Item 9A. Controls and Procedures
Item 9A.
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of December 31, 2020 (the end of the period covered by this report), we, including our Co-Chief
Executive Officers and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that
evaluation, our management, including the Co-Chief Executive Officers and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that
information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our
management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b) Managements Report on
Internal Control Over Financial Reporting
Managements Report on Internal Control Over Financial Reporting, which appears in
Item 8 of this Form 10-K, is incorporated by reference herein.
(c) Attestation Report
of the Independent Registered Public Accounting Firm
Our independent registered public accounting firm, KPMG LLP, has issued an
attestation report on the Companys internal control over financial reporting, which is set forth above under the heading Report of Independent Registered Public Accounting Firm in Item 8.
(d) Changes in Internal Controls Over Financial Reporting
Management has not identified any change in the Companys internal control over financial reporting that occurred during the fourth fiscal
quarter of 2020 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Item 9B.
Other Information
None.
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PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Information about Directors
Certain
information with respect to each of the current directors is set forth below, including their names, ages, a brief description of their recent business experience, including present occupations and employment, certain directorships that each person
holds, the year in which each person became a director of the Company, and a discussion of their particular experience, qualifications, attributes or skills that lead us to conclude that such individual should serve as a director of the Company, in
light of the Companys business and structure. There were no legal proceedings of the type described in Item 401(f) of Regulation S-K in the past 10 years against any of the directors or
officers of the Company and none are currently pending. There is no arrangement or understanding between any of the Companys directors or officers pursuant to which they were selected as directors or officers and the Company or any other
person or entity.
Mr. Gross is an interested person of Solar Capital as defined in the Investment Company Act of 1940
(the 1940 Act) due to his position as Co-Chief Executive Officer and President of the Company and a managing member of Solar Capital Partners, LLC (Solar Capital Partners), the
Companys investment adviser. Mr. Spohler is an interested person of the Company as defined in the 1940 Act due to his position as Co-Chief Executive Officer and Chief Operating Officer
of the Company and a managing member of Solar Capital Partners, the Companys investment adviser. Each of Mr. Wachter, Mr. Hochberg and Mr. Potter is not an interested person of the Company as defined in the 1940 Act.
Name, Address and Age (1)
Position(s) Held
with Company
Terms of Office and
Length of Time
Served
Principal
Occupation(s) During
Past 5 Years
Other Directorships
Held by Director or
Nominee for Director
During Past 5
Years (2)
Interested Director
Michael S. Gross, 59
Chairman of the Board of Directors, Co-Chief Executive Officer and President.
Class III Director since 2007; Term expires 2021.
Co-Chief Executive Officer of Solar Capital Ltd., Solar Senior Capital Ltd. and SCP Private Credit Income BDC LLC since June 2019 and President of Solar Capital Ltd. since 2007, Solar
Senior Capital Ltd. since 2010, SCP Private Credit Income BDC LLC since 2018 and SLR HC BDC LLC since 2020; Sole Chief Executive Officer of Solar Capital Ltd. (February 2007-June 2019), of Solar Senior Capital Ltd. (December 2010-June 2019) and of
SCP Private Credit Income BDC LLC (June 2018-June 2019).
Chairman of the Board of Directors of Solar Senior Capital Ltd. since 2010, of SCP Private Credit Income BDC LLC since 2018 and of SLR HC BDC LLC since 2020; Chairman of the Board of Directors of Global Ship Lease Inc.;
Director of Jarden Corporation (2007-2016); Chairman of the Board of Mt. Sinai Childrens Center Foundation; Director of New York Road Runners; Member of the Kellogg Global Advisory Board; and Member of the Ross School Advisory Board at the
University of Michigan.
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Mr. Gross intimate knowledge of the business and operations of Solar Capital Partners, extensive
familiarity with the financial industry and the investment management process in particular, and experience as a director of other public and private companies not only gives the board of directors valuable insight but also positions him well to
continue to serve as the Chairman of our board of directors.
Name, Address
and Age (1)
Position(s) Held
with Company
Terms of Office and
Length of Time
Served
Principal
Occupation(s) During
Past 5 Years
Other Directorships
Held by Director or
Nominee for Director
During Past 5
Years (2)
Interested Director
Bruce Spohler, 60
Co-Chief Executive Officer, Chief Operating Officer and Director
Class II Director
since 2009;
Term expires
2023.
Co-Chief Executive Officer of Solar Capital Ltd., Solar Senior Capital Ltd. and SCP Private Credit Income BDC LLC since June 2019 and SLR HC BDC LLC since September 2020; Chief Operating
Officer of Solar Capital Ltd. since February 2007, of Solar Senior Capital Ltd. since December 2010 and of SCP Private Credit Income BDC LLC since June 2018; previously, Managing Director and a former Co-Head
of U.S. Leveraged Finance for CIBC World Markets.
