N-14 8C 1 ny20023467x1_n148c.htm N-14 8C

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As filed with the Securities and Exchange Commission on April 15, 2024
Registration No. [•]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No.
(Check appropriate box or boxes)
SILVER SPIKE INVESTMENT CORP.
(Exact Name of Registrant as Specified in Its Charter)
600 Madison Avenue, Suite 1800
New York, NY
(212) 905-4923
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Scott Gordon
Umesh Mahajan
Silver Spike Investment Corp.
600 Madison Avenue, Suite 1800
New York, NY
(212) 905-4923
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
Gregory S. Rowland, Esq.
Lee Hochbaum, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Tel: (212) 450-4000
Owen J. Pinkerton, Esq.
Craig T. Alcorn, Esq.
Eversheds Sutherland (US) LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001
Tel: (202) 383-0100
Approximate Date of Proposed Public Offering: As soon as practicable after this registration statement becomes effective and upon completion of the transactions described in the enclosed document.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This document is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where such offer or sale is not permitted.
PRELIMINARY—SUBJECT TO COMPLETION—DATED APRIL 15, 2024


SILVER SPIKE INVESTMENT CORP.
YOUR VOTE IS VERY IMPORTANT
Dear Stockholder,
You are cordially invited to attend the virtual special meeting of stockholders of Silver Spike Investment Corp. (“SSIC”) to be held on [•], 2024 at [•] [a.m./p.m.] Eastern Time (together with any adjournments or postponements thereof, the “SSIC Special Meeting”). The live webcast will be accessible at www.virtualshareholdermeeting.com/SSIC2024SM. By accessing such live webcast, you will be able to participate in the SSIC Special Meeting, including by voting and submitting questions.
The Notice of the SSIC Special Meeting and joint proxy statement/information statement/prospectus accompanying this letter provide an outline of the business to be conducted at the SSIC Special Meeting. At the SSIC Special Meeting, you will be asked to consider and vote upon:
(i)
a proposal to approve the issuance of shares of SSIC common stock, $0.01 par value per share (“SSIC Common Stock”) to be issued pursuant to the Purchase Agreement dated as of February 18, 2024 (the “Loan Portfolio Acquisition Agreement”) between SSIC and Chicago Atlantic Loan Portfolio, LLC (“CALP”) in accordance with NASDAQ listing rule requirements (such proposal is referred to herein as the “Stock Issuance Proposal”);
(ii)
a proposal to elect the following individuals, in each case subject to the conditions set forth in the joint proxy statement/information statement/prospectus accompanying this letter: (a) Frederick C. Herbst as a Class 1 director with a term expiring at the 2025 annual meeting of SSIC stockholders, (b) John Mazarakis as a Class 2 director with a term expiring at the 2026 annual meeting of SSIC stockholders, and (c) Jason Papastavrou as a Class 3 director with a term expiring at the 2027 annual meeting of SSIC stockholders (such proposal is referred to herein as the “Director Election Proposal”); and
(iii)
a proposal to approve a new investment advisory agreement by and between SSIC and Silver Spike Capital LLC (“SSIC Adviser”) (the “New Investment Advisory Agreement”), which has the same base management and incentive fee as, and otherwise does not materially differ from, the current investment advisory agreement by and between SSIC and SSIC Adviser (the “Current Investment Advisory Agreement”), because the Current Investment Advisory Agreement may be deemed to terminate as a result of a transaction involving a change in the ownership of SSIC Adviser (such proposal is referred to herein as the “Advisory Agreement Approval Proposal”).
SSIC and CALP are proposing that SSIC purchase all or substantially all of the portfolio investments held by CALP (the “Loan Portfolio”) in exchange for newly issued shares of SSIC Common Stock (the “Loan Portfolio Acquisition”) pursuant to the Loan Portfolio Acquisition Agreement. Subject to the terms and conditions of the Loan Portfolio Acquisition Agreement, if the Loan Portfolio Acquisition is completed, CALP will receive such number of newly issued shares of SSIC Common Stock equal to the quotient of the fair value of the Loan Portfolio divided by the net asset value (“NAV”) per share of SSIC Common Stock, reflective of expenses related to the Loan Portfolio Acquisition, in each case calculated as of the same date within two (2) business days prior to the closing of the Loan Portfolio Acquisition (the “Loan Portfolio Consideration”). CALP will receive cash in lieu of fractional shares.
Although the Loan Portfolio Consideration will not be affected by the market price of SSIC Common Stock, the market value of the Loan Portfolio Consideration will fluctuate with changes in the market price of SSIC Common Stock. We urge you to obtain current market quotations of SSIC Common Stock. SSIC Common Stock trades on the Nasdaq Global Market (“NASDAQ”) under the ticker symbol “SSIC.” The closing sale price of SSIC Common Stock, as reported on NASDAQ, on February 16, 2024, the last trading day before the public announcement of the proposed joint venture between SSIC Adviser and Chicago Atlantic Group, LP (the “Joint Venture”) and the Loan Portfolio Acquisition, was $7.94.

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Upon the effectiveness of the New Investment Advisory Agreement, SSIC would be renamed “Chicago Atlantic BDC, Inc.,” and its ticker symbol would be changed to [“LIEN”], and SSIC Adviser would be renamed “Chicago Atlantic BDC Advisers, LLC.”
Your vote is extremely important. At the SSIC Special Meeting, you will be asked to vote on the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal. The approval of the Stock Issuance Proposal requires the affirmative vote of at least a majority of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. The approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. The approval of the Advisory Agreement Approval Proposal requires the approval of a “majority of the outstanding voting securities,” as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), of SSIC. Under the 1940 Act, a “majority of the outstanding voting securities” of SSIC means the lesser of: (1) 67% of the shares of SSIC Common Stock present in person (virtually) or represented by proxy at the SSIC Special Meeting if the holders of more than 50% of the outstanding shares of SSIC Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of SSIC Common Stock.
Abstentions (or in the case of the Director Election Proposal, “withhold” votes) and broker non-votes, if any (which occur when a beneficial owner does not instruct its broker, bank or other institution or nominee holding its shares of SSIC Common Stock on its behalf), will have no effect on the outcome of the Stock Issuance Proposal or the Director Election Proposal. Abstentions and broker non-votes, if any, will not count as affirmative votes cast and will therefore have the same effect as votes against the Advisory Agreement Approval Proposal. Because all of the proposals to be considered at the SSIC Special Meeting are non-routine matters for SSIC, brokers do not have the authority to vote on the proposals without instruction from their client. Accordingly, there should be no broker non-votes at the SSIC Special Meeting.
As of [•], 2024, the record date for the determination of stockholders entitled to notice of, and to vote at, the SSIC Special Meeting, SSIC Adviser and its affiliates held SSIC Common Stock comprising approximately [•]% of the outstanding shares of SSIC Common Stock, and, therefore, have the ability to control whether each of the proposals is approved. Furthermore, SSIC Adviser and its affiliates have entered into a voting agreement pursuant to which, subject to the terms thereof, they have agreed to vote the outstanding shares of SSIC Common Stock for which they have voting power in favor of each of the proposals. See “Description of the Loan Portfolio Acquisition Agreement—Voting Agreement” in the accompanying joint proxy statement/information statement/prospectus.
After careful consideration and on the recommendation of the special committee of the SSIC Board, comprised solely of the SSIC Independent Directors (the “Special Committee”), the board of directors of SSIC unanimously recommends that SSIC stockholders vote “FOR” each of the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
It is important that your shares of SSIC Common Stock be represented at the SSIC Special Meeting. Whether or not you expect to participate in the SSIC Special Meeting virtually through the live webcast, we 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 accompanying joint proxy statement/information statement/prospectus and on the enclosed proxy card. If you do not vote, it may result in SSIC not having a sufficient quorum of the majority of outstanding SSIC Common Stock represented in person (virtually) or by proxy at the SSIC Special Meeting and a meeting cannot be held unless a quorum is present.

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The accompanying joint proxy statement/information statement/prospectus concisely describes the SSIC Special Meeting, the Loan Portfolio Acquisition, the Loan Portfolio Acquisition Agreement, and other related matters that SSIC stockholders ought to know before voting on the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal, and should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 18, for a discussion of the risks relating to the Loan Portfolio Acquisition. You also can obtain information about SSIC from documents that SSIC has filed with the U.S. Securities and Exchange Commission. See “Where You Can Find More Information” for instructions on how to obtain such information.
Sincerely,

Scott Gordon
Chairman and Chief Executive Officer of Silver Spike Investment Corp.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of SSIC Common Stock to be issued under the accompanying joint proxy statement/information statement/prospectus or determined if the joint proxy statement/information statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The joint proxy statement/information statement/prospectus is dated [•], 2024 and it is first being mailed or otherwise delivered to SSIC stockholders on or about [•], 2024.
Silver Spike Investment Corp.
Chicago Atlantic Loan Portfolio, LLC
600 Madison Avenue, Suite 1800
420 N. Wabash Avenue, Suite 500
New York, New York 10022
Chicago, Illinois 60611
(215) 905-4923
info@chicagoatlantic.com
 
(312) 809-7002

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SILVER SPIKE INVESTMENT CORP.
600 Madison Avenue, Suite 1800
New York, New York 10022
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On [•], 2024
To the Stockholders of Silver Spike Investment Corp.:
NOTICE IS HEREBY GIVEN THAT the virtual special meeting of stockholders of Silver Spike Investment Corp., a Maryland corporation (“SSIC”), will be held on [•], 2024, at [•] [a.m./p.m.] Eastern Time (together with any adjournments or postponements thereof, the “SSIC Special Meeting”). The live webcast will be accessible at www.virtualshareholdermeeting.com/SSIC2024SM. By accessing such live webcast, you will be able to participate in the SSIC Special Meeting, including by voting and submitting questions.
The SSIC Special Meeting will be held for the following purposes:
1.
To consider and vote upon a proposal to approve the issuance of shares of SSIC common stock, $0.01 par value per share (“SSIC Common Stock”) to be issued pursuant to the Purchase Agreement dated as of February 18, 2024 (the “Loan Portfolio Acquisition Agreement”) between SSIC and Chicago Atlantic Loan Portfolio, LLC (“CALP”) in accordance with NASDAQ listing rule requirements (such proposal is referred to herein as the “Stock Issuance Proposal”);
2.
To consider and vote upon a proposal to elect the following individuals, in each case subject to the conditions set forth in the joint proxy statement/information statement/prospectus accompanying this notice: (a) Frederick C. Herbst as a Class 1 director with a term expiring at the 2025 annual meeting of SSIC stockholders, (b) John Mazarakis as a Class 2 director with a term expiring at the 2026 annual meeting of SSIC stockholders, and (c) Jason Papastavrou as a Class 3 director with a term expiring at the 2027 annual meeting of SSIC stockholders (such proposal is referred to herein as the “Director Election Proposal”); and
3.
To consider and vote upon a proposal to approve a new investment advisory agreement by and between SSIC and Silver Spike Capital, LLC (“SSIC Adviser”) (the “New Investment Advisory Agreement”), which has the same base management and incentive fee as, and otherwise does not materially differ from, the current investment advisory agreement by and between SSIC and SSIC Adviser (the “Current Investment Advisory Agreement”), because the Current Investment Advisory Agreement may be deemed to terminate as a result of a transaction involving a change in the ownership of SSIC Adviser (such proposal is referred to herein as the “Advisory Agreement Approval Proposal”).
Upon the recommendation of the special committee of the SSIC Board, comprised solely of the SSIC Independent Directors (the “Special Committee”), the SSIC board of directors has unanimously approved each of (i) the Loan Portfolio Acquisition Agreement, (ii) the nomination of the persons named for election as director in this Notice of Special Meeting of Stockholders, and (iii) the New Investment Advisory Agreement, and unanimously recommends that SSIC stockholders vote “FOR” each of the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
It is important that your shares of SSIC Common Stock be represented at the SSIC Special Meeting. Whether or not you expect to participate in the SSIC Special Meeting virtually through the live webcast, please 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 accompanying joint proxy statement/information statement/prospectus and on the enclosed proxy card.

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The Stock Issuance Proposal is described in more detail in the accompanying joint proxy statement/information statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to the joint proxy statement/information statement/prospectus is a copy of the Loan Portfolio Acquisition Agreement as Annex A.
The Advisory Agreement Approval Proposal is described in more detail in the accompanying joint proxy statement/information statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to the joint proxy statement/information statement/prospectus is a copy of the New Investment Advisory Agreement as Annex B.
The board of directors of SSIC has fixed the close of business on [•], 2024 as the record date (the “Record Date”) for the determination of stockholders entitled to notice of, and to vote at, the SSIC Special Meeting.
Important notice regarding the availability of proxy materials for the SSIC Special Meeting. SSIC’s joint proxy statement/information statement/prospectus, the proxy card, and SSIC’s annual report on Form 10-K for the fiscal year ended December 31, 2023 are available online at www.proxyvote.com or the SEC’s EDGAR website at www.sec.gov.
The following information applicable to the SSIC Special Meeting may be found in the accompanying joint proxy statement/information statement/prospectus and proxy card:
The date and time of the SSIC Special Meeting and instructions on how to participate in and vote at the SSIC Special Meeting virtually through the live webcast;
A list of the matters intended to be acted on and SSIC’s recommendations regarding those matters; and
Any control/identification numbers that you need to access your proxy card.
 
By Order of the Board of Directors,
 
 
 
Scott Gordon
 
Chairman and Chief Executive Officer of Silver Spike
Investment Corp.
[•], 2024
SSIC stockholders are requested to promptly authorize a proxy over the Internet or by telephone, or execute and return the accompanying proxy card, which is being solicited by the board of directors of SSIC. Instructions are shown on the proxy card. Authorizing a proxy is important to ensure a quorum at the SSIC Special Meeting. 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 participating in the SSIC Special Meeting and voting virtually through the live webcast.

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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This document is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where such offer or sale is not permitted.
PRELIMINARY—SUBJECT TO COMPLETION—DATED APRIL 15, 2024
CHICAGO ATLANTIC LOAN PORTFOLIO, LLC
420 N. Wabash Avenue, Suite 500
Chicago, Illinois 60611
[•], 2024
The accompanying joint proxy statement/information statement/prospectus is being furnished to the members of Chicago Atlantic Loan Portfolio, LLC (“CALP”) in connection with a proposed transaction (the “Loan Portfolio Acquisition”) in which Silver Spike Investment Corp. (“SSIC”) would purchase all or substantially all of the portfolio investments held by CALP (the “Loan Portfolio”) in exchange for newly issued shares of SSIC common stock, $0.01 par value per share (“SSIC Common Stock”), pursuant to the Purchase Agreement between SSIC and CALP, dated as of February 18, 2024 (the “Loan Portfolio Acquisition Agreement”).
Subject to the terms and conditions of the Loan Portfolio Acquisition Agreement, if the Loan Portfolio Acquisition is completed, CALP will receive such number of newly issued shares of SSIC Common Stock equal to the quotient of the fair value of the Loan Portfolio divided by the net asset value (“NAV”) per share of SSIC Common Stock, reflective of expenses related to the Loan Portfolio Acquisition, in each case calculated as of the same date within two (2) business days prior to the closing of the Loan Portfolio Acquisition (the “Loan Portfolio Consideration”).
You are receiving the accompanying joint proxy statement/information statement/prospectus because CALP intends to distribute the Loan Portfolio Consideration to CALP members within six months following the closing of the Loan Portfolio Acquisition.
Although the Loan Portfolio Consideration will not be affected by the market price of SSIC Common Stock, the market value of the Loan Portfolio Consideration will fluctuate with changes in the market price of SSIC Common Stock. We urge you to obtain current market quotations of SSIC Common Stock. SSIC Common Stock trades on the Nasdaq Global Market (“NASDAQ”) under the ticker symbol “SSIC.” The closing sale price of SSIC Common Stock, as reported on NASDAQ, on February 16, 2024, the last trading day before the public announcement of the proposed joint venture between SSIC Adviser and Chicago Atlantic Group, LP (the “Joint Venture”) and the Loan Portfolio Acquisition, was $7.94.
We are not asking you for a proxy and you are requested not to send us a proxy.
The accompanying joint proxy statement/information statement/prospectus concisely describes the Loan Portfolio Acquisition, the Loan Portfolio Acquisition Agreement, and other related matters, and should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 18, for a discussion of the risks relating to the Loan Portfolio Acquisition. Attached to the joint proxy statement/information statement/prospectus is a copy of the Loan Portfolio Acquisition Agreement as Annex A. You also can obtain information about SSIC from documents that SSIC has filed with the U.S. Securities and Exchange Commission. See “Where You Can Find More Information” for instructions on how to obtain such information.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of SSIC Common Stock to be issued under the accompanying joint proxy statement/information statement/prospectus or determined if the joint proxy statement/information statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This joint proxy statement/information statement/prospectus is dated [•], 2024 and it is first being mailed or otherwise delivered to CALP members on or about [•], 2024.
Silver Spike Investment Corp.
600 Madison Avenue, Suite 1800
New York, New York 10022
(215) 905-4923
Chicago Atlantic Loan Portfolio, LLC
420 N. Wabash Avenue, Suite 500
Chicago, Illinois 60611
info@chicagoatlantic.com
(312) 809-7002

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ABOUT THIS DOCUMENT
This document, which forms part of a registration statement on Form N-14 filed with the U.S. Securities and Exchange Commission (the “SEC”) by SSIC (File No. 333-[•]), constitutes a prospectus of SSIC under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of SSIC Common Stock to be issued to CALP as required by the Loan Portfolio Acquisition Agreement.
This document also constitutes a proxy statement of SSIC under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and an information statement of CALP. It also constitutes a notice of meeting with respect to the SSIC Special Meeting, at which SSIC stockholders will be asked to vote upon the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
You should rely only on the information contained in this joint proxy statement/information statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this joint proxy statement/information statement/prospectus. This joint proxy statement/information statement/prospectus is dated [•], 2024. You should not assume that the information contained in this joint proxy statement/information statement/prospectus is accurate as of any date other than that date. Neither the mailing of this joint proxy statement/information statement/prospectus to SSIC stockholders or CALP members nor the issuance of SSIC common stock, $0.01 par value per share (“SSIC Common Stock”) in connection with the Loan Portfolio Acquisition will create any implication to the contrary.
This joint proxy statement/information statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.
Except where the context otherwise indicates, information contained in this joint proxy statement/information statement/prospectus regarding SSIC has been provided by SSIC and information contained in this joint proxy statement/information statement/prospectus regarding CALP has been provided by CALP.
When used in this document, unless otherwise indicated in this document or the context otherwise requires:
“1940 Act” refers to the Investment Company Act of 1940, as amended;
“Administration Agreement” refers to the Administration Agreement, dated July 27, 2021, by and between SSIC and SSIC Adviser;
“Advisers Act” refers to the Investment Advisers Act of 1940, as amended;
“BDC” refers to a business development company regulated under the 1940 Act;
“CAG” refers to Chicago Atlantic Group, L.P., a Delaware limited partnership;
“CALP” refers to Chicago Atlantic Loan Portfolio, LLC;
“CALP Adviser” refers to Chicago Atlantic BDC Holdings, LLC, CALP’s investment adviser;
“CALP Investment Management Agreement” refers to CALP’s investment management agreement with CALP Adviser;
“CALP LLCA” refers to CALP’s limited liability company agreement;
“CALP Managing Member” refers to the managing member of CALP;
“Closing Date” refers to the closing date of the Loan Portfolio Acquisition;
“Code” refers to the Internal Revenue Code of 1986, as amended;
“Current Investment Advisory Agreement” refers to the Investment Advisory Agreement, dated July 27, 2021, by and between SSIC and SSIC Adviser;
“Determination Date” refers to an agreed upon date no more than two (2) business days prior to the Closing Date;
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
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“GAAP” refers to U.S. generally accepted accounting principles;
“Investment Committee” refers to SSIC’s investment committee;
“Joint Venture” refers to the proposed joint venture between SSIC Adviser and CAG;
“KBW” refers to Keefe, Bruyette & Woods, Inc., the financial advisor to the Special Committee;
“Loan Portfolio” means all or substantially all of the portfolio investments held by CALP;
“Loan Portfolio Acquisition” refers to the purchase of the Loan Portfolio by SSIC in exchange for newly issued shares of SSIC Common Stock;
“Loan Portfolio Acquisition Agreement” refers to the Purchase Agreement dated as of February 18, 2024, between SSIC and CALP;
“Loan Portfolio Consideration” refers to the quotient of the fair value of the Loan Portfolio divided by the NAV per share of SSIC Common Stock, reflective of expenses related to the Loan Portfolio Acquisition, in each case calculated as of the same date within two (2) business days prior to the Closing Date;
“Loan Portfolio Fair Value” refers to the fair value of the Loan Portfolio;
“MGCL” refers to the Maryland General Corporation Law;
“NASDAQ” refers to the Nasdaq Global Market;
“NAV” refers to net asset value;
“New Directors” refers to Frederick C. Herbst, John Mazarakis and Jason Papastavrou;
“New Investment Advisory Agreement” refers to the proposed new investment advisory agreement by and between SSIC and SSIC Adviser;
“New SSIC Independent Directors” refers to Frederick C. Herbst and Jason Papastavrou;
“Record Date” refers to [•], 2024, the record date for the SSIC Special Meeting;
“RIC” refers to regulated investment company as defined in the Code;
“SEC” refers to the U.S. Securities and Exchange Commission;
“Securities Act” refers to the Securities Act of 1933, as amended;
“Special Committee” refers to the special committee of the SSIC Board comprising the SSIC Independent Directors;
“SSIC” refers to Silver Spike Investment Corp.;
“SSIC Adviser” refers to Silver Spike Capital, LLC, SSIC’s investment adviser;
“SSIC Board” refers to SSIC’s board of directors;
“SSIC Bylaws” refers to SSIC’s Amended and Restated Bylaws;
“SSIC Charter” refers to SSIC’s Articles of Amendment and Restatement;
“SSIC Common Stock” refers to SSIC’s common stock, $0.01 par value per share;
“SSIC Independent Directors” refers to the directors of SSIC who are not “interested persons,” within the meaning of the 1940 Act; and
“SSIC Special Meeting” refers the virtual special meeting of SSIC stockholders to be held on [•], 2024 at [•] [a.m./p.m.] Eastern Time, together with any adjournments or postponements thereof.
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QUESTIONS AND ANSWERS ABOUT THE SSIC SPECIAL MEETING AND THE LOAN PORTFOLIO ACQUISITION
The questions and answers below highlight only selected information from this joint proxy statement/information statement/prospectus. They do not contain all of the information that may be important to you. You should read carefully this entire document to fully understand the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal, and the voting procedures for the SSIC Special Meeting.
Questions and Answers about the SSIC Special Meeting
Q:
Why am I receiving these materials?
A:
SSIC is furnishing these materials in connection with the solicitation of proxies by SSIC’s board of directors (the “SSIC Board”) for use at the virtual special meeting of SSIC stockholders to be held on [], 2024 at [] [a.m./p.m.] Eastern Time (together with any adjournments or postponements thereof, the “SSIC Special Meeting”). The live webcast will be accessible at www.virtualshareholdermeeting.com/SSIC2024SM. By accessing such live webcast, you will be able to participate in the SSIC Special Meeting, including by voting and submitting questions.
CALP is furnishing these materials in connection with its intended distribution to CALP members of the SSIC Common Stock that it receives in connection with the Loan Portfolio Acquisition.
This joint proxy statement/information statement/prospectus and the accompanying materials are being mailed on or about [•], 2024 to stockholders of record of SSIC and members of record of CALP described below and are available at www.proxyvote.com.
Q:
What items will be considered and voted on at the SSIC Special Meeting?
A:
At the SSIC Special Meeting, SSIC stockholders will be asked to approve (i) the issuance of the shares of SSIC common stock, $0.01 par value per share (“SSIC Common Stock”), pursuant to the Loan Portfolio Acquisition Agreement in accordance with NASDAQ listing rule requirements (the “Stock Issuance Proposal”); (ii) the election of each of Frederick C. Herbst, John Mazarakis and Jason Papastavrou to serve as directors on the SSIC Board, subject to the conditions set forth in this joint proxy statement/information statement/prospectus (the “Director Election Proposal”); and (iii) a new investment advisory agreement by and between SSIC and SSIC Adviser (the “New Investment Advisory Agreement”), which has the same base management and incentive fee as, and otherwise does not materially differ from, the current investment advisory agreement by and between SSIC and SSIC Adviser (the “Current Investment Advisory Agreement”), because the Current Investment Advisory Agreement may be deemed to terminate as a result of a transaction involving a change in the ownership of SSIC Adviser (the “Advisory Agreement Approval Proposal”).
Upon the effectiveness of the New Investment Advisory Agreement, SSIC would be renamed “Chicago Atlantic BDC, Inc.,” and its ticker symbol would be changed to [“LIEN”], and SSIC Adviser would be renamed “Chicago Atlantic BDC Advisers, LLC.”
Q:
How does the SSIC Board recommend voting on the proposals at the SSIC Special Meeting?
A:
Upon the recommendation of the special committee of the SSIC Board, comprised solely of the SSIC Independent Directors (the “Special Committee”), the SSIC Board has unanimously approved each of the Loan Portfolio Acquisition Agreement, the nomination of the persons named for election as director in this joint proxy statement/information statement/prospectus, and the New Investment Advisory Agreement, and unanimously recommends that SSIC stockholders vote “FOR” each of the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
Q:
What is the “Record Date” and what does it mean?
A:
The record date for the SSIC Special Meeting is [], 2024 (the “Record Date”). The Record Date is established by the SSIC Board in order to determine the shareholders that are eligible to vote on each
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proposal, and only holders of record of shares of SSIC Common Stock at the close of business on the Record Date are entitled to receive notice of the SSIC Special Meeting and vote at the SSIC Special Meeting. As of the Record Date, there were [•] shares of SSIC Common Stock outstanding.
Q:
How many votes do I have?
A:
Each share of SSIC Common Stock held by a holder of record as of the Record Date has one vote on each matter considered at the SSIC Special Meeting.
Q:
How may I participate in and vote at the SSIC Special Meeting?
A:
Virtually at the SSIC Special Meeting. SSIC will be hosting the SSIC Special Meeting live via webcast. Any stockholder can participate in the SSIC Special Meeting live online at www.virtualshareholdermeeting.com/SSIC2024SM. If you were a stockholder as of the Record Date, or you hold a valid proxy for the SSIC Special Meeting from a stockholder as of the Record Date, you can vote at the SSIC Special Meeting. A summary of the information you need to attend the SSIC Special Meeting online is provided below:
Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com.
Assistance with questions regarding how to attend and participate via the Internet will be provided at www.virtualshareholdermeeting.com/SSIC2024SM, 30 minutes before the start of the virtual SSIC Special Meeting.
Webcast starts at [•] [a.m./p.m.] Eastern Time.
You will need your control number located on your proxy card to enter the SSIC Special Meeting.
Stockholders may submit questions while attending the SSIC Special Meeting via the Internet.
To participate in the SSIC Special Meeting, you will need the control number located on your proxy card. If you lose your control number, you may join the SSIC Special Meeting as a “Guest,” but you will not be able to vote, ask questions or access the list of stockholders as of the Record Date. SSIC will have technicians ready to assist with any technical difficulties stockholders may have accessing the virtual meeting website. If you encounter any difficulties accessing the virtual meeting website during the check-in or meeting time, please call the technical support number that will be posted on the SSIC Special Meeting login page.
If your shares are held in “street name” through a bank, broker or other nominee, in order to vote during the live webcast of the SSIC Special Meeting you must first obtain a “legal proxy” from your bank, broker or other nominee and register with Broadridge Financial Solutions, Inc., as described below, in order for you to participate in the live webcast of the SSIC Special Meeting. You then may vote by following the instructions provided to you. Please refer to “The SSIC Special Meeting—Participation in SSIC Special Meeting and Voting of Proxies.”
By Proxy by Telephone. You may authorize a proxy by telephone by following the telephone voting instructions included on your proxy card. Most stockholders who hold shares beneficially in “street name” may provide voting instructions by telephone by calling the number specified on the voting instruction form provided by their brokers, banks or nominees. Please check the voting instruction form for telephone voting availability.
Authorizing a proxy by telephone requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on the proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call. Please be aware that if you submit voting instructions by telephone, you may incur costs such as telephone access charges for which you will be responsible. The telephone voting facilities will close at 11:59 p.m. Eastern Time on [•], 2024, the day before the SSIC Special Meeting date.
By Proxy through the Internet. You may authorize a proxy through the Internet using the web address included on your proxy card.
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Authorizing a proxy through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on the proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the Internet link.
By Proxy through the Mail. 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;
mail the proxy card promptly in the envelope provided, which requires no postage if mailed in the United States; and
allow sufficient time for the proxy card to be received on or before 11:59 p.m. Eastern Time on [•], 2024.
Important notice regarding the availability of proxy materials for the SSIC Special Meeting. SSIC’s joint proxy statement/information statement/prospectus and the proxy card are available at www.proxyvote.com.
Q:
What if a SSIC stockholder does not specify a choice for a matter when authorizing a proxy?
A:
All properly executed proxies representing shares of SSIC Common Stock received prior to the SSIC Special Meeting will be voted in accordance with the instructions marked thereon. If a proxy card is signed and returned without any instructions marked, the shares of SSIC Common Stock will be voted “FOR” the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
Q:
How can I change my vote or revoke a proxy?
A:
You may revoke your proxy and change your vote before the proxies are voted at the SSIC Special Meeting. You may change your vote using the Internet or telephone methods described herein, prior to the applicable cutoff time before the SSIC Special Meeting, in which case only your latest Internet or telephone proxy will be counted. Alternatively, you may revoke your proxy and change your vote by signing and returning a new proxy dated as of a later date, or by attending the SSIC Special Meeting and voting virtually through the live webcast. However, your attendance at the SSIC Special Meeting will not automatically revoke your proxy, unless you properly vote at the SSIC Special Meeting, or specifically request that your prior proxy be revoked by delivering a written notice of revocation to SSIC prior to the SSIC Special Meeting at the following address: Silver Spike Investment Corp., 600 Madison Avenue, Suite 1800, New York, New York 10022, Attention: Roxanne Jenkins, Secretary.
Q:
If my shares of SSIC Common Stock are held in a broker-controlled account or in “street name,” will my broker vote my shares for me?
A:
No. You should follow the instructions provided by your broker on your voting instruction form. It is important to note that your broker will vote your shares only if you provide instructions on how you would like your shares to be voted at the SSIC Special Meeting.
Q:
What constitutes a “quorum” for the SSIC Special Meeting?
A:
Under SSIC’s Articles of Amendment and Restatement (the “SSIC Charter”) and Amended and Restated Bylaws (the “SSIC Bylaws”), a majority of the number of shares of SSIC Common Stock entitled to be cast, present in person (virtually) or by proxy, constitutes a quorum for the transaction of business.
Abstentions or withheld votes will be treated as shares of SSIC Common Stock that are present for purposes of determining the presence of a quorum for transacting business at the SSIC Special Meeting.
A “broker non-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 (virtually) or by proxy) at a meeting for purposes of voting on a routine proposal (or a non-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 proposal and does not have, or chooses not to exercise, discretionary authority to vote the shares
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on such proposal. Because all of the proposals to be considered at the SSIC Special Meeting are non-routine matters for SSIC, brokers do not have the authority to vote on the proposals without instruction from their client. Accordingly, there should be no broker non-votes at the SSIC Special Meeting.
In the event that a quorum is not present at the SSIC Special Meeting, the chairman of the SSIC Special Meeting shall have the power to adjourn the SSIC Special Meeting from time to time to a date not more than 120 days after the Record Date originally fixed for the SSIC Special Meeting without notice, other than the announcement at the SSIC Special Meeting, to permit further solicitation of proxies. Any business that might have been transacted at the SSIC Special 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 the Stock Issuance Proposal, the Director Election Proposal, or the Advisory Agreement Approval Proposal at the SSIC Special Meeting, the chairman of the SSIC Special Meeting may adjourn the SSIC Special Meeting from time to time to a date not more than 120 days after the Record Date originally fixed for the SSIC Special Meeting without notice, other than announcement at the SSIC Special Meeting, to permit further solicitation of proxies.
Pursuant to the Loan Portfolio Acquisition Agreement, SSIC shall not adjourn the SSIC Special Meeting without the consent of CALP.
If sufficient votes in favor of one proposal have been received at the time of the SSIC Special Meeting, such proposal will be acted upon and such action will be final, regardless of any subsequent adjournments to consider other proposals.
Q:
What vote is required to approve each of the proposals at the SSIC Special Meeting?
A:
The affirmative vote of at least a majority of the votes cast by SSIC stockholders at a meeting at which a quorum is present is necessary for approval of the Stock Issuance Proposal.
The affirmative vote of a plurality of all of the votes cast by SSIC stockholders at a meeting at which a quorum is present is necessary for approval of the Director Election Proposal. Under a plurality vote, the director nominees who receive the highest number of “for” votes will be elected, even if they receive approval from less than a majority of the votes cast. Because the director nominees are running unopposed, each director nominee will be elected to the SSIC Board so long as a single vote is cast in favor of his election.
The approval of the Advisory Agreement Approval Proposal requires the approval of a “majority of the outstanding voting securities,” as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), of SSIC. Under the 1940 Act, a “majority of the outstanding voting securities” of SSIC means the lesser of: (1) 67% of the shares of SSIC Common Stock present in person (virtually) or represented by proxy at the SSIC Special Meeting if the holders of more than 50% of the outstanding shares of SSIC Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of SSIC Common Stock.
Abstentions (or in the case of the Director Election Proposal, “withhold votes”) and broker non-votes, if any, will have no effect on the outcome of the Stock Issuance Proposal or the Director Election Proposal. Abstentions and broker non-votes, if any, will not count as affirmative votes cast and will therefore have the same effect as votes against the Advisory Agreement Approval Proposal. Because all of the proposals to be considered at the SSIC Special Meeting are non-routine matters for SSIC, brokers do not have the authority to vote on the proposals without instruction from their client. Accordingly, there should be no broker non-votes at the SSIC Special Meeting.
As of the Record Date, SSIC Adviser and its affiliates held SSIC Common Stock comprising approximately [•]% of the outstanding shares of SSIC Common Stock, and, therefore, have the ability to control whether each of the proposals is approved. Furthermore, SSIC Adviser and its affiliates have entered into a voting agreement pursuant to which, subject to the terms thereof, they have agreed to vote the outstanding shares of SSIC Common Stock for which they have voting power in favor of each of the proposals. See “Description of the Loan Portfolio Acquisition Agreement—Voting Agreement.”
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Q:
How will the final voting results be announced?
A:
Preliminary voting results will be announced at the SSIC Special Meeting. Final voting results will be published by SSIC in a current report on Form 8-K within four business days after the date of the SSIC Special Meeting.
Q:
Will SSIC incur expenses in soliciting proxies?
A:
The expenses of the solicitation of proxies for the SSIC Special Meeting, including the cost of preparing, printing and mailing this joint proxy statement/information statement/prospectus, the accompanying Notice of Special Meeting of Stockholders and the proxy card, will be borne by SSIC to the extent that such expenses relate to the Stock Issuance Proposal and/or the Director Election Proposal, and will be borne by SSIC Adviser to the extent that such expenses relate to the Advisory Agreement Approval Proposal. SSIC has requested that brokers, nominees, fiduciaries and other persons holding shares of SSIC Common Stock 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. SSIC may reimburse such persons for their reasonable expenses in so doing.
In addition to the solicitation of proxies by mail, proxies may be solicited in person and by telephone or facsimile transmission by directors, officers or employees of SSIC and its affiliates (without special compensation therefor). SSIC has engaged Broadridge Financial Solutions, Inc., an independent shareholder services firm, to assist in the distribution of the proxy materials and the tabulation of proxies. The cost of these services is estimated to be approximately $23,000 plus reasonable out-of-pocket expenses.
For more information regarding expenses related to the Loan Portfolio Acquisition, see “Questions and Answers about the Loan Portfolio Acquisition—Who is responsible for paying the expenses relating to completing the Loan Portfolio Acquisition?”
Q:
What does it mean if I receive more than one proxy card?
A:
Some of your shares of SSIC Common Stock may be registered differently or held in a different account. You should authorize a proxy to vote 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.
Q:
Are the proxy materials available electronically?
A:
In accordance with regulations promulgated by the SEC, SSIC has made the registration statement (of which this joint proxy statement/information statement/prospectus forms a part), the Notice of Special Meeting of Stockholders and the proxy card available to stockholders of SSIC on the Internet. Stockholders may (i) access and review the proxy materials of SSIC, (ii) authorize their proxies, as described in “The SSIC Special Meeting—Vote Required” and/or (iii) elect to receive future proxy materials by electronic delivery, via the Internet address provided below.
The registration statement (of which this joint proxy statement/information statement/prospectus forms a part), the Notice of Special Meeting of Stockholders and the proxy card are available at www.proxyvote.com.
Pursuant to the rules adopted by the SEC, SSIC furnishes proxy materials by email to those stockholders who have elected to receive their proxy materials electronically. While SSIC encourages stockholders to take advantage of electronic delivery of proxy materials, which helps to reduce the environmental impact of stockholder 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 of SSIC Common Stock held by a broker or custodian, may request a printed set of proxy materials.
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Q:
Whom can I contact with any additional questions?
A:
If you are a SSIC stockholder, you can contact Broadridge Financial Solutions, Inc. at the below contact information with any additional questions:
Broadridge Financial Solutions, Inc.
51 Mercedes Way
Edgewood, New York 11717
1-833-868-3374
Q:
Where can I find more information about SSIC?
A:
You can find more information about SSIC in the documents described under the caption “Where You Can Find More Information.”
Q:
What do I need to do now?
A:
We urge you to read carefully this entire document, including its annexes. You should also review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors.
Questions and Answers about the Loan Portfolio Acquisition
Q:
What will happen in the Loan Portfolio Acquisition?
A:
SSIC will purchase all or substantially all of the portfolio investments held by CALP (the “Loan Portfolio”) in exchange for newly issued shares of SSIC Common Stock (the “Loan Portfolio Acquisition”) pursuant to the Loan Portfolio Acquisition Agreement.
Q:
What will CALP receive in the Loan Portfolio Acquisition?
A:
CALP will be entitled to receive such number of newly issued shares of SSIC Common Stock equal to the quotient of the fair value of the Loan Portfolio divided by the net asset value (“NAV”) per share of SSIC Common Stock, reflective of expenses related to the Loan Portfolio Acquisition, in each case calculated as of the same date within two (2) business days prior to the Closing Date (the “Loan Portfolio Consideration”) and the payment of cash in lieu of fractional shares.
Q:
Who is responsible for paying the expenses relating to completing the Loan Portfolio Acquisition?
A:
In general, all fees and expenses incurred in connection with the Loan Portfolio Acquisition shall be paid by the person incurring such fees and expenses, whether or not the Loan Portfolio Acquisition is consummated. However, SSIC shall bear the costs and expenses of printing and mailing this joint proxy statement/information statement/prospectus, and all filing and other fees paid to the SEC, in connection with the Loan Portfolio Acquisition. See “Description of the Loan Portfolio Acquisition Agreement—Expenses and Fees.” It is anticipated that SSIC will bear expenses of approximately $4.5 million in connection with the Loan Portfolio Acquisition (of which approximately $0.7 million was expensed during the quarter ended December 31, 2023) and that CALP will bear expenses of approximately $4 million in connection with the Loan Portfolio Acquisition (of which $0 was expensed during the period from January 1, 2024 to January 1, 2024).
Q:
Will I receive dividends after the Loan Portfolio Acquisition?
A:
Subject to applicable legal restrictions and the sole discretion of the SSIC Board, SSIC intends to declare and pay regular cash distributions to its stockholders on a quarterly basis. For a history of the dividends and distributions paid by SSIC since its inception, see “Market Price, Dividend and Distribution Information.” The amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions, or the amount thereof, the payment, timing and amount of which will be determined by the SSIC Board and depend on SSIC’s cash requirements, its financial condition and earnings, contractual restrictions, legal and regulatory considerations and other factors. See “Silver Spike Investment Corp. Dividend Reinvestment Plan” for additional information regarding SSIC’s dividend reinvestment plan.
CALP has paid no dividends or distributions since its inception.
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Q:
Is the Loan Portfolio Acquisition subject to any third-party consents?
A:
Under the Loan Portfolio Acquisition Agreement, each of SSIC’s and CALP’s obligation to complete the transfer of certain loans included in the Loan Portfolio is subject to the prior receipt of certain approvals, confirmations and consents required to be obtained from certain borrowers, agents and other parties with respect to such loans. Furthermore, the addition of certain loans to the Loan Portfolio requires third-party consents.
SSIC and CALP have agreed to cooperate with each other and use their reasonable best efforts to take, or cause to be taken, in good faith, all actions, and to do, or cause to be done, all things necessary, including to obtain as promptly as practicable all consents, approvals, confirmations and authorizations of all third parties, in each case, that are necessary or advisable, to consummate the Loan Portfolio Acquisition in the most expeditious manner practicable. There can be no assurance that any consents, approvals, confirmations or authorizations will be obtained or that such consents, approvals, confirmations or authorizations will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of SSIC following the Loan Portfolio Acquisition.
Q:
How does SSIC’s investment objective and strategy differ from CALP’s?
A:
The following table presents a comparison of SSIC’s and CALP’s investment objectives and strategies, which are substantially the same.
 
