Annual Report on Form 10-K, and in the notes to our unaudited consolidated financial statements under the caption “Note
7. Agreements and Related Party Transactions” in our most recent Quarterly Report on Form 10-Q is incorporated herein by reference.
PORTFOLIO MANAGEMENT
The information in the section
entitled “Portfolio Management” in our most recent Definitive Proxy Statement on Schedule 14A is incorporated herein
by reference.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The information in the section
entitled “Certain Relationships and Related Transactions, and Director Independence” in Part III, Item 13 of our most recent
Annual Report on Form 10-K is incorporated herein by reference.
CONTROL PERSONS AND PRINCIPAL
STOCKHOLDERS
The information in the section
entitled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III, Item
12 of our most recent Annual Report on Form 10-K is incorporated herein by reference.
REGULATION
The information in the sections
entitled “Business Development Company Regulations” and “Small Business Investment Company Regulations” in the
“Business” section of Part I, Item 1 of our most recent Annual Report on Form 10-K is incorporated herein
by reference.
CERTAIN U.S. FEDERAL INCOME
TAX CONSIDERATIONS
The following discussion
is a general summary of certain U.S. federal income tax considerations applicable to us and to an investment in shares of our common
stock which is based on the provisions of the Code and the Treasury regulations in effect as they directly govern our U.S. federal income
tax treatment and the U.S. federal income taxation of our stockholders. These provisions are subject to differing interpretations and
change by legislative or administrative action, and any change may be retroactive. The discussion does not purport to deal with all of
the U.S. federal income tax consequences applicable to us, or which may be important to particular stockholders in light of their individual
investment circumstances or to some types of stockholders subject to special tax rules, such as financial institutions, broker-dealers,
insurance companies, tax-exempt organizations, partnerships or other pass-through entities, persons holding our common shares in connection
with a hedging, straddle, conversion or other integrated transaction, persons engaged in a trade or business in the United States or
persons who have ceased to be U.S. citizens or to be taxed as resident aliens. This discussion assumes that the stockholders hold their
common 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 aspects affecting us and our stockholders, and the discussion set forth herein
does not constitute tax advice. This summary also does not discuss any aspects of U.S. estate or gift tax or foreign, state or local
tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities
or certain other investment assets. No ruling has been or will be sought from the Internal Revenue Service, which we refer to as 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. Stockholders are urged to consult their own tax advisors to determine the U.S. federal, state, local and foreign
tax consequences to them of investing in our shares.
This summary does not discuss
the consequences of an investment in shares of our preferred stock, debt securities or warrants representing rights to purchase shares
of our common stock, preferred stock, debt or securities. The tax consequences of such an investment will be discussed in a relevant
prospectus supplement.
For purposes of this discussion,
a “U.S. stockholder” is a holder or a beneficial holder of shares of our common stock which is for U.S. federal income tax
purposes (1) an individual who is a citizen or resident of the United States (2) a corporation (or other entity taxable as a corporation)
created or organized in or under the laws of the United States or any state thereof or the District of Columbia, (3) an estate whose
income is subject to U.S. federal income tax regardless of its source, or (4) a trust if (a) a U.S. court is able to exercise primary
supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of
the trust or (b) the trust has in effect a valid election to be treated as a domestic trust for U.S. federal income tax purposes. A “non-U.S.
stockholder” is a holder that is neither a U.S. stockholder nor a partnership (including an entity or arrangement treated as a
partnership for U.S. federal income tax purposes). If a partnership or other entity classified as a partnership for U.S. federal income
tax purposes holds the 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 shares, and partners in such partnerships, should consult their own tax advisors.
Prospective investors that are not U.S. stockholders should refer to “Non-U.S. Stockholders” below.
Tax matters are complicated
and prospective investors in our shares are urged to consult their own tax advisors with respect to the U.S. federal income tax and state,
local and foreign tax consequences of an investment in our shares, including the potential application of U.S. withholding taxes.
Taxation of the Company
Election to Be
Taxed as a RIC
As a BDC, we elected and
qualified to be treated as a RIC under subchapter M of the Code. As a RIC, we generally will not be subject to U.S. federal income tax
on any net ordinary income or capital gain net income that we timely distribute to our stockholders as dividends. To qualify as a RIC,
we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition,
we must timely distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,”
which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital
losses (the “Annual Distribution Requirement”). Our SBIC subsidiary may be limited by the Small Business Investment Act of
1958, and SBA regulations governing SBICs, from making certain distributions to us that may be necessary to enable us to maintain our
status as a RIC. We may have to request a waiver of the SBA’s restrictions for our SBIC subsidiary to make certain distributions
to maintain our RIC status. We cannot assure you that the SBA will grant such a waiver.
Taxation as a
RIC
As a RIC, if we satisfy
the Annual Distribution Requirement, we will not be subject to U.S. federal income tax on the portion of our investment company taxable
income (“ICTI”) and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses,
we distribute to stockholders. We will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital
gain not distributed to our stockholders.
We will be subject to our
nondeductible U.S. federal excise tax of 4% on undistributed income if we do not distribute at least the sum of (a) 98% of our net ordinary
income for any calendar year, (b) 98.2% of our capital gain net income for each one-year period ending on October 31 of such calendar
year, and (c) any net ordinary income and capital gain net income that we recognized in preceding years, but were not distributed during
such years, and on which we did not pay U.S. federal income tax. Depending on the level of ICTI earned in a tax year and the amount of
net capital gains recognized in such tax year, the Company may choose to carry forward ICTI and net capital gains in excess of current
year dividend distributions into the next tax year. In order to eliminate our liability for U.S. federal income tax, and to the extent
necessary to maintain our qualification as a RIC, any such carryover ICTI and net capital gains must be distributed before the end of
that next tax year through a dividend declared prior to the 15th day of the 9th month after the close of the taxable year in which such
ICTI was generated. To the extent that the Company determines that its estimated current year annual taxable income will be in excess
of estimated current year dividend distributions for U.S. federal excise tax purposes, the Company accrues U.S. federal excise tax, if
any, on estimated excess taxable income as taxable income is earned.
In order to qualify as a
RIC for U.S. federal income tax purposes, we must, among other things:
| ● | qualify
to be treated as a BDC under the 1940 Act at all times during each taxable year; |
|
● |
derive in each taxable year at least 90% of our
gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities,
or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests
in “qualified publicly traded partnerships” (partnerships that are traded on an established securities market or tradable
on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income)
(the “90% Income Test”); and |
|
● |
diversify our holdings so that at the end of each
quarter of the taxable year: |
|
● |
at least 50% of the value of our assets consists
of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of
any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of
the issuer; and |
|
● |
no more than 25% of the value of our assets is
invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer, (ii) the securities,
other than securities of other RICs, of two or more issuers that are controlled, as determined under applicable tax rules, by us
and that are engaged in the same or similar or related trades or businesses, or (iii) the securities of one or more qualified publicly
traded partnerships (the “Diversification Tests”). |
We may invest in partnerships,
including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income and franchise
or withholding liabilities.
Any underwriting fees paid
by us are not deductible. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example,
if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with
PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion
of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received
by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income
for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement,
even though we will not have received any corresponding cash amount.
Although we do not presently
expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the
1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding
unless certain “asset coverage” tests are met. See “Regulation — Senior Securities.” Moreover,
our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or
(2) other requirements relating to our qualification as a RIC, including the Diversification Tests. If we dispose of assets in order
to meet the Annual Distribution Requirement or the U.S. federal excise tax requirement, we may make such dispositions at times that,
from an investment standpoint, are not advantageous.
Some of the income and fees
that we may recognize will not satisfy the 90% Income Test. In order to ensure that such income and fees do not disqualify us as a RIC
for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities
treated as corporations for U.S. federal income tax purposes. Such corporations will be required to pay U.S. federal income tax at corporate
rates on their earnings, which ultimately will reduce our return on such income and fees.
Failure to Qualify
as a RIC
If we were unable to continue
to qualify for treatment as a RIC, we would be subject to U.S. federal income tax on all of our taxable income at regular corporate rates.
We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions, including distributions
of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current
and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the
dividends received deduction. 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 adjusted tax basis, and any remaining distributions would be treated as a
capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements
for that year and dispose of any earnings and profits from any year in which we failed to qualify as a RIC. Subject to a limited exception
applicable to RICs that qualified as such for at least one year prior to disqualification and that requalify as a RIC no later than the
second year following the non-qualifying year, we could be subject to tax on any unrealized net built-in appreciation on the assets held
by us during the period in which we failed to qualify as a RIC that are recognized within the subsequent five years, unless we made a
special election to pay U.S. federal income tax at corporate rates on such built-in gain at the time of our requalification as a RIC.
Company Investments
Certain of our investment
practices are subject to special and complex U.S. federal income tax provisions that may, among other things, (1) disallow, suspend or
otherwise limit the allowance of certain losses or deductions, including the dividends received deduction, (2) convert lower taxed long-term
capital gains and qualified dividend income into higher taxed short-term capital gains or ordinary income, (3) convert ordinary loss
or a deduction into capital loss (the deductibility of which is more limited), (4) cause us to recognize income or gain without a corresponding
receipt of cash, (5) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (6) adversely
alter the characterization of certain complex financial transactions and (7) produce income that will not qualify as good income for
purposes of the 90% annual gross income requirement described above. We will monitor our transactions and may make certain tax elections
and may be required to borrow money or dispose of securities to mitigate the effect of these rules and prevent disqualification as a
RIC.
Investments we make in securities
issued at a discount or providing for deferred interest or payment of interest in kind are subject to special tax rules that will affect
the amount, timing and character of distributions to stockholders. For example, if we hold debt obligations that are treated under applicable
tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, with increasing interest
rates or issued with warrants), we will generally be required to accrue daily as income a portion of the discount and to distribute such
income each year to avoid U.S. federal income and excise taxes. Since in certain circumstances we may recognize income before or without
receiving cash representing such income, we may have difficulty making distributions in the amounts necessary to satisfy the requirements
for maintaining RIC status and 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 as a RIC and thereby be subject
to corporate-level U.S. federal income tax.
Gain or loss realized 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.
In the event we invest in
foreign securities, we may be subject to withholding and other foreign taxes with respect to those securities. In that case, our yield
on those securities would be decreased. We do not expect to satisfy the requirements necessary to pass through to our stockholders their
share of the foreign taxes paid by us.
If we purchase shares in
a “passive foreign investment company” (a “PFIC”), we may be subject to U.S. federal income tax on a portion
of any “excess distribution” or gain from the disposition of such shares. Additional charges in the nature of interest may
be imposed on us in respect of deferred taxes arising from such distributions or gain. This additional tax and interest may apply even
if we make a distribution in an amount equal to any “excess distribution” or gain from the disposition of such shares as
a taxable dividend 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 requirements, 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, 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. Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our
proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement
and will be taken into account for purposes of the 4% U.S. federal excise tax.
If we hold more than 10%
of the shares in a foreign corporation that is treated as a controlled foreign corporation (“CFC”), we may be treated as
receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporation in an amount equal to our pro rata
share of the corporation’s income for the tax year (including both ordinary earnings and capital gains), whether or not the corporation
makes an actual distribution during such year. This deemed distribution is required to be included in the income of a U.S. Shareholder
(as defined below) of a CFC. 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 by attribution) by U.S. Shareholders. A “U.S.
Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting
power of all classes of shares of a corporation or 10% or more of the total value of shares of all classes of shares of such corporation.
If we are treated as receiving a deemed distribution from a CFC, we will be required to include such distribution in our investment company
taxable income regardless of whether we receive any actual distributions from such CFC, and we must distribute such income to satisfy
the Annual Distribution Requirement and the Excise Tax Avoidance Requirement.
Income inclusions from a
QEF or CFC will be “good income” for purposes of the 90% Income Test provided that they are derived in connection with our
business of investing in stocks and securities or the QEF or CFC distributes such income to us in the same taxable year to which the
income is included in our income.
The remainder of this
discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement.
Taxation of U.S.
Stockholders
Distributions we pay to
you from our net ordinary income or from an excess of realized net short-term capital gains over realized net long-term capital losses
(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 the dividends
received deduction allowed to corporate stockholders 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 realized net long-term capital gains over realized net short-term
capital losses (“capital gain dividends”), including capital gain dividends credited to you but retained by us, are taxable
to you as long-term capital gains if they have been properly designated by us, regardless of the length of time you have owned our shares.
Distributions in excess of our earnings and profits will first reduce the adjusted tax basis of your shares and, after the adjusted tax
basis is reduced to zero, will constitute capital gains to you (assuming the shares are held as a capital asset). The current maximum
U.S. federal tax rate on long-term capital gains of individuals is generally 20 percent. For non-corporate taxpayers, ordinary income
dividends will currently be taxed at a maximum rate of 37 percent (39.6 percent for taxable years beginning after December 31, 2025),
while capital gain dividends generally will be currently taxed at a maximum U.S. federal income tax rate of 20 percent. For corporate
taxpayers, both ordinary income dividends and capital gain dividends are currently taxed at a maximum U.S. federal income tax rate of
21 percent. In addition, individuals with income in excess of $200,000 ($250,000 in the case of married individuals filing jointly) and
certain estates and trusts are subject to an additional 3.8% tax on their “net investment income,” which generally includes
net income from interest, dividends, annuities, royalties, and rents, and net capital gains (other than certain amounts earned from trades
or businesses). Present law also taxes both long-term and short-term capital gains of corporations at the rates applicable to ordinary
income. Non-corporate stockholders with net capital losses for a year (i.e., net capital losses in excess of net capital gains) generally
may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate stockholder
in excess of $3,000 generally may be carried forward and used in subsequent years, subject to certain limitations, as provided in the
Code. Corporate stockholders generally may not deduct any net capital losses for a year, but may carryback such losses for three years
or carry forward such losses for five years.