Director of Solar Senior Capital Ltd. since 2010, of SCP Private Credit Income BDC LLC since 2018 and of SLR HC BDC LLC since 2020.
Mr. Spohlers depth of experience in managerial positions in investment management, leveraged finance and financial
services, as well as his intimate knowledge of Solar Capitals business and operations, gives the board of directors valuable industry-specific knowledge and expertise on these and other matters.
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Name, Address and Age (1)
Position(s) Held
with Company
Terms of Office and
Length of Time
Served
Principal
Occupation(s) During
Past 5 Years
Other Directorships
Held by Director or
Nominee for Director
During Past 5
Years (2)
Independent Director
Steven Hochberg, 59
Director
Class II Director since 2007; Term expires 2023.
Partner at Deerfield Management, a healthcare investment firm, since 2013. Co-founder and manager of Ascent Biomedical Ventures, a venture capital firm focused on early stage investment and
development of biomedical companies, since 2004.
Director of Solar Senior Capital Ltd. since 2011, of SCP Private Credit Income BDC LLC since 2018, of SLR HC BDC LLC since 2020 and several private companies. Partner at Deerfield Management, a healthcare investment firm, since
2013. Co-founder and manager of Ascent Biomedical Ventures, a venture capital firm focused on early stage investment and development of biomedical companies, since 2004. Since 2011, Mr. Hochberg had been
the Chairman of the Board of Continuum Health Partners until its merger with Mount Sinai in 2013, where he is the Senior Vice Chairman of the Mount Sinai Health System, a non-profit healthcare integrated
delivery system in New York City. Director of a number of private healthcare companes, two special purposes acquisition companies, in cluding Deerfield Healthcare Technology Acquisitions Corp. and DFP Healthcare Acquisitions Corp., and the
Cardiovascular Research Foundation, an organization focused on advancing new technologies and education in the field of cardiovascular medicine.
Mr. Hochbergs varied experience in investing in medical technology companies provides the board of directors with
particular knowledge of this field, and his role as chairman of other companies board of directors brings the perspective of a knowledgeable corporate leader.
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Name, Address and Age (1)
Position(s) Held
with Company
Terms of Office and
Length of Time
Served
Principal
Occupation(s) During
Past 5 Years
Other Directorships
Held by Director or
Nominee for Director
During Past 5
Years (2)
Independent Director
Leonard A. Potter, 59
Director
Class III Director since 2009; Term expires 2021.
President and Chief Investment Officer of Wildcat Capital Management, LLC since 2011; Co-founder and Senior Managing Director at Vida Ventures since 2017; Chief Executive Officer of Infinity Q
Capital Management, LLC from 2014 to 2020; Managing Director of Soros Private Equity at Soros Fund Management LLC from 2002 to 2009.
Director of Solar Senior Capital Ltd. since 2011, SCP Private Credit Income BDC LLC since 2018, SLR HC BDC LLC since 2020, Hilton Grand Vacations Inc. since 2017, SuRo Capital Corp. (formerly known as Sutter Rock Capital Corp.)
since 2011, and several private companies. Non-Executive Chairman of Infinity Q Management since 2020.
Mr. Potters experience practicing as a corporate lawyer provides valuable insight to the board of directors on
regulatory and risk management issues. In addition, his tenure in private equity and other investments and service as a director of both public and private companies provide industry-specific knowledge and expertise to the board of directors.
Name, Address and Age (1)
Position(s) Held
with Company
Terms of Office and
Length of Time
Served
Principal
Occupation(s) During
Past 5 Years
Other Directorships
Held by Director or
Nominee for Director
During Past 5
Years (2)
Independent Director
David S. Wachter, 57
Director
Class I Director since 2007; Term expires 2022.
Founding Partner and Managing Partner of W Capital Partners, a private equity fund manager, since 2001.
Director of Solar Senior Capital Ltd. since 2011, SCP Private Credit Income BDC LLC since 2018, SLR HC BDC LLC since 2020 and of several private companies.
Mr. Wachters extensive knowledge of private equity and investment banking provides the board of directors with the
valuable insight of an experienced financial manager.
(1)
The business address of the director nominees and other directors is c/o Solar Capital Ltd., 500 Park Avenue,
New York, New York 10022.
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(2)
All of the Companys directors also serve as directors of Solar Senior Capital Ltd., SCP Private Credit
Income BDC LLC and SLR HC BDC LLC, which are investment companies that have each elected to be regulated as a business development company (BDC) and for which Solar Capital Partners serves as investment adviser. Mr. Potter also
serves as a director of SuRo Capital Corp. (formerly known as Sutter Rock Capital Corp.), which is a closed-end management investment company that has elected to be regulated as a BDC.
Information about Executive Officers Who Are Not Directors
The following information, as of December 31, 2020, pertains to our executive officers who are not directors of the Company.
