UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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FS INVESTMENT CORPORATIONKKR CAPITAL CORP. II
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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FS Investment Corporation II
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
January 18, 2018March 2, 2020
Dear Fellow Stockholder:
You are cordially invited to attend a Specialthe 2020 Annual Meeting of Stockholders of FS Investment CorporationKKR Capital Corp. II (the “Company”) to be held on March 26, 2018April 23, 2020 at 3:1:00 p.m., Eastern Time, at the offices of the Company, located at 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112 (the “Special“Annual Meeting”).
Your vote is very important! Your immediate response will help avoid potential delays.delays and may save the Company significant additional expenses associated with soliciting stockholder votes.
The Notice of SpecialAnnual Meeting of Stockholders and proxy statement accompanying this letter provide an outline of the business to be conducted at the Special Meeting.meeting. At the Special Meeting,meeting, you will be asked to:
(i) approveelect the following individuals as Class C Directors, each of whom has been nominated for election for a new investment advisorythree year term expiring at the 2023 annual meeting of the stockholders: (a) Michael C. Forman, (b) Richard Goldstein, (c) James H. Kropp and administrative services agreement, by and between the Company and FSIC II Advisor, LLC (“FSIC II Advisor”) (the “FSIC II Advisor InvestmentCo-Advisory Agreement”), and a new investment advisory and administrative services agreement, by and between the Company and KKR Credit Advisors (US) LLC (“KKR Credit”) (the “KKR InvestmentCo-Advisory Agreement” and, together with the FSIC II Advisor InvestmentCo-Advisory Agreement, the “InvestmentCo-Advisory Agreements”), pursuant to which FSIC II Advisor and KKR Credit will act as investmentco-advisers to the Company; and(d) Elizabeth Sandler;
(ii) approve a new investment advisory and administrative services agreement, by and betweenthe application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act of 1940, as amended, to the Company, and FS/KKR Advisor, LLC, a newly-formed investment adviser jointly operated by an affiliate of Franklin Square Holdings, L.P. (“FS Investments”) and KKR Credit (the “Joint Advisor”) (the “Joint Advisor Investment Advisory Agreement”), pursuant to which the Joint Advisor will act as investment adviser to the Company.
You are being asked to approve both the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement because there are different conditions that must be satisfied before either the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement can go into effect. The InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would not be in effect simultaneously, and the Company ultimately intends to receive investment advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement. If approved by the Company’s stockholders and the other conditions described in the enclosed proxy statement are satisfied or (to the extent permitted) waived, the Company plans to enter into the InvestmentCo-Advisory Agreements, and the Company will receive investment advisory services in accordance with the terms of such agreements pending receipt of exemptive relief from the U.S. Securities and Exchange Commission to permit the Company to increase the maximum amount of leverage that it is permitted to incur by reducing the asset coverage requirement applicable to the Company from 200% to 150%; and
(iii) approve a proposal to allow the Company in future offerings, following the effectivenesslisting of the Joint Advisor Investment Advisory Agreement,Company’s common stock on a national securities exchange, toco-invest sell its shares below net asset value per share in privately negotiated investment transactions with certain accounts managed by KKR Credit (“Exemptive Relief”) and satisfactionorder to provide flexibility for future sales.
In addition to these proposals, you may be asked to consider any other matters that properly may be presented at the Annual Meeting or any adjournment or postponement of the other conditionsAnnual Meeting, including proposals to adjourn the effectivenessAnnual Meeting with respect to proposals for which insufficient votes to approve were cast, and, with respect to such proposals, to permit further solicitation of additional proxies by the Joint Advisor Investment Advisory Agreement. If Exemptive Relief is obtained and the other conditions to effectiveness of the Joint Advisor Investment Advisory Agreement are satisfied or (to the extent permitted) waived, the InvestmentCo-Advisory Agreements will terminate and the Company will receive investment advisory services in accordance with the terms of the Joint Advisor Investment Advisory Agreement. The Company’s stockholders are not being asked to vote on Exemptive Relief or the Company’s decision to seek Exemptive Relief. Exemptive Relief is related to the Joint Advisor Investment Advisory Agreement and is an integral part of the effectiveness of the Joint Advisor Investment Advisory Agreement.
The Company’s board ofdirectors unanimously recommends that you vote FOR each of the proposals to be considered and voted on at the SpecialAnnual Meeting.No other business will be presented at the Special Meeting.
It is important that your shares be represented at the SpecialAnnual Meeting. If you are unable to attend the Special Meetingmeeting in person, I urge you to complete, date and sign the enclosed proxy card and promptly return it in the envelope provided. If you prefer, you can save time by voting through the Internet or by telephone as described in the proxy statement and on the enclosed proxy card.
Your vote and participation in the governance of the Company is very important.
Sincerely yours,
Michael C. Forman
Chairman President and Chief Executive Officer
FS INVESTMENT CORPORATIONKKR CAPITAL CORP. II
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
NOTICE OF SPECIALANNUAL MEETING OF STOCKHOLDERS
To Be Held On March 26, 2018April 23, 2020
To the Stockholders of FS Investment CorporationKKR Capital Corp. II:
NOTICE IS HEREBY GIVEN THAT the Special2020 Annual Meeting of Stockholders of FS Investment CorporationKKR Capital Corp. II, a Maryland corporation (the “Company”), will be held at 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, on March 26, 2018April 23, 2020 at 3:1:00 p.m., Eastern Time (the “Special“Annual Meeting”), for the following purpose:purposes:
1. | to |
2. | to approve the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act of 1940, as amended, to the Company, which would permit the Company to increase the maximum amount of leverage that it is permitted to incur by reducing the asset coverage requirement applicable to the Company from 200% to 150%; and |
3. | to approve a |
You are being asked to approve both the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement because there are different conditions that must be satisfied before either the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement can go into effect. The InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would not be in effect simultaneously, and the Company ultimately intends to receive investment advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement. If approved by the Company’s stockholders and the other conditions described in the enclosed proxy statement are satisfied or (to the extent permitted) waived, the Company plans to enter into the InvestmentCo-Advisory Agreements, and the Company will receive investment advisory services in accordance with the terms of such agreements pending receipt of exemptive relief from the U.S. Securities and Exchange Commission to permit the Company, following the effectiveness of the Joint Advisor Investment Advisory Agreement, toco-invest in privately negotiated investment transactions with certain accounts managed by KKR Credit (“Exemptive Relief”) and satisfaction of the other conditions to the effectiveness of the Joint Advisor Investment Advisory Agreement. If Exemptive Relief is obtained and the other conditions to effectiveness of the Joint Advisor Investment Advisory Agreement are satisfied or (to the extent permitted) waived, the InvestmentCo-Advisory Agreements will terminate and the Company will receive investment advisory services in accordance with the terms of the Joint Advisor Investment Advisory Agreement. The Company’s stockholders are not being asked to vote on Exemptive Relief or the Company’s decision to seek Exemptive Relief. Exemptive Relief is related to the Joint Advisor Investment Advisory Agreement and is an integral part of the effectiveness of the Joint Advisor Investment Advisory Agreement.
The Company’s board of directors unanimously recommends that you vote FOR each of the proposals to be considered and voted on at the Special Meeting. No other business will be presented at the Special Meeting.
The Company’s board of directors has fixed the close of business on January 18, 2018February 28, 2020 as the record date for the determination of stockholders entitled to notice of, and to vote at, the SpecialAnnual Meeting and at any adjournments or postponements thereof.
Important notice regarding the availability of proxy materials for the Special Meeting. The Company’s proxy statement the Notice of Special Meeting of Stockholders and the proxy card are available at www.proxyvote.com.
www.proxyvote.com. If you plan on attending the SpecialAnnual Meeting and voting your shares of common stock in person, you will need to bring photo identification in order to be admitted to the SpecialAnnual Meeting. If your shares are held through a broker and you attend the Annual Meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the Annual Meeting. To obtain directions to the SpecialAnnual Meeting, please call the Company at (844)(877)358-7276628-8575. and select Option 1.
By Order of the Board of Directors,
Stephen S. Sypherd
Vice President, TreasurerGeneral Counsel and Secretary
January 18, 2018March 2, 2020
Stockholders are requested to promptly authorize a proxy over the Internet or by telephone, or execute and return promptly the accompanying proxy card, which is being solicited by the board of directors of the Company. You may authorize a proxy over the Internet or by telephone by following the instructions in the proxy card. You may execute the proxy card using the methods described in the proxy card. Authorizing aExecuting the proxy card is important to ensure a quorum at the SpecialAnnual Meeting. Stockholders also have the option to authorize their proxies by telephone or through the Internet by following the instructions printed on the proxy card. Proxies may be revoked at any time before they are exercised by submitting a written notice of revocation or a subsequently executed proxy, or by attending the SpecialAnnual Meeting and voting in person.
FS INVESTMENT CORPORATIONKKR CAPITAL CORP. II
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
SPECIALANNUAL MEETING OF STOCKHOLDERS
To Be Held On March 26, 2018April 23, 2020
PROXY STATEMENT
INFORMATION ABOUT THE SPECIAL MEETING AND THE VOTEGENERAL
The questions and answers below highlight only selected information from this document. They do not contain all of the information that may be important to you. You should carefully read this entire document to fully understand the proposals and the voting procedures for the Special Meeting.
Why am I receiving these materials?
FS Investment Corporation II (the “Company”)This proxy statement is furnishing these materialsfurnished in connection with the solicitation of proxies by the Company’s board of directors (the “Board”) of FS KKR Capital Corp. II, a Maryland corporation (the “Company”), for use at the Special2020 Annual Meeting of Stockholders of the Company to be held at 3:1:00 p.m., Eastern Time, on March 26, 2018,April 23, 2020, at 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, and any adjournments or postponements thereof (the “Special“Annual Meeting”). This proxy statement and the accompanying materials are being mailed on or about January 25, 2018March 10, 2020 to stockholders of record described below and are available atwww.proxyvote.com. In addition,
All properly executed proxies representing shares of common stock, par value $0.001 per share, of the Company filed with the U.S. Securities and Exchange Commission (“SEC”(the “Shares”) on December 11 and 12, 2017, and January 10, 2018, Definitive Additional Materials on Schedule 14A (the “Definitive Additional Materials”) relatingreceived prior to the proposals to be considered and voted on at the Special Meeting. Accordingly, stockholders are encouraged to read this proxy statement and the accompanying materials in conjunction with such Definitive Additional Materials carefully and in their entirety.
What itemsAnnual Meeting will be considered and voted on at the Special Meeting?
At the Special Meeting, you will be asked to:
You are being asked to approve both the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement because there are different conditions that must be satisfied before either the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement can go into effect. The InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would not be in effect simultaneously, and the Company ultimately intends to receive investment advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement. If approved by the Company’s stockholders and the other conditions described herein are satisfied or (to the extent permitted) waived, the
Company plans to enter into the InvestmentCo-Advisory Agreements, and the Company will receive investment advisory services in accordance with the terms of such agreements pending receipt of Exemptive Relief (as defined herein) frominstructions marked thereon. If no specification is made, the SEC to permitShares will be voted FOR:
(i) the Company, following the effectivenesselection of the Joint Advisor Investment Advisory Agreement, toco-invest in privately negotiated investment transactions with certain accounts managed by KKR Credit and satisfactionfollowing individuals as Class C Directors, each of whom has been nominated for election for a three year term expiring at the 2023 annual meeting of the other conditions tostockholders: (a) Michael C. Forman, (b) Richard Goldstein, (c) James H. Kropp and (d) Elizabeth Sandler (the “Director Election Proposal”);
(ii) the effectiveness of the Joint Advisor Investment Advisory Agreement. If Exemptive Relief is obtained and the other conditions to effectiveness of the Joint Advisor Investment Advisory Agreement are satisfied or (to the extent permitted) waived, the InvestmentCo-Advisory Agreements will terminate and the Company will receive investment advisory services in accordance with the terms of the Joint Advisor Investment Advisory Agreement. The Company’s stockholders are not being asked to vote on Exemptive Relief or the Company’s decision to seek Exemptive Relief. Exemptive Relief is related to the Joint Advisor Investment Advisory Agreement and is an integral part of the effectiveness of the Joint Advisor Investment Advisory Agreement.
Why am I being askedproposal to approve the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal?
The Company currently receives investment advisory and administrative services from FSIC II Advisor pursuant to the Investment Advisory and Administrative Services Agreement, dated February 8, 2012, by and between the Company and FSIC II Advisor (the “Current Investment Advisory Agreement”). GSO / Blackstone Debt Funds Management LLC (“GDFM”) acts as the Company’s investmentsub-adviser pursuant to the InvestmentSub-Advisory Agreement, dated February 8, 2012, by and between GDFM and FSIC II Advisor (the “Current InvestmentSub-Advisory Agreement”).
As the Company announced on December 11, 2017, GDFM intends to resign as the investmentsub-adviser to the Company and terminate the Current InvestmentSub-Advisory Agreement effective April 9, 2018 (the date of such termination, the “GDFM End Date”). In connection with GDFM’s resignation as the investmentsub-adviser to the Company, FS Investments and KKR Credit desire to enter into a relationship whereby FS Investments and KKR Credit will create a premier alternative lending platform for certain business development companies (“BDCs”) sponsored, advised and/orsub-advised by them. Accordingly, the FS Advisor Entities (as defined herein) and KKR Credit and certain other parties have entered into a master transaction agreement (the “Master Transaction Agreement”) setting out the termsapplication of the relationship between FSIC II Advisor and KKR Credit. In furtherance thereof, the Company desires to enter into a new investment advisory relationship with KKR Credit pursuant to the InvestmentCo-Advisory Agreements or with the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement. In addition, other BDCs that FS Investments sponsors, FS Investment Corporation (“FSIC”), FS Investment Corporation III (“FSIC III”) and FS Investment Corporation IV (“FSIC IV”), and other BDCs that KKR Credit advises orsub-advises, Corporate Capital Trust, Inc. (“CCT”) and Corporate Capital Trust II (“CCT II”), are each seeking stockholder approval to enter into a new investment advisory relationship with affiliates of FS Investments, KKR Credit and the Joint Advisor, as applicable. The Board, including a majority of the members of the Board who are not parties to the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement, or “interested persons,” as definedreduced asset coverage requirements in Section 2(a)(19)61(a)(2) of the Investment Company Act of 1940, as amended (the “1940 Act”), to the Company, which would permit the Company to increase the maximum amount of any such party, has approvedleverage that it is permitted to incur by reducing the InvestmentCo-Advisory Agreementsasset coverage requirement applicable to the Company from 200% to 150% (the “Leverage Proposal”); and
(iii) the Joint Advisor Investment Advisory Agreement,proposal to allow the Company in future offerings, following the listing of the Company’s common stock on a national securities exchange, to sell its Shares below net asset value per Share in order to provide flexibility for future sales (the “Share Issuance Proposal”).
