UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2022
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from______ to______
Commission File Number 814-01427
LAFAYETTE SQUARE USA, INC.
(Exact name of registrant as specified in its charter)
Delaware | 87-2807075 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
175 SW 7th St, Unit 1911
Miami, FL 33130
(Address of principal executive offices)
(786) 598-2348
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol | Name of each exchange on which registered |
None | None | None |
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
Common Stock, par value $0.001 per share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |
Non-accelerated filer | x | Smaller reporting company | ¨ | |
Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 9, 2023 the Registrant had shares of common stock, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Auditor Name | Auditor Location | Auditor Firm ID | ||
Ernst & Young LLP | New York, NY | 42 |
EXPLANATORY NOTE
Lafayette Square USA, Inc. (“we,” “us,” “our,” or the “Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend our Annual Report on Form 10-K for the year ended December 31, 2022, originally filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 (the “Original Form 10-K”), to (i) include the information required by Items 10 through 14 of Part III of Form 10-K and (ii) amend Item 15 of Part IV of the Original Form 10-K to update the exhibit list. The information required by Items 10 through 14 of Part III of Form 10-K was previously omitted from the Original Form 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference from our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end. We are filing this Amendment to include Part III information in our Form 10-K because a definitive proxy statement containing such information was not filed by the Company within 120 days after the end of the fiscal year covered by the Form 10-K, although it was subsequently filed on May 3, 2023.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Part III, Items 10 through 14 of the Original Form 10-K are hereby amended and restated in their entirety. Additionally, in accordance with Rules 12b-15 and 13a-14 under the Exchange Act, we have amended Part IV, Item 15 to include currently dated certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Since no new financial statements have been included in this Amendment and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4, and 5 of the certifications have been omitted. Similarly, since no financial statements have been included in this Amendment, certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 have been omitted.
Except for the changes to Part III and Item 15 of Part IV, including the filing of related certifications added to the exhibit list in Part IV, this Amendment makes no changes to the Original Form 10-K. This Amendment does not reflect events occurring after the filing of the Original Form 10-K or modify disclosures affected by subsequent events. Terms used but not otherwise defined in this Amendment have such meaning as ascribed to them in the Original Form 10-K.
LAFAYETTE SQUARE USA, INC.
FORM 10-K/A
TABLE OF CONTENTS
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PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
Corporate Governance
Board Composition
The Company’s board of directors (the “Board”) oversees our management. Our Board currently consists of 4 members, 3 of whom are not “interested persons” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”). Our Board elects our officers, who serve at the discretion of our Board. The responsibilities of each director include the oversight of our investment activity, the quarterly valuation of our assets, and oversight of our financing arrangements. Our Board has also established an Audit Committee and a Nominating and Corporate Governance Committee, and may establish additional committees in the future.
Board of Directors and Executive Officers
Directors
Under our certificate of incorporation and bylaws, our directors are divided into three classes. At each annual meeting, directors are elected for a term expiring at the third succeeding annual meeting, with the term of office of only one of these three classes of directors expiring each year. Each director will hold office for the term to which he or she is elected and until his or her successor is duly elected and qualifies. Information regarding our Board is as follows:
Name | Age | Position(s) held with the Company | Term of Office and Length of Time Served | |||
Interested Directors | ||||||
Damien Dwin | 47 | Director; Chief Executive Officer | 2024 - Since 2021 | |||
Independent Directors | ||||||
Jacqueline Bradley | 65 | Director | 2025 - Since 2021 | |||
Troy Dixon | 51 | Director | 2023 - Since 2021 | |||
Levee Brooks | 40 | Director | 2024 - Since 2023 |
The address for each of our directors is c/o Lafayette Square USA, Inc., 175 SW 7th Street, Unit 1911, Miami, FL 33130.
Executive Officers Who Are Not Directors
Name | Age | Position | ||
Seren Tahiroglu | 38 | Chief Financial Officer | ||
Ileana Stone | 53 | Chief Compliance Officer | ||
David Kraut | 48 | Secretary |
Biographical Information
Directors
The Board has determined that each of the directors is qualified to serve as our director, based on a review of the experience, qualifications, attributes and skills of each director, including those described below. Each of our directors has demonstrated high character and integrity and has expertise and diversity of experience to be able to offer advice and guidance to our management. Our directors are divided into two groups - independent directors and interested directors. Interested directors are “interested persons” as defined in the 1940 Act.
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Interested Directors
Damien Dwin is the Founder and Chief Executive Officer of Lafayette Square Holding Company, LLC (“Lafayette Square”), an affiliate of the Company. He has over 20 years of experience in the middle market direct lending, mezzanine lending, leveraged finance, distressed debt, and private equity businesses. Mr. Dwin has been involved in originating, underwriting, executing, and monitoring investments in each of these businesses and oversees these activities at Lafayette Square. Previously, Mr. Dwin served as Co-Founder and Co-CEO of Brightwood Capital Advisors from its founding in 2010 to October 2020, where he oversaw the investment of approximately $8.5 billion in 373 transactions over 163 portfolio companies.
Mr. Dwin began his career as a trader with Goldman Sachs, in their New York & London offices, where he earned the Michael P. Mortara Award for Innovation. At Credit Suisse, he was the Co-Founder and Head of the North American Special Opportunities business until 2010. Mr. Dwin also served on the Vice President Selection Committee and led the Fixed Income Division Credit Training Program. He is an active thought leader on place-based investing, mass incarceration and the use of capitalism for good. He has written for Financial Times, Entrepreneur and Inc.com.