Name, Address, and Age (1)
Position(s) Held with
Company
Principal Occupation(s) During Past 5 Years
Richard L. Peteka, 59
Chief Financial Officer, Treasurer and Secretary
Chief Financial Officer, Treasurer and Secretary of the Company and of Solar Senior Capital Ltd. since May 2012, of SCP Private Credit Income BDC LLC since June 2018 and SLR HC BDC LLC since September 2020. Mr. Peteka joined
the Company from Apollo Investment Corporation, a publicly-traded business development company, where he served from 2004 to 2012 as the Chief Financial Officer and Treasurer.
Guy Talarico, 65
Chief Compliance Officer
Chief Compliance Officer of Solar Capital Ltd. since 2008, Solar Senior Capital Ltd. since 2010, SCP Private Credit Income BDC LLC since 2018, SLR HC BDC LLC since 2020 and Solar Capital Partners, LLC since February 2016all
affiliated entities; and Chief Executive Officer of Alaric Compliance Services, LLC (successor to EOS Compliance Services LLC) since December 2005. In conjunction with this primary occupation, Mr. Talarico has served and continues to serve as
Chief Compliance Officer for other business development companies, funds, and/or investment advisers who are not affiliated with the Solar Capital entities.
(1)
The business address of the executive officers is c/o Solar Capital Ltd., 500 Park Avenue, New York, New York
10022.
Our common stock is listed on the NASDAQ Global Select Market under the symbol SLRC.
Audit Committee
The Audit Committee
operates pursuant to a charter approved by our board of directors, a copy of which is available on our website at http://www.solarcapltd.com. The charter sets forth the responsibilities of the Audit Committee. The Audit Committees
responsibilities include selecting the independent registered public accounting firm for the Company, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of the Companys financial
statements, pre-approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing the Companys annual
financial statements and periodic filings and receiving the Companys audit reports and financial statements. The Audit Committee also establishes guidelines and makes recommendations to our board of directors regarding the valuation of our
investments. The Audit Committee is
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responsible for aiding our board of directors in determining the fair value of debt and equity securities that are not publicly traded or for which current market values are not readily
available. The board of directors and Audit Committee utilize the services of nationally recognized third-party valuation firms to help determine the fair value of these securities. The Audit Committee is currently composed of Messrs. Hochberg,
Wachter and Potter, all of whom are considered independent under the rules of the NASDAQ Stock Market and are not interested persons of the Company as that term is defined in Section 2(a)(19) of the 1940 Act. Mr. Hochberg
serves as Chairman of the Audit Committee. Our board of directors has determined that Mr. Hochberg is an audit committee financial expert as that term is defined under Item 407 of Regulation
S-K, as promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Mr. Hochberg meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.
Communication with the Board of Directors
Stockholders with questions about the Company are encouraged to contact the Companys investor relations department. However, if
stockholders believe that their questions have not been addressed, they may communicate with the Companys board of directors by sending their communications to Solar Capital Ltd., c/o Richard L. Peteka, Secretary, 500 Park Avenue, New York,
New York 10022. All stockholder communications received in this manner will be delivered to one or more members of the board of directors.
Code of
Ethics
The Company has adopted a code of ethics that applies to, among others, its senior officers, including its Co-Chief Executive Officers and its Chief Financial Officer, as well as every officer, director and employee of the Company. The Companys code of ethics can be accessed via its website at
http://www.solarcapltd.com . The Company intends to disclose amendments to or waivers from a required provision of the code of ethics on Form 8-K.
Nomination of Directors
There have been
no material changes to the procedures by which stockholders may recommend nominees to our Board of Directors implemented since the filing of our Proxy Statement for our 2020 Annual Meeting of Stockholders.
Item 11.
Executive Compensation
Compensation of Executive Officers
None
of our officers receives direct compensation from the Company. As a result, we do not engage any compensation consultants. Mr. Gross, our Co-Chief Executive Officer and President, and Mr. Spohler,
our Co-Chief Executive Officer and Chief Operating Officer, through their ownership interest in Solar Capital Partners, our investment adviser, are entitled to a portion of any profits earned by Solar Capital
Partners, which includes any fees payable by us to Solar Capital Partners under the terms of the Advisory Agreement, less expenses incurred by Solar Capital Partners in performing its services under the Advisory Agreement. Messrs. Gross and Spohler
do not receive any additional compensation from Solar Capital Partners in connection with the management of our portfolio.
Mr. Peteka, our Chief Financial Officer, Treasurer and Secretary and, through Alaric Compliance Services, LLC, Guy Talarico, our Chief
Compliance Officer, are paid by Solar Capital Management, our administrator, subject to reimbursement by us of an allocable portion of such compensation for services rendered by such persons to the Company. To the extent that Solar Capital
Management outsources any of its functions, we will pay the fees associated with such functions on a direct basis without profit to Solar Capital Management.
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Compensation of Directors
The following table sets forth compensation of the Companys directors, for the year ended December 31, 2020.