For additional information regarding the risks and has deemed entry into such agreementspotential increased costs to be in the best interests of the Company and its stockholders. The Board is seeking, as required by the 1940 Act, the approval by the stockholders of the Company of the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal.
In order to transition the Company’s advisory services, FSIC II Advisor, GDFM and certain of their affiliates have entered into a Transition Agreement, dated December 10, 2017 (the “Transition Agreement”), which provides that GDFM will continue to act as the investmentsub-adviser to the Company through the GDFM End Date and will cooperateassociated with FSIC II Advisor in implementing the transition of investment advisory services from GDFM for the Company and several other BDCs. GDFM has also agreed to restrictions on its ability to acquire the Company’s Shares (as defined herein) and take certain other actions in respect of the
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Company. In addition, GDFM has agreed (i) to vote the Shares of the Company beneficially owned by GDFM, or over which GDFM has voting control, in favor of the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal and (ii) not to transfer the Shares of the Company beneficially owned by GDFM until after the approval of the InvestmentCo-Advisory AgreementsLeverage Proposal, andsee “Proposal 2: Approval of Application of Reduced Asset Coverage Requirements to the Joint Advisor Investment Advisory Agreement Proposal. GDFMCompany to Allow the Company to Double the Maximum Amount of its Permitted Borrowings—Effect of Leverage on Return to Stockholders.”
If the Leverage Proposal is not approved by stockholders, the Company will continue to receive fees underoperate within its current 200% asset coverage requirement until (1) such time as it receives stockholder approval of a similar proposal at a future meeting or (2) one year after the Current InvestmentSub-Advisory Agreement through the GDFM End Date. GDFM will also receive an additional $582.5 million from FS Investments or one of its affiliates (but not, for the avoidance of doubt, the Company, FSIC, FSIC III or FSIC IV) as consideration for entering into the Transition Agreement and agreeing to certain obligations thereunder.
FS Investments and its affiliates (including FSIC II Advisor) and KKR Credit are committed to seamlessly transitioning the Company’s advisory services as described above. To help the FS Investments and FSIC II Advisor teams during the transition, KKR Credit will provide certain administrative services to the FS Advisor Entities and KKR Credit’s broker-dealer affiliate will provide certain sourcing and other services to the FS Advisor Entities, in each case, pursuant to a Sourcing and Administrative Services Agreement (the “Sourcing Agreement”). The Sourcing Agreement will terminate with respect to FSIC II Advisor on the earlierBoard approves application of the effective date of the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement.
What will happen if the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal are each approved?
If the stockholders of the Company approve the InvestmentCo-Advisory Agreements Proposal, FSIC II Advisor and KKR Credit would serve as investmentco-advisersmodified asset coverage requirements to the Company, pursuant to the InvestmentCo-Advisory Agreements effective as of the Closing Date (as defined in the next sentence). The “Closing Date” means the first day of the month following the occurrence of the last of the following:
Under no scenario can the Closing Date occur without the approval by the stockholders of the Company of both the Joint Advisor Investment Advisory Agreement and the InvestmentCo-Advisory Agreements unless such condition is (to the extent permitted) waived.
If the stockholders of the Company approve the Joint Advisor Investment Advisory Agreement Proposal, then the Joint Advisor would serve as investment adviser to the Company pursuant to the Joint Advisor Investment Advisory Agreement from and after the Joint Advisor Effective Date (as defined in the next sentence). The “Joint Advisor Effective Date” means such date that (i) the stockholders of the Company, FSIC, FSIC III, FSIC IV, CCT, and CCT II each approve their respective investment advisory agreements with the Joint Advisor, and (ii) Exemptive Relief has been obtained. Furthermore, if the InvestmentCo-Advisory Agreements are in effect and the Joint Advisor Effective Date does not occur, either because Exemptive Reliefwhich it has not been obtained or because any other condition to the Joint Advisor Effective Date is not satisfied or (to the extent permitted) waived, the InvestmentCo-Advisory Agreements will remain in full force and effect in accordance with their terms.
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The Company ultimately intends to receive investment advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement. However, due to the various conditions required for the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement to each become effective, the Company is seeking, as required by the 1940 Act, stockholder approval of each of the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement in order to ensure the continuous provision of investment advisory services to the Company by FSIC II Advisor, KKR Credit and/or the Joint Advisor, as applicable. If the Joint Advisor Effective Date occurs on the same day as or prior to the Closing Date, then the Joint Advisor would serve as investment adviser to the Company pursuant to the Joint Advisor Investment Advisory Agreement and the InvestmentCo-Advisory Agreements would not become effective. If the Joint Advisor Effective Date occurs after the Closing Date, then FSIC II Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the Closing Date until the Joint Advisor Effective Date, and the InvestmentCo-Advisory Agreements would automatically terminate upon the effectiveness of the Joint Advisor Investment Advisory Agreement. Accordingly, the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would not be simultaneously effective at any time.
In order for FSIC II Advisor and KKR Credit to serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements, the stockholders of the Company must approve the InvestmentCo-Advisory Agreements Proposal and the other conditions to the Closing Date, including either approval by FSIC’s stockholders of the FSIC InvestmentCo-Advisory Agreements and the FSIC Joint Advisor Investment Advisory Agreement, or approval by FSIC III’s stockholders of the FSIC III InvestmentCo-Advisory Agreements and the FSIC III Joint Advisor Investment Advisory Agreement, must be satisfied or (to the extent permitted) waived prior to the Joint Advisor Effective Date. In order for the Joint Advisor to serve as investment adviser to the Company pursuant to the Joint Advisor Investment Advisory Agreement, the stockholders of the Company must approve the Joint Advisor Investment Advisory Agreement Proposal and the other conditions to the Joint Advisor Effective Date, including approval by the stockholders of FSIC, FSIC III, FSIC IV, CCT and CCT II of their respective investment advisory agreements with the Joint Advisor, must be satisfied or (to the extent permitted) waived. As such, even if the Company’s stockholders approve the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement, such agreements will not go into effect unless the stockholders of certain other BDCs sponsored, advised and/orsub-advised by FS Investments and KKR Credit also approve their respective investment advisory agreements with affiliates of FS Investments, KKR Credit and/or the Joint Advisor, as applicable.
FSIC II Advisor, together with FSIC III Advisor, FB Income Advisor and FSIC IV Advisor, LLC, the investment adviser to FSIC IV (collectively, the “FS Advisor Entities”), and KKR Credit have agreed to coordinate their activities during the period in which the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would be in effect to avoid duplication of efforts and ensure a balanced and effective allocation of responsibilities and net fee revenue earned by the FS Advisor Entities, KKR Credit and the Joint Advisor, and efficiency in the provision of the required services to the Company thereunder. Depending on the timing and sequencing of obtaining stockholder approval for the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal, the Company may enter into an interim investment advisory agreement pursuant to Rule15a-4 of the 1940 Act with KKR Credit (an “Interim Investment Advisory Agreement”).
Because the Company ultimately intends to receive advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement and considering the length of time that it may take for such agreement to become effective, the Company expects that the approval by its stockholders of the InvestmentCo-Advisory Agreements Proposal and/or the Joint Advisor Investment Advisory Agreement Proposal will remain valid indefinitely. However, even if the Company’s stockholders have approved the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal, FS Investments, together with the FS Advisor Entities, and KKR Credit will each have the right to terminate the Master Transaction Agreement and the proposed relationship described herein if the Closing Date does not occur by January 10, 2019.
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What will happen if the InvestmentCo-Advisory Agreements Proposal and/or the Joint Advisor Investment Advisory Agreement Proposal are not approved?
The InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal are not contingent on one another. However, if the stockholders of the Company do not approve both the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal, then the Board will consider and evaluate its options to determine what alternatives are in the Company’s best interests and that of the Company’s stockholders, such as resubmitting the InvestmentCo-Advisory Agreements Proposal and/or the Joint Advisor Investment Advisory Agreement Proposal for approval by the Company’s stockholders or entering into an Interim Investment Advisory Agreement. GDFM intends to resign as the Company’s investmentsub-adviser effective as of the GDFM End Date regardless of whether the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal is approved, and the Company would continue to receive its investment advisory services from FSIC II Advisor pursuant to the Current Investment Advisory Agreement and/or from KKR Credit pursuant to an Interim Investment Advisory Agreement. FSIC II Advisor intends to obtain services from KKR Credit’s broker-dealer affiliate pursuant to the Sourcing Agreement, such as identifying new investment opportunities for FSIC II Advisor, prior to the Company’s entry into any advisory agreement with KKR Credit or one of its affiliates, including the Joint Advisor.
How does the Board recommend voting on the proposals at the Special Meeting?
The Board unanimously recommends that you vote “FOR” the InvestmentCo-Advisory Agreements Proposal and “FOR” the Joint Advisor Investment Advisory Agreement Proposal.
Will the base management fee and the incentive fee that the Company pays under the Current Investment Advisory Agreement change under the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement?
The base management fee will be reduced from 1.75% under the Current Investment Advisory Agreement to 1.50% under the InvestmentCo-Advisory Agreements (in the aggregate) and the Joint Advisor Investment Advisory Agreement. While the Current Investment Advisory Agreement provides that the base management fee is 2.0%, effective March 5, 2015, FSIC II Advisor contractually agreed to permanently waive 0.25% of the base management fee so that the fee received equals 1.75% of the Company’s average weekly gross assets.
Under the Current Investment Advisory Agreement, (i) the hurdle rate is 1.875% per quarter and (ii) the“catch-up” feature begins at 2.34375%. Under the InvestmentCo-Advisory Agreements (in the aggregate) and the Joint Advisor Investment Advisory Agreement, (i) the hurdle rate will be reduced to 1.75% per quarter and (ii) the“catch-up” feature will be reduced to begin at 2.1875%. The incentive fee under the InvestmentCo-Advisory Agreements (in the aggregate) and the Joint Advisor Investment Advisory Agreement will otherwise remain unchanged. See “Proposal 1—Terms of the FSIC II Advisor InvestmentCo-Advisory Agreement—Fees and Expenses,” “Proposal 1—Terms of the KKR InvestmentCo-Advisory Agreement—Fees and Expenses”, “Proposal 2—Terms of the Joint Advisor Investment Advisory Agreement—Fees and Expenses” and the corresponding Exhibits A, B and C hereto, respectively. As a result of the reduction to the hurdle rate, the payment by the Company of the subordinated incentive fee on income will be triggered at a lower threshold (i.e., upon the Company earning a lower amount of“pre-incentive fee net investment income”) than under the Current Investment Advisory Agreement.
Will the composition of the Board change following entry into the InvestmentCo-Advisory Agreements and/or the Joint Advisor Investment Advisory Agreement?
On the Closing Date (the “Board Appointment Date”), subject to nomination by and approval of the Board, FSIC II Advisor (acting collectively with the other FS Advisor Entities) and KKR Credit have agreed that they
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will each be entitled to recommend the appointment of one “interested” director to the Board, to the extent that the applicable party does not have an appointee on the Board at such time. In the event that either FSIC II Advisor (acting collectively with the other FS Advisor Entities) or KKR Credit has more than one appointee serving as an “interested” director to the Board, such party will use its reasonable best efforts to cause the resignation of such excess number of its appointed “interested” directors as promptly as practicable, but no later than twelve months following the Board Appointment Date. In addition, FSIC II Advisor has agreed that KKR Credit will be entitled to recommend, subject to approval by the “independent” directors and approval by the Board, the appointment of one “independent” director to the Board on the Board Appointment Date. If such appointments are approved by “independent” directors and the Board and such resignations become effective, then the composition of the Board will change, which the Company expects will result in approximately 20% of the directors serving on the Board being “interested” as compared to approximately 27% of the directors serving on the Board being “interested”done as of the date of this proxy statement.
WillAny stockholder who has given a proxy has the officers change following entry intoright to revoke it at any time prior to its exercise. Any stockholder who executes a proxy may revoke it with respect to any proposal by attending the InvestmentCo-Advisory Agreements and/Annual Meeting and voting his or her Shares in person, or by submitting a letter of revocation or a later-dated proxy to the Joint Advisor Investment Advisory Agreement?Company at the above address prior to the date of the Annual Meeting.
The officers
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Quorum
Stockholders of the Company are entitled to one vote for each Share held. Under the Second Articles of Amendment and Restatement of the Company,one-third of the number of Shares entitled to cast votes, present in person or by proxy, constitutes a quorum for the transaction of business. Abstentions will be treated as Shares that are present for purposes of determining the presence of a quorum for transacting business at the Annual Meeting.
Adjournments
In the event that a quorum is not expectedpresent at the Annual Meeting, the chairman of the Annual Meeting shall have the power to change following entry intoadjourn the InvestmentCo-Advisory Agreements and/Annual Meeting from time to time to a date not more than 120 days after the original record date without notice, other than the announcement at the Annual Meeting to permit further solicitation of proxies. Any business that might have been transacted at the Annual Meeting originally called may be transacted at any such adjourned session(s) at which a quorum is present.
If it appears that there are not enough votes to approve any proposal at the Annual Meeting, the chairman of the Annual Meeting may adjourn the Annual Meeting from time to time to a date not more than 120 days after the record date originally fixed for the Annual Meeting without notice, other than announcement at the Annual Meeting, to permit further solicitation of proxies. The persons named as proxies will vote those proxies for such adjournment.
If sufficient votes in favor of one or more proposals have been received by the Joint Advisor Investment Advisory Agreement.time of the Annual Meeting, the proposals will be acted upon and such actions will be final, regardless of any subsequent adjournment to consider other proposals.
What is the “Record Date” and what does it mean?Record Date
The record date for the Special Meeting isBoard has fixed the close of business on January 18, 2018February 28, 2020 as the record date (the “Record Date”). The Record Date is established by for the Board, and only holdersdetermination of record of the Company’s shares of common stock, par value $0.001 per share (the “Shares”), at the close of business on the Record Date arestockholders entitled to receive notice of, the Special Meeting and to vote at, the SpecialAnnual Meeting and at any adjournments or postponements thereof. As of the Record Date, there were 323,340,032678,379,301 Shares outstanding.
AsRequired Vote
Director Election Proposal. Each director nominee shall be elected by a plurality of all the Company announcedvotes cast at the Annual Meeting in person or by proxy, provided that a quorum is present. Plurality voting means that the director nominee with the most votes for a particular seat is elected for that seat. Each Share may be voted for as many individuals as there are director nominees and for whose election the share is entitled to be voted. Abstentions will not be included in determining the number of votes cast and, as a result, will not have any effect on December 11, 2017, the Company has commenced a tender offer for the Shares that will expire on January 10, 2018, unless the offer is extended. Holders of record of Shares asresult of the Record Datevote with respect to the Director Election Proposal. There will continuebe no cumulative voting with respect to the Director Election Proposal.