In the event that we retain
any net capital gains, we may designate the retained amounts as undistributed capital gains in a notice to our stockholders. If a designation
is made, stockholders would include in income, as long-term capital gains, their proportionate share of the undistributed amounts, but
would be allowed a credit or refund, as the case may be, for their proportionate share of the corporate tax paid by us. In addition,
the tax basis of shares owned by a stockholder would be increased by an amount equal to the difference between (i) the amount included
in the stockholder’s income as long-term capital gains and (ii) the stockholder’s proportionate share of the corporate tax
paid by us.
We may distribute taxable
dividends that are payable in cash or shares of our common stock at the election of each stockholder. Under certain applicable provisions
of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treated
as taxable dividends. The IRS has issued a revenue procedure indicating that this rule will apply where the total amount of cash to be
distributed is limited to not less than 20% of the total distribution. Under this revenue procedure, if too many stockholders elect to
receive their distributions in cash, each such stockholder would receive a pro rata share of the total cash to be distributed and would
receive the remainder of their distribution in shares of stock. If we decide to make any distributions consistent with this revenue procedure
that are payable in part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the
dividend (whether received in cash, our stock, or a combination thereof) 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 our current and accumulated earnings and profits
for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess
of any cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may
be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the
sale. If a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may
put downward pressure on the trading price of our stock.
If an investor purchases
shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution
and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment.
We (or the applicable withholding
agent) will send to each of our U.S. stockholders after the end of each calendar year, a notice reporting the amounts includible in such
U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the U.S. federal
tax status of each year’s distributions generally will be reported to the IRS (including the amount of dividends, if any, eligible
for the 20% maximum rate). Dividends paid by us generally will not be eligible for the dividends-received deduction or the preferential
tax rate applicable to Qualifying Dividends because our income generally will not consist of dividends. Distributions may also be subject
to additional state, local and foreign taxes depending on a U.S. stockholder’s particular situation.
Dividends and other taxable
distributions are taxable to you even though they are reinvested in additional shares of our common 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 stockholder will generally
recognize gain or loss on the sale or exchange of our common shares in an amount equal to the difference between the stockholder’s
adjusted tax basis in the shares sold or exchanged and the amount realized on their disposition. Generally, gain recognized by a stockholder
on the sale or other disposition of our common shares will result in capital gain or loss to you, and will be a long-term capital gain
or loss if the shares have been held for more than one year at the time of sale. Any loss upon the sale or exchange of our 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 our 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.
Stockholders should consult
their own 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 our shares.
Backup Withholding.
We are required in certain circumstances to backup withhold on taxable dividends or distributions and certain other payments
paid to non-corporate stockholders who do not furnish us with their correct taxpayer identification number (generally, in the case of
individuals, their social security number) and certain certifications, or who are otherwise subject to 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.
Reportable Transactions
Reporting. If a U.S. stockholder recognizes a loss with respect to shares of our common stock of $2 million or more for
an individual stockholder or $10 million or more for a corporate stockholder, the stockholder must file with the IRS a disclosure statement
on Form 8886. Direct stockholders of portfolio securities are in many cases exempted from this reporting requirement, but under current
guidance, stockholders of a RIC are not exempted. 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. U.S. stockholders should consult their tax advisors to
determine the applicability of these regulations in light of their specific circumstances.
Taxation of Non-U.S.
Stockholders
The following discussion
only applies to non-U.S. stockholders. Whether an investment in the shares is appropriate for a non-U.S. stockholder will depend upon
that person’s particular circumstances. An investment in the shares by a non-U.S. stockholder may have adverse tax consequences.
Non-U.S. stockholders should consult their tax advisors before investing in our shares.
Distributions of ordinary
income dividends to non-U.S. stockholders, 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.
If the distributions are effectively connected with a U.S. trade or business of the non-U.S. shareholder, and, if an income tax treaty
applies, attributable to a permanent establishment in the United States, we will not be required to withhold U.S. federal tax if the
non-U.S. shareholder complies with applicable certification and disclosure requirements, although the distributions will be subject to
U.S. federal income tax at the rates applicable to U.S. persons. (Special certification requirements apply to a Non-U.S. shareholder
that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax adviser.). In addition, no withholding
is required with respect to certain dividend distributions if (i) the distributions are properly reported to our shareholders as “interest-related
dividends” or “short-term capital gain dividends,” (ii) the distributions are derived from sources specified in the
Code for such dividends and (iii) certain other requirements are satisfied.
The tax consequences to
non-U.S. shareholders entitled to claim the benefits of an applicable tax treaty or who are individuals present in the United States
for 183 days or more during a taxable year may be different from those described herein. Non-U.S. shareholders are urged to consult their
tax advisers with respect to the procedure for claiming the benefit of a lower treaty rate and the applicability of foreign taxes.
Actual or deemed distributions
of our net capital gains to a non-U.S. stockholder, and gains recognized by a non-U.S. stockholder upon the sale of our common stock,
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 gains, as the case may be, are effectively connected with a U.S. trade or business of the non-U.S. stockholder or, in the case of
an individual, such individual is present in the United States for 183 days or more during a taxable year and certain other conditions
are met.
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. stockholder 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. stockholder must obtain a U.S. taxpayer identification
number and file a U.S. federal income tax return even if the non-U.S. stockholder 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. stockholder, distributions (both actual and
deemed), and gains realized upon the sale of our common stock that are effectively connected with a U.S. trade or business 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. stockholders.
Backup Withholding. We
must generally report to our non-U.S. shareholders and the IRS the amount of dividends paid during each calendar year and the amount
of any tax withheld. Information reporting requirements may apply even if no withholding was required because the distributions were
effectively connected with the non-U.S. shareholder’s conduct of a United States trade or business or withholding was reduced or
eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with
the tax authorities in the country in which the non-U.S. shareholder resides or is established. Under U.S. federal income tax law, interest,
dividends and other reportable payments may, under certain circumstances, be subject to “backup withholding” at the then
applicable rate (currently 24%). Backup withholding, however, generally will not apply to distributions to a non-U.S. shareholder of
our common stock, provided the non-U.S. shareholder furnishes to us the required certification as to its non-U.S. status, such as by
providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E, or IRS Form W-8ECI, or certain other requirements are met. 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. persons should
consult their own 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 our shares.
Foreign Account Tax
Compliance Act
Legislation commonly referred
to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on payments
of certain types of income to foreign financial institutions (“FFIs”) unless such FFIs either (i) enter into an agreement
with the U.S. Treasury to report certain required information with respect to accounts held by certain specified U.S. persons (or held
by foreign entities that have certain specified U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered
into an intergovernmental agreement (“IGA”) with the United States to collect and share such information and are in compliance
with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S. source interest
and dividends. While the Code would also require withholding on payments of the gross proceeds from the sale of any property that could
produce U.S. source interest or dividends, the U.S. Treasury Department has indicated its intent to eliminate this requirement in subsequent
proposed regulations, which state that taxpayers may rely on the proposed regulations until final regulations are issued. The information
required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction
activity within the holder’s account. In addition, subject to certain exceptions, this legislation also imposes a 30% withholding
on certain payments to certain foreign entities that are not FFIs unless the foreign entity certifies that it does not have a greater
than 10% owner that is a specified U.S. person or provides the withholding agent with identifying information on each greater than 10%
owner that is a specified U.S person. Depending on the status of a beneficial owner and the status of the intermediaries through which
they hold their shares, beneficial owners of our common stock could be subject to this 30% withholding tax with respect to distributions
on their shares. Under certain circumstances, a beneficial owner might be eligible for refunds or credits of such taxes.
DETERMINATION OF NET ASSET
VALUE
The NAV per share of our
outstanding shares of common stock is determined quarterly by dividing the value of total assets minus liabilities by the total number
of shares of common stock outstanding at the date as of which the determination is made.
We carry our investments at fair value, as approved in good faith using
written policies and procedures adopted by our board of directors. Investments for which market quotations are readily available are fair
valued at such market quotations obtained from independent third-party pricing services and market
makers subject to any decision by our board of directors to approve a fair value determination to reflect significant events affecting
the value of these investments. We value investments for which market quotations are not readily available at fair value as approved in
good faith by our board of directors based on input from Saratoga Investment Advisors, our audit committee of our board of directors and
a third party independent valuation firm. We use multiple techniques for determining fair value
based on the nature of the investment and experience with those types of investments and specific portfolio companies. The selections
of the valuation techniques and the inputs and assumptions used within those techniques often require subjective judgments and
estimates. These techniques include market comparables, discounted cash flows and enterprise value
waterfalls. Fair value is best expressed as a range of values from which the Company determines a single best estimate. The types
of inputs and assumptions that may be considered in determining the range of values of our investments include the nature and realizable
value of any collateral, the portfolio company’s ability to make payments, market yield trend
analysis and volatility in future interest rates, call and put features, the markets in which the portfolio company does business,
comparison to publicly traded companies, discounted cash flow and other relevant factors.
Our investments in Saratoga
CLO and SLF 2022 are carried at fair value, which is based on a discounted cash flows that utilizes prepayment, re-investment and loss
assumptions based on historical experience and projected performance, economic factors, the characteristics of the underlying cash flow,
and market comparables for equity interests in collateralized loan obligation funds similar to Saratoga CLO and SLF 2022, when available,
as determined by Saratoga Investment Advisors and recommended to our board of directors. Specifically, we use Intex cash flows, or an
appropriate substitute, to form the basis for the valuation of our investments in Saratoga CLO and SLF 2022. The cash flows use a set
of inputs including projected default rates, recovery rates, reinvestment rates and prepayment rates in order to arrive at estimated
valuations. The inputs are based on available market data and projections provided by third parties as well as management estimates.
We use the output from the Intex models (i.e., the estimated cash flows) to perform a discounted cash flow analysis on expected future
cash flows to determine the valuation for our investments in Saratoga CLO and SLF 2022.
We undertake a multi-step
valuation process each quarter when valuing investments for which market quotations are not readily available, as described below:
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each investment
is initially valued by the responsible investment professionals of Saratoga Investment Advisors and preliminary valuation conclusions
are documented and discussed with our senior management; and |
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an independent valuation firm engaged by our board of directors independently
reviews a selection of these preliminary valuations each quarter so that the valuation of each investment for which market quotes are
not readily available is reviewed by the independent valuation firm at least once each fiscal year. We
use a third-party independent valuation firm to value our investments in the subordinated notes of Saratoga CLO and the Class F-2-R-3
Notes tranche of the Saratoga CLO, and the Class E Notes tranche of the SLF 2022 every quarter. |
In addition, all our investments
are subject to the following valuation process:
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the
audit committee of our board of directors reviews and approves each preliminary valuation and our investment adviser and independent
valuation firm (if applicable) will supplement the preliminary valuation to reflect any comments provided by the audit committee;
and |
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our
board of directors discusses the valuations and approves the fair value of each investment in good faith based on the input of our
investment adviser, independent valuation firm (to the extent applicable) and the audit committee of our board of directors. |
Because such valuations,
and particularly valuations of private investments and private companies, are inherently uncertain, they may fluctuate over short periods
of time and may be based on estimates.
The determination of fair
value may differ materially from the values that would have been used if a ready market for these investments existed. Our NAV could
be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values
that we ultimately realize upon the disposal of such investments.
In September 2006, the Financial
Accounting Standards Board, (the “FASB”), issued Statement of Financial Accounting Standards No. 157, “Fair Value
Measurements” (“FAS 157”). In conjunction with Accounting Standards Codification (“ASC”) 105 issued by
the FASB in June 2009, FAS 157 has been codified in ASC 820, “Fair Value Measurement and Disclosures” (“ASC 820”).
ASC 820 defines fair value, establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles
in the United Sates, or GAAP, and expands disclosures about fair value measurements.
We value all investments
in accordance with ASC 820. As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between independent market participants at the measurement date.
ASC 820 establishes a hierarchal
disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair
value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific
to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted
prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Based on the observability
of the inputs used in the valuation techniques, we are required to provide disclosures on fair value measurements according to the fair
value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at
fair value are classified and disclosed in one of the following three categories:
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Level 1—Valuations based on quoted prices in active markets for
identical assets or liabilities that we have the ability to access. |
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Level 2—Pricing inputs are other than quoted prices in active
markets, which are either directly or indirectly observable as of the reporting date. Such inputs may be quoted prices for similar
assets or liabilities, quoted markets that are not active, or other inputs that are observable or can be corroborated by observable
market data for substantially the full character of the financial instrument, or inputs that are derived principally from, or corroborated
by, observable market information. Investments which are generally included in this category include illiquid debt securities and
less liquid, privately held or restricted equity securities, for which some level of recent trading activity has been observed. |
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Level 3—Pricing inputs are unobservable for the investment and
includes situations where there is little, if any, market activity for the investment. The inputs may be based on the our own assumptions
about how market participants would price the asset or liability or may use Level 2 inputs, as adjusted, to reflect specific investment
attributes relative to a broader market assumption. Even if observable market data for comparable performance or valuation measures
(earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level
3 if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation
technique. We use multiple techniques for determining fair value based on the nature of the investment and experience with those
types of investments and specific portfolio companies. The selections of the valuation techniques and the inputs and assumptions
used within those techniques often require subjective judgements and estimates. These techniques include market comparables, discounted
cash flows and enterprise value waterfalls. Fair value is best expressed as a range of values from which we determine a single best
estimate. The types of inputs and assumptions that may be considered in determining the range of values of our investments include
the nature and realizable value of any collateral, the portfolio company’s ability to make payments, market yield trend analysis
and volatility in future interest rates, call and put features, the markets in which the portfolio company does business, comparison
to publicly traded companies, discounted cash flows and other relevant factors. |
In addition to using the
above inputs in investment valuations, we continue to employ the valuation policy approved by the board of directors that is consistent
with ASC 820 and the 1940 Act (see Note 2 in our most recent Annual Report on Form 10-K and most recent Quarterly Report on Form 10-Q).
Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in
determining fair value.
Ongoing relationships with
and monitoring of portfolio companies
Saratoga Investment Advisors
closely monitors each investment we make and, when appropriate, conducts a regular dialogue with both the management team and other debtholders
and seeks specifically tailored financial reporting. In addition, in certain circumstances, senior investment professionals of Saratoga
Investment Advisors may take board seats or board observation seats.
Determinations in Connection
with Offerings
In connection with any offering
of shares of our common stock, our board of directors or one of its committees will be required to make the determination that we are
not selling shares of our common stock at a price below the then current NAV of our common stock or, if our shareholders have granted
us the authority to sell shares of our common stock at a price below the then current NAV per share, at a level consistent with such
explicit authority, at the time at which the sale is made. Our board of directors or the applicable committee will consider the following
factors, among others, in making such determination:
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the NAV of our common stock most recently disclosed
by us in the most recent periodic report that we filed with the SEC; |
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our management’s assessment of whether any
material change in the NAV of our common stock has occurred (including through the realization of gains on the sale of our portfolio
securities) during the period beginning on the date of the most recently disclosed NAV of our common stock in our most recent periodic
report that we filed with the SEC and ending two days prior to the date of the sale of our common stock; and |
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the magnitude of the difference between the NAV
of our common stock most recently disclosed by us in our most recent periodic report that we filed with the SEC and our management’s
assessment of any material change in the NAV of our common stock since that determination, and the offering price of the shares of
our common stock in the proposed offering. |
The processes and procedures
set forth above are part of our compliance policies and procedures. In addition, we will make a record of any such determinations made
and such documentation will be maintained in a manner consistent with our other 1940 Act related materials.
SALES OF COMMON STOCK BELOW
NET ASSET VALUE
We are not generally able
to sell our common stock at a price below NAV per share. We may, however, sell our common stock at a price below NAV per share (i) in
connection with a rights offering to our existing stockholders, (ii) with the approval of our common stockholders, or (iii) under
such other circumstances as the SEC may permit. For example, we may sell our common stock at a price below the then current NAV of our
common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders,
and our stockholders approve our policy and practice of making such sales. We do not have stockholder approval and do not currently intend
to seek stockholder approval to allow us to issue common stock at a price below NAV per share.
Any offering of common stock
below its NAV per share will be designed to raise capital for investment in accordance with our investment objective. In making a determination
that an offering of common stock below its NAV per share is in our and our stockholders’ best interests, our board of directors
will consider a variety of factors including:
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the effect
that an offering below NAV per share would have on our stockholders, including the potential dilution to the NAV per share of our
common stock our stockholders would experience as a result of the offering; |
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the amount
per share by which the offering price per share and the net proceeds per share are less than our most recently determined NAV per
share; |
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the
relationship of recent market prices of par common stock to NAV per share and the potential impact of the offering on the market
price per share of our common stock; |
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whether
the estimated offering price would closely approximate the market value of shares of our common stock; |
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the
potential market impact of being able to raise capital during the current financial market difficulties; |
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the
nature of any new investors anticipated to acquire shares of our common stock in the offering; |
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the
anticipated rate of return on and quality, type and availability of investments; and |
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the
leverage available to us. |
Our board of directors will
also consider the fact that sales of shares of common stock at a discount will benefit our investment adviser as the investment adviser
will earn additional investment management fees on the proceeds of such offerings, as it would from the offering of any other of our
securities or from the offering of common stock at a premium to NAV per share.
Sales by us of our common
stock at a discount from NAV per share pose potential risks for our existing stockholders whether or not they participate in the offering,
as well as for new investors who participate in the offering. Any sale of common stock at a price below NAV per share would result in
an immediate dilution to existing common stockholders who do not participate in such sale on at least a pro-rata basis. See “Risk
Factors—Risks Relating to Our Common Stock—Stockholders may incur dilution if we sell shares of our common stock in one or
more offerings at prices below the then current net asset value per share of our common stock.”
The following three headings
and accompanying tables explain and provide hypothetical examples on the impact of an offering of our common stock at a price less than
NAV per share on three different types of investors:
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existing
stockholders who do not purchase any shares in the offering; |
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existing
stockholders who purchase a relatively small amount of shares in the offering or a relatively large amount of shares in the offering;
and |
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new investors who become
stockholders by purchasing shares in the offering. |
Impact On Existing Stockholders
Who Do Not Participate in the Offering
Our current stockholders
who do not participate in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or
lower price as we obtain in the offering (after expenses and commissions) face the greatest potential risks. These stockholders will
experience an immediate dilution in the NAV of the shares of common stock they hold and their NAV per share. These stockholders will
also experience a disproportionately greater decrease in their participation in our earnings and assets and in their voting power than
the increase we will experience in our assets, potential earning power and voting interests due to such offering. These stockholders
may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases
and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.
Further, if current stockholders do not purchase any shares to maintain their percentage interest, regardless of whether such offering
is above or below the then current NAV, their voting power will be diluted.
The following table illustrates
the level of NAV dilution that would be experienced by a nonparticipating stockholder in three different hypothetical offerings of different
sizes and levels of discount from NAV per share, although it is not possible to predict the level
of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below.
The examples assume that
Company XYZ has 5,500,000 shares of common stock outstanding, $273,000,000 in total assets and $150,000,000 in total liabilities. The
current NAV and NAV per share are thus $123,000,000 and $22.36. The table illustrates the dilutive effect on nonparticipating Stockholder
A of (1) the issuance of 550,000 shares (10% of the outstanding shares) at an offering price of $20.12 per share to investors (a
10% discount from NAV); (2) the issuance of 1,100,000 shares (20% of the outstanding shares) at an offering price of $19.01 per
share to investors (a 15% discount from NAV); (3) the issuance of 2,200,000 shares (40% of the outstanding shares) at an offering
price of $19.01 per share to investors (a 15% discount from NAV); and (4) the issuance of 5,500,000 (100% of the outstanding shares)
at an offering price of $19.01 per share to investors (a 15% discount from NAV).
| |
Prior to | | |
Example 1 10% Offering
at 10% Discount | | |
Example 2 20% Offering
at 15% Discount | | |
Example 3 40% Offering
at 15% Discount | | |
Example 4 100% Offering
at 15% Discount | |
| |
Sale Below
NAV | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | |
Offering Price | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Price per Share to Public | |
| — | | |
$ | 20.12 | | |
| — | | |
| 19.01 | | |
| — | | |
$ | 19.01 | | |
| — | | |
$ | 19.01 | | |
| — | |
Net Proceeds per Share to Issuer(1) | |
| — | | |
$ | 18.71 | | |
| — | | |
| 17.68 | | |
| — | | |
$ | 17.68 | | |
| — | | |
$ | 17.68 | | |
| — | |
Decrease to NAV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total Shares Outstanding | |
| 5,500,000 | | |
| 6,050,000 | | |
| 10.00 | % | |
| 6,600,000 | | |
| 20.00 | % | |
| 7,700,000 | | |
| 40.00 | % | |
| 11,000,000 | | |
| 100 | % |
NAV per Share | |
| 22.36 | | |
$ | 22.03 | | |
| -1.48 | % | |
$ | 21.58 | | |
| -3.49 | % | |
$ | 21.03 | | |
| -5.97 | % | |
| 20.02 | | |
| -10.46 | % |
Dilution to Stockholder | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares Held by Stockholder A | |
| 11,000 | | |
| 11,000 | | |
| — | | |
| 11,000 | | |
| — | | |
| 11,000 | | |
| — | | |
| 11,000 | | |
| — | |
Percentage Held by Stockholder A | |
| 0.20 | % | |
| 0.18 | % | |
| -9.09 | % | |
| 0.17 | % | |
| -16.67 | % | |
| 0.14 | % | |
| -28.57 | % | |
| 0.10 | % | |
| -50.00 | % |
Total Asset Values | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total NAV Held by Stockholder A | |
$ | 245,960 | | |
$ | 242,320 | | |
| -1.48 | % | |
| 237,376 | | |
| -3.49 | % | |
$ | 231,276 | | |
| -5.97 | % | |
$ | 220,233 | | |
| -10.46 | % |
Total Investment by Stockholder A (Assumed to be $22.36 per
Share) | |
$ | — | | |
$ | 245,960 | | |
| — | | |
$ | 245,960 | | |
| — | | |
$ | 245,960 | | |
| — | | |
$ | 245,960 | | |
| — | |
Total Dilution to Stockholder A (Total NAV Less Total Investment) | |
| — | | |
$ | -3,640 | | |
| — | | |
| -8,584 | | |
| — | | |
| -14,684 | | |
| — | | |
$ | -25,727 | | |
| — | |
Per Share Amounts | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NAV per Share Held by Stockholder A | |
| — | | |
$ | 22.03 | | |
| — | | |
| 21.58 | | |
| — | | |
$ | 21.03 | | |
| — | | |
$ | 20.02 | | |
| — | |
Investment per Share Held by Stockholder A (Assumed to be
$22.36 per Share on Shares Held Prior to Sale) | |
$ | — | | |
$ | 22.36 | | |
| — | | |
| 22.36 | | |
| — | | |
$ | 22.36 | | |
| — | | |
$ | 22.36 | | |
| — | |
Dilution per Share Held by Stockholder A (NAV per Share Less Investment
per Share) | |
| — | | |
$ | -0.33 | | |
| — | | |
$ | -0.78 | | |
| — | | |
$ | -1.33 | | |
| — | | |
$ | -2.34 | | |
| — | |
Percentage Dilution to Stockholder A (Dilution per Share Divided
by Investment per Share) | |
| — | | |
| — | | |
| -1.5 | % | |
| — | | |
| -3.5 | % | |
| — | | |
| -6.0 | % | |
| — | | |
| -10.50 | % |
| (1) | Assumes
7% issuance discount. |
Impact on Existing Stockholders
Who Do Participate in the Offering
Our existing stockholders
who participate in an offering below NAV per share or who buy additional shares in the secondary market at the same or lower price as
we obtain in the offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders,
albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our
shares immediately prior to the offering. The level of NAV dilution to such stockholders will decrease as the number of shares such stockholders
purchase increases. Existing stockholders who buy more than their proportionate percentage will experience NAV dilution but will, in
contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called
accretion) in NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation
in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the
offering. The level of accretion will increase as the excess number of shares purchased by such stockholder increases. Even a stockholder
who over-participates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder
does not participate, in which case such a stockholder will experience NAV dilution as described above in any subsequent offerings. These
stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential
decreases in NAV per share. This decrease could be more pronounced as the size of the offering and the level of discount to NAV increases.
The following chart illustrates
the level of dilution and accretion in the hypothetical 20% offering at a 15% discount from the prior chart (Example 3) for a stockholder
that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e., 1,100) shares, which is 0.1% of an offering
of 1,100,000 shares rather than its 0.2% proportionate share) and (2) 150% of such percentage (i.e., 3,300 shares, which is 0.3%
of an offering of 1,100,000 shares rather than its 0.2% proportionate share). The prospectus supplement pursuant to which any discounted
offering is made will include a chart for this example based on the actual number of shares in such offering and the actual discount
from the most recently determined NAV per share.