Name
Fees Earned or Paid
in Cash (1)
Stock
Awards (2)
All Other
Compensation
Total
Interested Directors
Michael S. Gross
Bruce Spohler
Independent Directors
Steven Hochberg
$
127,000
$
127,000
David S. Wachter
$
122,000
$
122,000
Leonard A. Potter
$
122,000
$
122,000
(1)
For a discussion of the independent directors compensation, see below.
(2)
We do not maintain a stock or option plan, non-equity incentive plan or
pension plan for our directors. However, our independent directors have the option to receive all or a portion of the directors fees to which they would otherwise be entitled in the form of shares of our common stock issued at a price per
share equal to the greater of our then current net asset value per share or the market price at the time of payment. No shares were issued to any of our independent directors in lieu of cash during 2020.
Our independent directors annual fee is $100,000. The independent directors also receive $2,500 ($1,500 if participating telephonically)
plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and $1,000 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended. In addition, the Chairman of the Audit Committee receives an annual fee of $7,500, the
Chairman of the Nominating and Corporate Governance Committee receives an annual fee of $2,500 and the Chairman of the Compensation Committee receives an annual fee of $2,500. Further, we purchase directors and officers liability
insurance on behalf of our directors and officers. In addition, no compensation was paid to directors who are interested persons of the Company as defined in the 1940 Act.
Compensation Committee
The Compensation
Committee operates pursuant to a charter approved by our board of directors, a copy of which is available on our website at http://www.solarcapltd.com. The charter sets forth the responsibilities of the Compensation Committee. The
Compensation Committee is responsible for reviewing and recommending for approval to our board of directors the Advisory Agreement and the Administration Agreement. In addition, although we do not directly compensate our executive officers
currently, to the extent that we do so in the future, the Compensation Committee would also be responsible for reviewing and evaluating their compensation and making recommendations to the board of directors regarding their compensation. Lastly, the
Compensation Committee would produce a report on our executive compensation practices and policies for inclusion in our proxy statement if required by applicable proxy rules and regulations and, if applicable, make recommendations to the board of
directors with matters related to compensation generally. The Compensation Committee has the authority to engage compensation consultants and to delegate their duties and responsibilities to a member or to a subcommittee of the Compensation
Committee. The members of the Compensation Committee are Messrs. Hochberg, Wachter and Potter, all of whom are considered independent under the rules of the NASDAQ Stock Market and are not interested persons of the Company as that term
is defined in Section 2(a)(19) of the 1940 Act. Mr. Potter serves as Chairman of the Compensation Committee.
Compensation Committee
Interlocks and Insider Participation
During fiscal year 2020 none of the Companys executive officers served on the board of
directors (or a compensation committee thereof or other board committee performing equivalent functions) of any entities that
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had one or more executive officers serve on the Compensation Committee of the Company or on the Board of Directors of the Company. No member of the Compensation Committee had any relationship
requiring disclosure under any paragraph of Item 404 of Regulation S-K.
Compensation Committee Report
Currently, none of our executive officers are compensated by the Company, and as such the Company is not required to produce a report on
executive officer compensation for inclusion in our annual report on Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of February 19, 2021, the beneficial ownership of each current director, the
nominees for directors, the Companys executive officers, each person known to us to beneficially own 5% or more of the outstanding shares of our common stock, and the executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (SEC) and includes
voting or investment power with respect to the securities. Ownership information for those persons who beneficially own 5% or more of our shares of common stock is based upon reports filed by such persons with the SEC and other information obtained
from such persons, if available.
Unless otherwise indicated, the Company believes that each beneficial owner set forth in the table has
voting and investment power and has the same address as the Company. Our address is 500 Park Avenue, New York, New York 10022.
Name and Address of Beneficial Owner
Number of Shares
Owned Beneficially(1)
Percentage
of Class(2)
Interested Directors
Michael S. Gross(3)(4)
2,663,881
6.3
%
Bruce Spohler(3)
2,275,787
5.4
%
Independent Directors
Steven Hochberg
10,000
*
Leonard A. Potter
10,000
*
David S. Wachter
46,392
*
Executive Officers
Richard L. Peteka
24,000
0.1
%
Guy Talarico
10,350
*
All executive officers and directors as a group (7 persons)
2,832,149
6.7
%
Wellington Management Group LLP(5)
2,714,236
6.4
%
Thornburg Investment Management Inc.(6)
4,654,145
11.0
%
*
Represents less than one percent.
(1)
Beneficial ownership has been determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act). Assumes no other purchases or sales of our common stock since the most recently available SEC filings. This
assumption has been made under the rules and regulations of the SEC and does not reflect any knowledge that we have with respect to the present intent of the beneficial owners of our common stock listed in this table.
(2)
Based on a total of 42,260,826 shares of the Companys common stock issued and outstanding as of
February 19, 2021.
