UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
☒ | Preliminary Proxy Statement | |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2)) | |
☐ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to Rule14a-12 |
FS INVESTMENT CORPORATIONKKR CAPITAL CORP.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. | |||
☐ | Fee computed on table below per Exchange Act Rules14a-6(i)(4) and0-11. | |||
1) | Title of each class of securities to which transaction applies:
| |||
2) | Aggregate number of securities to which transaction applies:
| |||
3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
| |||
4) | Proposed maximum aggregate value of transaction:
| |||
5) | Total fee paid:
| |||
☐ | Fee paid previously with preliminary materials: | |||
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. | |||
1) | Amount Previously Paid:
| |||
2) | Form, Schedule or Registration Statement No.:
| |||
3) | Filing Party:
| |||
4) | Date Filed:
|
FS Investment Corporation
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
[●], 20182019
Dear Fellow Stockholder:
You are cordially invited to attend a Specialthe 2019 Annual Meeting of Stockholders of FS Investment CorporationKKR Capital Corp. (the “Company”) to be held on [●], 2018June 14, 2019 at [●] [a.m.][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 advisory agreement, bythree year term expiring at the 2022 annual meeting of the stockholders: (a) Barbara Adams, (b) Frederick Arnold, (c) Michael C. Forman and between the Company and FB Income Advisor, LLC (“FB Income Advisor”), and a new investment advisory agreement, by and between the Company and KKR Credit Advisors (US) LLC (“KKR Credit”), pursuant to which FB Income Advisor and KKR Credit will act as investmentco-advisers to the Company; and(d) Jerel A. Hopkins;
(ii) approve a new investment advisory 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 operatedwhich would permit the Company to increase the maximum amount of leverage that it is permitted to incur by an affiliate of Franklin Square Holdings, L.P. and KKR Credit (the “Joint Advisor”), pursuant to whichreducing the Joint Advisor will act as investment adviserasset coverage requirement applicable to the Company from 200% to 150%; and
(iii) approve a proposal to allow the Company in future offerings to sell its shares below net asset value per share in order 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 Annual Meeting, including proposals to adjourn the Annual 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 Company.
The Company’s board of directors 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 and Chief Executive Officer
FS INVESTMENT CORPORATIONKKR CAPITAL CORP.
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
NOTICE OF SPECIALANNUAL MEETING OF STOCKHOLDERS
To Be Held On [●], 2018June 14, 2019
To the Stockholders of FS Investment Corporation:KKR Capital Corp.:
NOTICE IS HEREBY GIVEN THAT the Special2019 Annual Meeting of Stockholders of FS Investment Corporation,KKR Capital Corp., a Maryland corporation (the “Company”), will be held at 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, on [●], 2018June 14, 2019 at [●] [a.m.][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 |
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 [●], 2018April 22, 2019 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) 358-7276 and select Option 1.(877) 628-8575.
By Order of the Board of Directors,
Stephen S. Sypherd
Vice President, TreasurerGeneral Counsel and Secretary
[●] 2018, 2019
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.
201 Rouse Boulevard
Philadelphia, Pennsylvania 19112
SPECIALANNUAL MEETING OF STOCKHOLDERS
To Be Held On [●], 2018June 14, 2019
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 (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., a Maryland corporation (the “Company”), for use at the Special2019 Annual Meeting of Stockholders of the Company to be held at [●] [a.m.] [p.m.]1:00 p.m., Eastern Time, on [●], 2018,June 14, 2019, 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 [●], 20182019 to stockholders of record described below and are available atwww.proxyvote.com.
What itemsAll properly executed proxies representing shares of common stock, par value $0.001 per share, of the Company (the “Shares”) received prior to the Annual Meeting will be considered and voted onin accordance with the instructions marked thereon. If no specification is made, the Shares will be voted FOR:
(i) the election of the following individuals as Class C Directors, each of whom has been nominated for election for a three year term expiring at the Special Meeting?2022 annual meeting of the stockholders: (a) Barbara Adams, (b) Frederick Arnold, (c) Michael C. Forman and (d) Jerel A. Hopkins (the “Director Election Proposal”);
At(ii) the Special Meeting, you will be asked to:
Why am I being asked 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 FB Income Advisor pursuant to the (i) Amended and Restated Investment Advisory Agreement, dated July 17, 2014, by and between the Company and FB Income Advisor (the “Current Investment Advisory Agreement”) and (ii) Administration Agreement, dated April 16, 2014, by and between the Company and FB Income Advisor (the “Administration Agreement”). GSO / Blackstone Debt Funds Management LLC (“GDFM”) acts as the Company’s investmentsub-adviser pursuant to the InvestmentSub-Advisory Agreement, dated April 3, 2008, by and between GDFM and FB Income 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 in April 2018 (the date of such
termination, the “GDFM End Date”). 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. The Board, including a majorityapplication 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”), of any such party has approved the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement, and has deemed entry into such agreements to be in the best interests of the Company and its stockholders. The Board is seeking the approval by the stockholders of the Company of the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal.
In connection with the resignation of GDFM as the investment sub-adviser to the Company, FB Income Advisor, GDFM and certainwhich would permit the Company to increase the maximum amount of their affiliates have entered into a Transition Agreement, dated December 10, 2017 (the “Transition Agreement”), which providesleverage that GDFM will continueit is permitted to act asincur by reducing the investment sub-adviserasset coverage requirement applicable to the Company throughfrom 200% to 150% (the “Leverage Proposal”); and
(iii) the GDFM End Date and will cooperate with FB Income Advisor in implementing the transition of investment advisory services from GDFM. GDFM has also agreedproposal to restrictions on its ability to acquire the Company’s Shares (as defined below) and take certain other actions in respect of the Company. In addition, GDFM has agreed (i) to vote the Shares ofallow the Company beneficially owned by GDFM, or over which GDFM has voting control, in favor of the Investment Co-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal and (ii) notfuture offerings to transfer thesell its Shares of the Company beneficially owned by GDFM until afterbelow net asset value per Share in order to provide flexibility for future sales (the “Share Issuance Proposal”).
Upon the approval of the Investment Co-Advisory AgreementsLeverage Proposal andby the Joint Advisor Investment Advisory Agreement Proposal.
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 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 herein). The “Joint Advisor Effective Date” means such date that (i) the stockholders of the Company and certain other business development companies (“BDCs”) sponsored by FS Investments, specifically, FS Investment Corporation II (“FSIC II”), FS Investment Corporation III (“FSIC III”) and FS Investment Corporation IV (“FSIC IV”), the stockholders of a BDC currently advised by FS/KKR Credit, specifically, Corporate Capital Trust, Inc. (“CCT”), and the board of trustees and stockholders of a BDC currently sub-advised by KKR Credit, specifically, Corporate Capital Trust II (“CCT II”), approve their respective investment advisory agreements with the Joint Advisor, and (ii) Exemptive Relief (as defined herein) has been obtained.
