Schedule 14 A
(Rule 14a-101)
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by Registrant |X|
Filed by Party other than Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for use of the
|_| Definitive Proxy Statement Commission Only (as permitted
|_| Soliciting Material Pursuant to by Rule 14a-6(e)(2))
Rule 14a-11(c) or Rule 14a-12
BLACKROCK KELSO CAPITAL CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
_________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
(5) Total fee paid:
_________________________________________________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
_________________________________________________________________________
(2) Form, schedule or registration statement no.:
_________________________________________________________________________
(3) Filing party:
_________________________________________________________________________
(4) Date filed:
_________________________________________________________________________
BLACKROCK KELSO CAPITAL CORPORATION
40 EAST 52ND STREET
NEW YORK, NEW YORK 10022
_________________
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD ON MARCH 27, 2007
_________________
Notice is hereby given to the owners of shares of common stock (the
"Stockholders") of BlackRock Kelso Capital Corporation (the "Company") that:
The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") will be held at the Company's offices located on the 21st floor at 40
East 52nd Street, New York, New York, on March, 27, 2007, at a.m. (New York City
time). The Annual Meeting is being held for the following purposes:
1. To elect nominees to the Board of Directors (the "Board") of
the Company;
2. To amend the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from
40 million to 100 million;
3. To amend the Company's Investment Management Agreement;
4. To ratify the selection of Deloitte & Touche LLP to serve as
the Company's independent registered public accounting firm
for the year ending December 31, 2007; and
5. To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements thereof.
THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" EACH OF THE PROPOSALS.
We encourage you to contact the Company at 212-810-5800 from 9:00 a.m.
to 6:00 p.m. (New York City time) if you have any questions.
The Board of the Company has fixed the close of business on March 2,
2007 as the record date for the determination of Stockholders entitled to notice
of, and to vote at, the Annual Meeting. We urge you to mark, sign, date, and
mail the enclosed proxy in the postage-paid envelope provided so you will be
represented at the Annual Meeting.
By order of the
Board of the Company
Vincent B. Tritto, Secretary of the Company
New York, New York
March , 2007
________________________________________________________________________________
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING IN PERSON
OR BY PROXY. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE
BY MAIL. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING AND WISH TO
VOTE IN PERSON, YOU WILL BE ABLE TO DO SO AND YOUR VOTE AT THE ANNUAL MEETING
WILL REVOKE ANY PROXY YOU MAY HAVE SUBMITTED. YOUR VOTE IS EXTREMELY IMPORTANT.
NO MATTER HOW MANY OR HOW FEW SHARES YOU OWN, PLEASE SEND IN YOUR PROXY CARD
TODAY.
________________________________________________________________________________
3
BLACKROCK KELSO CAPITAL CORPORATION
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 27, 2007
This document will give you the information you need to vote
on the matters listed on the accompanying Notice of Annual Meeting of
Stockholders ("Notice of Annual Meeting"). Much of the information in this proxy
statement ("Proxy Statement") is required under rules of the Securities and
Exchange Commission ("SEC"); some of it is technical. If there is anything you
don't understand, please contact us at 212-810-5800.
This Proxy Statement is furnished in connection with the
solicitation by the Board of Directors (the "Board" or the "Directors") of
BlackRock Kelso Capital Corporation (the "Company," "we, "our" or "us") of
proxies to be voted at the Annual Meeting of owners of common stock (the
"Stockholders") of the Company. The Annual Meeting will be held on March 27,
2007, including any adjournment or postponement thereof (the "Annual Meeting"),
at the Company's offices located on the 21st floor at 40 East 52nd Street, New
York, New York, at a.m. (New York City time). This Proxy Statement, the Notice
of Annual Meeting and the enclosed proxy card are first being sent to
Stockholders on or about March , 2007.
* WHY IS A STOCKHOLDER MEETING BEING HELD?
To address various proposals that require Stockholder
approval.
* WHAT PROPOSALS WILL BE VOTED ON?
In the first proposal (the "First Proposal" or "Proposal 1"),
Stockholders are being asked to elect nominees to the Board.
In the second proposal (the "Second Proposal" or "Proposal
2"), Stockholders are being asked to approve an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock from 40 million to 100 million.
In the third proposal (the "Third Proposal" or "Proposal 3"),
Stockholders are being asked to approve an amendment to the Company's Investment
Management Agreement.