SSIC
CALP
Primary Investment Objective
Maximize risk-adjusted returns on equity for stockholders
Maximize risk-adjusted returns on equity for stockholders
 
 
Investment Focus
Senior secured and second lien secured loans of cannabis and other private middle market companies and, to a lesser extent, subordinated loans of such private companies
Senior secured and second lien secured loans of cannabis and other private middle market companies and, to a lesser extent, subordinated loans of such private companies
 
 
 
Target Borrower
Private companies with up to $100 million of earnings before interest, taxes, depreciation and amortization, or “EBITDA.”
Private companies with up to $100 million of earnings before interest, taxes, depreciation and amortization, or “EBITDA.”
 
 
 
Equity Investments
SSIC may make select equity investments and/or may receive equity interests such as warrants or options as additional consideration in connection with debt investments, as permitted by applicable laws and regulations
CALP may make select equity investments and/or may receive equity interests such as warrants or options as additional consideration in connection with debt investments, as permitted by applicable laws and regulations
As a result of these commonalities, CALP Adviser does not anticipate any significant portfolio repositioning in connection with the Loan Portfolio Acquisition.
Q:
How does SSIC’s investment advisory fee rate differ from CALP’s?
A:
SSIC and CALP are subject to the same base management fee and incentive fee rates.
Q:
How do the distribution procedures, purchase procedures, redemption procedures and exchange rights of SSIC differ from those of CALP?
A:
SSIC Common Stock trades on the Nasdaq Global Market (“NASDAQ”) under the ticker symbol “SSIC.” CALP’s membership units are not traded on a national securities exchange and have limited liquidity.
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Neither SSIC nor CALP offers exchange rights with respect to its equity interests. SSIC anticipates that it will maintain its distribution, purchase and redemption procedures following the closing of the Loan Portfolio Acquisition.
Q:
How will SSIC be managed following the Loan Portfolio Acquisition?
A:
The directors of SSIC immediately prior to the Loan Portfolio Acquisition shall remain directors of SSIC and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. In addition, subject to approval of the Director Election Proposal, Frederick C. Herbst, John Mazarakis and Jason Papastavrou will become directors of SSIC upon the effectiveness of the New Investment Advisory Agreement. The officers of SSIC immediately prior to the Loan Portfolio Acquisition shall remain officers of SSIC and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal. However, upon the effectiveness of the New Investment Advisory Agreement, Andreas Bodmeier will replace Scott Gordon as Chief Executive Officer of SSIC, Mr. Gordon will become Co-Chief Investment Officer of SSIC, Umesh Mahajan will become Co-Chief Investment Officer of SSIC in addition to remaining Chief Financial Officer of SSIC, and Dino Colonna will become President of SSIC. Following the Loan Portfolio Acquisition, subject to approval of the Advisory Agreement Approval Proposal, SSIC Adviser shall continue to be the investment adviser of SSIC pursuant to the New Investment Advisory Agreement.
Q:
Are SSIC stockholders able to exercise dissenters’ rights?
A:
No. SSIC stockholders will not be entitled to exercise dissenters’ rights with respect to any matter to be voted upon at the SSIC Special Meeting.
Any SSIC stockholder may abstain from voting or vote against the Stock Issuance Proposal and/or the Advisory Agreement Approval Proposal. Any SSIC stockholder may withhold his or her vote from any or all of the director nominees with respect to the Director Election Proposal.
Q:
When do you expect to complete the Loan Portfolio Acquisition?
A:
While there can be no assurance as to the exact timing, or that the Loan Portfolio Acquisition will be completed at all, SSIC and CALP are working to complete the Loan Portfolio Acquisition in the [] quarter of 2024. It is currently expected that the Loan Portfolio Acquisition will be completed promptly following receipt of the required stockholder approvals at the SSIC Special Meeting and satisfaction of the other closing conditions set forth in the Loan Portfolio Acquisition Agreement.
Q:
Is the Loan Portfolio Acquisition expected to be taxable to SSIC stockholders?
A:
No. The Loan Portfolio Acquisition is not expected to be a taxable event for SSIC stockholders.
Q:
Is the Loan Portfolio Acquisition expected to be taxable to CALP?
A:
Yes, the Loan Portfolio Acquisition is expected to be a taxable event for CALP.
Q:
What happens if the Loan Portfolio Acquisition is not consummated?
A:
If the issuance of shares of SSIC Common Stock in connection with the Loan Portfolio Acquisition is not approved by the requisite vote of SSIC’s stockholders, or if the Loan Portfolio Acquisition is not completed for any other reason, CALP may either continue to hold the Loan Portfolio or distribute its assets to its members in accordance with the terms of its limited liability company agreement (the “CALP LLCA”). In addition, under circumstances specified in the Loan Portfolio Acquisition Agreement, SSIC may be required to pay CALP a termination fee of $6,046,613. See “Description of the Loan Portfolio Acquisition Agreement—Termination of the Loan Portfolio Acquisition Agreement.”
Q:
Did the Special Committee of the SSIC Board receive an opinion from its financial advisor regarding the Loan Portfolio Acquisition?
A:
Yes. For more information, see the section entitled “The Loan Portfolio Acquisition—Opinion of the Special Committee’s Financial Advisor.”
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SUMMARY OF THE LOAN PORTFOLIO ACQUISITION
This summary highlights selected information contained elsewhere in this joint proxy statement/information statement/prospectus and may not contain all of the information that is important to you. You should carefully read this entire joint proxy statement/information statement/prospectus, including the other documents to which this joint proxy statement/information statement/prospectus refers for a more complete understanding of the Loan Portfolio Acquisition. In particular, you should read the annexes attached to this joint proxy statement/information statement/prospectus, including the Loan Portfolio Acquisition Agreement, which is attached as Annex A hereto, as it is the legal document that governs the Loan Portfolio Acquisition. For a discussion of the risk factors that you should carefully consider, see the section entitled “Risk Factors” beginning on page 18.
The Parties to the Loan Portfolio Acquisition
Silver Spike Investment Corp.
600 Madison Avenue, Suite 1800
New York, New York 10022
(215) 905-4923
SSIC was incorporated under the Maryland General Corporation Law (the “MGCL”) on January 25, 2021, and formally commenced investment operations on February 8, 2022. SSIC is an externally managed, non-diversified, closed-end management investment company. SSIC has elected to be regulated as a business development company (“BDC”) under the 1940 Act and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the taxable year ended March 31, 2022.
SSIC is a specialty finance company that may invest across the cannabis ecosystem through investments in the form of direct loans to, and equity ownership of, privately held cannabis companies. All of SSIC’s investments are designed to be compliant with all applicable laws and regulations within the jurisdictions in which they are made or to which SSIC is otherwise subject, including U.S. federal laws. SSIC will make equity investments only in companies that are compliant with all applicable laws and regulations within the jurisdictions in which they are located or operate, including U.S. federal laws. SSIC may make loans to companies that SSIC determines based on its due diligence are licensed in, and complying with, state-regulated cannabis programs, regardless of their status under U.S. federal law, so long as the investment itself is designed to be compliant with all applicable laws and regulations in the jurisdiction in which the investment is made or to which SSIC is otherwise subject, including U.S. federal law. SSIC is externally managed by SSIC Adviser and seeks to expand the compliant cannabis investment activities of SSIC Adviser’s leading investment platform in the cannabis industry. SSIC primarily seeks to partner with private equity firms, entrepreneurs, business owners and management teams to provide credit and equity financing alternatives to support buyouts, recapitalizations, growth initiatives, refinancings and acquisitions across cannabis companies, including cannabis-enabling technology companies, cannabis-related health and wellness companies, and hemp and CBD distribution companies. Under normal circumstances, each such cannabis company derives at least 50% of its revenues or profits from, or commits at least 50% of its assets to, activities related to cannabis at the time of SSIC’s investment in the cannabis company. SSIC is not required to invest a specific percentage of its assets in such cannabis companies, and it may make debt and equity investments in other companies regardless of sector.
SSIC’s investment objective is to maximize risk-adjusted returns on equity for its shareholders. SSIC seeks to capitalize on what it believes to be nascent cannabis industry growth and drive return on equity by generating current income from its debt investments and capital appreciation from its equity and equity-related investments. SSIC intends to achieve its investment objective by investing primarily in secured debt, unsecured debt, equity warrants and direct equity investments in privately held businesses. SSIC intends that its debt investments will often be secured by either a first or second priority lien on the assets of the portfolio company, can include either fixed or floating rate terms and will generally have a term of between three and six years from the original investment date. To date, SSIC has invested in first lien secured, fixed and floating rate debt with terms of two to four years. SSIC expects its secured loans to be secured by various types of assets of its borrowers. While the types of collateral securing any given secured loan will depend on the nature of the borrower’s business, common types of collateral SSIC expects to secure its loans include real property and certain personal property, including equipment, inventory, receivables, cash, intellectual property rights and other assets to the extent permitted by applicable laws and the regulations governing its borrowers. Certain attractive assets of SSIC’s
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borrowers, such as cannabis licenses and cannabis inventory, may not be able to be used as collateral or transferred to SSIC. See “Risks Relating to Our Investments—Certain assets of our borrowers may not be used as collateral or transferred to us due to applicable state laws and regulations governing the cannabis industry, and such restrictions could negatively impact our profitability” in “Item 1A. Risk Factors” in Part I of SSIC’s Annual Report on Form 10-K (File No. 814-01383) for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024. In some of SSIC’s portfolio investments, SSIC expects to receive nominally priced equity warrants and/or make direct equity investments in connection with a debt investment. In addition, a portion of SSIC’s portfolio may be comprised of derivatives, including total return swaps.
Generally, the loans SSIC invests in have a complete set of financial maintenance covenants, which are used to proactively address materially adverse changes in a portfolio company’s financial performance. However, SSIC may invest in “covenant-lite” loans. SSIC uses the term “covenant-lite” to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent SSIC invests in “covenant-lite” loans, SSIC may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with a complete set of financial maintenance covenants.
The loans in which SSIC tends to invest typically pay interest at rates which are determined periodically on the basis of PRIME plus a premium. The loans in which SSIC has invested and expects to invest are typically made to U.S. and, to a limited extent, non-U.S. (including emerging market) corporations, partnerships and other business entities which operate in various industries and geographical regions. These loans typically are not rated or are rated below investment grade. Securities rated below investment grade are often referred to as “high-yield” or “junk” securities, and may be considered a higher risk than debt instruments that are rated above investment grade.
SSIC has typically invested in and expects to continue to invest in loans made primarily to private leveraged middle-market companies with up to $100 million of earnings before interest, taxes, depreciation and amortization, or “EBITDA.” SSIC’s business model is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. SSIC expects that its investments will generally range between $4 million and $40 million each, although SSIC expects that this investment size will vary proportionately with the size of its capital base. SSIC has an active pipeline of investments and is currently reviewing over $422 million of potential investments in varying stages of underwriting.
Chicago Atlantic Loan Portfolio, LLC
420 N. Wabash Avenue, Suite 500
Chicago, Illinois 60611
info@chicagoatlantic.com
(312) 809-7002
CALP is a Delaware limited liability company, newly formed in connection with and for the sole purpose of holding senior loans consistent with SSIC’s investment objectives and strategies, which constitute the Loan Portfolio, to be purchased by SSIC in exchange for shares of SSIC’s common stock pursuant to the Loan Portfolio Acquisition Agreement. CALP is managed by CALP Adviser pursuant to an Investment Management Agreement between CALP and CALP Adviser. CALP and CALP Adviser are affiliates of Chicago Atlantic Group, L.P. (“CAG”), a Delaware limited partnership. Founded in 2019, CAG is a private market investment firm managed and equally owned by its founding partners, Andreas Bodmeier, John Mazarakis, and Anthony Cappell, which, together with its affiliates, manages private funds and a commercial mortgage real estate investment trust (“REIT”) listed on NASDAQ. CAG’s senior management team has significant experience in private lending and in cannabis-related industries, with CAG and its affiliates originating and closing more than 70 loans totaling approximately $1.8 billion to companies in the cannabis industry, beginning with their first loan in April 2019. As of December 31, 2023. CAG and its affiliates had aggregate assets under management of approximately $1.36 billion.
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Silver Spike Capital, LLC
600 Madison Avenue, Suite 1800
New York, New York 10022
(215) 905-4923
SSIC Adviser is a Delaware limited liability company registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). SSIC’s chairman and chief executive officer, Scott Gordon, serves as SSIC Adviser’s chief executive officer. SSIC Adviser’s senior management team has significant experience in private lending and in cannabis-related industries.
Chicago Atlantic BDC Holdings, LLC
420 N. Wabash Avenue, Suite 500
Chicago, Illinois 60611
info@chicagoatlantic.com
(312) 809-7002
CALP Adviser is a Delaware limited liability company that serves as the investment manager to CALP pursuant to an investment management agreement. CALP Adviser is a newly-formed entity formed for the sole purpose of the proposed joint venture between SSIC Adviser and CAG (the “Joint Venture”). It is anticipated that CALP Adviser will be issued ownership interests in SSIC Adviser representing between 65% and 75% of all interests in SSIC Adviser. CALP Adviser is an affiliate of CAG.
Loan Portfolio Acquisition Structure
Pursuant to the terms of the Loan Portfolio Acquisition Agreement, at the Closing Date, SSIC will purchase the Loan Portfolio in exchange for newly issued shares of SSIC Common Stock.
Based on the number of shares of SSIC Common Stock issued and outstanding as of December 31, 2023, the NAV of SSIC as of December 31, 2023 and the fair value of the Loan Portfolio as of January 1, 2024, at the closing of the Loan Portfolio Acquisition (the “Closing Date”), it is expected that current SSIC stockholders would own approximately 38.7% of the outstanding SSIC Common Stock and CALP would own approximately 61.3% of the outstanding SSIC Common Stock. However, CALP has agreed to use reasonable best efforts to add four loans with an aggregate value of approximately $43 million to the Loan Portfolio prior to the Determination Date, which would accordingly change these relative ownership percentages. The Loan Portfolio Consideration is calculated based on the NAV per share of SSIC Common Stock and the fair value of the Loan Portfolio, each as of the Determination Date. Following the Loan Portfolio Acquisition, SSIC will continue its operations as conducted before the Loan Portfolio Acquisition.
The Loan Portfolio Acquisition Agreement is attached as Annex A to this joint proxy statement/information statement/prospectus and is incorporated by reference into this joint proxy statement/information statement/prospectus. You are encouraged to read the Loan Portfolio Acquisition Agreement carefully and in its entirety, as it is the principal legal document governing the Loan Portfolio Acquisition.
Loan Portfolio Consideration
If the Loan Portfolio Acquisition is consummated, CALP will be entitled to receive such number of newly issued shares of SSIC Common Stock equal to the quotient of the fair value of the Loan Portfolio divided by the NAV per share of SSIC Common Stock, reflective of expenses related to the Loan Portfolio Acquisition, in each case calculated as of the same date within two (2) business days prior to the Closing Date. CALP will receive cash in lieu of fractional shares.
After the Determination Date and until the Loan Portfolio Acquisition is completed, the market value of the shares of SSIC Common Stock to be issued to CALP will continue to fluctuate but the number of shares of SSIC Common Stock to be issued to CALP will remain fixed.
Market Price of SSIC Common Stock
Shares of SSIC Common Stock trade on NASDAQ under the symbol “SSIC.” The closing sale price of SSIC Common Stock, as reported on NASDAQ, on February 16, 2024, the last trading day before the public announcement of the Joint Venture and the Loan Portfolio Acquisition, was $7.94.
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Risks Relating to the Loan Portfolio Acquisition
The Loan Portfolio Acquisition is subject to, among others, the following risks applicable to SSIC stockholders and CALP members. SSIC stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at the SSIC Special Meeting.
SSIC stockholders will experience a reduction in percentage ownership and voting power in SSIC as a result of the Loan Portfolio Acquisition.
SSIC may be unable to realize the benefits anticipated by the Loan Portfolio Acquisition, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.
The opinion delivered to the Special Committee from its financial advisor will not reflect changes in circumstances between signing the Loan Portfolio Acquisition Agreement and completion of the Loan Portfolio Acquisition.
If the Loan Portfolio Acquisition does not close, neither SSIC nor CALP will benefit from the expenses incurred in its pursuit.
Under certain circumstances, SSIC is obligated to pay CALP a termination fee upon termination of the Loan Portfolio Acquisition Agreement.
The Loan Portfolio Acquisition Agreement limits the ability of SSIC to pursue alternatives to the Loan Portfolio Acquisition.
The Loan Portfolio Acquisition is subject to closing conditions, including (i) stockholder approvals and (ii) the Loan Portfolio Consideration representing between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock, that, if not satisfied or waived, will result in the Loan Portfolio Acquisition not being completed, which may result in material adverse consequences to SSIC’s and CALP’s business and operations. Based on the number of shares of SSIC Common Stock issued and outstanding as of December 31, 2023, the net asset value per share of SSIC Common Stock as of December 31, 2023, net of estimated expenses related to the Loan Portfolio Acquisition, and the fair value of the Loan Portfolio as of January 1, 2024, the closing condition that the Loan Portfolio Consideration represent between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock would not be satisfied.
Termination of the Loan Portfolio Acquisition Agreement could negatively impact SSIC and CALP.
CALP has agreed to indemnify SSIC for certain damages arising from certain of CALP’s representations and warranties with respect to the Loan Portfolio. However, there can be no assurance that the indemnity will be sufficient to make SSIC whole for the full amount of such damages, or that CALP’s ability to satisfy its indemnification obligation will not be impaired in the future.
The Loan Portfolio Acquisition may trigger certain “change of control” provisions and other restrictions in contracts of SSIC and the failure to obtain any required consents or waivers could adversely impact SSIC.
Sales of shares of SSIC Common Stock after the completion of the Loan Portfolio Acquisition may cause the market price of SSIC Common Stock to fall.
SSIC and CALP will be subject to operational uncertainties and contractual restrictions while the Loan Portfolio Acquisition is pending.
SSIC or CALP may waive one or more conditions to the Loan Portfolio Acquisition.
The market price of SSIC Common Stock after the Loan Portfolio Acquisition may be affected by factors different from those affecting SSIC Common Stock currently, including a larger stockholder base and a different portfolio composition.
The Loan Portfolio may include instruments that result in income recognition before or without corresponding cash receipt.
There may be adverse tax consequences to SSIC if SSIC has failed or, after the Loan Portfolio Acquisition, fails to qualify for taxation as a RIC for United States federal income tax purposes.
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Because the market price of SSIC Common Stock, the NAV per share of SSIC Common Stock and the fair value of the Loan Portfolio will fluctuate, CALP cannot be sure of the market value of the Loan Portfolio Consideration it will receive until the Closing Date, and SSIC and CALP cannot be sure of the number of shares of SSIC Common Stock comprising the Loan Portfolio Consideration until the Determination Date.
SSIC and CALP cannot be sure of the loans comprising the Loan Portfolio until the Determination Date.
SSIC is expected to have additional exposure to certain of its current investments that overlap with the investments in the Loan Portfolio.
See “Risk Factors—Risks Relating to the Loan Portfolio Acquisition” below for a more detailed discussion of these factors.
Tax Consequences of the Loan Portfolio Acquisition
The Loan Portfolio Acquisition is expected to be a taxable event for CALP, and CALP may recognize gains equal to the difference between the fair value of a loan and CALP’s adjusted tax basis therein but will likely be prevented from recognizing losses realized in connection with the transaction under certain rules governing related party transactions, since CALP is expected to own more than 50% of the value of the outstanding shares of SSIC stock immediately following the Loan Portfolio Acquisition. If SSIC were later to dispose of a loan acquired from CALP at a gain, and CALP had previously realized a loss on the sale of such loan to SSIC but such loss was not recognized, then the gain recognized by SSIC might be reduced by the amount of CALP’s disallowed loss. Some or all of the gain recognized by CALP may constitute ordinary income, even if the portfolio investments may be considered capital assets by CALP prior to the Loan Portfolio Acquisition.
The Loan Portfolio Acquisition is not expected to be a taxable event for SSIC stockholders.
Special Meeting of SSIC Stockholders
SSIC plans to hold the virtual SSIC Special Meeting on [•], 2024 at [•] [a.m./p.m.] Eastern Time. The live webcast will be accessible at www.virtualshareholdermeeting.com/SSIC2024SM. By accessing such live webcast, you will be able to participate in the SSIC Special Meeting, including by voting and submitting questions. At the SSIC Special Meeting, holders of SSIC Common Stock will be asked to consider and vote upon (i) the Stock Issuance Proposal, (ii) the Director Election Proposal and (iii) the Advisory Agreement Approval Proposal.
A SSIC stockholder can vote at the SSIC Special Meeting if such stockholder owned shares of SSIC Common Stock at the close of business on the Record Date. As of that date, there were approximately [•] shares of SSIC Common Stock outstanding and entitled to vote, approximately [•] of which, or [•]%, were owned beneficially or of record by directors and executive officers of SSIC.
SSIC Board Recommendation
Upon the recommendation of the Special Committee, the SSIC Board has unanimously approved each of the Loan Portfolio Acquisition Agreement, the nomination of the persons named for election as director in this joint proxy statement/information statement/prospectus, and the New Investment Advisory Agreement, and unanimously recommends that SSIC stockholders vote “FOR” each of the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
Vote Required—SSIC
Each share of SSIC Common Stock held by a holder of record as of the Record Date has one vote on each matter considered at the SSIC Special Meeting.
As of the Record Date, SSIC Adviser and its affiliates held SSIC Common Stock comprising approximately [•]% of the outstanding shares of SSIC Common Stock, and, therefore, have the ability to control whether each of the proposals is approved. Furthermore, SSIC Adviser and its affiliates have entered into a voting agreement pursuant to which, subject to the terms thereof, they have agreed to vote the outstanding shares of SSIC Common Stock for which they have voting power in favor of each of the proposals. See “Description of the Loan Portfolio Acquisition Agreement—Voting Agreement.”
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The Stock Issuance Proposal
The approval of the Stock Issuance Proposal requires the affirmative vote of at least a majority of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. Abstentions and broker, non-votes, if any, will have no effect on the outcome of the Stock Issuance Proposal.
Under the terms of the Loan Portfolio Acquisition Agreement, shares of SSIC Common Stock will be issued in the Loan Portfolio Acquisition at a price per share equal to the net asset value per share of SSIC Common Stock as of the Determination Date.
The Director Election Proposal
The approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. Under a plurality vote, the director nominees who receive the highest number of “for” votes will be elected, even if they receive approval from less than a majority of the votes cast. Because the director nominees are running unopposed, each director nominee will be elected to the SSIC Board so long as a single vote is cast in favor of his election. Withheld votes and broker non-votes, if any, will have no effect on the outcome of the Director Election Proposal.
The Advisory Agreement Approval Proposal
The approval of the Advisory Agreement Approval Proposal requires the approval of a “majority of the outstanding voting securities,” as defined in the 1940 Act, of SSIC. Under the 1940 Act, a “majority of the outstanding voting securities” of SSIC means the lesser of: (1) 67% of the shares of SSIC Common Stock present in person (virtually) or represented by proxy at the SSIC Special Meeting if the holders of more than 50% of the outstanding shares of SSIC Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of SSIC Common Stock. Abstentions and broker non-votes, if any, will not count as affirmative votes cast and will therefore have the same effect as votes against the Advisory Agreement Approval Proposal.
Completion of the Loan Portfolio Acquisition
As more fully described in this joint proxy statement/information statement/prospectus and in the Loan Portfolio Acquisition Agreement, the completion of the Loan Portfolio Acquisition depends on a number of conditions being satisfied or, where legally permissible, waived. For information on the conditions that must be satisfied or waived for the Loan Portfolio Acquisition to occur, see “Description of the Loan Portfolio Acquisition—Conditions to Closing the Transactions.” While there can be no assurances as to the exact timing, or that the Loan Portfolio Acquisition will be completed at all, SSIC and CALP are working to complete the Loan Portfolio Acquisition in the [•] quarter of 2024. It is currently expected that the Loan Portfolio Acquisition will be completed promptly following receipt of the required stockholder approvals at the SSIC Special Meeting and satisfaction of the other closing conditions set forth in the Loan Portfolio Acquisition Agreement.
Termination of the Loan Portfolio Acquisition and Termination Fee
The Loan Portfolio Acquisition Agreement contains certain termination rights for SSIC and CALP, each of which is discussed below in “Description of the Loan Portfolio Acquisition—Termination of the Loan Portfolio Acquisition Agreement.” The Loan Portfolio Acquisition Agreement provides that, in connection with the termination of the Loan Portfolio Acquisition Agreement under specified circumstances and subject to applicable law, SSIC will be required to pay a termination fee of $6,046,613 to CALP. See “Description of the Loan Portfolio Acquisition—Termination of the Loan Portfolio Acquisition Agreement” for a discussion of the circumstances that would result in the payment of the termination fee. The SSIC Board has approved the amount of the termination fee.
Reasons for the Loan Portfolio Acquisition
SSIC
The directors of SSIC who are not “interested persons,” within the meaning of the 1940 Act, of SSIC (the “SSIC Independent Directors”) delegated to the Special Committee the responsibility to oversee the Loan Portfolio Acquisition. Pursuant to the authority delegated to the Special Committee, the Special Committee retained independent legal counsel and also retained Keefe, Bruyette & Woods, Inc. (“KBW”) as its financial advisor in connection with the Special Committee’s consideration of the Loan Portfolio Acquisition.
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Certain material factors considered by the Special Committee and the SSIC Board that favored the conclusions reached by the Special Committee and the SSIC Board that the Loan Portfolio Acquisition is in the best interests of SSIC and its stockholders included, among others:
the expected accretion to net investment income and yield;
that there would be no economic dilution to SSIC stockholders and that issuance of SSIC shares at net asset value represents a substantial premium to the historical market price of the SSIC shares;
the opinion of KBW, the Special Committee’s independent financial advisor;
SSIC’s increased market capitalization and potential additional market coverage;
SSIC’s expected improved access to debt and equity capital markets;
SSIC’s enhanced portfolio diversification;
the terms of the Loan Portfolio Acquisition Agreement;
the valuation and analysis of the Special Committee’s independent valuation agent; and
the tax consequences of the Loan Portfolio Acquisition.
The foregoing list does not include all the factors that the Special Committee and the SSIC Board considered in approving the Loan Portfolio Acquisition and the Loan Portfolio Acquisition Agreement, and recommending that SSIC stockholders approve the issuance of shares of SSIC Common Stock necessary to effectuate the Loan Portfolio Acquisition. For a further discussion of the material factors considered by the SSIC Board, see “The Loan Portfolio Acquisition—Reasons for the Loan Portfolio Acquisition.”
CALP
The following material factors were considered by CALP in concluding that the Loan Portfolio Acquisition is in its best interests and the best interests of its members:
opportunity to provide additional diversification to its members by combining its investment portfolio with SSIC’s portfolio;
belief that the combined portfolio will benefit from the expertise of SSIC’s management (together with the CALP personnel proposed to serve as part of SSIC’s management) and will generate positive returns for SSIC, which would benefit CALP and its members; and
the Loan Portfolio Acquisition is a mechanism to provide liquidity to CALP and its members in the form of registered shares of SSIC.
CALP also considered that the Loan Portfolio Acquisition is expected to be a taxable event for CALP, and that CALP will recognize for tax purposes its realized gains equal to the difference between the fair value of a loan and CALP’s adjusted tax basis therein but will likely be prevented from recognizing for tax purposes its losses realized in connection with the transaction under certain rules governing relatd party transactions.
The foregoing list does not include all the factors that CALP considered in approving the Loan Portfolio Acquisition and the Loan Portfolio Acquisition Agreement.
For a further discussion of the material factors considered by CALP, see “The Loan Portfolio Acquisition—Reasons for the Loan Portfolio Acquisition.”
SSIC Stockholders Do Not Have Dissenters’ Rights
SSIC stockholders will not be entitled to exercise dissenters’ rights in connection with the Loan Portfolio Acquisition under the laws of the State of Maryland.
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RISK FACTORS
The Loan Portfolio Acquisition is subject to, among others, the following risks applicable to SSIC stockholders and CALP members. In addition to the other information included in this document, SSIC stockholders should carefully consider the risks described below in determining whether to approve the Stock Issuance Proposal. The information in “Item 1A. Risk Factors” in Part I of SSIC’s Annual Report on Form 10-K (File No. 814-01383) for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024, is incorporated herein by reference for general risks related to SSIC. The occurrence of any of these risks could materially and adversely affect the business, prospects, financial condition, results of operations and cash flow of SSIC and might cause you to lose all or part of your investment. The risks, as set out below and incorporated by reference herein, are not the only risks SSIC and CALP face, and there may be additional risks that SSIC and CALP do not presently know of or that they currently consider not likely to have a significant impact. New risks may emerge at any time and SSIC and CALP cannot predict such risks or estimate the extent to which they may affect the business or financial performance of SSIC and CALP. See also “Incorporation by Reference for SSIC” and “Where You Can Find More Information” in this joint proxy statement/information statement/prospectus.
Risks Relating to the Loan Portfolio Acquisition