(3)
Includes 1,285,013 shares held by Solar Capital Investors, LLC and 715,000 shares held by Solar Capital
Investors II, LLC, a portion of both of which may be deemed to be indirectly beneficially owned by Michael S. Gross, by Bruce Spohler and a grantor retained annuity trust (GRAT) setup by and for
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Mr. Gross by virtue of their collective ownership interest therein. Also includes 208,248 shares held by Solar Capital Partners Employee Stock Plan LLC, which is controlled by Solar Capital
Partners, LLC. Mr. Gross and Mr. Spohler may be deemed to beneficially own a portion of the shares held by Solar Capital Partners Employee Stock Plan LLC by virtue of their collective ownership interest in Solar Capital Partners, LLC. Each
of Mr. Gross and Mr. Spohler disclaim beneficial ownership of any shares of our common stock directly held by Solar Capital Partners Employee Stock Plan LLC, Solar Capital Investors, LLC or Solar Capital Investors II, LLC, except to the
extent of their respective pecuniary interest therein.
(4)
Includes 97,250 shares directly held by Michael S. Gross profit sharing plan (the Profit Sharing
Plan). Mr. Gross may be deemed to directly beneficially own these shares as the sole participant in the Profit Sharing Plan. Also includes 20,000 shares directly held by the GRAT setup by and for Michael S. Gross, which Mr. Gross may
be deemed to directly beneficially own as the sole trustee of the GRAT. Also includes 88,775 shares held by certain trusts for the benefit of family members for which Mr. Gross serves as trustee (the Family
Trusts). Mr. Gross may be deemed to directly beneficially own these shares by virtue of his control with respect to the Family Trusts, and disclaims beneficial ownership of the securities held by the Family Trusts
except to the extent of his pecuniary interest therein.
(5)
Based upon information contained in the Schedule 13G/A filed February 4, 2021 by Wellington Management
Group LLP. Such securities are held by certain investment vehicles controlled and/or managed by Wellington Management Company, LLP or its affiliates. The address for Wellington Management Company, LLP is 280 Congress Street, Boston, MA 02210.
(6)
Based upon information contained in the Schedule 13G filed February 9, 2021 by Thornburg Investment
Management Inc. Such securities are held by certain investment vehicles controlled and/or managed by Thornburg Investment Management Inc. or its affiliates. The address for Thornburg Investment Management Inc. is 2300 North Ridgetop Road, Santa Fe,
New Mexico 87506.
Set forth below is the dollar range of equity securities beneficially owned by each of our
directors as of February 19, 2021. We are not part of a family of investment companies, as that term is defined in the 1940 Act.
Name of Director
Dollar Range
of Equity
Securities
Beneficially
Owned(1)(2)
Interested Directors
Michael S. Gross
Over $
100,000
Bruce Spohler
Over $
100,000
Independent Directors
Steven Hochberg
Over $
100,000
Leonard A. Potter
Over $
100,000
David S. Wachter
Over $
100,000
(1)
The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or Over $100,000.
(2)
The dollar range of equity securities beneficially owned in us is based on the closing price for our common
stock of $19.01 on February 19, 2021 on the NASDAQ Global Select Market. Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Exchange Act.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
We have entered into the Advisory Agreement with Solar Capital Partners. Mr. Gross, our Chairman,
Co-Chief Executive Officer and President, and Mr. Spohler, our Co-Chief Executive Officer, Chief Operating Officer and board member, are managing members and senior
investment professionals of, and have financial and controlling interests in, Solar Capital Partners. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer and Secretary, serves as the Chief Financial Officer for Solar Capital
Partners.
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Solar Capital Partners and its affiliates may also manage other funds in the future that may
have investment mandates that are similar, in whole and in part, with ours. For example, Solar Capital Partners presently serves as investment adviser to private funds and managed accounts as well as to Solar Senior Capital Ltd., a publicly-traded
BDC, which focuses on investing primarily in senior secured loans, including first lien and second lien debt instruments, SCP Private Credit Income BDC LLC, an unlisted BDC, which focuses on investing primarily in senior secured loans, including non-traditional asset-based loans and first lien loans and SLR HC BDC LLC, an unlisted BDC whose principal focus is to invest directly and indirectly in senior secured loans and other debt instruments typically to
middle market companies within the healthcare industry. In addition, Michael S. Gross, our Chairman and Co-Chief Executive Officer, Bruce Spohler, our Co-Chief Executive
Officer and Chief Operating Officer, and Richard L. Peteka, our Chief Financial Officer, serve in similar capacities for Solar Senior Capital Ltd., SCP Private Credit Income BDC LLC and SLR HC BDC LLC.
Solar Capital Partners and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more
of those other funds. In such event, depending on the availability of such investment and other appropriate factors, Solar Capital Partners or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with Solar
Capital Partners allocation procedures.
