What changed in this filing

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Item 1. Business

2022-03-04 compared with 2021-03-05 · 136 added, 110 removed, 661 unchanged (27% of the section changed)

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Our investment objective is to provide our stockholders with both current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments.

Our investment strategy is to maintain a credit investment portfolio focused primarily on investments in middle-market companies in the United States.

Our investment strategy is to maintain a credit investment portfolio focused primarily on middle-market companies in the United States.

We use the term “middle-market” to refer to companies that may exhibit one or more of the following characteristics:

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For additional information about how we define the middle-market, see “—Investment Criteria/Guidelines.”

Our investment strategy focuses primarily on investments in middle-market companies in the United States, including senior secured loans, which includes first-lien, second-lien and unitranche loans, as well as subordinated loans and, to a lesser extent, warrants and other equity securities.

Our investment strategy focuses primarily on investments in middle-market companies in the United States, including investments in senior secured loans, which are comprised of first-lien, second-lien and unitranche loans, as well as investments in subordinated loans and, to a lesser extent, warrants and other equity securities.

Our investments may be directly originated or may be purchased in the U.S.

leveraged loan market for Broadly Syndicated Loans (as defined below).

As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions).

As a BDC, we must not acquire any assets other than “qualifying assets” as specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our assets, as defined by the 1940 Act, are qualifying assets (with certain limited exceptions).

Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million, in each case organized in the United States.

Conversely, may invest up to 30% of our portfolio in opportunistic investments not otherwise eligible under BDC regulations.

Conversely, we may invest up to 30% of our portfolio in opportunistic investments not otherwise eligible under BDC regulations.

Specifically, as part of this 30% basket, we may consider investments in investment funds that are operating pursuant to certain exceptions to the 1940 Act and in advisers to similar investment funds, as well as in debt or equity of middle-market portfolio companies located outside of the United States, and debt and equity of public companies that do not meet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for in the 1940 Act.

We have, and may continue to, make opportunistic investments in Structured Finance Notes and other non-qualifying assets (discussed below), consistent with our investment strategy.

As of December 31, 2021 and 2020, approximately 85% and 87%, respectively, of our investments were qualifying assets.

As of December 31, 2021, the fair value of our debt investment portfolio totaled $344.6 million in 58 portfolio companies, of which 95% and 5% were comprised of senior secured loans and subordinated loans, respectively.

As of December 31, 2021, we held approximately $87.3 million in equity investments at fair value, in 5 portfolio companies in which we also held debt investments and 12 portfolio companies in which we solely held equity investments.

At December 31, 2021, we also had 17 investments in Structured Finance Notes with a fair value of $75.2 million.

We have executed our investment strategy, in part, through SBIC I LP, a licensee under the SBA’s SBIC program, which is subject to SBA regulations and policies, including periodic audits by the SBA.

On a stand-alone basis, SBIC I LP held approximately $195.5 million and $223.8 million in assets, or approximately 34% and 46% of our total consolidated assets, at December 31, 2021 and 2020 , respectively.

As part of our plans to focus on lower-yielding, first lien senior secured loans to larger borrowers, which we believe will improve our overall risk profile, SBIC I LP is repaying over time its outstanding SBA debentures prior to the scheduled maturity dates of its debentures.

We do not expect to make new investments through SBIC I LP, other than follow-on investments.

As such, we are not making new investments through SBIC I LP, other than follow-on investments.

During the year ended December 31, 2021, we made $4.6 million of follow-on investments in two portfolio companies.

We believe that investing in more senior loans to larger borrowers is consistent with our view of the private loan market and will reduce our overall leverage on a consolidated basis.

For additional information regarding the regulation of SBIC I LP, see “Regulation—Small Business Investment Company Regulations.”

For additional information r egarding the regulation of SBIC I LP, see “Regulation—Small Business Investment Company Regulations.”

We also execute on our investment strategy, in part, through OFSCC-FS, which established the BNP Facility on June 20, 2019, to provide borrowings of up to $150.0 million.

We believe that the BNP Facility will enable us to provide more first lien loans to large companies at more competitive pricing, due to this lower cost of financing.

On a stand-alone basis, OFSCC-FS held approximately $72.4 million and $92.5 million in assets at December 31, 2020 and 2019, respectively, which accounted for approximately 15% and 17% of our total consolidated assets, respectively.

As of December 31, 2020, the fair value of our debt investment portfolio totaled $321.4 million in 49 portfolio companies, of which 95% was comprised of senior secured loans and 5% of subordinated loans, respectively, and approximately $64.5 million in equity investments, at fair value, in 10 portfolio companies in which we also held debt investments and thirteen portfolio companies in which we solely held equity investments.

We also have twelve investments in Structured Finance Notes with a fair value of $56.4 million.

We believe that the BNP Facility enables us to provide more first lien loans to large companies at more competitive pricing, due to this lower cost of financing.

On a stand-alone basis, OFSCC-FS held approximately $185.1 million and $72.4 million in assets at December 31, 2021 and 2020, respectively, which accounted for approximately 33% and 15% of our consolidated total assets, respectively.

We also execute our investment strategy, in part, by investing in Structured Finance Notes.

We believe OFS Advisor is uniquely positioned, given its expertise in structured credit and managing CLOs, to make opportunistic investments in

Structured Finance Notes.

During the years ended December 31, 2021 and 2020, we purchased $30.4 million and $33.5 million of Structured Finance Notes with weighted average effective yields of 15.2% and 16.7%, respectively.