SSIC stockholders will experience a reduction in percentage ownership and voting power in SSIC as a result of the Loan Portfolio Acquisition.
SSIC stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in SSIC relative to their respective ownership interests in SSIC prior to the Loan Portfolio Acquisition. Consequently, SSIC stockholders should expect to exercise less influence over the management and policies of SSIC following the Loan Portfolio Acquisition than they currently exercise over the management and policies of SSIC.
If the Loan Portfolio Acquisition is consummated, based on the number of shares of SSIC Common Stock issued and outstanding as of December 31, 2023, the net asset value per share of SSIC Common Stock as of December 31, 2023, net of estimated expenses related to the Loan Portfolio Acquisition, and the fair value of the Loan Portfolio as of January 1, 2024, at the Closing Date, it is expected that current SSIC stockholders would own approximately 38.7% of the outstanding SSIC Common Stock and CALP would own approximately 61.3% of the outstanding SSIC Common Stock. However, CALP has agreed to use reasonable best efforts to add four loans with an aggregate value of approximately $43 million to the Loan Portoflio prior to the Determination Date, which would accordingly change these relative ownership percentages.
In addition, both prior to and after completion of the Loan Portfolio Acquisition, subject to certain restrictions in the Loan Portfolio Acquisition Agreement and stockholder approval, SSIC may issue additional shares of SSIC Common Stock, all of which would further reduce the percentage ownership of SSIC held by CALP and current SSIC stockholders.
As of December 31, 2023, however, SSIC Adviser and its affiliates held SSIC Common Stock comprising approximately 73% of the outstanding shares of SSIC Common Stock, and other SSIC stockholders therefore exercise limited influence over the management and policies of SSIC.
SSIC may be unable to realize the benefits anticipated by the Loan Portfolio Acquisition, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.
The realization of certain benefits anticipated as a result of the Loan Portfolio Acquisition will depend in part on the integration of the Loan Portfolio with SSIC’s investment portfolio following the Loan Portfolio Acquisition, together with the realization of the efficiencies described elsewhere in this joint proxy statement/information statement/prospectus. See “The Loan Portfolio Acquisition—Reasons for the Loan Portfolio Acquisition.” There can be no assurance that the Loan Portfolio can be operated profitably going forward or integrated successfully into SSIC’s operations in a timely fashion or at all or that any expected efficiencies can be achieved as expected or at all. The dedication of management resources to such integration, or other matters arising from the Loan Portfolio Acquisition or the Joint Venture, may detract attention from the day-to-day business of SSIC and there can be no assurance that there will not be substantial costs associated with
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the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in connection with such integration and failure of the Loan Portfolio to perform as expected, could have a material adverse effect on the financial results of SSIC.
SSIC also expects to achieve certain efficiencies and cost savings as a percentage of net assets from the Loan Portfolio Acquisition when the Loan Portfolio is fully integrated with SSIC’s investment portfolio. It is possible that the estimates of these efficiencies and potential cost savings as a percentage of net assets could ultimately be incorrect. The estimated cost savings as a percentage of net assets also assume SSIC will be able to combine the portfolios of SSIC and CALP in a manner that permits those cost savings to be fully realized. If the estimates turn out to be incorrect or if SSIC is not able to successfully combine the Loan Portfolio with the investment portfolio of SSIC, the anticipated efficiencies and cost savings may not be fully realized or realized at all or may take longer to realize than expected.
In addition, SSIC may be unable to realize other benefits anticipated by the Loan Portfolio Acquisition, including increased scale and liquidity, enhanced portfolio diversification, improved access to debt and equity capital markets, and accretion to net investment income.
The opinion delivered to the Special Committee from its financial advisor will not reflect changes in circumstances between signing the Loan Portfolio Acquisition Agreement and completion of the Loan Portfolio Acquisition.
The Special Committee has not obtained an updated opinion as of the date of this joint proxy statement/information statement/prospectus from its financial advisor and does not anticipate obtaining an updated opinion prior to the Closing Date. Changes in the operations and prospects of SSIC, general market and economic conditions and other factors that may be beyond the control of SSIC, and on which the opinion of the Special Committee’s financial advisor was based, may significantly alter the fair value of the Loan Portfolio or the price of shares of SSIC Common Stock by the time the Loan Portfolio Acquisition is completed. The opinion does not speak as of the time the Loan Portfolio Acquisition will be completed or as of any date other than the date of such opinion. Because the Special Committee does not currently anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness of the Loan Portfolio Consideration from a financial point of view at the time the Loan Portfolio Acquisition is completed. The recommendation of the SSIC Board that the SSIC stockholders vote “FOR” approval of the matters described in this joint proxy statement/information statement/prospectus are made as of the date of this joint proxy statement/information statement/prospectus. For a description of the opinion that the Special Committee received from its financial advisor, see “The Loan Portfolio Acquisition—Opinion of the Special Committee’s Financial Advisor.”
If the Loan Portfolio Acquisition does not close, neither SSIC nor CALP will benefit from the expenses incurred in its pursuit.
The Loan Portfolio Acquisition may not be completed. If the Loan Portfolio Acquisition is not completed, SSIC and CALP will have incurred substantial expenses for which no ultimate benefit will have been received. Both companies have incurred out-of-pocket expenses in connection with the Loan Portfolio Acquisition, much of which will be incurred even if the Loan Portfolio Acquisition is not completed.
Under certain circumstances, SSIC is obligated to pay CALP a termination fee upon termination of the Loan Portfolio Acquisition Agreement.
No assurance can be given that the Loan Portfolio Acquisition will be completed. The Loan Portfolio Acquisition Agreement provides for the payment, subject to applicable law, by SSIC of a termination fee of $6,046,613 to CALP if the Loan Portfolio Acquisition Agreement is terminated by SSIC or CALP under certain circumstances, including if (i) subject to complying with certain requirements, SSIC terminates the Loan Portfolio Acquisition Agreement prior to receipt of the SSIC Stockholder Approvals in order for SSIC to enter into a definitive agreement with respect to a Superior Proposal, (ii) CALP terminates the Loan Portfolio Acquisition Agreement if, prior to the receipt of the SSIC Stockholder Approvals, the SSIC Board makes an Adverse Recommendation Change, or (iii) the Loan Portfolio Acquisition Agreement is terminated by either SSIC or CALP, subject to certain requirements, and prior to such termination a Competing Proposal has been made public (or was otherwise known to the SSIC Board) and was not withdrawn prior to such termination, and a Competing Proposal is consummated or SSIC enters into a definitive agreement with respect to a Competing
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Proposal within twelve months after such termination. See “Description of the Loan Portfolio Acquisition Agreement—Termination of the Loan Portfolio Acquisition Agreement” for a discussion of the circumstances that could result in the payment of a termination fee. The SSIC Board has approved the amount of the termination fee which may be paid.
The Loan Portfolio Acquisition Agreement limits the ability of SSIC to pursue alternatives to the Loan Portfolio Acquisition.
The Loan Portfolio Acquisition Agreement includes restrictions on the ability of SSIC to solicit proposals for alternative transactions or engage in discussions regarding such proposals, subject to exceptions and termination provisions (as more fully described in the section entitled “Description of the Loan Portfolio Acquisition Agreement — Additional Agreements”), which could have the effect of discouraging such proposals from being made or pursued.
The Loan Portfolio Acquisition is subject to closing conditions, including (i) stockholder approvals and (ii) the Loan Portfolio Consideration representing between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock, that, if not satisfied or waived, will result in the Loan Portfolio Acquisition not being completed, which may result in material adverse consequences to SSIC’s and CALP’s business and operations. Based on the number of shares of SSIC Common Stock issued and outstanding as of December 31, 2023, the net asset value per share of SSIC Common Stock as of December 31, 2023, net of estimated expenses related to the Loan Portfolio Acquisition, and the fair value of the Loan Portfolio as of January 1, 2024, the closing condition that the Loan Portfolio Consideration represent between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock would not be satisfied.
The Loan Portfolio Acquisition is subject to closing conditions, including (i) certain approvals of SSIC’s stockholders and (ii) the Loan Portfolio Consideration representing between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock, that, if not satisfied, will prevent the Loan Portfolio Acquisition from being completed. Fluctuations in the NAV of SSIC and the fair value of the Loan Portfolio may cause the Loan Portfolio Consideration to not represent between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock. Based on the number of shares of SSIC Common Stock issued and outstanding as of December 31, 2023, the net asset value per share of SSIC Common Stock as of December 31, 2023, net of estimated expenses related to the Loan Portfolio Acquisition, and the fair value of the Loan Portfolio as of January 1, 2024, at the Closing Date, it is expected that current SSIC stockholders would own approximately 38.7% of the outstanding SSIC Common Stock and CALP would own approximately 61.3% of the outstanding SSIC Common Stock, which would not satisfy this closing condition. However, CALP has agreed to use reasonable best efforts to add four loans with an aggregate value of approximately $43 million to the Loan Portfolio prior to the Determination Date, which would accordingly change these relative ownership percentages.
The closing condition that SSIC’s stockholders approve the issuance of shares of SSIC Common Stock to be issued in connection with the Loan Portfolio Acquisition must be satisfied for the Loan Portfolio Acquisition to be completed, unless waived by each of the parties. As of the Record Date, however, SSIC Adviser and its affiliates held SSIC Common Stock comprising approximately [•]% of the outstanding shares of SSIC Common Stock, and, therefore, have the ability to control whether the Loan Portfolio Acquisition is approved. Furthermore, SSIC Adviser and its affiliates have entered into a voting agreement pursuant to which, subject to the terms thereof, they have agreed to vote the outstanding shares of SSIC Common Stock for which they have voting power in favor of the Stock Issuance Proposal.
If SSIC’s stockholders do not approve the issuance of shares of SSIC Common Stock in connection with the Loan Portfolio Acquisition, or the Loan Portfolio Consideration does not represent between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock, and the Loan Portfolio Acquisition is not completed, the resulting failure of the Loan Portfolio Acquisition could have a material adverse impact on SSIC’s and CALP’s business and operations. In addition to the required approval of SSIC’s stockholders and the Loan Portfolio Consideration representing between 65% and 75% of the total issued and outstanding shares of SSIC Common Stock, the Loan Portfolio Acquisition is subject to a number of other conditions beyond SSIC’s and CALP’s control that may prevent, delay or otherwise materially adversely affect its completion. Neither SSIC nor CALP can predict whether and when these other conditions will be satisfied.
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The termination of the Loan Portfolio Acquisition Agreement could negatively impact SSIC and CALP.
If the Loan Portfolio Acquisition Agreement is terminated, there may be various consequences, including:
SSIC’s and CALP’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Loan Portfolio Acquisition, without realizing any of the anticipated benefits of completing the Loan Portfolio Acquisition;
the market price of SSIC Common Stock might decline to the extent that the market price prior to termination reflects a market assumption that the Loan Portfolio Acquisition will be completed;
in the case of CALP, it may not be able to find a party willing to pay an equivalent or more attractive price for the Loan Portfolio than the price SSIC agreed to pay in the Loan Portfolio Acquisition; and
the payment of any termination fee, if required under the circumstances, could adversely affect the financial condition and liquidity of SSIC.
The Loan Portfolio Acquisition may trigger certain “change of control” provisions and other restrictions in contracts of SSIC and the failure to obtain any required consents or waivers could adversely impact SSIC.
If any agreement of SSIC requires the consent or waiver of one or more counterparties in connection with the Loan Portfolio Acquisition, the failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or SSIC’s obligations under, any such agreement because the Loan Portfolio Acquisition or other transactions contemplated by the Loan Portfolio Acquisition Agreement may violate an anti-assignment, change of control or similar provision relating to any of such transactions. If this occurs, SSIC may have to seek to replace that agreement with a new agreement or seek an amendment to such agreement. SSIC cannot assure you that it will be able to replace or amend any such agreement on comparable terms or at all.
If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of SSIC following the Loan Portfolio Acquisition.
In addition, the consummation of the Loan Portfolio Acquisition may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain agreements of SSIC. Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of SSIC following completion of the Loan Portfolio Acquisition.
CALP has agreed to indemnify SSIC for certain damages arising from certain of CALP’s representations and warranties with respect to the Loan Portfolio. However, there can be no assurance that the indemnity will be sufficient to make SSIC whole for the full amount of such damages, or that CALP’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the Loan Portfolio Acquisition Agreement, CALP agreed to indemnify SSIC against damages incurred or suffered by SSIC in connection with any inaccuracy, breach or misrepresentation of certain representations made by CALP with respect to the Loan Portfolio, subject to certain per-claim and overall deductibles. However, CALP’s maximum liability in respect of any such indemnification obligation is capped at the value of such number of Purchased Shares equal to the lesser of (a) the quotient of (i) $10,000,000 divided by (ii) the NAV per share of SSIC Common Stock and (b) 3% of the total issued and outstanding shares of SSIC Common Stock after giving effect to the issuance to CALP of shares of SSIC Common Stock in connection with the Loan Portfolio Acquisition. In addition, such indemnifiable representations survive for a period of six months following the Closing Date. Therefore, there can be no assurance that the indemnity from CALP will be sufficient to protect SSIC against the full amount of such damages, or that all damages (if any) will be incurred within such six-month indemnification survival period. Moreover, even if SSIC ultimately succeeds in recovering from CALP any amounts for which CALP is held liable, SSIC may be temporarily required to bear these losses. Each of these risks could negatively affect SSIC’s business, financial condition, results of operations or cash flows.
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Sales of shares of SSIC Common Stock after the completion of the Loan Portfolio Acquisition may cause the market price of SSIC Common Stock to decline.
Based on the net asset value per share of SSIC Common Stock on December 31, 2023, net of estimated expenses related to the Loan Portfolio Acquisition, and the fair value of the Loan Portfolio on January 1, 2024, SSIC would issue approximately 9.8 million shares of SSIC Common Stock pursuant to the Loan Portfolio Acquisition Agreement. CALP intends to distribute the Loan Portfolio Consideration to CALP members within six months following the completion of the Loan Portfolio Acquisition. In addition, current SSIC stockholders may decide not to hold their shares of SSIC Common Stock after completion of the Loan Portfolio Acquisition. In each case, such sales of SSIC Common Stock could have the effect of depressing the market price for SSIC Common Stock and may take place promptly following the completion of the Loan Portfolio Acquisition.
In addition, certain shares of SSIC Common Stock that CALP receives pursuant to the Loan Portfolio Acquisition Agreement are subject to transfer and other related restrictions for a period of six months following the completion of the Loan Portfolio Acquisition to satisfy certain indemnification claims by SSIC. The sale by CALP of such shares of SSIC Common Stock upon the lapse of such restriction period could create a circumstance commonly referred to as an “overhang” and, in anticipation of which, the market price of SSIC Common Stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult SSIC’s ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
SSIC and CALP will be subject to operational uncertainties and contractual restrictions while the Loan Portfolio Acquisition is pending.
Uncertainty about the effect of the Loan Portfolio Acquisition may have an adverse effect on SSIC and CALP and, consequently, on SSIC following completion of the Loan Portfolio Acquisition. These uncertainties may cause those that deal with SSIC and CALP to seek to change their existing business relationships with them. In addition, the Loan Portfolio Acquisition Agreement restricts SSIC from taking actions that it might otherwise consider to be in its best interest. These restrictions may prevent SSIC from pursuing certain business opportunities that may arise prior to the completion of the Loan Portfolio Acquisition. Please see the section entitled “Description of the Loan Portfolio Acquisition Agreement—Conduct of Business Pending Consummation of the Transactions” for a description of the restrictive covenants to which SSIC is subject.
SSIC or CALP may waive one or more conditions to the Loan Portfolio Acquisition.
Certain conditions to SSIC’s and CALP’s respective obligations to complete the Loan Portfolio Acquisition may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of SSIC and CALP.
The market price of SSIC Common Stock after the Loan Portfolio Acquisition may be affected by factors different from those affecting SSIC Common Stock currently.
The results of operations of SSIC after the Loan Portfolio Acquisition and the market price of SSIC Common Stock after the Loan Portfolio Acquisition may be affected by factors different from those currently affecting the results of operations of SSIC. These factors include:
a larger stockholder base; and
a different portfolio composition.
Accordingly, the historical trading prices and financial results of SSIC may not be indicative of these matters for SSIC following the Loan Portfolio Acquisition. For a discussion of the business of SSIC and of certain factors to consider in connection with its business, see “Business of Silver Spike Investment Corp.” For a discussion of the business of CALP and of certain factors to consider in connection with its business, see “Business of Chicago Atlantic Loan Portfolio, LLC.”
The Loan Portfolio may include instruments that result in income recognition before or without corresponding cash receipt.
Certain investments in the Loan Portfolio may be considered “original issue discount” or “payment-in-kind” instruments, and the accretion of original issue discount or payment-in-kind interest income
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may constitute a portion of the income derived from the Loan Portfolio. Additionally, certain investments comprising the Loan Portfolio may be treated as having “market discount” for U.S. federal income tax purposes. SSIC may elect to amortize market discount and include such amounts in its taxable income in the current tax year instead of upon disposition.
Following the Loan Portfolio Acquisition, SSIC may be required to recognize income in respect of these investments before or without receiving cash representing such income and, accordingly, may have difficulty satisfying the annual distribution requirements applicable to RICs and avoiding entity-level U.S. federal income and/or excise taxes. This may require SSIC to sell assets to raise cash, and SSIC may realize gain or loss on such liquidations; in the event that SSIC realizes net capital gains from such liquidating transactions, SSIC shareholders may receive larger capital gain distributions than they would in the absence of such transactions.
There may be adverse tax consequences to SSIC if SSIC has failed or, after the Loan Portfolio Acquisition, fails to qualify for taxation as a RIC for United States federal income tax purposes.
SSIC has operated in a manner that it believes has allowed it to qualify as a RIC for U.S. federal income tax purposes under the Code and intends to continue to do so following the Loan Portfolio Acquisition. In order to qualify as a RIC, a corporation must satisfy numerous requirements relating to, among other things, the nature of its assets and income and its distribution levels. If SSIC has failed or, after the Loan Portfolio Acquisition, fails to qualify as a RIC for U.S. federal income tax purposes, SSIC may have significant tax liabilities, or may have to make significant distributions and pay penalty or excise taxes in order to maintain RIC qualification. These liabilities could substantially reduce SSIC’s cash available for distribution to its shareholders and the value of SSIC Common Stock. For further information, see “Material U.S. Federal Income Tax Considerations.”
Because the market price of SSIC Common Stock, the NAV per share of SSIC Common Stock and the fair value of the Loan Portfolio will fluctuate, CALP cannot be sure of the market value of the Loan Portfolio Consideration it will receive until the Closing Date, and SSIC and CALP cannot be sure of the number of shares of SSIC Common Stock comprising the Loan Portfolio Consideration until the Determination Date.
The market value of the Loan Portfolio Consideration may vary from the closing price of SSIC Common Stock on the date the Loan Portfolio Acquisition was announced, on the date that this joint proxy statement/information statement/prospectus was mailed, on the date of the SSIC Special Meeting and on the date the Loan Portfolio Acquisition is completed and thereafter. Although the Loan Portfolio Consideration will not be affected by the market price of SSIC Common Stock, any change in the market price of SSIC Common Stock prior to completion of the Loan Portfolio Acquisition will affect the market value of the Loan Portfolio Consideration that CALP will receive upon completion of the Loan Portfolio Acquisition. Additionally, the number of shares of SSIC Common Stock comprising the Loan Portfolio Consideration will fluctuate as the NAV per share of SSIC Common Stock and the fair value of the Loan Portfolio change prior to the Determination Date.
Accordingly, CALP will not know or be able to calculate the market value of the Loan Portfolio Consideration it would receive upon completion of the Loan Portfolio Acquisition until the Closing Date, and SSIC and CALP will not know or be able to calculate the number of shares of SSIC Common Stock comprising the Loan Portfolio Consideration until the Determination Date. Neither CALP nor SSIC is permitted to terminate the Loan Portfolio Acquisition Agreement or, in the case of SSIC, resolicit the vote of its stockholders solely because of changes in the market price of shares of SSIC Common Stock. There will be no adjustment to the Loan Portfolio Consideration for changes in the market price of shares of SSIC Common Stock. Changes in the market price of SSIC Common Stock may result from a variety of factors, including, among other things:
changes in the business, operations or prospects of SSIC;
the financial condition of current or prospective portfolio companies of SSIC;
interest rates or general market or economic conditions;
market assessments of the likelihood that the Loan Portfolio Acquisition will be completed and the timing of completion of the Loan Portfolio Acquisition;
market perception of the future profitability of SSIC; and
market perception of the value of the Loan Portfolio.
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See “Special Note Regarding Forward-Looking Statements” for other factors that could cause the market price of SSIC Common Stock to change.
These factors are generally beyond the control of SSIC. It should be noted that the range of high and low closing sales prices of SSIC Common Stock as reported on NASDAQ for the twelve months ended December 31, 2023, was a low of $7.65 to a high of $10.37. However, historical trading prices are not necessarily indicative of future performance.
SSIC and CALP cannot be sure of the loans comprising the Loan Portfolio until the Determination Date.
As of January 1, 2024, the Loan Portfolio comprised 24 loans with an aggregate value of approximately $130 million. CALP has agreed to use reasonable best efforts to add 4 loans with an aggregate value of approximately $43 million to the Loan Portfolio prior to the Determination Date. SSIC and CALP may also agree to the addition of other loans to the Loan Portfolio prior to the Determination Date. The inclusion and/or addition of certain loans to the Loan Portfolio requires third-party consents, and/or such loans may need to be acquired by CALP, and there can be no assurance that any additional loans will be added to the Loan Portfolio prior to the Determination Date. Certain loans may also be removed from the Loan Portfolio upon the agreement of SSIC and CALP, if required third-party consents are not obtained, or upon the repayment of the loans. Accordingly, the composition of the Loan Portfolio cannot be assured until the Determination Date.
SSIC is expected to have additional exposure to certain of its current investments that overlap with the investments in the Loan Portfolio.
SSIC currently holds certain investments that are expected to be included in the Loan Portfolio. Following the Loan Portfolio Acquisition, SSIC would therefore be expected to have additional exposure to any such overlapping investment, and would therefore be more susceptible to a single adverse financial, operational, economic or regulatory occurrence affecting the overlapping investment. [However, the percentage of SSIC’s investment portfolio represented by an overlapping investment following the Loan Portfolio Acquisition is expected to be lower than the percentage of SSIC’s investment portfolio currently represented by the overlapping investment.]
Risks Relating to CALP
The risks relating to the Loan Portfolio are substantially similar to the risks relating to SSIC because the Loan Portfolio is consistent with the investment objective and strategies of SSIC. The following risk factors are risks related to an investment in CALP that are not applicable to SSIC.
CALP is exempt from the definition of “investment company” and is not regulated under the 1940 Act, as such, the holders of membership interests in CALP are not afforded the protections of the 1940 Act.
The 1940 Act, among other things, (i) regulates the composition of a company’s board; (ii) regulates the capital structure of a company by limiting the issuance of senior equity and debt securities and limiting the issuance of stock options, rights and warrants; (iii) prohibits certain transactions between a company and affiliated persons, including directors and officers of the company or affiliated companies, unless such transactions are exempted by the SEC; (iv) restricts the issuance of common stock at less than net asset value; (v) regulates the form, content and frequency of financial reports to stockholders; (vi) requires a company to carry its assets at fair value rather than at cost in financial reports; (vii) requires that a company file with the SEC certain periodic reports; (viii) prohibits a company from changing the nature of its business or fundamental investment policies without the prior approval of its shareholders; (ix) prohibits pyramiding of investment companies and the cross ownership of securities; (x) provides for the custody of securities and bonding of certain employees; (xi) prohibits voting trust certificates relating to investment company shares; (xii) provides that no securities may be issued for services or for property other than cash or securities except as a dividend or a distribution to security holders or in connection with a reorganization; (xiii) regulates the manner in which repurchases of shares may be effected; (xiv) authorizes a United States district court, upon proceedings instituted by the SEC, to enjoin the consummation of any plan of reorganization the court determines is not fair and equitable to all security holders; (xv) provides for enforcement by the SEC of the 1940 Act through administrative proceedings and court actions; and (xvi) creates a right in private persons to bring injunctive and damage actions in federal courts to enforce certain provisions of the 1940 Act. As a company that is excluded
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from the definition of “investment company” under the 1940 Act, CALP is not required to register as an investment company and is not regulated under the 1940 Act. As such, CALP is not required to comply with any 1940 Act requirements, and the holders of CALP’s membership interests are not afforded the protections of the 1940 Act.
CALP is not registered as or regulated as an investment company, if CALP was required to register as an investment company, its business would be adversely affected.
If CALP fails to continue to qualify for an exemption from the definition of “investment company” under the 1940 Act, CALP would be required to comply with numerous additional regulatory requirements and operational restrictions (as described above), which could adversely restrict operations and reduce distributions to its members. For example, the 1940 Act imposes certain limitations on capital structure, restrictions on specified investments, prohibitions on transactions with affiliates, compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase CALP’s operating expenses.
Transfers of membership interests in CALP are restricted, and there is no public trading market for CALP’s membership interests; therefore, it will be difficult for a member to sell its membership interests.
The membership interests of CALP have not been, and will not be, registered under the Securities Act or any other applicable U.S. or non-U.S. securities laws and may not be resold unless an exemption from such registration is available. The members of CALP have no right to require registration of the membership interests, and CALP is under no obligation to register such interests for resale. Accordingly, there is no public market for CALP’s membership interests, and one is not presently expected to develop. Transfers of membership interests are also subject to other restrictions set forth in the CALP LLCA and are permitted only with the prior consent of the managing member of CALP (the “CALP Managing Member”), which consent may be withheld in its reasonable discretion. The membership interests are not divisible and may not otherwise be encumbered, except with the prior written consent of the CALP Managing Member, subject to the same standard as noted above for transfers.
In addition, members will not have any rights to receive distributions or withdraw from CALP or to require CALP to redeem or repurchase their membership interests prior to the final liquidation and termination of CALP. As a result, members may be required to hold their interests for the entire term of CALP.
CALP’s investment return may be reduced if CALP is required to register under Federal or state securities laws.
The membership interests of CALP will not be registered under the Securities Act or under any state securities or “blue sky” securities laws or under the laws of any non-U.S. jurisdiction. CALP is structured to comply with exemptions from the registration and/or qualification requirements of those laws. If CALP fails to qualify for those exemptions, or from exemptions from the registration and reporting requirements of the Exchange Act, it could be required to register its membership interests prior to making sales in certain jurisdictions, or make rescission offers to investors if sales are made in violation of any applicable registration requirements of the membership interests, and/or compliance with the reporting requirements of the Exchange Act. In addition, the CALP Managing Member could face civil and criminal actions. Any of these circumstances would result in a significant increase in CALP’s expenses, which would reduce the value of a member’s investment and the ability of CALP to make distributions.
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COMPARATIVE FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an investor in shares of SSIC Common Stock or CALP bears directly or indirectly and, based on the assumptions set forth below, the pro forma costs and expenses estimated to be incurred by SSIC in the first year following completion of the Loan Portfolio Acquisition. SSIC and CALP caution you that some of the percentages indicated in the table below are estimates and may vary from actual results. Except where the context suggests otherwise, whenever this document contains a reference to fees or expenses paid or to be paid by “you,” “SSIC” or “CALP,” shareholders or members will indirectly bear such fees or expenses as investors in SSIC or CALP, as applicable. The table below is based on SSIC information as of December 31, 2023 and CALP information as of January 1, 2024 (except as noted below). Estimated transaction expenses related to the Loan Portfolio Acquisition are not included in the following table.
 