If the stockholders of the Company approve the InvestmentCo-Advisory Agreements Proposal, FB Income Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the later of the date of such approval and the Closing Date (as defined herein) until the Joint Advisor Effective Date. The “Closing Date” means the first day of the month immediately following the month in which the last of the following occurs: (i) the stockholders of FSIC II approve (A) an investment advisory and administrative services agreement with the Joint Advisor (the “FSIC II Joint Advisor Investment Advisory Agreement”) and (B) investment advisory and administrative services agreements with each of FSIC II Advisor, LLC, the currentCompany’s investment adviser to FSIC II (“FSIC II Advisor”(the “Advisor”), and KKR Credit (collectively,intend to reduce the “FSIC II InvestmentCo-Advisory Agreements”) and (ii) either (X)annual base management fee payable under the stockholders of FSIC III approve (1) an investment advisory and administrative services agreement with the Joint Advisor (the “FSIC III Joint Advisor Investment Advisory Agreement”) and (2) investment advisory and administrative services agreements with each of FSIC III Advisor, LLC, the current investment adviser to FSIC III (“FSIC III Advisor”), and KKR Credit (collectively, the “FSIC III InvestmentCo-Advisory Agreements”) or (Y) the stockholders of the Company approve both the InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal.
2
If the Joint Advisor Effective Date occurs on the same day as 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 FB Income Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the later of the date approval of such agreements is obtained and 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, in order for FB Income 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 must be satisfied or (to the extent permitted) waived, and 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 must be satisfied or (to the extent permitted) waived.
FB Income Advisor, together with FSIC II Advisor, FSIC III 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. In addition, the FS Advisor Entities and KKR Credit anticipate that in the event the Closing Date occurs prior to the approval of the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal, then the Company may enter into an interim investment advisory agreement, pursuant to Rule15a-4dated as of December 20, 2018 (the “Investment Advisory Agreement”), by and between the 1940 Act with KKR Credit.
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 ProposalCompany and the Joint Advisor, Investment Advisory Agreement Proposal are not contingentfrom 1.5% to 1.0% on one another. However, ifall assets financed using leverage over 1.0xdebt-to-equity (i.e., 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. GDFM intends to resign as the Company’s investmentsub-adviser regardless of whether the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal is approved.
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 October 1, 2017 and through September 30, 2018, FB Income Advisor contractually agreed to permanently waive 0.25%calculated at an annual rate of 1.0% of the base management fee so that the fee received equals 1.75% of the average weekly value of the Company’s gross assets.assets (excluding cash and cash equivalents) that exceeds the product of (A) 200% and (B) the average weekly value of the Company’s net asset value). If the Leverage Proposal is not approved by stockholders, the Company will continue to operate within the 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 Board approves application of the modified asset coverage requirements to the Company, which it has not done as of the date of this proxy statement.
Any stockholder who has given a proxy has the right 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 Annual Meeting and voting his or her Shares in person, or by submitting a letter of revocation or a later-dated proxy to the Company at the above address prior to the date of the Annual Meeting.
31
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%. See “Proposal 1—Terms of the FB Income Advisor InvestmentCo-Advisory Agreement—Fees and Expenses,” “Proposal 1—Terms of the KKR InvestmentCo-Advisory Agreement—Fees and Expenses” and “Proposal 2—Terms of the Joint Advisor Investment Advisory Agreement—Fees and Expenses.” 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 than under the Current Investment Advisory Agreement.Quorum
Will the composition of the Board change following entry into the InvestmentCo-Advisory Agreements and/or the Joint Advisor Investment Advisory Agreement?
On the date that is the later of the Closing Date and the date on which the stockholdersStockholders of the Company approve either or bothare entitled to one vote for each Share held. Under the InvestmentCo-Advisory Agreements ProposalSecond Articles of Amendment and the Joint Advisor Investment Advisory Agreement Proposal (such applicable date, the “Board Appointment Date”), then, subject to nomination by and approvalRestatement of the Board, FB Income Advisor (acting collectively withCompany,one-third of the other FS Advisor Entities) and KKR Credit have agreed that they will each benumber of Shares entitled to recommendcast votes, present in person or by proxy, constitutes a quorum for the appointmenttransaction of one “interested” director tobusiness. Abstentions will be treated as Shares that are present for purposes of determining the Board, topresence of a quorum for transacting business at the extent that the applicable party does not have an appointee on the Board at such time. Annual Meeting.
Adjournments
In the event that either FB Income Advisor (acting collectively witha quorum is not present at the other FS Advisor Entities) or KKR Credit hasAnnual Meeting, the chairman of the Annual Meeting shall have the power to adjourn the 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 appointee serving as an “interested” director toor more proposals have been received by the Board, such party will use its reasonable best efforts to causetime of the resignation of such excess number of its appointed “interested” directors as promptly as practicable, but no later than twelve months followingAnnual Meeting, the Board Appointment Date. In addition, FB Income Advisor has agreed that KKR Creditproposals will be entitledacted upon and such actions will be final, regardless of any subsequent adjournment to recommend, subject to approval by the Board, the appointment of one “independent” director to the Board on the Board Appointment Date.consider other proposals.
Will the officers change on the GDFM EndRecord Date or following entry into the InvestmentCo-Advisory Agreements and/or the Joint Advisor Investment Advisory Agreement?
Brad Marshall, the Company’s senior portfolio manager, intends to resign from his position on the GDFM End Date. The officers of the Company are not expected to change following entry into the InvestmentCo-Advisory Agreements and/or the Joint Advisor Investment Advisory Agreement.
What is the “Record Date” and what does it mean?
The record date for the Special Meeting isBoard has fixed the close of business on [●], 2018April 22, 2019 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 [●] Shares outstanding.
How manyRequired Vote
The affirmative vote of a majority of the votes do I have?cast at the Annual Meeting in person or by proxy, provided that a quorum is present, is required to approve each of the Director Election Proposal and 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 result of the vote with respect to the Director Election Proposal and the Leverage Proposal.
EachThe 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 Annual Meeting and (2) a majority of outstanding Shares entitled to vote at the Annual Meeting that are not held by a holder of record asaffiliated persons of the Record Date has oneCompany. 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 present 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.
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 Shares on certain proposals (which are considered“broker non-votes” with respect to such proposals) will be treated as Shares present for quorum
2
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 each matterthe matter.Broker non-votes are not considered atvotes cast and thus have no effect on the Special MeetingDirector Election Proposal or any postponementthe 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 documents (annual reports, proxy statements, etc.) or adjournment thereof.other communications for all stockholders who have consented or are deemed to have consented to receiving such communications in such manner in accordance with the rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”). If you do not want to continue to receive combined mailings of Company communications and would prefer to receive separate mailings of Company communications, and you are a registered stockholder, please contact the Company’s transfer agent, DST Systems, Inc. by phone at(877) 628-8575 or by mail to FS KKR Capital Corp., 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 do I vote?Voting
You may vote in person at the SpecialAnnual Meeting 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
4
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:
|
indicate your instructions on the proxy card;
|
date and sign the proxy card;
|
|
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 signedpromptly in the envelope provided, which requires no postage if mailed in the United States; and returned without any instructions marked,
allow sufficient time for the Shares willproxy card to be voted “FOR”received on or before 1:00 p.m., Eastern Time, on June 14, 2019.
The Company’s proxy statement and 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 proxiescard are votedavailable at the Special Meeting. www.proxyvote.com. If you have executed a proxy, you may revoke it with respect to any proposal byplan on attending the SpecialAnnual Meeting and voting your Shares in person, or by submitting a letter of revocation or a later-dated proxyyou will need to bring photo identification in order to be admitted to the Company at the following address prior to the date of the Special Meeting: FS Investment Corporation, 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112, Attention: Stephen S. Sypherd, Secretary.
Annual Meeting. If myyour 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 Second Articles of Amendment and Restatement and Second 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
5
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.Other Information Regarding This Solicitation
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 will be announced at the Special Meeting. Final voting results will be published in a current report on Form8-K within four business days after the date of the Special Meeting.