Leverage Proposal. The affirmative vote of a majority of the votes cast at the Annual Meeting in person or by proxy, provided that a quorum is present, is required to approve the Leverage Proposal. Abstentions will not be included in determining the number of votes cast and, as a result, will not have any effect on the rightresult of the vote with respect to the Leverage Proposal.
Share Issuance Proposal. The approval of the Share Issuance Proposal requires the affirmative vote of the stockholders holding (1) a majority of the outstanding Shares entitled to vote at the SpecialAnnual Meeting (or any postponement or adjournment thereof) notwithstandingand (2) a majority of outstanding Shares entitled to vote at the factAnnual Meeting that suchare not held by affiliated persons of the Company. Under the 1940 Act, a majority of the outstanding Shares may be the lesser of: (1) 67% of the Shares at the Annual Meeting if the holders of more than 50% of the outstanding Shares are tenderedpresent or represented by proxy or (2) more than 50% of the outstanding Shares. Abstentions will not count as affirmative votes cast and will therefore have the same effect as votes against the Share Issuance Proposal.
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BrokerNon-Votes
Shares for which brokers have not received voting instructions from the beneficial owner of the Shares and do not have, or choose not to exercise, discretionary authority to vote the CompanyShares on certain proposals (which are considered“broker non-votes” with respect to such proposals) will be treated as Shares present for quorum purposes. Because the Director Election Proposal, the Leverage Proposal and the Share Issuance Proposals arenon-routine matters, brokers will not have discretionary authority to vote on the matter.Broker non-votes are not considered votes cast and thus have no effect on the Director Election Proposal or the Leverage Proposal. Brokernon-votes will not count as affirmative votes cast and will therefore have the same effect as votes against the Share Issuance Proposal.
Householding
Mailings for multiple stockholders going to a single household are combined by delivering to that address, in a single envelope, a copy of the tender offerdocuments (annual reports, proxy statements, etc.) or acceptedother communications for payment afterall stockholders who have consented or are deemed to have consented to receiving such communications in such manner in accordance with the Record Daterules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). If you do not want to continue to receive combined mailings of Company incommunications and would prefer to receive separate mailings of Company communications, and you are a registered stockholder, please contact the tender offer.Company’s transfer agent, DST Systems, Inc. by phone at(877) 628-8575 or by mail to FS KKR Capital Corp. II, c/o DST Systems, Inc., 430 W. 7th Street, Kansas City, Missouri 64105-1594. If you are a beneficial stockholder, you may contact the broker or bank where you hold the account to discontinue combined mailings of Company communications.
How many votes do I have?
Each Share held by a holder of record as of the Record Date has one vote on each matter considered at the Special Meeting or any postponement or adjournment thereof.
How do I vote?Voting
You may vote in person at the SpecialAnnual Meeting in person or by proxy in accordance with the instructions provided below. You may also authorize a proxy by telephone or through the Internet using the toll-free telephone number or web address printed on your proxy card. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link. Stockholders of the Company are entitled to one vote for each Share held.
When voting by proxy and mailing your proxy card, you are required to:
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By telephone: (800)690-6903
By mail: You may vote by proxy by indicatingindicate your instructions on the enclosed proxy card, datingcard;
date and signingsign the proxy card;
mail the proxy card and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please States; and
allow sufficient time for yourthe proxy card to be received on or prior to 3:before 1:00 p.m., Eastern Time, on March 26, 2018.April 23, 2020.
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In person: You may voteThe Company’s proxy statement and the proxy card are available at www.proxyvote.com. If you plan on attending the Annual Meeting and voting your Shares in person, at the Special Meeting by a requesting a ballot when you arrive. You will need to bring photo identification in order to be admitted to the Special Meeting. To obtain directions to the Special Meeting, please call the Company at (844)358-7276 and select Option 1.
What if a stockholder does not specify a choice for a matter when authorizing a proxy?
All properly executed proxies representing Shares received prior to the Special Meeting will be voted in accordance with the instructions marked thereon. If a proxy card is signed and returned without any instructions marked, the Shares will be voted “FOR” the InvestmentCo-Advisory Agreements Proposal and “FOR” the Joint Advisor Investment Advisory Agreement Proposal.
How can I change my vote or revoke a proxy?
You may revoke your proxy and change your vote before the proxies are voted at the SpecialAnnual Meeting. If you have executed a proxy, you may revoke it with respect to any proposal by attending the Special Meeting and voting your Shares in person, or by submitting a letter of revocation or a later-dated proxy to the Company at the following address prior to the date of the Special Meeting: FS Investment Corporation II, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, Attention: Stephen S. Sypherd, Secretary.
If my Shares are held through a broker and you attend the Annual Meeting in person, please bring a broker-controlled account by my broker, will my broker vote my Shares for me?
No. You should follow the instructions provided byletter from your broker on your voting instruction form. It is important to note that your broker will vote your Shares only ifidentifying you provide instructions on how you would like your Shares to be voted at the Special Meeting.
What constitutes a “quorum”?
Under the Company’s Articles of Amendment and Restatement and Third Amended and Restated Bylaws (the “Third Amended and Restated Bylaws”),one-third of the number of Shares entitled to be cast, present in person or by proxy, constitutes a quorum for the transaction of business.
Abstentions will be treated as Shares that are present for purposes of determining the presence of a quorum for transacting business at the Special Meeting.
A “brokernon-vote” with respect to a matter occurs when a broker, bank or other institution or nominee holding shares on behalf of a beneficial owner and present (in person or by proxy) at a meeting for purposes of voting on a routine proposal (or anon-routine proposal for which it has received instructions from the beneficial owner) has not received voting instructions from the beneficial owner of the shares on a particular proposalShares and does not have, or chooses not to exercise, discretionary authorityauthorizing you to vote the shares on such proposal. If a beneficial owner does not instruct its broker, bank or other institution or nominee holding itsyour Shares on its behalf with respect to either the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal, the Shares will not be treated as present for purposes of determining the presence of a quorum for transacting business at the SpecialAnnual Meeting. If a beneficial owner instructs its broker, bank or other institution or nominee holding its Shares on its behalf with respect to one or both of the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal, the Shares will be treated as present for purposes of determining the presence of a quorum for transacting business at the Special Meeting.
In the event that a quorum is not present at the Special Meeting, the chairman of the Special Meeting shall have the power to adjourn the Special Meeting from time to time to a date not more than 120 days after the Record Date originally fixed for the Special Meeting without notice, other than the announcement at the Special Meeting, to permit further solicitation of proxies. Any business that might have been transacted at the Special Meeting originally called may be transacted at any such adjourned session(s) at which a quorum is present.
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If it appears that there are not enough votes to approve any proposal at the Special Meeting, the chairman of the Special Meeting may adjourn the Special Meeting from time to time to a date not more than 120 days after the Record Date originally fixed for the Special Meeting without notice, other than announcement at the Special Meeting, to permit further solicitation of proxies.
If sufficient votes in favor of one proposal have been received by the time of the Special Meeting, such proposal will be acted upon and such actions will be final, regardless of any subsequent adjournments to consider the other proposal.
What vote is required to approve the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement?
The affirmative vote by the stockholders of the Company holding a majority of the outstanding voting securities is necessary for approval of each InvestmentCo-Advisory Agreement and the Joint Advisor Investment Advisory Agreement. The 1940 Act, defines “a majority of outstanding voting securities” of the Company as the lesser of: (1) 67% or more of the voting securities present at the Special Meeting if the holders of more than 50% of the outstanding voting securities of the Company are present or represented by proxy; or (2) more than 50% of the outstanding voting securities of the Company. Abstentions and brokernon-votes (with respect to any proposal for which a beneficial owner does not instruct its broker, bank or other institution or nominee holding its Shares on its behalf) will not count as affirmative votes cast and will therefore have the same effect as votes against each of the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal.
How will the final voting results be announced?
Preliminary voting results regarding the Company and, to the extent available, FSIC, FSIC III, FSIC IV, CCT and CCT II, will be announced at the Special Meeting. Final voting results regarding the Company will be published in a current report on Form8-K within four business days after the date of the Special Meeting. Final voting results for FSIC, FSIC III, FSIC IV, CCT and CCT II will be published when available after the date of the special meeting of the stockholders of each of FSIC, FSIC III, FSIC IV, CCT and CCT II.
Will you incur expenses in soliciting proxies?
FSIC II Advisor and KKR Credit, as participants in the solicitation of the approvals sought pursuant to this proxy statement, will bear the expense of the solicitation of proxies for the SpecialAnnual Meeting, including the cost of preparing, printing and mailing this proxy statement, the accompanying Notice of SpecialAnnual Meeting of
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Stockholders and the proxy card. FSIC II Advisor has retained Broadridge Investor Communication Solutions, Inc. to assist in the solicitation of proxies for an estimated fee of approximately $265,000, plusout-of-pocket expenses.
The Company has requested that brokers, nominees, fiduciaries and other persons holding Shares in their names, or in the name of their nominees, which are beneficially owned by others, forward the proxy materials to, and obtain proxies from, such beneficial owners. FSIC II Advisor and KKR CreditThe Company will reimburse such persons for their reasonable expenses in so doing.
In addition to the solicitation of proxies by mail, proxies may be solicited in person and by telephone or facsimile transmission by directors, officers or regular employees of the Company and its affiliates (without special compensation therefor), as applicable.
. The Company has also retained Broadridge Investor Communication Solutions, Inc. to assist in the solicitation of proxies for an estimated fee of approximately $250,000, plusWhat does it mean if I receive more than oneout-of-pocket expenses. Any proxy card?
Some of your Sharesgiven pursuant to this solicitation may be registered differently or heldrevoked by notice from the person giving the proxy at any time before it is exercised. Any such notice of revocation should be provided in a different account. You should authorize a proxy to votewriting and signed by the Shares in each of your accounts by mail, by telephone or via the Internet. If you mail proxy cards, please sign, date and return each proxy card to guarantee that all of your Shares are voted. If you hold your
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Shares in registered form and wish to combine your stockholder accounts in the future, you should call the Company at (877)628-8575. Combining accounts reduces excess printing and mailing costs, resulting in cost savings to us that benefit yousame manner as a stockholder.
Are the proxy materials available electronically?
In accordance with regulations promulgated by the SEC, the Company has made this proxy statement, the Notice of Special Meeting of Stockholdersbeing revoked and the proxy card availabledelivered to stockholders on the Internet. Stockholders may (i) access and review the Company’s proxy materials, (ii) authorize their proxies,tabulator.
Annual Reports
The Company will furnish to its stockholders, free of charge, a copy of its most recent annual and quarterly reports upon request to FS KKR Capital Corp. II, Attn: Investor Relations, 201 Rouse Boulevard, Philadelphia, PA 19112.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as described in “How do I Vote,” and/or (iii) elect to receive future proxy materials by electronic delivery, viaof the Internet address provided below.
This proxy statement,Record Date, the Noticebeneficial ownership of Special Meeting of Stockholders and the proxy card are available at www.proxyvote.com.
PursuantCompany’s current directors, executive officers, each person known to the rules adopted by the SEC, the Company furnishes proxy materials by email to those stockholders who have elected to receive their proxy materials electronically. While the Company encourages stockholders to take advantage of electronic delivery of proxy materials, which helps to reduce the environmental impact of special meetings and the cost associated with the physical printing and mailing of materials, stockholders who have elected to receive proxy materials electronically by email, as well as beneficial owners of Shares held by a brokerbeneficially own 5% or custodian, may request a printed set of proxy materials.
Will my vote make a difference?
Yes. Your vote is needed to ensure the proposals can be acted upon. Your vote is very important. Your immediate response will help avoid potential delays and may save significant additional expenses associated with soliciting stockholder votes.
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FORWARD-LOOKING STATEMENTS
This proxy statement may contain certain “forward-looking” statements as that term is defined in Section 27Amore of the Securities Actoutstanding Shares, and all of 1933,the Company’s executive officers and directors as amended, and Section 21E ofa group.
Beneficial ownership is determined in accordance withRule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements and includes voting or investment power with regardrespect to future eventsthe Shares. There are no Shares subject to options that are currently exercisable or the future performanceexercisable within 60 days of February 28, 2020. Ownership information for those persons who beneficially own 5% or financial conditionmore of the Company. The forward-looking statements contained in this proxy statement may include statements as to:Shares is based upon information furnished by the Company’s transfer agent and other information provided by such persons, if available.
the Company’s future operating results;
Shares Beneficially Owned as of February 28, 2020 | ||||||||
Name and Address of Beneficial Owner(1) | Number of Shares | Percentage (%)(2) | ||||||
Interested Directors | ||||||||
Michael C. Forman(3) | 319,488 | * | ||||||
Todd Builione | — | — | ||||||
Independent Directors | ||||||||
Barbara Adams(4) | 10,928 | * | ||||||
Brian R. Ford | 3,268 | * | ||||||
Richard Goldstein | 31,528 | * | ||||||
Michael J. Hagan | 22,222 | * | ||||||
Jeffrey K. Harrow | 38,214 | * | ||||||
Jerel A. Hopkins | 11,868 | * | ||||||
James H. Kropp(5) | 15,369 | * | ||||||
Osagie Imasogie | — | — | ||||||
Elizabeth Sandler | — | — | ||||||
Executive Officers | ||||||||
Brian Gerson | — | — | ||||||
Daniel Pietrzak | — | — | ||||||
Steven Lilly | — | — | ||||||
Stephen S. Sypherd(6) | 12,118 | * | ||||||
William Goebel | 8,873 | * | ||||||
James F. Volk | — | — | ||||||
All directors and executive officers as a group (17 persons) | 473,876 | * |
the Company’s business prospects and the prospects of the companies in which the Company may invest;
* | Less than one percent. |
(1) | The address of each of the beneficial owners set forth above is c/o FS KKR Capital Corp. II, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112. |
(2) | Based on a total of 678,379,301 Shares issued and outstanding on February 28, 2020. |
(3) | 316,075 Shares held by MCFDA SCV LLC, which is a wholly-owned special purpose financing vehicle of which The 2011 Forman Investment Trust is a member and Mr. Forman is the manager. 3,412 Shares held by Franklin Square Holdings, L.P. |
(4) | 3,808 Shares held in an Individual Retirement Account. |
(5) | All Shares held in an Individual Retirement Account |
(6) | All Shares held in a joint account with spouse. |
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The following table sets forth, as of February 28, 2020, the impact of the investments that the Company expects to make;
the abilitydollar range of the Company’s portfolio companies to achieve their objectives;
the Company’s current and expected financing arrangements and investments;
changes in the general interest rate environment;
the adequacyequity securities that are beneficially owned by each member of the Company’s cash resources, financing sources and working capital;Board.