In the fourth proposal (the "Fourth Proposal" or "Proposal
4"), Stockholders are being asked to ratify the selection of Deloitte & Touche
LLP as the Company's independent registered public accounting firm for the year
ending December 31, 2007.
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* WILL MY VOTE MAKE A DIFFERENCE?
YES! Your vote is important and will make a difference in the
governance of the Company, no matter how many shares you own.
* WHO IS ASKING FOR YOUR VOTE?
The enclosed proxy is solicited by the Board for use at the
Annual Meeting to be held on March, 27, 2007, and, if the Annual Meeting is
adjourned or postponed, at any later meetings, for the purposes stated in the
Notice of Annual Meeting (see previous pages). The Notice of Annual Meeting, the
proxy and this Proxy Statement are being mailed on or about March , 2007.
* HOW DOES THE COMPANY'S BOARD RECOMMEND THAT STOCKHOLDERS VOTE
ON THE PROPOSALS?
The Board recommends that you vote "FOR" each Proposal.
* WHO IS ELIGIBLE TO VOTE?
Stockholders of record at the close of business on March 2,
2007 are entitled to be present and to vote at the Annual Meeting or any
adjourned or postponed meeting. Each share of common stock is entitled to one
vote. Shares represented by duly executed proxies will be voted in accordance
with your instructions. If you sign the proxy, but don't fill in a vote, your
shares will be voted in accordance with the Board's recommendation. If any other
business is brought before the Annual Meeting, your shares will be voted at the
Board's discretion.
* HOW MANY SHARES OF THE COMPANY WERE OUTSTANDING AS OF THE
RECORD DATE?
The Company had shares of common stock outstanding
at the close of business on the record date.
* WHAT IS A QUORUM FOR PURPOSES OF THE PROPOSALS BEING VOTED
ON AT THE MEETING?
The holders of a majority of outstanding shares of common
stock present at the Annual Meeting in person or by proxy will constitute a
quorum for each proposal.
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The Proposals
* FIRST PROPOSAL: TO ELECT DIRECTORS
--------------
WHO ARE THE NOMINEES FOR DIRECTORS?
Each director of the Company has been nominated for election
to the Board at the Meeting. Certain information concerning the nominees is set
forth below. Except as indicated, each individual has held the offices shown
since the commencement of the Company's operations on July 25, 2005. Unless
otherwise specified below, the business address of the Directors and officers of
the Company and of BlackRock Kelso Capital Advisors LLC (the "Advisor") is 40
East 52nd Street, New York, New York 10022.
At such time as there is an initial public offering of the
Company's common stock registered under the Securities Act of 1933 and the
listing of such common stock on a national securities exchange or market (a
"Public Market Event"), the Board will be divided into three classes, designated
Class I, Class II and Class III, and the term of office of directors of one
class shall expire at each annual meeting of Stockholders, and in all cases as
to each director when such director's successor shall be elected and shall
qualify or upon such director's earlier resignation, removal from office, death
or incapacity. Thereafter, each class of directors will hold office for a three
year term. For example, if a Public Market Event occurs in 2007, the Class I
Director, Mr. Harris, would stand for re-election at the Company's 2008 annual
meeting of Stockholders; the Class II Directors, Messrs. Mayer and de Saint
Phalle, would stand for re-election at the Company's 2009 annual meeting of
Stockholders; and the Class III Directors, Mr. Maher and Ms. Usifer, would stand
for re-election at the Company's 2010 annual meeting of Stockholders. Each
director holds office for the term to which he or she is elected and until his
or her successor is duly elected and qualifies.
Independent directors are those who are not interested persons
of the Company or the Advisor for purposes of the Investment Company Act of 1940
(the "1940 Act") and comply with the definition of "independent" under the rules
of The Nasdaq Global Market and as defined in Rule 10A-3 under the Securities
Exchange Act of 1934 (the "Independent Directors").