Actual
Pro Forma
 
SSIC
CALP
Shareholder transaction expenses
 
 
 
Sales load (as a percentage of offering price)(1)
None
None
None
Offering expenses (as a percentage of offering price)
None
None
None
Dividend reinvestment plan fees(2)
None
None
None
Total shareholder transaction expenses (as a percentage of offering price)
None
None
None
 
Actual
Pro Forma
 
SSIC
CALP
Annual expenses (as a percentage of net assets)(3)
 
 
 
Base management fees(4)
1.18%
1.75%
1.52%
Incentive fees(5)
1.77%
1.95%
Interest payments on borrowed funds(6)
Other expenses(7)
2.31%
0.35%
2.08%
Total annual expenses
5.26%
2.10%
5.56%
(1)
Purchases of shares of SSIC Common Stock on the secondary market are not subject to sales charges, but may be subject to brokerage commissions or other charges. The table does not include any sales load (underwriting discount or commission) that SSIC stockholders may have paid in connection with their purchase of shares of SSIC Common Stock. SSIC does not expect to charge sales charges on the issuance of additional shares as a result of the Loan Portfolio Acquisition.
(2)
The estimated expenses associated with SSIC’s dividend reinvestment plan are included in “other expenses.” CALP does not currently have a dividend reinvestment plan.
(3)
“Net assets” equals SSIC net assets as of December 31, 2023 and CALP net assets as of January 1, 2024. For the pro forma column, the combined net assets of SSIC and CALP on a pro forma basis as of December 31, 2023 for SSIC and January 1, 2024 for CALP were used.
(4)
SSIC’s base management fee under the Current Investment Advisory Agreement and the New Investment Advisory Agreement is calculated at an annual rate of 1.75% of SSIC’s gross assets (i.e., total assets held before deduction of any liabilities), which includes investments acquired with the use of leverage and excludes cash and cash equivalents (as defined in the notes to SSIC’s financial statements). See “SSIC Proposal 3: Advisory Agreement Approval Proposal—Overview of the Current Investment Advisory Agreement and the New Investment Advisory Agreement—Management Fee.”
The base management fee of SSIC shown in the table assumes that SSIC’s gross assets (excluding cash and cash equivalents) are $56.0 million, which was the actual amount of SSIC’s gross assets (excluding cash and cash equivalents) as of December 31, 2023. The base management fee of SSIC shown in the table is lower than 1.75% because SSIC held cash and cash equivalents of $32.6 million, which are excluded from gross assets for purposes of calculating the base management fee, as of December 31, 2023.
CALP’s base management fee under its investment management agreement with CALP Adviser (the “CALP Investment Management Agreement”) is calculated at an annual rate of 1.75% of CALP’s gross assets (i.e., total assets held before deduction of any liabilities), which includes investments acquired with the use of leverage and excludes cash and cash equivalents.
The pro forma base management fee shown in the table is based on the combined gross assets (excluding cash and cash equivalents) of SSIC and CALP on a pro forma basis as of December 31, 2023 for SSIC and January 1, 2024 for CALP. The pro forma base management fee has been calculated in accordance with the terms of the New Investment Advisory Agreement, and assumes that the Investment Advisory Agreement Approval Proposal is approved by SSIC stockholders.
(5)
SSIC’s incentive fee consists of two parts. The first part of the incentive fee, the incentive fee on income, which is payable quarterly in arrears, is equal to 20% of the excess, if any, of SSIC’s “pre-incentive fee net investment income” that exceeds a 1.75% quarterly (7% annualized) hurdle rate, subject to a “catch up” provision measured at the end of each quarter. The incentive fee on income is computed and paid on income that may include interest that is accrued but not yet received, and may never be received, in cash. The second part of the incentive fee, the incentive fee on capital gains, payable at the end of each fiscal year (or upon termination of the Current Investment Advisory Agreement or the New Investment Advisory Agreement) in arrears, equals 20% of cumulative realized
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capital gains from inception to the end of each fiscal year, less cumulative realized capital losses and unrealized capital depreciation from inception to the end of each fiscal year, less the aggregate amount of any previously paid incentive fees on capital gains for prior periods. See “SSIC Proposal 3: Advisory Agreement Approval Proposal—Overview of the Current Investment Advisory Agreement and the New Investment Advisory Agreement—Management Fee.”
The incentive fee shown in the table for SSIC is based on actual amounts of incentive fees on income incurred during the year ended December 31, 2023. No amounts of incentive fees on capital gains were included, as no such amounts were payable by SSIC as of and for the year ended December 31, 2023. The incentive fee amount for SSIC excludes accrued incentive fees on capital gains as of December 31, 2023, which are reflected on a hypothetical liquidation basis in accordance with GAAP and were not payable by SSIC as of December 31, 2023.
Pursuant to the CALP Investment Management Agreement with CALP Adviser, CALP’s incentive fee consists of two parts. The first part of the incentive fee, the incentive fee on income, which is payable quarterly in arrears, is equal to 20% of the excess, if any, of CALP’s “pre-incentive fee net investment income” that exceeds a 1.75% quarterly (7% annualized) hurdle rate, subject to a “catch up” provision measured at the end of each quarter. The incentive fee on income is computed and paid on income that may include interest that is accrued but not yet received, and may never be received, in cash. The second part of the incentive fee, the incentive fee on capital gains, payable at the end of each fiscal year (or upon termination of the CALP Investment Management Agreement) in arrears, equals 20% of cumulative realized capital gains from inception to the end of each fiscal year, less cumulative realized capital losses and unrealized capital depreciation from inception to the end of each fiscal year, less the aggregate amount of any previously paid incentive fees on capital gains for prior periods.
As CALP is unable to estimate the incentive fees under the CALP Investment Management Agreement, it has assumed this figure to be zero.
Pro forma incentive fees based on income are based on estimated net investment income to be earned by SSIC during the first year following the Closing Date. No incentive fees based on capital gains have been included because SSIC does not currently anticipate realizing any capital gains during the first year following the Closing Date. The pro forma incentive fee has been calculated in accordance with the terms of the New Investment Advisory Agreement, and assumes that the Investment Advisory Agreement Approval Proposal is approved by SSIC stockholders.
(6)
SSIC and CALP have not incurred indebtedness or paid any interest on borrowed funds, and SSIC does not currently anticipate doing so during the first year following the Closing Date.
(7)
In the case of SSIC, other expenses include administrative, legal, audit, insurance, valuation and custodian fees, as well as other professional fees and the fees payable to the SSIC Independent Directors. The amount shown in the table reflects actual amounts incurred during the year ended December 31, 2023.
In the case of CALP, other expenses include administrative, legal, audit, tax and valuation fees. The amount shown in the table reflects estimated amounts for the year ending December 31, 2024.
Pro forma other expenses include estimated administrative, legal, audit, accounting, finance, insurance, valuation and custodian fees, as well as other professional fees and the fees payable to the SSIC Independent Directors, during the first year following the Closing Date. Pro forma other expenses include estimated reductions in certain other expenses which may be realized as a result of the Loan Portfolio Acquisition. Estimated reductions in other expenses may vary from actual results.
SSIC Adviser has agreed to cap SSIC’s operating expenses (excluding base management fees, incentive fees, expenses related to the Loan Portfolio Acquisition, and litigation and indemnification expenses) at an annualized rate of 2.15% for a one-year period effective upon the closing of the Loan Portfolio Acquisition.
Example
The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in shares of SSIC Common Stock, CALP or, following the completion of the Loan Portfolio Acquisition, SSIC Common Stock. In calculating the following expense amounts, each of SSIC and CALP has assumed that it would have no leverage and that its annual operating expenses would remain at the levels set forth in the table above. The pro forma expense calculations assume that the Loan Portfolio Acquisition closed on December 31, 2023 and that the leverage and operating expenses of SSIC and CALP remain at the levels set forth in the table above. Transaction expenses related to the Loan Portfolio Acquisition are not included in the following examples.
 
1 year
3 years
5 years
10 years
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (none of which is subject to the incentive fee on capital gains):
 
 
 
 
SSIC
$35
$107
$181
$377
CALP
$21
$66
$113
$243
Pro forma following the completion of the Loan Portfolio Acquisition
$36
$110
$187
$387
You would pay the following expenses on a $1,000 investment, assuming a 5% annual return (all of which is subject to the incentive fee on capital gains):
 
 
 
 
SSIC
$45
$136
$227
$461
CALP
$31
$96
$162
$341
Pro forma following the completion of the Loan Portfolio Acquisition
$46
$139
$233
$470
The above table is to assist you in understanding the various costs and expenses that an investor in shares of SSIC Common Stock, CALP or, following the completion of the Loan Portfolio Acquisition, SSIC Common
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Stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, performance will vary and may result in a return greater or less than 5%. Because the income portion of the incentive fee for SSIC and CALP, assuming a 5% annual return and annualized incentive fee hurdle of 7%, would either not be payable or would have an insignificant impact on the expense amounts shown above, the second example assumes that the 5% annual return will be generated entirely through net realized capital gains and, as a result, will trigger the payment of the capital gains portion of the incentive fee for SSIC and CALP. If SSIC or CALP were to achieve sufficient returns on its investments, including through the realization of capital gains, to trigger income based incentive fees or capital gains incentive fees of a material amount, its expenses, and returns to its investors, would be higher. The second example assumes that, as of December 31, 2023, the sum of realized capital losses and unrealized capital depreciation on a cumulative basis since inception for SSIC and for CALP is zero.
In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, reinvestment of dividends and other distributions under the SSIC dividend reinvestment plan may occur at a price per share that differs from the then-current net asset value per share of SSIC Common Stock. See “Silver Spike Investment Corp. Dividend Reinvestment Plan” for additional information regarding SSIC’s dividend reinvestment plan. CALP does not currently have a dividend reinvestment plan.
The example and the expenses in the table above should not be considered a representation of SSIC’s, CALP’s, or, following the Loan Portfolio Acquisition, SSIC’s, future expenses, and actual expenses may be greater or less than those shown.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/information statement/prospectus contains statements that constitute forward-looking statements, which relate to SSIC and CALP, regarding future events or the future performance or future financial condition of SSIC and CALP. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about SSIC and CALP, their industry and their respective beliefs and assumptions. The forward-looking statements contained in this joint proxy statement/information statement/prospectus involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including:
the ability of the parties to consummate the Loan Portfolio Acquisition described in this joint proxy statement/information statement/prospectus on the expected timeline, or at all;
the failure of the SSIC stockholders to approve the Stock Issuance Proposal;
the ability to realize the anticipated benefits of the Loan Portfolio Acquisition;
the effects of disruption on the business of SSIC and CALP from the Loan Portfolio Acquisition;
the effect that the announcement or consummation of the Loan Portfolio Acquisition may have on the trading price of SSIC Common Stock;
SSIC’s plans, expectations, objectives and intentions, as a result of the Loan Portfolio Acquisition;
any potential termination of the Loan Portfolio Acquisition Agreement;
the pursuit by CALP of a liquidation or an alternative transaction upon the termination of the Loan Portfolio Acquisition Agreement;
changes in SSIC’s NAV in the future;
SSIC’s future operating results;
SSIC’s business prospects and the prospects of the companies in which it may invest;
the impact of the investments that SSIC expects to make;
the ability of SSIC’s portfolio companies and the portfolio companies included in the Loan Portfolio to achieve their objectives;
SSIC’s current and expected financings and investments;
SSIC receiving and maintaining corporate credit ratings and changes in the general interest rate environment;
the adequacy of SSIC’s cash resources, financing sources and working capital;
the timing and amount of cash flows, payments on loan instruments, distributions and dividends, if any, from SSIC’s portfolio companies or those portfolio companies in the Loan Portfolio;
SSIC’s contractual arrangements and relationships with third parties;
actual and potential conflicts of interest with other funds managed by SSIC Adviser or any of its affiliates;
the dependence of SSIC’s future success on the general economy and its effect on the industries in which SSIC may invest;
SSIC’s use of financial leverage;
the ability of SSIC Adviser or any future investment adviser to SSIC to locate suitable investments for SSIC and to monitor and administer SSIC’s investments;
the ability of SSIC Adviser or any future investment adviser to SSIC to attract and retain highly talented professionals;
SSIC’s ability to maintain its qualification as a RIC and as a BDC;
changes in federal, state or local laws and regulations impacting the cannabis industry;
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the effect of changes to tax legislation on SSIC and the portfolio companies in which SSIC may invest and SSIC’s and their tax position;
the tax status of the enterprises in which SSIC may invest;
the ability of CALP to obtain the necessary consents for, or otherwise identify and obtain additional loans for, the Loan Portfolio;
the possibility that loans anticipated to be included in the Loan Portfolio may be repaid or refinanced prior to consummation of the Loan Portfolio Acquisition;
the regulatory requirements applicable to the Loan Portfolio Acquisition and any changes to the Loan Portfolio Acquisition necessary to comply with such requirements;
the satisfaction or waiver of the conditions to the consummation of the Loan Portfolio Acquisition, and the possibility that the closing will not occur or that it will be significantly delayed;
the realization generally of the anticipated benefits of the Loan Portfolio Acquisition and the possibility that SSIC will not realize those benefits, in part or at all;
the performance of the loans included in the Loan Portfolio, and the possibility of defects or deficiencies in such loans notwithstanding the diligence performed by SSIC and its advisors;
the ability of SSIC to realize cost savings and other management efficiencies in connection with the Loan Portfolio Acquisition as anticipated;
the reaction of the trading markets to the Loan Portfolio Acquisition and the possibility that a more liquid market or more extensive analyst coverage will not develop for SSIC as anticipated;
the reaction of the financial markets to the Loan Portfolio Acquisition and the possibility that SSIC will not be able to raise capital as anticipated;
the diversion of management’s attention from SSIC’s ongoing business operations;
the risk of stockholder litigation in connection with the Loan Portfolio Acquisition;
the strategic, business, economic, financial, political and governmental risks and other risk factors affecting the business of SSIC and the companies in which it is invested; and
other factors described from time to time in SSIC’s filings with the SEC.
In addition, words such as “anticipate,” “believe,” “expect,” “intend,” “seek,” “plan,” “estimate” and similar expressions indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this joint proxy statement/information statement/prospectus involve risks and uncertainties. Actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including those factors set forth in “Item 1A. Risk Factors” in Part I of SSIC’s Annual Report on Form 10-K (File No. 814-01383) for the fiscal year ended December 31, 2023, filed with the SEC on March 28, 2024, as such factors may be updated from time to time in SSIC’s periodic filings with the SEC, and elsewhere contained or incorporated by reference in this joint proxy statement/information statement/prospectus. Other factors that could cause actual results to differ materially include:
changes in the economy;
risks associated with possible disruption in SSIC’s or CALP’s operations or the economy generally due to terrorism, natural disasters or pandemics;
future changes in laws or regulations (including the interpretation of these laws and regulations by regulatory authorities) and conditions in SSIC’s or CALP’s operating areas; and
the price at which shares of SSIC Common Stock may trade on NASDAQ.
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The forward-looking statements included in this joint proxy statement/information statement/prospectus have been based on information available to SSIC and CALP on the date of this joint proxy statement/information statement/prospectus. Except as required by the federal securities laws, none of SSIC or CALP undertakes any obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
You are advised to consult any additional disclosures that SSIC or CALP may make directly to you or through reports that SSIC may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
The forward-looking statements and projections in this joint proxy statement/information statement/prospectus, any prospectus supplement or in periodic reports SSIC may file under the Exchange Act are excluded from the safe harbor protection provided by Section 27A of the Securities Act and Section 21E of the Exchange Act.
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THE SSIC SPECIAL MEETING
Date, Time and Place of the SSIC Special Meeting
The virtual SSIC Special Meeting will be held on [•], 2024, at [•] [a.m./p.m.] Eastern Time via live webcast. The live webcast will be accessible at www.virtualshareholdermeeting.com/SSIC2024SM. By accessing such live webcast, you will be able to participate in the SSIC Special Meeting, including by voting and submitting questions.
Purpose of the SSIC Special Meeting
At the SSIC Special Meeting, SSIC stockholders will be asked to consider and vote upon (i) the Stock Issuance Proposal, (ii) the Director Election Proposal and (iii) the Advisory Agreement Approval Proposal.
Upon the recommendation of the Special Committee, the SSIC Board has unanimously approved each of (i) the Loan Portfolio Acquisition Agreement, (ii) the nomination of the persons named for election as director in this joint proxy statement/information statement/prospectus, and (iii) the New Investment Advisory Agreement, and unanimously recommends that SSIC stockholders vote “FOR” each of the Stock Issuance Proposal, the Director Election Proposal, and the Advisory Agreement Approval Proposal.
Record Date
The Record Date is [•], 2024. The Record Date was established by the SSIC Board, and only holders of record of shares of SSIC Common Stock at the close of business on the Record Date are entitled to receive notice of the SSIC Special Meeting and vote at the SSIC Special Meeting. As of the Record Date, there were [•] shares of SSIC Common Stock outstanding.
Quorum and Adjournments
Under the SSIC Charter and the SSIC Bylaws, a majority of the number of shares of SSIC Common Stock entitled to be cast, present in person (virtually) or by proxy, constitutes a quorum for the transaction of business.
Abstentions or withheld votes will be treated as shares of SSIC Common Stock that are present for purposes of determining the presence of a quorum for transacting business at the SSIC Special Meeting.
A “broker non-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 (virtually) or by proxy) at a meeting for purposes of voting on a routine proposal (or a non-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 proposal and does not have, or chooses not to exercise, discretionary authority to vote the shares on such proposal. All of the proposals to be considered at the SSIC Special Meeting are non-routine matters for SSIC. If a beneficial owner does not instruct its broker, bank or other institution or nominee holding its shares of SSIC Common Stock on its behalf with respect to any of the proposals to be considered at the SSIC Special Meeting, the shares of SSIC Common Stock will not be treated as present for purposes of determining the presence of a quorum for transacting business at the SSIC Special Meeting. If a beneficial owner instructs its broker, bank or other institution or nominee holding its shares of SSIC Common Stock on its behalf with respect to any of the proposals to be considered at the SSIC Special Meeting, the shares of SSIC Common Stock will be treated as present for purposes of determining the presence of a quorum for transacting business at the SSIC Special Meeting.
In the event that a quorum is not present at the SSIC Special Meeting, the chairman of the SSIC Special Meeting shall have the power to adjourn the SSIC Special Meeting from time to time to a date not more than 120 days after the Record Date originally fixed for the SSIC Special Meeting without notice, other than the announcement at the SSIC Special Meeting, to permit further solicitation of proxies. Any business that might have been transacted at the SSIC Special 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 the Stock Issuance Proposal, the Director Election Proposal, or the Advisory Agreement Approval Proposal at the SSIC Special Meeting, the chairman of the SSIC
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Special Meeting may adjourn the SSIC Special Meeting from time to time to a date not more than 120 days after the Record Date originally fixed for the SSIC Special Meeting without notice, other than announcement at the SSIC Special Meeting, to permit further solicitation of proxies.
Pursuant to the Loan Portfolio Acquisition Agreement, SSIC shall not adjourn the SSIC Special Meeting without the consent of CALP.
If sufficient votes in favor of one proposal have been received at the time of the SSIC Special Meeting, such proposal will be acted upon and such action will be final, regardless of any subsequent adjournments to consider other proposals.
Vote Required
Each share of SSIC Common Stock held by a holder of record as of the Record Date has one vote on each matter considered at the SSIC Special Meeting.
As of the Record Date, SSIC Adviser and its affiliates held SSIC Common Stock comprising approximately [•]% of the outstanding shares of SSIC Common Stock, and, therefore, have the ability to control whether each of the proposals is approved. Furthermore, SSIC Adviser and its affiliates have entered into a voting agreement pursuant to which, subject to the terms thereof, they have agreed to vote the outstanding shares of SSIC Common Stock for which they have voting power in favor of each of the proposals. See “Description of the Loan Portfolio Acquisition Agreement—Voting Agreement.”
The Stock Issuance Proposal
The approval of the Stock Issuance Proposal requires the affirmative vote of at least a majority of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. Abstentions and broker non-votes, if any, will have no effect on the outcome of the Stock Issuance Proposal.
The Director Election Proposal
The approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. Under a plurality vote, the director nominees who receive the highest number of “for” votes will be elected, even if they receive approval from less than a majority of the votes cast. Because the director nominees are running unopposed, each director nominee will be elected to the SSIC Board so long as a single vote is cast in favor of his election. Withheld votes and broker non-votes, if any, will have no effect on the outcome of the Director Election Proposal.
The Advisory Agreement Approval Proposal
The approval of the Advisory Agreement Approval Proposal requires the approval of a “majority of the outstanding voting securities,” as defined in the 1940 Act, of SSIC. Under the 1940 Act, a “majority of the outstanding voting securities” of SSIC means the lesser of: (1) 67% of the shares of SSIC Common Stock present in person (virtually) or represented by proxy at the SSIC Special Meeting if the holders of more than 50% of the outstanding shares of SSIC Common Stock are present or represented by proxy or (2) more than 50% of the outstanding shares of SSIC Common Stock. Abstentions and broker non-votes, if any, will not count as affirmative votes cast and will therefore have the same effect as votes against the Advisory Agreement Approval Proposal.
Voting of Management
On the Record Date, SSIC’s officers and directors owned and were entitled to vote [•] shares of SSIC Common Stock, including 4,500,387 shares owned indirectly through SSIC Adviser, representing [•]% of the outstanding shares of SSIC Common Stock on the Record Date. Scott Gordon has entered into a voting agreement with SSIC Adviser, pursuant to which, subject to the terms thereof, he has agreed to vote the outstanding shares of SSIC Common Stock for which he has voting power, which includes the shares held by SSIC Adviser, in favor of each of the proposals. See “Description of the Loan Portfolio Acquisition Agreement—Voting Agreement.” None of SSIC’s other officers or directors has entered into any voting agreement relating to the proposals.
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Participation in SSIC Special Meeting and Voting of Proxies
Virtually at the SSIC Special Meeting. SSIC will be hosting the SSIC Special Meeting live via webcast. Any stockholder can participate in the SSIC Special Meeting live online at www.virtualshareholdermeeting.com/SSIC2024SM. If you were a stockholder as of the Record Date, or you hold a valid proxy for the SSIC Special Meeting from a stockholder as of the Record Date, you can vote at the SSIC Special Meeting. A summary of the information you need to attend the SSIC Special Meeting online is provided below:
Instructions on how to attend and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.proxyvote.com.
Assistance with questions regarding how to attend and participate via the Internet will be provided at www.virtualshareholdermeeting.com/SSIC2024SM, 30 minutes before the start of the virtual SSIC Special Meeting.
Webcast starts at [•] [a.m./p.m.] Eastern Time.
You will need your control number located on your proxy card to enter the SSIC Special Meeting.
Stockholders may submit questions while attending the SSIC Special Meeting via the Internet.
To participate in the SSIC Special Meeting, you will need the control number located on your proxy card. If you lose your control number, you may join the SSIC Special Meeting as a “Guest,” but you will not be able to vote, ask questions or access the list of stockholders as of the Record Date. SSIC will have technicians ready to assist with any technical difficulties stockholders may have accessing the virtual meeting website. If you encounter any difficulties accessing the virtual meeting website during the check-in or meeting time, please call the technical support number that will be posted on the SSIC Special Meeting login page.
If your shares are held in “street name” through a bank, broker or other nominee, in order to vote during the live webcast of the SSIC Special Meeting you must first obtain a “legal proxy” from your bank, broker or other nominee and register with Broadridge Financial Solutions, Inc., as described below, in order for you to participate in the live webcast of the SSIC Special Meeting. You then may vote by following the instructions provided to you.
By Proxy by Telephone. You may authorize a proxy by telephone by following the telephone voting instructions included on your proxy card. Most stockholders who hold shares beneficially in “street name” may provide voting instructions by telephone by calling the number specified on the voting instruction form provided by their brokers, banks or nominees. Please check the voting instruction form for telephone voting availability.
Authorizing a proxy by telephone requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on the proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call. Please be aware that if you submit voting instructions by telephone, you may incur costs such as telephone access charges for which you will be responsible. The telephone voting facilities will close at 11:59 p.m. Eastern Time on [•], 2024, the day before the SSIC Special Meeting date.
By Proxy through the Internet. You may authorize a proxy through the Internet using the web address included on your proxy card.
Authorizing a proxy through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on the proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the Internet link.
By Proxy through the Mail. 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;
mail the proxy card promptly in the envelope provided, which requires no postage if mailed in the United States; and
allow sufficient time for the proxy card to be received on or before 11:59 p.m. Eastern Time on [•], 2024.
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Important notice regarding the availability of proxy materials for the SSIC Special Meeting. SSIC’s joint proxy statement/information statement/prospectus and the proxy card are available at www.proxyvote.com.
Revocability of Proxies
Submitting a proxy on the enclosed proxy card, by telephone, the Internet or any other permissible method does not preclude a SSIC stockholder from voting virtually through the live webcast at the SSIC Special Meeting. Any SSIC stockholder may change his, her or its vote using the Internet or telephone methods described herein, prior to the applicable cutoff time before the SSIC Special Meeting, in which case only such SSIC stockholder’s latest Internet or telephone proxy will be counted. Alternatively, an SSIC stockholder may revoke his, her or its proxy and change his, her or its vote by signing and returning a new proxy dated as of a later date, or by attending the SSIC Special Meeting and voting virtually through the live webcast. However, an SSIC stockholder’s attendance at the SSIC Special Meeting will not automatically revoke his, her or its proxy, unless such SSIC stockholder properly votes at the SSIC Special Meeting, or specifically requests that his, her or its prior proxy be revoked by delivering a written notice of revocation to SSIC prior to the SSIC Special Meeting at the following address: Silver Spike Investment Corp., 600 Madison Avenue, Suite 1800, New York, New York 10022, Attention: Roxanne Jenkins, Secretary.
Solicitation of Proxies
The expenses of the solicitation of proxies for the SSIC Special Meeting, including the cost of preparing, printing and mailing this joint proxy statement/information statement/prospectus, the accompanying Notice of Special Meeting of Stockholders and the proxy card, will be borne by SSIC to the extent that such expenses relate to the Stock Issuance Proposal, and will be borne by SSIC Adviser to the extent that such expenses relate to the Director Election Proposal and/or the Advisory Agreement Approval Proposal. SSIC has requested that brokers, nominees, fiduciaries and other persons holding shares of SSIC Common Stock 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. SSIC may reimburse such persons for their reasonable expenses in so doing.
In addition to the solicitation of proxies by mail, proxies may be solicited in person and by telephone or facsimile transmission by directors, officers or employees of SSIC and its affiliates (without special compensation therefor). SSIC has engaged Broadridge Financial Solutions, Inc., an independent shareholder services firm, to assist in the distribution of the proxy materials and the tabulation of proxies. The cost of these services is estimated to be approximately $23,000 plus reasonable out-of-pocket expenses.
For more information regarding expenses related to the Loan Portfolio Acquisition, see “Questions and Answers about the Loan Portfolio Acquisition—Who is responsible for paying the expenses relating to completing the Loan Portfolio Acquisition?”
Dissenters’ Rights
SSIC stockholders do not have the right to exercise dissenters’ rights with respect to any matter to be voted upon at the SSIC Special Meeting.
Stockholders Who Hold Their Shares in a Brokerage Account
If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. All of the proposals to be considered at the SSIC Special Meeting are non-routine matters for SSIC. As a result, if you hold shares of SSIC Common Stock in street name through a broker, your broker will not be permitted to exercise voting discretion with respect to your shares of SSIC Common Stock for such proposals. For this reason, it is imperative that stockholders of SSIC vote or provide instructions to their brokers as to how to vote with respect to each proposal to be considered at the SSIC Special Meeting.
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CAPITALIZATION
The following table sets forth (1) SSIC’s actual capitalization as of December 31, 2023 and CALP’s actual capitalization as of January 1, 2024 and (2) SSIC’s pro forma capitalization as adjusted to reflect the effects of the Loan Portfolio Acquisition. You should read this table together with each of SSIC’s and CALP’s financial statements incorporated by reference or included herein.
 
(Dollar amounts in thousands, except per share data)
 