Mr. Dwin currently serves as chair of the Board of Trustees for Vera Institute of Justice. He also serves on the non-profit boards of Lincoln Center for the Performing Arts, Children’s Hospital of Philadelphia, Studio Museum in Harlem, National Trust for Historic Preservation, Woodberry Forest School, and Boys’ Club of New York. He is also a Council Member of the Smithsonian National Museum of African American History and Culture.
Mr. Dwin received a B.S./B.A. from Georgetown University where he served two terms on the Board of Regents.
Independent Directors
Jacqueline Bradley has served as an independent director of the Company since March 2021. Ms. Bradley served as a director of BankFIRST from 2005 until BANKshares was acquired by Seacoast in 2014. Ms. Bradley serves on the board of directors of the Boys & Girls Club of Central Florida, serving as chairperson in 2002 and 2003. Additionally, Ms. Bradley is a board member of The Studio Museum in Harlem. She also served on the finance committee for the Central Florida Expressway Authority and Orange County Tourist Development Council, and the board of directors of the Greater Orlando Aviation Authority, Florida Arts Council, and Cornell Museum of Fine Arts. Ms. Bradley last worked for seven years with SunTrust Bank in Central Florida, culminating in her last position as senior vice president leading its Private Client Group (1999-2002). Previously, she worked as vice president with Moody’s Investors Services and provided consulting services for McKinsey Management Consultants and Touché Ross. Ms. Bradley received her B.A. in Economics and Political Science from Yale College, and her M.B.A. from Columbia University Graduate School of Business with a concentration in Finance and Marketing.
Troy Dixon has served as an independent director of the Company since March 2021. Mr. Dixon is the founder and the Chief Investment Officer of Hollis Park Partners, an alternative asset manager that specializes in structured products launched in 2013. Prior to Hollis Park Partners, Mr. Dixon served as the head of RMBS Trading at Deutsche Bank from 2006 to 2013. Mr. Dixon sits on the boards of the Apollo Theater and Boys Hope Girls Hope. He earned his B.A. from The College of the Holy Cross.
Levee Brooks has served as an independent director of the Company since March 2023. Mr. Brooks has been the Chief Operating Officer of Marsh & McLennan Companies, Inc. (“Marsh”), North America since 2020. Prior to joining Marsh, from 2009 to 2020, Mr. Brooks worked at Goldman Sachs, where from 2017 to 2020 he served as Managing Director and Global Head of Client Management, Fund Management and Change Management for the Consumer & Investment Management Division. Mr. Brooks serves as a member on the Board of Directors for the Cerebral Palsy Foundation, a Trustee for St. Benedict’s Preparatory School, and a member of the Diversity & Inclusion Board for The Peck School. Mr. Brooks earned a B.A. from Georgetown University in 2004.
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Executive Officers Who Are Not Directors
Seren Tahiroglu has served as Chief Financial Officer of the Company since April 2021. In addition, Mr. Tahiroglu serves as Chief Financial Officer, Credit for Lafayette Square. Prior to joining Lafayette Square, he was a Senior Manager in Ernst & Young LLP’s Wealth and Asset Management audit practice. Mr. Tahiroglu holds a B.S., cum laude, in Accounting from the Connecticut State University and a Master’s, magna cum laude, in Accounting and Taxation from the University of Hartford. Mr. Tahiroglu is a licensed Certified Public Accountant in the State of New York. He is a member of the AICPA and the New York State Society of Certified Public Accountants.
Ileana Stone has served as the Chief Compliance Officer of the Company since July 2022. Ms. Stone has served as Managing Director, Legal of Lafayette Square since January 2021. Prior to her role at Lafayette Square, Ms. Stone served as Associate General Counsel for Bank of America from November 2003 to December 2020. Previously, Ms. Stone worked at Katten Muchin Rosenman LLP. Ms. Stone earned a B.B.A and a Master in Professional Accounting, with a specialty in taxation from the University of Texas at Austin and a J.D. from Chicago-Kent College of Law.
David Kraut has served as Secretary of the Company since March 2021. In addition, Mr. Kraut serves as Managing Director, Legal at Lafayette Square. Prior to joining Lafayette Square, Mr. Kraut was a Managing Director and Senior Counsel at Goldman Sachs & Co. Previously, Mr. Kraut worked at Debevoise & Plimpton LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP. Mr. Kraut earned a B.A. in Ethics, Politics and Economics and International Studies from Yale University and a J.D. from New York University School of Law.
Board of Directors Leadership Structure
Our Board monitors and performs an oversight role with respect to our business and affairs, including with respect to our investment practices and performance, compliance with regulatory requirements, and the services, expenses, and performance of our service providers. Our Board approves the appointment of our adviser, LS BDC Adviser, LLC (the “Adviser”) and officers, reviews and monitors the services and activities performed by our Adviser and its affiliates and executive officers, and approves the engagement and reviews the performance of our independent public accounting firm.
Under the bylaws, our Board may designate a chair (the “Chair”) to preside over the meetings of our Board and meetings of the stockholders and to perform such other duties as may be assigned to him/her by the Board. We do not have a fixed policy as to whether the Chair of the Board should be an independent director and believe that we should maintain the flexibility to select the Chair and reorganize the leadership structure, from time to time, based on criteria that our Board determines to be in our best interests and our stockholders at such times.
Mr. Dwin serves as the Chair of our Board. We believe that Mr. Dwin’s vision for Lafayette Square as its founder and his extensive knowledge of corporate credit and fund management render him distinctly qualified to serve as the Chair of our Board.