Will you incur expenses in soliciting proxies?
FB Income Advisor and KKR Credit 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 Stockholders and the proxy card. FB Income Advisor has retained Broadridge Investor Communication Solutions, Inc. to assist in the solicitation of proxies for an estimated fee of approximately $300,000, 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. FB Income Advisor and KKR CreditThe Company will reimburse such persons for their reasonable expenses in so doing.
3
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.
6
. The Company has also retained Broadridge Investor Communication Solutions, Inc. to assist in the solicitation of proxies for an estimated fee of approximately $340,000, 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 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., Attn: Investor Relations, 201 Rouse Boulevard, Philadelphia, PA 19112.
4
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.
7
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 April 2, 2019. 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 April 2, 2019 | ||||||||
Name and Address of Beneficial Owner | Number of Shares | Percentage (%)(1) | ||||||
Interested Directors | ||||||||
Michael C. Forman(2) | 1,563,203.41 | * | ||||||
Todd Builione | 35,328.00 | * | ||||||
Independent Directors | ||||||||
Barbara Adams | — | — | ||||||
Frederick Arnold | 29,440.00 | * | ||||||
Brian R. Ford | — | — | ||||||
Richard Goldstein(3) | 23,800.00 | * | ||||||
Michael J. Hagan | 70,000.00 | * | ||||||
Jeffrey K. Harrow | 27,539.00 | * | ||||||
Jerel A. Hopkins | — | — | ||||||
James H. Kropp | 14,964.00 | * | ||||||
Executive Officers | ||||||||
William Goebel | 5,000.00 | * | ||||||
Daniel Pietrzak | 85,328.00 | — | ||||||
Stephen S. Sypherd | 178.00 | * | ||||||
James F. Volk | 944.00 | * | ||||||
All directors and executive officers as a group (14 persons) | 1,855,724.41 | * |
the Company’s business prospects and the prospects of the companies in which the Company may invest;
* | Less than one percent. |
(1) | Based on a total of 524,082,690.825 Shares issued and outstanding on April 2, 2019. |
(2) | 400,902.00 Shares held by The 2011 Forman Investment Trust; 197,998.00 Shares held by MCFDA SCV LLC, a wholly-owned special purpose financing vehicle of which The 2011 Forman Investment Trust is a member and Michael C. Forman is the manager; 924,609.00 Shares held by FSH Seed Capital Vehicle I LLC, a wholly-owned special purpose financing subsidiary of Franklin Square Holdings, L.P. (“FS Investments”); 14,454.27 Shares held by spouse in trust; 3,633.44 Shares held for the benefit of minor children in trust; 12,823.52 shares held in a 401(k) account; and 8,783.19 shares held in an IRA. |
(3) | All shares held in an IRA. |
5
The following table sets forth, as of April 2, 2019, the impact of the investments that the Company expects to make;
the abilitydollar range of the Company’s portfolio companiesequity securities that are beneficially owned by each member of the Board, based on the closing price of shares of the Shares as reported on the New York Stock Exchange (the “NYSE”) on April 2, 2019.
Name of Director | Dollar Range of Equity Securities Beneficially Owned(1)(2)(3) | |
Interested Directors: | ||
Michael C. Forman | Over $100,000 | |
Todd Builione | Over $100,000 | |
Independent Directors: | ||
Barbara Adams | None | |
Frederick Arnold | Over $100,000 | |
Brian R. Ford | None | |
Richard Goldstein | Over $100,000 | |
Michael J. Hagan | Over $100,000 | |
Jeffrey K. Harrow | Over $100,000 | |
Jerel A. Hopkins | None | |
James H. Kropp | $50,000-$100,000 |
(1) | Beneficial ownership has been determined in accordance withRule 16a-1(a)(2) promulgated under the Exchange Act. |
(2) | The dollar range of equity securities beneficially owned by the Company’s directors is calculated by multiplying the closing price of the Shares as reported on the NYSE on April 2, 2019, times the number of Shares beneficially owned. |
(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. |
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to achieve their objectives;
Section 16(a) of the Exchange Act, the Company’s currentdirectors and expected financing arrangementsexecutive officers, and investments;
any persons holding more than 10% of its Shares, are required to report their beneficial ownership and any changes intherein to the general interest rate environment;
SEC and the adequacy of the Company’s cash resources, financing sourcesCompany. Specific due dates for those reports have been established, and working capital;
the timing and amount of cash flows, distributions and dividends, if any, from the Company’s portfolio companies;
the Company’s contractual arrangements and relationships with third parties;
actual and potential conflicts of interest with 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 II, 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 dependence of the Company’s future success on the general economy and its effect on the industries in which the Company may invest;
the Company’s use of financial leverage;
the Company’s abilityis required to maintain its qualification as a regulated investment company and as a BDC;
the impactreport herein any failure to file such reports by those due dates. Based on the Company’s businessreview of Forms 3, 4 and 5 filed by such persons and information provided by the Dodd-Frank Wall Street ReformCompany’s directors and Consumer Protection Act, as amended, and the rules and regulations issued thereunder;
the ability of FB Income Advisor, KKR Credit and the Joint Advisor to locate suitable investments forofficers, the Company and to monitor and administer the Company’s investments;
the ability of FB Income 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 forbelieves that during the fiscal year ended December 31, 2016. Other factors that could cause actual results2018, all Section 16(a) filing requirements applicable to differ materially include:
86
changes in the economy;PROPOSAL 1: ELECTION OF DIRECTOR NOMINEES
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 shareholder approval for the proposals set forth in this proxy statement; and
failure to consummate the transactions contemplated by the Master Transaction Agreement (as defined below).
The Company has based the forward-looking statements included in this proxy statement on information availablePursuant to the Company asbylaws of the dateCompany, the number of this proxy statement. Exceptdirectors on the Board may not be fewer than one, as required by the federal securities laws,Maryland General Corporation Law, or greater than twelve. The Board is currently comprised of eleven 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 2020 annual meeting. The current Class B directors hold office for a term expiring at the 2021 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 Barbara Adams, Frederick Arnold, Michael C. Forman and Jerel Hopkins as Class C directors. Each of Ms. Adams and Messrs. Arnold, Forman and Hopkins have been nominated forre-election for a three-year term expiring at the 2022 annual meeting of the stockholders. Each director nominee has agreed to serve as a result of new information, future events or otherwise. Shareholders are advised to consult any additional disclosures that the Company may make directly to shareholders 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 on Form8-K.
9
PROPOSAL 1: APPROVAL OF INVESTMENTCO-ADVISORY AGREEMENTS PROPOSAL
Background
The Company currently receives investment advisory and administrative services from FB Income Advisorhas consented to being named as a nominee. No person being nominated as a director is being proposed for election pursuant to the Current Investment Advisory Agreementany agreement or understanding between such person and the Administration 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. The Company desires to enter into a new investment advisory relationship with KKR Credit. Accordingly, the FS Advisor Entities and KKR Credit and certain other parties have entered into a master transaction agreement (the “Master Transaction Agreement”) setting out the termsquarterly valuation of the relationship between FB Income AdvisorCompany’s assets, oversight of the Company’s financing arrangements and KKR Credit whereby FB Income Advisor and KKR Credit would provide certain advisory services to the Company pursuant to the InvestmentCo-Advisory Agreements. In addition, the FS Advisor Entities and KKR Credit agreed to form the Joint Advisor for the purpose of advising 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 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.