| |
Prior to | | |
50% Participation | | |
150% Participation | |
| |
Sale Below
NAV | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | |
Offering Price | |
| | |
| | |
| | |
| | |
| |
Price per Share to Public | |
| — | | |
$ | 19.01 | | |
| — | % | |
$ | 19.01 | | |
| — | % |
Net Proceeds per Share to Issuer(1) | |
| — | | |
$ | 17.68 | | |
| — | % | |
$ | 17.68 | | |
| — | % |
Increase in Shares and
Decrease to NAV | |
| | | |
| | | |
| | | |
| | | |
| | |
Total Shares Outstanding | |
| 5,500,000 | | |
| 6,600,000 | | |
| 20 | % | |
| 6,600,000 | | |
| 20 | % |
NAV per share | |
$ | 22.36 | | |
$ | 21.58 | | |
| -3.49 | % | |
$ | 21.58 | | |
| -3.49 | % |
Dilution/Accretion to Participating
Stockholder A | |
| | | |
| | | |
| | | |
| | | |
| | |
Share Dilution/Accretion | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares Held by Stockholder A | |
| 11,000 | | |
| 12,100 | | |
| 10 | % | |
| 14,300 | | |
| 30 | % |
Percentage Outstanding Held by Stockholder A | |
| 0.2 | % | |
| 0.18 | % | |
| -8.33 | % | |
| 0.21 | % | |
| 8.33 | % |
NAV Dilution/Accretion | |
| | | |
| | | |
| | | |
| | | |
| | |
Total NAV Held by Stockholder A | |
$ | 245,960 | | |
$ | 261,118 | | |
| 6.16 | % | |
$ | 308,594 | | |
| 25.47 | % |
Total Investment by Stockholder A (Assumed to be $22.36 per Share
on Shares Held Prior to Sale) | |
| — | | |
$ | 265,408 | | |
| — | | |
$ | 304,304 | | |
| — | |
Total Dilution/Accretion to Stockholder A (Total NAV Less Total
Investment) | |
$ | — | | |
$ | -4,290 | | |
| -1.64 | % | |
$ | 4,290 | | |
| 1.39 | % |
NAV Dilution/Accretion per Share | |
| | | |
| | | |
| | | |
| | | |
| | |
NAV per Share Held by Stockholder A | |
$ | — | | |
$ | 21.58 | | |
| -3.49 | % | |
$ | 21.58 | | |
| -3.49 | % |
Investment per Share Held by Stockholder A (Assumed to be $22.36
per Share on Shares Held Prior to Sale) | |
$ | — | | |
$ | 21.93 | | |
| — | % | |
$ | 21.28 | | |
| — | % |
NAV Dilution/Accretion per Share Experienced by Stockholder A
(NAV per Share Less Investment per Share) | |
| — | | |
$ | -0.35 | | |
| — | % | |
$ | 0.30 | | |
| — | % |
Percentage NAV Dilution/Accretion Experienced by Stockholder A
(NAV Dilution/Accretion per Share Divided by Investment per Share) | |
| — | | |
| — | | |
| -1.60 | % | |
| — | | |
| 1.41 | % |
(1) |
Assumes 7% issuance discount. |
Impact on New Investors
Investors who are not currently
stockholders, but who participate in an offering below NAV and whose investment per share is greater than the resulting NAV per share
due to selling compensation and expenses paid by us will experience an immediate decrease, albeit small, in the NAV of their shares and
their NAV per share compared to the price they pay for their shares (Example 1 below). On the other hand, investors who are not currently
stockholders, but who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV
per share will experience an immediate increase in the NAV of their shares and their NAV per share compared to the price they pay for
their shares (Examples 2 and 3 below). These latter investors will experience a disproportionately greater participation in our earnings
and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however,
be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which
case such new stockholder will experience dilution as described above in any subsequent offerings. These investors may also experience
a decline in the market price of their shares, which often reflects to some degree announced or potential decreases in NAV per share.
This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.
The following chart illustrates
the level of dilution or accretion for new investors that would be experienced by a new investor in the same hypothetical discounted
offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (0.20%) of
the shares in the offering as Stockholder A in the prior examples held immediately prior to the offering. The prospectus supplement pursuant
to which any discounted offering is made will include a chart for these examples based on the actual number of shares in such offering
and the actual discount from the most recently determined NAV per share.
| |
Prior to | | |
Example 1 10% Offering
at 10% Discount | | |
Example 2 20% Offering
at 15% Discount | | |
Example 3 40% Offering
at 15% Discount | | |
Example 4 100% Offering
at 15% Discount | |
| |
Sale Below
NAV | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | | |
Following
Sale | | |
% Change | |
Offering Price | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Price per Share to Public | |
| — | | |
$ | 20.12 | | |
| — | | |
$ | 19.01 | | |
| — | % | |
$ | 19.01 | | |
| — | % | |
$ | 19.01 | | |
| — | % |
Net Proceeds per Share to Issuer | |
| — | | |
$ | 18.71 | | |
| — | | |
$ | 17.68 | | |
| — | % | |
$ | 17.68 | | |
| — | % | |
$ | 17.68 | | |
| — | % |
Increase in Shares and
Decrease to NAV | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total Shares Outstanding | |
| 5,500,000 | | |
| 6,050,000 | | |
| 10 | % | |
| 6,600,000 | | |
| 20 | % | |
| 7,700,000 | | |
| 40 | % | |
| 11,000,000 | | |
| 100 | % |
NAV per Share | |
$ | 22.36 | | |
$ | 22.03 | | |
| -1.48 | % | |
$ | 21.58 | | |
| -3.49 | % | |
$ | 21.03 | | |
| -5.99 | % | |
$ | 20.02 | | |
| -10.48 | % |
Dilution/Accretion to New
Investor A | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share Dilution | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares held by Investor A | |
| — | | |
| 1,100 | | |
| — | % | |
| 2,200 | | |
| — | % | |
| 4,400 | | |
| — | % | |
| 11,000 | | |
| — | % |
Percentage Outstanding Held by Investor A | |
| — | % | |
| 0.02 | % | |
| — | % | |
| 0.03 | % | |
| — | % | |
| 0.06 | | |
| — | % | |
| 0.10 | | |
| — | % |
NAV Dilution | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total NAV Held by Investor A | |
| — | | |
$ | 22,030 | | |
| — | % | |
$ | 47,476 | | |
| — | % | |
$ | 92,532 | | |
| — | % | |
$ | 220,220 | | |
| — | % |
Total Investment by Investor A (At Price to Public) | |
| — | | |
$ | 18,710 | | |
| — | % | |
$ | 38,896 | | |
| — | % | |
$ | 77,792 | | |
| — | % | |
$ | 194,480 | | |
| — | % |
Total Dilution/Accretion to Investor A (Total NAV Less Total Investment) | |
| — | | |
$ | 3,720 | | |
| 17.74 | % | |
$ | 8,580 | | |
| 22.06 | % | |
$ | 14,740 | | |
| 18.95 | % | |
$ | 25,740 | | |
| 13.24 | % |
NAV Dilution per Share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NAV per Share Held by Investor A | |
| — | | |
$ | 22.03 | | |
| — | % | |
$ | 21.58 | | |
| — | % | |
$ | 21.03 | | |
| — | % | |
$ | 20.02 | | |
| — | % |
Investment per Share Held by Investor A | |
| — | | |
$ | 18.71 | | |
| — | % | |
$ | 17.68 | | |
| — | % | |
$ | 17.68 | | |
| — | % | |
$ | 17.68 | | |
| — | % |
NAV Dilution/Accretion per Share Experienced by Investor
A (NAV per Share Less Investment per Share) | |
| — | | |
$ | 3.32 | | |
| — | % | |
$ | 3.90 | | |
| — | % | |
$ | 3.35 | | |
| — | % | |
$ | 2.34 | | |
| — | % |
Percentage NAV Dilution/Accretion Experienced by Investor A (NAV
Dilution/ Accretion per Share Divided by Investment per Share) | |
| — | | |
| — | | |
| 17.74 | % | |
| — | | |
| 22.06 | % | |
| — | | |
| 18.95 | % | |
| — | | |
| 13.24 | % |
DESCRIPTION
OF OUR CAPITAL STOCK
The
following description is based on relevant portions of the Maryland General Corporation Law (the “MGCL”) and our charter
and bylaws, which we collectively refer to as our “governing documents.”
As
of the date of this prospectus, our authorized stock consists of 100,000,000 shares of capital stock, $0.001 par value per share, all
of which are designated as shares of common stock. Our common stock trades under the symbol “SAR” on the NYSE. There are
no outstanding options or warrants to purchase our common stock. No shares of common stock have been authorized for issuance under any
equity compensation plans. Under the MGCL, our stockholders generally are not personally liable for our debts or obligations.
Under
our governing documents, our board of directors is authorized to create new classes or series of shares of stock and to authorize the
issuance of shares of stock without obtaining stockholder approval. Our charter provides that the board of directors, 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
Each
share of our common stock has equal rights as to earnings, assets, dividends and voting and all of our outstanding shares of common stock
are 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 of directors and declared by us out of funds legally available therefor. Shares of our common stock
have no preemptive, exchange, conversion or redemption rights.
In
the event of our liquidation, dissolution or winding up, each share of 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 shares of our preferred stock, if any are outstanding at such time. Each share of our common stock entitles its holder
to cast one vote on all matters submitted to a vote of stockholders, including the election and removal of directors.
The
following table sets forth information regarding our authorized shares of stock under our charter and shares of stock outstanding as
of February 17, 2023.
Title
of Class | |
Shares
Authorized | | |
Amount
Held by Us or for Our Account | | |
Amount
Outstanding Exclusive of Amount Held by Us or for Our Account | |
Common
Stock | |
| 100,000,000 | | |
| — | | |
| 11,890,500 | |
Preferred
Stock
Our
governing documents authorize our board of directors to classify and reclassify any unissued shares of stock into other classes or series
of stock, including preferred stock. Prior to the issuance of shares of stock of each class or series, the board of directors is required
by our governing documents 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 of shares of stock. Thus,
the board of directors could authorize the issuance of preferred stock with terms and conditions that 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. In addition, as a BDC, any issuance of preferred stock must comply with the requirements of the 1940 Act.
The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is
made with respect to our common stock and before any purchase of common stock is made, the aggregate dividend or distribution on, or
purchase price of, such shares of preferred stock together with all other indebtedness and senior securities must not exceed an amount
equal to 50% of our total 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 dividends on such preferred stock is in arrears by two years or more. Certain matters under the 1940 Act
require the separate vote of the holders of any issued and outstanding shares of preferred stock. We believe that the availability for
issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.
Limitation
on Liability of Directors and Officers; Indemnification and Advance of Expenses
The
MGCL permits a Maryland corporation to include in its charter a provision limiting 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 as being material
to the cause of action. Our governing documents contain a provision which eliminates directors’ and officers’ liability to
the maximum extent permitted by the MGCL, subject to the requirements of the 1940 Act.
The
MGCL requires a corporation (unless its charter provides otherwise, which, our charter 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. The MGCL 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 which they may be made or are threatened to be made a party 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. However, under the MGCL, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis
that a personal benefit was improperly received unless, in either case, a court orders indemnification, and then only for expenses. In
addition, the MGCL 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
charter authorizes us to obligate ourselves, and our bylaws do obligate us, to the maximum extent permitted by the MGCL and subject to
any applicable requirements of the 1940 Act, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition
of a proceeding to (1) any present or former director or officer or (2) any individual who, while a director or officer and
at our request, serves or has served another corporation, real estate investment trust, partnership, limited liability company, joint
venture, trust, employee benefit plan or other enterprise as a director, officer, partner, manager, member or trustee, from and against
any claim or liability to which that person may become subject for which that person may incur by reason of his or her service in such
capacity. Our charter and bylaws also permit indemnification and the advancement of expenses to any person who served a predecessor to
Saratoga Investment Corp. in any of the capacities described above and any of our employees or agents or any employees or agents of such
predecessor.
As
a BDC, and in accordance with the 1940 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.
In
addition to the indemnification provided for in our bylaws, we have entered into indemnification agreements with each of our current
directors and officers and we intend to enter into indemnification agreements with each of our future directors and officers. The indemnification
agreements attempt to provide these directors and officers the maximum indemnification permitted under the MGCL and the 1940 Act. The
agreements provide, among other things, for the advancement of expenses and indemnification for liabilities incurred which such person
may incur by reason of his or her status as a present or former director or officer in any action or proceeding arising out of the performance
of such person’s services as a present or former director or officer.
Provisions
of Our Governing Documents and the Maryland General Corporation Law
Our
governing documents and the MGCL contain provisions that could make it more difficult for a potential acquiror 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 of directors. 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 of directors is divided into three classes of directors serving staggered three-year terms. Directors of each class are elected
to serve for three-year terms and until their successors are duly elected and qualify, and each year one class of directors is 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 of directors will help to ensure the continuity
and stability of our management and policies.
Number
of Directors; Vacancies; Removal
Our
governing documents provide that the number of directors will be set only by our board of directors in accordance with our bylaws. Our
bylaws provide that a majority of our entire board of directors 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 three nor more than eleven. Our charter provides that,
except as may be provided by the board of directors in setting the terms of any class or series of shares of stock, so long as we have
a class of securities registered under the Exchange Act and at least three independent directors, any and all vacancies on the board
of directors 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 1940 Act.
If there are no directors then in office, vacancies may be filled by stockholders at a special meeting called for such purpose. Our charter
provides that a director may be removed only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally
in the election of directors.
Election
of Directors
Our
charter and bylaws provide that the affirmative vote of the holders of a plurality of the votes cast at a meeting of the Company’s
stockholders duly called and at which a quorum is present will be required to elect each director. Pursuant to our charter and bylaws,
our board of directors may amend the bylaws to alter the vote required to elect directors.
Action
by Stockholders
All
of our outstanding shares of common stock will generally be able to vote on any matter that is a proper subject for action by the stockholders
of a Maryland corporation, including in respect of the election or removal of directors as well as other extraordinary matters. Under
the MGCL, stockholder action can be taken only at an annual or special meeting of stockholders or by written or electronically-transmitted unanimous
consent in lieu of a meeting. These provisions, combined with the requirements of our governing documents regarding the calling of a stockholder-requested special
meeting of stockholder 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 our stockholders, nominations of individuals for election to the board of directors
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 the board of directors, (3) by any stockholder who is a stockholder of record both at the time of giving
notice by the stockholder and at the time of the annual meeting, who is entitled to vote at the meeting and who has complied with the
advance notice procedures of the 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 individuals for election to the board of directors at a special meeting
may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of the board of directors, (3) provided
that the board of directors has determined that directors will be elected at the meeting, by a stockholder who is a stockholder of record
both at the time of giving notice by the stockholder and at the time of the special meeting and who is entitled to vote at the meeting
and who has complied with the advance notice provisions of our bylaws or (4) by a stockholder who is entitled to vote at the meeting
in circumstances in which a special meeting of stockholders is called for the purpose of electing directors when no directors remain
in office.