Actual SSIC as
of December 31,
2023 (audited)
Actual CALP as
of January 1,
2024 (audited)
Pro Forma
Adjustments
(unaudited)
Pro Forma SSIC as
of December 31,
2023 (unaudited)
Cash, cash equivalents and restricted cash
$32,612
$(3,789)(1)
$28,823
Investments, at fair value
$54,120
$129,235
$183,355
Net assets
$85,553(2)
$129,446
$(3,789)
$211,210
Number of shares of common stock outstanding
6,214,941
12,940,489
9,823,262(3)
16,038,203
NAV per common share
$13.77
$10.00
$(0.60)(4)
$13.17
(1)
Pro forma adjustment reflects the impact of $3.8 million of estimated remaining transaction expenses expected to be incurred by SSIC as of December 31, 2023. The transaction expenses of SSIC are expensed prior to or at the closing of the Loan Portfolio Acquisition and the transaction expenses of CALP, which are expected to be approximately $4 million, are expensed at the closing of the Loan Portfolio Acquisition. Such transaction expenses exclude any expenses estimated to be borne by SSIC Adviser and CALP Adviser.
(2)
Net assets of SSIC reflects the impact of $0.7 million of transaction expenses incurred by SSIC as of December 31, 2023.
(3)
Pro forma adjustment reflects the shares of SSIC Common Stock issued to CALP based on the NAV per share of SSIC Common Stock as of December 31, 2023 and the fair value of the Loan Portfolio as of January 1, 2024, as adjusted for the estimated remaining transaction expenses to be incurred by SSIC, discussed above in Note (1).
(4)
The decrease of $0.60 in pro forma NAV per common share is the result of the net impact of the estimated pro forma adjustments.
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THE LOAN PORTFOLIO ACQUISITION
The discussion in this joint proxy statement/information statement/prospectus, which includes the material terms of the Loan Portfolio Acquisition and the principal terms of the Loan Portfolio Acquisition Agreement, is subject to, and is qualified in its entirety by reference to, the Loan Portfolio Acquisition Agreement, a copy of which is attached as Annex A to this joint proxy statement/information statement/prospectus.
General Description of the Loan Portfolio Acquisition
Pursuant to the terms of the Loan Portfolio Acquisition Agreement, at the Closing Date, SSIC will purchase the Loan Portfolio in exchange for newly issued shares of SSIC Common Stock.
If the Loan Portfolio Acquisition is consummated, CALP will be entitled to receive such number of newly issued shares of SSIC Common Stock equal to the quotient of the fair value of the Loan Portfolio divided by the NAV per share of SSIC Common Stock, reflective of expenses related to the Loan Portfolio Acquisition, in each case calculated as of the same date within two (2) business days prior to the closing of the Loan Portfolio Acquisition.
Following the Loan Portfolio Acquisition, SSIC will continue its operations as conducted before the Loan Portfolio Acquisition.
Background of the Loan Portfolio Acquisition
The SSIC Board regularly reviews and assesses the business and operations of SSIC, with the goal of increasing stockholder value. In furtherance thereof, the SSIC Board, from time to time, considers a broad range of business opportunities and strategic alternatives available to SSIC.
In this context, the SSIC Board and SSIC Adviser have explored, in particular, means of increasing the size and scale of SSIC. The SSIC Board and SSIC Adviser believe additional scale is important because of the general tendency of BDCs with smaller market capitalizations to trade at a larger discount or smaller premium to net asset value than larger BDCs, particularly as the number of BDCs with a larger market capitalization has increased meaningfully over the last several years, and because increased scale generally increases portfolio diversification as well as efficiencies through reduced fees and expenses as a percentage of net assets. In addition, the SSIC Board and SSIC Adviser have discussed using strategic transactions as a way to attract additional equity research analyst coverage and institutional investors, which could improve the trading dynamics for SSIC (including the potential for improved stock price and liquidity).
During the second half of 2023, at the invitation of representatives of CAG, representatives of SSIC and SSIC Adviser began exploring a potential transaction, or the “Loan Portfolio Acquisition,” pursuant to which SSIC would acquire a portfolio of loans from a to-be-formed CALP Adviser-managed entity in exchange for newly issued shares of SSIC Common Stock. At that time, the loans to be acquired were held by various entities managed by Chicago Atlantic Advisers, LLC and its affiliates, and it was proposed that the agreed-upon portfolio of loans would be transferred to CALP, a newly formed entity, prior to the parties entering into the Loan Portfolio Acquisition Agreement. The parties recognized the compatibility of SSIC’s existing portfolio with the portfolio to be acquired, which, like SSIC’s existing portfolio, was invested materially in the cannabis sector (and, in fact, there were some overlapping positions). SSIC and SSIC Adviser discussed the expected strategic benefits of the Loan Portfolio Acquisition, including the increased scale of SSIC.
On October 24, 2023, the SSIC Board held a special meeting. Representatives of SSIC, SSIC Adviser, and Davis Polk & Wardwell, LLP, or “Davis Polk,” outside legal counsel to SSIC and SSIC Adviser, were also in attendance. During such meeting, representatives of SSIC and SSIC Adviser briefed the SSIC Board about CALP and the potential Loan Portfolio Acquisition. Representatives of SSIC and SSIC Adviser discussed with the SSIC Board the anticipated potential benefits to SSIC and the SSIC stockholders of the Loan Portfolio Acquisition, including increased scale and efficiencies, enhanced portfolio diversification, improved access to debt and equity capital markets, and expected accretion to net investment income. Representatives of SSIC Adviser also briefed the SSIC Board about the proposed Joint Venture, as described in “SSIC Proposal 3: Advisory Agreement Approval Proposal”, which representatives of SSIC Adviser and CALP Adviser had been discussing since mid-2023. The members of the SSIC Board that are not “interested persons” of SSIC, SSIC Adviser, CALP, or CALP Adviser within the meaning of Section 2(a)(19) of the 1940 Act, or the “SSIC Independent Directors,” which consisted of all of the directors of SSIC other than Scott Gordon, the Chief Executive Officer of SSIC,
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and the founder and Chief Executive Officer of SSIC Adviser, met in executive session after the meeting and discussed, among other things, hiring independent legal counsel to advise the SSIC Independent Directors on the Loan Portfolio Acquisition and the proposed Joint Venture.
On October 24, 2023, representatives of Eversheds Sutherland (US) LLP, or “Eversheds,” outside legal counsel to CALP and CALP Adviser, delivered an initial draft of a non-legally binding term sheet relating to the Loan Portfolio Acquisition to representatives of Davis Polk.
On October 27, 2023, representatives of SSIC, SSIC Adviser, CALP, CALP Adviser, Davis Polk, and Eversheds, participated in a teleconference to discuss the Loan Portfolio Acquisition.
On or about this time, representatives of SSIC, SSIC Adviser, CALP, CALP Adviser, Davis Polk and Eversheds began holding weekly teleconferences to discuss the Loan Portfolio Acquisition.
Over the ensuing weeks, representatives of SSIC, SSIC Adviser, CALP, CALP Adviser, Davis Polk and Eversheds discussed and finalized a non-legally binding term sheet relating to the Loan Portfolio Acquisition.
During the same time, the SSIC Independent Directors began discussions with representatives of Kramer Levin Naftalis & Frankel LLP, or “Kramer Levin,” to serve as independent legal counsel.
On November 27, 2023, the SSIC Board held a special meeting. Representatives of SSIC, SSIC Adviser, CALP, CALP Adviser, Davis Polk and Kramer Levin were also in attendance. The meeting began with an executive session, during which the SSIC Board formed a special committee composed of all of the SSIC Independent Directors (the “Special Committee”). The Special Committee was broadly tasked with independently considering, reviewing, negotiating, assessing and recommending the terms of financial and strategic transactions for SSIC, including extraordinary and significant transactions involving SSIC or SSIC Adviser, and making recommendations relating thereto to the SSIC Board. In the executive session, the Special Committee confirmed Kramer Levin’s qualifications as “independent legal counsel” for purposes of Rule 0-1(a)(6) under the 1940 Act, determined that Kramer Levin was qualified to serve as such in connection with the Loan Portfolio Acquisition, and formally engaged Kramer Levin as its outside counsel. The Special Committee directed Kramer Levin to prepare information requests relating to the Loan Portfolio Acquisition on its behalf. In the general session of the meeting, the SSIC Board was introduced to representatives of CALP and CALP Adviser, who discussed their relevant backgrounds, qualifications and experience, as well as their overall strategic objectives in transacting with SSIC. In addition, the representatives of SSIC and SSIC Adviser briefed the SSIC Board (including the Special Committee) on the Loan Portfolio Acquisition, including the terms of the final non-legally binding term sheet, and representatives of SSIC Adviser provided an update on the proposed Joint Venture.
Before and after the meeting, members of the Special Committee also met in executive session with representatives of Kramer Levin to, among other things, review and consider their obligations in connection with the Loan Portfolio Acquisition. Representatives of Kramer Levin reviewed with the Special Committee the various legal regimes that may be implicated in the process of considering the Loan Portfolio Acquisition, including the 1940 Act and federal securities laws. Representatives of Kramer Levin also discussed with the Special Committee the purposes of the Special Committee, including its oversight role in connection with the Loan Portfolio Acquisition and the proposed Joint Venture. Representatives of Kramer Levin further discussed with the Special Committee various considerations with respect to the engagement of a financial advisor, including its independence and the scope and economic terms of a proposed engagement. After discussion, the Special Committee determined to further explore the possibility of retaining a financial advisor in connection with the Loan Portfolio Acquisition, and that it would interview Keefe, Bruyette & Woods, Inc., or “KBW,” and another financial advisor (the “Other Firm”) to serve in that role. The Special Committee also discussed with Kramer Levin various considerations with respect to the engagement of an independent valuation agent to provide the Special Committee the fair valuations of the loan portfolio to be acquired.
Over the ensuing weeks, members of the Special Committee interviewed KBW and the Other Firm and, following further discussions, the Special Committee determined to move forward with the retention of KBW. In determining whether to hire KBW as its financial advisor in connection with the Loan Portfolio Acquisition, the Special Committee reviewed a draft engagement letter and other materials provided by KBW to evaluate KBW’s relevant qualifications, expertise, reputation, and experience, as well as its independence. The Special Committee reviewed, assessed, and took into account in its deliberations, among other things, any material relationships with
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SSIC, SSIC Adviser, CALP and CALP Adviser disclosed by KBW. Having reviewed the terms of the draft engagement letter and considering KBW’s relationships with SSIC and SSIC Adviser, the Special Committee determined to select KBW as the Special Committee’s financial advisor in connection with the Loan Portfolio Acquisition, taking into account KBW’s reputation, expertise, significant experience in transactions similar to the Loan Portfolio Acquisition, and familiarity with SSIC as a result of, among other things, serving as joint bookrunning manager for SSIC’s initial public offering in February 2022.
During the same period, members of the Special Committee interviewed a firm to serve as the Special Committee’s independent valuation agent and, following further discussions, the Special Committee determined to move forward with the retention of such firm (the “Independent Valuation Agent”). In determining whether to hire the Independent Valuation Agent in connection with the Loan Portfolio Acquisition, the Special Committee reviewed a draft engagement letter and other materials to evaluate the Independent Valuation Agent’s relevant qualifications, expertise, reputation and experience.
Over the ensuing weeks, in connection with the negotiation and execution of the Loan Portfolio Acquisition Agreement, each of SSIC, SSIC Adviser and CALP Adviser conducted due diligence regarding the Loan Portfolio, CALP and CALP Adviser, and SSIC and SSIC Adviser, respectively, including, but not limited to, a review of (a) the valuation policies utilized by SSIC Adviser and CALP Adviser to value the assets of SSIC and CALP, respectively, and the extent to which those policies differed, (b) assignment provisions with respect to the loans in the Loan Portfolio and (c) litigation matters and regulatory and compliance matters.
On December 4, 2023, CALP was formed as a Delaware limited liability company.
On December 6, 2023, representatives of Eversheds delivered an initial draft of the Loan Portfolio Acquisition Agreement to representatives of Davis Polk. Among other things, the draft provided for customary limitations on solicitations of alternative transactions by SSIC, subject to the right of the SSIC Board to consider unsolicited offers under certain conditions, as well as certain termination rights of SSIC in connection with a change of recommendation of the SSIC Board and entry into an alternative transaction agreement in connection with a “superior proposal,” subject to payment of a termination fee to CALP of 4% of the transaction value.
On the same date, the Special Committee met with representatives of Kramer Levin and discussed the information requests directed to SSIC Adviser and CALP Adviser that Kramer Levin had prepared on behalf of the Special Committee relating to the Loan Portfolio Acquisition. Following the Special Committee’s meeting, these information requests were transmitted to SSIC Adviser.
On December 7, 2023, KBW was formally retained by the Special Committee to serve as its financial advisor in connection with the Loan Portfolio Acquisition.
On December 22, 2023, representatives of Eversheds delivered an initial draft of the Voting Agreement to representatives of Davis Polk.
Over the ensuing weeks, drafts of the Loan Portfolio Acquisition Agreement and the Voting Agreement were exchanged among SSIC, CALP, Davis Polk, Eversheds, Kramer Levin, and Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, or “Baker Donelson,” Maryland counsel to SSIC. Over this same period, SSIC Adviser and CALP Adviser reviewed and provided responses to the Special Committee’s information requests.
During this time, representatives of Davis Polk met with representatives of Kramer Levin on several occasions to discuss the drafts of the Loan Portfolio Acquisition Agreement that would be sent to representatives of Eversheds at the direction of the Special Committee.
Effective as of January 1, 2024, certain of the loans proposed to be acquired by SSIC were transferred to CALP from various CALP affiliates.
On January 15, 2024, the Special Committee held a meeting with Kramer Levin and KBW to discuss and consider the Loan Portfolio Acquisition, including the terms of the Loan Portfolio Acquisition Agreement. The Special Committee also received an update from KBW on its financial analysis process. Additionally, the Special Committee reviewed at this meeting the information that SSIC Adviser and CALP Adviser had provided in response to its information requests.
On January 16, 2024, the SSIC Board held a special meeting. Representatives of SSIC, SSIC Adviser, CALP, CALP Adviser, Davis Polk, Kramer Levin and KBW were also in attendance. During such meeting,
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representatives of SSIC and SSIC Adviser provided an update on the Loan Portfolio Acquisition and representatives of SSIC Adviser provided an update on the proposed Joint Venture. The Special Committee met in executive session with representatives of KBW and Kramer Levin after the meeting to further discuss the terms of the Loan Portfolio Acquisition Agreement and, after further discussion, the Special Committee directed Kramer Levin to negotiate a limited indemnity for SSIC in the Loan Portfolio Acquisition Agreement to provide it with limited recourse in the event certain of the representations and warranties regarding the Loan Portfolio were inaccurate.
On January 24, 2024, the SSIC Board held a special meeting. Representatives of SSIC, SSIC Adviser, Davis Polk, Kramer Levin and KBW were also in attendance. During such meeting, representatives of SSIC and SSIC Adviser discussed the diligence review of the Loan Portfolio, and the Special Committee discussed certain terms of the Loan Portfolio Acquisition Agreement with Davis Polk and Kramer Levin. The Special Committee met in executive session with representatives of KBW and Kramer Levin after the meeting and further discussed the Loan Portfolio Acquisition Agreement.
Over the ensuing weeks, drafts of the Loan Portfolio Acquisition Agreement and the Voting Agreement continued to be exchanged among SSIC, CALP, Davis Polk, Eversheds, Kramer Levin, and Baker Donelson, and representatives of Davis Polk continued to meet with representatives of Kramer Levin to discuss the drafts of the Loan Portfolio Acquisition Agreement that would be sent to representatives of Eversheds at the direction of the Special Committee.
On February 7, 2024, the Special Committee held a meeting. Kramer Levin, KBW and the Independent Valuation Agent were also in attendance. At such meeting, the Independent Valuation Agent presented and reviewed with the Special Committee its valuation report on the Loan Portfolio and discussed its analysis of the Loan Portfolio and answered the Special Committee’s questions. Additionally, KBW provided updates regarding the financial review and analytical work performed by it thus far, and reviewed with the Special Committee an illustrative financial analysis of the Loan Portfolio Acquisition to SSIC on a consolidated, pro forma basis under certain assumptions, as requested by the Special Committee. The Special Committee asked follow-up questions of KBW which KBW addressed. Also at this meeting, the Special Committee reviewed the results of the financial and legal diligence performed by SSIC Adviser. Finally, at this meeting, the Special Committee reviewed an updated draft of the Loan Portfolio Acquisition Agreement and further discussed with KBW and Kramer Levin the updated terms of the Loan Portfolio Acquisition. Following further discussion, the Special Committee determined to provide direction to Davis Polk on, among other things, the importance of enhancing the representations regarding the legality of the Loan Portfolio proposed to be acquired.
Also on February 7, 2024, Davis Polk distributed a revised draft of the Loan Portfolio Acquisition Agreement to Eversheds, which contained a reduction in the termination fee to 3% of transaction value from 4% as initially proposed by CALP. Following further discussion among the parties, SSIC and CALP agreed upon a termination fee of 3.5% of transaction value.
On February 14, 2024, the Special Committee held a meeting and the SSIC Board held a special meeting. Representatives of SSIC, SSIC Adviser, Davis Polk, Kramer Levin and KBW were also in attendance. During such meetings, representatives of SSIC and SSIC Adviser reviewed the latest version of the Loan Portfolio Acquisition Agreement. At the Special Committee meeting (in executive session) KBW presented an updated financial analysis of the Loan Portfolio Acquisition. During the executive session, the Special Committee also met with representatives of Kramer Levin and further discussed the Loan Portfolio Acquisition and the terms of the Loan Portfolio Acquisition Agreement.
From February 14, 2024 to February 18, 2024, SSIC, SSIC Adviser, CALP, CALP Adviser and their respective representatives worked to finalize the terms of the Loan Portfolio Acquisition, including agreeing on certain aspects related to the final composition of the Loan Portfolio.
Separately, on February 18, 2024, the Joint Venture transaction agreement between SSIC Adviser, CALP Adviser and certain other parties, which included the proposed form of operating agreement of SSIC Adviser that would take effect at closing, was executed and delivered.
On February 18, 2024, the Special Committee held a meeting. Representatives of SSIC, SSIC Adviser, Davis Polk, Kramer Levin and KBW were also in attendance. Representatives of SSIC and SSIC Adviser updated the Special Committee on the final terms of the Loan Portfolio Acquisition Agreement, including
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discussing that certain of the loans proposed to be acquired by SSIC had not yet been transferred to CALP as of that date. During discussion, representatives of SSIC Adviser expressed their confidence that such loans would be transferred to CALP prior to the closing of the Loan Portfolio Acquisition and described contingencies to be followed in the event the transfers were not effectuated. KBW discussed with the Special Committee the financial analysis implications of the present exclusion of the loans from the Loan Portfolio. Representatives of Kramer Levin then reviewed with the Special Committee their duties as directors under the 1940 Act that were applicable in considering the Loan Portfolio Acquisition. Representatives of KBW rendered an oral opinion to the Special Committee, subsequently confirmed by delivery of a written opinion, that the Loan Portfolio Consideration to be paid by SSIC in the Loan Portfolio Acquisition was fair, from a financial point of view, to SSIC, as more fully described in the section entitled “Opinion of the Special Committee’s Financial Advisor” beginning on page 45. Following a discussion of the foregoing matters by the Special Committee, the Special Committee unanimously (1) determined, and recommended that the SSIC Board determine, that the Loan Portfolio Acquisition is advisable and in the best interests of SSIC and its stockholders, (2) approved and adopted, and recommended that the SSIC Board approve and adopt, the Loan Portfolio Acquisition Agreement and (3) approved, and recommended that the SSIC Board approve, the issuance by SSIC of shares of SSIC Common Stock to CALP in connection with the Loan Portfolio Acquisition Agreement.
On February 18, 2024, following the Special Committee meeting, the SSIC Board held a special meeting. Representatives of SSIC, SSIC Adviser, Davis Polk, Kramer Levin and KBW were also in attendance. Upon the unanimous recommendation of the Special Committee, the SSIC Board by the unanimous vote of the directors and the SSIC Independent Directors voting separately, (1) determined that the Loan Portfolio Acquisition is advisable and in the best interests of SSIC and its stockholders, (2) approved and adopted the Loan Portfolio Acquisition Agreement and (3) approved the issuance by SSIC of shares of SSIC Common Stock to CALP in connection with the Loan Portfolio Acquisition Agreement.
Later in the day on February 18, 2024, KBW delivered its written fairness opinion to the Special Committee, and the Loan Portfolio Acquisition Agreement and the Voting Agreement were executed and delivered.
On February 20, 2024, SSIC issued a press release announcing the execution of the Loan Portfolio Acquisition Agreement and held an investor conference call to discuss the Loan Portfolio Acquisition.
Reasons for the Loan Portfolio Acquisition
SSIC
At various virtual and in-person SSIC Board meetings, the SSIC Board considered the approval of the Loan Portfolio Acquisition, including the Loan Portfolio Acquisition Agreement, which was recommended by SSIC Adviser. In connection with its consideration, the Special Committee requested and SSIC Adviser provided information regarding the proposed Loan Portfolio Acquisition, and the anticipated effects of the Loan Portfolio Acquisition on SSIC and its stockholders, both immediately after the Loan Portfolio Acquisition and over the longer-term assuming that some portion of the anticipated investment, market and financial benefits of the Loan Portfolio Acquisition are realized. Over the course of its review of the materials and information provided and its consideration of the Loan Portfolio Acquisition, the SSIC Board consulted with SSIC’s management, SSIC Adviser and SSIC’s legal and financial advisors. In addition, the Special Committee was advised by its independent legal counsel and financial advisor regarding the nature and adequacy of the information provided, including the terms of the Loan Portfolio Acquisition Agreement. The SSIC Board considered numerous factors, including the ones described below, in connection with its consideration and approval of the Loan Portfolio Acquisition. On February 18, 2024, the SSIC Board, including the SSIC Independent Directors, upon the recommendation of the Special Committee, unanimously determined that the Loan Portfolio Acquisition is in the best interests of SSIC and in the best interests of SSIC’s stockholders, and that SSIC stockholders should not suffer any economic dilution as a result of the Loan Portfolio Acquisition.
The SSIC Board, including the Special Committee, weighed various benefits and risks in considering the Loan Portfolio Acquisition, both with respect to the immediate effects of the Loan Portfolio Acquisition on SSIC and its stockholders and with respect to the potential benefits that could be experienced by SSIC after the Loan Portfolio Acquisition. Some of the material factors considered by the SSIC Board that assisted it in concluding that the Loan Portfolio Acquisition is in the best interests of SSIC and its stockholders included, among others:
Expected Accretion to Net Investment Income and Yield. The SSIC Board considered that, as a result of the Loan Portfolio Acquisition, the ratio of SSIC’s fixed operating costs and expenses (e.g., printing and mailing of periodic
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reports and proxy statements, legal expenses, insurance, audit fees and other expenses) to assets is expected to be lower than SSIC’s current ratio for these costs/expenses (since such costs/expenses would be spread across a larger asset base). As a result, although certain one-time transaction-related costs would be borne by SSIC stockholders in connection with the Loan Portfolio Acquisition, the going forward annual operating expenses borne by SSIC stockholders on a pro rata basis (excluding investment advisory fees) are expected to be reduced as a percentage of net assets in part by the reduction in general and administrative expenses as a percentage of net assets. The SSIC Board and the Special Committee found that the expected decrease in the expense ratio of SSIC (excluding investment advisory fees) would benefit SSIC and its stockholders if the Loan Portfolio Acquisition is approved. The SSIC Board and the Special Committee also considered SSIC Adviser’s agreement to cap SSIC’s operating expenses (excluding base management fees, incentive fees, expenses related to the Loan Portfolio Acquisition, and litigation and indemnification expenses) at an annualized rate of 2.15% for a one-year period effective upon the closing of the Loan Portfolio Acquisition. The Special Committee took into account that this cap level is more than [10 bps] lower than the current ratio of expenses to be covered by the cap.
The SSIC Board also considered that SSIC’s net investment income yield is expected to improve and increase above SSIC’s current net investment income yield as a result of the Loan Portfolio Acquisition which creates the potential for increased distributions to stockholders.
No Dilution; Market Premium. The SSIC Board considered that the Loan Portfolio Acquisition will be executed on a net asset value basis (determined shortly before the Closing Date on the basis of methodologies that were considered by the SSIC Board), and therefore SSIC stockholders should not suffer any economic dilution as a result of the Loan Portfolio Acquisition. In addition, the SSIC Board considered that the Loan Portfolio Acquisition will be achieved by the issuance of SSIC shares valued at net asset value per share, which represents a substantial premium to the market price at which the shares have historically traded.
Increased Market Capitalization and Additional Market Coverage. As the Loan Portfolio Acquisition contemplates an equity issuance that will significantly increase SSIC’s market capitalization, the SSIC Board considered the potential for greater secondary market liquidity for SSIC Common Stock, which may result in tighter bid-ask spreads and increased trading volume. The SSIC Board noted that SSIC’s increased profile could result in additional market coverage of SSIC by financial analysts and, potentially, an increased focus by current and potential investors on SSIC, including institutional investors. In addition, the SSIC Board considered the discount at which the SSIC Common Stock trades as compared to its net asset value and considered that the increased profile and coverage could potentially result in a narrowing of that discount.
Improved Access to Debt and Equity Capital Markets. The SSIC Board considered that the Loan Portfolio Acquisition is expected to provide improved access to more sources of debt capital, and better opportunities for future equity raises.
Enhanced Portfolio Diversification. The Special Committee, in consultation with its financial advisor, reviewed the expected portfolio composition of SSIC following the Loan Portfolio Acquisition, including its compatibility (from a risk/return profile perspective) with the existing SSIC portfolio. The SSIC Board noted that SSIC Adviser does not expect significant portfolio turnover after the Loan Portfolio Acquisition. The SSIC Board considered that the Loan Portfolio Acquisition would provide greater portfolio diversification, including materially reduced concentration of investments in most existing holdings.
Terms of the Loan Portfolio Acquisition Agreement. The SSIC Board considered the terms of the Loan Portfolio Acquisition Agreement, including various improvements to the terms of the Agreement negotiated by counsel on behalf of the Special Committee. These include, in particular, substantially enhanced representations and warranties regarding the Loan Portfolio and the agreement of CALP not to distribute (for a limited period) to its investors certain shares of SSIC Common Stock issued in the Loan Portfolio Acquisition, in order to provide limited recourse for SSIC for any untrue representations and warranties made regarding the Loan Portfolio.
Valuation and Analysis of the CALP Loan Portfolio. The Special Committee engaged the Independent Valuation Agent to perform a valuation analysis of the Loan Portfolio, and the Independent Valuation Agent delivered written and oral presentations to the Special Committee regarding its analysis and the assumptions and data underlying its analysis. The SSIC Board also considered that SSIC Adviser independently performed an analysis of the Loan Portfolio, reviewed the documentation for the loans included in the Loan Portfolio,
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performed other diligence activities with respect to the Loan Portfolio and delivered presentations to the Special Committee and the SSIC Board regarding its findings. Based on these activities and presentations, the SSIC Board believes that SSIC has a reasonable basis on which to value the Loan Portfolio.
Opinion of the Financial Advisor of the Special Committee. The Special Committee considered the final presentation, dated February 18, 2024, of KBW provided to and reviewed with the Special Committee, and KBW’s opinion dated February 18, 2024 addressed to the Special Committee, as to the fairness, from a financial point of view, to SSIC of the Loan Portfolio Consideration to be paid by SSIC in the Loan Portfolio Acquisition, as more fully described in the section entitled “The Loan Portfolio Acquisition—Opinion of the Special Committee’s Financial Advisor.”
Tax Considerations. The SSIC Board considered that SSIC stockholders are not expected to recognize any gain or loss for U.S. federal income tax purposes as a result of the Loan Portfolio Acquisition.
Other Considerations. In addition, the SSIC Board noted that the Loan Portfolio Acquisition is not expected to affect the ability of SSIC to comply with its regulatory obligations, including its ability to continue to operate as a BDC and a RIC. The SSIC Board also noted that the Special Committee consulted with KBW, as its financial advisor, in evaluating the financial terms of the Loan Portfolio Acquisition.
The SSIC Board took account of these factors, and the related pro forma information made available to it, in considering the anticipated effects of the Loan Portfolio Acquisition on SSIC and its stockholders. The SSIC Board noted, however, that despite the diligence performed by SSIC Adviser and the financial advisors to the Special Committee, the data, projections and assumptions on which the valuation and anticipated performance of the Loan Portfolio is based could be incorrect in certain material respects. The SSIC Board was aware that the value of the Loan Portfolio may fluctuate or decline over time, as a result of changes to the portfolio and general economic and market conditions. The SSIC Board was also aware that the pro forma information and the projections and assumptions on which the potential expenses, earnings, yield, dividend and trading price information is based depends on many factors and variables, including, among other things, asset mix, the performance of individual investments, changing cost of service providers, portfolio turnover level, the amount of leverage utilized, the cost of leverage, changes in interest rates and general market conditions. The SSIC Board noted that there is no assurance that any of the potential benefits to SSIC or its stockholders as a result of the Loan Portfolio Acquisition will be realized, and that SSIC could experience detrimental effects that had not been anticipated.
In addition, in the course of its deliberations, the SSIC Board also considered a variety of risks and other potentially negative factors, including (which are not in any relative order of importance): (1) that the Loan Portfolio Acquisition may not be completed or may be delayed; (2) that certain restrictions may be imposed on the conduct of SSIC’s business prior to completion of the Loan Portfolio Acquisition, requiring SSIC to conduct its business only in the ordinary course of business in all material respects, which, subject to specific limitations, which could delay or prevent SSIC from undertaking business opportunities that may arise pending completion of the Loan Portfolio Acquisition; (3) that the attention of management may be diverted during the period prior to completion of the Loan Portfolio Acquisition, which may adversely affect SSIC’s business; (4) that, in general, SSIC will be responsible for the expenses incurred by SSIC in connection with the Loan Portfolio Acquisition and the completion of the transactions contemplated by the Loan Portfolio Acquisition Agreement (which expenses are not immaterial), whether or not the Loan Portfolio Acquisition is consummated, including the costs and expenses of any filing and other fees payable by SSIC to the SEC in connection with the Loan Portfolio Acquisition; (5) that if the Loan Portfolio Acquisition is not completed, SSIC may be required to pay a termination fee to CALP in certain circumstances, but CALP will not be required to pay a termination fee to SSIC in any circumstances; (6) that approximately 20% of the fair value of the Loan Portfolio as currently composed consists of loans to borrowers in which SSIC is already invested, and as a result SSIC’s financial exposure to these borrowers would be expected to increase upon consummation of the Loan Portfolio Acquisition; (7) that CALP is a new entity formed for the purpose of the Loan Portfolio Acquisition, has no operating history or historical financials, and unlike SSIC is not subject to public reporting, making the diligence process for the Loan Portfolio more challenging; (8) that SSIC will have effective recourse against CALP in only a limited amount and only for a limited period of time if any of the representations and warranties of CALP regarding the Loan Portfolio are inaccurate; and (9) that there is no assurance that the discount of the trading price of SSIC Common Stock to net asset value will narrow as a result of the Loan Portfolio Acquisition or that SSIC’s liquidity or analyst coverage will increase as a result of the transaction.
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The SSIC Board also considered the SSIC stockholder voting requirements with respect to the Loan Portfolio Acquisition, the SSIC Adviser’s interests in the Loan Portfolio Acquisition both as an SSIC stockholder and by reason of the proposed Joint Venture, that SSIC Adviser has agreed to vote in favor of the issuance of shares of SSIC Common Stock as consideration for the Loan Portfolio Acquisition, and that, as a consequence, the Loan Portfolio Acquisition will be approved regardless of how other SSIC stockholders vote their shares. While taking note of the possible conflict, the SSIC Board believes that the interests of SSIC Adviser in its capacity as a substantial stockholder of SSIC are also aligned with the interests of all other SSIC stockholders, and that it is in the best interest of SSIC and SSIC stockholders that SSIC Adviser exercise its voting power commensurately with its substantial economic interest in SSIC.
This discussion of the information and factors that the SSIC Board considered in making its decision is not intended to be exhaustive but includes the material factors considered by the SSIC Board. Because of the wide variety of factors considered in connection with its evaluation of the Loan Portfolio Acquisition and the Loan Portfolio Acquisition Agreement and the complexity of those matters, the SSIC Board did not find it useful to, and did not attempt to, quantify, rank or otherwise assign relative weights to these factors. In addition, the individual members of the SSIC Board may have given different weights to different factors.
The SSIC Board, including the SSIC Independent Directors, considered all of these factors and others as a whole and, on balance, determined the Loan Portfolio Acquisition to be in the best interests of SSIC and SSIC’s stockholders and, upon the recommendation of the Special Committee, unanimously approved the Loan Portfolio Acquisition and the Loan Portfolio Acquisition Agreement.
CALP
CALP weighed various benefits and risks in considering the Loan Portfolio Acquisition, both with respect to the immediate effects of the Loan Portfolio Acquisition on CALP and its members and with respect to the potential benefits that could be experienced by CALP after the Loan Portfolio Acquisition. Some of the material factors considered by CALP that assisted it in concluding that the Loan Portfolio Acquisition is in its best interests and the best interests of its members included, among others:
Opportunity to provide additional diversification to its members by combining its investment portfolio with SSIC’s portfolio. The Loan Portfolio Acquisition would result in the combination of CALP’s portfolio with the portfolio of loans held by SSIC. The Loan Portfolio Acquisition allows CALP and its members to benefit from the additional diversification and scale of the combined portfolio within a regulated vehicle, which CALP believes would be beneficial to its members.
Belief that the combined portfolio will benefit from the expertise of SSIC’s management (together with the CALP personnel proposed to serve as part of SSIC’s management) and will generate positive returns for SSIC, which would benefit CALP and its members. Personnel of CALP Adviser previously participated in financings with management of SSIC and are familiar with the expertise that SSIC management has in the cannabis industry. With this background, personnel of CALP believe that SSIC will have the ability to grow and generate positive returns, which would benefit both CALP and its members as well as SSIC and its stockholders. Further, CALP is familiar with the investments held by SSIC and believes that combining its investments with SSIC’s investments will lead to attractive returns for SSIC and its stockholders. By acquiring registered shares of SSIC in connection with the Loan Portfolio Acquisition, CALP and its members will be able to participate in the earnings and performance of SSIC.
The Loan Portfolio Acquisition is a mechanism to provide liquidity to CALP and its members in the form of registered shares of SSIC. The loans held by CALP and its affiliates are illiquid securities that cannot be readily sold to third parties to the extent that CALP or its affiliates desired to do so. The Loan Portfolio Acquisition allows CALP and its members to maintain an interest in such investments through exchange-traded registered shares.
Tax Considerations. CALP considered that the Loan Portfolio Acquisition is expected to be a taxable event for CALP, and that CALP will recognize for tax purposes its realized gains equal to the difference between fair value of a loan and CALP’s adjusted tax basis therein but will likely be prevented from recognizing for tax purposes its losses realized in connection with the transaction.
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SSIC Board Recommendation
Upon the recommendation of the Special Committee, the SSIC Board has unanimously approved (i) the Loan Portfolio Acquisition and the Loan Portfolio Acquisition Agreement and (ii) the issuance of shares of SSIC Common Stock pursuant to the Loan Portfolio Acquisition Agreement, and unanimously recommends that SSIC stockholders vote “FOR” the Stock Issuance Proposal.
Opinion of the Special Committee’s Financial Advisor
The Special Committee engaged Keefe, Bruyette & Woods, Inc. (“KBW”) to render financial advisory and investment banking services to the Special Committee, including an opinion to the Special Committee as to the fairness, from a financial point of view, to SSIC of the Loan Portfolio Consideration to be paid by SSIC in the Loan Portfolio Acquisition. The Special Committee selected KBW due to KBW’s reputation, expertise, significant experience in transactions similar to the Loan Portfolio Acquisition, and familiarity with SSIC as a result of, among other things, serving as joint bookrunning manager for SSIC’s initial public offering in February 2022.
As part of its engagement, representatives of KBW attended the meetings of the Special Committee and the SSIC Board held on February 18, 2024 at which the Special Committee evaluated the proposed Loan Portfolio Acquisition. At this meeting, KBW reviewed the financial aspects of the proposed Loan Portfolio Acquisition and rendered an opinion to the Special Committee to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the Loan Portfolio Consideration to be paid by SSIC in the Loan Portfolio Acquisition was fair, from a financial point of view, to SSIC. The SSIC Board, upon recommendation of the Special Committee, approved the Loan Portfolio Acquisition Agreement at this meeting.
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Annex C to this joint proxy statement/information statement/prospectus and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.
KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Special Committee (in its capacity as such) in connection with its consideration of the financial terms of the Loan Portfolio Acquisition. The opinion addressed only the fairness, from a financial point of view, to SSIC of the Loan Portfolio Consideration to be paid by SSIC in the Loan Portfolio Acquisition. It did not address the underlying business decision of SSIC to engage in the Loan Portfolio Acquisition or enter into the Loan Portfolio Acquisition Agreement or constitute a recommendation to the Special Committee in connection with the Loan Portfolio Acquisition, and it does not constitute a recommendation to any holder of SSIC Common Stock or any stockholder of any other entity as to how to vote or act in connection with the Loan Portfolio Acquisition or any other matter, nor does it constitute a recommendation as to whether or not any such stockholder should enter into a voting, stockholders’, affiliates’ or other agreement with respect to the Loan Portfolio Acquisition or exercise any dissenters’ or appraisal rights that may be available to such stockholder.
KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.
At the direction of SSIC and the Special Committee and without independent verification, KBW relied upon and assumed for purposes of its analyses and opinion, that the Loan Portfolio Fair Value and the SSIC NAV Per Share would be $172.8 million and $13.08, respectively, and that, as a result thereof, the Loan Portfolio Consideration would be 13,205,144 shares of SSIC Common Stock.
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In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of SSIC and bearing upon the Loan Portfolio Acquisition, including, among other things:
a draft of the Loan Portfolio Acquisition Agreement, dated as of February 16, 2024 (the most recent draft made available to KBW);
the audited financial statements and Annual Reports on Form 10-K for the fiscal period ended March 31, 2022 and the transition period ended December 31, 2022 of SSIC;
the unaudited quarterly financial statements and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023 of SSIC;
certain preliminary draft and unaudited financial results for the fiscal year ended December 31, 2023 of SSIC (provided by SSIC);
certain other interim reports and other communications of SSIC to its stockholders;
the loan documents underlying the Loan Portfolio; and
other financial information concerning the respective businesses and operations of SSIC and CALP (relevant to the Loan Portfolio) furnished to KBW by SSIC and CALP or which KBW was otherwise directed to use for purposes of its analysis.
KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:
the historical and current financial position and results of operations of SSIC;
the assets and liabilities of SSIC;
the nature and terms of certain other transactions and business combinations in the business development company industry that KBW deemed relevant;
a comparison of certain financial and stock market information for SSIC with similar information for certain other companies that KBW deemed relevant, the securities of which are publicly traded;
financial and operating forecasts and projections of SSIC that were prepared by SSIC management, provided to and discussed with KBW by such management, and used and relied upon by KBW at the direction of such management and with the consent of the Special Committee; and
estimates regarding certain pro forma financial effects of the Loan Portfolio Acquisition on SSIC (including, without limitation, the operating efficiencies expected to result or be derived from the Loan Portfolio Acquisition) that were prepared by SSIC management, provided to and discussed with KBW by such management, and used and relied upon by KBW based on such discussions, at the direction of SSIC and with the consent of the Special Committee.
KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the business development company and cannabis industries generally. KBW also participated in discussions with the managements of SSIC and CALP regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters as KBW deemed relevant to its inquiry.
In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to or discussed with KBW or that was publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied, with the consent of the Special Committee, upon SSIC’s management, as to the reasonableness and achievability of the financial and operating forecasts and projections of SSIC referred to above (and the assumptions and bases therefor), and KBW assumed that such forecasts and projections were reasonably prepared and represented the best currently available estimates and judgments of SSIC’s management and that such forecasts and projections would be realized in the amounts and in the time periods currently estimated by such management. In addition, KBW relied, with the consent of the Special Committee, upon the management of SSIC as to the reasonableness and achievability of the estimates regarding
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certain pro forma financial effects of the Loan Portfolio Acquisition on SSIC (including, without limitation, the operating efficiencies and related expenses expected to result or be derived from the Loan Portfolio Acquisition), all as referred to above (and the assumptions and bases for all such information), and KBW assumed that such information was reasonably prepared and represented the best currently available estimates and judgments of such management and that the forecasts, projections and estimates reflected in such information would be realized in the amounts and in the time periods estimated by such management.
It is understood that the foregoing financial information of SSIC that was provided to KBW was not prepared with the expectation of public disclosure and that all of the foregoing financial information was based on numerous variables and assumptions that are inherently uncertain (including, without limitation, factors related to general economic and competitive conditions and, in particular, the widespread disruption, extraordinary uncertainty and unusual volatility arising from global tensions and political unrest, economic uncertainty, inflation, rising interest rates, and the COVID-19 pandemic, including the effect of evolving governmental interventions and non-interventions) and, accordingly, actual results could vary significantly from those set forth in such information. KBW assumed, based on discussions with the respective managements of SSIC and CALP and with the consent of the Special Committee, that all such information provided a reasonable basis upon which KBW could form its opinion, and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.
KBW also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of SSIC since the date of the last financial statements of SSIC that were made available to KBW. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of SSIC or CALP, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of SSIC or CALP under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Such estimates are inherently subject to uncertainty and should not be taken as KBW’s view of the actual value of any companies or assets.
KBW assumed, in all respects material to its analyses, the following:
the Loan Portfolio Acquisition and any related transactions would be completed substantially in accordance with the terms set forth in the Loan Portfolio Acquisition Agreement (the final terms of which KBW assumed would not differ in any respect material to its analyses from the draft version reviewed by KBW and referred to above), with no adjustments to the Loan Portfolio Consideration and with no other consideration or payments in respect of the Loan Portfolio;
the representations and warranties of each party in the Loan Portfolio Acquisition Agreement and in all related documents and instruments referred to in the Loan Portfolio Acquisition Agreement were true and correct, including those relating to the possession of all requisite cannabis-related permits and permissions, compliance with federal, state, local and other laws and compliance with all state and local laws concerning or in any way related to cannabis sales, licensure, and operations;
each party to the Loan Portfolio Acquisition Agreement and all related documents would perform all of the covenants and agreements required to be performed by such party under such documents;
there were no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the Loan Portfolio Acquisition or any related transactions and all conditions to the completion of the Loan Portfolio Acquisition and any related transactions would be satisfied without any waivers or modifications to the Loan Portfolio Acquisition Agreement or any of the related documents; and
in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the Loan Portfolio Acquisition and any related transactions, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of SSIC, CALP, the Loan Portfolio Fair Value, or the contemplated benefits of the Loan Portfolio Acquisition, including without limitation the operating efficiencies expected to result or be derived from the Loan Portfolio Acquisition.
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KBW assumed that the Loan Portfolio Acquisition would be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act, the 1940 Act, and all other applicable federal and state statutes, rules and regulations. KBW was further advised by representatives of SSIC that SSIC relied upon advice from its advisors (other than KBW) or other appropriate sources as to all legal, financial reporting, tax, accounting and regulatory matters with respect to SSIC, CALP, the Loan Portfolio Acquisition and any related transaction, and the Loan Portfolio Acquisition Agreement. KBW did not provide advice with respect to any such matters.
KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, to SSIC of the Loan Portfolio Consideration to be paid by SSIC in the Loan Portfolio Acquisition. KBW expressed no view or opinion as to any other terms or aspects of the Loan Portfolio Acquisition or any term or aspect of any related transaction, including without limitation, the form or structure of the Loan Portfolio Acquisition or any such related transaction, any consequences of the Loan Portfolio Acquisition or any related transaction to SSIC, its stockholders, creditors or otherwise, or any terms, aspects, merits or implications of any employment, consulting, voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Loan Portfolio Acquisition, any such related transaction, or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of the opinion and the information made available to KBW through the date of the opinion. There has been significant volatility in the stock and other financial markets arising from global tensions and political unrest, economic uncertainty, inflation, rising interest rates and the COVID-19 pandemic, including the effect of evolving governmental interventions and non-interventions. Developments subsequent to the date of KBW’s opinion may have affected and may affect the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW expressed no view or opinion as to any changes to the Loan Portfolio Fair Value or the SSIC NAV Per Share after the date of its opinion from the respective amounts thereof that KBW was directed to assume for purposes of its analyses and opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:
the underlying business decision of SSIC to engage in the Loan Portfolio Acquisition or enter into the Loan Portfolio Acquisition Agreement;
the relative merits of the Loan Portfolio Acquisition as compared to any strategic alternatives that are, have been or may be available to or contemplated by SSIC, the Special Committee or the SSIC Board;
any business, operational or other plans with respect to SSIC that may be currently contemplated by SSIC, the SSIC Board or the Special Committee or that may be implemented by SSIC, the SSIC Board or the Special Committee subsequent to the closing of the Loan Portfolio Acquisition;
any fees payable by SSIC or CALP for investment advisory and management services;
the fairness of the amount or nature of any compensation to any of SSIC’s officers, directors or employees, or any class of such persons, relative to any compensation to the holders of SSIC Common Stock or relative to the Loan Portfolio Consideration;
the effect of the Loan Portfolio Acquisition or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of SSIC, CALP or any other party to any transaction contemplated by the Loan Portfolio Acquisition Agreement;
any adjustment (as provided in the Loan Portfolio Acquisition Agreement) to the Loan Portfolio Consideration assumed for purposes of KBW’s opinion;
the actual value of SSIC Common Stock to be issued in connection with the Loan Portfolio Acquisition or the prices, trading range or volume at which SSIC Common Stock might trade following the public announcement of the Loan Portfolio Acquisition or the prices, trading range or volume at which SSIC Common Stock will trade following the consummation of the Loan Portfolio Acquisition;
any advice or opinions provided by any other advisor to any of the parties to the Loan Portfolio Acquisition or any other transaction contemplated by the Loan Portfolio Acquisition Agreement; or
any legal, regulatory, accounting, tax or similar matters relating to SSIC, CALP, any of their respective stockholders, the Loan Portfolio or relating to or arising out of or as a consequence of the Loan Portfolio Acquisition or any other related transaction.
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In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, SSIC and CALP. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Special Committee in making its determination to recommend the approval by the SSIC Board of the Loan Portfolio Acquisition Agreement and the Loan Portfolio Acquisition. Consequently, the analyses described below should not be viewed as determinative of the decision of the Special Committee with respect to the fairness of the Loan Portfolio Consideration. The type and amount of consideration payable in the Loan Portfolio Acquisition were determined through negotiation between SSIC and CALP and the decision of SSIC to enter into the Loan Portfolio Acquisition Agreement was solely that of the Special Committee and the SSIC Board.
The following is a summary of the material financial analyses presented by KBW to the Special Committee in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by KBW to the Special Committee, but summarizes the material analyses performed and presented in connection with such opinion. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.
Indicative Consideration Calculation. KBW calculated an indicative number of shares to be issued by SSIC as consideration for the proposed Loan Portfolio Acquisition of 13,205,144 based on an assumed preliminary 12/31/23 SSIC NAV per share of $13.08 and the assumed Loan Portfolio Fair Value of $172.8 million, in each case which SSIC and the Special Committee directed KBW to rely upon and assume for purposes of its analyses and opinion. The preliminary 12/31/23 SSIC NAV Per Share reflected certain adjustments KBW was directed to assume for pre-closing items, including but not limited to estimated transaction costs of $4.5 million, which were relevant in KBW’s calculation of the 13,205,144 indicative number of shares to be issued by SSIC. This indicative number of shares to be issued by SSIC for the proposed Loan Portfolio Acquisition represented the implied consideration to be paid by SSIC; and the assumed issuance price per share of $13.08 was compared to the ranges of implied value per share of SSIC Common Stock in the financial analyses described below.
Selected Companies Analysis (Business Development Companies). Using publicly available information, KBW reviewed, among other things, the market performance of 9 selected publicly traded, externally managed business development companies with market capitalizations less than $300 million. Using publicly available balance sheet and profitability information, KBW also compared the financial performance of SSIC to the selected companies.
The selected companies were as follows (shown by column in descending order of market capitalization):
WhiteHorse Finance, Inc.
OFS Capital Corporation
BlackRock Capital Investment Corporation
Great Elm Capital Corp.
Oxford Square Capital Corp.
Logan Ridge Finance Corporation
Portman Ridge Finance Corporation
Investcorp Credit Management BDC, Inc.
Monroe Capital Corporation
 