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, (the “Independent Directors”), of the Company or the Advisor, and are “independent” as required by the NYSE Listed Company Manual. These individuals are referred to as the Company’s independent directors. Section 2(a)(19) of the 1940 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 ten directors, eight of whom are independent directors. The Board has determined that the following directors are independent directors: Messrs. Arnold, Kropp, Ford, Goldstein, Hagan, Harrow, Hopkins and Ms. Adams. 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 composition of the Board as a whole, the Board seeks a diverse group of experiences, characteristics, attributes and skills, including diversity in gender, ethnicity and race that the Board believes enables a director to make a significant contribution to the Board, the Company and its 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 directors or trustees of other entities. The Board may also consider such party unanimously approvedother experiences, characteristics, attributes and skills as it deems appropriate, given the then-current needs of the Board and the Company.
7
These experiences, characteristics, attributes and skills relate directly to the management and operations of the Company. Success in each of these categories is a key factor in the InvestmentCo-Advisory AgreementsCompany’s overall operational success and 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 Company’s management and the Joint AdvisorCompany’s long-term and strategic objectives. Below is a description of the experience, characteristics, attributes and skills of each director that led the Board to conclude 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 other independent directors and interested directors. “Fund Complex” means the Company, FS Investment Advisory Agreement,Corporation II (“FSIC II”), FS Investment Corporation III (“FSIC III”), FS Investment Corporation IV (“FSIC IV”) and has deemed entryCorporate Capital Trust II (“CCT II”).
8
Nominees for Class C Directors—New Term to Expire in 2022 | ||||||||||
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: 67 Director | Class C Director; Term expires in 2019; Director since 2018 | Barbara Adams serves on the board of directors of FSIC II, FSIC III and FSIC IV. Ms. 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. | Four | None |
9
Nominees for Class C Directors—New Term to Expire in 2022 | ||||||||||
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† | ||||||
Frederick Arnold Age: 64 Director | Class C Director; Term expires in 2019; Director since 2018 | Frederick Arnold serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. Arnold served as an independent director of Corporate Capital Trust, Inc. (“CCT”) from 2011 through CCT’s merger with and into the Company in 2018 (the “Merger”) and as an independent trustee for CCT II from June 2015 to May 2016. Mr. Arnold serves as a member of the post-emergence board of directors of Lehman Brothers Holdings Inc., a member of the board of directors of Navient Corporation and a member of the board of directors of Syncora Holdings, Ltd. Mr. Arnold has held a series of senior financial positions, and most recently served as chief financial officer of Convergex Group, LLC from July 2015 until May 2017. Previously, Mr. Arnold served as executive vice president, chief financial officer and a member of the executive committee of Capmark Financial Group, Inc. from September 2009 to January 2011. He also served as executive vice president of finance for Masonite Corporation, a manufacturing company, from February 2006 to September 2007. While at Willis Group from 2000 to 2003, Mr. Arnold served as chief financial and administrative officer of Willis North America, as group chief administrative officer of Willis Group Holdings Ltd. and as executive vice president of strategic development for Willis Group Holdings Ltd. He also served as a member of the Willis Group executive committee while holding the latter two positions. Prior to these roles, Mr. Arnold spent 20 years as an investment banker primarily at Lehman Brothers and Smith Barney, where he served as managing director and head of European corporate finance. During this time, his practice focused on originating and executing mergers and acquisitions and equity financings across a wide variety of industries and geographies. He also provides pro bono transactional advice to the New York City Investment Partnership. Mr. Arnold received a J.D. from Yale University, M.A. from Oxford University and undergraduate degree, summa cum laude, from Amherst College. Mr. Arnold has been selected as director-nominee because of his extensive leadership experience and financial expertise having been an international investment banker and chief financial officer. | Four | Lehman Brothers Holdings Inc.; Navient Corporation; Syncora Holdings Ltd.; CIFC Corp.; CCT; CCT II |
10
Nominees for Class C Directors—New Term to Expire in 2022 | ||||||||||
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 C. Forman Age: 58 Chairman of the Board and Chief Executive Officer | Class C Director; Term expires in 2019; Director since 2011 | Michael C. Forman is chairman and chief executive officer of FS Investments and has been leading the company since founding it in 2007. He has served as the chairman and chief executive officer of the Advisor since its inception. Mr. Forman also currently serves as chairman, president and/or chief executive officer of certain of the other business development companies (“BDCs”) in the Fund Complex and the other funds sponsored by FS Investments. 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 and Securities Department at the Philadelphia based law firm of Klehr Harrison Harvey Branzburg LLP (“Klehr Harrison”). In addition to his career as an attorney and investor, Mr. Forman has been an active entrepreneur and has founded several companies, including companies engaged in the gaming, specialty finance and asset management industries. Mr. Forman is a member of a number of civic and charitable boards, including The Franklin Institute, Drexel University and the Philadelphia Center City District Foundation. He is also Chairman of Vetri Community Partnership. Mr. Forman received his B.A., summa cum laude, from the University of Rhode Island, where he was elected Phi Beta Kappa, and received his J.D. from Rutgers University. Mr. Forman has extensive experience in corporate and securities law and has founded and served in a leadership role of various companies, including the Advisor. The Board believes Mr. Forman’s experience and his positions as the Company’s and the Advisor’s chief executive officer make him a significant asset to the Company. | Four | 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 |
11
Nominees for Class C Directors—New Term to Expire in 2022 | ||||||||||
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 C Director; Term expires in 2019; Director since 2018 | Jerel A. Hopkins serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. 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. | Four | None |
12
INDEPENDENT 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† | ||||||
Brian R. Ford Age: 70 Director | Class B Director; Term expires in 2021; Director since 2018 | Brian R. Ford serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. 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. | Four | Clearway Energy, Inc.; AmeriGas Propane, Inc.; FS Energy Total Return Fund; FS Credit Income Fund; FS Multi-Alternative Income Fund | ||||||
Richard Goldstein Age: 58 Director | Class B Director; Term expires in 2021; Director since 2018 | Richard I. Goldstein serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. Goldstein is also 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. | Four | FS Energy and Power Fund |
13
INDEPENDENT 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† | ||||||
Michael J. Hagan Age: 56 Director and Lead Independent Director | Class A Director; Term expires in 2020; Director since 2011 | Michael J. Hagan serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. 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., or 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., or 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. | Four | Actua, Inc.; Nutrisystem, Inc. |
14
INDEPENDENT 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† | ||||||
Jeffrey K. Harrow Age: 62 Director | Class A Director; Term expires in 2020; Director since 2010 | Jeffrey K. Harrow serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. 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. | Four | None |
15
INDEPENDENT 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† | ||||||
James H. Kropp Age: 70 Director | Class A Director; Term expires in 2020; Director since 2018 | James H. Kropp serves on the board of directors of FSIC II, FSIC III and FSIC IV. Mr. Kropp served as an independent director of CCT from 2011 until the Merger and as an independent trustee for CCT II since 2015. 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. Mr. Kropp has been selected as director-nominee because of his prior experience on several investment fund committees. 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 expertise, is valuable to the Company. | Five | PS Business Parks, Inc.; American Homes 4 Rent |
16
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 Age: 44 President | Class B Director; Term expires in 2021; Director since 2018 | Todd C. Builione serves as the Company’s and the Advisor’s president, the president of the other BDC’s in the Fund Complex and is a member of the board of directors or board of trustees, as applicable, of the other BDCs in the Fund Complex. Mr. Builione joined KKR in 2013 and is a member of KKR and president of KKR Credit and Markets. Mr. Builione also serves on KKR’s Investment Management and Distribution Committee and its Risk and Operations Committee. Prior to joining KKR, 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 in 2015. Mr. Builione also serves on the Advisory Council of Cornell University’s Dyson School of Applied Economics and Management. 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 positions as the Company’s and the Advisor’s president make him a significant asset to the Company. | Five | 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 companies in the Fund Complex. |
(1) | The address for each director is c/o FS KKR Capital Corp., 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112. |
(2) | Directors serve until the expiration of their respective term and until his or her successor is duly elected and qualified. |
(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. |
Risk Oversight and Board Structure
Board’s Role in Risk Oversight
Through its direct oversight role, and indirectly through its committees, the Board 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 an ad hoc basis as needed, receiving and reviewing reports related to the performance and operations
17
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, administrator, 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 agreementsother insurance policies as may be appropriate; (7) overseeing the Company’s accounting and financial reporting processes, including supervision of the Company’s independent registered public accounting firm to be inensure that they provide timely analyses of significant financial reporting and internal control issues; and (8) overseeing the best interestsservices of the Company’s chief compliance officer to test 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 stockholders, as described in the sections entitled “Board Consideration” and “Factors Consideredservice providers. The Company’s chief compliance officer’s report, which is reviewed by the Board” in this Proposal 1Board, addresses at a minimum: (1) the operation and “Proposal 2: Approval of Joint Advisor Investment Advisory Agreement Proposal.”