The
purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors 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 of directors, 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 of directors 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 and 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 our stockholders may be called by our board of directors 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 our stockholders will be called by our secretary 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, except that, if no directors remain in office,
a special meeting of our stockholders shall be called to elect directors by the secretary upon the written request of holders entitled
to cast at least 10% of the votes entitled to be cast generally in the election of directors.
Amendment
of Governing Documents
Under
the MGCL, a Maryland corporation generally cannot dissolve or amend its charter unless the corporation’s board of directors declares
the dissolution or amendment to be advisable and the dissolution or amendment is approved by the affirmative vote of stockholders entitled
to cast at least two-thirds of the votes entitled to be cast on the matter. 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 to our charter by the stockholders entitled to cast at least a majority of the votes entitled
to be cast on the matter. However, our charter also provides that certain charter amendments and proposals for our liquidation, dissolution
or conversion, whether by merger or otherwise, from a closed-end company to an open-end company require the approval of the stockholders
entitled to cast at least two-thirds percent of the votes entitled to be cast on such matter. If such amendment or proposal is approved
by at least two-thirds of our continuing directors (in addition to approval by our board of directors), such amendment or proposal may
be approved by a majority of the votes entitled to be cast on such a matter. The “continuing directors” are, as defined in
our charter, our current directors as well as those directors whose nomination for election by the stockholders or whose election by
the directors to fill vacancies is approved by a majority of the continuing directors then on the board of directors.
Our
governing documents provide that the board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws
and to make new bylaws.
Approval
of Extraordinary Actions
Under
the MGCL, a Maryland corporation generally cannot amend its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of business, unless the corporation’s board of directors
declares action or transaction to be advisable and the action or transaction is approved by the affirmative vote of stockholders entitled
to cast at least two-thirds of the votes entitled to be cast on the matter. 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.
Except
for a merger that would result in our conversion to an open-end company, which requires the approval described above, our charter provides
that we may merge, sell all or substantially all of our assets, engage in a consolidation or share exchange or engage in similar transactions,
if such transaction is declared advisable by our board of directors and approved by a majority of all of the votes entitled to be cast
on the matter.
No
Appraisal Rights
Except
with respect to appraisal rights arising in connection with the Maryland Control Share Acquisition Act discussed below, as permitted
by the MGCL, our governing documents provide that our stockholders will not be entitled to exercise appraisal rights unless a majority
of our board of directors determines that such rights will apply with respect to all or any classes or series of stock, to one or more
transactions occurring after the date of such determination in connection with which holders of such shares would otherwise be entitled
to exercise appraisal rights.
Control Share
Acquisitions
The
Control Share Acquisition Act provides that control shares of a Maryland corporation acquired in a control share acquisition have no
voting rights with respect to the control shares except to the extent approved by the affirmative vote of two-thirds of the votes entitled
to be cast on the matter. Shares owned by the acquiror, 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 acquiror or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror 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 acquiror crosses one of the thresholds of voting power set forth above.
Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder
approval or shares acquired directly from the corporation. 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 stockholder 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 repurchase 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 repurchase control shares is subject to certain conditions and limitations,
including, as provided in our bylaws, compliance with the 1940 Act, which will prohibit any such repurchase other than in limited circumstances.
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 acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved.
If voting rights for control shares are approved at a stockholder meeting and the acquiror 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 acquiror in the control share acquisition.
The
Control Share Acquisition Act does not apply (a) to shares 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 Control Share Acquisition Act any and all acquisitions by any person of our common stock.
Such provision could also be amended or eliminated at any time in the future. The SEC staff previously
took the position that, if a BDC failed to opt-out of the Control Share Acquisition Act, its actions would be inconsistent
with Section 18(i) of the 1940 Act. However, the SEC recently withdrew its previous position, and stated that it would not recommend
enforcement action against a closed-end fund, including a BDC, that opts in to being subject to the Control Share Acquisition
Act if the closed-end fund acts with reasonable care on a basis consistent with other applicable duties and laws and the duty
to the company and its shareholders generally. As such, we may amend our bylaws, but will do so only if our board of director determines
that it would be in our best interests and if such amendment can be accomplished in compliance with applicable laws, regulations and
SEC guidance.
Business Combinations
Under
the MGCL, “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:
| ● | any
person who beneficially owns 10% or more of the voting power of the corporation’s 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 of directors approved in advance the transaction by which the
stockholder otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors 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 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
shares 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 stockholders receive a minimum price, as defined under the MGCL, for their shares
in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The
statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before
the time that the interested stockholder becomes an interested stockholder. Our board of directors has adopted a resolution exempting
from the provisions of the Maryland Business Combination Act any business combination between us and any other person. If our board of
directors adopts resolutions causing us to be subject to the provisions of the Business Combination Act, these provisions may discourage
others from trying to acquire control of us and increase the difficulty of consummating any offer.
Conflict with
1940 Act
Our
bylaws provide that, if and to the extent that any provision of the MGCL, including the Control Share Acquisition Act or the Business
Combination Act (if we amend our bylaws to be subject to such Acts), or any provision of our charter or bylaws conflicts with any provision
of the 1940 Act, the applicable provision of the 1940 Act will control.
DESCRIPTION
OF OUR SUBSCRIPTION RIGHTS
We
may issue subscription rights to our stockholders to purchase common stock. Subscription rights may be issued independently or together
with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription rights. In
connection with any subscription rights offering to our stockholders, we may enter into a standby underwriting or other arrangement with
one or more underwriters or other persons pursuant to which such underwriters or other persons would purchase any offered securities
remaining unsubscribed for after such subscription rights offering. We will not offer transferable subscription rights to our stockholders
at a price equivalent to less than the then current NAV per share of common stock, excluding underwriting commissions, unless we first
file a post-effective amendment that is declared effective by the SEC with respect to such issuance and the common stock to be purchased
in connection with the rights represents no more than one-third of our outstanding common stock at the time such rights are
issued. In connection with a subscription rights offering to our stockholders, we would distribute certificates evidencing the subscription
rights and a prospectus supplement to our stockholders on the record date that we set for receiving subscription rights in such subscription
rights offering. Our common stockholders will indirectly bear the expenses of such subscription rights offerings, regardless of whether
our common stockholders exercise any subscription rights.
The
applicable prospectus supplement would describe the following terms of subscription rights in respect of which this prospectus is being
delivered:
| ● | the
title of such subscription rights; |
| ● | the
exercise price or a formula for the determination of the exercise price for such subscription
rights; |
| ● | the
number or a formula for the determination of the number of such subscription rights issued
to each stockholder; |
| ● | the
extent to which such subscription rights are transferable; |
| ● | if
applicable, a discussion of certain U.S. federal income tax considerations applicable to
the issuance or exercise of such subscription rights; |
| ● | the
date on which the right to exercise such subscription rights would commence, and the date
on which such rights shall expire (subject to any extension); |
| ● | the
extent to which such subscription rights include an over-subscription privilege with respect
to unsubscribed securities; |
| ● | if
applicable, the material terms of any standby underwriting or other purchase arrangement
that we may enter into in connection with the subscription rights offering; and |
| ● | any
other terms of such subscription rights, including terms, procedures and limitations relating
to the exchange and exercise of such subscription rights. |
Exercise
of Subscription Rights
Each
subscription right would entitle the holder of the subscription right to purchase for cash such amount of shares of common stock or other
securities at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement
relating to the subscription rights offered thereby or another report filed with the SEC. Subscription rights may be exercised at any
time up to the close of business on the expiration date for such subscription rights set forth in the applicable prospectus supplement.
After the close of business on the expiration date, all unexercised subscription rights would become void. We have not previously completed
such an offering of subscription rights.
Subscription
rights may be exercised as set forth in the prospectus supplement relating to the subscription rights offered thereby. Upon receipt of
payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription
rights agent or any other office indicated in the prospectus supplement, we will forward, as soon as practicable, the shares of common
stock or other securities purchasable upon such exercise. To the extent permissible under applicable law, we may determine to offer any
unsubscribed offered securities directly to stockholders, persons other than stockholders, to or through agents, underwriters or dealers
or through a combination of such methods, including pursuant to standby underwriting or other arrangements, as set forth in the applicable
prospectus supplement.
Dilutive
Effects
Any stockholder who chooses
not to participate in a rights offering should expect to own a smaller interest in the Company upon completion of such rights offering.
Any rights offering will dilute the ownership interest and voting power of stockholders who do not fully exercise their subscription
rights. Further, because the net proceeds per share from any rights offering may be lower than our then current NAV per share, the rights
offering may reduce our NAV per share. The amount of dilution that a stockholder will experience could be substantial, particularly to
the extent we engage in multiple rights offerings within a limited time period. In addition, the market price of our common stock could
be adversely affected while a rights offering is ongoing as a result of the possibility that a significant number of additional shares
may be issued upon completion of such rights offering. All of our stockholders will also indirectly bear the expenses associated with
any rights offering we may conduct, regardless of whether they elect to exercise any rights.
DESCRIPTION
OF OUR DEBT SECURITIES
We
may issue debt securities in one or more series. The specific terms of each series of debt securities will be described in the particular
prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus
and will be filed with the SEC. For a complete description of the terms of a particular series of debt securities, you should read both
this prospectus and the prospectus supplement relating to that particular series.
As
required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document
called an “indenture.” An indenture is a contract between us and the financial institution acting as trustee on your behalf,
and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can
enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described
in the second paragraph under “—Events of Default—Remedies if an Event of Default Occurs.” Second, the trustee
performs certain administrative duties for us with respect to our debt securities.
All
the material terms of the indenture and the supplemental indenture, as well as an explanation of your rights as a holder of debt securities,
are described in this prospectus and in the prospectus supplement accompanying this prospectus. Because this section is a summary, however,
it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it, and not this
description, defines your rights as a holder of debt securities. A copy of the form of indenture is incorporated by reference as an exhibit
to the registration statement of which this prospectus is a part. See “Available Information” for information on how to obtain
a copy of the indenture. We will file a supplemental indenture with the SEC in connection with any debt offering, at which time the supplemental
indenture would be publicly available.
The
prospectus supplement, which will accompany this prospectus, will describe the particular series of debt securities being offered by
including:
| ● | the
designation or title of the series of debt securities; |
| ● | the
total principal amount of the series of debt securities; |
| ● | the
percentage of the principal amount at which the series of debt securities will be offered; |
| ● | the
date or dates on which principal will be payable; |
| ● | the
rate or rates (which may be either fixed or variable) and/or the method of determining such
rate or rates of interest, if any; |
| ● | the
date or dates from which any interest will accrue, or the method of determining such date
or dates, and the date or dates on which any interest will be payable; |
| ● | whether
any interest may be paid by issuing additional securities of the same series in lieu of cash
(and the terms upon which any such interest may be paid by issuing additional securities); |
| ● | the
terms for redemption, extension or early repayment, if any; |
| ● | the
currencies in which the series of debt securities are issued and payable; |
| ● | whether
the amount of payments of principal, premium or interest, if any, on a series of debt securities
will be determined with reference to an index, formula or other method (which could be based
on one or more currencies, commodities, equity indices or other indices) and how these amounts
will be determined; |
| ● | the
place or places, if any, other than or in addition to the Borough of Manhattan in the City
of New York, of payment, transfer, conversion and/or exchange of the debt securities; |
| ● | the
denominations in which the offered debt securities will be issued (if other than $1,000 and
any integral multiple thereof); |
| ● | the
provision for any sinking fund; |
| ● | any
restrictive covenants; |
| ● | any
Events of Default (as defined in “Events of Default” below); |
| ● | whether
the series of debt securities are issuable in certificated form; |
| ● | any
provisions for defeasance or covenant defeasance; |
| ● | any
special U.S. federal income tax implications, including, if applicable, U.S. federal income
tax considerations relating to original issue discount; |
| ● | whether
and under what circumstances we will pay additional amounts in respect of any tax, assessment
or governmental charge and, if so, whether we will have the option to redeem the debt securities
rather than pay the additional amounts (and the terms of this option); |
| ● | any
provisions for convertibility or exchangeability of the debt securities into or for any other
securities; |
| ● | whether
the debt securities are subject to subordination and the terms of such subordination; |
| ● | whether
the debt securities are secured and the terms of any security interest; |
| ● | the
listing, if any, on a securities exchange; and |
The
debt securities may be secured or unsecured obligations. Unless the prospectus supplement states otherwise, principal (and premium, if
any) and interest, if any, will be paid by us in immediately available funds.
Under
the provisions of the 1940 Act, we, as a BDC, pursuant to the approval of our board of directors, are permitted to issue debt only in
amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after each issuance of debt, but giving effect
to any exemptive relief granted to us by the SEC. For a discussion of the legislation that took effect that allows us to incur additional
leverage, see “Risk Factors — Risks Relating to Our Business and Structure — Effective April 16, 2019, our asset coverage
requirement was reduced from 200% to 150%, which could increase the risk of investing in the Company” in Part I, Item 1A of our
most recent Annual Report on Form 10-K. In addition, while any indebtedness and senior securities remain outstanding, we must make provisions
to prohibit the distribution 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. For a discussion of the risks associated with leverage, see “Risk Factors—Risks
Related to Our Business and Structure—Regulations governing our operation as a BDC will affect our ability to raise additional
capital.”
General
The
indenture provides that any debt securities proposed to be sold under this prospectus and the accompanying prospectus supplement (“offered
debt securities”) and any debt securities issuable upon the exercise of warrants or upon conversion or exchange of other offered
securities (“underlying debt securities”) may be issued under the indenture in one or more series.