Related party transactions may occur among Solar Capital Ltd., Crystal Financial LLC,
Equipment Operating Leases LLC, Loyer Capital LLC, North Mill Holdco LLC, Gemino Healthcare Finance, LLC and NEF Holdings LLC. These transactions may occur in the normal course of business. No administrative or other fees are paid to Solar Capital
Partners by Crystal Financial LLC, Equipment Operating Leases LLC, Loyer Capital LLC, North Mill Holdco LLC, Gemino Healthcare Finance, LLC or NEF Holdings LLC.
In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also
remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.
Regulatory restrictions limit our
ability to invest in any portfolio company in which any affiliate currently has an investment. The Company obtained its most recent exemptive order from the SEC on June 13, 2017 (the Exemptive Order). The Exemptive Order permits us
to participate in negotiated co-investment transactions with certain affiliates, each of whose investment adviser is an investment adviser that controls, is controlled by or is under common control with Solar
Capital Partners and is registered as an investment adviser under the Advisers Act, in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent
factors, and pursuant to the conditions to the Exemptive Order. We believe that it will be advantageous for us to co-invest with funds managed by Solar Capital Partners where such investment is consistent with
the investment objectives, investment positions, investment policies, investment strategy, investment restrictions, regulatory requirements and other pertinent factors applicable to us.
We have entered into a license agreement with Solar Capital Partners, pursuant to which Solar Capital Partners has agreed to grant us a non-exclusive, royalty-free license to use the name Solar Capital. In addition, pursuant to the terms of the Administration Agreement, Solar Capital Management provides us with the office facilities and
administrative services necessary to conduct our day-to-day operations.
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Board Consideration of the Investment Advisory and Management Agreement
Our board of directors determined at a virtual meeting held on November 2, 2020, to approve the Advisory Agreement between the Company and
Solar Capital Partners. In reliance on certain exemptive relief provided by the SEC in connection with the global COVID-19 pandemic, our board undertook to ratify the Advisory Agreement at its next in-person meeting. In its consideration of the approval of the Advisory Agreement, the board of directors focused on information it had received relating to, among other things:
the nature, extent and quality of advisory and other services provided by Solar Capital Partners, including
information about the investment performance of the Company relative to its stated objectives and in comparison to the performance of the Companys peer group and relevant market indices, and concluded that such advisory and other services are
satisfactory and the Companys investment performance is reasonable;
the experience and qualifications of the personnel providing such advisory and other services, including
information about the backgrounds of the investment personnel, the allocation of responsibilities among such personnel and the process by which investment decisions are made, and concluded that the investment personnel of Solar Capital Partners have
extensive experience and are well qualified to provide advisory and other services to the Company;
the current fee structure, the existence of any fee waivers, and the Companys anticipated expense ratios in
relation to those of other investment companies having comparable investment policies and limitations, and concluded that the current fee structure is reasonable;
the advisory fees charged by Solar Capital Partners to the Company, to Solar Senior Capital Ltd. and to SCP
Private Credit Income BDC LLC, the advisory fees that will be charged by Solar Capital Partners to SLR HC BDC LLC, and comparative data regarding the advisory fees charged by other investment advisers to business development companies with similar
investment objectives, and concluded that the advisory fees charged by Solar Capital Partners to the Company are reasonable;
the direct and indirect costs, including for personnel and office facilities, that are incurred by Solar Capital
Partners and its affiliates in performing services for the Company and the basis of determining and allocating these costs, and concluded that the direct and indirect costs, including the allocation of such costs, are reasonable;
possible economies of scale arising from the Companys size and/or anticipated growth, and the extent to
which such economies of scale are reflected in the advisory fees charged by Solar Capital Partners to the Company, and concluded that some economies of scale may be possible in the future;
other possible benefits to Solar Capital Partners and its affiliates arising from their relationships with the
Company, and concluded that all such other benefits were not material to Solar Capital Partners and its affiliates; and
possible alternative fee structures or bases for determining fees, and concluded that the Companys current
fee structure and bases for determining fees are satisfactory.
Based on the information reviewed and the discussions
detailed above, the board of directors, including a majority of the directors who are not interested persons as defined in the 1940 Act, concluded that the fees payable to Solar Capital Partners pursuant to the Advisory Agreement were
reasonable, and comparable to the fees paid by other management investment companies with similar investment objectives, in relation to the services to be provided. The board of directors did not assign relative weights to the above factors or the
other factors considered by it. Individual members of the board of directors may have given different weights to different factors.
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Director Independence
In accordance with rules of the NASDAQ Stock Market, our board of directors annually determines each directors independence. We do not
consider a director independent unless the board of directors has determined that he has no material relationship with us. We monitor the relationships of our directors and officers through a questionnaire each director completes no less frequently
than annually and updates periodically as information provided in the most recent questionnaire changes.
Our governance guidelines
require any director who has previously been determined to be independent to inform the Chairman of the board of directors, the Chairman of the Nominating and Corporate Governance Committee and our Secretary of any change in circumstance that may
cause his status as an independent director to change. The board of directors limits membership on the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee to independent directors.
