PROPOSAL 1
- ELECTION OF DIRECTORS
At the Meeting, shareholders are being asked to consider the election of three of the current directors of the Company, Edward J. Estrada, Peter I. Finlay and Earl V. Hedin. Pursuant to the Company’s charter and Bylaws, the Board may modify the number of directors on the Board, provided that the number of directors will not be fewer than one, the minimum number required by the Maryland General Corporation Law (the “MGCL”), or greater than twelve. Pursuant to the Company’s charter, the Company’s directors are divided into three classes. Each class of directors will hold office for a three-year term. However, the initial members of the three classes had initial terms of one, two and three years, respectively. At each annual meeting of shareholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of shareholders held in the third year following the year of their election. Each director will hold office for the term to which he or she is elected and serve until his or her successor is duly elected and qualified. The Board is currently comprised of eight directors as set forth below, six of whom are independent:
Edward J. Estrada | | | Robert A. Breakstone | | | Mark Gatto |
Peter I. Finlay | | | Catherine K. Choi | | | Michael A. Reisner |
Earl V. Hedin | | | Aron I. Schwartz | | | — |
Messrs. Estrada, Finlay and Hedin have been nominated for election by the Board to each serve a three-year term expiring at the 2025 annual meeting of shareholders and until their successors are duly elected and qualified. The directors have agreed to serve as directors if elected and have consented to be named as nominees. No person being nominated as a director is being proposed for election pursuant to any agreement or understanding between any such person and the Company.
TO APPROVE THE COMPANY BECOMING SUBJECT TO THE MINIMUM ASSET COVERAGE RATIO UNDER THE SBCAA OF AT LEAST 150%A shareholder can vote for, or withhold his or her vote from, the director nominees. In the absence of instructions to the contrary, it is the intention of the persons named as proxies to vote such proxy “FOR” the election of the director nominees named herein. If the director nominees should decline or be unable to serve as a director, it is intended that the proxy will be voted for the election of such person or persons as are nominated as replacements. The Board has no reason to believe that any of the persons named will be unable or unwilling to serve.
BackgroundInformation about Director Nominees and 1940 Act RequirementsExecutive Officers
TheCertain information pertaining to the director nominees and other directors and executive officers of the Company is an externally managed, closed-end, non-diversified managementset forth below, including their names, ages, a brief description of their recent business experience, including present occupations and employment, certain directorships that each person held during the last five years, and the year in which each person became a director of the Company. The Board oversees the Company’s business and investment company that has elected to be regulated as a BDC underactivities and is responsible for protecting the 1940 Act.interests of the Company’s shareholders. The responsibilities of the Board include, among other things, the oversight of the Company’s investment activities, the quarterly valuation of the Company’s assets, oversight of the Company’s financing arrangements and corporate governance activities.
Director Independence
A majority of the members of the Board are not “interested persons” of the Company may issue debt securities or preferred stock, which are collectively referred to as “senior securities,” up to the maximum amount permitted by the 1940 Act. BDCs are generally able to issue senior securities such that their asset coverage,CIM, as defined in the 1940 Act, equals at least 200% of gross assets less all liabilities and indebtedness not represented by senior securities after each issuance of senior securities.
In March 2018, the Small Business Credit Availability Act (“SBCAA”) was enacted into law. The SBCAA, among other things, amended Section 61(a)2(a)(19) of the 1940 Act to add a new Section 61(a)(2) that reducesand as required by Rule 303A.00 in the asset coverage requirement applicableNYSE Listed Company Manual. These individuals are referred to BDCs from 200% to 150% so long as the BDC meets certain disclosure requirements and obtains certain approvals. The reduced asset coverage requirement would permit a BDC to have a ratio of total consolidated equity to outstanding indebtedness of 2:1 (i.e., $2 of debt outstanding for each $1 of equity) as compared to a maximum of 1:1 (i.e., $1 of debt outstanding for each $1 of equity) under the 200% asset coverage requirement. Effectiveness of the reduced asset coverage requirement to a BDC requires approval by either (1) a “required majority,” as defined inCompany’s independent directors (the “Independent Directors”). Section 57(o)2(a)(19) of the 1940 Act defines an “interested person” to include, among other things, any person who has, or within the last two years had, a material business or professional relationship with the Company. The members of such BDC’s board ofthe Board that are not Independent Directors are referred to as interested directors with effectiveness one year after the date of such approval or (2) a majority of votes cast at a special or annual meeting of such BDC’s shareholders at which a quorum is present, which is effective the date after such shareholder approval.(the “Interested Directors”).
The Board has determined that it is advisablethe following director nominees are Independent Directors: Messrs. Estrada, Finlay and in the best interest of the Company and its shareholdersHedin. The Board has determined that the reduced asset coverage requirement for senior securities in Section 61(a)(2) offollowing directors are also Independent Directors: Messrs. Breakstone and Schwartz and Ms. Choi. The Board has determined that the 1940 Act apply to the Company. Therefore,following directors are Interested Directors: Messrs. Gatto and Reisner. Based upon information requested from each director concerning his background, employment and affiliations, the Board has decided to seek approval from the shareholders of this proposal to reduce the minimum asset coverage applicable to the Company effective the date after such shareholder approval. If this proposal is approved by the Company’s shareholders at the Meeting, the asset coverage required for the Company’s senior securities will be 150% rather than 200% and the Company will be permitted to incur double the maximum amount of leverageaffirmatively determined that it is currently permitted to incur.
Recommendation and Rationale
The Board, including the independent directors, has approved and unanimously recommended that the shareholders vote in favornone of the application of the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act to the Company. The Board concluded that this proposal is in the best interests of the Company and the shareholders. In doing so, the Board considered and evaluated various factors, including the following (each, as discussed more fully below):Independent
the ability to broaden the Company’s portfolio;
the potential impact (both positive and negative) on net investment income, return to shareholders and net asset value;
the additional flexibility to make required RIC distributions without violating the 1940 Act;
the impact on advisory fees payable by the Company to CIM and the related conflicts of interest;
after being approved by shareholders on August 9, 2021, the Company entered into an amended and restated investment advisory agreement with CIM on August 10, 2021, and after completing the Listing on [•], 2021, the Company entered into a further amended and restated investment advisory agreement with CIM on [•], 2021 (together, the “Amended Advisory Agreement”) under which (i) the base management fee payable by the Company was reduced from 2.00% to 1.50%, and further to 1.00% upon shareholder approval of the Leverage Proposal and applying to assets acquired by the Company that are attributable to leverage decreasing the Company’s asset coverage ratio below 200%, (ii) the subordinated incentive fee rate and the incentive fee on capital gains rate were reduced from 20.0% to 17.5%, and (iii) the hurdle rate related to the subordinated incentive fee was reduced from 7.5% per year to 6.5% per year; and
the listing of and commencement of trading of the Shares on the New York Stock Exchange on [•], 2021 under the symbol “CION” (the “Listing”).