A BDC is generally not permitted to incur indebtedness unless immediately after such borrowing, it has an asset coverage ratio for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets).

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See “ Item 1A.

Risk Factors — Risks Related to our Business and Structure — Because we have received the approval of our Board, we are subject to 150% Asset Coverage effective May 3, 2019." Additionally, we received exemptive relief from the SEC effective November 26, 2013, which allows us to exclude our SBA guaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the 1940 Act.

Risk Factors — Risks Related to our Business and Structure — Because we received the approval of our Board, we are subject to 150% Asset Coverage effective May 3, 2019.” Additionally, we received exemptive relief from the SEC effective November 26, 2013, which allows us to exclude our SBA guaranteed debentures from the definition of senior securities in the statutory asset coverage ratio under the 1940 Act.

Consistent with our strategy to maintain a portfolio of credit investments, our historic debt levels of $349.9 million and $315.2 million resulted in asset coverage ratios of 173% and 176% as of December 31, 2021 and December 31, 2020, respectively.

We have elected to be treated for tax purposes as a RIC under Subchapter M of the Code.

To continue to qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.

Pursuant to this election, we generally will not have to pay corporate-level taxes on any income we distribute to our stockholders.

To continue to qualify for tax treatment as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.

Pursuant to this election, we generally are not required to pay corporate-level taxes on any income we distribute to our stockholders.

Our investment activities are managed by OFS Advisor and supervised by our Board, a majority of whom are independent of us, OFS Advisor and its affiliates.

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See "Item 1A.

Risk Factors — Risks Related to OFS Advisor and its Affiliates — We have potential conflicts of interest related to obligations that OFS Advisor or its affiliates may have to other clients , " and "Item 1A.

Risk Factors — Risks Related to OFS Advisor and its Affiliates — We have potential conflicts of interest related to obligations that OFS Advisor or its affiliates may have to other clients.

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Under the Staffing Agreement, OFSC makes experienced investment professionals available to OFS Advisor and provides OFS Advisor with access to the senior investment personnel of OFS and its affiliates.

The Staffing Agreement also provides OFS Advisor with access to deal flow generated by OFS and its affiliates in the ordinary course of their businesses and commits the members of OFS Advisor’s investment committee to serve in that capacity.

Our investment activities are managed by OFS Advisor, our investment adviser.

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See "Item 1A.

Risk Factors — Risks Related to OFS Advisor and its Affiliates." OFS Advisor provides us with advisory services in exchange for a base management fee and incentive fee;

Risk Factors — Risks Related to OFS Advisor and its Affiliates." OFS Advisor

provides us with advisory services in exchange for a base management fee and incentive fee;

see “Management and Other Agreements—Investment Advisory Agreement”.

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OFS Advisor capitalizes on the deal origination and sourcing, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of OFS’s professionals.

The senior management team of OFS, including Bilal Rashid and Jeffrey Cerny, provides services to OFS Advisor.

The senior management team of OFS, including Bilal Rashid and Jeffrey A.

Cerny, provides services to OFS Advisor.

These managers have developed a broad network of contacts within the investment community, and possess an average of over 20 years of experience investing in debt and equity securities of middle-market companies.

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Deep Management Team Experienced in All Phases of Investment Cycle and Across All Levels of the Capital Structure.

We are managed by OFS Advisor, which has access to the resources and expertise of OFS’s investment professionals through a staffing agreement with OFSC.

We are managed by OFS Advisor, which has access to the resources and expertise of OFS’s investment professionals through the Staffing Agreement with OFSC.

As of December 31, 2021, OFS’s credit and investment professionals (including all investment committee members) employed by OFSC had an average of over 15 years of investment experience with strong institutional backgrounds.

Significant Investment Capacity .

The net proceeds of equity and debt offerings and borrowing capacity under our credit facilities will provide us with a substantial amount of capital available for deployment into new investment opportunities in our targeted asset class.

The net proceeds of equity and debt offerings and borrowing capacity under our credit facilities should provide us with a substantial amount of capital available for deployment into new investment opportunities in our targeted asset class.

Scalable Infrastructure Supporting the Entire Investment Cycle.

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OFS Services oversees our financial reporting as well as prepares our reports to stockholders and all other reports and materials required to be filed with the SEC or any other regulatory authority.

OFS Services also manages the determination and publication of our net asset value and the preparation and filing of our tax returns and generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others.

OFS Services also manages the determination and publication of our NAV, the preparation and filing of our tax returns, and

generally monitors the payment of our expenses and the performance of administrative and professional services rendered to us by others.

OFS Services may retain third parties to assist in providing administrative services to us.

To the extent that OFS Services outsources any of its functions, we will pay the fees associated with such functions at cost, on a direct basis.

To the extent that OFS Services outsources any of its functions, we will directly pay the fees associated with such services.

Market Opportunity

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Further, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC, or to the distribution and other requirements we must satisfy to maintain our RIC status.

We expect to continue to use the expertise of the investment professionals of OFS to which we have access, to assess investment risks and determine appropriate pricing for our investments in portfolio companies.

We expect to continue to use the expertise of the investment professionals of OFS to whom we have access to assess investment risks and determine appropriate pricing for our investments in portfolio companies.

In addition, we expect that the relationships of the senior members of OFS and its affiliates will enable us to learn about, and compete effectively for, financing opportunities with attractive middle-market companies in the industries in which we seek to invest.