Concurrently with seeking stockholder approval of the InvestmentCo-Advisory Agreements and the Joint Advisor Investment Advisory Agreement, KKR Credit is seeking exemptive relief from the U.S. Securities and Exchange Commission (“SEC”) 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 (“Exemptive Relief”). There can be no assurance of the timing of the approval of the application or whether the requested Exemptive Relief will be granted.
If the stockholderscompliance policies and procedures of the Company approveand certain of its service providers since the Joint Advisor Investment Advisory Agreement Proposal, thenlast report; (2) any material changes to such policies and procedures since the Joint Advisorlast report; (3) any recommendations for changes to such policies and procedures as a result of the Company’s chief compliance officer’s annual review; and (4) any material compliance matters that have occurred since the date of the last report about which the Board would serve as investment adviserreasonably 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 the Company at least once each year. In addition to compliance reports from the Company’s chief compliance officer, the Board also receives reports and updates from legal counsel to the Company pursuant to the Joint Advisor Investment Advisory Agreement fromregarding legal, regulatory and after the Joint Advisor Effective Date.governance matters.
If the stockholdersBoard Composition and Leadership Structure
Mr. Forman, who is an “interested person” of the Company approve the InvestmentCo-Advisory Agreements Proposal, FB Income Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the later of the date of such approval and the Closing Date until the Joint Advisor Effective Date.
If the Joint Advisor Effective Date occurs on the same day as 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 FB Income Advisor and KKR Credit would serve as investmentco-advisers to the Company pursuant to the InvestmentCo-Advisory Agreements from the later of the date approval of such agreements is obtained and 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.
10
Accordingly,defined in order for FB Income 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 must be satisfied or (to the extent permitted) waived, and 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 must be satisfied or (to the extent permitted) waived. In addition, the FS Advisor Entities and KKR Credit anticipate that in the event the Closing Date occurs prior to the approval of the InvestmentCo-Advisory Agreements Proposal or the Joint Advisor Investment Advisory Agreement Proposal, then the Company may enter into an interim investment advisory agreement pursuant to Rule15a-4Section 2(a)(19) of the 1940 Act, with KKR Credit.
Ifserves as both the InvestmentCo-Advisory Agreements are in effect and the conditions to entry into the Joint Advisor Investment Advisory Agreement are met thereafter or, if applicable, waived, the InvestmentCo-Advisory Agreements will terminate and the Joint Advisor Investment Advisory Agreement will become effective.
The FS Advisor Entities and KKR Credit have entered into a sourcing and administrative services agreement, pursuant to which, among other things, KKR Credit will provide certain administrative services to the FS Advisor Entities, and KKR Credit’s broker-dealer affiliate provides certain sourcing and other services to the FS Advisor Entities. The sourcing and administrative services agreement shall terminate with respect to FB Income Advisor on the effective date of the InvestmentCo-Advisory Agreements or the Joint Advisor Investment Advisory Agreement.
The InvestmentCo-Advisory Agreements Proposal and the Joint Advisor Investment Advisory Agreement Proposal are not contingent on one another. However, if the stockholderschief executive officer 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 thatchairman of the Company’s stockholders.
About FB Income Advisor
FB Income 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”). FB Income Advisor is a subsidiary of the Company’s affiliate, FS Investments, a leading asset manager dedicated to helping individuals, financial professionals and institutions design better portfolios. FB Income 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.Board. The Board believes that Mr. Forman, the Company’s chairman and chief executive officer, serves as the chairmanco-founder and chief executive officer of FB Income Advisor. The Company’s executive vice president, Zachary Klehr, and vice president, treasurer and secretary, Stephen S. Sypherd, are both officers of FB Income Advisor.
FB Income 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 extensivethe Company, is the director with the most knowledge of the managerial, operationalCompany’s business strategy and regulatory requirementsis best situated to serve as chairman of publicly registered alternative asset entities, suchthe Board. The Company’s charter, as BDCs.well as regulations governing 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. On August 7, 2013, the Board appointed Mr. Hagan 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 the Company is subject as a BDC and as a company listed on the NYSE.
18
Board Meetings and Attendance
On December 19, 2018, in connection with the consummation of the Merger (i) the resignations of Gregory P. Chandler, Barry H. Frank, Philip E. Hughes, Jr. and Pedro Ramos from the Board became automatically effective, (ii) the size of the Board was automatically expanded from nine directors to eleven directors and (iii) each of Barbara Adams, Frederick Arnold, Brian R. Ford, Richard Goldstein, Jerel A. Hopkins and James H. Kropp were qualified for office as directors.
The Board met 25 times during the fiscal year ended December 31, 2018, including four regular quarterly meetings. Each director then in office attended at least 75% of all meetings of the Board held during 2018. The Company believesdoes not have a formal policy regarding director attendance at an annual meeting of stockholders. None of the directors then in office attended the 2018 annual meeting of stockholders.
Committees of the Board of Directors
The committees of the Board were also reconstituted in connection with the Merger and the reconstitution of the Board in connection therewith. As of the date of this proxy statement, the members of such committees are as set forth below.
Audit Committee
The Board has established an audit committee (the “Audit Committee”) that operates pursuant to a charter and consists of three members, including a chairman of the Audit Committee. Prior to the consummation of the Merger, the Audit Committee members were Messrs. Chandler (chairman), Frank and Hughes, Jr., all of whom were independent. The current Audit Committee members are Messrs. Ford (chairman), Kropp and Goldstein, 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 charter can be accessed on the Investor Relations portion of the Company’s website at www.fskkrcapitalcorp.com. The Audit Committee held five meetings during the fiscal year ended December 31, 2018. Each member of the Audit Committee attended all of the meetings held during 2018.