Interested Director:
James R. Maher. Mr. Maher is Chairman of the Board and Chief
Executive Officer of the Company and Chairman of the Board and Chief Executive
Officer of the Advisor. Mr. Maher is a co-founder of BlackRock Kelso Capital and
has served as its Chairman and Chief Executive Officer since its formation in
2004. Mr. Maher was, from 2001 until June 2004, a Partner at Park Avenue Equity
Partners, L.P. Park Avenue Equity Partners is a private equity fund specializing
in middle-market management buyouts and growth capital investments. Prior to
joining Park Avenue Equity Partners, Mr. Maher was President of MacAndrews &
Forbes Holdings Inc., a diversified holding company with interests primarily in
consumer products and financial services companies. Mr. Maher served as Chairman
of Laboratory Corporation of America Holdings ("LabCorp"), after serving as
President and Chief Executive Officer of National Health Laboratories, LabCorp's
predecessor, from 1992 to 1995. Prior to joining National Health Laboratories,
Mr. Maher was Vice Chairman and a member of the Operating Committee of The First
Boston Corporation, an international investment-banking firm. He served on the
Group Executive Committee of CS First Boston, Inc., where he was Chief Operating
Officer responsible for the global oversight of merger and acquisition
activities, as well as the Investment Committee. He was also Head of the
Investment Banking Group for more than four years. He joined the First Boston
Corporation in 1976 and was named a Managing Director in 1982. He is also a
Trustee of Prep for Prep, an organization that assists intellectually gifted
public school students from minority group backgrounds, and prepares them for
placement in independent schools. He has served as a Trustee of the Brearley
School and on the Boards of a number of public companies. Mr. Maher received a
Master's in Business Administration from Columbia University and an
undergraduate degree from Boston College. Mr. Maher is 57 years old.
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Independent Directors:
Jerrold B. Harris. Mr. Harris is a Director of the Company.
Mr. Harris has been retired since 1999. From 1990 to 1999, Mr. Harris was
President and Chief Executive Officer of VWR Scientific Products Corporation
(which was acquired by Merck KGaA in 1999). Mr. Harris is currently a director
of BlackRock Liquidity Funds and Henry Troemner LLC. Mr. Harris is a trustee of
Ursinus College. Mr. Harris earned a B.S. degree from the University of
California at Berkeley in 1964. Mr. Harris is 64 years old.
William E. Mayer. Mr. Mayer is a Director of the Company.
Since 1999, Mr. Mayer has been a partner at Park Avenue Equity Partners, L.P.
("Park Avenue"), which he co-founded. From 1996 until the formation of Park
Avenue, Mr. Mayer was a founding Partner of Development Capital, which invested
in private and public companies. From the fall of 1992 until December 1996, Mr.
Mayer was a professor and Dean of the College of Business and Management at the
University of Maryland. From 1991 to 1992, Mr. Mayer served as a professor and
Dean of the Simon Graduate School of Business at the University of Rochester.
Mr. Mayer worked for The First Boston Corporation (now Credit Suisse), a major
investment bank, from 1967 to 1990. During his career at The First Boston
Corporation, Mr. Mayer held numerous management positions including President
and Chief Executive Officer. Mr. Mayer is currently a board member of Lee
Enterprises (a newspaper company owning or having stakes in over 50 daily
newspapers), and is a trustee of the Columbia Group of Mutual Funds. Mr. Mayer
is a former Chairman of the Aspen Institute and the Chairman of the Board of
Trustees of the University of Maryland. Mr. Mayer was a First Lieutenant in the
U.S. Air Force. He holds a B.S. degree and an M.B.A. degree from the University
of Maryland. Mr. Mayer is 66 years old.
Francois de Saint Phalle. Mr. de Saint Phalle is a director of
the Company. Mr. de Saint Phalle has been a private equity investor, financial
advisor and investment banker for more than thirty-five years. Mr. de Saint
Phalle has been a private investor since 2000 and was a consultant for Evercore
Partners from 2000 to 2002. From 1989 to 2000 he was Chief Operating Officer and
Vice Chairman of Dillon, Read and Co., Inc. before it was merged into UBS. In
this capacity, he was responsible for the oversight of the firm's capital
commitments in debt and equity markets. Previously, Mr. de Saint Phalle worked
for 21 years at Lehman Brothers. He was named a general partner of the firm in
1976 and at various points he managed the Corporate Syndicate Department, the
Equity Division and co-headed the Corporate Finance Department. From 1985 to
1989 he served as Chairman of Lehman International, with a primary
responsibility for developing a coordinated international finance strategy with
American Express which had acquired Lehman in 1984. He was named to Lehman's
Operating and Compensation Committee in 1980. He is a Director of Evercore
Partners and Cornerstone Management Securities. Mr. de Saint Phalle is a member
Emeritus of the Board of Visitors of Columbia College. He received his B.A. from
Columbia College. Mr. de Saint Phalle is 61 years old.