For
purposes of this prospectus, any reference to the payment of principal of, or premium or interest, if any, on, debt securities will include
additional amounts if required by the terms of the debt securities.
The
indenture does not limit the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under
the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the “indenture securities.”
The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of
indenture securities. See “—Resignation of Trustee” below. At a time when two or more trustees are acting under the
indenture, each with respect to only certain series, the term “indenture securities” means the one or more series of debt
securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture,
the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture
securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each
trustee is acting would be treated as if issued under separate indentures.
The
indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by
another entity.
We
refer you to the prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events
of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk protection
or similar protection.
We
have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without
the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities
of that series unless the reopening was restricted when that series was created.
Conversion
and Exchange
If
any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions
of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange
period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions
for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption
of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be
received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other
securities as of a time stated in the prospectus supplement.
Issuance
of Securities in Registered Form
We
may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in “certificated”
form. Debt securities issued in book-entry form will be represented by global securities. We expect that we will usually issue
debt securities in book-entry only form represented by global securities.
Book-Entry Holders
We
will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement.
This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold
them on behalf of financial institutions that participate in the depositary’s book-entry system. These participating
institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may
hold these interests on behalf of themselves or customers.
Under
the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently,
for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and
we will make all payments on the debt securities to the depositary. The depositary will then pass along the payments it receives to its
participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants
do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the
debt securities.
As
a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through
a bank, broker or other financial institution that participates in the depositary’s book-entry system or holds an interest
through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders,
and not holders, of the debt securities.
Street
Name Holders
In
the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to
hold their debt securities in their own names or in “street name.” Debt securities held in street name are registered in
the name of a bank, broker or other financial institution chosen by the investor, and the investor would hold a beneficial interest in
those debt securities through the account he or she maintains at that institution.
For
debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose
names the debt securities are registered as the holders of those debt securities, and we will make all payments on those debt securities
to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because
they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in
street name will be indirect holders, and not holders, of the debt securities.
Legal
Holders
Our
obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee,
run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global
securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder
of a debt security or has no choice because we are issuing the debt securities only in book-entry form.
For
example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that
holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but
does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to
relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek
the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect
holders is up to the holders.
When
we refer to you in this Description of Our Debt Securities, we mean those who invest in the debt securities being offered by this prospectus,
whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt
securities in which you hold a direct or indirect interest.
Special
Considerations for Indirect Holders
If
you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name,
we urge you to check with that institution to find out:
| ● | how
it handles securities payments and notices; |
| ● | whether
it imposes fees or charges; |
| ● | how
it would handle a request for the holders’ consent, if ever required; |
| ● | whether
and how you can instruct it to send you debt securities registered in your own name so you
can be a holder, if that is permitted in the future for a particular series of debt securities; |
| ● | how
it would exercise rights under the debt securities if there were a default or other event
triggering the need for holders to act to protect their interests; and |
| ● | if
the debt securities are in book-entry form, how the depositary’s rules and
procedures will affect these matters. |
Global
Securities
As
noted above, we usually will issue debt securities as registered securities in book-entry form only. A global security represents
one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will
have the same terms.
Each
debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name
of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary.
Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC,
will be the depositary for all debt securities issued in book-entry form.
A
global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special
termination situations arise. We describe those situations below under “—Termination of a Global Security.” As a result
of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented
by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must
be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or
with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security
will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.
Special
Considerations for Global Securities
As
an indirect holder, an investor’s rights relating to a global security will be governed by the account rules of the investor’s
financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the
global security will be considered the holder of the debt securities represented by the global security.
If
debt securities are issued only in the form of a global security, an investor should be aware of the following:
| ● | an
investor cannot cause the debt securities to be registered in his or her name and cannot
obtain certificates for his or her interest in the debt securities, except in the special
situations we describe below; |
| ● | an
investor will be an indirect holder and must look to his or her own bank or broker for payments
on the debt securities and protection of his or her legal rights relating to the debt securities,
as we describe under “—Issuance of Securities in Registered Form” above; |
| ● | an
investor may not be able to sell interests in the debt securities to some insurance companies
and other institutions that are required by law to own their securities in non-book-entry form; |
| ● | an
investor may not be able to pledge his or her interest in a global security in circumstances
where certificates representing the debt securities must be delivered to the lender or other
beneficiary of the pledge in order for the pledge to be effective; |
| ● | the
depositary’s policies, which may change from time to time, will govern payments, transfers,
exchanges and other matters relating to an investor’s interest in a global security.
We and the trustee have no responsibility for any aspect of the depositary’s actions
or for its records of ownership interests in a global security. We and the trustee also do
not supervise the depositary in any way; |
| ● | if
we redeem less than all the debt securities of a particular series being redeemed, DTC’s
practice is to determine by lot the amount to be redeemed from each of its participants holding
that series; |
| ● | an
investor is required to give notice of exercise of any option to elect repayment of its debt
securities, through its participant, to the applicable trustee and to deliver the related
debt securities by causing its participant to transfer its interest in those debt securities,
on DTC’s records, to the applicable trustee; |
| ● | DTC
requires that those who purchase and sell interests in a global security deposited in its book-entry system
use immediately available funds; your broker or bank may also require you to use immediately
available funds when purchasing or selling interests in a global security; and |
| ● | financial
institutions that participate in the depositary’s book-entry system, and
through which an investor holds its interest in a global security, may also have their own
policies affecting payments, notices and other matters relating to the debt securities; there
may be more than one financial intermediary in the chain of ownership for an investor; we
do not monitor and are not responsible for the actions of any of those intermediaries. |
Termination
of a Global Security
If
a global security is terminated for any reason, interests in it will be exchanged for certificates in non-book-entry form (certificated
securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up
to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred
on termination to their own names, so that they will be holders. We have described the rights of legal holders and street name investors
under “—Issuance of Securities in Registered Form” above.
The
prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities
covered by the prospectus supplement. If a global security is terminated, only the depositary, and not we or the applicable trustee,
is responsible for deciding the investors in whose names the debt securities represented by the global security will be registered and,
therefore, who will be the holders of those debt securities.
Payment
and Paying Agents
We
will pay interest to the person listed in the applicable trustee’s records as the owner of the debt security at the close of business
on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due
date. That day, usually about two weeks in advance of the interest due date, is called the “record date.” Because we will
pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out
between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate
interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated
interest amount is called “accrued interest.”
Payments
on Global Securities
We
will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time.
Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial
interests in the global security. An indirect holder’s right to those payments will be governed by the rules and practices of the
depositary and its participants, as described under “—Special Considerations for Global Securities.”
Payments
on Certificated Securities
We
will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date to the holder
of debt securities as shown on the trustee’s records as of the close of business on the regular record date at our office and/or
at other offices that may be specified in the prospectus supplement. We will make all payments of principal and premium, if any, by check
at the office of the applicable trustee and/or at other offices that may be specified in the prospectus supplement or in a notice to
holders against surrender of the debt security.
Alternatively,
at our option, we may pay any cash interest that becomes due on the debt security by mailing a check to the holder at his, her or its
address shown on the trustee’s records as of the close of business on the regular record date or by transfer to an account at a
bank in the United States, in either case, on the due date.
Payment
When Offices Are Closed
If
any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business
day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original
due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt
security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business
day.
Book-entry and
other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.
Events
of Default
You
will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later
in this subsection.
The
term “Event of Default” in respect of the debt securities of your series means any of the following:
| ● | we
do not pay the principal of (or premium, if any, on) a debt security of the series when due; |
| ● | we
do not pay interest on a debt security of the series when due, and such default is not cured
within 30 days; |
| ● | we
do not deposit any sinking fund payment in respect of debt securities of the series within
two business days of its due date; |
| ● | we
remain in breach of a covenant in respect of debt securities of the series for 60 days after
we receive a written notice of default stating we are in breach (the notice must be sent
by either the trustee or holders of at least 25% of the principal amount of the outstanding
debt securities of the series); |
| ● | we
file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur
and remain undischarged or unstayed for a period of 60 days; |
| ● | the
series of debt securities has an asset coverage, as such term is defined in the 1940 Act,
of less than 100 per centum on the last business day of each of twenty-four consecutive
calendar months, after giving effect to any exemptive relief granted to the Company by the
SEC; or |
| ● | any
other Event of Default in respect of debt securities of the series described in the prospectus
supplement occurs. |
An
Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series
of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of
any default, except in the payment of principal, premium, interest, or sinking or purchase fund installment, if it in good faith considers
the withholding of notice to be in the interest of the holders.
Remedies
if an Event of Default Occurs
If
an Event of Default has occurred and is continuing, the trustee or the holders of not less than 25% in principal amount of the outstanding
debt securities of the affected series may (and the trustee shall at the request of such holders) declare the entire principal amount
of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity.
A declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the outstanding debt securities
of the affected series if (1) we have deposited with the trustee all amounts due and owing with respect to the securities (other
than principal that has become due solely by reason of such acceleration) and certain other amounts, and (2) any other Events of
Default have been cured or waived.
The
trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee protection
from expenses and liability reasonably satisfactory to it (called an “indemnity”). If indemnity reasonably satisfactory to
it is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the
time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee
may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated
as a waiver of that right, remedy or Event of Default.
Before
you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights
or protect your interests relating to the debt securities, the following must occur:
| ● | you
must give the trustee written notice that an Event of Default with respect to the relevant
series of debt securities has occurred and remains uncured; |
| ● | the
holders of at least 25% in principal amount of all outstanding debt securities of the relevant
series must make a written request that the trustee take action because of the default and
must offer the trustee indemnity, security or both reasonably satisfactory to it against
the costs, expenses and other liabilities of taking that action; |
| ● | the
trustee must not have taken action for 60 days after receipt of the above notice and offer
of indemnity and/or security; and |
| ● | the
holders of a majority in principal amount of the outstanding debt securities of that series
must not have given the trustee a direction inconsistent with the above notice during that 60-day period. |
However,
you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.
Book-entry and
other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request
of the trustee and how to declare or cancel an acceleration of maturity.
Each
year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance
with the indenture and the debt securities, or else specifying any default.
Waiver
of Default
Holders
of a majority in principal amount of the outstanding debt securities of the affected series may waive any past defaults other than
| ● | the
payment of principal, any premium or interest; or |
| ● | in
respect of a covenant that cannot be modified or amended without the consent of each holder. |
Merger
or Consolidation
Under
the terms of the indenture, we are generally permitted to consolidate or merge with another corporation. We are also permitted to sell
all or substantially all of our assets to another corporation. However, we may not take any of these actions unless all the following
conditions are met:
| ● | where
we merge out of existence or sell substantially all our assets, the resulting corporation
or transferee must agree to be legally responsible for our obligations under the debt securities; |
| ● | the
merger or sale of assets must not cause a default on the debt securities and we must not
already be in default (unless the merger or sale would cure the default). For purposes of
this no-default test, a default would include an Event of Default that has occurred
and has not been cured, as described under “Events of Default” above. A default
for this purpose would also include any event that would be an Event of Default if the requirements
for giving us a notice of default or our default having to exist for a specific period of
time were disregarded; |
| ● | we
must deliver certain certificates and documents to the trustee; and |
| ● | we
must satisfy any other requirements specified in the prospectus supplement relating to a
particular series of debt securities. |
Modification
or Waiver
There
are three types of changes we can make to the indenture and the debt securities issued thereunder.
Changes
Requiring Your Approval
First,
there are changes that we cannot make to your debt securities without your specific approval. The following is a list of those types
of changes:
| ● | change
the stated maturity of the principal of or interest on a debt security or the terms of any
sinking fund with respect to any security; |
| ● | reduce
any amounts due on a debt security; |
| ● | reduce
the amount of principal payable upon acceleration of the maturity of an original issue discount
or indexed security following a default or upon the redemption thereof or the amount thereof
provable in a bankruptcy proceeding; |
| ● | adversely
affect any right of repayment at the holder’s option; |
| ● | change
the place or currency of payment on a debt security (except as otherwise described in the
prospectus or prospectus supplement); |
| ● | impair
your right to sue for payment; |
| ● | adversely
affect any right to convert or exchange a debt security in accordance with its terms; |
| ● | modify
the subordination provisions in the indenture in a manner that is adverse to outstanding
holders of the debt securities; |
| ● | reduce
the percentage of holders of debt securities whose consent is needed to modify or amend the
indenture; |
| ● | reduce
the percentage of holders of debt securities whose consent is needed to waive compliance
with certain provisions of the indenture or to waive certain defaults; |
| ● | modify
any other aspect of the provisions of the indenture dealing with supplemental indentures
with the consent of holders, waiver of past defaults, changes to the quorum or voting requirements
or the waiver of certain covenants; and |
| ● | change
any obligation we have to pay additional amounts. |
Changes
Not Requiring Approval
The
second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications, establishment
of the form or terms of new securities of any series as permitted by the indenture and certain other changes that would not adversely
affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects
only debt securities to be issued under the indenture after the change takes effect.
Changes
Requiring Majority Approval
Any
other change to the indenture and the debt securities would require the following approval:
| ● | if
the change affects only one series of debt securities, it must be approved by the holders
of a majority in principal amount of that series; and |
| ● | if
the change affects more than one series of debt securities issued under the same indenture,
it must be approved by the holders of a majority in principal amount of all of the series
affected by the change, with all affected series voting together as one class for this purpose. |
In
each case, the required approval must be given by written consent.