Our Board does not currently have a designated lead independent director. We are aware of the potential conflicts that may arise when an interested director is Chair of the Board, but we believe these potential conflicts are offset by our strong corporate governance policies. Our corporate governance policies include regular meetings of the independent directors in executive session without the presence of interested directors and management, the establishment of Audit and Nominating and Corporate Governance Committees comprised solely of independent directors, and the appointment of a chief compliance officer, with whom the independent directors meet regularly without the presence of interested directors or other members of management, for administering our compliance policies and procedures.
We recognize that different board of directors’ leadership structures are appropriate for companies in different situations. We intend to review our corporate governance structure and policies on a regular basis to ensure that they continue to meet our needs.
Board of Directors’ Role in Risk Oversight
Our Board performs its risk oversight function primarily through (i) its standing Audit Committee, which reports to the entire Board and is comprised solely of independent directors, and (ii) active monitoring by our Chief Compliance Officer and of our compliance policies and procedures.
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As described below in more detail under “Committees of the Board of Directors,” the Audit Committee assists our Board in fulfilling its risk oversight responsibilities. The Audit Committee’s risk oversight responsibilities include overseeing the accounting and financial reporting processes, our valuation process, our systems of internal controls regarding finance and accounting, and audits of our financial statements.
Our Board also performs its risk oversight responsibilities with the assistance of the Chief Compliance Officer. Our Board annually reviews a written report from the Chief Compliance Officer discussing the adequacy and effectiveness of our compliance policies and procedures and our service providers. The Chief Compliance Officer’s annual report addresses, at a minimum, (a) any compliance matter that has occurred since the date of the last report about which our Board would reasonably need to know to oversee our compliance activities and risks; (b) any material changes our compliance policies and procedures since the last report; (c) the operation of such policies and procedures and our service providers since the last report; and (d) any recommendations for material changes to such policies and procedures as a result of the Chief Compliance Officer’s annual review. In addition, the Chief Compliance Officer meets regularly in executive session with the independent directors.
We believe that our Board’s role in risk oversight is effective and appropriate given the extensive regulation to which we are subject as a business development company (a “BDC”). As a BDC, we are required to comply with certain regulatory requirements that control the levels of risk in our business and operations. For example, our ability to incur indebtedness is limited such that our asset coverage must equal at least 150% immediately after each time we incur indebtedness; we generally have to invest at least 70% of our total assets in “qualifying assets,” and we are not generally permitted to invest in any portfolio company in which one of our affiliates currently has an investment.
We recognize that different board roles in risk oversight are appropriate for companies in different situations. We intend to re-examine the manners in which our Board administers its oversight function on an ongoing basis to ensure that they continue to meet our needs.
Committees of the Board of Directors
An Audit Committee and a Nominating and Corporate Governance Committee have been established by our Board. All directors are expected to attend at least 75% of the aggregate number of meetings of our Board and of the respective committees on which they serve. We require each director to make a diligent effort to attend all Board and committee meetings as well as each annual meeting of our stockholders.
Audit Committee
The Audit Committee is comprised of directors who are not considered “interested persons” of the Company, as that term is defined in Section 2(a)(19) of the 1940 Act, and meet the independence requirements of Rule 10A(m)(3) of the Exchange Act. The Audit Committee operates pursuant to a charter approved by our Board, which sets forth the responsibilities of the Audit Committee. The Audit Committee’s responsibilities include establishing guidelines and making recommendations to our Board regarding the valuation of certain of our loans and investments, selecting our independent registered public accounting firm, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of our financial statements, pre-approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing our annual financial statements and periodic filings and receiving our audit reports and financial statements.
The members of the Audit Committee are Jacqueline Bradley, Troy Dixon and Levee Brooks, each of whom is financially literate and meets the independence standards established by the SEC for audit committees and is independent for purposes of the 1940 Act. Troy Dixon serves as Chairman of the Audit Committee. Our Board has determined that Troy Dixon is an “audit committee financial expert” as that term is defined under Item 407 of Regulation S-K of the Exchange Act.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is comprised of directors who are not considered “interested persons” of the Company, as that term is defined in Section 2(a)(19) of the 1940 Act. The Nominating and Corporate Governance Committee operates pursuant to a charter approved by our Board. The Nominating and Corporate Governance Committee is responsible for selecting, researching and nominating qualified nominees to be elected to the Board by our stockholders at the annual stockholder meeting, selecting qualified nominees to fill any vacancies on our Board or a committee of the Board (consistent with criteria approved by our Board), developing and recommending to our Board a set of corporate governance principles applicable to us and overseeing the evaluation of our Board and our management.
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The Nominating and Corporate Governance Committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the Nominating and Corporate Governance Committee considers and discusses director diversity, among other factors, with a view toward the needs of our Board as a whole. The Nominating and Corporate Governance Committee generally conceptualizes diversity expansively to include concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to our Board, when identifying and recommending director nominees. The Nominating and Corporate Governance Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the Nominating and Corporate Governance Committee’s goal of creating a Board that best serves our needs and the interests of our stockholders.
The members of the Nominating and Corporate Governance Committee are Jacqueline Bradley, Troy Dixon and Levee Brooks, each of whom is independent for purposes of the 1940 Act. Jacqueline Bradley serves as Chairman of the Nominating and Corporate Governance Committee.
Pricing Committee
The Pricing Committee operates pursuant to a charter approved by our Board, which sets forth the responsibilities of the Pricing Committee. The principal goals of the Pricing Committee are to approve the offering price of shares of our common stock (“Common Stock”) in accordance with our valuation policy, and to ensure that we do not sell shares of Common Stock at a price per share below the net asset value of such Common Stock, as required by Section 23 of the 1940 Act, which was made applicable to BDCs by Section 63 of the 1940 Act.
The members of the Pricing Committee are Jacqueline Bradley, Troy Dixon and Damien Dwin.