Valuation Committee
The valuation committee establishes guidelines and makes recommendations to the Board regarding the valuation of the Company’s investments. Prior to the consummation of the Merger, the members of the valuation committee were Messrs. Chandler, Frank, Ramos, Ujobai (chairman) and Hughes, all of whom were independent. The current members of the valuation committee are Ms. Adams and Messrs. Goldstein, Hopkins and Kropp, all of whom are independent. The valuation committee held six meetings during the fiscal year ended December 31, 2018. Each member of the Valuation Committee attended all of the meetings held during 2018.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee selects and nominates directors for election by stockholders, selects nominees to fill vacancies on the Board or a committee thereof, develops and recommends to the Board a set of corporate governance principles and oversees the evaluation of the Board. Prior to the consummation of the Merger, the members of the nominating and corporate governance committee were Messrs.
19
Harrow, Hagan and Ramos, all of whom were independent. The current members of the nominating and corporate governance committee are Messrs. Harrow (chairman), Hagan and Hopkins, each of whom are independent. The nominating and corporate governance committee held four meetings during the fiscal year ended December 31, 2018. Each member of the nominating and corporate governance committee attended at least 75% of the meetings held during 2018.
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 companies 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 activenominating and ongoing participation by FS Investments and its affiliatescorporate governance committee considers appropriate in the credit markets, and the depthcontext of experience and disciplined investment approach of FB Income Advisor’s management team, will allow FB Income Advisor to successfully execute the Company’s investment strategies.
11
About 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. (“KKR & Co.”). 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 & 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 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, rules promulgated by the SEC and the NYSE Listed Company Manual. 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 existing fund investorsmembers 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 developing relationshipsaccordance 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, innovationrequirements set forth in the productsbylaws of the Company. Nominees for director who are recommended by stockholders will be evaluated in the same manner as any other nominee for director. The nominating and corporate governance committee charter is available on the Investor Relations portion of the Company’s website at www.fskkrcapitalcorp.com.
Compensation Committee
The Board has established a compensation committee that it offers investors in its funds,operates pursuant to a charter and consists of three members, including a chairman of the compensation committee. Prior to the consummation of the Merger, the compensation committee members were Messrs. Chandler (chairman), Frank and Hughes, all of whom were independent. The current compensation committee members are Messrs. Ford (chairman), Kropp and Goldstein, all of whom are independent. The compensation committee is responsible for determining, or recommending to the Board for determination, the compensation, if any, of the Company’s chief executive officer and all other executive officers of the Company. Currently none of the Company’s executive officers are compensated by the Company and, as a result, the compensation committee does not produce and/or review reports on executive compensation practices. The compensation committee is also responsible for reviewing on an increased focus on providing tailored solutionsannual basis the Company’s reimbursement to its clientsthe Advisor of the allocable portion of the cost of the Company’s executive officers and their respective staffs made pursuant to that certain Administration Agreement, dated April 9, 2018, between the Company and the integrationAdvisor (the “Administration Agreement”). The Compensation Committee has the authority to engage compensation consultants following consideration of capital markets distribution activities.
KKR & Co. has also used its balance sheet as a significant source of capitalcertain factors related 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 aresuch consultants’ independence. The compensation committee held one meeting during the management fee rate and gross assets of two other registered investment companies advised by KKR Credit,fiscal year ended December 31, 2018, which each of which has a similar investment objective to thatmember attended. The compensation committee charter is available on the Investor Relations portion of the Company’s website atwww.fskkrcapitalcorp.com.
Communications Between Interested Parties and the Board
The Board welcomes communications from interested parties. Interested parties may send communications to the Board or to any particular director to the following address: c/o FS KKR Capital Corp., 201 Rouse Boulevard, Philadelphia, Pennsylvania 19112. Interested parties should indicate clearly the director or directors to whom the communication is being sent so that each communication may be forwarded directly to the appropriate director(s).
20
Information about Executive Officers Who Are Not Directors
The following table sets forth certain information regarding the executive officers of the Company who are not directors of the Company. Each executive officer holds his office until his successor is chosen and qualified, or until his earlier resignation or removal.
Name, Address and
|
| |||||
Time Served | ||||||
Age: 44 |
12
Management of the InvestmentCo-Advisors
The management of the Company’s investment portfolio will be the responsibility of a joint investment committee which will be comprised of three appointees of FS Investments or one of its affiliates (initially Sean Coleman, Brian Gerson 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 personnel from FB Income Advisor and KKR Credit will provide services to the Company. Below is biographical information relating to certain key personnel involved in rendering such services:
Sean Coleman serves as a managing director of the Company and as managing director of investment management of FS Investments and its affiliated investment advisers. Mr. Coleman also serves on the investment committee of the investment advisers to the funds in the Fund Complex. Mr. Coleman is primarily responsible for reviewing 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.
Brian Gerson joined FS Investments in November 2017 as its Head of Private Credit and has more than 20 years of experience in credit investing and corporate lending, with specific expertise in lending through BDCs. Prior to joining FS Investments, he most recently served as Group Head and Managing Director at LStar Capital, the credit affiliate of Lone Star Funds, from April 2015 to November 2017. At LStar, Mr. Gerson developed and maintained deep relationships with the financial sponsor community and middle market intermediaries while significantly expanding LStar’s corporate credit business. Prior to joining LStar, Mr. Gerson was a founding member of Solar Capital Partners, which serves as investment adviser to two yield-oriented BDCs. At Solar Capital, he spent seven years from January 2007 to September 2014 in various credit, origination, management, and business development roles, most recently serving as Executive Vice President of Solar Capital Limited. Prior to joining Solar Capital, Mr. Gerson spent 12 years in various positions, including Managing Director at CIBC World Markets in its Leveraged Finance and Financial Sponsors Group. Mr. Gerson graduated summa cum laude and Phi Beta Kappa from Tufts University where he earned a Bachelor of Arts in Mathematics.
Michael Kelly currently serves as president of FS Investments and has presided in such role since July 2017. Mr. Kelly also serves as chief investment officer of FS Investments and executive vice president of its affiliated investments advisers, and has presided in such roles since January 2015. Among other things, Mr. Kelly oversees the investment management function at FS Investments and its affiliated investment advisers. Before joining FS Investments and its affiliated investment advisers, Mr. Kelly was the chief executive officer of ORIX USA Asset Management (“ORIX”), where he led the company’s acquisition of Robeco, a $250 billion global asset management company and the largest acquisition in ORIX’s50-year history. Mr. Kelly started his career on Wall Street at Salomon Brothers and went on to join hedge fund pioneers Omega Advisors and Tiger Management. Mr. Kelly then helped build and lead the hedge fund firm, FrontPoint Partners, where he first served as chief investment officer and eventuallyco-chief executive officer. Mr. Kelly is a graduate of Cornell University and earned his M.B.A. at Stanford University. Mr. Kelly is aco-founder and board member of the Spotlight Foundation, and serves as a trustee of the Tiger Foundation and the Stanford Business School Trust.
Todd C. Builioneis a member of the Board of Directors of CCT and CCT’s Chief Executive Officer, and also a trustee of CCT II. Mr. Builione joined KKR & Co. in 2013 and is a Member of KKR & Co. and President of KKR Credit & Capital Markets. Mr. Builione also serves on the KKR Global Risk Committee. Prior to joining KKR & Co., Mr. Builione served as President of Highbridge Capital Management, CEO of Highbridge’s Hedge Fund business and a member of the Investment and Risk Committees. Mr. Builione began his career at the
13
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 & Co. in 2015. Mr. Builione also serves on the Board of Directors of Harlem RBI (a community-based youth development organization located in East Harlem, New York), 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.