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Investment Criteria/Guidelines

Our investment objective is to generate current income and capital appreciation by investing primarily in middle-market companies in the United States.

Our investment objective is to provide our stockholders with both current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments.

We focus on investments in senior secured loans, including first lien, second lien, and unitranche loans, as well as subordinated loans and, to a lesser extent, warrants and other equity securities and Structured Finance Notes.

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• annual EBITDA between $5 million and $50 million;

• generally, private companies owned by private equity firms or owners/operators;

• private companies owned by private equity firms or owners/operators;

• enterprise value between $10 million and $500 million;

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Due Diligence and Investment Process Overview

We employ a thorough and disciplined underwriting and due diligence process that is conducted in accordance with established credit policies and procedures, and that is focused on investment recovery.

We employ a thorough and disciplined underwriting and due diligence process that is conducted in accordance with established credit policies and procedures and focused on investment recovery.

Our process involves a comprehensive analysis of a prospective portfolio company’s market, operational, financial, and legal position, as well as its future prospects.

In addition to our own analysis, we may use the services of third parties for environmental reviews, quality of earnings reports, industry surveys, background checks on key managers, and insurance reviews.

We seek to invest in companies that have experienced and incentivized management teams, that have stable and predictable cash flows, and that have defensible market positions.

We seek to invest in companies that have experienced and incentivized management teams, stable and predictable cash flows, and defensible market positions.

We underwrite our investments with the expectation that we will hold them for a number of years, and we structure and document our investments accordingly.

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We view active portfolio monitoring as a vital part of our investment process, and we benefit from a portfolio management system developed by OFS that includes daily, weekly, monthly, and quarterly components, and that involves comprehensive review of the performance of each of our portfolio companies.

As part of the portfolio management process, OFS Advisor performs ongoing risk assessments on each of our investments and assigns each debt investment a credit rating based on OFS’s internal ratings scale.

As part of the portfolio management process,

OFS Advisor performs ongoing risk assessments on each of our investments and assigns each debt investment a credit rating based on OFS’s internal ratings scale.

We categorize debt investments into the following risk categories based on relevant information about the ability of borrowers to service their debt:

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The trends and outlook for the portfolio company's operations, balance sheet, and industry are neutral to favorable.

Collateral, if appropriate, has maintained value and would be

capable of being liquidated on a timely basis.

Collateral, if appropriate, has maintained value and would be capable of being liquidated on a timely basis.

Overall a debt investment with a 1 risk rating is considered to be of investment grade quality.

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It is generally a credit that is no longer supported by an operating company, a credit where the majority of our assets have been liquidated or sold and a few assets remain to be sold over many months or even years, or a credit where the remaining collections are expected to be minimal.

As of December 31, 2020, we had debt investments in 49 portfolio companies, totaling $321.4 million at fair value, of which $0.0 million, $263.9 million, $45.3 million, and $11.7 million, and $0.5 million were rated 2, 3, 4, 5, and 6, respectively.

As of December 31, 2021, we had debt investments in 58 portfolio companies, totaling $344.6 million at fair value, of which $324.4 million, $12.6 million, and $7.0 million, and $0.7 million were rated 3, 4, 5, and 6, respectively.

Investment Committees

OFS Advisor’s Pre-Allocation Investment Committee, Broadly Syndicated Investment Committee, Structured Credit Investment Committee and Middle-Market Investment Committee (collectively, the “Advisor Investment Committees”) are responsible for the overall asset allocation decisions and the evaluation and approval of investments of OFS Advisor’s advisory clients.

The Middle-Market Investment Committee, which is comprised of Richard Ressler (Chairman), Jeffrey Cerny, Kyde Sharp and Bilal Rashid, along with the investment committee for SBIC I LP (the “SBIC Investment Committee”), which is comprised of Bilal Rashid, Jeffrey Cerny and Tod Reichert, are responsible for the evaluation and approval of all the investments made by us directly or through our wholly owned subsidiaries, as appropriate.

The Middle-Market Investment Committee, comprised of Richard Ressler (Chairman), Jeffrey Cerny, Kyde Sharp and Bilal Rashid, along with the investment committee for SBIC I LP (the “SBIC Investment Committee”), comprised of Messrs.

Rashid, Cerny, and Tod Reichert, are responsible for the evaluation and approval of all debt and equity investments made by us directly or through our wholly owned subsidiaries, as appropriate.

The process employed by the Advisor Investment Committees, including the Middle-Market Investment Committee and the SBIC Investment Committee, is intended to bring the diverse experience and perspectives of the committees’ members to the investment process.

The Middle-Market Investment Committee and SBIC Investment Committee serve to provide investment consistency and adherence to our core investment philosophy and policies.

The Middle-Market Investment Committee and SBIC Investment Committee serve to provide

investment consistency and adherence to our core investment philosophy and policies.

The Middle-Market Investment Committee and SBIC Investment Committee also determine appropriate investment sizing and implement ongoing monitoring requirements of our investments.

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Potential transactions and deal flows are reviewed on a regular basis.

Members of the investment team are encouraged to share information and views on credits with members of the

Middle-Market Investment Committee and SBIC Investment Committee, where applicable, early in their analysis.

Members of the investment team are encouraged to share information and views on credits with members of the Middle-Market Investment Committee and SBIC Investment Committee, where applicable, early in their analysis.

We believe this process improves the quality of the analysis and assists the deal team members in working efficiently.