the timing and amount of cash flows, distributions and dividends, if any, from the Company’s portfolio companies;
Name of Director | Dollar Range of Equity Securities Beneficially Owned(1)(2)(3) | |
Interested Directors: | ||
Michael C. Forman | Over $100,000 | |
Todd Builione | None | |
Independent Directors: | ||
Barbara Adams | $50,001-$100,000 | |
Brian R. Ford | $10,001-$50,000 | |
Richard Goldstein | Over $100,000 | |
Michael J. Hagan | Over $100,000 | |
Jeffrey K. Harrow | Over $100,000 | |
Jerel A. Hopkins | $50,001-$100,000 | |
James H. Kropp | Over $100,000 | |
Osagie Imasogie | None | |
Elizabeth Sandler | None |
the Company’s contractual arrangements and relationships with third parties;
(1) | Beneficial ownership has been determined in accordance with Rule16a-1(a)(2) promulgated under the Exchange Act. |
(2) | The dollar range of equity securities beneficially owned by the Company’s directors is calculated in accordance with the applicable account statement rules of The Financial Industry Regulatory Authority, Inc. |
(3) | The dollar range of equity securities beneficially owned are: None,$1-$10,000,$10,001-$50,000,$50,001-$100,000 or over $100,000. |
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actual and potential conflicts of interest withPROPOSAL 1: ELECTION OF DIRECTOR NOMINEES
Pursuant to the FS Advisor Entities, KKR Credit, the Joint Advisor, FS Investment Advisor, LLC, FS Global Advisor, LLC, FS Energy Advisor, LLC, FS Fund Advisor, LLC, FS Credit Income Advisor, LLC, FSIC, FSIC III, FSIC IV, FS Energy and Power Fund, FS Global Credit Opportunities Fund, GDFM, FS Energy Total Return Fund, FS Credit Income Fund, FS Series Trust or any of their respective affiliates;
the dependencebylaws of the Company’s future successCompany, the number of directors on the general economy and its effect on the industries in which the CompanyBoard may invest;
the Company’s use of financial leverage;
the Company’s ability to maintain its qualification as a regulated investment company and as a BDC;
the impact on the Company’s business of the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, and the rules and regulations issued thereunder;
the ability of FSIC II Advisor, KKR Credit and the Joint Advisor to locate suitable investments for the Company and to monitor and administer the Company’s investments;
the ability of FSIC II Advisor, KKR Credit and the Joint Advisor to attract and retain highly talented professionals;
the effect of changes to tax legislation and the Company’s tax position; and
the tax status of the enterprises in which the Company may invest.
In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this proxy statement involve risks and uncertainties. The Company’s actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” of the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2016. Other factors that could cause actual results to differ materially include:
changes in the economy;
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risks associated with possible disruption in the Company’s operations or the economy generally due to terrorism or natural disasters;
future changes in laws or regulations and conditions in the Company’s operating areas;
failure to obtain requisite stockholder approval for the proposals set forth in this proxy statement; and
failure to consummate the transactions contemplated by the Master Transaction Agreement.
The Company has based the forward-looking statements included in this proxy statement on information available to the Company as of the date of this proxy statement. Exceptbe fewer than one, as required by the federal securities laws,Maryland General Corporation Law, or greater than twelve. The Board is currently comprised of 11 directors, each of whom will hold office for the term to which he or she was elected and until his or her successor is duly elected and qualified.
The directors of the Company undertakes no obligationare divided into three classes, designated Class A, Class B and Class C. Each class of directors holds office for a three-year term. The current Class A directors hold office for a term expiring at the 2021 annual meeting. The current Class B directors hold office for a term expiring at the 2022 annual meeting. The current Class C directors hold office for a term expiring at the Annual Meeting.
At the Annual Meeting, stockholders of the Company are being asked to revise or update any forward-looking statements, whetherconsider the election of Michael C. Forman, Richard Goldstein, James H. Kropp and Elizabeth Sandler as Class C directors. Each of Ms. Sandler and Messrs. Forman, Goldstein and Kropp have been nominated forre-election for a three-year term expiring at the 2023 annual meeting of the stockholders. Each director nominee has agreed to serve as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that the Company may make directly to stockholders or through reports that the Company may file in the future with the SEC, including annual reports on Formdirector if10-K, quarterly reports on Form10-Qre-elected and current reports onForm 8-K.
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PROPOSAL 1: APPROVAL OF INVESTMENTCO-ADVISORY AGREEMENTS PROPOSAL
Background
The Company currently receives investment advisory and administrative services from FSIC II Advisorhas consented to being named as a nominee. No person being nominated as a director is being proposed for election pursuant to any agreement or understanding between such person and the Current Investment Advisory Agreement. GDFM actsCompany.
A stockholder can vote for, or withhold his or her vote from, any or all of the director nominees. In the absence of instructions to the contrary, it is the intention of the persons named as proxies to vote such proxyFOR the election of each of the director nominees named above. If any of the director nominees should decline or be unable to serve as a director, the persons named as proxies will vote for such other nominee as may be proposed by the Board’s Nominating and Corporate Governance Committee. The Board has no reason to believe that any of the persons named as director nominees will be unable or unwilling to serve.
Information about the Board and Director Nominees
The role of the Board is to provide general oversight of the Company’s business affairs and to exercise all of the Company’s powers except those reserved for the stockholders. The responsibilities of the Board also include, among other things, the oversight of the Company’s investmentsub-adviser pursuant to activities, the Current InvestmentSub-Advisory Agreement. As the Company announced on December 11, 2017, GDFM intends to resign as the investmentsub-adviser to the Company and terminate the Current InvestmentSub-Advisory Agreement on the GDFM End Date. In connection with GDFM’s resignation as the investmentsub-adviser to the Company, FS Investments and KKR Credit desire to enter into a relationship whereby FS Investments and KKR Credit will create a premier alternative lending platform for certain BDCs sponsored, advised and/orsub-advised by them. Accordingly, the FS Advisor Entities and KKR Credit and certain other parties have entered into the Master Transaction Agreement setting out the termsquarterly valuation of the relationship between FSIC II AdvisorCompany’s assets, oversight of the Company’s financing arrangements and KKR Credit whereby FSIC II Advisor, KKR Credit and/or the Joint Advisor (as applicable) would provide certain advisory and administrative services to the Company pursuant to the InvestmentCo-Advisory Agreements and/or the Joint Advisor Investment Advisory Agreement. In addition, the FS Advisor Entities and KKR Credit agreed to form the Joint Advisor for the purpose of advising and providing administrative services to the Company pursuant to the Joint Advisor Investment Advisory Agreement.corporate governance activities.
To effectuate the proposed investment advisory relationships with KKR Credit, the Company is seeking, as required by the 1940 Act, stockholder approval to enter into the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement, each of which would replace the Current Investment Advisory Agreement and the Current InvestmentSub-Advisory Agreement as described herein. In addition, other BDCs that FS Investments sponsors, including FSIC, FSIC III and FSIC IV, and other BDCs that KKR Credit advises orsub-advises, including CCT and CCT II, are each seeking stockholder approval to enter into a new investment advisory relationship with affiliates of FS Investments, KKR Credit and the Joint Advisor, as applicable.
The Board, including aA majority of the members of the Board who are not parties to the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement, or “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of any such partythe Company or FS/KKR Advisor, LLC, the Company’s investment adviser (the “Independent Directors”“Advisor”), unanimously approved eachand are “independent” as defined by Rule 303A.00 in the NYSE Listed Company Manual. These individuals are referred to as the Company’s independent directors. Section 2(a)(19) of the InvestmentCo-Advisory Agreements1940 Act defines an “interested person” to include, among other things, any person who has, or within the last two years had, a material business or professional relationship with the Company. The members of the Board who are not independent directors are referred to as interested directors. The Board is currently comprised of 11 directors, nine of whom are independent directors. The Board has determined that the following directors are independent directors: Messrs. Ford, Goldstein, Hagan, Harrow, Hopkins, Kropp, Imasogie and Mmes. Adams and Sandler. Based upon information requested from each director and director nominee concerning his or her background, employment and affiliations, the Board has affirmatively determined that none of the independent directors has, or within the last two years had, a material business or professional relationship with the Company, other than in his or her capacity as a member of the Board or any Board committee or as a stockholder.
In considering each director and the Joint Advisor Investment Advisory Agreement,composition of the Board as a whole, the Board seeks a diverse group of experiences, characteristics, attributes and has deemed entry into such agreementsskills, including diversity in gender, ethnicity and race that the Board believes enables a director to be inmake a significant contribution to the best interests ofBoard, the Company and its stockholders,stockholders. These experiences, characteristics, attributes and skills, which are more fully described below, include, but are not limited to, management experience, independence, financial expertise and experience serving as described indirectors or trustees of other entities. The Board may also consider such other experiences, characteristics, attributes and skills as it deems appropriate, given the sections entitled “Board Consideration” and “Factors Considered by the Board” in this Proposal 1 and “Proposal 2: Approval of Joint Advisor Investment Advisory Agreement Proposal.”
Concurrently with seeking stockholder approvalthen-current needs of the InvestmentCo-Advisory AgreementsBoard and the Joint Advisor Investment Advisory Agreement, KKR Credit is seeking exemptive relief in the form of either interpretive guidance from the SEC confirming that KKR Credit’s currentco-investment relief order will extendCompany.
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These experiences, characteristics, attributes and skills relate directly to the Company or a newco-investment exemptive relief order issued by the SEC to KKR Credit that will cover the Company (“Exemptive Relief”), in each case that would permit the Company, following the effectiveness of the Joint Advisor Investment Advisory Agreement, toco-invest in privately negotiated investment transactions with certain accounts managed by KKR Credit. There can be no assurance of the timing of the approval of the application or whether the requested Exemptive Relief will be granted. As described herein, receipt of Exemptive Relief is one of the conditions to the effectiveness of the Joint Advisor Investment Advisory Agreement. The Company’s stockholders are not being asked to vote on Exemptive Relief or the Company’s decision to seek Exemptive Relief. Exemptive Relief is related to the Joint Advisor Investment Advisory Agreementmanagement and is an integral part of the effectiveness of the Joint Advisor Investment Advisory Agreement.
If the stockholders of the Company approve the InvestmentCo-Advisory Agreements Proposal, FSIC II Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the Closing Date until the Joint Advisor Effective Date. Under no scenario can the Closing Date occur without the approval by the stockholders of the Company of both the Joint Advisor Investment Advisory Agreement and the InvestmentCo-Advisory Agreements unless such condition is (to the extent permitted) waived.
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If the stockholders of the Company approve the Joint Advisor Investment Advisory Agreement Proposal, then the Joint Advisor would serve as investment adviser to the Company pursuant to the Joint Advisor Investment Advisory Agreement from and after the Joint Advisor Effective Date. Furthermore, if the InvestmentCo-Advisory Agreements are in effect and the Joint Advisor Effective Date does not occur, either because Exemptive Relief has not been obtained or because any other condition to the Joint Advisor Effective Date is not satisfied or (to the extent permitted) waived, the InvestmentCo-Advisory Agreements will remain in full force and effect in accordance with their terms.
The Company ultimately intends to receive investment advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement. However, due to the various conditions required for the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement to each become effective, the Company is seeking, as required by the 1940 Act, stockholder approval of each of the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement in order to ensure the continuous provision of investment advisory services to the Company by FSIC II Advisor, KKR Credit and/or the Joint Advisor, as applicable. If the Joint Advisor Effective Date occurs on the same day as or prior to the Closing Date, then the Joint Advisor would serve as investment adviser to the Company pursuant to the Joint Advisor Investment Advisory Agreement and the InvestmentCo-Advisory Agreements would not become effective. If the Joint Advisor Effective Date occurs after the Closing Date, then FSIC II Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the Closing Date until the Joint Advisor Effective Date, and the InvestmentCo-Advisory Agreements would automatically terminate upon the effectiveness of the Joint Advisor Investment Advisory Agreement. Accordingly, the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would not be simultaneously effective at any time.
In order for FSIC II Advisor and KKR Credit to serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements, the stockholders of the Company must approve the InvestmentCo-Advisory Agreements Proposal and the other conditions to the Closing Date, including either approval by FSIC’s stockholders of the FSIC InvestmentCo-Advisory Agreements and the FSIC Joint Advisor Investment Advisory Agreement, or approval by FSIC III’s stockholders of the FSIC III InvestmentCo-Advisory Agreements and the FSIC III Joint Advisor Investment Advisory Agreement, must be satisfied or (to the extent permitted) waived prior to the Joint Advisor Effective Date. In order for the Joint Advisor to serve as investment adviser to the Company pursuant to the Joint Advisor Investment Advisory Agreement, the stockholders of the Company must approve the Joint Advisor Investment Advisory Agreement Proposal, and the other conditions to the Joint Advisor Effective Date, including approval by the stockholders of FSIC, FSIC III, FSIC IV, CCT and CCT II of their respective investment advisory agreements with the Joint Advisor, must be satisfied or (to the extent permitted) waived. As such, even if the Company’s stockholders approve the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement, such agreements will not go into effect unless the stockholders of certain other BDCs sponsored, advised and/orsub-advised by FS Investments and KKR Credit also approve their respective investment advisory agreements with affiliates of FS Investments, KKR Credit and/or the Joint Advisor, as applicable.
FSIC II Advisor, together with the other FS Advisor Entities and KKR Credit have agreed to coordinate their activities during the period in which the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement would be in effect to avoid duplication of efforts and ensure a balanced and effective allocation of responsibilities and net fee revenue earned by the FS Advisor Entities, KKR Credit and the Joint Advisor, and efficiency in the provision of the required services to the Company thereunder. In addition, depending on the timing and sequencing of obtaining stockholder approval for the Investment Co-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal, then the Company may enter into an Interim Investment Advisory Agreement.
In order to transition the Company’s advisory services, FSIC II Advisor, GDFM and certain of their affiliates have entered into the Transition Agreement, which provides that GDFM will continue to act as the
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investmentsub-adviser to the Company through the GDFM End Date and will cooperate with FSIC II Advisor in implementing the transition of investment advisory services from GDFM for the Company and several other BDCs. GDFM has also agreed to restrictions on its ability to acquire the Company’s Shares and take certain other actions in respectoperations of the Company. In addition, GDFM has agreed (i) to vote the Shares of the Company beneficially owned by GDFM, or over which GDFM has voting control, in favor of the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal and (ii) not to transfer the Shares of the Company beneficially owned by GDFM until after the approval of the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal. GDFM will continue to receive fees under the Current InvestmentSub-Advisory Agreement through the GDFM End Date. GDFM will also receive an additional $582.5 million from FS Investments or one of its affiliates (but not, for the avoidance of doubt, the Company, FSIC, FSIC III or FSIC IV) as consideration for entering into the Transition Agreement and agreeing to certain obligations thereunder.