The
holders of a majority in principal amount of a series of debt securities issued under the indenture, voting together as one class for
this purpose, may waive our compliance with some of our covenants applicable to that series of debt securities. However, we cannot obtain
a waiver of a payment default or of any of the matters covered by the bullet points included above under “—Changes Requiring
Your Approval.”
Further
Details Concerning Voting
When
taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:
| ● | for
original issue discount securities, we will use the principal amount that would be due and
payable on the voting date if the maturity of these debt securities were accelerated to that
date because of a default; |
| ● | for
debt securities whose principal amount is not known (for example, because it is based on
an index), we will use the principal face amount at original issuance or a special rule for
that debt security described in the prospectus supplement; and |
| ● | for
debt securities denominated in one or more foreign currencies, we will use the U.S. dollar
equivalent. |
Debt
securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for
their payment or redemption or if we, any other obligor, or any affiliate of us or any obligor own such debt securities. Debt securities
will also not be eligible to vote if they have been fully defeased as described later under “—Defeasance—Full Defeasance.”
We
will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities
that are entitled to vote or take other action under the indenture. However, the record date may not be more than 30 days before the
date of the first solicitation of holders to vote on or take such action. If we set a record date for a vote or other action to be taken
by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities
of those series on the record date and must be taken within eleven months following the record date.
Book-entry and
other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change
the indenture or the debt securities or request a waiver.
Defeasance
The
following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that
the provisions of covenant defeasance and full defeasance will not be applicable to that series.
Covenant
Defeasance
Under
current U.S. federal tax law and the indenture, we can make the deposit described below and be released from some of the restrictive
covenants in the indenture under which the particular series was issued. This is called “covenant defeasance.” In that event,
you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities
set aside in trust to repay your debt securities. If we achieved covenant defeasance and your debt securities were subordinated as described
under “—Indenture Provisions—Subordination” below, such subordination would not prevent the trustee under the
indenture from applying the funds available to it from the deposit described in the first bullet below to the payment of amounts due
in respect of such debt securities for the benefit of the subordinated debt holders. In order to achieve covenant defeasance, we must
do the following:
| ● | we
must deposit in trust for the benefit of all holders of a series of debt securities a combination
of cash (in such currency in which such securities are then specified as payable at stated
maturity) or government obligations applicable to such securities (determined on the basis
of the currency in which such securities are then specified as payable at stated maturity)
that will generate enough cash to make interest, principal and any other payments on the
debt securities on their various due dates and any mandatory sinking fund payments or analogous
payments; |
| ● | we
must deliver to the trustee a legal opinion of our counsel confirming that, under current
U.S. federal income tax law, we may make the above deposit without causing you to be taxed
on the debt securities any differently than if we did not make the deposit; |
| ● | we
must deliver to the trustee a legal opinion of our counsel stating that the above deposit
does not require registration by us under the 1940 Act, as amended, and a legal opinion and
officers’ certificate stating that all conditions precedent to covenant defeasance
have been complied with; |
| ● | defeasance
must not result in a breach or violation of, or result in a default under, of the indenture
or any of our other material agreements or instruments; |
| ● | no
default or event of default with respect to such debt securities shall have occurred and
be continuing and no defaults or events of default related to bankruptcy, insolvency or reorganization
shall occur during the next 90 days; and |
| ● | satisfy
the conditions for covenant defeasance contained in any supplemental indentures. |
If
we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust
deposit or the trustee is prevented from making payment. For example, if one of the remaining Events of Default occurred (such as our
bankruptcy) and the debt securities became immediately due and payable, there might be such a shortfall. However, there is no assurance
that we would have sufficient funds to make payment of the shortfall.
Full
Defeasance
If
there is a change in U.S. federal tax law or we obtain an IRS ruling, as described in the second bullet below, we can legally release
ourselves from all payment and other obligations on the debt securities of a particular series (called “full defeasance”)
if we put in place the following other arrangements for you to be repaid:
| ● | we
must deposit in trust for the benefit of all holders of a series of debt securities a combination
of cash (in such currency in which such securities are then specified as payable at stated
maturity) or government obligations applicable to such securities (determined on the basis
of the currency in which such securities are then specified as payable at stated maturity)
that will generate enough cash to make interest, principal and any other payments on the
debt securities on their various due dates and any mandatory sinking fund payments or analogous
payments; |
| ● | we
must deliver to the trustee a legal opinion confirming that there has been a change in current
U.S. federal tax law or an IRS ruling that allows us to make the above deposit without causing
you to be taxed on the debt securities any differently than if we did not make the deposit.
Under current U.S. federal tax law, the deposit and our legal release from the debt securities
would be treated as though we paid you your share of the cash and notes or bonds at the time
the cash and notes or bonds were deposited in trust in exchange for your debt securities
and you would recognize gain or loss on the debt securities at the time of the deposit; |
| ● | we
must deliver to the trustee a legal opinion of our counsel stating that the above deposit
does not require registration by us under the 1940 Act, as amended, and a legal opinion and
officers’ certificate stating that all conditions precedent to defeasance have been
complied with; |
| ● | defeasance
must not result in a breach or violation of, or constitute a default under, of the indenture
or any of our other material agreements or instruments; |
| ● | no
default or event of default with respect to such debt securities shall have occurred and
be continuing and no defaults or events of default related to bankruptcy, insolvency or reorganization
shall occur during the next 90 days; and |
| ● | satisfy
the conditions for full defeasance contained in any supplemental indentures. |
If
we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt
securities. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely
be protected from claims of our lenders and other creditors if we ever became bankrupt or insolvent. If your debt securities were subordinated
as described later under “—Indenture Provisions—Subordination”, such subordination would not prevent the trustee
under the indenture from applying the funds available to it from the deposit referred to in the first bullet of the preceding paragraph
to the payment of amounts due in respect of such debt securities for the benefit of the subordinated debt holders.
Form,
Exchange and Transfer of Certificated Registered Securities
If
registered debt securities cease to be issued in book-entry form, they will be issued:
| ● | only
in fully registered certificated form; |
| ● | without
interest coupons; and |
| ● | unless
we indicate otherwise in the prospectus supplement, in denominations of $1,000 and amounts
that are multiples of $1,000. |
Holders
may exchange their certificated securities for debt securities of smaller denominations or combined into fewer debt securities of larger
denominations, as long as the total principal amount is not changed and as long as the denomination is greater than the minimum denomination
for such securities.
Holders
may exchange or transfer their certificated securities at the office of the trustee. We have appointed the trustee to act as our agent
for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these
functions or perform them ourselves.
Holders
will not be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any
tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer
agent is satisfied with the holder’s proof of legal ownership.
If
we have designated additional transfer agents for your debt security, they will be named in the prospectus supplement. We may appoint
additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through
which any transfer agent acts.
If
any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we
may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of
redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to
register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers
and exchanges of the unredeemed portion of any debt security that will be partially redeemed.
If
a registered debt security is issued in book-entry form, only the depositary will be entitled to transfer and exchange the
debt security as described in this subsection, since it will be the sole holder of the debt security.
Resignation
of Trustee
Each
trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed
to act with respect to these series and has accepted such appointment. In the event that two or more persons are acting as trustee with
respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and
apart from the trust administered by any other trustee.
Indenture
Provisions—Subordination
Upon
any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and
premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated
to the extent provided in the indenture in right of payment to the prior payment in full of all Senior Indebtedness (as defined below),
but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities
will not otherwise be affected. In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any,
may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and
premium, if any), sinking fund and interest on Senior Indebtedness has been made or duly provided for in money or money’s worth.
In
the event that, notwithstanding the foregoing, any payment by us is received by the trustee in respect of subordinated debt securities
or by the holders of any of such subordinated debt securities, upon our dissolution, winding up, liquidation or reorganization before
all Senior Indebtedness is paid in full, the payment or distribution received by the trustee in respect of such subordinated debt securities
or by the holders of any of such subordinated debt securities must be paid over to the holders of the Senior Indebtedness or on their
behalf for application to the payment of all the Senior Indebtedness remaining unpaid until all the Senior Indebtedness has been paid
in full, after giving effect to any concurrent payment or distribution to the holders of the Senior Indebtedness. Subject to the payment
in full of all Senior Indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated
to the rights of the holders of the Senior Indebtedness to the extent of payments made to the holders of the Senior Indebtedness out
of the distributive share of such subordinated debt securities.
By
reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover
more, ratably, than holders of any subordinated debt securities or the holders of any indenture securities that are not Senior Indebtedness.
The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance
provisions of the indenture.
Senior
Indebtedness is defined in the indenture as the principal of (and premium, if any) and unpaid interest on:
| ● | our
indebtedness (including indebtedness of others guaranteed by us), whenever created, incurred,
assumed or guaranteed, for money borrowed, that we have designated as “Senior Indebtedness”
for purposes of the indenture and in accordance with the terms of the indenture (including
any indenture securities designated as Senior Indebtedness), and |
| ● | renewals,
extensions, modifications and refinancings of any of this indebtedness. |
If
this prospectus is being delivered in connection with the offering of a series of indenture securities denominated as subordinated debt
securities, the accompanying prospectus supplement will set forth the approximate amount of our Senior Indebtedness and of our other
Indebtedness outstanding as of a recent date.
Secured
Indebtedness and Ranking
Certain
of our indebtedness, including certain series of indenture securities, may be secured. The prospectus supplement for each series of indenture
securities will describe the terms of any security interest for such series and will indicate the approximate amount of our secured indebtedness
as of a recent date. Any unsecured indenture securities will effectively rank junior to any secured indebtedness, including any secured
indenture securities, that we incur in the future to the extent of the value of the assets securing such future secured indebtedness.
The debt securities, whether secured or unsecured, of the Company will rank structurally junior to all existing and future indebtedness
(including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities (i.e., the holders of the debt securities
will not have access to the assets of the Company’s subsidiaries, financing vehicles or similar facilities until after all of these
entities’ creditors have been paid and the remaining assets have been distributed up to the Company as the equity holder of these
entities). In this regard, any notes that we may issue will be strictly the obligation of the Company, and not of Saratoga CLO, or any
subsidiary we may form in the future.
In
the event of our bankruptcy, liquidation, reorganization or other winding up, any of our assets that secure secured debt will be available
to pay obligations on unsecured debt securities only after all indebtedness under such secured debt has been repaid in full from such
assets. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all unsecured debt securities then
outstanding after fulfillment of this obligation. As a result, the holders of unsecured indenture securities may recover less, ratably,
than holders of any of our secured indebtedness.
The
Trustee under the Indenture
U.S.
Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association)
serves as the trustee under the indenture.
Certain
Considerations Relating to Foreign Currencies
Debt
securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant
fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in
the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the
applicable prospectus supplement.
DESCRIPTION
OF OUR WARRANTS
The
following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer
will be described in the prospectus supplement relating to such warrants and will be subject to compliance with the 1940 Act.
As
described further below, subject to receiving shareholder approval to issue warrants at a future annual meeting of stockholders, we may
issue warrants to purchase shares of our common stock or debt securities. Such warrants may be issued independently or together with
shares of common stock or debt securities and may be attached or separate from such securities. We will issue each series of warrants
under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent
and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.
A
prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:
| ● | the
title and aggregate number of such warrants; |
| ● | the
price or prices at which such warrants will be issued; |
| ● | the
currency or currencies, including composite currencies, in which the price of such warrants
may be payable; |
| ● | if
applicable, the designation and terms of the securities with which the warrants are issued
and the number of warrants issued with each such security or each principal amount of such
security; |
| ● | in
the case of warrants to purchase debt securities, the principal amount of debt securities
purchasable upon exercise of one warrant and the price at which and the currency or currencies,
including composite currencies, in which this principal amount of debt securities may be
purchased upon such exercise; |
| ● | in
the case of warrants to purchase common stock, the number of shares of common stock purchasable
upon exercise of one warrant and the price at which and the currency or currencies, including
composite currencies, in which these shares may be purchased upon such exercise; |
| ● | the
date on which the right to exercise such warrants shall commence and the date on which such
right will expire (subject to any extension); |
| ● | whether
such warrants will be issued in registered form or bearer form; |
| ● | if
applicable, the minimum or maximum amount of such warrants that may be exercised at any one
time; |
| ● | if
applicable, the date on and after which such warrants and the related securities will be
separately transferable; |
| ● | the
terms of any rights to redeem, or call such warrants; |
| ● | information
with respect to book-entry procedures, if any; |
| ● | the
terms of the securities issuable upon exercise of the warrants; |
| ● | if
applicable, a discussion of certain U.S. federal income tax considerations; and |
| ● | any
other terms of such warrants, including terms, procedures and limitations relating to the
exchange and exercise of such warrants. |
We
and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the
warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially
and adversely affect the interests of the holders of the warrants.
Each
warrant will entitle the holder to purchase for cash such common stock at the exercise price or such principal amount of debt securities
as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the warrants offered
thereby. Warrants may be exercised as set forth in the prospectus supplement beginning on the date specified therein and continuing until
the close of business on the expiration date set forth in the prospectus supplement. After the close of business on the expiration date,
unexercised warrants will become void.
Upon
receipt of payment and a warrant certificate properly completed and duly executed at the corporate trust office of the warrant agent
or any other office indicated in the prospectus supplement, we will, as soon as practicable, forward the securities purchasable upon
such exercise. If less than all of the warrants represented by such warrant certificate are exercised, a new warrant certificate will
be issued for the remaining warrants. If we so indicate in the applicable prospectus supplement, holders of the warrants may surrender
securities as all or part of the exercise price for warrants.