Investment Committee
The Adviser has established the Investment Committee to be responsible for the Company’s investment decisions, and it is comprised of senior investment professionals of the Adviser and is chaired by our Chief Executive Officer, Damien Dwin. All investment decisions are reviewed and approved by the Investment Committee, which has principal responsibility for approving new investments and overseeing the management of existing investments.
The members of the Investment Committee are Mr. Dwin, Phil Daniele, Ryan Ochs, Lori Scott, Don Baylor, Jr., Ommeed Sathe, Reneé Beaumont, Maria Zubov and Antony Bugg-Levine.
The investment team leverages the broad experience-set of the Investment Committee to evaluate transactions and develop a framework for seeking appropriate risk-adjusted returns and risk mitigation strategies for target investments. With a collective average of almost 20 years of experience, the members of the Investment Committee have significant investing, finance, and risk management experience and provide valuable diligence insights to the investment team.
Members of the Investment Committee Who Are Not Our Directors or Officers
For biographical information of Mr. Dwin, see “-Biographical Information-Interested Directors.”
Phil Daniele - Mr. Daniele has been the Chief Risk Officer at Lafayette Square since November 2020. He is responsible for creating and enforcing an integrated risk framework for evaluating and monitoring all Lafayette Square investments.
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With over 37 years of experience, Mr. Daniele was the former Chief Risk Officer at Brightwood Capital Advisors, LLC and served on Brightwood’s Executive and Valuation Committees from 2015 to 2020. Prior to joining Brightwood, he was the Chief Credit Officer for the Americas at Credit Suisse Group AG. He was responsible for approving all credit extensions in the Americas portfolio, including corporations, financial institutions, hedge funds and private clients. Previously, Mr. Daniele served as Head of Corporate Credit Americas, which included the Credit Suisse’s Leveraged Finance business. He began his career at CIT Factoring in 1984.
Phil is a board member of and has been actively involved with Flames Neighborhood Youth Association since 1979. Flames is a Brooklyn-based organization primarily dedicated to the improvement of the lives of African American youth and the betterment of interracial relationships in the communities served by Flames. Additionally, he is a Board Member of Soul of the Peruvian Andes, a nonprofit whose mission is providing healthcare and education support to the impoverished villages of the Andes Mountains in Peru.
Originally from Brooklyn, New York, Mr. Daniele holds a B.B.A., Accounting, and an M.B.A., Finance from Pace University.
Ryan Ochs - Mr. Ochs is a Managing Director at Lafayette Square. Prior to Lafayette Square, Mr. Ochs worked as an investment professional at Brightwood Capital Advisors, LLC. Previously, Mr. Ochs held similar positions at Star Mountain Capital, LLC and American Capital Ltd. Mr. Ochs holds a B.Sc. from Georgetown University.
Lori Scott - Ms. Scott is the Managing Director of Impact Credit at Lafayette Square. Prior to joining Lafayette, she served as the Chief Credit Officer of Impact Investments at the John D. and Catherine T. MacArthur Foundation. For over 25 years, Ms. Scott has developed and executed impact investment strategies globally, with a focus on increasing capital for underserved people and places. Ms. Scott holds a Master of Business Administration from the University of Illinois at Chicago.
Don Baylor, Jr. - Mr. Baylor is the Managing Director of Worker Solutions at Lafayette Square. Prior to joining Lafayette, Mr. Baylor served as Senior Program Officer at the Annie E. Casey Foundation, where he oversaw the Foundation’s racial wealth gap portfolio. Mr. Baylor holds a B.A. from Georgetown University and an M.A. from University of Wisconsin-Madison.
Ommeed Sathe - Mr. Sathe is Head of Strategy at Lafayette Square. Prior to joining Lafayette, Mr. Sathe was Head of Impact and Responsible Investing at Prudential, where he managed a portfolio of over $1 billion invested across a range of alternative asset classes, including private equity, real estate, private credit and structured products. Mr. Sathe holds an undergraduate degree from Columbia University, a Master’s degree from the Massachusetts Institute of Technology and a J.D. from Harvard Law School.
Renée Beaumont - Ms. Beaumont is the Chief Operating Officer at Lafayette Square. Renée is a former Partner at Generation Investment Management (“Generation”). Prior to Generation, Ms. Beaumont was the Global Head of Business Development at Providence Equity Partners. Ms. Beaumont is also a former Managing Director at Goldman Sachs & Co. Ms. Beaumont holds a B.A. from the University of Victoria and an L.L.B. from the University of New Brunswick.
Maria Zubov - Ms. Zubov is a Managing Director at Lafayette Square with over 20 years of experience across credit risk management, portfolio management and equity research. Prior to joining Lafayette, she was an Executive Director within Natixis’ credit risk management department. Previously, Ms. Zubov was a Director at Credit Suisse, where she spent over a decade in the CRM and portfolio management roles. Ms. Zubov holds a B.S. from SUNY Binghamton and an M.B.A. from NYU Leonard N. Stern School of Business.
Antony Bugg-Levine - Mr. Bugg-Levine is a Managing Director and Co-Head of Community Impact at Lafayette Square. Mr. Bugg-Levine is a pioneer of the modern impact investing movement, with over 15 years of industry experience, including co-founding the Global Impact Investing Network, running a national nonprofit loan fund, and launching the Rockefeller Foundations’ impact investing program. Mr. Bugg-Levine holds a B.A. from Yale University and a Master of Public Affairs from Princeton University’s School of Public and International Affairs.