FS Investments and its affiliates (including FSIC II Advisor) and KKR Credit are committed to seamlessly transitioning the Company’s advisory services as described herein. To help the FS Investments and FSIC II Advisor teams during the transition, KKR Credit will provide certain administrative services to the FS Advisor Entities and KKR Credit’s broker-dealer affiliate will provide certain sourcing and other services to the FS Advisor Entities,Success in each case, pursuant to the Sourcing Agreement. The Sourcing Agreement will terminate with respect to FSIC II Advisor on the earlier of the effective date of the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement.
Because the Company ultimately intends to receive advisory services from the Joint Advisor pursuant to the Joint Advisor Investment Advisory Agreement and considering the length of time that it may take for such agreement to become effective, the Company expects that the approval by its stockholders of the InvestmentCo-Advisory Agreements Proposal and/or the Joint Advisor Investment Advisory Agreement Proposal will remain valid indefinitely. However, even if the Company’s stockholders have approved the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal, FS Investments, together with the FS Advisor Entities, and KKR Credit will each have the right to terminate the Master Transaction Agreement and the proposed relationship described herein if the Closing Date does not occur by January 10, 2019.
The InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal are not contingent on one another. However, if the stockholders of the Company do not approve both the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal, then the Board will consider and evaluate its options to determine what alternatives arethese categories is a key factor in the Company’s best interestsoverall operational success and that of the Company’s stockholders, such as resubmitting the InvestmentCo-Advisory Agreements Proposal and/or the Joint Advisor Investment Advisory Agreement Proposal for approval by the Company’s stockholders or entering into an Interim Investment Advisory Agreement. GDFM intends to resign as the Company’s investmentsub-adviser effective as of the GDFM End Date regardless of whether the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal is approved, and the Company would continue to receive its investment advisory services from FSIC II Advisor pursuant to the Current Investment Advisory Agreement and/or from KKR Credit pursuant to an Interim Investment Advisory Agreement. FSIC II Advisor intends to obtain services from KKR Credit’s broker-dealer affiliate pursuant to the Sourcing Agreement, such as identifying new investment opportunities for FSIC II Advisor, prior to the Company’s entry into any advisory agreement with KKR Credit or one of its affiliates, including the Joint Advisor.
About FSIC II Advisor
FSIC II Advisor is a Delaware limited liability company, located at 201 Rouse Boulevard, Philadelphia, PA 19112, registered as an investment adviser with the SEC under the Advisers Act of 1940, as amended (the “Advisers Act”). FSIC II Advisor is a subsidiary of the Company’s affiliate, FS Investments, a leading asset
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manager dedicated to helping individuals, financial professionals and institutions design better portfolios. FSIC II Advisor is led by substantially the same personnel as the senior management teams of the investment advisers to certain other BDCs, open andclosed-end management investment companies and a real estate investment trust sponsored by FS Investments (the “FSNon-BDC Funds” and together with the BDCs, the “Fund Complex”).
Michael C. Forman, the Company’s chairman, president and chief executive officer, serves as the chairman and chief executive officer of FSIC II Advisor. The Company’s executive vice president, Zachary Klehr, and vice president, treasurer and secretary, Stephen S. Sypherd, are both officers of FSIC II Advisor.
FSIC II Advisor’s senior management team has significant experience in private lending and private equity investing, and has developed an expertise in using all levels of a firm’s capital structure to produce income-generating investments, while focusing on risk management. The team also has extensive knowledge of the managerial, operational and regulatory requirements of publicly registered alternative asset entities, such as BDCs.creating stockholder value. The Company believes that directors and director nominees who possess these experiences, characteristics, attributes and skills are better able to provide oversight of the active and ongoing participation by FS Investments and its affiliates in the credit markets,Company’s management and the depthCompany’s long-term and strategic objectives. Below is a description of the experience, characteristics, attributes and disciplined investment approachskills of FSIC II Advisor’s management team, will allow FSIC II Advisoreach director that led the Board to successfully executeconclude that each such person should serve as a director. The Board also considered the specific experience described in each director’s biographical information, as disclosed below.
The following tables set forth certain information regarding the director nominees and the Company’s investment strategies.
Fees Paid in the Most Recent Fiscal Year. During the year ended December 31, 2017,other independent directors and interested directors. “Fund Complex” means the Company paid an aggregate of approximately $148.2 million in management and incentive fees to FSIC II Advisor pursuant to the Current Investment Advisory Agreement, and $3.5 million in administrative services expenses to FSIC II Advisor pursuant to the Current Investment Advisory Agreement.
Because the management and incentive fees under the Current Investment Advisory Agreement are calculated and payable in arrears on either a quarterly or annual basis, as applicable, the aggregate amount paid to FSIC II Advisor by the Company during the year ended December 31, 2017 in respect of such fees is inclusive of the amounts accrued and payable to FSIC II Advisor as of December 31, 2016 and for the nine months ended September 30, 2017, but otherwise excludes amounts accrued and payable to FSIC II Advisor as of December 31, 2017.
Other than the foregoing fees and expenses, no other material payments were made by the Company to FSIC II Advisor or any affiliated person of FSIC II Advisor in 2017.
AboutFS KKR Credit
KKR Credit is a Delaware limited liability company, located at 555 California Street, 50th Floor, San Francisco, CA 94104, registered as an investment adviser with the SEC under the Advisers Act. It had over $41 billion of assets under management as of September 30, 2017 across investment funds, structured finance vehicles, specialty finance companies and separately managed accounts that invest capital in both liquid and illiquid credit strategies on behalf of some of the largest public and private pension plans, global financial institutions, university endowments and other institutional and public market investors. Its investment professionals utilize an industry and thematic approach to investing and benefit from access, where appropriate, to the broader resources and intellectual capital of KKR & Co. L.P.Capital Corp. (“KKR & Co.”FSK”). KKR Credit is a subsidiary of KKR & Co., a leading global investment firm with over $153 billion in assets under management as of September 30, 2017 that manages investments across multiple asset classes including private equity, energy, infrastructure, real estate, credit and hedge funds. KKR & Co. aims to generate attractive investment returns by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation in the assets it manages. KKR & Co. invests its own capital alongside the capital it manages for fund investors and brings debt and equity investment opportunities to others through its capital markets business.
KKR & Co.’s business offers a broad range of investment management services to its fund investors and provides capital markets services to KKR & Co., its portfolio companies and third parties. Throughout KKR &
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Co.’s history, KKR & Co. has consistently been a leader in the private equity industry. KKR & Co. has grown its firm by expanding its geographical presence and building businesses in new areas, such as credit, special situations, hedge funds, collateralized loan obligations, capital markets, infrastructure, energy and real estate. These efforts build on KKR & Co.’s core principles and industry expertise, allowing KKR & Co. to leverage the intellectual capital and synergies in its businesses, and to capitalize on a broader range of the opportunities it sources. Additionally, KKR & Co. has increased its focus on meeting the needs of its existing fund investors and in developing relationships with new investors in its funds.
KKR & Co. conducts its business with offices throughout the world, providing it with apre-eminent global platform for sourcing transactions, raising capital and carrying out capital markets activities. KKR & Co.’s growth has been driven by value that it has created through its operationally focused investment approach, the expansion of its existing businesses, its entry into new lines of business, innovation in the products that it offers investors in its funds, an increased focus on providing tailored solutions to its clients and the integration of capital markets distribution activities.
KKR & Co. has also used its balance sheet as a significant source of capital to further grow and expand its business, increase its participation in its existing businesses and further align its interests with those of its fund investors and other stakeholders.
Similar Investment Strategy.Below are the management fee rate and gross assets of two other BDCs advised orsub-advised by KKR Credit, each of which has a similar investment objective to that of the Company.
and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||||||||
Michael C. Forman(3) Age: 58 Chairman of the Board and Chief Executive Officer | Class C Director; Term expires in 2020; Director since 2011 | Michael C. Forman is chairman and chief executive officer of Franklin Square Holdings, L.P. (“FS Investments”) and has been leading the Company since its founding. He has served as the chairman and chief executive officer of the Advisor since its inception. Prior to founding FS Investments, Mr. Forman founded a private equity and real estate investment firm. He started his career as an attorney in the Corporate | Two | FS Energy and Power Fund; FS Global Credit Opportunities Fund; FS Credit Real Estate Income Trust; FS Credit Income Fund; FS Energy Total Return Fund; FS Series Trust; FS Multi-Alternative Income Fund | |||||||||||
Richard Goldstein Age: 58 Director | Class C Director; Term expires in 2020; Director since 2015 | Richard I. Goldstein is a managing director of Liberty Associated Partners, LP (“LAP”) since 2000 and Associated Partners, LP (“AP”) since 2006, both investment funds that make private and public market investments in communications, media, Internet and energy companies. Prior to joining LAP and AP, Mr. Goldstein was vice president of The Associated Group, Inc. (“AGI”), a multi-billion dollar publicly traded owner and operator of communications-related businesses and assets. While at AGI, he assisted in establishing Teligent, Inc., of which he was a director, and was responsible for operating AGI’s cellular telephone operations. Mr. Goldstein is currently a member of the board of directors of Ubicquia LLC and has counseled many early stage companies. Mr. Goldstein received a Bachelor of Science in Business and Economics from Carnegie Mellon University and received training at the Massachusetts Institute of Technology in Management Information Systems. Mr. Goldstein has extensive experience as a senior executive and in negotiating investment transactions in a variety of industries. This experience has provided Mr. Goldstein, in the opinion of the Board, with experience and insight which is beneficial to the Company. |
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Nominees for Class C Directors—New Term to Expire in 2023 | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
James H. Kropp Age: 70 Director | Class C Director; Term expires in 2020; Director since 2018 | James H. Kropp served as an independent director of Corporate Capital Trust, Inc. (“CCT”) from 2011 until the merger of FSK and CCT and as an independent trustee for Corporate Capital Trust II (“CCT II”) from 2015 until its merger with the Company. Mr. Kropp currently serves as Chief Investment Officer of SLKW Investments LLC, successor to i3 Funds, LLC, a position he has held since 2009 and was Chief Financial Officer of Microproperties LLC from 2012 to March 2019. Since 1998, Mr. Kropp has been a director and member of the Nominating/Corporate Governance committee of PS Business Parks, Inc., a public real estate investment trust whose shares are listed on the NYSE. Mr. Kropp became an Independent Trustee of NYSE-listed American Homes 4 Rent and Chairman of its Audit Committee at its founding in November 2012. Mr. Kropp received a B.B.A. Finance from St. Francis College and completed the MBA/CPA preparation program from New York University. Mr. Kropp has, in the past, been licensed to serve in a variety of supervisory positions (including financial, options and compliance principal) by the National Association of Securities Dealers. He is a member of the American Institute of CPAs and a Board Leadership Fellow for the National Association of Corporate Directors. The Board believes Mr. Kropp’s direct experience with investments as a portfolio manager and registered investment adviser, together with his accounting, auditing and finance experience, is valuable to the Company. | Two | None | ||||||
Elizabeth Sandler Age: 49 Director | Class C Director; Term expires in 2020; Director since 2019 | Elizabeth Sandler is the founder and has served as the chief executive officer of Echo Juliette, a consultant and adviser on workplace investments spanning executive coaching, employee productivity and physical space, since January 2019. Prior to founding Echo Juliette, Ms. Sandler served as managing director of The Blackstone Group and Chief Operating Officer of its Blackstone Real Estate Debt Strategies business from September 2016 to August 2018. Prior to joining The Blackstone Group, she worked at Deutsche Bank from November 2000 to August 2016, including serving at different times as a managing director and global chief operating officer of the Risk Division, Structure Finance business and Commercial Real Estate business, among other roles. Prior to joining Deutsche Bank, she worked at a number of companies in the financial services industry. Ms. Sandler received a B.A. from Duke University and an M.B.A. from The Wharton School of the University of Pennsylvania. Ms. Sandler’s extensive experience in the financial services industry has provided Ms. Sandler, in the opinion of the Board, with experience and insight which is beneficial to the Company. | Two | None |
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INDEPENDENT DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
Barbara Adams Age: 68 Director | Class A Director; Term expires in 2021; Director since 2012 | Barbara Adams served as the executive vice president—legal affairs and general counsel of the Philadelphia Housing Authority from August 2011 to April 2016, and as a trustee of each of the Philadelphia Housing Authority Retirement Income Trust and the Philadelphia Housing Authority Defined Contribution Pension Plan from November 2011 to April 2016. She served as the general counsel of the Commonwealth of Pennsylvania (the “Commonwealth”) from 2005 until January 2011. As general counsel to the Commonwealth, Ms. Adams led a staff of more than 500 lawyers in representing then Pennsylvania Governor Edward G. Rendell and more than 30 executive and independent agencies and commissions in litigation, transactions, regulatory, legislative and criminal justice matters. Prior to her appointment as general counsel to the Commonwealth, Ms. Adams was a partner at the law firm of Duane Morris LLP in Philadelphia, focusing her practice on taxable andtax-exempt public finance, affordable housing development matters, state and local government law, energy law and campaign finance law. Ms. Adams previously served as the policy committeeco-chair on housing, in then Governor-elect Edward G. Rendell’s transition team. She is a charter member of the Forum on Affordable Housing and Community Development Law of the American Bar Association, a former member of the National Association of Bond Lawyers, and a member of the Pennsylvania Association of Bond Lawyers and of the American, Pennsylvania and Philadelphia Bar Associations. She is a past member of the board and secretary of Philadelphia Neighborhood Enterprise, a nonprofit corporation affiliated with The Enterprise Foundation, a past member of the board and treasurer of the Reading Terminal Market, and a past member of the respective boards of the Pennsylvania Association of Bond Lawyers, the Philadelphia Association of Community Development Corporations and the People’s Emergency Center in Philadelphia. Ms. Adams has served on a number of other charitable and public organizations, including a term as commissioner of the Philadelphia Gas Commission, as an advisory board member on the Homeless Advocacy Project of the Philadelphia Bar Association, as a commissioner and secretary of the Independent Charter Commission of the City of Philadelphia and as an advisory board member of The Nuclear World Project. Ms. Adams previously served on the housing policy committees of the respective transition teams of both then Pennsylvania Governor-elect Edward G. Rendell and then Pennsylvania Governor-elect Tom Wolf. Ms. Adams is a graduate of Temple University School of Law and a graduate of Smith College. The Board believes that Ms. Adams’ extensive service in the private and public sectors provides her with experience that would be beneficial to the Company. | Two | None |
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INDEPENDENT DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