To perform this analysis, KBW used market price information as of February 16, 2024, reported net asset value (“NAV”) per share data as of the end of the most recent completed quarterly period available and latest 12 months (“LTM”) reported net investment income per share (“NII”). KBW also used calendar years 2023 and 2024 NII estimates taken from consensus “street estimates” of the selected companies.
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KBW’s analysis showed the following concerning the market performance of the selected companies, as well as corresponding implied multiples for SSIC based on the latest reported trade price and financial forecasts and projections of SSIC provided by management:
 
 
Selected Companies
 
SSIC–Last
Trade Price
Low
25th
Percentile
Median
Average
75th
Percentile
High
Price / NAV per share
0.56x
0.60x
0.76x
0.83x
0.83x
0.88x
1.13x
Price / LTM NII
7.8x
5.7x
6.2x
6.8x
7.7x
7.4x
15.7x
Price / CY2023 NII
7.2x
5.7x
5.8x
6.6x
7.5x
7.3x
15.1x
Price / CY2024 NII
7.0x
5.5x
6.1x
6.8x
7.7x
7.4x
16.1x
KBW then applied a range of price-to-NAV per share multiples of 0.76x to 0.88x derived from the 25th percentile and 75th percentile multiples of the selected companies to the preliminary December 31, 2023 NAV per share of SSIC, a range of price-to-estimated calendar year 2023 NII multiples of 5.81x to 7.26x derived from the 25th percentile and 75th percentile multiples of the selected companies to the estimated calendar year 2023 NII of SSIC, which was taken from financial forecasts and projections of SSIC provided by management, and a range of price-to-estimated calendar year 2024 NII multiples of 6.14x to 7.41x derived from the 25th percentile and 75th percentile multiples of the selected companies to the estimated calendar year 2024 NII of SSIC, which was also taken from financial forecasts and projections of SSIC provided by management. This analysis indicated the following ranges of the implied value per share of SSIC Common Stock, as compared to the assumed issuance price per share for the proposed Loan Portfolio Acquisition of $13.08 per share of SSIC Common Stock as of December 31, 2023, and also the last trade price of $7.94 per outstanding share of SSIC Common Stock as of February 16, 2024.
 
Implied Value Per Share
Ranges of SSIC Common Stock
Based on NAV per share of SSIC as of December 31, 2023
$9.96 to $11.52
Based on CY2023 NII estimate of SSIC provided by management
$6.42 to $8.03
Based on CY2024 NII estimate of SSIC provided by management
$6.98 to $8.41
No company used as a comparison in the above selected companies analysis is identical to SSIC. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Selected Companies Analysis (Cannabis Capital Providers) Using publicly available information, KBW also reviewed, among other things, the market performance of 3 selected publicly traded Cannabis Capital Providers with enterprise values greater than $100 million, with the exception of Innovative Industrial Properties (NYSE: IIPR) which was considered but excluded as a comparable Cannabis Capital Provider due to: (i) its meaningfully larger scale and market capitalization, and (ii) its unique NYSE listing as a cannabis REIT that was achieved when the NYSE was amenable to cannabis REIT listings and that was subsequently grandfathered in when the NYSE reversed its policy and denied additional cannabis REIT listings. Using publicly available balance sheet and profitability information, KBW also compared the financial performance of SSIC to the selected companies.
The selected companies were as follows (shown by column in descending order of market capitalization):
NewLake Capital Partners, Inc.
AFC Gamma, Inc.
Chicago Atlantic Real Estate Finance, Inc.
 
To perform this analysis, KBW used market price information as of February 16, 2024, reported net asset value (“NAV”) per share data as of the end of the most recent completed quarterly period available and latest 12 months (“LTM”) reported net investment income per share (“NII”). KBW also used calendar years 2023 and 2024 NII estimates taken from consensus “street estimates” of the selected companies.
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KBW’s analysis showed the following concerning the market performance of the selected companies, as well as corresponding implied multiples for SSIC based on the latest reported trade price and financial forecasts and projections of SSIC provided by management:
 
 
Selected Companies
 
SSIC–
Last Trade Price
Low
25th
Percentile
Median
Average
75th
Percentile
High
Price / NAV per share
0.56x
0.71x
0.77x
0.83x
0.87x
0.94x
1.05x
Price / LTM NII
7.8x
5.3x
6.2x
7.2x
9.0x
10.9x
14.5x
Price / CY2023 NII
7.2x
5.7x
6.7x
7.6x
9.5x
11.4x
15.2x
Price / CY2024 NII
7.0x
5.7x
6.5x
7.4x
9.2x
10.9x
14.5x
KBW then applied a range of price-to-NAV per share multiples of 0.77x to 0.94x derived from the 25th percentile and 75th percentile multiples of the selected companies to the preliminary December 31, 2023 NAV per share of SSIC, a range of price-to-estimated calendar year 2023 NII multiples of 6.67x to 11.39x derived from the 25th percentile and 75th percentile multiples of the selected companies to the estimated calendar year 2023 NII of SSIC, which was taken from financial forecasts and projections of SSIC provided by management, and a range of price-to-estimated calendar year 2024 NII multiples of 6.51x to 10.92x derived from the 25th percentile and 75th percentile multiples of the selected companies to the estimated calendar year 2024 NII of SSIC, which was also taken from financial forecasts and projections of SSIC provided by management. This analysis indicated the following ranges of the implied value per share of SSIC Common Stock, as compared to the assumed issuance price per share for the proposed Loan Portfolio Acquisition of $13.08 per share of SSIC Common Stock as of December 31, 2023 and also the last trade price of $7.94 per outstanding share of SSIC Common Stock as of February 16, 2024.
 
Implied Value Per Share
Ranges of SSIC Common Stock
Based on NAV per share of SSIC as of December 31, 2023
$10.08 to $12.35
Based on CY2023 NII estimate of SSIC provided by management
$7.37 to $12.59
Based on CY2024 NII estimate of SSIC provided by management
$7.39 to $12.41
No company used as a comparison in the above selected companies analysis is identical to SSIC. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Selected Transactions Analysis. KBW reviewed publicly available information related to 29 selected acquisitions of U.S. business development companies announced since the beginning of 2015.
The selected transactions were as follows:
Acquirer
Acquired Company
Golub Capital BDC, Inc.
Golub Capital BDC 3, Inc.
Midcap Financial Investment Corporation
Apollo Senior Floating Rate Fund Inc.
Midcap Financial Investment Corporation
Apollo Tactical Income Fund Inc.
Franklin BSP Capital Corporation
Franklin BSP Lending Corporation
BlackRock TCP Capital Corp.
BlackRock Capital Investment Corporation
Crescent Capital BDC, Inc.
First Eagle Alternative Capital BDC, Inc.
Oaktree Specialty Lending Corporation
Oaktree Strategic Income II, Inc.
SLR Investment Corp.
SLR Senior Investment Corp.
Barings BDC Inc.
Sierra Income Corporation
Portman Ridge Finance Corporation
Harvest Capital Credit Corporation
FS KKR Capital Corp.
FS KKR Capital Corp. II
Oaktree Specialty Lending Corporation
Oaktree Strategic Income Corporation
Barings BDC, Inc.
MVC Capital, Inc.
Portman Ridge Finance Corporation
Garrison Capital Inc.
Goldman Sachs BDC, Inc.
Goldman Sachs Middle Market Lending Corp.
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Acquirer
Acquired Company
Crescent Capital BDC, Inc.
Alcentra Capital Corp.
Portman Ridge Finance Corporation
OHA Investment Corp
FS Investment Corporation II
FS Investment Corporation III
FS Investment Corporation II
FS Investment Corporation IV
FS Investment Corporation II
Corporate Capital Trust II
East Asset Management, LLC
Rand Capital Corporation
Golub Capital BDC, Inc.
Golub Capital Investment Corporation
FS Investment Corporation
Corporate Capital Trust, Inc.
Benefit Street Partners LLC; Barings
Triangle Capital Corporation
TCG BDC, Inc.
NF Investment Corp.
CĪON Investment Corporation
Credit Suisse Park View BDC, Inc.
MAST Capital Management LLC; Great Elm Capital Group Inc.
Full Circle Capital Corporation
Ares Capital Corporation
American Capital, Ltd.
PennantPark Floating Rate Capital Ltd.
MCG Capital Corporation
For each selected transaction, KBW derived the following implied transaction statistics, in each case based on the transaction consideration value paid for the acquired company (including contributions by external managers) and using financial data based on the acquired company’s then latest publicly available financial statements prior to the announcement of the respective transaction (adjusted to reflect announced pre-closing adjustments):
Price to NAV per share of the acquired company; and
Price to LTM NII of the acquired company
KBW’s analysis showed the following concerning the selected transactions (excluding the impact of the price-to-LTM NII per share of five of the selected transactions, which multiples were considered to be not meaningful because they were either negative or greater than 40.0x):
 
Selected Transactions
 
Low
25th
Percentile
Average
Median
75th
Percentile
High
Price / NAV Per Share
0.58x
0.83x
0.92x
0.95x
1.00x
1.16x
Price / LTM NII
5.2x
9.6x
11.8x
10.6x
12.6x
30.6x
KBW then applied a range of price-to-NAV per share multiples of 0.83x to 1.00x derived from the 25th percentile and 75th percentile multiples of the selected transactions to the preliminary December 31, 2023 NAV per share of SSIC and a range of price-to-LTM NII multiples of 9.56x to 12.62x derived from the 25th percentile and 75th percentile multiples of the selected transactions to the estimated calendar year 2023 NII of SSIC, which was taken from financial forecasts and projections of SSIC provided by management. This analysis indicated the following ranges of the implied value per share of SSIC Common Stock, as compared to the assumed issuance price per share for the proposed Loan Portfolio Acquisition of $13.08 per share of SSIC Common Stock as of December 31, 2023 and also the last trade price of $7.94 per outstanding share of SSIC Common Stock as of February 16, 2024:
 