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Indemnification Agreements
We have entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximum indemnification permitted under Delaware law and the 1940 Act. Each indemnification agreement provides that we will indemnify the director who is a party to the agreement (an “Indemnitee”), including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Delaware law and the 1940 Act.
Code of Ethics
We and our Adviser have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the joint code of ethics may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code of ethics’ requirements. Our code of ethics is available on our website at lafayettesquarebdc.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, the Company’s directors and executive officers, and any persons holding more than 10% of its shares, are required to report their beneficial ownership and any changes therein to the SEC and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file such reports by those due dates. Based on the Company’s review of Forms 3, 4, and 5 filed by such persons and information provided by the Company’s directors and officers, the Company believes that during the fiscal year ended December 31, 2022, all Section 16(a) filing requirements applicable to such persons were timely filed.
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Item 11. | Executive Compensation. |
Compensation of Executive Officers
None of our executive officers receives direct compensation from us. Any compensation paid for services relating to our financial reporting and compliance functions will be paid by our administrator, LS Administration, LLC (the “Administrator”), subject to reimbursement by us of an allocable portion of such compensation for services rendered to us. To the extent that the Administrator outsources any of its functions, we will pay the fees associated with such functions on a direct basis without profit to our Administrator.
Compensation of Directors
The following table sets forth compensation of the Company’s independent directors, for the year ended December 31, 2022:
Name of Director | Fee Earned(1) | Total Compensation | ||||||
Jacqueline Bradley | $ | 55,370 | $ | 55,370 | ||||
Troy Dixon | 66,443 | 66,443 | ||||||
Patrick McMahon(2) | 55,370 | 55,370 | ||||||
Levee Brooks | N/A | N/A |
(1) | Fees Earned reflect the sum of (i) from January 1, 2022 through June 27, 2022, an annual fee of $10,000, prorated for the partial year, for the directors’ work on Lafayette Square Empire BDC, Inc. and (ii) from June 27, 2022 to December 31, 2022, an annual fee of $100,000, prorated for the partial year, for the directors’ work on Lafayette Square USA, Inc. (the successor fund to Lafayette Square Empire BDC, Inc.). In addition, from January 2022 through June 2022, the chair of the Audit Committee received an additional annual fee of $2,000, prorated for the partial year. |
(2) | Patrick McMahon served as director of the Company until his resignation in March 2023. Levee Brooks was appointed as interim director in March 2023. |
As of June 27, 2022, following the conversion of Lafayette Square Empire BDC, Inc. to Lafayette Square USA, Inc., the independent directors receive an annual fee of $100,000 (prorated for any partial year). In addition, the chair of the Audit Committee receives an additional annual fee of $20,000 (prorated for any partial year). We are also authorized to pay the reasonable out-of-pocket expenses for each independent director incurred in connection with the fulfillment of his or her duties as independent directors (provided that such compensation will only be paid if the committee meeting is not held on the same day as any regular meeting of the Board).
We have obtained directors’ and officers’ liability insurance on behalf of our directors and officers. We do not have a profit-sharing or retirement plan, and directors do not receive any pension or retirement benefits. No compensation is paid to directors who are “interested persons.” The Board reviews and determines the compensation of independent directors.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The following table sets forth certain ownership information with respect to shares of our Common Stock for those persons who directly or indirectly own, control or hold with the power to vote five percent or more of our outstanding shares of Common Stock and all officers and directors, as a group as of April 24, 2023.
Percentage of Common Stock outstanding | ||||||||||
Name and address | Type of ownership | Shares owned | Percentage | |||||||
Caisse de depot et placement du Quebec(1) | Record | 2,125,960.4 | 24.7 | % | ||||||
Capricorn Investment Group(2) | Record | 435,313.4 | 5.1 | % | ||||||
Employee’s Retirement System of the State of Hawaii(3) | Record | 1,700,807.9 | 19.7 | % | ||||||
Opportunity Finance Network(4) | Record | 761,010.0 | 8.8 | % | ||||||
Sequioa Holdings, LLC(5) | Record | 1,073,895.4 | 12.5 | % | ||||||
Damien Dwin | Record | 50,646.5 | * | |||||||
Jacqueline Bradley | Record | - | - | |||||||
Troy Dixon | Record | - | - | |||||||
Levee Brooks | Record | - | - | |||||||
Seren Tahiroglu | Record | 2,532.3 | * | |||||||
Ileana Stone | Record | 3,038.8 | * | |||||||
David Kraut | Record | 2,532.3 | * | |||||||
All directors and officers as a group (7 persons)(6) | Record | 58,749.9 | * |
* | Represents less than 1% of the outstanding shares. |
(1) | The address for Caisse de depot et placement du Quebec is 1000, place Jean-Paul-Riopelle, Montréal, Québec, H2Z 2B3. |
(2) | The address for Capricorn Investment Group is 250 University Avenue, Suite 300, Palo Alto, CA 94301. |
(3) | The address for Employee’s Retirement System of the State of Hawaii is 201 Merchant Street, Suite 1400, Honolulu, HI 96813. |
(4) | The address for Opportunity Finance Network is 901 D Street SW, Suite 105, Washington, DC 20024. |
(5) | The address for Sequioa Holdings, LLC is 250 University Avenue, Suite 300, Palo Alto, CA 94301. The securities are held by Sequoia Holdings, LLC (“Sequoia”). Jeffrey S. Skoll is the indirect sole member of Sequoia and has sole voting and investment power over the securities held by Sequoia. Mr. Skoll disclaims beneficial ownership of these securities except to the extent of his pecuniary interest therein. |
(6) | The address for each of our directors and officers is c/o Lafayette Square USA, Inc., 175 SW 7th Street, Unit 1911, Miami, FL 33130. |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Lafayette Square, the Adviser, and their affiliates engage in a broad range of activities, including investment activities for their own accounts and for the account of other investment funds or accounts, including the other funds, programs, accounts, or businesses (collectively the “Affiliated Investment Accounts”). In the ordinary course of conducting its activities, the interests of the Company may conflict with the interests of Lafayette Square, the Adviser or their affiliates, or other funds advised by Lafayette Square, the Adviser or their affiliates. We can offer no assurance such conflicts will ultimately be resolved in favor of the Company.