Maureen K. Usifer. Ms. Usifer is a Director of the Company.
Ms. Usifer has been a senior finance director with Church & Dwight Co., Inc., a
major producer of baking soda and consumer products, from May 2004 until
present. From October 2001 until May 2004, Ms. Usifer was the Chief Financial
Officer for Armkel, LLC, a joint venture with Church & Dwight and Kelso, which
encompassed over $400 million in personal care sales. Ms. Usifer was Division
Controller of Church & Dwight's Armus joint venture, which encompassed $500
million in laundry sales, from May 2000 through October 2001. From 1996 through
2000, Ms. Usifer was a Senior Finance Manager of Church & Dwight responsible for
all of the Arm & Hammer's personal care businesses. Ms. Usifer received an
undergraduate degree in business from St. Michael's College and an M.B.A. in
Finance from Clarkson University. Ms. Usifer is 47 years old.
DOES THE COMPANY HAVE ANY COMMITTEES?
Yes. The Board has determined that the efficient conduct of
the Company's affairs makes it desirable to delegate responsibility for certain
specific matters to committees of the Board. The committees meet as often as
necessary, either in conjunction with regular meetings of the Directors or
otherwise. The Board has created
4
a Governance Committee comprised of all of the Independent Directors. The Board
has also created an Audit Committee comprised solely of Independent Directors.
Governance Committee
The Company's Independent Directors comprise its Governance
Committee. As part of its duties, the Governance Committee makes recommendations
to the full Board with respect to candidates for the Board and with respect to
the compensation of Directors. The Governance Committee will consider director
candidates recommended by Stockholders. In considering candidates submitted by
Stockholders, the Governance Committee will take into consideration the needs of
the Board and the qualifications of the candidate. The Governance Committee may
also take into consideration the number of shares held by the recommending
Stockholder and the length of time that such shares have been held. To have a
candidate considered by the Governance Committee, a Stockholder must submit the
recommendation in writing and must include:
o The name of the Stockholder and evidence of the person's
ownership of shares of the Company, including the number of
shares owned and the length of time of ownership; and
o The name of the candidate, the candidate's resume or a listing
of his or her qualifications to be a Director of the Company
and the person's consent to be named as a Director if selected
by the Governance Committee and nominated by the Board.
The Stockholder recommendation and information described above
must be sent to the Corporate Secretary, c/o the Company at 40 East 52nd Street,
New York, New York 10022, and must be received by the Corporate Secretary not
less than 120 days prior to the anniversary date of the Company's most recent
annual meeting of Stockholders (which deadline will be no later than November
28, 2007, for next year's Annual Meeting). The Governance Committee believes
that the minimum qualifications for serving as a Director of the Company are
that a candidate demonstrate, by significant accomplishment in his or her field,
an ability to make a meaningful contribution to the Board's oversight of the
business and affairs of the Company and have an impeccable record and reputation
for honest and ethical conduct in both his or her professional and personal
activities. In addition, the Governance Committee examines a candidate's
specific experiences and skills, time availability in light of other
commitments, potential conflicts of interest and independence from management
and the Company. The Governance Committee also seeks to have the Board represent
a diversity of backgrounds and experience.
AUDIT COMMITTEE
The Audit Committee operates pursuant to a charter approved by
the Board, a copy of which is attached hereto as Appendix A. The charter sets
forth the responsibilities of the Audit Committee. The primary function of the
Audit Committee is to serve as an independent and objective party to assist the
Board in fulfilling its responsibilities for overseeing and monitoring the
quality and integrity of the Company's financial statements, the adequacy of its
system of internal controls, the review of the independence, qualifications and
performance of its registered public accounting firm, and the performance of the
Company's internal audit function. The Audit Committee is presently composed of
three persons, including Ms. Usifer (Chairperson) and Messrs. Harris and de
Saint Phalle, all of whom are Independent Directors. The Board has determined
that Ms. Usifer is an "audit committee financial expert" as defined under Item
401 of Regulation S-K of the Exchange Act.