The Structured Credit Investment Committee, comprised of Messrs.

Ressler (Chairman), Rashid and Cerny, and Glen Ostrander and Kenneth A.

Brown, is responsible for the evaluation and approval of all the structured finance investments made by us.

We pursue an investment strategy focused primarily on investments in middle-market companies in the United States.

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Broadly Syndicated Loans are typically distributed by the arranging bank to a diverse group of investors primarily consisting of:

senior secured loan and high yield bond mutual funds;

secured loan and high yield bond mutual funds;

closed-end funds, hedge funds, banks, and insurance companies;

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The Agent is typically responsible for monitoring compliance with covenants contained in the Loan Agreement based upon reports prepared by the borrower.

may seek other protection for the benefit of the participants in the Broadly Syndicated Loan.

The Agent may monitor the value of the collateral and, if the value of the collateral declines, may accelerate the Broadly Syndicated Loan, may give the borrower an opportunity to provide additional collateral or may seek other protection for the benefit of the participants in the Broadly Syndicated Loan.

The Agent is compensated by the borrower for providing these services under a Loan Agreement, and such compensation may include special fees paid upon structuring and funding the Broadly Syndicated Loan and other fees paid on a continuing basis.

The Broadly Syndicated Loans in which we invest may include loans that are considered “covenant-lite” loans, because of their lack of a full set of financial maintenance covenants.

These above loans are categorized as Senior Secured Loans in our consolidated schedule of investments included in "Part II, Item 8.

The above loans are categorized as Senior Secured Loans in our consolidated schedule of investments included in "Part II, Item 8.

Financial Statements and Supplementary Data."

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These loans are categorized as Subordinated Loans in our consolidated schedule of investments included in the financial statements included elsewhere in this prospectus supplement.

These above loan is categorized as Subordinated Loans in our consolidated schedule of investments included in “Part II, Item 8.

The above loans are categorized as Subordinated Loans in our consolidated schedule of investments included in “Part II, Item 8.

Financial Statements and Supplementary Data.”

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Our equity investments typically are made in connection with debt investments to the same portfolio companies.

These securities are categorized as a Preferred Equity or Common Equity in our consolidated schedule of investments included in “Part II, Item 8.

In our consolidated schedule of investments included in Part II, these securities are categorized as preferred equity, common equity or equity participation rights, which are contractual agreements entitling us to certain payments generally attributable to equity ownership and lack features enabling us to direct the operations of the entity (i.e., voting rights).

See “Part II, Item 8.

Financial Statements and Supplementary Data.”

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Structured Finance Notes.

Structured Finance Notes include the subordinated debt or mezzanine debt positions of a CLO.

We may purchase interests in the subordinated debt (colloquially referred to as “equity securities”) or the mezzanine debt, generally considered the tranches rated BB to B, of CLOs—which are collateralized by portfolios primarily consisting of below-investment-grade senior secured loans with a large number of distinct underlying U.S.

Structured finance notes include the mezzanine and subordinated debt positions of a CLO.

Subordinated debt (colloquially referred to as “CLO equity securities”) and mezzanine debt, represent beneficial interests in portfolios consisting primarily of below-investment-grade senior secured loans with a large number of distinct underlying U.S.

borrowers across various industry sectors.

The subordinated debt tranches of CLOs are unrated, represent the first loss position in a CLO structure, are typically leveraged 9 to 13 times which translates to approximately 11% to 8% of a CLOs’ capital structure, respectively.

structure, respectively.

The leverage can magnify our gains and losses on such investments.

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Economically, CLO subordinated debt is equity-like in that it represents the residual interest in the CLO assets that bears the ultimate risk of loss and receives the benefits of success, but lacks features enabling its holders to direct the operations of the entity typically associated with equity instruments.

Mezzanine debt is typically the tranches immediately senior to the subordinated debt and representing approximately 4% to 7% of the CLOs’ capital structures.

Mezzanine debt is typically the tranches immediately senior to the subordinated debt, is usually rated BB to B, and represents approximately 4% to 7% of a CLO’s capital structure.

Mezzanine debt tranches represent the second loss position, and can become the residual interest if assets are insufficient to retire the mezzanine tranche at par.

This category of investments also includes loan accumulation facilities (colloquially referred to as “CLO warehouses”), which are short- to medium-term finance vehicles intended to aggregate loans for inclusion in a future CLO portfolio.

Loan accumulation facilities are typically financed through income notes, representing the first-loss and residual interests in the vehicle, and senior debt.

The senior debt of a loan accumulation facility typically leverages the income notes between three and six times prior to a CLO’s pricing and launch.

Income notes of loan accumulation facilities have economic risks similar to those applicable to CLOs subordinated debt insomuch as they pay returns equal to the income earned on the underlying portfolio less costs and fees incurred on senior financing and bear losses on a first-dollar basis, but lack many of the contractual protections associated with a CLO indenture.

Investing in a CLO warehouse does not create an obligation to participate in the CLO contemplated by the warehouse;

however, we have historically participated in the CLOs resultant from our CLO warehouse investments.

Participation in a CLO warehouse investment may afford us the opportunity to enhance our returns through fee sharing agreements with the CLO collateral managers.

General Structuring Considerations.

creating incentives for the portfolio company to achieve its business plan and improve its operating results.

We tailor the terms of each investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its operating results.