Co-Investment Transactions
We have applied for and received an exemptive order from the SEC that permits us to co-invest with certain other persons, including certain Affiliated Investment Accounts managed and controlled by the Adviser. Subject to the 1940 Act and the conditions of any such co-investment order issued by the SEC, the Company may, under certain circumstances, co-invest with certain Affiliated Investment Accounts in investments that are suitable for the Company and one or more of such Affiliated Investment Account. Even though the Company and any such Affiliated Investment Account co-invest in the same securities, conflicts of interest may still arise. If the Adviser is presented with co-investment opportunities that generally fall within our investment objective and other board-established criteria and those of one or more Affiliated Investment Accounts advised by the Adviser, whether focused on a debt strategy or otherwise, the Adviser will allocate such opportunities among us and such Affiliated Investment Accounts in a manner consistent with the exemptive order and our Adviser’s allocation policies and procedures.
With respect to co-investment transactions conducted under our exemptive order, initial internal allocations among us and other investment funds affiliated with our Adviser will generally be made, taking into account the allocation considerations set forth in the Adviser’s allocation policies and procedures as described above. If we invest in a transaction under a co-investment exemptive order and, immediately before the submission of the order for us and all other funds, accounts, or other similar arrangements advised by Lafayette Square and its affiliates, the opportunity is oversubscribed, it will generally be allocated on a pro-rata basis based on available capital. Our Board regularly reviews the allocation policies and procedures of the Adviser.
To the extent consistent with applicable law and exemptive relief issued to the Company, in addition to such co-investments, the Company and Lafayette Square or an Affiliated Investment Account may, as part of unrelated transactions, invest in either the same or different tiers of a portfolio company’s capital structure or in an affiliate of such portfolio company. To the extent the Company holds investments in the same portfolio company or in an affiliate thereof that are different (including with respect to their relative seniority) than those held by Lafayette Square or an Affiliated Investment Account, the Adviser and Lafayette Square may be presented with decisions when the interests of the two co-investors are in conflict. If the portfolio company in which the Company has an equity or debt investment and in which Lafayette Square or an Affiliated Investment Account has an equity or debt investment elsewhere in the portfolio company’s capital structure, becomes distressed or defaults on its obligations under the private credit investment, Lafayette Square may have conflicting loyalties between its duties to its shareholders, the Affiliated Investment Account, the Company, certain of its other affiliates and the portfolio company. In that regard, actions may be taken for Lafayette Square or such Affiliated Investment Account that are adverse to the Company, or actions may or may not be taken by the Company due to Lafayette Square’s or such Affiliated Investment Account’s investment, which action or failure to act may be adverse to the Company. In addition, it is possible that in a bankruptcy proceeding, the Company’s interest may be adversely affected by virtue of Lafayette Square’s or such Affiliated Investment Account’s involvement and actions relating to its investment. Decisions about what action should be taken in a troubled situation, including whether to enforce claims, whether to advocate or initiate restructuring or liquidation inside or outside of bankruptcy and the terms of any work-out or restructuring, raise conflicts of interest. In those circumstances where the Company and Lafayette Square or such Affiliated Investment Accounts hold investments in different classes of a company’s debt or equity, Lafayette Square may also, to the fullest extent permitted by applicable law, take steps to reduce the potential for adversity between the Company and Lafayette Square or such Affiliated Investment Accounts, including causing the Company to take certain actions that, in the absence of such conflict, it would not take, such as (A) remaining passive in a restructuring or similar situations (including electing not to vote or voting pro rata with other security-holders), (B) divesting investments or (C) otherwise taking action designed to reduce adversity.
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Co-Investment by the Company
The Company will generally co-invest together with other private funds advised by the Adviser and/or a broker-dealer affiliated with the Adviser in each portfolio company, and exit or dispose of each such investment, at the same time and on the same terms, except to the extent necessary and permitted by applicable law and/or the terms of any applicable exemptive relief, or to address regulatory, tax, legal or other considerations. Conflicts of interest may arise in connection with decisions made by the Adviser, including in respect of the nature or structuring of investments that may be more beneficial for one fund or account than for the Company.
Broken Deal and Other Expenses
The appropriate allocation of fees and expenses generated in connection with potential portfolio investments that are not consummated with an investment of the Company’s assets, including without limitation, out-of-pocket fees associated with attorney fees and the fees of other professionals, will be determined based on the policies adopted by the Adviser and the Company is expected to bear its ratable share of such expenses.
Investments in Portfolio Investments of Other Funds
To the extent permitted by applicable law and/or the terms of any applicable exemptive relief, when the Company invests in certain companies or other entities, other funds affiliated with the Adviser may have made or may be making an investment in such companies or other entities. Other funds that have been or may be managed by the Adviser may invest in the companies or other entities in which the Company has made an investment. Under such circumstances, the Company and such other funds may have conflicts of interest (e.g., over the terms, exit strategies, and related matters, including the exercise of remedies of their respective investments). If the interests held by the Company are different from (or take priority over) those held by such other funds, the Adviser may be required to make a selection at the time of conflicts between the interests held by such other funds and the interests held by the Company.