Brian R. Ford Age: 71 Director | Class A Director; Term expires in 2021; Director since 2013 | Brian R. Ford retired as a partner of Ernst & Young LLP, a multinational professional services firm, in July 2008, where he was employed since 1971. Mr. Ford currently serves on the board of Clearway Energy, Inc. and AmeriGas Propane, Inc. Mr. Ford was previously the chief executive officer of Washington Philadelphia Partners, LP, a real estate investment company, from July 2008 to April 2010. He also serves on the boards of Drexel University and Drexel University College of Medicine since March 2004 and March 2009, respectively. Mr. Ford received his B.S. in Economics from Rutgers University. He is a Certified Public Accountant. Mr. Ford’s extensive financial accounting experience and service on the boards of public companies, in the opinion of the Board, provides him with insight which is beneficial to the Company. | Two | GulfMark Offshore, Inc. Clearway Energy, Inc.; AmeriGas Propane, Inc.; FS Energy Total Return Fund; FS Credit Income Fund; FS Multi-Alternative Income Fund |
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INDEPENDENT DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
Michael J. Hagan Age: 57 Director and Lead Independent Director | Class B Director; Term expires in 2022; Director since 2018 | Michael J. Hagan is aco-founder of Hawk Capital Partners, a private equity firm, where he currently serves as managing partner, and has served in such capacity since December 2014. Prior toco-founding Hawk Capital Partners, Mr. Hagan previously served as the President of LifeShield, Inc. (“LifeShield”) from June 2013 to May 2014, a leading wireless home security company which was acquired by and became a division of DirecTV in 2013. He previously served as the chairman, president and chief executive officer of LifeShield from December 2009 to May 2013. In May 2017, he became a director and majority owner of LifeShield, which he then sold in February 2019 to ADT. Prior to his employment by LifeShield, Mr. Hagan served as chairman of NutriSystem, Inc. (“NutriSystem”) from 2002 to November 2008, as chief executive officer of NutriSystem from 2002 to May 2008 and as president of NutriSystem from July 2006 to September 2007. Prior to joining NutriSystem, Mr. Hagan was theco-founder of Verticalnet Inc. (“Verticalnet”) and held a number of executive positions at Verticalnet since its founding in 1995, including chairman of the board from 2002 to 2005, president and chief executive officer from 2001 to 2002, executive vice president and chief operating officer from 2000 to 2001 and senior vice president prior to that time. Mr. Hagan served on the board of directors of NutriSystem from February 2012 to March 2019. Mr. Hagan previously served as a director of NutriSystem from 2002 to November 2008, Verticalnet from 1995 to January 2008 and Actua Corporation (formerly known as ICG Group, Inc.) from June 2007 to February 2018. Mr. Hagan also served as a member of the board of trustees of American Financial Realty Trust from 2003 to June 2007. Mr. Hagan holds a B.S. in Accounting from Saint Joseph’s University, where he currently serves as a Trustee. He is also a Certified Public Accountant (inactive). Mr. Hagan has significant experience as an entrepreneur and senior executive at public and private organizations. Mr. Hagan also has extensive experience in corporate finance, private equity, financial reporting and accounting and controls. This experience has provided Mr. Hagan, in the opinion of the Board, with experience and insight which is beneficial to the Company. | Two | Actua, Inc. |
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INDEPENDENT DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
Jeffrey K. Harrow Age: 62 Director | Class A Director; Term expires in 2021; Director since 2014 | Jeffrey K. Harrow has been chairman of Sparks Marketing Group, Inc. (“Sparks”) since 2001. Mr. Harrow is responsible for both operating divisions of Sparks, which includes Sparks Custom Retail and Sparks Exhibits & Environments, with offices throughout the United States and China. Sparks’ clients include a number of Fortune 500 companies. Prior to joining Sparks, Mr. Harrow served as president and chief executive officer of CMPExpress.com from 1999 to 2000. Mr. Harrow created the strategy that allowed CMPExpress.com to move from aBusiness-to-Consumer marketplace into theBusiness-to-Business sector. In 2000, Mr. Harrow successfully negotiated the sale of CMPExpress.com to Cyberian Outpost (NASDAQ ticker: COOL). From 1982 through 1998, Mr. Harrow was the president, chief executive officer and a director of Travel One, a national travel management company. Mr. Harrow was responsible for growing the company from a single office location to more than 100 offices in over 40 cities and to its rank as the 6th largest travel management company in the United States. Under his sales strategy, annual revenues grew from $8 million to just under $1 billion. During this time, Mr. Harrow purchased nine travel companies in strategic cities to complement Travel One’s organic growth. In 1998, Mr. Harrow and his partners sold Travel One to American Express. Mr. Harrow’s past directorships include service as a director of Cherry Hill National Bank, Hickory Travel Systems, Marlton Technologies and the Dean’s Board of Advisors of The George Washington University School of Business. Mr. Harrow is a graduate of The George Washington University School of Government and Business Administration, where he received his B.B.A. in 1979. Mr. Harrow has served in a senior executive capacity at various companies, as well as a member of various boards. His extensive service at various companies has provided him, in the opinion of the Board, with experience and insight which is beneficial to the Company. | Two | None |
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INDEPENDENT DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
Jerel A. Hopkins Age: 47 Director | Class B Director; Term expires in 2022; Director since 2013 | Jerel A. Hopkins has served as Vice President and Associate General Counsel of Delaware Management Holdings, Inc., a diversified asset management firm and an affiliate of Macquarie, since November 2004. Prior to joining Delaware Management Holdings, Inc., Mr. Hopkins served as an attorney in the corporate and securities department of the law firm Klehr Harrison from January 2000 to November 2004. Mr. Hopkins served as counsel in the division of enforcement and litigation of the Pennsylvania Securities Commission from August 1997 to December 1999 and as lead counsel of the internet fraud unit from January 1999 to December 1999. In addition, Mr. Hopkins served as special counsel on behalf of the Pennsylvania Securities Commission to the North American Securities Administrators Association, Inc. from January 1999 to December 1999. Mr. Hopkins has also served on the board of trustees of the Philadelphia College of Osteopathic Medicine since February 2012. Mr. Hopkins received his B.S. from the Wharton School of the University of Pennsylvania and his J.D. from Villanova University School of Law. Mr. Hopkins has significant experience in corporate and securities law matters and has served as a member of a number of boards. This experience has provided Mr. Hopkins, in the opinion of the Board, with experience and insight which is beneficial to the Company. | Two | None |
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INDEPENDENT DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age and Position(s) with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Directorships Held by Director During the Past Five Years† | ||||||
Osagie Imasogie Age: 58 Director | Class A Director; Term expires in 2021; Director since 2019 | Osagie Imasogie has over 30 years of experience in the field of law, finance, business management, healthcare and the pharmaceutical industry. He is aco-founder and the Senior Managing Partner of PIPV Capital, a Private Equity Firm that is focused on the Life Sciences vertical. Prior toco-founding PIPV Capital, Mr. Imasogie conceptualized and established GlaxoSmithKline Ventures and was its founding Vice President. Mr. Imasogie has held senior commercial and R&D positions within pharmaceutical companies such as GSK, SmithKline, DuPont Merck and Endo, where he was the founding General Counsel and SVP for Corporate Development. Mr. Imasogie has also been a Price Waterhouse Corporate Finance Partner as well as a practicing attorney with a leading US law firm. Mr. Imasogie is a serial entrepreneur and investor. He serves as Chairman and Founder of iLera Healthcare and was also the Founder and Chairman of Iroko Pharmaceuticals, Ception Therapeutics Inc. and Trigenesis Therapeutics Inc. In addition, he serves on the Board of a number of financial institutions such as Haverford Trust and StoneRidge Investment. Mr. Imasogie is a Trustee of the University of Pennsylvania and also a member of the Board of Overseers of the University of Pennsylvania Law School, where he is an Adjunct Professor of Law. Mr. Imasogie also serves on the Board of the Philadelphia Orchestra and the Philadelphia Museum of Art. Mr. Imasogie holds post-graduate degrees from the University of Pennsylvania Law School and the London School of Economics. Mr. Imasogie has served in a senior executive capacity at various companies, as well as a member of various boards. His extensive service at various companies has provided him, in the opinion of the Board, with insight which is beneficial to the Company. | Two | None |
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INTERESTED DIRECTORS (other than Nominees for Class C Directors) | ||||||||||
Name, Address, Age with Company(1) | Term of Office and Length of Time Served(2) | Principal Occupation(s) During Past Five Years | Number of Companies in Fund Complex Overseen by Director | Other Public Held by Director Five Years† | ||||||
Todd C. Builione(3) Age: 45 President and Director | Class B Director; Term expires in 2022; Director since 2018 | Todd C. Builione serves as the Advisor’s president and, from 2018 through October 2019, served as the Company’s president. Mr. Builione joined KKR Credit Advisors US (LLC) (“KKR Credit”) in 2013 and is a member of KKR Credit and president of KKR Credit and Markets. Mr. Builione also serves on KKR Credit’s Investment Management and Distribution Committee and its Risk and Operations Committee. Prior to joining KKR Credit, Mr. Builione spent nine years at Highbridge Capital Management, serving as president of the firm, chief executive officer of Highbridge’s Hedge Fund business and a member of the Investment and Risk Committees. Mr. Builione began his career at the Goldman Sachs Group, where he was predominantly focused on capital markets and mergers and acquisitions for financial institutions. He received a B.S., summa cum laude, Merrill Presidential Scholar, from Cornell University and a J.D., cum laude, from Harvard Law School. Mr. Builione serves on the board of directors of Marshall Wace, a liquid alternatives provider which formed a strategic partnership with KKR Credit in 2015. Mr. Builione also serves on the Advisory Council of Cornell University’s Dyson School of Applied Economics and Management, and on the board of directors of the Pingry School. Mr. Builione has extensive experience and familiarity with the markets in which the Company primarily invests, along with significant knowledge and prior experience in the management of large businesses in the areas the Company operates in, and portfolio risk management and analytics. The Board believes Mr. Builione’s experience and his position as the Advisor’s president makes him a significant asset to the Company. | Two | None |
Includes directorships held in (1) any investment company registered under the 1940 Act, (2) any company with a class of securities registered pursuant to Section 12 of the Exchange Act and (3) any company subject to the requirements of Section 15(d) of the Exchange Act, in each case, other than with respect to |
(1) | The address for each director is c/o FS KKR Capital |
(2) | Directors serve until the |
(3) | “Interested person” of the Company as defined in Section 2(a)(19) of the 1940 Act. Messrs. Forman and Builione are each an “interested person” because of their affiliation with the Advisor. |
AdvisoryRisk Oversight and Sub-Advisory FeesBoard Structure
Board’s Role in Risk Oversight. From January 1, 2017 until November 14, 2017,
Through its direct oversight role, and indirectly through its committees, the dateBoard performs a risk oversight function for the Company consisting of, among other things, the following activities: (1) at regular and special Board meetings, and on whichan ad hoc basis as needed, receiving and reviewing reports related to the Investment Advisory Agreement between CCTperformance and KKR Credit (the “Current CCT Investment Advisory Agreement”) became effective, CCT’s previousoperations
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of the Company; (2) reviewing and approving, as applicable, its compliance policies and procedures; (3) meeting with the portfolio management team to review investment strategies, techniques and the processes used to manage related risks; (4) overseeing the Company’s investment valuation process via its valuation committee that operates pursuant to authority assigned to it by the Board; (5) meeting, or reviewing reports prepared by the representatives of key service providers, including the Company’s investment adviser, paid an aggregateadministrator, custodian and independent registered public accounting firm, to review and discuss the Company’s activities and to provide direction with respect thereto; (6) reviewing periodically, and at least annually, the Company’s fidelity bond, directors and officers, and errors and omissions insurance policies and such other insurance policies as may be appropriate; (7) overseeing the Company’s accounting and financial reporting processes, including supervision of approximately $40.3 million in managementthe Company’s independent registered public accounting firm to ensure that they provide timely analyses of significant financial reporting and incentive feesinternal control issues; and (8) overseeing the services of the Company’s chief compliance officer to KKR Credit pursuanttest its compliance procedures and its service providers.
The Board also performs its risk oversight responsibilities with the assistance of the Company’s chief compliance officer. The Board receives a quarterly report from the Company’s chief compliance officer, who reports on, among other things, the Company’s compliance with applicable securities laws and its internal compliance policies and procedures. In addition, the Company’s chief compliance officer prepares a written report annually evaluating, among other things, the adequacy and effectiveness of the compliance policies and procedures of the Company and certain of its service providers. The Company’s chief compliance officer’s report, which is reviewed by the Board, addresses at a minimum: (1) the operation and effectiveness of the compliance policies and procedures of the Company and certain of its service providers since the last report; (2) any material changes to such policies and procedures since the investment sub-advisory agreement pursuantlast report; (3) any recommendations for changes to which KKR Credit actedsuch policies and procedures as investment sub-adviser to CCT.
Fora result of the period from November 15, 2017 through November 30, 2017, KKR Credit received approximately $2.7 million in managementCompany’s chief compliance officer’s annual review; and incentive fees from CCT pursuant to the Current CCT Investment Advisory Agreement. Because the management and incentive fees under the Current CCT Investment Advisory Agreement are calculated and payable in arrears on a monthly basis, the amount of such fees accrued and payable to KKR Credit by CCT for(4) any period following November 30, 2017 is not available as ofmaterial compliance matters that have occurred since the date of this proxy statement.
During the nine months ended September 30, 2017, CCT II’s current investment adviser paid an aggregatelast report about which the Board would reasonably need to know to oversee the Company’s compliance activities and risks. The Company’s chief compliance officer also meets separately in executive session with the independent directors of approximately $760,000 in management feesthe Company at least once each year. In addition to KKR Credit pursuantcompliance reports from the Company’s chief compliance officer, the Board also receives reports and updates from legal counsel to the investment sub-advisory agreement pursuantCompany regarding legal, regulatory and governance matters.
Board Composition and Leadership Structure
Mr. Forman, who is an ���interested person” of the Company as defined in Section 2(a)(19) of the 1940 Act, serves as both the chief executive officer of the Company and chairman of the Board. The Board believes that Mr. Forman, asco-founder and chief executive officer of the Company, is the director with the most knowledge of the Company’s business strategy and is best situated to serve as chairman of the Board. The Company’s charter, as well as regulations governing business development companies (“BDCs”) generally, requires that a majority of the Board be persons other than “interested persons” of the Company, as defined in Section 2(a)(19) of the 1940 Act.
While the Company currently does not have a policy mandating a lead independent director, the Board believes that having an independent director fill the lead director role is appropriate. Mr. Hagan currently serves as lead independent director. The lead independent director, among other things, works with the chairman of the Board in the preparation of the agenda for each Board meeting and in determining the need for meetings of the Board, chairs any meeting of the independent directors in executive session, facilitates communications between other members of the Board and the chairman of the Board and/or the chief executive officer and otherwise consults with the chairman of the Board and/or the chief executive officer on matters relating to corporate governance and Board performance.
The Board has concluded that its structure is appropriate given the current size and complexity of the Company and the extensive regulation to which KKR Credit actsthe Company is subject as investment sub-adviser to CCT II (the “CCT II Current Investment Sub-Advisory Agreement”). No incentive fees are payable to KKR Credit undera BDC.