We seek to limit the downside potential of our investments by:

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Investment Advisory Agreement

OFS Advisor is registered as an investment adviser under the Advisers Act.

OFS Advisor is a wholly owned subsidiary of OFSAM.

OFS Advisor is registered as an investment adviser under the Advisers Act and a wholly owned subsidiary of OFSAM.

Pursuant to the Investment Advisory Agreement with and subject to the overall supervision of our Board and in accordance with the 1940 Act, OFS Advisor provides investment advisory services to us.

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Management and Incentive Fee

For providing these services, OFS Advisor receives a fee from us, consisting of two components—a base management fee and an incentive fee.

OFS Advisor receives a fee from us consisting of two components—a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.75% based on the average value of our total assets (other than cash and cash equivalents but including assets purchased with borrowed amounts and including assets owned by any consolidated entity), adjusted for stock issuances and stock purchases, at the end of the two most recently completed calendar quarters.

We have excluded from the base management fee calculation any base management fee that would be owed in respect of the intangible assets resulting from the SBIC Acquisition.

We have excluded from the base management fee calculation any base management fee that would be owed in respect of the

intangible assets resulting from the SBIC Acquisition.

The base management fee is payable quarterly in arrears.

Base management fees for any partial quarter are prorated based on the number of days in the quarter.

On June 11, 2019, OFS Advisor agreed to reduce a portion of its base management fee by reducing the portion of such fee from 0.4375% per quarter (1.75% annualized) to 0.25% per quarter (1.00% annualized) of the average value of the portion of the total assets held by the Company through OFSCC-FS (the "OFSCC-FS Assets"), at the end of the two most recently completed calendar quarters to the extent that such portion of the OFSCC-FS Assets are financed using leverage (also calculated on an average basis) that causes the Company’s statutory asset coverage ratio to fall below 200%.

When calculating its statutory asset coverage ratio, the Company excludes its SBA guaranteed debentures from its total outstanding senior securities as permitted pursuant to exemptive relief granted by the SEC dated November 26, 2013.

Effective as of January 1, 2020 and January 1, 2021, OFS Advisor agreed to further reduce the base management fee to 0.25% per quarter (1.00% annualized) of the average value of the portion of total assets held by the Company through OFSCC-FS at the end of the two most recently completed calendar quarters without regard to the statutory asset coverage ratio.

The base management fee reduction by OFS Advisor is renewable on an annual basis and the amount of the base management fee reduced with respect to the OFSCC-FS Assets shall not be subject to recoupment by OFS Advisor.

On June 11, 2019, OFS Advisor agreed to reduce the portion of its base management fee attributable to the portion of the OFSCC-FS Assets that caused our asset coverage ratio to fall below 200%.

Specifically, under the reduction, we were required to pay 0.25% per quarter (1.00% annualized) on the average value of the portion of the OFSCC-FS Assets, at the end of the two most recently completed calendar quarters, that were financed using leverage and caused our statutory asset coverage ratio to fall below 200%.

When calculating our statutory asset coverage ratio, we exclude our SBA-guaranteed debentures from our total outstanding senior securities as permitted pursuant to exemptive relief granted by the SEC dated November 26, 2013.

Additionally, effective from January 1, 2020, January 1, 2021 and January 1, 2022 through December 31, 2022, OFS Advisor agreed to continue the reduced base management fee attributable to all of the OFSCC-FS Assets, excluding cash commencing on January 1, 2022, but without regard to our asset coverage.

The agreement reduced the base management fee to 0.25% per quarter (1.00% annualized) of the average value of the OFSCC-FS Assets, excluding cash as of January 1, 2022, at the end of the two most recently completed calendar quarters.

OFS Advisor’s base management fee reduction is renewable on an annual basis and OFS Advisor is not entitled to recoup the amount of the base management fee reduced with respect to the OFSCC-FS Assets.

This agreement was renewed for the 2022 calendar year on February 4, 2022.

The incentive fee has two parts.

One part ("Part One") is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter.

The first part of the incentive fee (the "Income Incentive Fee") is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter.

“Pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees such as commitment, origination and sourcing, structuring, diligence and consulting fees or other fees that we receive from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee).

Pre-incentive fee net investment income includes, in

the case of investments with a deferred interest or dividend feature (such as original issue discount, or "OID", debt instruments with PIK interest, equity investments with accruing or PIK dividend, and zero coupon securities), accrued income that we have not yet received in cash.

Pre-incentive fee net investment income includes, in the case of investments with a deferred interest or dividend feature (such as original issue discount, or "OID", debt instruments with PIK interest, equity investments with accruing or PIK dividend, and zero coupon securities), accrued income that we have not yet received in cash.

Pre-incentive fee net investment income does not include any realized gains, realized losses, unrealized capital appreciation or unrealized capital depreciation.

Because of the structure of the incentive fee, it is possible that we may pay an incentive fee in a quarter where we incur a loss.

For example, if we receive pre-incentive fee net investment income in excess of the hurdle rate (as defined below) for a quarter, we will pay the applicable incentive fee even if we have incurred a loss in that quarter due to realized capital losses and unrealized capital depreciation.

Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 2.0% per quarter.

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Quarterly Incentive Fee Based on Net Investment Income

The second part ("Part Two") of the incentive fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting (a) the sum of our cumulative aggregate realized capital losses and our aggregate unrealized capital depreciation from (b) our cumulative aggregate realized capital gains.