In order to evaluate the materiality of any such relationship, the board of directors uses the definition of director independence set forth
in the rules promulgated by the NASDAQ Stock Market. Rule 5605(a)(2) provides that a director of a BDC, shall be considered to be independent if he or she is not an interested person of such BDC, as defined in Section 2(a)(19) of
the 1940 Act.
The board of directors has determined that each of the directors is independent and has no relationship with us, except as
a director and stockholder, with the exception of Michael S. Gross, as a result of his positions as the Co-Chief Executive Officer and President of the Company and a Managing Member of Solar Capital Partners,
and Bruce Spohler, as a result of his positions as the Co-Chief Executive Officer and Chief Operating Officer of the Company and a Managing Member of Solar Capital Partners.
Indemnification Agreements
We have
entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that
Solar Capital shall indemnify the director who is a party to the agreement (an Indemnitee), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a
party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.
Item 14.
Principal Accountant Fees and Services
KPMG LLP has advised us that neither the firm nor any present member or associate of it has any material financial interest, direct or
indirect, in the Company or its affiliates.
Table below in thousands
Fiscal Year
Ended
December 31,
2020
Fiscal Year
Ended
December 31,
2019
Audit Fees
$
655.3
$
615.0
Audit-Related Fees
64.5
Tax Fees
165.8
204.7
All Other Fees
Total Fees:
$
821.1
$
884.2
Audit Fees: Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and quarterly reviews and services that are normally provided by KPMG LLP in connection with statutory and regulatory filings.
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Audit-Related Fees: Audit-related services consist of fees billed for assurance and
related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Audit Fees. These services include attest services that are not required by statute or
regulation and consultations concerning financial accounting and reporting standards.
Tax Services Fees: Tax services fees consist
of fees billed for professional tax services. These services also include assistance regarding federal, state, and local tax compliance.
All Other Fees: Other fees would include fees for products and services other than the services reported above.
Pre-Approval Policy
The Audit Committee has established a pre-approval policy that describes the permitted audit,
audit-related, tax and other services to be provided by KPMG LLP, the Companys independent registered public accounting firm (KPMG). The policy requires that the Audit Committee pre-approve
the audit and non-audit services performed by the independent auditor in order to assure that the provision of such service does not impair the auditors independence.
Any requests for audit, audit-related, tax and other services that have not received general
pre-approval must be submitted to the Audit Committee for specific pre-approval, irrespective of the amount, and cannot commence until such approval has been granted.
Normally, pre-approval is provided at regularly scheduled meetings of the Audit Committee. However, the Audit Committee may delegate pre-approval authority to one or
more of its members. The member or members to whom such authority is delegated shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee does not
delegate its responsibilities to pre-approve services performed by the independent registered public accounting firm to management. During the fiscal year ended December 31, 2020, the Audit Committee pre-approved 100% of services described in this policy.
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PART IV
Item 15.
Exhibit and Financial Statement Schedules
a. Documents Filed as Part of this Report
The following reports and consolidated financial statements are set forth in Item 8:
Page
Managements Report on Internal Control Over Financial
Reporting
98
Report of Independent Registered Public Accounting Firm
99
Consolidated Statements of Assets and Liabilities as of December
31, 2020 and 2019
102
Consolidated Statements of Operations for the years ended December
31, 2020, 2019 and 2018
103
Consolidated Statements of Changes in Net Assets for the years ended December 31,
2020, 2019 and 2018
104
Consolidated Statements of Cash Flows for the years ended December
31, 2020, 2019 and 2018
105
Consolidated Schedules of Investments as of December 31, 2020 and
2019
106
Notes to Consolidated Financial Statements
118
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Table of Contents
b. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Exhibit
Number
Description
3.1
Articles of Amendment and Restatement(1)
3.2
Amended and Restated Bylaws(1)
4.1
Form of Common Stock Certificate(2)
4.2
Indenture, dated as of November 16, 2012, between the Registrant and U.S. Bank National Association as trustee(3)
4.3
Second Supplemental Indenture, dated November
22, 2017, relating to the 4.50% Notes due 2023, between the Registrant and U.S. Bank National Association as trustee, including the Form of 4.50% Notes due 2023(8)
4.4
Description of Securities*
10.1
Dividend Reinvestment Plan(1)
10.2
Form of Senior Secured Credit Agreement by and between the Registrant, Citibank, N.A., as administrative agent, the lenders party thereto and