Daniel Pietrzak Age: 44 Stephen S. Sypherd Age: 42 21Chief Investment Officer Since 2018 Daniel Pietrzakhas served as the Company’s chief investment officer since April 2018. Mr. Pietrzak also currently serves as CCT’s Chief Investment Officer.the chief investment officer of the other BDCs in the Fund Complex. Mr. PietrakPietrzak joined KKR Credit in 2016 and is a Member of KKR & Co. and theCo-Head of Private Credit. Mr. Pietrzak is a portfolio manager for KKR Credit’s private credit funds and portfolios and a member of the Global Private Credit Investment Committee, Europe Direct Lending Investment Committee and KKR Credit Portfolio Management Committee. Prior to joining KKR, Credit, Mr. Pietrzak was a Managing Director and theCo-Head of Deutsche Bank’s Structured Finance business across the Americas and Europe. Previously, Mr. Pietrzak was based in New York and held various roles in the structured finance and credit businesses of Société Générale and CIBC World Markets. Mr. Pietrzak started his career at Price WaterhousePricewaterhouseCoopers in New York and is a Certified Public Accountant. Mr. Pietrzak holds an M.B.A. in Finance from The Wharton School of the University of Pennsylvania and a B.S. in Accounting from Lehigh University.Secretary, General Counsel Since 2013 Ryan L.G. WilsonStephen S. Sypherd has served as the Company’s secretary since January 2013 and as the Company’s general counsel since April 2018. He previously served as the Company’s vice president and treasurer. Mr. Sypherd also currently serves as CCT’s Chief Operating Officerthe general counsel, vice president, treasurer and/or secretary of the other BDCs in the Fund Complex and Associate Portfolio Manager.the other funds sponsored by FS Investments. Mr. Wilson joined KKR CreditSypherd has also served in 2006various senior officer capacities for FS Investments and its affiliated investment advisers, including as senior vice president from December 2011 to August 2014, general counsel since January 2013 and managing director since August 2014. He is a Director.responsible for legal and compliance matters across all entities and investment products of FS Investments. Prior to joining KKR Credit,FS Investments, Mr. Wilson was with PricewaterhouseCoopers, serving a variety of clients across industries.Sypherd served for eight years as an attorney at Skadden, Arps, Slate, Meagher & Flom LLP, where he practiced corporate and securities law. Mr. Wilson holds aSypherd received his B.A. in Economics with honors from Wilfrid LaurierVillanova University and his J.D. from the Georgetown University Law Center, where he was an executive editor of the Georgetown Law Journal. He serves on the board of trustees of the University of the Arts (and on the audit and governance committees of that board).
Name, Address and Age(1) | Position(s) with Company | Length of Time Served | Principal Occupation(s) During Past Five Years | |||
James F. Volk Age: 56 | Chief Compliance Officer | Since 2015 | James F. Volkhas served as the Company’s chief compliance officer since April 2015. Mr. Volk also serves as the chief compliance officer of the other BDCs in the Fund Complex and the other funds sponsored by FS Investments. He is responsible for all compliance and regulatory issues affecting us and the foregoing companies. Before joining FS Investments and its affiliated investment advisers in October 2014, Mr. Volk was the chief compliance officer, chief accounting officer and head of traditional fund operations at SEI’s Investment Manager Services market unit. Mr. Volk was also formerly the assistant chief accountant at the SEC’s Division of Investment Management and a |
(1) | The address for each officer is c/o FS KKR Capital Corp., 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 Investor Relations portion of the Company’s website at www.fskkrcapitalcorp.com. 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. 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.
Corporate Governance Guidelines
The Company has adopted corporate governance guidelines pursuant to Section 303A.09 of the NYSE Listed Company Manual, which can be accessed via the Investor Relations portion of the Company’s website atwww.fskkrcapitalcorp.com.
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 and the Administration Agreement. 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
22
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.
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, fees for participating in quarterly Board and Board committee meetings and certain other Board and Board committee meetings and annual fees for serving as a committee chairperson. These directors are Ms. Adams and Messrs. Arnold, Ford, Goldstein, Hopkins, Hagan, Harrow and Kropp. Mr. Hagan also receives an annual retainer for his service as lead independent director.
Amounts payable under the director fees arrangement are determined and paid quarterly in arrears as follows:
Amount(1) | ||||
Annual Board Retainer | $ | 100,000 | ||
Annual Lead Independent Director Retainer | $ | 25,000 | ||
Board Meeting Fees | $ | 2,500 | ||
Annual Committee Chair Retainers | ||||
Audit Committee | $ | 20,000 | ||
Valuation Committee | $ | 20,000 | ||
Nominating and Corporate Governance Committee | $ | 15,000 | ||
Committee Meeting Fees | $ | 1,000 |
(1) | The Company does not pay compensation to directors for their service as compensation committee members. |
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.
23
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, in the aggregate, in each case, for service during the fiscal year ended December 31, 2018. 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 | |||||||||
Barbara Adams(1) | — | — | $ | 139,000 | ||||||||
Frederick Arnold(1) | — | — | — | |||||||||
Todd Builione | — | — | — | |||||||||
Michael C. Forman | — | — | — | |||||||||
Brian R. Ford(1) | — | — | $ | 158,589 | ||||||||
Richard Goldstein(1) | — | — | $ | 139,000 | ||||||||
Michael J. Hagan | $ | 166,000 | $ | 166,000 | $ | 166,000 | ||||||
Jeffrey K. Harrow | $ | 156,000 | $ | 156,000 | $ | 337,500 | ||||||
Jerel A. Hopkins(1) | — | — | $ | 135,000 | ||||||||
James H. Kropp(1) | — | — | $ | 93,138 | ||||||||
Joseph P. Ujobai(2) | $ | 144,000 | $ | 144,000 | $ | 144,000 | ||||||
Former Directors: | ||||||||||||
David J. Adelman(3) | — | — | — | |||||||||
Gregory P. Chandler(4) | $ | 169,000 | $ | 169,000 | $ | 169,000 | ||||||
Barry H. Frank(4) | $ | 169,000 | $ | 169,000 | $ | 169,000 | ||||||
Thomas J. Gravina(3) | $ | 52,500 | $ | 52,500 | $ | 92,250 | ||||||
Michael J. Heller(3) | $ | 53,500 | $ | 53,500 | $ | 165,250 | ||||||
Philip E. Hughes, Jr.(4) | $ | 147,000 | $ | 147,000 | $ | 147,000 | ||||||
Pedro A. Ramos(4) | $ | 145,000 | $ | 145,000 | $ | 145,000 |
(1) | Messrs. Arnold, Ford, Goldstein, Hopkins, Kropp and Ms. Adams joined the Board on December 19, 2018. |
(2) | Mr. Ujobai resigned from the Board, effective as of March 14, 2019 |
(3) | Messrs. Adelman, Gravina and Heller each resigned from the Board, effective as of April 9, 2018. |
(4) | Messrs. Chandler, Frank, Hughes and Ramos each resigned from the Board, effective as of December 19, 2018. |
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). All future transactions with affiliates of the Company will be on terms no less favorable than could be obtained from an unaffiliated third party and must be approved by a majority of the Board, including a majority of the independent directors.
Investment Advisory Agreement and Administration Agreement
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
24
and cash equivalents (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) 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.