The second part of the incentive fee (the “Capital Gains Fee”) is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and is calculated at the end of each applicable year by subtracting (a) the sum of our cumulative aggregate realized capital losses and our aggregate unrealized capital depreciation from (b) our cumulative aggregate realized capital gains.

If such amount is positive at the end of such year, then the Capital Gains Fee for such year is equal to 20.0% of such amount, less the aggregate amount of Capital Gains Fees paid in all prior years.

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Income Incentive Fee 2,352 2,025 4,760

Incentive fee waiver (441) — (22)

Income Incentive Fee waiver — (441) —

Capital Gains Fee (1)

(1) In accordance with GAAP, we are required to include aggregate unrealized appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement.

As of December 31, 2021, the cumulative capital gain incentive fee accrued by the Company in accordance with GAAP is $1.9 million, none of which was payable as a capital gain incentive fee pursuant to the current Investment Advisory Agreement as of December 31, 2021.

Any payment due under the terms of the current Investment Advisory Agreement is based on the calculation at the end of each calendar year or upon termination of the Investment Advisory Agreement.

Examples of Incentive Fee Calculation

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(2) Represents a quarter of the 1.75% annualized management fee, which became effective October 31, 2013.

(3) Excludes estimated offering expenses.

(3) Excludes offering costs associated with the issuance of equity securities.

Alternative 1

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See “Item 1A.

Risk Factors—Risks Related to our Business and Structure—We are dependent upon the OFS senior professionals for our future success and upon their access to the investment professionals and partners of OFS and its affiliates.”

Risk Factors—Risks Related to our Business and Structure— We are dependent upon the OFSC senior professionals for our future success and upon their access to the investment professionals and partners of OFSC and its affiliates.

Administration Agreement

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OFS Services furnishes us with office facilities and equipment, necessary software licenses and subscriptions and clerical, and bookkeeping and record keeping services at such facilities.

Under the Administration Agreement, OFS Services performs, or oversees the performance of, our required administrative services, which include being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and all other reports and materials required to be filed with the SEC or any other regulatory authority.

In addition, OFS Services assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others.

Under the Administration Agreement, OFS Services performs, or oversees the performance of, our required administrative services, which includes maintenance of financial records necessary for the production of reports to our stockholders and all other reports and materials required to be filed with the SEC or any other regulatory authority.

In addition, OFS Services assists us in determining and publishing our NAV, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to our stockholders, general supervision of the payment of our expenses, and the performance of administrative and professional services rendered to us by others.

Under the Administration Agreement, OFS Services provides managerial assistance on our behalf to certain portfolio companies that accept our offer to provide such assistance.

rent, information technology, and our allocable portion of the cost of our officers, including our chief executive officer, chief financial officer, chief compliance officer, chief accounting officer, and their respective staffs.

Payments under the Administration Agreement are equal to an amount based upon our allocable portion (subject to the review and approval of our Board) of OFS Services’ overhead in performing its obligations under the Administration Agreement, including rent, information technology, and our allocable portion of the cost of our officers, including our chief executive officer, chief financial officer, chief compliance officer, chief accounting officer, and their respective staffs.

The Administration Agreement may be renewed annually with the approval of our Board, including a majority of our directors who are not “interested persons.” The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

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We have elected to be regulated as a BDC under the 1940 Act.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal

underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act.

The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act.

In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by “a majority of our outstanding voting securities” as defined in the 1940 Act.

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We generally cannot issue and sell our common stock at a price below net asset value per share.

We may, however, issue and sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if (1) our Board determines that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders have approved our policy and practice of making such sales within the preceding 12 months.

We may, however, issue and sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV of our common stock if (1) our Board determines that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders have approved our policy and practice of making such sales within the preceding 12 months.

In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board, closely approximates the market value of such securities.

On June 23, 2020, our stockholders approved a proposal to authorize us, with approval of our Board, to sell or otherwise issue shares of our common stock (during a twelve-month period) at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations (including that the cumulative number of shares sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale).

On June 15, 2021, our stockholders approved a proposal to authorize us, with approval of our Board, to sell or otherwise issue shares of our common stock (during a twelve-month period) at a price below our then-current NAV per share in one or more offerings, subject to certain limitations (including that the cumulative number of shares sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale).

The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so.

On August 4, 2020, we received exemptive relief from the SEC to permit us to co-invest in portfolio companies with certain Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions.

On August 4, 2020, we received the Order from the SEC to permit us to co-invest in portfolio companies with certain Affiliated Funds in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, subject to compliance with certain conditions.

The Order superseded a previous co-investment order we received on October 12, 2016 and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds.

We are generally permitted to co-invest with Affiliated Funds if under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

In addition, pursuant to an exemptive order issued by the SEC on April 8, 2020 and applicable to all BDCs, through December 31, 2020, we were permitted, subject to the satisfaction of certain conditions, to co-invest in our existing portfolio companies with certain affiliates, even if such other funds had not previously invested in such existing portfolio company.

Without this order, affiliated funds would not be able to participate in such co-investments with us unless the affiliated funds had previously acquired securities of the portfolio company in a co-investment transaction with us.

We are generally permitted to co-invest with Affiliated Funds if under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching by us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

In addition, pursuant to an exemptive order issued by the SEC on April 8, 2020 and applicable to all BDCs with exemptive orders, through December 31, 2020, we were permitted, subject to the satisfaction of certain conditions, to co-invest in our existing portfolio companies with certain affiliates that are private funds, even if such other funds had not previously

invested in such existing portfolio company.