Implied Value Per Share Ranges of
SSIC Common Stock
Based on NAV per share of SSIC as of December 31, 2023
$10.89 to $13.08
Based on CY2023 NII estimate of SSIC provided by management
$10.56 to $13.94
No company or transaction used as a comparison in the above selected transaction analysis is identical to SSIC or the proposed Loan Portfolio Acquisition. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.
Dividend Discount Analysis of SSIC. KBW performed a dividend discount analysis of SSIC on a standalone basis to estimate ranges for the implied equity value of SSIC. In this analysis, KBW used financial
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and operating forecasts and projections relating to dividends and net assets of SSIC that were provided by management. KBW assumed discount rates ranging from 15.5% to 19.5%. Ranges of values were derived by adding (i) the present value of the estimated future dividends of SSIC over the period from the assumed June 30, 2024 closing date of the proposed Loan Portfolio Acquisition through December 31, 2027 and (ii) the present value of SSIC’s implied terminal value at the end of such period. KBW derived implied terminal values using two methodologies, one based on December 31, 2027 estimated NAV per share multiples and the other based on calendar year 2027 estimated dividend yields. Using implied terminal values for SSIC calculated by applying a terminal multiple range of 0.63x to 1.03x to SSIC’s estimated NAV per share as of December 31, 2027, this analysis resulted in a range of implied values per share of SSIC Common Stock of approximately $8.14 to $12.29, as compared to the assumed issuance price per share for the proposed Loan Portfolio Acquisition of $13.08 per share of SSIC Common Stock as of December 31, 2023 and also the last trade price of $7.94 per outstanding share of SSIC Common Stock as of February 16, 2024. Using implied terminal values for SSIC calculated by applying a terminal dividend yield range of 12.0% to 14.0% to SSIC’s calendar year 2027 estimated dividends, this analysis resulted in a range of implied values per share of SSIC Common Stock of approximately $8.50 to $10.29, as compared to the assumed issuance price per share for the proposed Loan Portfolio Acquisition of $13.08 per share of SSIC Common Stock as of December 31, 2023 and also the last trade price of $7.94 per outstanding share of SSIC Common Stock as of February 16, 2024.
The dividend discount analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including NAV per share and dividend assumptions, terminal values and discount rates. The analysis did not purport to be indicative of the actual values or expected values of SSIC.
Illustrative Pro Forma Combined Dividend Discount Analysis. KBW performed an illustrative dividend discount analysis of the pro forma combined company to estimate ranges for the implied equity value of the pro forma combined company. In this analysis, KBW used financial and operating forecasts and projections relating to dividends and net assets of SSIC and CALP, on a combined basis reflecting pro forma assumptions (including, without limitation, the cost savings expected to result from the Loan Portfolio Acquisition). KBW did not consider the financial or other terms of the New Investment Advisory Agreement that were provided by SSIC’s management. KBW assumed discount rates ranging from 11.1% to 15.1%. Ranges of values were derived by adding (i) the present value of the estimated future dividends of the pro forma combined company over the period from the assumed June 30, 2024 closing date of the proposed Loan Portfolio Acquisition through December 31, 2027 and (ii) the present value of the pro forma combined company’s implied terminal value at the end of such period. KBW derived implied terminal values using two methodologies, one based on December 31, 2027 estimated NAV per share multiples and the other based on calendar year 2027 estimated dividend yields. Using implied terminal values for the pro forma combined company calculated by applying a terminal multiple range of 0.67x to 1.07x to the pro forma combined company’s estimated NAV per share as of December 31, 2027, this analysis resulted in a range of implied values per share of the pro forma combined company’s common stock of approximately $9.43 to $14.04. Using implied terminal values for the pro forma combined company calculated by applying a terminal dividend yield range of 11.3% to 13.3% to the pro forma combined company’s calendar year 2027 estimated dividends, this analysis resulted in a range of implied values per share of the pro forma combined company’s common stock of approximately $10.91 to $13.43. All future dividend and net asset value assumptions used by KBW for purposes of its analysis and opinion were as directed by SSIC and the Special Committee.
The dividend discount analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including NAV per share and dividend assumptions, terminal values and discount rates. The analysis did not purport to be indicative of the actual values or expected values of SSIC or the pro forma SSIC business following acquisition of the Loan Portfolio in the proposed Loan Portfolio Acquisition.
Potential Net Investment Income and Dividend Per Share Accretion / (Dilution). Using financial and operating forecasts and projections of SSIC, on a standalone basis, and financial and operating forecasts and projections of SSIC following acquisition of the Loan Portfolio in the proposed Loan Portfolio Acquisition and reflecting pro forma assumptions (including, without limitation, the cost savings expected to result from the Loan Portfolio Acquisition), KBW analyzed the potential financial impact of the Loan Portfolio Acquisition on certain projected financial results of SSIC. KBW did not consider the financial or other terms of the New Investment Advisory Agreement provided by SSIC’s management. This analysis indicated the proposed Loan Portfolio Acquisition could be accretive to each of SSIC’s calendar year 2025, calendar year 2026 and calendar year 2027 estimated net investment income per share and
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to each of SSIC’s calendar year 2025, calendar year 2026 and calendar year 2027 estimated dividend per share. For all of the above analysis, the actual results achieved by SSIC following the proposed Loan Portfolio Acquisition may vary from the projected results, and the variations may be material.
Miscellaneous. KBW acted as financial advisor to the Special Committee in connection with the proposed Loan Portfolio Acquisition and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is regularly engaged in the valuation of business development company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. In the ordinary course of KBW and its affiliates’ broker-dealer businesses (and further to an existing sales and trading relationship between SSIC Adviser and a KBW broker-dealer affiliate), KBW and its affiliates may from time to time purchase securities from, and sell securities to, SSIC and CALP. In addition, as market makers in securities, KBW and its affiliates may from time to time have a long or short position in, and buy or sell, debt or equity securities of SSIC for its and their own respective accounts and for the accounts of its and their respective customers and clients.
Pursuant to the KBW engagement agreement, SSIC agreed to pay KBW a cash fee equal to 1.00% of the purchase price for the Loan Portfolio, $350,000 of which became payable with the rendering of KBW’s opinion and the balance of which is contingent upon the closing of the Loan Portfolio Acquisition. SSIC also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its engagement and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith.
Other than in connection with the present engagement, during the two years preceding the date of KBW’s opinion, KBW did not provide investment banking or financial advisory services to SSIC. A broker-dealer affiliate of KBW acted as joint bookrunning manager for SSIC’s initial public offering in February 2022. During the two years preceding the date of KBW’s opinion, KBW did not provide investment banking or financial advisory services to CALP. KBW may in the future provide investment banking and financial advisory services to SSIC or CALP and receive compensation for such services.
Regulatory Approvals Required for the Loan Portfolio Acquisition
The obligations of SSIC and CALP to complete the Loan Portfolio Acquisition are subject to the satisfaction or, where permissible, waiver of certain conditions, including the condition that all regulatory approvals required by law to consummate the Loan Portfolio Acquisition have been obtained and remain in full force and effect, and all statutory waiting periods required by applicable law in respect thereof have expired. SSIC and CALP have agreed to cooperate with each other and use their reasonable best efforts to obtain all consents, authorizations, approvals, exemptions or nonobjections from any governmental or regulatory authority necessary to consummate the Loan Portfolio Acquisition.
There can be no assurance that such regulatory approvals will be obtained, that such approvals will be received on a timely basis or that such approvals will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of SSIC following completion of the Loan Portfolio Acquisition.
Third-Party Consents Required for the Loan Portfolio Acquisition
Under the Loan Portfolio Acquisition Agreement, each of SSIC’s and CALP’s obligation to complete the transfer of certain loans included in the Loan Portfolio is subject to the prior receipt of certain approvals, confirmations and consents required to be obtained from certain borrowers, agents and other parties with respect to such loans. Furthermore, the addition of certain loans to the Loan Portfolio requires third-party consents.
SSIC and CALP have agreed to cooperate with each other and use their reasonable best efforts to take, or cause to be taken, in good faith, all actions, and to do, or cause to be done, all things necessary, including to obtain as promptly as practicable all consents, approvals, confirmations and authorizations of all third parties, in each case, that are necessary or advisable, to consummate the Loan Portfolio Acquisition in the most expeditious manner practicable. There can be no assurance that any consents, approvals, confirmations or authorizations will be obtained or that such consents, approvals, confirmations or authorizations will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of SSIC following the Loan Portfolio Acquisition.
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DESCRIPTION OF THE LOAN PORTFOLIO ACQUISITION AGREEMENT
The following summary, which includes the material terms of the Loan Portfolio Acquisition Agreement, is qualified by reference to the complete text of the Loan Portfolio Acquisition Agreement, which is attached as Annex A to this joint proxy statement/information statement/prospectus and is incorporated by reference in this joint proxy statement/information statement/prospectus. This summary does not purport to be complete and may not contain all of the information about the Loan Portfolio Acquisition Agreement that is important to you. SSIC and CALP encourage you to read the Loan Portfolio Acquisition Agreement carefully and in its entirety.
Structure of the Transaction
Pursuant to the terms of the Loan Portfolio Acquisition Agreement, at the closing of the Loan Portfolio Acquisition, SSIC will issue to CALP (the “Stock Issuance”) newly issued shares of SSIC Common Stock (the “Purchased Shares”) in consideration for the sale and transfer by CALP of the Loan Portfolio (the “Transactions”).
Closing; Completion of the Proposed Transactions
It is currently expected that the Transactions will be completed promptly following receipt of the SSIC Stockholder Approvals (as defined below) at the SSIC Special Meeting and satisfaction of the other closing conditions set forth in the Loan Portfolio Acquisition Agreement as described below.
The closing of the Loan Portfolio Acquisition will occur on the next business day after the satisfaction or waiver of the closing conditions set forth in the Loan Portfolio Acquisition Agreement or at another time as may be agreed in writing by SSIC and CALP.
Consideration; Valuation
The number of Purchased Shares to be issued to CALP at the closing of the Loan Portfolio Acquisition in consideration for the sale and transfer by CALP of the Loan Portfolio will be equal to (i) the fair value of the Loan Portfolio (the “Loan Portfolio Fair Value”) as of 5:00 p.m. Central time on the second day (excluding Sundays and holidays) immediately prior to the Closing Date (the “Closing Cut-off Time”), divided by (ii) the “SSIC NAV Per Share,” which is the net asset value of SSIC as of the Closing Cut-off Time (the “SSIC NAV”) divided by the number of outstanding shares of SSIC Common Stock as of the Closing Cut-off Time. The Loan Portfolio Fair Value and the SSIC NAV will be determined based on the valuation policies and procedures of SSIC (the “Valuation Policies”).
From the date of the Loan Portfolio Acquisition Agreement until the Closing Cut-off Time, SSIC and CALP will discuss in good faith the amounts to be taken into account under the calculation of the Loan Portfolio Fair Value. SSIC will provide CALP information that would reasonably be expected to have a material effect on the SSIC NAV and CALP will provide SSIC information that would reasonably be expected to have a material effect on the Loan Portfolio Fair Value. Within twenty-four (24) hours after the Closing Cut-off Time, SSIC will deliver to CALP a certificate setting forth its good faith calculation of the Loan Portfolio Fair Value and the SSIC NAV prepared in accordance with the Valuation Policies (the “Calculation Notice”).
In the event that CALP does not agree with the calculation of the SSIC NAV or the Loan Portfolio Fair Value as set forth in the Calculation Notice, SSIC and CALP will negotiate in good faith to agree upon the calculation of the SSIC NAV or the Loan Portfolio Fair Value, as the case may be, prior to the closing of the Loan Portfolio Acquisition. In the event that the closing of the Loan Portfolio Acquisition is subsequently materially delayed, SSIC will update the calculations of the SSIC NAV and the Loan Portfolio Fair Value using the new expected Closing Date as the reference for calculation of the Closing Cut-off Time and to the extent there is any disagreement thereof, the parties will negotiate in good faith to agree on such calculations consistent with the procedures specified above.
In the event that a third-party consent is required for the sale and transfer of any loan in the Loan Portfolio to SSIC which has not been obtained five (5) business days prior to the Closing Date, then the applicable loan will not constitute part of the Loan Portfolio for any purposes of the Loan Portfolio Acquisition Agreement and such loan will be excluded from the calculation of Loan Portfolio Fair Value. CALP will notify SSIC as soon as reasonably practicable if CALP has been notified by a third party that such third party will not provide its applicable consent.
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As of January 1, 2024, the Loan Portfolio was comprised of twenty-four (24) loans with an aggregate value of approximately $130 million. CALP has agreed to use reasonable best efforts to add four (4) loans with an aggregate value of approximately $43 million to the Loan Portfolio prior to the closing of the Loan Portfolio Acquisition. SSIC and CALP may also agree to the addition of other loans to the Loan Portfolio prior to the closing of the Loan Portfolio Acquisition. The inclusion and/or addition of certain loans to the Loan Portfolio may require third-party consents, and/or such loans may need to be acquired by CALP, and there can be no assurance that any additional loans will be added to the Loan Portfolio prior to the closing of the Loan Portfolio Acquisition. Certain loans may also be removed from the Loan Portfolio upon the agreement of SSIC and CALP, if required third-party consents are not obtained, or upon the repayment of the loans.
Withholding
SSIC may deduct and withhold from the consideration payable to CALP pursuant to the Loan Portfolio Acquisition Agreement such amounts as SSIC is required to deduct and withhold under applicable laws, subject to at least three (3) business days advance notice of its intention to deduct or withhold such amounts, and provided that SSIC will use commercially reasonable efforts to cooperate with CALP to mitigate, reduce or eliminate such deduction or withholding. If any amounts are withheld or deducted and paid over to the appropriate governmental entity, such withheld or deducted amounts will be treated as having been paid to CALP.
Representations and Warranties and Statements
The Loan Portfolio Acquisition Agreement contains representations and warranties of SSIC and CALP relating to their respective businesses. The Loan Portfolio Acquisition Agreement also contains certain statements regarding SSIC Adviser as specified below. With the exception of certain representations, warranties and statements that must be true and correct in all or virtually all respects, or in all material respects, for purposes of satisfying the conditions to the obligations of SSIC and CALP to consummate the transactions, no representation, warranty or statement will be deemed untrue, and neither party will be deemed to have breached a representation, warranty or statement, as a consequence of the existence of any fact, circumstance or event unless such fact, circumstance or event, individually or when taken together with all other facts, circumstances and events inconsistent with any representation, warranty or statement made by such party (without considering “materiality”, “material adverse effect” or similar qualifications), has had or is reasonably expected to have a material adverse effect (as defined below) on or with respect to the party making such representations, warranties or statements. The representations, warranties and statements in the Loan Portfolio Acquisition Agreement will not survive the closing of the Loan Portfolio Acquisition, other than certain of CALP’s representations and warranties with respect to the Loan Portfolio, which will survive until the sixth (6th) month anniversary of the Closing Date (the “Holdback Release Date”). In the event that SSIC provides written notice of a claim with respect to an alleged breach of CALP’s representations and warranties with respect to the Loan Portfolio prior to the Holdback Release Date, such claim will survive until finally resolved.
The Loan Portfolio Acquisition Agreement contains representations and warranties of SSIC, subject to specified exemptions and qualifications, including as set forth in the SSIC disclosure schedule, relating to, among other things:
corporate organization, including incorporation, qualification and SSIC subsidiaries;
power and authority to execute, deliver and perform obligations under the Loan Portfolio Acquisition Agreement;
the absence of violations under SSIC’s organizational documents, laws or orders, or permits, contracts or other obligations;
compliance with applicable laws and permits;
compliance with its investment policies and restrictions and portfolio valuation methods;
government filings, consents, permits and regulatory matters;
financial statements;
absence of certain changes or events since December 31, 2022;
absence of certain legal proceedings and certain government sanctions;
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SSIC’s investment portfolio, in a substantially identical manner to CALP’s representations relating to the Loan Portfolio (see below);
compliance with anti-money laundering and anticorruption laws;
broker’s fees;
cannabis business matters;
SEC reports and financial management;
stockholders and SSIC Board approvals;
capitalization;
tax matters;
material contracts and certain other types of contracts;
employment and labor matters;
owned and leased properties;
intellectual property;
absence of rights agreement;
state takeover laws;
insurance coverage;
the 1940 Act and investment company status;
related party transactions;
environmental matters; and
registration and NASDAQ listing.
The Loan Portfolio Acquisition Agreement contains representations and warranties of CALP, subject to specified exemptions and qualifications, including as set forth in the CALP disclosure schedule, relating to, among other things:
corporate organization, including incorporation, qualification and CALP subsidiaries;
power and authority to execute, deliver and perform obligations under the Loan Portfolio Acquisition Agreement;
the absence of violations under CALP’s organizational documents, laws or orders or permits, contracts or other obligations;
compliance with applicable laws and permits;
government filings, consents and regulatory matters;
certain accounting matters, including liabilities;
absence of certain changes or events since December 4, 2023;
absence of certain legal proceedings and certain government sanctions;
the Loan Portfolio, including, among other things:
that CALP is the sole legal and beneficial owner and holder, free and clear of any liens (other than certain permitted liens), of the loans in the Loan Portfolio;
that, to CALP’s knowledge, the loan documents underlying the Loan Portfolio are valid and enforceable, and to the extent required to be executed by the applicable borrower, such loan documents are duly authorized executed and delivered by the applicable borrower;
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that, to the extent CALP’s rights under the Loan Portfolio are secured by a security interest in favor of CALP under the applicable loan, such security interest is valid and will, upon transfer to SSIC, enable SSIC to enforce the remedies contained therein;
that each loan in the Loan Portfolio complies with applicable law in all material respects;
that there are no pending or, to CALP’s knowledge, threatened, actions of any nature that would reasonably be expected to be material to the Loan Portfolio if resolved adversely;
that the obligations of each borrower in the Loan Portfolio are not subject to any rights of rescission, setoff, counterclaim or defense;
that the material terms of the loan documents underlying the Loan Portfolio have not been modified, altered, satisfied, canceled, subordinated or rescinded except by a written instrument that is included in the Loan Portfolio;
that the loans in the Loan Portfolio are valued on the books and records of CALP in accordance with U.S. GAAP in all material respects; and
that the loan documents underlying the Loan Portfolio are true, complete and correct in all material respects;
compliance with anti-money laundering and anticorruption laws;
broker’s fees; and
cannabis business matters.
The Loan Portfolio Acquisition Agreement also contains certain statements regarding SSIC Adviser, subject to specified exemptions and qualifications, including as set forth in the SSIC Adviser disclosure schedule, relating to, among other things:
corporate organization, including incorporation, qualification and SSIC Adviser subsidiaries;
compliance with law;
financial statements;
absence of certain changes or events since December 31, 2022;
absence of certain legal proceedings, sanctions and regulatory matters; and
compliance with anti-money laundering and anticorruption laws.
These representations and warranties (and, with respect to SSIC Adviser, these statements) were made as of specific dates, may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Loan Portfolio Acquisition Agreement and may have been included in the Loan Portfolio Acquisition Agreement for the purpose of allocating risk between the parties rather than to establish matters as facts. The Loan Portfolio Acquisition Agreement is described in, and included as Annex A to, this document only to provide you with information regarding its terms and conditions and not to provide any other factual information regarding the parties or their respective businesses. Accordingly, the representations and warranties (and, with respect to SSIC Adviser, the statements) and other provisions of the Loan Portfolio Acquisition Agreement should not be read alone, but instead, should be read only in conjunction with the information provided elsewhere in this document.
For purposes of the Loan Portfolio Acquisition Agreement, “material adverse effect” with respect to SSIC, CALP or SSIC Adviser, as applicable, means, any effect, change, development, event, circumstance, occurrence, condition, fact or state of facts that has a material adverse effect, individually or in the aggregate, (1) with respect to SSIC or SSIC Adviser, on the business, condition (financial or otherwise), assets, liabilities or results of operations of SSIC or SSIC Adviser, as applicable, taken as a whole, (2) with respect to CALP, on the Loan Portfolio, taken as a whole or (3) with respect to SSIC or CALP, on the ability of SSIC or CALP, as applicable, to perform its obligations under the Loan Portfolio Acquisition Agreement or to consummate the Transactions.
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None of the following effects, changes, developments, events, circumstances, occurrences, conditions, facts or state of facts, among others, will constitute or be taken into account in determining whether a material adverse effect has occurred with respect to clauses (1) and (2) in the immediately preceding sentence:
changes in general United States or global economic, regulatory or financial market conditions;
general events, changes or circumstances in the cannabis industry, including changes in applicable laws across such industry;
with respect to SSIC, any change in the trading price or trading volume of SSIC Common Stock;
any adoption, implementation, promulgation, repeal, modification, amendment or other changes in applicable laws or U.S. GAAP;
the negotiation, execution or public announcement of the Transactions;
natural disasters or the outbreak of actual or threatened hostilities, terrorist attack (whether against a nation or otherwise), war, sabotage, cyber attacks, military actions, or any escalation or material worsening of any of the foregoing existing or underway as of the closing of the Loan Portfolio Acquisition;
any failure by SSIC, SSIC Adviser or CALP, as applicable, to meet any internal projections, forecasts, estimates or revenue or earning predictions; or
solely with respect to SSIC and CALP, any action expressly required by the Loan Portfolio Acquisition Agreement.
The effects, changes, developments, events, circumstances, occurrences, conditions, facts or state of facts set forth in the first two bullets and the fourth bullet in the immediately preceding paragraph will nonetheless be taken into account in determining whether a material adverse effect has occurred to the extent such effects, changes, developments, events, circumstances, occurrences, conditions, facts or state of facts have a materially disproportionate impact on SSIC, SSIC Adviser or CALP, as applicable, relative to other participants in the same industries in which SSIC, SSIC Adviser or CALP, as applicable, operates.
Conduct of Business Pending Consummation of the Transactions
SSIC
SSIC has undertaken covenants that place restrictions on it until the consummation of the Transactions. In general, SSIC has agreed that before the closing of the Loan Portfolio Acquisition, except (i) as expressly required by the Loan Portfolio Acquisition Agreement, (ii) as required by applicable laws, (iii) with the prior written consent of CALP or (iv) as set forth in the SSIC disclosure schedule, SSIC will conduct its business in all material respects in the ordinary course of business and in a manner consistent with past practice and use reasonable best efforts to maintain and preserve intact its business organization and existing material business relationships and retain the services of its key officers.
In addition, before the closing of the Loan Portfolio Acquisition, SSIC has agreed that, except (i) as expressly required by the Loan Portfolio Acquisition Agreement, (ii) as required by applicable laws, (iii) with the prior written consent of CALP or (iv) as set forth in the SSIC disclosure schedule, SSIC will not:
(i) incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible for the indebtedness of any person or entity, or make any loan or advance or capital contribution to, or investment in any person or entity, other than obligations to fund commitments to SSIC’s portfolio companies entered into in the ordinary course of business consistent with past practice, (ii) cancel, release or assign any material amount of indebtedness owed by any person to SSIC (or settle, waive or amend any claims or rights of substantial value) except in the ordinary course of business consistent with past practice and SSIC’s investment objective and policies as publicly disclosed before the date of the Loan Portfolio Acquisition Agreement, or (iii) pay, discharge or satisfy any indebtedness that has a prepayment cost, “make whole” amount, prepayment penalty or similar obligation;
(i) other than pursuant to SSIC’s dividend reinvestment plan as in effect on the date of the Loan Portfolio Acquisition Agreement, issue, deliver, modify, dispose of, sell or grant, or encumber or
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pledge, or authorize the creation of any shares of its capital stock or any other securities; (ii) adjust, split, reverse split, combine, reclassify or take similar action with respect to any of its capital stock or other securities; (iii) make, authorize, declare, pay or set aside any dividend or declare or make any distribution on any shares of its capital stock or other securities, except, with respect to the SSIC Common Stock, the authorization, announcement and payment of (x) regular quarterly dividends payable consistent with past practice, and (y) dividends or distributions necessary for SSIC to maintain its qualification as a “regulated investment company” as reasonably determined in good faith by SSIC; or (iv) redeem, purchase or otherwise acquire any shares of its capital stock or other securities;
become a party to, establish, amend, commence participation in, or commit itself to the adoption of any benefit plan, or hire any employee;
sell, transfer, pledge, lease, license, mortgage, subject to lien (other than certain permitted liens) or otherwise dispose of any of its properties or assets to any person or entity except for sales, transfers, leases, mortgages, liens or other dispositions in the ordinary course of business consistent with past practice and SSIC’s investment objective and policies as publicly disclosed before the date of the Loan Portfolio Acquisition Agreement;
amend or otherwise change its organizational documents or take any action to exempt any person or entity (other than CALP) or any action taken by any person or entity from any takeover statute or similarly restrictive provisions set forth in its organizational documents;
take any action or knowingly fail to take any action that would or would reasonably be expected to materially delay or materially impede the ability of the parties to consummate the Transactions or result in any of the conditions to the closing of the Loan Portfolio Acquisition not being satisfied;
make or agree to make any new capital expenditure other than obligations to fund commitments to SSIC’s portfolio companies entered into in the ordinary course of business consistent with past practice;
agree to, or otherwise commence to, release, compromise, assign, settle or resolve, in whole or in part, any claims or actions except for settlements (i) solely for monetary damages in an amount less than or equal to $250,000 in the aggregate among all such settlements (after reduction by any insurance proceeds actually received); (ii) that would not impose any material restriction on the conduct of business of SSIC and (iii) that would not require an admission of liability, guilt or fault;
amend, terminate, cancel, renew or agree to any amendment of, or change in or waiver, release or assignment under any material contract in a manner adverse to SSIC other than (i) in the ordinary course of business consistent with past practice (with certain exceptions) or (ii) any expiration or termination for cause of any such material contract in accordance with its terms;
enter into any contract that would otherwise constitute a material contract had it been entered into prior to the date of the Loan Portfolio Acquisition Agreement, other than in the ordinary course of business consistent with past practice (with certain exceptions);
implement or adopt any material change to its financial principles, practices or methods of accounting, except (i) as required by U.S. GAAP or (ii) as required by a change in applicable laws;
acquire or agree to acquire all or any portion of the assets, business or properties of any other person or entity, whether by merger, consolidation, purchase or otherwise or make any other investments, except in a transaction conducted in the ordinary course of business consistent with past practice and SSIC’s investment objective and policies as publicly disclosed before the date of the Loan Portfolio Acquisition Agreement;
except as required by applicable laws, file or amend any material tax return; make, change or revoke any material tax election or change any method of accounting for tax purposes that would have a material tax impact; or settle or compromise any material tax liability or refund;
take any action, or knowingly fail to take any action, which is reasonably likely to cause SSIC to fail to qualify or not be subject to tax as a “regulated investment company”;
enter into any new line of business;
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fail to timely file all periodic and current reports required to be filed between the date of the Loan Portfolio Acquisition Agreement and the closing of the Loan Portfolio Acquisition;
except as otherwise expressly contemplated by the Loan Portfolio Acquisition Agreement, merge or consolidate SSIC with any person or entity or enter into any other similar extraordinary corporate transaction with any person or entity, or adopt, recommend, propose or announce an intention to adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of SSIC;
create any new subsidiary;
fail to use reasonable best efforts to maintain in effect material insurance policies covering SSIC and its properties and operations or directors and officers;
change the Valuation Policies and procedures except as required by applicable laws; or
contractually agree to do, make any binding commitment to do or publicly announce an intention to do any of the foregoing actions.
CALP
CALP has undertaken covenants that place restrictions on it until the consummation of the Transactions. In general, CALP has agreed that before the closing of the Loan Portfolio Acquisition, except (i) as expressly required by the Loan Portfolio Acquisition Agreement, (ii) as required by applicable laws, (iii) with the prior written consent of SSIC or (iv) as set forth in the CALP disclosure schedule, CALP will, and will cause certain of its affiliates to, use reasonable best efforts to maintain the Loan Portfolio in all material respects in the ordinary course of business.
In addition, before the closing of the Loan Portfolio Acquisition, CALP has agreed that, except (i) as expressly required by the Loan Portfolio Acquisition Agreement, (ii) as required by applicable laws, (iii) with the prior written consent of SSIC or (iv) as set forth in the CALP disclosure schedule, CALP will not (and will cause certain of its affiliates not to):
sell, transfer, pledge, lease, license, mortgage, encumber or otherwise dispose of any loan in the Loan Portfolio to any person or entity or cancel, release or assign any amount of indebtedness thereunder;
take any action or knowingly fail to take any action that would or would reasonably be expected to materially delay or materially impede the ability of the parties to consummate the Transactions or result in any of the conditions to the closing of the Loan Portfolio Acquisition not being satisfied;
agree to or otherwise commence, release, compromise, assign, settle or resolve any claims or actions relating to the Loan Portfolio except for claims and actions that are settled solely for monetary damages in the ordinary course of business consistent with past practice;
amend, terminate, cancel, renew or agree to any amendment, change in, waiver, release or assignment under any contract with respect to any loan in the Loan Portfolio; or
contractually agree to do, make any binding commitment to do, or publicly announce an intention to do any of the foregoing.
Subordination Agreements
Prior to the Closing Cut-off Time, CALP will terminate, or cause the termination of, any contracts existing on the date of the Loan Portfolio Acquisition Agreement that subordinate, purport to subordinate or have the substantive effect of subordinating CALP’s rights to payments in respect of any loan in the Loan Portfolio to any indebtedness or other claims or any lien supporting any other indebtedness or other claims owed to any affiliate of CALP.
Additional Agreements
The Loan Portfolio Acquisition Agreement contains covenants relating to the preparation of this document, the holding of the SSIC Special Meeting, obtaining certain regulatory and third party consents, access to information of the other party, no solicitation, takeover statutes and provisions, indemnification and certain other matters as specified below.
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Regulatory and Other Matters
The parties agreed to reasonably cooperate with each other and use their respective reasonable best efforts to take all actions and do all things necessary to obtain as promptly as practicable all permits of all governmental entities and consents of third parties that are necessary or advisable to consummate the Transactions in the most expeditious manner reasonably practicable, defend any lawsuits or other actions challenging the Loan Portfolio Acquisition Agreement or the consummation of the Transactions and to comply with the terms and conditions of all such permits and consents of all such third parties and governmental entities. The parties will have the right to review in advance, and to the extent practicable, each will consult with the other on all information relating to SSIC or CALP, and any of their respective affiliates, that appears in any filing made with, or written materials submitted to, any third party or any governmental entity in connection with the Transactions. The parties will consult with each other with respect to the obtaining of all consents of all third parties and permits of governmental entities necessary or advisable to consummate the Transactions and each party will keep the other apprised of the status of matters relating to completion of the Transactions. Neither party nor any of its affiliates will be obligated to, and except with CALP’s consent, SSIC and any of its affiliates will not, grant or offer to grant any material accommodation or concession, financial or otherwise, or make any payment, to any third party in connection with seeking or obtaining such third party’s consent in connection with the Transactions.
Access to Information
During the period prior to the closing of the Loan Portfolio Acquisition, each of SSIC and CALP will use reasonable best efforts to afford the other party with reasonable access to its properties, books, contracts and records (in the case of CALP, solely to the extent related to the Loan Portfolio), in such a manner that would not unreasonably interfere with the normal operation of SSIC or CALP, as applicable, and during such period, each of SSIC and CALP, as applicable, will use reasonable best efforts to cause its Representatives (as defined below) to make available to the other party, (A) in the case of SSIC, a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws and all other information concerning the business and properties of SSIC and (B) in the case of CALP, all other information concerning the Loan Portfolio, in each case, as the applicable party may reasonably request for the purpose of consummating the Transactions, subject to certain confidentiality and attorney-client privilege restrictions.
SSIC Stockholder Approvals
As promptly as practicable following the effectiveness of this joint proxy statement/information statement/prospectus, SSIC will distribute the definitive proxy statement to its stockholders and, acting through the SSIC Board, will call, give notice of, convene and hold the SSIC Special Meeting for the purpose of voting on the following proposals (and SSIC will not submit any other proposals to the SSIC stockholders without CALP’s prior consent) (such stockholder approvals collectively, the “SSIC Stockholder Approvals”):
election of new directors, as mutually agreed between the parties, to the SSIC Board; and
for purposes of complying with applicable NASDAQ rules, authorization of the issuance of more than 20% of the SSIC Common Stock pursuant to the Stock Issuance.
Unless the SSIC Board has made an Adverse Recommendation Change (as defined below) as permitted by the Loan Portfolio Acquisition Agreement, SSIC will use its reasonable best efforts to solicit from its stockholders proxies in favor of the foregoing proposals.
Directors’ and Officers’ Indemnification
All rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the closing of the Loan Portfolio Acquisition and that exist as of the date of the Loan Portfolio Acquisition Agreement in favor of the directors and officers of SSIC at or prior to the closing of the Loan Portfolio Acquisition, and any existing indemnification agreements between such directors and officers and SSIC, will survive the closing of the Loan Portfolio Acquisition in accordance with their terms, and for a period of six (6) years from the closing of the Loan Portfolio Acquisition, will not be amended, repealed or otherwise modified in any manner that would adversely affect the rights of the directors and officers of SSIC for acts or omissions occurring at or prior to the closing of the Loan Portfolio Acquisition.
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SSIC will maintain, at no expense to the beneficiaries, for at least six (6) years from the Closing Date, the current policies of the directors’ and officers’ liability insurance and fiduciary liability insurance maintained by SSIC with respect to matters existing or occurring at or prior to the Closing Date and from insurance carriers having at least an “A” rating by A.M. Best with respect to directors’ and officers’ liability insurance, provided that SSIC may substitute for current policies any other policies of at least the same coverage containing terms and conditions which are not less advantageous to any beneficiary thereof. Prior to the Closing Date, SSIC will cause the persons who are directors or officers of SSIC as of or immediately upon the closing of the Loan Portfolio Acquisition to be included as covered beneficiaries under such policy effective as of the closing of the Loan Portfolio Acquisition, or arrange substantially equivalent coverage for such persons). In case such directors do not have indemnification agreements with SSIC, SSIC will enter into indemnification agreements with such directors on terms substantially consistent with such agreements with existing directors.
SSIC Officers
Concurrently with the closing of the Loan Portfolio Acquisition, the SSIC Board will appoint (i) Scott Gordon as the Executive Chairman of the SSIC Board and Co-Chief Investment Officer of SSIC, (ii) Andreas Bodmeier as Chief Executive Officer of SSIC, (iii) Dino Colonna as President of SSIC and (iv) Umesh Mahajan as Chief Financial Officer and Co-Chief Investment Officer of SSIC.
No Solicitation
SSIC has agreed to, and agreed to cause its affiliates and its and their respective officers, directors, managers, partners, employees, accountants, counsel, financial advisors, consultants and other advisors, agents or representatives (collectively, “Representatives”) to, (i) immediately cease and terminate any existing activities, solicitation, discussions, communications, negotiations or similar activities, if any, with respect to or relating to any Competing Proposal (as defined below) or any inquiry, discussion, offer or request that could reasonably be expected to lead to a Competing Proposal, (ii) not directly or indirectly (A) initiate, seek, solicit, facilitate or knowingly encourage, or induce or take any other action designed or intended to lead to, or that would reasonably be expected to lead to, any inquiry with respect to, or the making, submission or announcement of, any Competing Proposal, (B) enter into, continue or otherwise participate in any negotiations or discussions with, or furnish any information or data to, or furnish access to SSIC’s properties with respect to, any person or entity relating to any Competing Proposal or any inquiry, proposal or offer that would reasonably be expected to lead to any Competing Proposal, or grant any waiver or release under (or terminate, amend or modify any provision of), or fail to enforce any confidentiality or standstill or similar agreement, or grant any approval pursuant to any takeover statute to any person or entity relating to any Competing Proposal or any transaction (other than the Transactions), (C) approve, publicly endorse, or recommend or execute or enter into any binding or non-binding agreement, commitment, arrangement or understanding relating to or in connection with, or that is intended to or would reasonably be expected to lead to, any Competing Proposal, (D) submit to the SSIC stockholders for their approval any Competing Proposal or Superior Proposal (as defined below), or (E) resolve to do, or agree or announce an intention to do, any of the foregoing, (iii) not provide, and, within twenty-four (24) hours of the date of the Loan Portfolio Acquisition Agreement, terminate access of any third party to, any data room containing any of SSIC’s confidential information granted in connection with, or with the intent of obtaining, any possible Competing Proposal, and (iv) use their respective reasonable best efforts to cause that any such third party (other than CALP or any of its affiliates or Representatives) in possession of confidential information about SSIC or its affiliates to return or destroy all such information, and in connection therewith SSIC shall, to the extent it has a right to do so, within twenty-four (24) hours of the date of the Loan Portfolio Acquisition Agreement, demand the return or destruction of all confidential information and materials provided to any third party (other than CALP or any of its affiliates or Representatives) relating to a possible Competing Proposal.
If SSIC or its Representatives receive any Competing Proposal or any inquiry, proposal or offer that could reasonably be expected to lead to a Competing Proposal, it must notify CALP promptly (and in any event within twenty-four (24) hours), provide CALP with certain information with respect to such Competing Proposal, and copies of any written materials received by it in connection thereto (including the identity of the potential acquirer), and keep CALP reasonably informed on a prompt basis (and in any event within twenty-four (24) hours) of significant developments or negotiations of such Competing Proposal.
Notwithstanding the foregoing, if, prior to the receipt of the SSIC Stockholder Approvals, SSIC or its Representatives receive a Competing Proposal from a third party that did not result from a breach of the
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non-solicitation provisions in the Loan Portfolio Acquisition Agreement, then SSIC may engage with such third party if the SSIC Board determines in good faith (after consultation with its financial advisor and outside legal counsel) that (A) such Competing Proposal either constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal and (B) failure to take such action would be reasonably likely to constitute a breach of the standard of conduct applicable to the directors of SSIC under applicable laws. SSIC will promptly (and in any case within twenty-four (24) hours) provide CALP all information, including copies of all written materials, provided by SSIC or its Representatives to such third party.
If, prior to the receipt of the SSIC Stockholder Approvals, SSIC or the SSIC Board receives a Superior Proposal that did not result from a breach of the non-solicitation provisions in the Loan Portfolio Acquisition Agreement, the SSIC Board (acting upon the recommendation of the Special Committee) may authorize and cause SSIC to (x) effect an Adverse Recommendation Change and (y) terminate the Loan Portfolio Acquisition Agreement and concurrently with such termination enter into a definitive agreement with respect to such Superior Proposal, subject to the payment of the termination fee (as described below), if (i) the SSIC Board (acting upon the recommendation of the Special Committee) determines in good faith (after consultation with SSIC’s outside financial advisor and outside legal counsel) that the failure to take such action would be reasonably likely to constitute a breach of the standard of conduct applicable to the directors of SSIC under applicable law; (ii) SSIC notifies CALP that it intends to take such action; (iii) SSIC provides CALP with a copy of the proposed definitive agreements (and any related agreements) between SSIC and the third party making such Superior Proposal, and otherwise complies with the obligations to provide information to CALP as set forth above with respect to such Superior Proposal; (iv) for a period of four (4) business days following the notice delivered, SSIC and its Representatives will discuss and negotiate with CALP (to the extent CALP desires to negotiate) in good faith any proposed modifications to the terms and conditions of the Loan Portfolio Acquisition Agreement so that such Superior Proposal would cease to constitute a Superior Proposal; and (v) no earlier than the end of such negotiation period, the SSIC Board will in good faith (after consultation with SSIC’s outside financial advisor and outside legal counsel), after considering and taking into account the terms of any proposed amendment or modification to the Loan Portfolio Acquisition Agreement made by CALP, reaffirmed its determination with respect to such Superior Proposal.
Intervening Event
Other than in connection with a Superior Proposal, prior to obtaining the SSIC Stockholder Approvals, the SSIC Board may effect an Adverse Recommendation Change (of the type specified in clauses (i), (iii) or (iv) in the definition of Adverse Recommendation Change below) in response to an Intervening Event (as defined below), if (i) the SSIC Board (acting upon the recommendation of the Special Committee) determines in good faith (after consultation with SSIC’s outside financial advisor and outside legal counsel) that the failure to take such action would be reasonably likely to constitute a breach of the standard of conduct applicable to the directors of SSIC under applicable law, (ii) SSIC notifies CALP that it intends to effect such an Adverse Recommendation Change (which notice must specify the facts and circumstances providing the basis of the Intervening Event and for the SSIC Board’s determination to effect the Adverse Recommendation Change in detail), (iii) for a period of four (4) business days following the notice delivered, SSIC and its Representatives will discuss and negotiate with CALP (to the extent CALP desires to negotiate) in good faith any proposed modifications to the terms and conditions of the Loan Portfolio Acquisition Agreement in respect to such Intervening Event such that the SSIC Board no longer determines in good faith that the failure to effect an Adverse Recommendation Change is reasonably likely to constitute a breach of the standard of conduct applicable to the directors of SSIC under applicable laws, and (iv) no earlier than the end of such negotiation period, the SSIC Board will in good faith (after consultation with SSIC’s outside legal counsel), after considering and taking into account the terms of any proposed amendment or modification to the Loan Portfolio Acquisition Agreement made by CALP, that the failure to take such action would be reasonably likely to constitute a breach of the standard of conduct applicable to the directors of SSIC under applicable laws.
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Related Definitions
For the purposes of the Loan Portfolio Acquisition Agreement:
“Adverse Recommendation Change” means any of the following actions by the SSIC Board or any committee thereof: (i) withhold, withdraw, modify or qualify, or propose publicly to withhold, withdraw or modify or qualify, in a manner adverse to CALP the recommendation of the SSIC Board in favor of the Transactions, (ii) approve, authorize, declare advisable, endorse or recommend (or publicly propose to approve, authorize, declare advisable, endorse or recommend) any Competing Proposal, (iii) fail to include in this registration statement the recommendation of the SSIC Board in favor of the Transactions, (iv) fail to publicly reaffirm the recommendation of the SSIC Board in favor of the Transactions within ten (10) business days after CALP reasonably requests in writing that such action be taken, provided that other than any reaffirmation following receipt of a Competing Proposal, CALP may only request such a reaffirmation on one occasion, or (v) fail to publicly announce, within ten (10) business days after a tender offer or exchange offer relating to the securities of SSIC shall have been commenced, a statement disclosing that the SSIC Board recommends rejection of such tender offer or exchange offer in a Solicitation/Recommendation Statement on Schedule 14D-9 within ten (10) business days after the commencement (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) of such tender or exchange offer.