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Board Meetings and Attendance
On March 14, 2019, Joseph P. Ujobai resigned from the CCT II Current Investment Sub-Advisory Agreement. Board. On July 8, 2019, the Board appointed Osagie Imasogie as a new independent member of the Board. On October 30, 2019, the Board appointed Elizabeth Sandler as a new independent member of the Board. On November 26, 2019, Frederick Arnold resigned from the Board.
The amount of management fees payable by CCT II’s current investment adviser to KKR Credit underBoard met 14 times during the CCT II Current Investment Sub-Advisory Agreement for the three monthsfiscal year ended December 31, 2017 is not available as2019, including four regular quarterly meetings. During the fiscal year ended December 31, 2019, each director attended at least 75% of all meetings of the dateBoard and Board committees on which he or she served (held during the period that such director served). The Company does not have a formal policy regarding director attendance at an annual meeting of this proxy statement.
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Managementstockholders. None of the InvestmentCo-Advisorsdirectors then in office attended the 2019 annual meeting of stockholders.
Committees of the Board of Directors
The managementBoard has established three standing committees of the Board, which consist of an Audit Committee, a Valuation Committee and a Nominating and Corporate Governance Committee. The Board has not established a standing compensation committee because the executive officers of the Company do not receive any direct compensation from the Company. The Board, as a whole, participates in the consideration of director compensation and decisions on director compensation are based on, among other things, a review of data of comparable BDCs. The Board may also engage compensation consultants fromtime-to-time, following consideration of certain factors related to such consultants’ independence.
Audit Committee
The Board has established an Audit Committee that operates pursuant to a charter and consists of three members, including a Chairman of the Audit Committee. The Audit Committee members are Messrs. Ford (Chairman), Kropp and Imasogie, all of whom are independent. The Board has determined that Messrs. Ford and Kropp are “audit committee financial experts” as defined by Item 407(d)(5)(ii) of RegulationS-K promulgated under the Exchange Act. The primary function of the Audit Committee is to oversee the integrity of the Company’s accounting policies, financial reporting process and system of internal controls regarding finance and accounting policies. The Audit Committee is responsible for selecting, engaging and discharging the Company’s independent accountants, reviewing the plans, scope and results of the audit engagement with the Company’s independent accountants, approving professional services provided by the Company’s independent accountants (including compensation therefor) and reviewing the independence of the Company’s independent accountants. The Audit Committee held 13 meetings during the fiscal year ended December 31, 2019. The Audit Committee charter can be accessed via the Company’s website atwww.fsinvestments.com/support/articles/corporate-governance-fskii.
Valuation Committee
The Board has established a Valuation Committee that operates pursuant to a charter and the authority assigned to it by the Board and consists of five members, including a Chairman of the Valuation Committee. The Valuation Committee members are Ms. Adams and Messrs. Kropp (Chairman), Hopkins, Goldstein and Imasogie, all of whom are independent. The primary function of the Valuation Committee is to establish guidelines and make recommendations to the Board on matters relating to the valuation of the Company’s investments. The Valuation Committee held seven meetings during the fiscal year ended December 31, 2019.
Nominating and Corporate Governance Committee
The Board has established a Nominating and Corporate Governance Committee that operates pursuant to a charter and consists of three members, including a Chairman of the Nominating and Corporate Governance
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Committee. The Nominating and Corporate Governance Committee members are Messrs. Harrow (Chairman), Hagan and Hopkins, all of whom are independent. The primary function of the Nominating and Corporate Governance Committee is to consider and make recommendations to the Board regarding certain governance matters, including selection of directors for election by stockholders, selection of director nominees to fill vacancies on the Board or a committee thereof, development and revision, as appropriate, of applicable corporate governance documentation and practices and oversight of the evaluation of the Board. The Nominating and Corporate Governance Committee held five meetings during the fiscal year ended December 31, 2019.
When nominating director candidates, the Nominating and Corporate Governance Committee takes into consideration such factors as it deems appropriate in accordance with its charter. Among the qualifications considered in the selection of candidates, the Nominating and Corporate Governance Committee considers the following attributes and criteria of candidates: experience, including experience with investment portfoliocompanies and other organizations of comparable purpose, skills, expertise, diversity, including diversity of gender, race and national origin, personal and professional integrity, time availability in light of other commitments, conflicts of interest and such other relevant factors that the Nominating and Corporate Governance Committee considers appropriate in the context of the needs of the Board, including, when applicable, to enhance the ability of the Board or committees of the Board to fulfill their duties and/or to satisfy any independence or other applicable requirements imposed by law, rule, regulation or listing standard including, but not limited to, the 1940 Act and rules promulgated by the SEC. Each of the director nominees was approved by the members of the Nominating and Corporate Governance Committee and the entire Board.
The Nominating and Corporate Governance Committee considers candidates suggested by its members and other Board members, as well as the Company’s management and stockholders. A Company stockholder who wishes to recommend a prospective nominee for the Board must provide notice to the Secretary of the Company in accordance with the requirements set forth in the Company’s Third Amended and Restated Bylaws, which are described in greater detail under the heading “Submission of Stockholder Proposals.” Nominees for director who are recommended by stockholders will be evaluated in the responsibility of a joint investment committee which willsame manner as any other nominee for director. The Nominating and Corporate Governance Committee charter can be comprised of three appointees of FS Investments or one of its affiliates (initially Sean Coleman, Brian Gersonaccessed via the Company’s website atwww.fsinvestments.com/support/articles/corporate-governance-fskii.
Communications Between Interested Parties and Michael Kelly) and three appointees of KKR Credit (initially Todd Builione, Daniel Pietrzak and Ryan Wilson). A team of dedicated investment professionals consisting of personnelthe Board
The Board welcomes communications from FSIC II Advisor and KKR Credit will provide servicesinterested parties. Interested parties may send communications to the Company. BelowBoard or to any particular director to the following address: c/o FS KKR Capital Corp. II, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112. Interested parties should indicate clearly the director or directors to whom the communication is biographicalbeing sent so that each communication may be forwarded directly to the appropriate director(s).
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Information about Executive Officers Who Are Not Directors
The following table sets forth certain information relating to certain key personnel involved in rendering such services:
Sean Coleman serves as a managing director of FSIC and as managing director of investment management of FS Investments and its affiliated investment advisers. Mr. Coleman also serves onregarding the investment committeeexecutive officers of the investment advisers toCompany who are not directors of the funds in the Fund Complex. Mr. ColemanCompany. Each executive officer holds his office until his successor is primarily responsible for reviewingchosen and assessing the fit of potential investments within each fund’s investment portfolio, performing due diligence on the same and monitoring existing investments. Before joining FS Investments and its affiliated investment advisers in October 2013, Mr. Coleman worked at Golub Capital, where he served in various capacities, including as a managing director in the direct lending group and as chief financial officer and treasurer of its BDC. Before he joined Golub Capital in September 2005, Mr. Coleman worked in merchant and investment banking, including at Goldman, Sachs & Co. and Wasserstein Perella & Co. Mr. Coleman earned a B.A. in History from Princeton University and an M.B.A. with Distinction from Harvard Business School, where he received the Loeb Award for academic excellence in finance.qualified, or until his earlier resignation or removal.
Name, Address and Age(1) | Position(s) with Company | Length of Time Served | Principal Occupation(s) During Past Five Years | |||
Brian Gerson Age: 52 | Co-President | Since 2019 | Brian Gerson has served as theCo-President of the Company since October 2019. He joined FS Investments in November 2017 as its Head of Private Credit and has more than 20 years of experience in | |||
Daniel Pietrzak Age: 44 |
| Since 2018 | Daniel Pietrzak | |||
Steven Lilly Age: 50 | Chief Financial Officer | Since 2019 |
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Name, Address and Age(1) | Position(s) with Company | Length of Time Served | Principal Occupation(s) During Past Five Years | |||
Stephen S. Sypherd Age: 42 | Secretary, General Counsel | Since 2013 | Stephen S. Sypherd has served as the Secretary of the Company since January 2013 and as the General Counsel since April 2018. He previously served as the Company’s Vice President and Treasurer. Mr. Sypherd also currently serves as | |||
Drew O’Toole Age: 31 | Co-Chief Operating Officer | Since 2019 | Drew O’Toole has served as theCo-Chief Operating Officer of the Company since October 2019. He is a Managing Director of FS Investments, which he joined in April 2014. Previously, Mr. O’Toole was a Director of Corporate Strategy at FS Investments. His responsibilities were primarily focused on the design, analysis and | |||
Ryan Wilson Age: 42 | Co-Chief Operating Officer | Since 2019 | Ryan Wilson has served as theCo-Chief Operating Officer of the Company since October 2019. He joined KKR Credit in 2006 and he is currently a | |||
William Goebel
| Chief Accounting Officer | Since 2019 | William Goebel has served as the | |||
James F. Volk Age: 56 | Chief Compliance Officer | Since 2015 | James F. Volk has served as the Chief Compliance Officer of the Company |
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(1) | The address for each officer is c/o FS KKR Capital Corp. II, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112. |
Code of Ethics
The Company has adopted a code of business conduct and ethics (as amended and restated, the “Code of Business Conduct and Ethics”) pursuant to Rule17j-1 promulgated under the 1940 Act, which applies to, among others, its officers, including its Chief Executive Officer and its Chief Financial Officer, as well as the members of the Board. The Company’s Code of Business Conduct and Ethics can be accessed via the Company’s website at www.fsinvestments.com/support/articles/corporate-governance-fskii. In addition, the Code of Business Conduct and Ethics is available on the EDGAR Database on the SEC’s Internet site at www.sec.gov. The Company intends to disclose any amendments to or waivers of required provisions of the Code of Business Conduct and Ethics on Form8-K, as required by the Exchange Act and the rules and regulations promulgated thereunder.
Practice and Policies Regarding Personal Trading and Hedging of Company Equity
The Company has also established a policy designed to prohibit our officers, directors, and certain employees of the Advisor from purchasing or selling shares of the Company while in possession of material nonpublic information, or otherwise using such information for their personal benefit or in any manner that would violate applicable laws and regulations. The policy also prohibits all directors and officers from engaging in hedging or monetization transactions or similar arrangements with respect to the Company’s securities without prior approval of the Company’s chief compliance officer.
Compensation Discussion and Analysis
The Company’s executive officers do not receive any direct compensation from the Company. The Company does not currently have any employees and does not expect to have any employees. As an externally managed BDC, services necessary for the Company’s business are provided by individuals who are employees of the Advisor or its affiliates or by individuals who are contracted by the Advisor, the Company or their respective affiliates to work on behalf of the Company pursuant to the terms of the Investment Advisory Agreement, dated December 18, 2019 (the “Investment Advisory Agreement”), between the Company and the Advisor and that certain Administration Agreement, dated December 18, 2019 (the “Administration Agreement”), between the Company and the Advisor. Each of the Company’s executive officers is an employee of the Advisor or its affiliates and theday-to-day investment operations and administration of the Company’s portfolio are managed by the Advisor. In addition, the Company will reimburse the Advisor for its allocable portion of expenses incurred by the Advisor in performing its obligations under the Investment Advisory Agreement and the Administration Agreement.
The Investment Advisory Agreement and the Administration Agreement provide that the Advisor (and its officers, managers, partners, members (and their members, including the owners of their members), agents, employees, controlling persons and any other person or entity affiliated with, or acting on behalf of, the Advisor) shall be entitled to indemnification (including reasonable attorneys’ fees and amounts reasonably paid in settlement) for any liability or loss suffered by the Advisor, and the Advisor shall be held harmless for any loss or liability suffered by the Company, arising out of the performance of any of its duties or obligations under the Investment Advisory Agreement or the Administration Agreement, respectively, or otherwise as the Company’s investment adviser or administrator, respectively; provided, however, that the Advisor cannot be indemnified for any liability arising out of willful misfeasance, bad faith, or negligence in the performance of the Advisor’s duties or by reason of the reckless disregard of the Advisor’s duties and obligations under the Investment Advisory Agreement or the Administration Agreement, as applicable.
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Director Compensation
The Company does not pay compensation to its directors who also serve in an executive officer capacity for the Company or the Advisor. The Company’s directors who do not also serve in an executive officer capacity for the Company or the Advisor are entitled to receive annual cash retainer fees and annual fees for serving as a committee chairperson. These directors are Mmes. Adams and Sandler and Messrs. Ford, Goldstein, Hagan, Harrow, Hopkins, Kropp and Imasogie. Mr. Hagan also receives an annual retainer for his service as lead independent director.
Amounts payable under these fee arrangements for the Company are determined and paid quarterly in arrears as set forth below and are shared pro rata by the Fund Complex based on assets under management.
Amount | ||||
Annual Board Retainer | $ | 160,000 | ||
Annual Lead Independent Director Retainer | $ | 30,000 | ||
Annual Committee Chair Retainers | ||||
Audit Committee | $ | 25,000 | ||
Valuation Committee | $ | 25,000 | ||
Nominating and Corporate Governance Committee | $ | 15,000 |
The Company will also reimburse each of the above directors for all reasonable and authorized business expenses in accordance with its policies as in effect from time to time, including reimbursement of reasonableout-of-pocket expenses incurred in connection with attending eachin-person Board meeting and eachin-person Board committee meeting not held concurrently with a Board meeting.
The table below sets forth the compensation received by each current and former director from (i) the Company and (ii) all of the companies in the Fund Complex, including the Company, and FS Investment Corporation III (“FSIC III”), FS Investment Corporation IV (“FSIC IV”) and CCT II in the aggregate, in each case, for service during the fiscal year ended December 31, 2019. Our directors do not receive any retirement benefits from us.
Name of Director | Fees Earned or Paid in Cash by the Company | Total Compensation from the Company | Total Compensation from the Fund Complex | |||||||||
Michael C. Forman | — | — | — | |||||||||
Todd Builione | — | — | — | |||||||||
Barbara Adams | $ | 160,000 | $ | 160,000 | $ | 160,000 | ||||||
Brian R. Ford | $ | 185,000 | $ | 185,000 | $ | 185,000 | ||||||
Richard Goldstein | $ | 160,000 | $ | 160,000 | $ | 160,000 | ||||||
Michael J. Hagan | $ | 190,000 | $ | 190,000 | $ | 190,000 | ||||||
Jeffrey K. Harrow | $ | 175,000 | $ | 175,000 | $ | 175,000 | ||||||
Jerel A. Hopkins | $ | 160,000 | $ | 160,000 | $ | 160,000 | ||||||
James H. Kropp | $ | 185,000 | $ | 185,000 | $ | 185,000 | ||||||
Osagie Imasogie(1) | $ | 80,000 | $ | 80,000 | $ | 80,000 | ||||||
Elizabeth Sandler(2) | — | — | — | |||||||||
Former Directors: | ||||||||||||
Joseph P. Ujobai(3) | $ | 46,250 | $ | 46,250 | $ | 46,250 | ||||||
Frederick Arnold(4) | $ | 160,000 | $ | 160,000 | $ | 160,000 |
(1) | Mr. Imasogie joined the Board on July 8, 2019. |
(2) | Ms. Sandler joined the Board on October 30, 2019. |
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(3) | Mr. Ujobai resigned from the Board, effective as of March 14, 2019. |
(4) | Mr. Arnold resigned from the Board, effective as of November 26, 2019. |
Certain Relationships and Related Party Transactions
The Company has procedures in place for the review, approval and monitoring of transactions involving the Company and certain persons related to the Company. For example, the Company’s Code of Business Conduct and Ethics generally prohibits any employee, officer or director from engaging in any transaction where there is a conflict between such individual’s personal interest and the interests of the Company. Waivers to the Company’s Code of Business Conduct and Ethics for any executive officer or member of the Board must be approved by the Board and are publicly disclosed as required by applicable law and regulations. In addition, the Audit Committee is required to review and approve all transactions with related persons (as defined in Item 404 of RegulationS-K promulgated under the Exchange Act).