Without this order, such Affiliated Funds that are private funds would not be able to participate in such co-investments with us unless the Affiliated Funds had previously acquired securities of the portfolio company in a co-investment transaction with us.

Although the conditional exemptive order expired on December 31, 2020, the SEC’s Division of Investment Management has indicated that until March 31, 2022, it will not recommend enforcement action, to the extent that any BDC with an existing co-investment order continues to engage in certain transactions described in the conditional exemptive order, pursuant to the same terms and conditions described therein.

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Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as “qualifying assets,” unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s assets, as defined by the 1940 Act.

The principal categories of qualifying assets relevant to our business are the following:

Under the 1940 Act, a BDC may not acquire any asset other than those listed in section 55(a) of the 1940 Act, which are referred to as “qualifying assets,” unless, at the time of acquisition, qualifying assets represent at least 70% of the company’s total assets, as defined by the 1940 Act.

The principal categories of qualifying assets relevant to our business include:

(a) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC.

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• is not an investment company (other than a small business investment company wholly-owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act;

• satisfies either of the following:

• satisfies any of the following:

◦ does not have any class of securities listed on a national securities exchange or has any class of securities listed on a national securities exchange subject to a $250 million market capitalization maximum;

◦ is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result, the BDC has an affiliated person who is a director of the eligible portfolio company;

◦ is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.

(b) Securities of any eligible portfolio company which we control;

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Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

With respect to an SBIC, making available managerial assistance means making loans to a portfolio company.

With respect to an SBIC, providing a loan to a portfolio company satisfies the requirement to make managerial assistance available.

Temporary Investments

Pending investment in other types of qualifying assets, as described above, our investments may consist of cash, cash equivalents, U.S.

In addition to investing in other types of qualifying assets, as described above, our investments may include cash, cash equivalents, U.S.

government securities, repurchase agreements and high-quality debt investments that mature in one year or less from the date of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets, as defined by the 1940 Act, are qualifying assets or temporary investments.

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Specifically, Section 61(a)(2) provides that in order for a BDC whose common stock is traded on a national securities exchange to be subject to 150% asset coverage, the BDC must either obtain:

(i) approval of the required majority of its non-interested directors who have no financial interest in the proposal, which would become effective one year after the date of such approval, or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meeting in which quorum is present), which would become effective on the first day after the date of such stockholder approval.

(i) approval of the required majority of

its non-interested directors who have no financial interest in the proposal, which would become effective one year after the date of such approval, or (ii) obtain stockholder approval (of more than 50% of the votes cast for the proposal at a meeting in which quorum is present), which would become effective on the first day after the date of such stockholder approval.

On May 3, 2018, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of the Board, approved the application of Section 61(a)(2) of the 1940 Act and, as a result, the asset coverage ratio test applicable to us was decreased from 200% to 150%, effective May 3, 2019.

See “ Item 1A.

We may borrow money when the terms and conditions available are favorable to do so and are aligned with our investment strategy and portfolio composition.

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Compliance with the Sarbanes-Oxley Act of 2002 and the Nasdaq Global Select Market Corporate Governance Regulations

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly held companies and their insiders.

Many of these requirements affect us.

The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly held companies and their insiders, many of which affect us.

The Sarbanes-Oxley Act has required us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder.

We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

We will continue to monitor, and take actions necessary to ensure, our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act.

In addition, the Nasdaq Global Select Market has adopted various corporate governance requirements as part of its listing standards.

We believe we are in compliance with such corporate governance listing standards.

We will continue to

monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in compliance therewith.

We will continue to monitor, and take actions necessary to ensure, our compliance with all future listing standards.

Exemptive Relief

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Further, the 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so.

The Order superseded a previous co-investment order we received on October 12, 2016 and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds.

In addition, pursuant to an exemptive order issued by the SEC on April 8, 2020 and applicable to all BDCs, through December 31, 2020, we were permitted, subject to the satisfaction of certain conditions, to co-invest in our existing portfolio companies with certain affiliates even if such other funds had not previously invested in such existing portfolio company.

Without this order, such Affiliated Funds that are private funds, would not be able to participate in such co-investments with us unless the Affiliated Funds had previously acquired securities of the portfolio company in a co-investment transaction with us.

Although the conditional exemptive order has expired, the SEC’s Division of Investment Management has indicated that until March 31, 2022, it will not recommend enforcement action, to the extent that any BDC with an existing coinvestment order continues to engage in certain transactions described in the conditional exemptive order, pursuant to the same terms and conditions described therein.

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Treasury Notes with 10-year maturities.

SBA regulations currently limit the amount that an SBIC may borrow to up to a maximum of $150 million (or $175 million with SBA approval) when it has at least $75 million in regulatory capital (or $87.5 million with approval to borrow up to $175 million), receives a leverage commitment from the SBA and has been through an examination by the SBA subsequent to licensing.

The investments of an SBIC are limited to loans to, and equity securities of, eligible small businesses.

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federal income taxes not exceeding $6.5 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years.

In addition, an SBIC must devote 25% of its investment activity to “smaller concerns,” as

defined by the SBA.

In addition, an SBIC must devote 25% of its investment activity to “smaller concerns,” as defined by the SBA.

A smaller concern generally includes businesses that have a tangible net worth not exceeding $6.0 million and have average annual net income after U.S.