Allocation of Expenses
Expenses may be incurred that are attributable to the Company and one or more other Affiliated Investment Accounts (including in connection with portfolio companies in which the Company and such other Affiliated Investment Accounts have overlapping investments). The allocation of such expenses among such entities raises potential conflicts of interest. The Adviser and its affiliates intend to allocate such common expenses among the Company, and any such other Affiliated Investment Accounts on a pro-rata basis or in such other manner as may be required or permitted by applicable law and with the Adviser’s Allocation Policy. Such expense allocations will be reviewed periodically by the Board.
Shareholder Due Diligence Information
Due in part to the fact that potential shareholders in the Company (including any potential purchaser of an interest in a secondary transaction) may ask different questions and request different information, the Company and the Adviser and its affiliates may provide certain information to one or more prospective shareholders that it does not provide to all of the prospective or current shareholders of the Company. In addition, certain shareholders in the Company could be strategic shareholders directly or indirectly into the Adviser, which may result in such shareholders receiving additional due diligence information regarding the Adviser that may not be provided to potential shareholders in the Company only.
Placement Agents and Solicitors
Adviser personnel and independent contractors involved in marketing the Company are acting for the Company and its affiliates and not acting as investment, tax, financial, legal, or accounting advisors to potential shareholders in connection with the marketing of the Company. Potential shareholders must independently evaluate the offering and make their own investment decisions. The Adviser has, and may in the future, enter into arrangements with third-party placement agents to solicit stockholders. Placement agents that solicit stockholders on behalf of the Company are subject to a conflict of interest because they will be compensated by the Adviser in connection with their solicitation activities. Placement agents or other financial intermediaries may also receive other compensation, including placement fees with respect to the acquisition of shares of Common Stock. Such agents or intermediaries may have an incentive in promoting the acquisition of shares of Common Stock in preference to products with respect to which they receive a smaller fee.
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Loan Syndication Activities
Lafayette Square or its affiliates may administer and syndicate senior and other loans to corporate and other issuers. Fees earned by Lafayette Square or its affiliates as an administrative agent will not be shared with the Company, except as may be required by applicable law or guidance.
Other Conflicts
The Adviser may, in its discretion, cause the Company to have ongoing business dealings, arrangements, or agreements with persons who are former employees or executives of the Lafayette Square, the Adviser or their affiliates. The Company bears, directly or indirectly, the costs of such engagements, arrangements, or agreements. In such circumstances, there may be a conflict of interest between the Adviser and the Company in determining whether to engage in or to continue such engagements, including the possibility that the Adviser may favor such engagement even if a better price and/or quality of service could be obtained from another person.
Lafayette Square, the Adviser, their affiliates, and the Company will often engage common legal counsel and other advisers in a particular transaction, including transactions in which there may be conflicts of interest. Members of the law firms engaged to represent the Company may be shareholders in a Company or a related fund and may also represent one or more portfolio companies or shareholders in the Company or a related fund.
In the event of a significant dispute or divergence of interest between the Company and Lafayette Square, the Adviser and/or their affiliates, the parties may engage separate counsel in the sole discretion of Lafayette Square. Moreover, in litigation and certain other circumstances, separate representation may be required. Additionally, Lafayette Square, the Adviser, their affiliates, and the Company and the portfolio companies may engage other common service providers. In such circumstances, there may be a conflict of interest between Lafayette Square and the Adviser, on the one hand, and the Company and portfolio companies, on the other hand, in determining whether to engage such service providers, including the possibility that Lafayette Square or the Adviser may favor the engagement or continued engagement of such persons if it receives a benefit from such service providers, such as lower fees, that it would not receive absent the engagement of such service provider by the Company and/or the portfolio companies.
Certain Related Transactions
We have entered into the Investment Advisory Agreement with our Adviser which is a wholly-owned subsidiary of Lafayette Square. We have also entered into the Administration Agreement with our Administrator, which is a wholly-owned subsidiary of Lafayette Square. We have agreed to reimburse our Adviser for the third party costs it incurs on our behalf in connection with our formation and the initial closing of the private offering of our shares of our Common Stock. Members of our senior management may serve as principals of other investment managers affiliated with our Adviser and Administrator that manage, and may in the future manage, investment funds, accounts or other investment vehicles with investment objectives similar to ours.
Our Adviser has entered into a staffing agreement with entities affiliated with Lafayette Square, pursuant to which such Lafayette Square affiliates agree to provide our Adviser with access to investment professionals that comprise the investment team. Our Administrator has entered into staffing agreements with affiliates of Lafayette Square pursuant to which such Lafayette Square affiliates agree to provide our Administrator with access to certain legal, operations, financial, compliance, accounting, internal audit (in their role of performing our Sarbanes-Oxley Act internal control assessment), clerical and administrative personnel. Pursuant to these staffing agreements, our Administrator has agreed to reimburse the Lafayette Square affiliates for their allocable portion of the costs of the compensation paid to our Chief Financial Officer and Chief Compliance Officer, and their respective staffs.
In conjunction with and following our formation, Lafayette Square and certain affiliates of our Adviser have made capital contributions to us in exchange for all of our issued and outstanding limited liability company interests. In connection with the BDC Conversion, the limited liability company interests of Lafayette Square were converted into a total of 700 shares at a price per share determined by our Board and in accordance with Section 23 of the 1940 Act.