Investment Advisory Agreement
The Company is externally managed by the Advisor. On December 18, 2019, the Company entered into the Investment Advisory Agreement with the Advisor, which amended and restated the investment advisory and administrative services agreement, dated April 9, 2018 (the “Original FS/KKR Advisory Agreement”) between the Company and the Advisor.
Pursuant to the Investment Advisory Agreement, the Advisor is entitled to a base management fee calculated at an annual rate of 1.50% of the average weekly value of the Company’s gross assets excluding cash and cash equivalents (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets), which base management fee is reduced from 1.5% to 1.0% on all assets financed using leverage over 1.0xdebt-to-equity, and an incentive fee based on the Company’s performance. The base management fee is payable quarterly in arrears. All or any part of the base management fee not taken as to any quarter shall be deferred without interest and may be taken in such other quarter as the Advisor shall determine.
Pursuant to the terms of the Investment Advisory Agreement, the Advisor may also be entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income under the Investment Advisory Agreement, which is calculated and payable quarterly in arrears, equals 20.0% of theCompany’s “pre-incentive fee net investment income” for the immediately preceding quarter and is subject to a hurdle rate, expressed as a rate of return on the value of the Company’s net assets, equal to 1.75% per quarter, or an annualized hurdle rate of 7.0%. As a result, the Advisor will not earn this incentive fee for any quarter until theCompany’s pre-incentive fee net investment income for such quarter exceeds the hurdle rate of 1.75%. Once theCompany’s pre-incentive fee net investment income in any quarter exceeds the hurdle rate, the Advisor will be entitled toa “catch-up” fee equal to the amount ofthe pre-incentive fee net investment income in excess of the hurdle rate, until theCompany’s pre-incentive fee net investment income for such quarter equals 2.1875%, or 8.75% annually, of net assets. Thereafter, the Advisor will be entitled to receive 20.0%of pre-incentive fee net investment income.
Commencing with the quarter ending March 31, 2022, the subordinated incentive fee on income is subject to a cap equal to (i) 20.0% of the “pershare pre-incentive fee return” for the then-current and eleven preceding calendar quarters (or fewer number of fiscal quarters) commencing with the quarter ending March 31, 2020 minus the cumulative “per share incentive fees” accrued and/or payable for the eleven preceding calendar quarters (or fewer number of fiscal quarters) commencing with the quarter ending March 31, 2020 multiplied by (ii) the weighted average number of shares outstanding during the calendar quarter (or any portion thereof) for which the subordinated incentive fee on income is being calculated.
Pursuant to the terms of the Investment Advisory Agreement, the incentive fee on capital gains is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment
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Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which shall equal the realized capital gains of CCT II, FSIC III, FSIC IV and the Company (without duplication) on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation (without duplication) on a cumulative basis, less the aggregate amount of any capital gain incentive fees previously paid by CCT II, FSIC III, FSIC IV and the Company. On a quarterly basis, the Company accrues for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period. The Company includes unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Administration Agreement
Also on December 18, 2019, the Company entered into the Administration Agreement with the Advisor. Pursuant to the Administration Agreement, the Advisor will provide administrative services necessary for the operation of the Company, including providing general ledger accounting, fund accounting, legal services, investor relations and other administrative services. There will be no separate fee paid by the Company to the Advisor in connection with the services provided under the Administration Agreement, provided, however, that the Company will reimburse the Advisor no less than quarterly for all costs and expenses incurred by the Advisor in performing its obligations and providing personnel and facilities thereunder. The Advisor will allocate the cost of such services to the Company based on factors such as total assets, revenues, time allocations and/or other reasonable metrics.
Original FS/KKR Advisory Agreement
Prior to the Company’s entry into the Investment Advisory Agreement, the Company was party to the Original FS/KKR Advisory Agreement, by and between the Advisor and the Company. Pursuant to the Original FS/KKR Advisory Agreement, the Advisor was entitled to a base management fee calculated at an annual rate of 1.50% of the average weekly value of the Company’s gross assets and an incentive fee based on the Company’s performance. The base management fee was payable quarterly in arrears, and all or any part of the base management fee not taken as to any quarter was deferred without interest and could be taken in such other quarter as the Advisor determined.
Pursuant to the terms of the Original FS/KKR Advisory Agreement, the incentive fee on capital gains was determined and payable in arrears as of the end of each calendar year (or upon termination of the Original FS/KKR Advisory Agreement). This fee equaled 20.0% of the Company’s incentive fee capital gains, which equaled the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any capital gain incentive fees previously paid by the Company. On a quarterly basis, the Company accrued for the capital gains incentive fee by calculating such fees as if it were due and payable as of the end of such period. The Company included unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflected the incentive fees that would be payable to the Advisor if the Company’s entire portfolio was liquidated at its fair value as of the balance sheet date even though the Advisor was not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
Pursuant to the terms of the Original FS/KKR Advisory Agreement, the Advisor was entitled to receive a subordinated incentive fee on income. The subordinated incentive fee on income under the Original FS/KKR Advisory Agreement which was calculated and payable quarterly in arrears, equaled 20.0% of the Company’s“pre-incentive fee net investment income” for the immediately preceding quarter and was subject to a hurdle rate, expressed as a rate of return on adjusted capital equal to 1.75% per quarter, or an annualized hurdle rate of 7.0%.
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For purposes of this fee, “adjusted capital” means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from its distribution reinvestment plan) reduced for distributions paid to stockholders from proceeds ofnon-liquidating dispositions of the Company’s investments and amounts paid for share repurchases pursuant to the Company’s share repurchase program. As a result, the Advisor would not earn this incentive fee for any quarter until the Company’spre-incentive fee net investment income for such quarter exceeded the hurdle rate of 1.75%. Once the Company’spre-incentive fee net investment income in any quarter exceeded the hurdle rate, the Advisor was entitled to a“catch-up” fee equal to the amount of the Company’spre-incentive fee net investment income in excess of the hurdle rate, until the Company’spre-incentive fee net investment income for such quarter equaled 2.1875%, or 8.75% annually of the Company’s adjusted capital. Thereafter, the Advisor was entitled to receive 20.0% of the Company’spre-incentive fee net investment income.
The following table describes the fees and expenses accrued under the Investment Advisory Agreement, the Original FS/KKR Advisory Agreement and the Administration Agreement, as applicable, during the year ended December 31, 2019 (dollars in millions):
Related Party | Source Agreement | Description | Year Ended December 31, 2019 | |||||
Advisor | Investment Advisory Agreement and Original FS/KKR Advisory Agreement | Base Management Fee(1) | $ | 72 | ||||
Advisor | Investment Advisory Agreement and Original FS/KKR Advisory Agreement | Subordinated Incentive Fee on Income(2) | $ | 29 | ||||
Advisor | Administration Agreement and Original FS/KKR Advisory Agreement | Administrative Services Expenses(3) | $ | 5 |
(1) | During the year ended December 31, 2019, $69 in base management fees were paid to the Advisor. |
(2) | During the year ended December 31, 2019, $30 in subordinated incentive fees on income were paid to the Advisor. As of December 31, 2019, a subordinated incentive fee on income of $11 was payable to the Advisor. |
(3) | During the year ended December 31, 2019, $3 of the accrued administrative services expenses related to the allocation of costs of administrative personnel |
Allocation of the Advisor’s Time
The Company relies on the Advisor to manage the Company’sday-to-day activities and to implement its investment strategies. The Advisor, FS Investments, KKR Credit and certain of their affiliates are presently, and plan in the future to continue to be, involved with activities that are unrelated to the Company. As a result of these activities, the Advisor, FS Investments, KKR Credit and certain of their affiliates will have conflicts of interest in allocating their time between the Company and other activities in which they are or may become involved, including the management of the other BDCs in the Fund Complex. The Advisor, FS Investments, KKR Credit and their employees will devote only as much of its or their time to the Company’s business as the Advisor, FS Investments and KKR Credit, in their judgment, determine is reasonably required, which will be substantially less than their full time. Therefore, the Advisor, its personnel and certain affiliates may experience conflicts of interest in allocating management time, services and functions among the Company and any other business ventures in which they or any of their key personnel, as applicable, are or may become involved. This could result in actions that are more favorable to other affiliated entities than to the Company.
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However, the Company believes that the members of the Advisor’s management and the other key debt finance professionals have sufficient time to fully discharge their responsibilities to the Company and to the other businesses in which they are involved. The Company believes that its affiliates and executive officers will devote the time required to manage the Company’s business and expect that the amount of time a particular executive officer or affiliate devotes to the Company will vary during the course of the year and depend on the Company’s business activities at the given time. Because many of the operational aspects involved with managing the Company and the other BDCs in the Fund Complex are similar, there are significant efficiencies created by the Advisor providing services to such entities. For example, the Advisor has streamlined the structure for financial reporting, internal controls and investment approval processes for the Company and the other BDCs in the Fund Complex.
Competition and Allocation of Investment Opportunities
The Advisor and its affiliates are simultaneously providing investment advisory services to other affiliated entities, including the other BDCs in the Fund Complex. The Advisor may determine that it is appropriate for the Company and one or more other investment accounts managed by the Advisor or any of its affiliates to participate in an investment opportunity. To the extent the Company makesco-investments with investment accounts managed by the Advisor or its affiliates, theseco-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among the Company and the other participating accounts. In addition, conflicts of interest or perceived conflicts of interest may also arise in determining which investment opportunities should be presented to the Company and other participating accounts.
To mitigate these conflicts, the Advisor will seek to execute such transactions on a fair and equitable basis and in accordance with its allocation policies, taking into account various factors, which may include: the source of origination of the investment opportunity; investment objectives and strategies; tax considerations; risk, diversification or investment concentration parameters; characteristics of the security; size of available investment; available liquidity and liquidity requirements; regulatory restrictions; and/or such other factors as may be relevant to a particular transaction.
As the Advisor and affiliates of FS Investments and KKR Credit currently serve as the investment adviser to other entities and accounts, it is possible that some investment opportunities will be provided to such other entities and accounts rather than the Company.
Investments
As a BDC, the Company is subject to certain regulatory restrictions in making its investments. For example, BDCs generally are not permitted toco-invest with certain affiliated entities in transactions originated by the BDC or its affiliates in the absence of an exemptive order from the SEC. However, BDCs are permitted to, and may, simultaneouslyco-invest in transactions where price is the only negotiated term.
In an order dated June 4, 2013 (“the FS Order”), the SEC granted exemptive relief permitting the Company, subject to the satisfaction of certain conditions, toco-invest in certain privately negotiated investment transactions with certain affiliates of our former investment adviser, including FS Energy and Power Fund, FSK (f/k/a FS Investment Corporation) and any future BDCs that are advised by our former investment adviser or its affiliated investment advisers. However, in connection with the investment advisory relationship with the Advisor, and in an effort to mitigate potential future conflicts of interest, the Board authorized and directed that the Company (i) withdraw from the FS Order, except with respect to any transaction in which the Company participated in reliance on the FS Order prior to April 9, 2018, and (ii) rely on an exemptive relief order, dated April 3, 2018, that permits the Company, subject to the satisfaction of certain conditions, toco-invest in certain privately negotiated investment transactions, including investments originated and directly negotiated by the Advisor or KKR Credit, with certain affiliates of the Advisor.
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Independent Registered Public Accounting Firm
On March 22, 2019, the Company notified RSM US LLP that RSM US LLP, which had acted as the Company’s independent registered public accounting firm for each of the fiscal years ended December 31, 2011 through 2018, had been dismissed as the Company’s independent public accounting firm. The Audit Committee approved the dismissal of RSM US LLP. The reports of RSM US LLP on the audited consolidated financial statements of the Company for the years ended December 31, 2018 and 2017 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the years ended December 31, 2018 and 2017, and the subsequent interim period through March 22, 2019, there were: (i) no disagreements within the meaning of Item 304(a)(1)(iv) ofRegulation S-K and the related instructions between the Company and RSM US LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to RSM US LLP’s satisfaction, would have caused RSM US LLP to make reference thereto in their reports; and (ii) no “reportable events” within the meaning of Item 304(a)(1)(v) ofRegulation S-K. On March 26, 2019, the Company appointed Deloitte & Touche LLP to act as the Company’s independent registered public accounting firm for the fiscal year ended December 31, 2019, which appointment was ratified by the Company’s stockholders on November 6, 2019.
On February 20, 2020, the Company appointed Deloitte & Touche LLP to act as the Company’s independent registered public accounting firm for the year ending December 31, 2020. The appointment of Deloitte & Touche LLP was previously recommended by the Audit Committee. The Company knows of no direct financial or material indirect financial interest of Deloitte & Touche LLP in the Company. A representative of Deloitte & Touche LLP is expected to be available to answer questions during the Annual Meeting and will have an opportunity to make a statement if he or she desires to do.
Fees
Set forth in the table below are audit fees, audit related fees, tax fees and all other fees billed to the Company by Deloitte & Touche LLP for professional services performed for the fiscal years ended December 31, 2019 and 2018:
Fiscal Year | Audit Fees | Audit-Related Fees(1) | Tax Fees | All Other Fees(2) | ||||||||||||
2019 | $ | 634,008 | — | — | — | |||||||||||
2018 | — | — | — | — |
(1) | “Audit-Related Fees” are those fees billed to the Company
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(2) | “All Other Fees” are those fees, if any, billed to the Company by Deloitte & Touche LLP in connection with |
Set forth in the table below are audit fees, audit related fees, tax fees and all other fees billed to the Company by RSM US LLP for professional services performed for the fiscal years ended December 31, 2019 and 2018:
Fiscal Year | Audit Fees | Audit-Related Fees(1) | Tax Fees | All Other Fees(2) | ||||||||||||
2019 | — | — | — | $ | 46,350 | |||||||||||
2018 | $ | 399,700 | — | — | $ | 35,350 |
(1) |
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(2) |
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