* HOW CAN THE COMPANY'S STOCKHOLDERS SEND COMMUNICATIONS TO
THE DIRECTORS?
Stockholders and other interested parties may contact the
Board or any member of the Board by mail. To communicate with the Board or any
member of the Board, correspondence should be addressed to the Board or the
Board members with whom you wish to communicate by either name or title. All
such correspondence should be sent c/o Secretary of the Company at 40 East 52nd
Street, New York, New York 10022.
5
* HOW OFTEN DO THE DIRECTORS MEET?
In 2006, the number of meetings held for the full Board
totaled five and for the Audit Committee totaled four. The Governance Committee
did not meet in 2006. During the Company's last full fiscal year, each Director
attended at least 75% of: (i) all regular meetings of the Board of the Company
(held during the period for which the Director served on the Board); and (ii)
all meetings of all committees of the Board of the Company on which the Director
served (held during the periods for which the Director served).
* WHAT ARE THE COMPANY'S DIRECTORS AND OFFICERS PAID
FOR THEIR SERVICES?
The following table shows information regarding the
compensation received by the Independent Directors for the fiscal year ended
December 31, 2006. The Company pays no compensation to directors who are
"interested persons" or to its officers.
Total
Pension or Compensation
Retirement From
Benefits the Company
Fees Earned or Accrued As Paid to
Paid in Cash by Part of Our All Other Directors and
Name of Person, Position the Company Expenses(1) Compensation Officers
- ---------------------------------------------- --------------- ----------- ------------ --------
INDEPENDENT DIRECTORS
Jerrold B. Harris, Director $63,500 None None $63,500
William E. Mayer, Director 62,500 None None 62,500
Francois de Saint Phalle, Director 63,500 None None 63,500
Maureen K. Usifer, Director 71,000 None None 71,000
INTERESTED DIRECTOR
James R. Maher (2), Chairman of the Board of
Directors None None None None
OFFICERS
Michael B. Lazar (2), Chief Operating Officer None None None None
Frank D. Gordon (3), Chief Financial Officer
and Treasurer None None None None
Vincent B. Tritto (3), Chief Compliance
Officer and Secretary None None None None
____________________
(1) We do not have a pension or retirement plan, and directors do not receive
any pension or retirement benefits.
(2) Messrs. Maher and Lazar are employees of, and compensated by, the Advisor.
(3) Messrs. Tritto and Gordon are employees of, and compensated by, BlackRock
Financial Management, Inc.
As compensation for serving on our Board of Directors, each
Independent Director receives an annual fee of $50,000. Following completion of
any public offering of our common stock, we intend to increase this annual fee
to $75,000. Independent Directors also receive $2,500 ($1,250 for telephonic
attendance) plus reimbursement of reasonable out-of-pocket expenses incurred
6
in connection with attending each board meeting and receive $1,000 ($500 for
telephonic attendance) plus reimbursement of reasonable out-of-pocket expenses
incurred in connection with attending each committee meeting. In addition, the
Chairperson of the Audit Committee receives an annual fee of $7,500 and each
chairperson of any other committee receives an annual fee of $2,500 for their
additional services in these capacities. In addition, we purchase directors' and
officers' liability insurance on behalf of our directors and officers.
* HOW LARGE A STAKE DO THE DIRECTORS HAVE IN THE COMPANY?
The Directors believe each Director should have an investment
in the Company. Appendix B to this Proxy Statement sets forth the dollar range
of equity securities beneficially owned by each Director in the Company as of
December 31, 2006.
* WHAT VOTE IS REQUIRED TO APPROVE THIS PROPOSAL?
The affirmative vote of a plurality of the shares present and
entitled to vote at the Annual Meeting (assuming a quorum is present) is
necessary to approve each Director nominated under Proposal 1.
* HOW DO THE DIRECTORS RECOMMEND I VOTE ON THIS PROPOSAL?
THE BOARD HAS APPROVED SUBMITTING THIS PROPOSAL TO
STOCKHOLDERS. THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE DIRECTORS NOMINATED UNDER THIS
PROPOSAL.