Prior
to exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such
exercise, including, in the case of warrants to purchase debt securities, the right to receive principal, premium, if any, or interest
payments, on the debt securities purchasable upon exercise or to enforce covenants in the applicable indenture or, in the case of warrants
to purchase common stock, the right to receive dividends or other distributions, if any, or payments upon our liquidation, dissolution
or winding up or to exercise any voting rights.
Under
the 1940 Act, we may generally only offer warrants provided that (i) the warrants expire by their terms within ten years, (ii) the
exercise or conversion price is not less than the current market value at the date of issuance, (iii) our stockholders authorize
the proposal to issue such warrants, and our board of directors approves such issuance on the basis that the issuance is in the best
interests of us and our stockholders and (iv) if the warrants are accompanied by other securities, the warrants are not separately
transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides
that the amount of our voting securities that would result from the exercise of all outstanding warrants, as well as options and rights,
at the time of issuance may not exceed 25% of our outstanding voting securities.
We
may in the future seek the approval of our stockholders to approve a proposal to authorize us to issue securities to subscribe to, convert
to, or purchase shares of our common stock in one or more offerings. Such authorization will have no expiration. If we do not receive
such stockholder approval, we will not issue any warrants.
PLAN
OF DISTRIBUTION
We
may offer, from time to time, in one or more offerings or series, up to $500,000,000 of common
stock, preferred stock, subscription rights to purchase shares of common stock, warrants and debt securities, in one or more underwritten
public offerings, at-the-market offerings to or through a market maker or into an existing trading market for our securities,
on an exchange or otherwise, negotiated transactions, block trades, best efforts or a combination of these methods.
We
may sell our securities through underwriters or dealers, directly to one or more purchasers through agents or through a combination of
any such methods of sale. In the case of a rights offering, the applicable prospectus supplement
will set forth the number of shares of our common stock issuable upon the exercise of each right and the other terms of such rights offering.
Any underwriter or agent involved in the offer and sale of our securities will be named in the applicable prospectus supplement.
A prospectus supplement or supplements will also describe the terms of the offering of our securities, including: the purchase price
of our securities and the proceeds we will receive from the sale; any over-allotment options under which underwriters may purchase additional
securities from us; any agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation;
the public offering price; any discounts or concessions allowed or re-allowed or paid to dealers; and any securities exchange or market
on which our securities may be listed. Only underwriters or agents named in the prospectus supplement will be underwriters or agents
of our securities offered by the prospectus supplement.
The
distribution of our securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be
changed, at prevailing market prices at the time of sale, at prices related to such prevailing market prices, or at negotiated prices,
provided, however, that the offering price per share of our common stock, less any underwriting commissions and discounts or agency fees
paid by us, must generally equal or exceed the NAV per share of our common stock. We may, under certain circumstances, consider selling
our securities at prices below our NAV per share consistent with the terms of our stockholder approval to sell our shares of common stock
at a price below our NAV per share. Any offering of shares of our common stock at a price below our then current NAV per share that requires
shareholder approval must occur, if at all, within one year after receiving such shareholder approval. We do not currently have stockholder
approval of issuances below NAV.
In
connection with the sale of our securities, underwriters or agents may receive compensation from us or from purchasers of our securities,
for whom they may act as agents, in the form of discounts, concessions or commissions. Our common stockholders will bear, directly or
indirectly, such expenses, as well as any other fees and the expenses incurred by us in connection with any offering of our securities,
including debt securities.
Underwriters
may sell our securities to or through dealers and such 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 agents. Underwriters, dealers and agents that participate
in the distribution of our securities may be deemed to be underwriters under the Securities Act, and any discounts and commissions they
receive from us and any profit realized by them on the resale of our securities may be deemed to be underwriting discounts and commissions
under the Securities Act. Any such underwriter or agent will be identified and any such compensation received from us will be described
in the applicable prospectus supplement. The maximum aggregate commission or discount to be received
by any member of the Financial Industry Regulatory Authority (“FINRA”) or independent broker-dealer will not be greater than
10% of the gross proceeds of the sale of our securities offered pursuant to this prospectus and any applicable prospectus supplement.
We may also reimburse the underwriter or agent for certain fees and legal expenses incurred by it.
We
may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately
negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may
sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the
third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings
of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock.
The third parties in such sale transactions will be underwriters and, if not identified in this prospectus, will be identified in the
applicable prospectus supplement (or a post-effective amendment).
Any
underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum price. Syndicate-covering
or other short-covering transactions involve purchases of our securities, either through exercise of the over-allotment option or in
the open market after the distribution is completed, to cover short positions. Penalty bids permit the underwriters to reclaim a selling
concession from a dealer when our securities originally sold by the dealer are purchased in a stabilizing or covering transaction to
cover short positions. Those activities may cause the price of our securities to be higher than it would otherwise be. If commenced,
the underwriters may discontinue any of the activities at any time.
Any
underwriters that are qualified market makers on the NYSE may engage in passive market making transactions in our common stock on the
NYSE in accordance with Regulation M under the Exchange Act, during the business day prior to the pricing of the offering, before the
commencement of offers or sales of our common stock. Passive market makers must comply with applicable volume and price limitations and
must be identified as passive market makers. In general, a passive market maker must display its bid at a price not in excess of the
highest independent bid for such security; if all independent bids are lowered below the passive market maker’s bid, however, the
passive market maker’s bid must then be lowered when certain purchase limits are exceeded. Passive market making may stabilize
the market price of our common stock at a level above that which might otherwise prevail in the open market and, if commenced, may be
discontinued at any time.
We
may sell our securities directly or through agents we designate from time to time. We will name any agent involved in the offering and
sale of our securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus
supplement states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
Unless
otherwise specified in the applicable prospectus supplement, each class or series of securities will be a new issue with no trading market,
other than our common stock, which is traded on the NYSE. We may elect to list any other class or series of securities on any exchanges,
but we are not obligated to do so. We cannot guarantee the liquidity of the trading markets for any securities.
Under
agreements into which we may enter, underwriters, dealers and agents who participate in the distribution of our securities may be entitled
to indemnification by us against certain liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents or underwriters may make with respect to these liabilities. Underwriters,
dealers and agents may engage in transactions with, or perform services for, us in the ordinary course of business.
If
so indicated in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit
offers by certain institutions to purchase our securities from us pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligations
of any purchaser under any such contract will be subject to the condition that the purchase of our securities shall not at the time of
delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents
will not have any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to
those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth the commission payable for solicitation
of such contracts.
In
order to comply with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain states, our securities 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.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Since
we will acquire and dispose of many of our investments in privately negotiated transactions, many of the transactions that we engage
in will not require the use of brokers or the payment of brokerage commissions. Subject to policies established by our board of directors,
our investment adviser will be 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. Our investment adviser does not expect
to execute transactions through any particular broker or dealer but will seek 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. Our investment
adviser generally will seek reasonably competitive trade execution costs but will not necessarily pay the lowest spread or commission
available. Subject to applicable legal requirements and consistent with Section 28(e) of the Exchange Act, our investment adviser
may select a broker based upon brokerage or research services provided to our investment adviser and us and any other clients. In return
for such services, we may pay a higher commission than other brokers would charge if our investment adviser determines in good faith
that such commission is reasonable in relation to the services provided.
CUSTODIAN,
TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
Our investment securities
are held under a custody agreement with U.S. Bank Trust Company, National Association (as successor
in interest to U.S. Bank National Association). The address of the custodian is U.S. Bank Trust Company, National Association,
Corporate Trust Services, One Federal Street, 3rd Floor, Boston, MA 02110. The transfer agent and registrar for our common
stock, Broadridge Financial Solutions, Inc., acts as our transfer agent, dividend paying and reinvestment agent for our common stock.
The principal business address of the transfer agent is 1717 Arch St., Suite 1300, Philadelphia, PA 19103. U.S. Bank Trust Company, National
Association (as successor in interest to U.S. Bank National Association), our trustee
under an indenture and the supplemental indentures thereto relating to the Notes, is the paying agent, registrar and transfer agent relating
to the Notes. The principal business address of our trustee is 214 N. Tyron Street, 12th Floor, Charlotte, North Carolina
28202.
LEGAL
MATTERS
Certain
legal matters regarding the securities offered by this prospectus will be passed upon for us by Eversheds Sutherland (US) LLP, Washington,
D.C.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP,
our independent registered public accounting firm, has audited our consolidated financial statements as of February 28, 2022 and February
28, 2021 and for each of the three years ended February 28, 2022, February 28, 2021, and February 29, 2020. Ernst & Young LLP’s
principal business address is One Manhattan West, New York, New York 10001.
The
consolidated financial statements and the Senior Securities table incorporated by reference under the heading “Senior Securities”
for Saratoga Investment Corp. and subsidiaries have been incorporated by reference herein and in the registration statement in reliance
upon the reports of Ernst & Young LLP,
our independent registered public accounting firm, incorporated by reference herein, upon the authority of said firm as experts in accounting
and auditing.
Independent Auditors
CohnReznick LLP, Saratoga
Investment Corp. CLO 2013-1, Ltd.’s independent auditors have audited Saratoga Investment Corp. CLO 2013-1, Ltd.’s financial
statements as of February 28, 2022 and February 28, 2021, and for the years then ended as set forth in their report incorporated by reference.
CohnReznick LLP’s principal business address is 1 S. Wacker Drive, Suite 3550, Chicago, IL 60606.
Saratoga Investment Corp. CLO 2013-1, Ltd.’s financial statements
as of February 29, 2020 have been included in this prospectus in reliance upon the reports of Ernst & Young Ltd., as stated in their
report incorporated by reference. Ernst & Young Ltd.’s principal business address is 62 Forum Lane, Camana Bay, P O Box 510,
Grand Cayman, KY1-1106, Cayman Islands.
AVAILABLE
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 securities offered by this prospectus. The registration statement contains additional information
about us and the securities being offered by this prospectus. We file with or submit to the SEC annual, quarterly and current periodic
reports, proxy statements and other information meeting the informational requirements of the Exchange Act. We maintain a website at https://saratogainvestmentcorp.com/
and intend to make all of our annual, quarterly and current reports, proxy statements and other publicly filed information available,
free of charge, on or through our website. You may also obtain such information by contacting us in writing at 535 Madison Avenue, New
York, NY 10022. The SEC maintains a website that contains reports, proxy and information statements and other information we file with
the SEC at http://www.sec.gov. Information contained on our website is not incorporated by reference into this prospectus
or any supplements to this prospectus, and you should not consider that information to be part of this prospectus or any supplements
to this prospectus.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
This prospectus is part
of a registration statement that we have filed with the SEC. We may “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 those documents. The information incorporated
by reference is considered to comprise a part of this prospectus from the date we file that document. Any reports filed by us with the
SEC subsequent to the date of the initial registration statement and prior to effectiveness of the registration statement, and 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 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 Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, subsequent to the date of the initial registration statement and prior to effectiveness of the registration
statement, and subsequent to the date of this prospectus until all of the securities offered by this prospectus and any accompanying
prospectus supplement have been sold or we otherwise terminate the offering of these 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. Information that
we file with the SEC subsequent to the date of the initial registration statement will automatically update and may supersede information
in this prospectus, any accompanying prospectus supplement and information previously filed with the SEC.
This
prospectus and any accompanying prospectus supplement incorporate by reference the documents set forth below that have previously been
filed with the SEC:
|
● |
Annual
Report on Form 10-K for
the fiscal year ended February 28, 2021 filed with the SEC on May 4, 2022; |
|
● |
Quarterly
Report on Form 10-Q for the
fiscal quarter ended May 31, 2022 filed with the SEC on July 6, 2022; |
|
● |
Quarterly
Report on Form 10-Q
for the fiscal quarter ended August 31, 2022 filed with the SEC on October 4, 2022; |
|
|
|
|
● |
Quarterly Report on Form 10-Q for the
fiscal quarter ended November 30, 2022 filed with the SEC on January 10, 2023; |
|
|
|
|
● |
Current
Reports on Form 8-K filed on April
20, 2022, April 27,
2022, June 14, 2022,
August 15, 2022,
September 12, 2022,
September 29, 2022,
September 29, 2022,
October 20, 2022,
October 27, 2022,
December 6, 2022,
December 13, 2022,
and February 2, 2023; and |
| ● | The
description of our common stock contained in Exhibit
4.10 of our Annual Report on Form 10-K for the year ended February 28, 2021, which
updated the description thereof in our Registration Statement on Form 8-A (File No. 001-33376), as
filed with the SEC on March 21, 2007, including any amendment or report filed for the purpose
of updating such description prior to the termination of the offering of the common stock
registered hereby. |
To
obtain copies of these filings, see “Available Information,” or you may request a copy of these filings (other than exhibits,
unless the exhibits are specifically incorporated by reference into these documents) at no cost by writing or calling the following address
and telephone number:
Saratoga
Investment Corp.
535
Madison Avenue, 4th Floor
New
York, NY 10022
(212)
906-7800
You
should rely only on the information incorporated by reference or provided in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with different or additional information, and you should not rely on such information if you receive
it. We are not making an offer of or soliciting an offer to buy, any securities in any state or other jurisdiction where such offer or
sale is not permitted. You should not assume that the information in this prospectus or in the documents incorporated by reference is
accurate as of any date other than the date on the front of this prospectus or those documents.
Saratoga Investment Corp.
$150,000,000
Common Stock
PROSPECTUS SUPPLEMENT
June 7, 2023
Ladenburg Thalmann |
Compass Point |
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