“Competing Proposal” means, other than the Transactions, any inquiry, proposal, offer, or indication of interest made by any person or entity or group of persons or entities other than CALP or any of its affiliates relating to or that is reasonably expected to lead to (in one transaction or series of transactions): (i) any merger, consolidation, stock acquisition, share exchange, business combination, recapitalization, liquidation, dissolution, joint venture or similar transaction involving SSIC, pursuant to which any person or entity or group of persons or entities would beneficially own or control, directly or indirectly, twenty percent (20%) or more of any class or series of any equity or voting securities of SSIC or any resulting parent company of SSIC, (ii) any sale, lease, license or other disposition, directly or indirectly, of assets or businesses or operations of SSIC representing twenty percent (20%) or more of the net revenues, net income, or assets of SSIC, other than dispositions of SSIC investments in the ordinary course of business constituting no more than twenty-five (25%) or more of the net revenues, net income, or assets of SSIC, (iii) any issuance or sale or other disposition of capital stock or other equity interests (including any interests exchangeable or convertible into capital stock or equity interests) representing twenty percent (20%) or more of any class of equity or voting securities of SSIC, (iv) any tender offer, exchange offer or any other transaction or series of transactions that, if consummated, would result in any person or entity or group of persons or entities, directly or indirectly, beneficially owning or having the right to acquire beneficial ownership of capital stock or other equity interests representing twenty percent (20%) or more of any class of equity or voting securities of SSIC, (v) any transaction involving or contemplating a change in or removal of (including indirectly as a result of a change of control of) SSIC Adviser as SSIC’s investment adviser, however structured or (vi) a combination of the foregoing.
“Intervening Event” means any event, change or circumstance that, individually or in the aggregate, is material to SSIC that was not, or the magnitude or consequence of which was not, known to the SSIC Board or the Special Committee on the date of the Loan Portfolio Acquisition Agreement (and did not result from or arise out of the announcement or pendency of, or any actions required to be taken by SSIC or CALP (or refrained from being taken by such party) pursuant to, the Loan Portfolio Acquisition Agreement), which event, change or circumstance, or the magnitude or any material consequence thereof, becomes known to the SSIC Board or the Special Committee prior to the receipt of the SSIC Stockholder Approvals, provided that in no event shall either (i) the receipt, existence or terms of a Competing Proposal or any inquiry, proposal, offer or indication of interest that constitutes or would reasonably be expected to lead to a Competing Proposal (in each case, without reference to the percentage thresholds set forth in the definition of Competing Proposal), or any matter relating thereto or consequence thereof or (ii) changes in applicable laws in the cannabis industry after the date of the Loan Portfolio Acquisition Agreement, constitute an Intervening Event.
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“Superior Proposal” means a bona fide written Competing Proposal (provided that for purposes of this definition, references to twenty percent (20%) in the definition of “Competing Proposal” shall be deemed to be references to seventy percent (70%)) that did not result from a breach of the no solicitation provisions of the Loan Portfolio Acquisition Agreement that the SSIC Board determines in good faith, after consultation with its outside financial and outside legal advisors, to be more favorable to the SSIC stockholders from a financial point of view than the Transactions, taking into account at the time of determination all relevant circumstances as the SSIC Board considers to be appropriate, including, among other things, the timing, likelihood of consummation, all legal, financial, financing, regulatory and other aspects or conditions of such Competing Proposal and the person or entity making the Competing Proposal, and of the Loan Portfolio Acquisition Agreement and any proposed amendments to the terms of the Loan Portfolio Acquisition Agreement made or proposed in writing by CALP in response to such Competing Proposal.
Takeover Statutes
If any takeover statute becomes applicable to the Transactions, SSIC and the SSIC Board will grant approvals and take necessary actions so that the Transactions may be consummated as promptly as practicable on the terms contemplated by the Loan Portfolio Acquisition Agreement and otherwise act to eliminate or minimize the effects of such takeover statute on the Transactions.
Stockholder Litigation
Between the date of the Loan Portfolio Acquisition Agreement and the Closing Date, SSIC will (a) provide prompt notice to CALP of any stockholder litigation relating to the Loan Portfolio Acquisition Agreement or the Transactions, (b) keep CALP reasonably informed of any material developments in connection with any such litigation and (c) consult with CALP regarding the defense and settlement of any such litigation and not settle any such litigation without the prior written consent of CALP.
NASDAQ Global Market Listing
SSIC has agreed to use its reasonable best efforts to cause all Purchased Shares issuable pursuant to the Transactions to be approved for listing on the NASDAQ Global Market at or prior to the Closing Date. SSIC will promptly notify CALP in writing of any notices of non-compliance received from NASDAQ and will use reasonable best efforts to promptly remedy any non-compliance issues.
Notification of Certain Matters
Each party will give prompt notice to the other party of (i) the occurrence or non-occurrence of any event whose occurrence or non-occurrence could reasonably be expected to cause any condition obligating each party to consummate the Transactions not to be satisfied prior to the closing of the Loan Portfolio Acquisition, (ii) to the extent arising and becoming known to such party prior to the closing of the Loan Portfolio Acquisition, any breaches of such party’s representations and warranties with respect to SSIC investments or the Loan Portfolio, as applicable, including providing the other party with specific information about the nature of any such breaches and (iii) any notice or other communication from any third-party alleging that the consent of such third party is or may be required in connection with the Transactions.
Conditions to Closing the Transactions
Conditions to Each Party’s Obligations to Consummate the Transactions
The obligations of SSIC and CALP to consummate the Transactions are subject to the satisfaction or waiver by SSIC and CALP at or prior to the closing of the Loan Portfolio Acquisition of the following conditions:
The SSIC Stockholder Approvals are received;
The SSIC NAV and the Loan Portfolio Fair Value calculations have been completed, finalized and agreed;
This registration statement has become effective and remains effective as of the closing of the Loan Portfolio Acquisition, and no stop order or similar order is in effect with respect thereto; the Purchased Shares are authorized for listing on the NASDAQ Global Market, subject only to official notice of issuance thereof;
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No governmental entity has enacted any law or issued any order after the date of the Loan Portfolio Acquisition Agreement that would enjoin, prohibit or otherwise make illegal the consummation of the Transactions, and there is no action pending by any governmental entity that (i) challenges the validity of the Loan Portfolio Acquisition Agreement or (ii) seeks to enjoin, prohibit or otherwise make illegal the consummation of the Transactions; and
The Purchased Shares, after giving effect to the Stock Issuance, collectively constitute at least sixty-five percent (65%) but no more than seventy-five percent (75%) of the total issued and outstanding SSIC Common Stock.
Conditions to Obligations of CALP to Consummate the Transactions
The obligations of CALP to consummate the Transactions are subject to the satisfaction or waiver by CALP at or prior to the closing of the Loan Portfolio Acquisition of the following conditions:
The representations and warranties of SSIC, pertaining to:
1.
Organization and qualification, authority, no violation of SSIC’s organizational documents, broker’s fees, SSIC Board approvals and recommendations, and rights agreement and takeover laws are true and correct in all material respects (without giving effect to any materiality, material adverse effect or similar qualifications contained therein) on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be so true and correct as of such date);
2.
Absence of certain changes or events (no SSIC material adverse effect that is continuing as of the closing of the Loan Portfolio Acquisition) and capitalization are true and correct in all respects on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time (other than, with respect to capitalization, de minimis inaccuracies) (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties are true and correct as of such date); and
3.
All other representations and warranties of SSIC in the Loan Portfolio Acquisition Agreement are true and correct in all respects (without giving effect to any materiality, material adverse effect or similar qualifications contained therein) on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty is true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, has not had, and is not reasonably expected to have, a material adverse effect on SSIC.
SSIC has performed in all material respects all obligations required to be performed by it under the Loan Portfolio Acquisition Agreement at or prior to the closing of the Loan Portfolio Acquisition;
Since the date of the Loan Portfolio Acquisition Agreement, no material adverse effect has occurred that is continuing at the closing of the Loan Portfolio Acquisition with respect to SSIC or SSIC Adviser;
SSIC Adviser’s statements pertaining to:
1.
corporate organization, including incorporation, qualification and subsidiaries and regulatory matters (compliance with the Advisers Act) are true and correct in all material respects (without giving effect to any materiality, material adverse effect or similar qualifications contained therein) on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time;
2.
Absence of certain changes or events since December 31, 2022 (no SSIC Adviser material adverse effect that is continuing at the closing of the Loan Portfolio Acquisition) is true and correct in all respects (except to the extent such statements are specifically made as of a particular date, in which case such statements shall be so true and correct as of such date); and
3.
All other statements are true and correct in all respects (without giving effect to any materiality, material adverse effect or similar qualifications contained therein) as of the closing of the Loan
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Portfolio Acquisition as though made on and as of such time (except to the extent that any such statement expressly is made as of an earlier date, in which case such statement is true and correct as of such earlier date), except where the failure of such statement to be true and correct, individually or in the aggregate, has not had, and is not reasonably expected to have, a material adverse effect on SSIC Adviser.
CALP has received a certificate signed on behalf of the Chief Executive Officer or the Chief Financial Officer of SSIC confirming the satisfaction of the foregoing conditions, and a certificate signed on behalf of SSIC Adviser by the manager of SSIC Adviser confirming that no material adverse effect has occurred that is continuing at the closing of the Loan Portfolio Acquisition with respect to SSIC Adviser.
Conditions to Obligations of SSIC to Consummate the Transactions
The obligations of SSIC to consummate the Transactions are subject to the satisfaction or waiver by SSIC at or prior to the closing of the Loan Portfolio Acquisition of the following conditions:
The representations and warranties of CALP pertaining to:
organization and qualification, authority and no violation of CALP’s organizational documents are true and correct in all material respects (without giving effect to any materiality, material adverse effect or similar qualifications contained therein) on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time;
Absence of certain changes or events (no CALP material adverse effect that is continuing as of the closing of the Loan Portfolio Acquisition) is true and correct in all respects on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties are true and correct as of such date); and
All other representations and warranties of CALP in the Loan Portfolio Acquisition Agreement are true and correct in all respects (without giving effect to any materiality, material adverse effect or similar qualifications contained therein) on and as of the closing of the Loan Portfolio Acquisition as though made on and as of such time (except to the extent that any such representation or warranty expressly is made as of an earlier date, in which case such representation and warranty is true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a material adverse effect on CALP.
CALP has performed in all material respects all obligations required to be performed by it under the Loan Portfolio Acquisition Agreement; and
Since the date of the Loan Portfolio Acquisition Agreement, no material adverse effect has occurred that is continuing at the closing of the Loan Portfolio Acquisition with respect to CALP.
SSIC has received a certificate signed on behalf of CALP by an officer, manager or member of CALP confirming the satisfaction of the foregoing conditions.
Frustration of Closing Conditions
Neither SSIC nor CALP can rely on the failure of any condition set forth in the foregoing sections to be satisfied if the failure was primarily caused by the party relying on such failure to perform any of its material obligations under the Loan Portfolio Acquisition Agreement.
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Termination of the Loan Portfolio Acquisition Agreement
Right to Terminate
The Loan Portfolio Acquisition Agreement may be terminated at any time prior to the closing of the Loan Portfolio Acquisition, whether before or after receipt of the SSIC Stockholder Approvals, as follows:
by mutual written consent of SSIC and CALP;
by either SSIC or CALP, if:
any governmental entity has issued or entered into an order or enacted any law after the date of the Loan Portfolio Acquisition Agreement that has the effect of permanently enjoining, prohibiting or otherwise making illegal the consummation of the Transactions, and in the case of an order, such order has become final and non-appealable;
the Transactions have not consummated on or before November 18, 2024 (the “Outside Date”), provided that the right to terminate the Loan Portfolio Acquisition Agreement on this basis will not be available to any party whose failure to perform or comply with any of its obligations under the Loan Portfolio Acquisition Agreement in any material respect has been the principal cause of or principally resulted in the failure of the closing of the Loan Portfolio Acquisition to occur on or before the Outside Date; or
the SSIC Stockholder Approvals are not received.
by CALP:
if SSIC breaches or fails to perform any of its representations, warranties, covenants or agreements set forth in the Loan Portfolio Acquisition Agreement, in each case, which breach or failure to perform would result in failure of certain CALP closing conditions, and such breach or failure cannot be cured by SSIC by the Outside Date or, if such breach or failure is capable of being cured, it has not been cured by SSIC on or before the earlier of (x) the Outside Date and (y) the date that is thirty (30) calendar days following CALP’s delivery of written notice to SSIC of such breach or failure to perform (provided that CALP is not then in material breach of any of its obligations under the Loan Portfolio Acquisition Agreement so as to result in the failure of CALP to perform in all material respects all obligations required to be performed by it under the Loan Portfolio Acquisition Agreement);
upon any inaccuracy of any of the statements set forth in the statements with respect to SSIC Adviser, which inaccuracy results in the failure of certain CALP closing conditions, and such inaccuracy cannot be cured by SSIC Adviser by the Outside Date or, if such inaccuracy is capable of being cured, it has not been cured by SSIC Adviser on or before the earlier of (x) the Outside Date and (y) the date that is thirty (30) calendar days following CALP’s delivery of written notice to SSIC of such inaccuracy (provided that CALP is not then in material breach of any of its obligations under the Loan Portfolio Acquisition Agreement so as to result in the failure of CALP to perform in all material respects all obligations required to be performed by it under the Loan Portfolio Acquisition Agreement); or
if (i) prior to the receipt of the SSIC Stockholder Approvals, the SSIC Board makes an Adverse Recommendation Change or (ii) SSIC or the SSIC Board, as applicable, have materially breached certain obligations under the no solicitation provision in the Loan Portfolio Acquisition Agreement.
by SSIC:
if CALP breaches or fails to perform any of its representations, warranties, covenants or agreements set forth in the Loan Portfolio Acquisition Agreement, which breach or failure to perform would result in the failure of certain SSIC closing conditions and such breach or failure cannot be cured by CALP by the Outside Date or, if such breach or failure is capable of being cured, it has not been cured by CALP on or before the earlier of (x) the Outside Date and (y) the date that is thirty (30) calendar days following SSIC’s delivery of written notice to CALP of such
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breach or failure to perform (provided that SSIC is not then in material breach of any of its obligations under the Loan Portfolio Acquisition Agreement so as to result in the failure of SSIC to perform in all material respects all obligations required to be performed by it under the Loan Portfolio Acquisition Agreement); or
prior to the receipt of the SSIC Stockholder Approvals, in order for SSIC to enter into a definitive agreement with respect to a Superior Proposal to the extent permitted by, and subject to the applicable terms and conditions of the no solicitation provision in the Loan Portfolio Acquisition Agreement.
Termination Fee
A termination fee in an amount equal to $6,046,613 will be payable by SSIC to CALP if the Loan Portfolio Acquisition Agreement is terminated prior to consummation of the Transactions under any of the following circumstances:
SSIC terminates the Loan Portfolio Acquisition Agreement prior to the receipt of the SSIC Stockholder Approvals in order for SSIC to enter into a definitive agreement with respect to a Superior Proposal;
CALP terminates the Loan Portfolio Acquisition Agreement prior to the receipt of the SSIC Stockholder Approvals and the SSIC Board makes an Adverse Recommendation Change; or
(A) CALP terminates the Loan Portfolio Acquisition Agreement (1) due to SSIC’s breach or failure to perform its representations, warranties or covenants, (2) due to the inaccuracy of SSIC Adviser’s statements or (3) upon SSIC’s or the SSIC Board’s, as applicable, material breach of certain obligations under the no solicitation provision in the Loan Portfolio Acquisition Agreement, provided that, with respect to (A)(1) and (A)(2), CALP will be entitled to terminate the Loan Portfolio Acquisition Agreement (and SSIC may be obligated to pay the termination fee) solely to the extent that such breach or failure to perform would result in failure of certain CALP closing conditions, and such breach or failure cannot be cured by SSIC by the Outside Date or, if such breach or failure is capable of being cured, it has not been cured by SSIC on or before the earlier of (x) the Outside Date and (y) the date that is thirty (30) calendar days following CALP’s delivery of written notice to SSIC of such breach or failure to perform (provided that CALP is not then in material breach of any of its obligations under the Loan Portfolio Acquisition Agreement so as to result in the failure of CALP to perform in all material respects all obligations required to be performed by it under the Loan Portfolio Acquisition Agreement); or (B) either SSIC or CALP terminates the Loan Portfolio Acquisition Agreement (1) if the Transactions have not been consummated by the Outside Date, provided that such termination is not made by a party whose failure to perform or comply with any of its obligations under the Loan Portfolio Acquisition Agreement in any material respect has been the principal cause of or principally resulted in the failure of the closing of the Loan Portfolio Acquisition to occur on or before the Outside Date or (2) if the SSIC Stockholder Approvals are not obtained, provided that, in any such termination under clauses (A) and (B), the termination fee is payable only to the extent that (i) prior to such termination a Competing Proposal has been publicly disclosed and not publicly withdrawn (or is otherwise known to the SSIC Board and not withdrawn (publicly, if publicly disclosed)) prior to such termination, and (ii) within twelve (12) months after such termination, any Competing Proposal is consummated or SSIC enters into a definitive agreement with respect to any Competing Proposal, provided that for purposes of determining whether the termination fee is payable pursuant to clauses (A) and (B), the references to “twenty percent (20%)” in the definition of Competing Proposal will be deemed to be references to “fifty percent (50%).”
The parties agreed that in no event will SSIC be required to pay to CALP the termination fee on more than one occasion.
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Effect of Termination
If the Loan Portfolio Acquisition Agreement is terminated, it will become null and void and have no effect, and no party will have any liability of any nature whatsoever thereunder, except that (1) no such termination will relieve SSIC or SSIC Adviser, on the one hand, or CALP, on the other hand, of any liability or damages resulting from any intentional breach or fraud and (2) certain designated provisions of the Loan Portfolio Acquisition Agreement, including, but not limited to, the confidentiality, termination, termination fee and indemnification provisions, will survive the termination.
Amendment of the Loan Portfolio Acquisition Agreement
The Loan Portfolio Acquisition Agreement may be amended by SSIC and CALP at any time before or after the receipt of the SSIC Stockholder Approvals, provided that, after the receipt of the SSIC Stockholder Approvals, there may not be, without further approval of the SSIC stockholders, any amendment that by applicable law or in accordance with the applicable rules of NASDAQ will require further approval by the SSIC stockholders.
Indemnification
CALP has agreed to indemnify SSIC against, and to hold SSIC harmless from, any and all damage, loss, liability and expense (including reasonable and documented attorneys’ fees and expenses, collectively “Damages”) in connection with any action, suit or proceeding whether involving a third party claim or a claim solely between the parties, incurred or suffered by SSIC, to the extent arising out of any inaccuracy, misrepresentation or breach of certain representations or warranties of CALP with respect to the Loan Portfolio. Such indemnification obligation will apply under the following terms and limitations:
CALP’s maximum aggregate liability with respect to indemnification claims will not exceed the value of the number of Purchased Shares (the “Holdback Shares”) equal to the lesser of: (a) the quotient of (i) $10 million divided by (ii) the SSIC NAV Per Share and (b) 3% of the total issued and outstanding SSIC Common Stock after giving effect to the Stock Issuance.
Any indemnification obligation in respect of Damages, in whole or in part, will be satisfied by CALP, in its sole discretion, by (i) selling or otherwise disposing of a number of the Holdback Shares determined by CALP to be necessary in order to satisfy its indemnification obligations, paying the amount of such Damages to SSIC, and holding any excess proceeds of such sale or disposition through and including the Holdback Release Date, (ii) paying such indemnification obligation to SSIC with cash on hand or (iii) by transferring to SSIC a number of the Holdback Shares (valued based on the closing price per share of SSIC Common Stock as of the most recent trading day prior to the date of such transfer) necessary in order to satisfy its indemnification obligations.
Any indemnification obligations in respect of Damages will be payable only if (i) the Damages from (1) any one single claim or (2) any one set of aggregated claims arising from the same operative set of core facts relating to a common substantive issue that resulted in such Damages are in excess of $50,000, and (ii) the aggregate of all Damages relating thereto for which CALP is liable exceeds on a cumulative basis an amount equal to $750,000 (the “Basket”), in which case SSIC shall be entitled to indemnification for all such Damages in excess of the Basket.
From the time of issuance of the Holdback Shares until the Holdback Release Date, CALP will not, without the prior written consent of SSIC, sell, transfer, distribute, hypothecate, pledge, grant any option to purchase or dispose of any Holdback Shares (a “Prohibited Transfer”). CALP will not permit any lien to exist on any Holdback Shares (excluding non-consensual liens not incurred in respect of borrowed money and any restrictions on transfer arising under applicable securities laws or the organizational documents of SSIC) and the terms of any indebtedness of CALP will provide for subordination provisions in respect of the Holdback Shares reasonably satisfactory to SSIC. If a Prohibited Transfer is made or attempted, it shall be null and void and SSIC will refuse to recognize any purported transferee of the Holdback Shares as one of its equityholders for any purpose.
Upon the Holdback Release Date, the Holdback Shares, and any proceeds thereof held by CALP, will cease to be subject to the transfer restrictions set forth in the preceding bullet, provided that if at the
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Holdback Release Date there are any pending indemnification claims, then Holdback Shares equal to the quotient of (i) the amount of claimed Damages in such pending claims divided by (ii) the SSIC NAV Per Share will continue to be subject to the transfer restrictions set forth in the preceding bullet.
The Loan Portfolio Acquisition Agreement includes certain provisions with respect to the procedures relating to the above indemnification obligations, such as procedures for SSIC making a direct claim, the right to control the defense of any third party claim, and notice periods and cooperation of the parties with respect to the defense of any third party claim.
The amount of any Damages for which indemnification is provided will be net of any amounts recovered by SSIC from third parties under insurance policies or otherwise.
SSIC has agreed to use reasonable best efforts to mitigate any Damages which form the basis of the above indemnification obligations upon and after becoming aware of any facts or circumstances forming the basis of such claim or the possibility of such Damages.
Any indemnification payment will be treated by the parties as an adjustment to the purchase price under the Loan Portfolio Acquisition Agreement for U.S. federal income tax purposes.
Expenses and Fees
All fees and expenses incurred in connection with the Transactions will be borne by the party incurring such fees or expenses, except that transfer and similar taxes incurred in connection with the consummation of the Transactions will be borne by SSIC.
Voting Agreement
On February 18, 2024, CALP, SSIC Adviser, Silver Spike Holdings, LP, and Scott Gordon entered into a voting agreement, pursuant to which, among other things, SSIC Adviser has agreed (i) to vote all shares of SSIC Common Stock beneficially owned by SSIC Adviser in favor of the Transactions, (ii) to vote against any competing proposal or a superior proposal and (iii) not enter into any contract, option or other arrangement or understanding with respect to the transfer of any shares of the SSIC Common Stock beneficially owned by SSIC Adviser, other than certain customary exceptions.
The voting agreement will terminate upon the earliest to occur of: (i) the mutual consent of CALP and SSIC Adviser, (ii) the termination of the Loan Portfolio Acquisition Agreement in accordance with its terms or (iii) the closing of the Transactions. SSIC Adviser also has the right to terminate the voting agreement if the Loan Portfolio Acquisition Agreement is amended in a manner materially averse to SSIC Adviser without SSIC Adviser’s consent.
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ACCOUNTING TREATMENT OF THE LOAN PORTFOLIO ACQUISITION
The Loan Portfolio Acquisition is anticipated to be accounted for as an asset acquisition, with CALP as the accounting acquirer, as CALP will gain a controlling interest in SSIC. Therefore, the Loan Portfolio Acquisition will be accounted for in accordance with ASC 805-50, Business Combinations—Related Issues. The consideration paid for the asset acquisition is expected to be measured based on the fair value of the Loan Portfolio that will be exchanged for a controlling interest in SSIC. The transaction costs incurred by CALP for the asset acquisition will be expensed as incurred, because the acquired assets consist primarily of cash and a loan portfolio that is accounted for prospectively at fair value.
The final allocation of the purchase price will be determined after the Loan Portfolio Acquisition is completed and after completion of a final analysis to determine the estimated relative fair values of SSIC’s assets and liabilities. Increases or decreases in the estimated fair values of the net assets, commitments, and other items of SSIC as compared to the information shown in this joint proxy statement/information statement/prospectus may occur. Accordingly, the final adjustments may be materially different from the pro forma adjustments presented in this joint proxy statement/information statement/prospectus.
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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE LOAN PORTFOLIO ACQUISITION
The following discussion is a general summary of the material U.S. federal income tax consequences of the Loan Portfolio Acquisition, including an investment in shares of SSIC Common Stock by CALP. This summary does not purport to be a complete description of the income tax consequences of the Loan Portfolio Acquisition applicable to an investment in shares of SSIC Common Stock. For example, this discussion does not describe the tax consequences that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, traders in securities that elect to mark-to-market their securities holdings for tax purposes, persons that have a functional currency (as defined in Section 985 of the Code) other than the U.S. dollar, pension plans and trusts, and financial institutions. This summary assumes that investors hold SSIC’s Common Stock as capital assets (within the meaning of Section 1221 of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this document and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. For purposes of this discussion, references to “dividends” include dividends within the meaning of the applicable U.S. federal income tax laws and associated regulations, and may include amounts distributed from sources other than listed under Section 19(a) of the 1940 Act.
SSIC has not sought and will not seek any ruling from the Internal Revenue Service, or IRS, as to the U.S. federal income tax consequences of the Loan Portfolio Acquisition or any related transactions. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if SSIC invested in tax-exempt securities or certain other investment assets. You are urged to consult with your own tax advisors and financial planners as to the particular tax consequences of the Loan Portfolio Acquisition to you, as applicable, including the applicability and effect of any state, local or foreign laws and the effect of possible changes in applicable tax laws.
Consequences of the Loan Portfolio Acquisition
The Loan Portfolio Acquisition is expected to be a taxable acquisition of the Loan Portfolio by SSIC in exchange for the issuance of SSIC Common Stock to CALP. SSIC is not expected to recognize any gain or loss with respect to its issuance of SSIC Common Stock to CALP. The sale of the Loan Portfolio may result in the recognition of taxable income or gain by CALP. All or a portion of such recognized gain may constitute ordinary income to CALP, even though the underlying portfolio investments may be considered capital assets.
If the SSIC Common Stock acquired by CALP in connection with the Loan Portfolio Acquisition constitutes more than 50% of the value of the outstanding shares of SSIC Common Stock following the Loan Portfolio Acquisition (as is anticipated), losses realized by CALP in connection therewith are not expected to be recognized by CALP for income tax purposes. SSIC may be permitted to use such a disallowed loss to offset gain it may recognize upon a subsequent disposition to a third party of an investment acquired in the Loan Portfolio Acquisition, but this subsequent loss recognition is not guaranteed.
CALP is expected to receive a cost basis in the SSIC Common Stock that it receives, and SSIC is expected to receive a cost basis in the Loan Portfolio, in each case in connection with the Loan Portfolio Acquisition.
The Loan Portfolio Acquisition is not expected to be a taxable event for SSIC stockholders.
SSIC Status as a Regulated Investment Company
SSIC intends to qualify as a regulated investment company under Subchapter M of the Code (a “RIC”) in the current and future taxable years. Assuming that SSIC so qualifies and that SSIC satisfies the distribution requirements described below, SSIC generally will not be subject to U.S. federal income tax on income distributed in a timely manner to shareholders.
To qualify as a RIC for any taxable year, SSIC must, among other things, satisfy both an income test and an asset diversification test for such taxable year. Specifically, (i) at least 90% of SSIC’s gross income for such taxable year must consist of dividends; interest; payments with respect to certain securities loans; gains from the sale or other disposition of stock, securities or foreign currencies; other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to SSIC’s business of investing in such
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stock, securities or currencies; and net income derived from interests in “qualified publicly traded partnerships” (such income, “Qualifying RIC Income”) and (ii) SSIC’s holdings must be diversified so that, at the end of each quarter of such taxable year, (a) at least 50% of the value of SSIC’s total assets is represented by cash and cash items, securities of other RICs, U.S. government securities and other securities, with such other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of SSIC’s total assets and not greater than 10% of the outstanding voting securities of such issuer and (b) not more than 25% of the value of SSIC’s total assets is invested (x) in the securities (other than U.S. government securities or securities of other RICs) of any one issuer or of two or more issuers that SSIC controls and that are engaged in the same, similar or related trades or businesses or (y) in the securities of one or more “qualified publicly traded partnerships.” A “qualified publicly traded partnership” is generally defined as an entity that is treated as a partnership for U.S. federal income tax purposes if (i) interests in such entity are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof and (ii) less than 90% of such entity’s gross income for the relevant taxable year consists of Qualifying RIC Income. SSIC’s share of income derived from a partnership other than a “qualified publicly traded partnership” will be treated as Qualifying RIC Income only to the extent that such income would have constituted Qualifying RIC Income if derived directly by SSIC.
In order to be exempt from U.S. federal income tax on SSIC’s distributed income, SSIC must distribute to its shareholders on a timely basis at least 90% of the sum of (i) SSIC’s “investment company taxable income” (determined prior to the deduction for dividends paid) and (ii) SSIC’s net tax-exempt interest income for each taxable year. In general, a RIC’s “investment company taxable income” for any taxable year is its taxable income, determined without regard to net capital gain (that is, the excess of net long-term capital gains over net short-term capital losses) and with certain other adjustments. Any taxable income, including any net capital gain, that SSIC does not distribute to its shareholders in a timely manner will be subject to U.S. federal income tax at regular corporate rates.
A RIC will be subject to a nondeductible 4% excise tax on certain amounts that SSIC fails to distribute during each calendar year. In order to avoid this excise tax, a RIC must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary taxable income for the calendar year, (ii) 98.2% of its capital gain net income for the one-year period ended on October 31 of the calendar year and (iii) any ordinary income and capital gains for previous years that were not distributed during those years. For purposes of determining whether SSIC has met this distribution requirement, (i) certain ordinary gains and losses that would otherwise be taken into account for the portion of the calendar year after October 31 will be treated as arising on January 1 of the following calendar year and (ii) SSIC will be deemed to have distributed any income or gains on which it has paid U.S. federal income tax. Amounts distributed and reinvested pursuant to SSIC’s dividend reinvestment plan will be treated as distributed for all U.S. tax purposes, including for purposes of the distribution requirement described above and the excise tax.
If SSIC fails to qualify as a RIC or fails to satisfy the 90% distribution requirement in any taxable year, SSIC will be subject to U.S. federal income tax at regular corporate rates on its taxable income, including its net capital gain, even if such income is distributed to its shareholders, and all distributions out of earnings and profits would be taxable to U.S. Holders as dividend income. Such distributions generally would be eligible for the dividends-received deduction in the case of corporate U.S. Holders (defined below) and would constitute “qualified dividend income” for individual U.S. Holders. In addition, SSIC could be required to recognize unrealized gains, pay taxes and make distributions (which could be subject to interest charges) before requalifying for taxation as a RIC. If SSIC fails to satisfy the income test or diversification test described above, however, SSIC may be able to avoid losing its status as a RIC by timely curing such failure, paying a tax and/or providing notice of such failure to the U.S. Internal Revenue Service.
In order to meet the distribution requirements necessary to be exempt from U.S. federal income and excise tax, SSIC may be required to make distributions in excess of the income it actually receives in respect of its investments.
In particular, some of the debt securities that may be acquired in connection with the Loan Portfolio Acquisition may be treated as debt securities that are issued with original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants).
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Generally, the amount of original issue discount is treated as interest income and is included in income over the term of the debt security, even though payment of that amount is not received until a later time, usually when the debt security matures. Additionally, some of the debt securities that may be acquired in connection with the Loan Portfolio Acquisition may be treated as having market discount. Generally, any gain recognized on the disposition of, and any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent the gain, or principal payment, does not exceed the “accrued market discount” on such debt security. SSIC may make one or more of the elections applicable to debt securities having market discount, which could affect the character and timing of recognition of income. SSIC generally will be required to distribute dividends to shareholders representing discount on debt securities that is currently includable in income, even though cash representing such income may not have been received by SSIC. Cash to pay such dividends may be obtained from sales proceeds of securities held by SSIC.
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SSIC PROPOSAL 1: APPROVAL OF THE STOCK ISSUANCE
SSIC is asking its stockholders to approve the issuance of the shares of SSIC Common Stock to be issued pursuant to the Loan Portfolio Acquisition Agreement. It is a condition to completion of the Loan Portfolio Acquisition Agreement that SSIC issue shares of SSIC Common Stock to CALP pursuant to the Loan Portfolio Acquisition Agreement. Upon completion of the Loan Portfolio Acquisition, and subject to the terms and conditions of the Loan Portfolio Acquisition Agreement, CALP will receive the Loan Portfolio Consideration as described in the section entitled “Description of the Loan Portfolio Acquisition Agreement—Consideration; Valuation.”
Approval of the Stock Issuance Proposal is required to be obtained in accordance with NASDAQ listing rule requirements as a part of the completion of the Loan Portfolio Acquisition.
SSIC stockholders may vote “FOR” or “AGAINST,” or they may “ABSTAIN” from voting on, the Stock Issuance Proposal. The affirmative vote “FOR” the Stock Issuance Proposal of at least a majority of the votes cast at the SSIC Special Meeting in which a quorum is present is necessary for approval of the Stock Issuance Proposal. Abstentions and broker non-votes, if any, will have no effect on the outcome of the Stock Issuance Proposal. Proxies received will be voted “FOR” the approval of the Stock Issuance Proposal unless SSIC stockholders designate otherwise.
Appraisal Rights
Under Maryland law and the SSIC Charter, SSIC stockholders will not be entitled to rights of appraisal with respect to the Stock Issuance Proposal. Accordingly, to the extent that an SSIC stockholder objects to the Stock Issuance Proposal, such SSIC stockholder will not have the right to have a court judicially determine (and the SSIC stockholder will not receive) the fair value for its shares of SSIC Common Stock under the provisions of Maryland law governing appraisal rights.
UPON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, THE SSIC BOARD UNANIMOUSLY RECOMMENDS THAT SSIC STOCKHOLDERS VOTE “FOR” THE STOCK ISSUANCE PROPOSAL.
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SSIC PROPOSAL 2: ELECTION OF DIRECTOR NOMINEES
Pursuant to the SSIC Bylaws, the number of directors on the SSIC Board may not be fewer than one, as required by the MGCL, or greater than fifteen. The SSIC Board is currently comprised of five 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. On April 9, 2024, the SSIC Board approved the expansion of the size of the SSIC Board from five directors to eight directors, effective automatically upon the effectiveness of the New Investment Advisory Agreement and immediately prior to the election as directors, as set forth below, of the persons named for election as directors in this joint proxy statement/information statement/prospectus.
The directors of SSIC are divided into three classes, designated Class 1, Class 2 and Class 3. Each class of directors holds office for a three-year term. The current Class 1 directors hold office for a term expiring at the 2025 annual meeting. The current Class 2 directors hold office for a term expiring at the 2026 annual meeting. The current Class 3 directors hold office for a term expiring at the 2027 annual meeting. Upon the expansion of the size of the SSIC Board from five directors to eight directors described above, a new seat will be created in each of Class 1, Class 2, and Class 3.
At the SSIC Special Meeting, stockholders of SSIC are being asked to elect certain directors who have been nominated by the SSIC Board to fill certain vacancies on the SSIC Board, subject to the creation of such vacancies by the expansion of the SSIC Board. On April 9, 2024, the SSIC Board nominated each of Frederick C. Herbst, John Mazarakis and Jason Papastavrou (the “New Directors”) for election by stockholders of SSIC to fill the vacancies which would be created by the expansion of the SSIC Board, subject to the conditions set forth below. John Mazarakis is an affiliate of Chicago Atlantic Group, LP, and therefore will be an “interested person,” as defined in Section 2(a)(19) of the 1940 Act, of SSIC following the closing of the Joint Venture by virtue of his affiliation with SSIC Adviser. Each of Frederick C. Herbst and Jason Papastavrou (the “New SSIC Independent Directors”) are not “interested persons” of SSIC, and will not become “interested persons” of SSIC as a result of the Joint Venture.
The following table sets forth the name of each New Director, and the class and term such person would fill:
New Director
Class (Expiration of Term)
Frederick C. Herbst
1 (2025)
John Mazarakis
2 (2026)
Jason Papastavrou
3 (2027)
At the SSIC Special Meeting, stockholders of SSIC are being asked to elect the New Directors, in each case to be elected upon the effectiveness of the New Investment Advisory Agreement, to serve until the expiration of the term indicated next to his name in the table above and until his successor is duly elected and qualified. If the Director Election Proposal is not approved by SSIC stockholders, the New Directors will not become directors of SSIC.
Each New SSIC Independent Director, if elected, will participate in SSIC’s standard SSIC Independent Director compensation arrangements. Each director nominee has agreed to serve as a director if approved, and has consented to being put up for approval in this joint proxy statement/information statement/prospectus. The SSIC Board’s Nominating and Corporate Governance Committee recommended, and the SSIC Board previously approved, the nomination of Messrs. Herbst, Mazarakis and Papastavrou to stand for election as directors of SSIC at the SSIC Special Meeting. In the Loan Portfolio Acquisition Agreement, SSIC agreed to use all reasonable best efforts to cause the election of new directors mutually agreed between the parties thereto to the SSIC Board. Other than the foregoing, no person being nominated as a director is being proposed for election pursuant to any agreement or understanding between such person and SSIC.
A stockholder can vote “FOR,” or “WITHHOLD” his or her vote from, any or all of the director nominees. The approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes cast by holders of SSIC Common Stock at a meeting at which a quorum is present. Under a plurality vote, the director nominees who receive the highest number of “for” votes will be elected, even if they receive approval from less than a majority of the votes cast. Because the director nominees are running unopposed, each director nominee will be elected to the SSIC Board so long as a single vote is cast in favor of his election. Withheld votes and broker non-votes, if any, will have no effect on the outcome of the Director Election Proposal. Proxies received will be voted “FOR” the election of each of the director nominees named above unless SSIC stockholders designate otherwise. If any of the director nominees should decline or be unable to serve as a
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director, the persons named as proxies will vote for such other nominee as may be proposed by the SSIC Board’s Nominating and Corporate Governance Committee. The SSIC 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 SSIC Board and Director Nominees
The role of the SSIC Board is to provide general oversight of SSIC’s business affairs and to exercise all of SSIC’s powers except those reserved for the stockholders. The responsibilities of the SSIC Board also include, among other things, the oversight of SSIC’s investment activities, the quarterly valuation of SSIC’s assets, SSIC’s financing arrangements and corporate governance activities.
A majority of the members of the SSIC Board are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of SSIC, and are “independent” for purposes of the NASDAQ corporate governance regulations. These individuals are referred to as the “SSIC 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 SSIC. The members of the SSIC Board who are not SSIC Independent Directors are referred to as “SSIC Interested Directors.” The SSIC Board is currently comprised of five directors, four of whom are SSIC Independent Directors. To the extent that each of the director nominees is elected and the New Investment Advisory Agreement becomes effective, the SSIC Board will be expanded to eight directors. The SSIC Board has determined that the following directors and director nominees are or will be SSIC Independent Directors: Vivek Bunty Bohra, Michael W. Chorske, Americo Da Corte, Tracey Brophy Warson, Frederick C. Herbst and Jason Papastavrou. Based upon information requested from each director and director nominee concerning his or her background, employment and affiliations, the SSIC Board has affirmatively determined that none of the SSIC Independent Directors has, or within the last two years had, a material business or professional relationship with SSIC, other than in his or her capacity as a member of the SSIC Board or any SSIC Board committee.
In considering each director and the composition of the SSIC Board as a whole, the SSIC Board seeks a diverse group of experiences, characteristics, attributes and skills, including diversity in gender, ethnicity and race that the SSIC Board believes enables a director to make a significant contribution to the SSIC Board, SSIC 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 SSIC Board may also consider such other experiences, characteristics, attributes and skills as it deems appropriate, given the then-current needs of the SSIC Board and SSIC.
These experiences, characteristics, attributes and skills relate directly to the management and operations of SSIC. Success in each of these categories is a key factor in SSIC’s overall operational success and creating stockholder value. The SSIC Board believes that directors and director nominees who possess these experiences, characteristics, attributes and skills are better able to provide oversight of SSIC’s management and SSIC’s long-term and strategic objectives. Below is a description of the experience, characteristics, attributes and skills of each director and director nominee that led the SSIC Board to conclude that each such person should serve as a director. The SSIC Board also considered the specific experience described in each director’s and director nominee’s biographical information, as disclosed below.
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The following tables set forth certain information regarding the director nominees and other SSIC Independent Directors and SSIC Interested Directors. There were no legal proceedings of the type described in Items 401(f)(7) and (8) of Regulation S-K in the past ten years against any of SSIC’s directors, director nominees or officers, and none are currently pending.
SSIC INDEPENDENT DIRECTOR NOMINEES
Name, Address, Year
of Birth,
and Position(s)
with Company(1)
Term of Office and Length of Time Served(2)
Principal Occupation(s) During Past Five Years
Other Public Directorships Held by Director During the Past Five Years†
Frederick C. Herbst; 1957; Director Nominee
Class 1 Director Nominee; Term to Expire in 2025
Frederick C. Herbst served as Chief Financial Officer of Ready Capital Corporation, a commercial mortgage REIT, and Managing Director of Waterfall Asset Management, LLC, an SEC-registered institutional asset manager, from 2009 until he retired in June 2019. At Ready Capital Corporation, Mr. Herbst was responsible for all finance and accounting operations for the company and oversaw Ready Capital Corporation’s conversion to a public company via a reverse merger with a previously existing public company. From 2005 to 2009, Mr. Herbst was Chief Financial Officer of Clayton Holdings, Inc., a publicly traded provider of analytics and due diligence services to participants in the mortgage industry. Prior to Clayton Holdings, Mr. Herbst was Chief Financial Officer of Arbor Realty Trust, Inc., a publicly traded commercial mortgage REIT, from 2003 until 2005, and of Arbor Commercial Mortgage, LLC, from 1999 until 2005. Prior to joining Arbor, Mr. Herbst was Chief Financial Officer of The Hurst Companies, Inc., Controller with The Long Island Savings Bank, FSB, Vice President Finance with Eastern States Bankcard Association and a Senior Manager with Ernst & Young.

Mr. Herbst has served as a member of the board of directors of Chicago Atlantic Real Estate Finance, Inc. (NASDAQ: REFI), a commercial mortgage REIT, since 2021.

Mr. Herbst holds a B.A. in Accounting from Wittenberg University and became a licensed Certified Public Accountant in 1983.

SSIC believes that Mr. Herbst’s wealth of knowledge and experience as the principal financial officer for a number of public and private entities make him qualified to serve as a member of the SSIC Board.
Independent Director, Chicago Atlantic Real Estate Finance, Inc., a commercial mortgage REIT (2021-Present)
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Name, Address, Year of Birth,
and Position(s)
with Company(1)
Term of Office and Length of Time Served(2)
Principal Occupation(s) During Past Five Years
Other Public Directorships Held by Director During the Past Five Years†
Jason Papastavrou; 1962; Director Nominee
Class 3 Director Nominee; Term to Expire in 2027
Jason Papa