DEF 14A: Great Elm Capital Corp. Announces Details for 2024 Annual Stockholders Meeting

Great Elm Capital Corp. sets date for its 2024 Annual Stockholders Meeting, outlining key proposals and voting procedures.

Summary

• Great Elm Capital Corp. will hold its 2024 Annual Stockholders Meeting on May 31, 2024, at 8:30 a.m. Eastern Time, via live webcast.
• Stockholders of record as of April 3, 2024, are eligible to vote on the election of Matthew A. Drapkin and Erik A. Falk as Class II directors and the ratification of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2024.
• The board recommends voting FOR the election of both director nominees and FOR the ratification of Deloitte's appointment.
• Proxy materials are available online, and stockholders can vote via the Internet, telephone, or mail.
• The company is utilizing the notice and access delivery method for proxy materials, reducing printing and distribution costs.
• As of the record date, 9,452,382 shares of common stock were outstanding.
• Great Elm Strategic Partnership I, LLC beneficially owns 1,850,424 shares, representing 19.6% of the outstanding common stock.
• Great Elm Group, Inc. beneficially owns 1,516,932 shares, representing 16.0% of the outstanding common stock.

Sentiment

Score: 7

Explanation: The document is primarily informational and procedural, with a neutral tone. The disclosure of potential conflicts of interest and related party transactions slightly lowers the sentiment score.

Positives

• The company is using a cost-effective and environmentally friendly method of delivering proxy materials via the Internet.
• Stockholders have multiple options for voting, including online, telephone, and mail.
• The board is recommending experienced individuals for election as directors.
• The Audit Committee is composed of independent directors, ensuring oversight of financial reporting.
• The company has a code of business conduct and ethics in place.

Negatives

• Potential conflicts of interest exist due to related party transactions and affiliations with the investment manager, GECM.
• The investment manager's fee structure, based on total assets, could incentivize decisions that increase assets regardless of profitability.
• The incentive fee structure may lead to conflicts related to the accrual of income that may not be received in cash.
• The company is externally managed, which can create potential conflicts of interest.

Risks

• Conflicts of interest may arise due to the affiliations of directors and executive officers with other entities, including GECM and ICAM.
• The company may not be given the opportunity to participate in certain investments made by investment funds managed by affiliates.
• The investment manager's fee structure could incentivize decisions that are not in the best interest of stockholders.
• The company's ability to incur indebtedness is limited by regulatory requirements.
• The company is subject to risks associated with its investments, as detailed in its Annual Report on Form 10-K.

Future Outlook

The proxy statement does not contain specific forward-looking statements regarding financial performance or future business operations beyond the matters to be voted on at the Annual Meeting.

Management Comments

• Matt Kaplan, Chief Executive Officer, encourages stockholders to vote their proxies as soon as possible.
• The Board believes the continued retention of Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2024 is advisable and in our best interest.

Industry Context

As a Business Development Company (BDC), Great Elm Capital Corp. operates under specific regulatory requirements, including limitations on indebtedness and investment in qualifying assets. The proxy statement reflects standard corporate governance practices for publicly traded companies, particularly BDCs, including the election of directors, ratification of auditors, and disclosure of related party transactions.

Comparison to Industry Standards

• The director compensation structure, with annual fees and reimbursement for expenses, is typical for BDCs.
• The use of an independent registered public accounting firm and an audit committee is standard practice for publicly traded companies to ensure financial oversight.
• The disclosure of related party transactions and potential conflicts of interest is a common requirement for BDCs and other investment companies.
• The beneficial ownership structure, with significant holdings by Great Elm Strategic Partnership I, LLC and Great Elm Group, Inc., is not uncommon in BDCs, where affiliated entities often hold substantial stakes.
• The external management structure, with GECM providing investment advisory and administrative services, is a common model for BDCs, although it can create potential conflicts of interest that require careful monitoring.

Related Party Transactions

• Mr. Kaplan serves as a Portfolio Manager and as President for GECM.
• Mr. Drapkin serves as Vice Chairman of the board of directors of GEG.
• Mr. Kleinman serves as General Counsel and Chief Compliance Officer of GECM and President, General Counsel and Chief Compliance Officer of GEG, in addition to being our Chief Compliance Officer and Secretary.
• GEG owns approximately 16.0% of our outstanding shares of common stock as of the Record Date.
• We entered into a license agreement with GEG pursuant to which GEG granted us a non-exclusive, royalty-free license to use the name Great Elm Capital Corp.
• We are party to the Investment Management Agreement with GECM, which is wholly-owned by GEG.
• We pay GECM a fee for investment management services, which consisted of (1) base management fees of $3.5 million and $3.2 million for the years ended December 31, 2023 and 2022, respectively, and (2) an accrued and unpaid aggregate incentive fee of approximately $1.4 million as of December 31, 2023.
• We are also party to the Administration Agreement with GECM.
• For the fiscal years ended December 31, 2023 and 2022 we reimbursed GECM in the amount of $1.1 million and $0.9 million, respectively, for services provided under the Administration Agreement.
• On August 16, 2023, GEG, the parent company of GECM, purchased $4.5 million of our 8.75% Notes due 2028 (GECCZ Notes) from the underwriters in an SEC registered offering at the public offering price.
• On February 8, 2024, we entered into a Share Purchase Agreement with GESP, pursuant to which GESP purchased, and we issued, 1,850,424 shares of our common stock, par value $0.01, at a price of $12.97 per share, which represented our net asset value per share as of February 7, 2024, for an aggregate purchase price of $24 million.
• GECM has entered into the Shared Services Agreement, pursuant to which ICAM makes available to GECM certain back-office employees of ICAM to provide services to GECM in exchange for reimbursement by GECM of the allocated portion of such employees time.

Stakeholder Impact

• Stockholders are directly impacted by the proposals being voted on, including the election of directors and the ratification of the auditor.
• The company's performance and governance practices affect the value of stockholders' investments.
• Employees of GECM and ICAM may be indirectly impacted by the company's decisions and performance.
• The company's investment activities impact the portfolio companies in which it invests.

Next Steps

• Stockholders should review the proxy materials and vote their shares before the deadline.
• The company will hold the Annual Stockholders Meeting on May 31, 2024.
• The company will publish the final voting results in a Current Report on Form 8-K.

Key Dates

Keywords

proxy statement, annual meeting, stockholders, directors, Deloitte, voting, governance, GECC, Great Elm Capital Corp.