JPMorgan Chase Bank, N.A., as syndication agent(9)
10.6
Third Amended and Restated Investment Advisory and Management Agreement by and between the Registrant and Solar Capital Partners,
LLC(7)
10.7
Form of Custodian Agreement(6)
10.8
Amended and Restated Administration Agreement by and between Registrant and Solar Capital Management, LLC(5)
10.9
Form of Indemnification Agreement by and between Registrant and each of its directors(1)
10.10
Trademark License Agreement by and between Registrant and Solar Capital Partners, LLC(1)
10.11
Form of Share Purchase Agreement by and between Registrant and Solar Capital Investors II, LLC(2)
10.12
Form of Registration Rights Agreement(4)
10.13
Form of Subscription Agreement(4)
10.14
Form of Note Purchase Agreement by and between the Registrant and the lenders party thereto(10)
10.15
Form of First Supplement to Note Purchase Agreement by and between the Registrant and the lenders party thereto(10)
10.16
Form of Second Supplement to Note Purchase Agreement by and between the Registrant and the lenders party thereto(10)
10.17
Form of Third Supplement to Note Purchase Agreement by and between the Registrant and the lenders party thereto(10)
14.1
Code of Ethics*
14.2
Code of Business Conduct(5)
21.1
Subsidiaries of Solar Capital Ltd.*
23.1
Consent of Independent Registered Public Accounting Firm*
31.1
Certification of Co-Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as
amended.*
31.2
Certification of Co-Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as
amended.*
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Exhibit
Number
Description
31.3
Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.*
32.1
Certification of Co-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.2
Certification of Co-Chief Executive Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
32.3
Certification of Chief Financial Officer pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.*
99.1
Crystal Financial LLC (A Delaware Limited Liability Company) Consolidated Financial Statements for the years ended December 31, 2020 and December 31, 2019*
99.2
NEF Holdings, LLC and Subsidiaries (A Limited Liability Company) Consolidated Financial Statements for the years ended December 31, 2020 and December 31, 2019*
99.3
KBH Topco, LLC (A Delaware Limited Liability Company) Consolidated Financial Statements for the period November 3, 2020 to December 31, 2020*
99.4
Report of Independent Registered Public Accounting Firm on Supplemental Information*
(1)
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Pre-Effective Amendment No. 7 (File No. 333-148734) filed on January 7, 2010.
(2)
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 (File No 333-148734) filed on February 9, 2010.
(3)
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 6 (File No. 333-172968) filed on November 16, 2012.
(4)
Previously filed in connection with Solar Capital Ltd.s report on Form
8-K filed on November 29, 2010.
(5)
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 10 (File No. 333-172968) filed on November 12, 2013.
(6)
Previously filed in connection with Solar Capital Ltd.s report on Form
10-K filed on February 25, 2014.
(7)
Previously filed in connection with Solar Capital Ltd.s report on Form
10-Q filed on August 6, 2018.
(8)
Previously filed in connection with Solar Capital Ltd.s registration statement on Form N-2 Post-Effective Amendment No. 5 (File No. 333-194870) filed on November 22, 2017.
(9)
Previously filed in connection with Solar Capital Ltd.s report on Form
10-Q filed on November 4, 2019.
(10)
Previously filed in connection with Solar Capital Ltd.s report on Form
10-K filed on February 20, 2020.
*
Filed herewith.
c. Consolidated Financial Statement Schedules
Separate Financial Statements of Subsidiaries Not Consolidated:
Consolidated Financial Statements for Crystal Financial LLCs (A Delaware Limited Liability Company) years ended December 31, 2020
and December 31, 2019 are attached as Exhibit 99.1 hereto.
Consolidated Financial Statements for NEF Holdings, LLCs (A
Delaware Limited Liability Company) years ended December 31, 2020 and December 31, 2019 are attached as Exhibit 99.2 hereto.
Consolidated Financial Statements for KBH Topco LLCs (A Delaware Limited Liability Company) period November 3, 2020 to
December 31, 2020 are attached as Exhibit 99.3 hereto.
Item 16.
Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SOLAR CAPITAL LTD.
By:
/s/ M ICHAEL S. G ROSS
/s/ B RUCE J. S POHLER
Michael S. Gross
Co-Chief Executive Officer, President, Chairman of the Board and
Director
Date: February 24, 2021
Bruce J. Spohler
Co-Chief Executive Officer, Chief Operating Officer and
Director
Date:
February 24, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacity and on the dates indicated.
Date
Signature
Title
February 24, 2021
/s/ M ICHAEL S. G ROSS
Michael S. Gross
Co-Chief Executive Officer, President, Chairman of the Board and Director (Principal Executive Officer)
February 24, 2021
/s/ B RUCE J. S POHLER
Bruce J. Spohler
Co-Chief Executive Officer, Chief Operating Officer and Director (Principal Executive Officer)
February 24, 2021
/s/ S TEVEN H OCHBERG
Steven Hochberg
Director
February 24, 2021
/s/ D AVID S. W ACHTER
David S. Wachter
Director
February 24, 2021
/s/ L EONARD A. P OTTER
Leonard A. Potter
Director
February 24, 2021
/s/ R ICHARD L. P ETEKA
Richard L. Peteka
Chief Financial Officer (Principal Financial Officer) and Secretary
155