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The SBA, as a creditor, will have a superior claim to the SBIC I LP’s assets over our stockholders in the event that SBIC I LP is liquidated or the SBA exercises its remedies under the SBA debentures issued by SBIC I LP in the event of a default.

Income distributions from SBIC I LP are limited to a statutory measurement of “retained earnings available for distribution”, which generally is measured by adjusting undistributed net realized earnings for unrealized depreciation on investments, calculated in accordance with SBA regulations.

Additionally, all return of capital distributions from SBIC I LP currently require the pre-approval of the SBA.

During the year ended December 31, 2020, SBIC I LP distributed a return of capital distribution of $8.1 million to us.

We do not expect to make new investments through SBIC I LP, other than follow-on investments.

Income distributions from SBIC I LP are limited to a statutory measurement of “retained earnings available for distribution” (“READ”) which generally is measured by adjusting undistributed net realized earnings for unrealized depreciation on investments, calculated in accordance with SBA regulations.

Additionally, all return of capital distributions

from SBIC I LP currently require the pre-approval of the SBA.

During the year ended December 31, 2021, SBIC I LP distributed READ and return of capital distributions to us of $10.0 million and $31.6 million, respectively.

As such, we are not making investments through SBIC I LP, other than follow-on investments.

During the year ended December 31, 2021, we did not make any new investments through SBIC I LP and made $4.6 million of follow-on investments in two portfolio companies.

We believe that investing in more senior loans to larger borrowers is consistent with our view of the private loan market and will reduce our overall leverage on a consolidated basis.

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and (2) employees involved in the decision-making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.

Where conflicts of interest may be present, we will disclose such conflicts to our client, including with respect to OFS Capital, those directors who are not interested persons and we may request guidance from such persons on how to vote such proxies for their account.

Where conflicts of interest may be present, we will disclose such conflicts to our

client, including with respect to OFS Capital, those directors who are not interested persons and we may request guidance from such persons on how to vote such proxies for their account.

Proxy Voting Records.

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federal income taxes on any income that we distribute to our stockholders from our otherwise taxable earnings and profits.

To maintain our qualification as a RIC, we must, among other things, meet certain

source-of-income and asset diversification requirements, as described below.

To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements, as described below.

In addition, to receive RIC tax treatment, we must meet the Annual Distribution Requirement.

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We will monitor our transactions and may make certain tax elections to mitigate the potential adverse effect of these provisions, but there can be no assurance that any adverse effects of these provisions will be mitigated.

Our investments in Structured Finance notes are “passive foreign investment company” (a “PFIC”) investments, which can subject us to U.S.

Our investments in Structured Finance Notes are “passive foreign investment company” (“PFIC”) investments, which can subject us to U.S.

federal income tax on our allocable share of a portion of any “excess distribution” received on, or any gain from the disposition of, such shares even if our allocable share of such income is distributed as a taxable dividend to our stockholders.

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federal excise tax.

Some of the income and fees that we recognize may result in ICTI that will not be "qualifying income" for the 90% Income Test.

Some of the income and fees that we recognize may result in income that will not be "qualifying income" for 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 recognize such income and fees directly or indirectly through one or more entities taxed as corporations for U.S.

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Such corporations are required to pay U.S.

corporate income tax on their earnings, which ultimately reduces our return on such income and fees.

corporate income tax on their earnings, which

ultimately reduces our return on such income and fees.

OFSCC-MB, our fully taxable subsidiary, held equity investments with an aggregate fair value of $3.2 million and $11.5 million at December 31, 2021 and 2020, respectively, to prevent such non-qualifying income from adversely affecting our RIC status.

Failure to Qualify as a RIC.

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BDCs may, however, invest alongside certain related parties or their respective other clients in certain circumstances where doing so is consistent with current law and SEC staff interpretations.

For example, a BDC may invest alongside such accounts consistent with guidance promulgated by the SEC staff permitting the BDC and such other accounts to purchase

interests in a single class of privately placed securities so long as certain conditions are met, including that the BDC’s advisor, acting on the BDC’s behalf and on behalf of other clients, negotiates no term other than price.

For example, a BDC may invest alongside such accounts consistent with guidance promulgated by the SEC staff permitting the BDC and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that the BDC’s advisor, acting on the BDC’s behalf and on behalf of other clients, negotiates no term other than price.

Co-investment with such other accounts is not permitted or appropriate under this guidance when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between the BDC’s interests and those of other accounts.

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In the event that we or an Affiliated Account has a controlling or significantly influential position in a portfolio company, that account may have the ability to elect some or all of the board of directors of such a portfolio company, thereby controlling the policies and operations of such portfolio company, including the appointment of management, future issuances of securities, payment of dividends, incurrence of debt and entering into extraordinary transactions.

In addition, a controlling account is likely to have the ability to determine, or influence, the outcome of operational matters and to cause, or prevent, a change in control of such a company.

In addition, a controlling

account is likely to have the ability to determine, or influence, the outcome of operational matters and to cause, or prevent, a change in control of such a company.

Such management and operational decisions may, at times, be in direct conflict with other accounts that have invested in the same portfolio company that do not have the same level of control or influence over the portfolio company.

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Co-Investment with Affiliates.

The Order superseded a previous co-investment order we received on October 12, 2016 and provides us with greater flexibility to enter into co-investment transactions with Affiliated Funds.

We are generally permitted to co-invest with Affiliated Funds if under the terms of the Order, a "required majority" (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business