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We have entered into the Investment Advisory Agreement with our Adviser and pay it a base management fee as well as an incentive fee based on performance. The incentive fee is computed and paid on income that we may not have yet received in cash. This fee structure may create an incentive for our Adviser to invest in certain types of securities that may have a high degree of risk. We will rely on investment professionals from our Adviser to value our portfolio investments. Our Adviser’s base management fee and incentive fee will be based on the value of our investments, and there may be a conflict of interest when personnel of our Adviser determine periodic fair values for our portfolio investments. For the fiscal year ended December 31, 2022, the Adviser earned a base management fee of approximately $277,000. For the fiscal year ended December 31, 2022, the Adviser did not earn an incentive fee.
We have entered into an Administration Agreement with our Administrator and reimburse it for the allocable portion of overhead and other expenses incurred by our Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the costs of compensation and related expenses of our chief compliance officer and chief financial officer. For the year ended December 31, 2022, the Administrator incurred approximately $708,000 in fees under the Administrative Agreement, which are included in administrative service fee in the accompanying Consolidated Statements of Operations. As of December 31, 2022, approximately $550,000 was unpaid.
License Agreement
We have entered into a license agreement with Lafayette Square under which Lafayette Square has agreed to grant us a non-exclusive, royalty-free license to use the name “Lafayette Square” for specified purposes in our business. Under the license agreement, we have a right to use the “Lafayette Square” name, subject to certain conditions, for so long as our Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “Lafayette Square” name.
Director Independence
The 1940 Act requires that at least a majority of our directors not be “interested persons” (as defined in the 1940 Act) of the Company. On an annual basis, each member of our Board is required to complete an independence questionnaire designed to provide information to assist our Board in determining whether the director is independent under the 1940 Act and our corporate governance guidelines. Our Board has determined that each of our directors, other than Damien Dwin, is independent under the Exchange Act and the 1940 Act. Our governance guidelines require any director who has previously been determined to be independent to inform the Chair of the Board, the Chair of the Nominating and Corporate Governance Committee and our corporate secretary of any change in circumstance that may cause his or her status as an independent director to change. Our Board limits membership on the Audit Committee and the Nominating and Corporate Governance Committee to independent directors.
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Item 14. | Principal Accounting Fees and Services. |
Ernst & Young LLP, New York, New York, has been appointed by the Board to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2023. Ernst & Young LLP acted as the Company’s independent registered public accounting firm for the period from inception (February 19, 2021) through December 31, 2021 and for the fiscal year ended December 31, 2022. The Company knows of no direct financial or material indirect financial interest of Ernst & Young LLP in the Company. A representative of Ernst & Young LLP will 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 so.
The Audit Committee of the independent directors of the Board have appointed Ernst & Young LLP as the Company’s independent registered public accounting firm for the for the fiscal year ending December 31, 2023, subject to ratification or rejection by the stockholders of the Company.
Although action by the shareholders on this matter is not required, the Audit Committee and the Board believes it is appropriate to seek shareholder ratification of this selection in light of the role played by the independent registered public accounting firm in reporting on the Company’s consolidated financial statements. If a quorum is present at the Annual Meeting and the appointment of Ernst & Young LLP as independent registered public accounting firm for the fiscal year ending December 31, 2023 is not ratified by the shareholders, the adverse vote will be considered by the Audit Committee in determining whether to appoint Ernst & Young LLP as the Company’s independent registered public accounting firm for the succeeding fiscal year.
The following table displays fees for professional services by Ernst & Young LLP for the year ended December 31, 2022 (dollars in thousands):
For the year ended December 31, 2022 | ||||
Audit Fees(1) | $ | 195 | ||
Audit Related Fees(2) | 7.6 | |||
Tax Fees(3) | - | |||
All Other Fees(4) | - | |||
Total | $ | 202.6 |
(1) | Audit fees include fees for professional services that generally only the independent accountant can provide. In addition to fees, including out-of-pocket expenses, for the audit of our annual financial statements, the audit of the effectiveness of our internal control over financial reporting, and the review of our quarterly financial statements in accordance with generally accepted auditing standards, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC. |
(2) | Audit-related services consist of fees billed, including out-of-pocket expenses, for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. |
(3) | Tax fees consist of fees billed, including out-of-pocket expenses, for professional services for tax compliance. These services include assistance regarding federal, state, and local tax compliance. |
(4) | Fees for other services would include fees for products and services other than the services reported above. |
Pre-Approval Policies and Procedures
The Audit Committee has established a pre-approval policy that describes the permitted audit, audit-related, tax and other services to be provided by Ernst & Young LLP, the Company’s independent registered public accounting firm. The policy requires that the Audit Committee pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such service does not impair the auditor’s independence. Any requests for audit, audit-related, tax and other services that have not received general pre-approval must be submitted to the Audit Committee for specific pre-approval, irrespective of the amount, and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the Audit Committee. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent registered public accounting firm to management.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Previously filed as part of the Registrant’s Registration Statement on Form 10 (File No. 000-56289) filed on May 28, 2021 and incorporated herein by reference.
(2) Previously filed as part of Registrant’s Current Report on Form 8-K filed on May 19, 2022 and incorporated herein by reference.
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Lafayette Square USA, Inc. | ||
Date: May 9, 2023 | By: | /s/ Damien Dwin |
Name: Damien Dwin | ||
Title: President and Chief Executive Officer | ||
Date: May 9, 2023 | By: | /s/ Seren Tahiroglu |
Name: Seren Tahiroglu | ||
Title: Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on May 9, 2023.
Name | Title | |
/s/ Damien Dwin | President, Chief Executive Officer and Chairman of the Board of Directors | |
Damien Dwin | ||
/s/ Seren Tahiroglu | Chief Financial Officer | |
Seren Tahiroglu | ||
/s/ Jacqueline Bradley | Director | |
Jacqueline Bradley | ||
/s/ Troy Dixon | Director and Chairman of the Audit Committee | |
Troy Dixon |