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 minus the cumulative “per share incentive fees” accrued and/or payable for the eleven preceding calendar quarters 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. The definitions of “pershare pre-incentive fee return” and “per share incentive fees” under the Investment Advisory Agreement take into account the historic pershare pre-incentive fee return of both the Company and CCT, together with the historic per share incentive fees paid by both the Company and CCT. For the purpose of calculating the “pershare pre-incentive fee return,” any unrealized appreciation or depreciation recognized as a result of the purchase accounting for the Merger is excluded.
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 Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which shall equal both CCT’s and the Company’s realized capital gains (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 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.
On April 9, 2018, GSO / Blackstone Debt Funds Management LLC (“GDFM”) resigned as the investmentsub-adviser to the Company and terminated the investmentsub-advisory agreement (the “InvestmentSub-Advisory Agreement”) between FB Income Advisor, LLC (“FB Advisor”) and GDFM, effective April 9, 2018. In connection with GDFM’s resignation as the investmentsub-adviser to the Company, on April 9, 2018, the Company entered into an investment advisory agreement (the “Prior Investment Advisory Agreement”) with the Advisor. The Prior Investment Advisory Agreement replaced the amended and restated investment advisory agreement, dated July 17, 2014 (“the FB Advisor Investment Advisory Agreement”), by and between the Company and FB Advisor. The Prior Investment Advisory Agreement had substantially similar terms to the Investment Advisory Agreement, except that the Investment Advisory Agreement amended the Prior Investment Advisory Agreement to (i) exclude cash and cash equivalents from the gross assets, (ii) revise the calculation of
25
the cap on the subordinated incentive fee on income to take into account the historic per sharepre-incentive fee return of both the Company and CCT, together with the historic per share incentive fees paid by both Company and CCT and (iii) revise the calculation of incentive fees on capital gains to include historical net realized losses and unrealized depreciation of both the Company and CCT.
Pursuant to the FB Advisor Investment Advisory Agreement, which was in effect until April 9, 2018, FB Advisor was entitled to an annual base management fee equal to 1.75% of the average value of the Company’s gross assets (gross assets equal the total assets of the Company as set forth on the Company’s consolidated balance sheets) and an incentive fee based on the Company’s performance. FB Advisor had agreed, effective October 1, 2017, to (a) waive a portion of the base management fee to which it was entitled under the FB Advisor Investment Advisory Agreement so that the fee received equaled 1.50% of the average value of the Company’s gross assets and (b) continue to calculate the subordinated incentive fee on income to which it was entitled under the FB Advisor Investment Advisory Agreement as if the base management fee was 1.75% of the average value of the Company’s gross assets. Pursuant to theInvestment Sub-Advisory Agreement, GDFM was entitled to receive 50% of all management and incentive fees payable to FB Advisor under the FB Advisor Investment Advisory Agreement with respect to each year.
Pursuant to the Administration Agreement, the Advisor oversees theCompany’s day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The Advisor also performs, or oversees the performance of, the Company’s corporate operations and required administrative services, which includes being responsible for the financial records that the Company is required to maintain and preparing reports for the Company’s stockholders and reports filed with the SEC. In addition, the Advisor assists the Company in calculating its net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to the Company’s stockholders, and generally overseeing the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others.
Pursuant to the Administration Agreement, the Company reimburses the Advisor for expenses necessary to perform services related to its administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit Advisors (US), LLC (“KKR Credit”) providing administrative services to the Company on behalf of the Advisor. The Company reimburses the Advisor no less than quarterly for all costs and expenses incurred by the Advisor in performing its obligations and providing personnel and facilities under the Administration Agreement. The Advisor allocates the cost of such services to the Company based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. The Company’s board of directors reviews the methodology employed in determining how the expenses are allocated to the Company and the proposed allocation of administrative expenses among the Company and certain affiliates of the Advisor. The Company’s board of directors then assesses the reasonableness of such reimbursements for expenses allocated to it based on the breadth, depth and quality of such services as compared to the estimated cost to the Company of obtaining similar services from third-party service providers known to be available. In addition, the Company’s board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, the Company’s board of directors compares the total amount paid to the Advisor for such services as a percentage of the Company’s net assets to the same ratio as reported by other comparable BDCs. The Administration Agreement replaced an administration agreement with FB Advisor (the “FB Advisor Administration Agreement”), which was substantially similar to the Administration Agreement.
26
The following table describes the fees and expenses accrued under the Investment Advisory Agreement, the Prior Investment Advisory Agreement, the FB Advisor Investment Advisory Agreement, the Administration Agreement and the Investment Advisory Agreement, the FB Advisor Administration Agreement, as applicable, during the year ended December 31, 2018 (dollars in millions):
Related Party | Source Agreement | Description | Year Ended December 31, 2018 | |||||
FB Advisor and the Advisor | Investment Advisory Agreement, Prior Investment Advisory Agreement and FB Advisor Investment Advisory Agreement | Base Management Fee(1) | $ | 60 | ||||
FB Advisor and the Advisor | Investment Advisory Agreement, Prior Investment Advisory Agreement and FB Advisor Investment Advisory Agreement | Subordinated Incentive Fee on Income(2) | $ | 26 | ||||
FB Advisor and the Advisor | Administration Agreement and FB Advisor Administration Agreement | Administrative Services Expenses(3) | $ | 4 |
(1) | FB Advisor agreed, effective October 1, 2017, to waive a
|
(2) | During the year ended December 31, 2018, $36 million of subordinated incentive fees on income were paid to the Advisor and/or FB Advisor. As of December 31, 2018, a subordinated incentive fee on income of $14 million was payable to the Advisor, a portion of which were fees payable by CCT at the time of the Merger. |
(3) | During the year ended December 31, 2018, $3 million of administrative services expenses related to |
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
27
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.
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 FB Advisor, including FS Energy and Power Fund, FSIC II, FSIC III, FSIC IV and any future BDCs that are advised by FB Advisor 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,
28
including investments originated and directly negotiated by the Advisor or KKR Credit, with certain affiliates of the Advisor.
Independent Registered Public Accounting Firm
RSM US LLP acted as the Company’s independent registered public accounting firm for each of the fiscal years ended December 31, 2008 through 2018. The Company knows of no direct financial or material indirect financial interest of RSM US LLP in the Company. A representative of RSM US LLP is expected to be available by telephone to answer questions during the Annual Meeting and will have an opportunity to make a statement if he or she desires to do so.
On March 22, 2019, the Company notified RSM US LLP that RSM US LLP 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 and 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. The appointment of Deloitte & Touche LLP was previously recommended by the Audit Committee. During the years ended December 31, 2018 and 2017, and the subsequent interim period through March 26, 2019, neither the Company nor anyone on its behalf has consulted with Deloitte & Touche LLP regarding: (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte & Touche LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; (ii) any matter that was the subject of a disagreement within the meaning of Item 304(a)(1)(iv) ofRegulation S-K and the related instructions; or (iii) any reportable event within the meaning of Item 304(a)(1)(v) ofRegulation S-K. 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 RSM US LLP for professional services performed for the fiscal years ended December 31, 2018 and 2017:
Fiscal Year | Audit Fees | Audit-Related Fees(1) | Tax Fees | All Other Fees(2) | ||||||||||||
2018 | $ | 394,910 | $ | 249,125 | — | — | ||||||||||
2017 | $ | 400,000 | — | — | $ | 35,000 |
(1) | “Audit-Related Fees” are those fees billed to the Company
|
(2) |
|