* * * * *
* SECOND PROPOSAL: FOR THE COMPANY TO AMEND ITS CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
40 MILLION TO 100 MILLION.
The Certificate of Incorporation of the Company currently
authorizes it to issue 40 million shares of common stock. This Second Proposal
seeks your approval for the Company to amend the Certificate of Incorporation to
increase the number of authorized shares of common stock from 40 million to 100
million. The Board believes that increasing the number of authorized shares of
common stock is in the best interest of the Company so that the Company is able
from time to time to raise additional capital to expand its business and finance
future investments.
The affirmative vote of a majority of the outstanding shares
of common stock of the Company is necessary to approve Proposal 2.
THE BOARD HAS APPROVED SUBMITTING THIS PROPOSAL TO STOCKHOLDERS. THE
BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THIS PROPOSAL.
* * * * *
* THIRD PROPOSAL: TO AMEND THE INVESTMENT MANAGEMENT AGREEMENT.
-------------
The Investment Management Agreement currently entitles the
Advisor to earn an incentive fee if certain performance benchmarks are achieved.
The Company is requesting that you approve an amendment to the
7
Investment Management Agreement. The purpose of the amendment is to clarify the
language used to describe the formula pursuant to which the incentive fee is
calculated and to make more explicit that the incentive fee formula complies
with the requirements of the Investment Advisers Act of 1940 (the "Advisers
Act"), as interpreted from time to time by the SEC or its staff. The language
currently used to describe the incentive fee under the Investment Management
Agreement is set forth in Appendix C to this Proxy Statement. The amended
language is set forth in Appendix D to this Proxy Statement. The amendment will
not change the way in which the Company calculates the amount of the incentive
fee, if any, payable to the Advisor, except that it will clarify that amounts
that may be paid out of capital gains, if any, are limited to amounts permitted
under the Advisers Act.
Pursuant to the Investment Management Agreement, the Advisor,
subject to the overall supervision of the Board, manages the day-to-day
operations of, and provides investment advisory services to, the Company. For
providing these services, the Advisor receives a base management fee from the
Company at an annual rate of 2.0% of the Company's total assets, including any
assets acquired with the proceeds of leverage, payable quarterly in arrears.
For the year ended December 31, 2006, the Advisor earned
$6,780,053 in base management fees, net of waiver provisions applicable during
that period, which fees would have been $11,094,308 without the waiver. For the
period from July 25, 2005 (commencement of operations) through December 31,
2005, the Advisor earned $2,334,922 in base management fees, net of waiver
provisions applicable during that period, which fees would have been $4,669,844
without the waiver.
The Investment Management Agreement provides that the Advisor
or its affiliates may be entitled to an incentive fee under certain
circumstances. In this connection, the Advisor will receive no incentive fee
payments if returns to the Company's stockholders do not meet an 8.0% annualized
rate of return and will result in the Advisor or its affiliates receiving less
than the full amount of the incentive fee until returns to our stockholders
exceed an approximate 13.3% annualized rate of return. The current and amended
language describing the incentive fee is set forth at Appendix C and Appendix D,
respectively.
In February 2007, the Company paid to the Advisor incentive
fee compensation in the amount of $3,309,413 for the period from July 25, 2006,
the first anniversary of our commencement of investment operations, through
December 31, 2006. The Advisor currently is entitled to an additional 1,133,885
of incentive fee compensation earned during the period. The Advisor was not
entitled to any incentive fee compensation prior to that period.
Under the Investment Management Agreement, the Company
reimburses the Advisor for certain direct and indirect costs and expenses
incurred by the Advisor on behalf of the Company. During 2006 and the period
from July 25, 2005 (commencement of operations) through December 31, 2005, these
reimbursements totaled $469,287 and $138,405, respectively. From time to time,
the Advisor may pay amounts owed by the Company to third party providers of
goods and services. The Company will subsequently reimburse the Advisor for such
amounts paid on its behalf. For the year ended December 31, 2006 and the period
July 25, 2005 (commencement of operations) through December 31, 2005, the
Company reimbursed the Advisor $1,053,392 and $0, respectively, for payments
made on its behalf to third party providers of goods and services.
The Investment Management Agreement was originally approved by
the Board, including a majority of the Independent Directors, at an in-person
meeting of the Board held on April 14, 2005. The Investment Management Agreement
is dated July 25, 2005 and was originally approved by the Company's sole
stockholder on _______, 2005.
In originally considering and approving the Investment
Management Agreement, the Board, including the Independent Directors, did not
identify any factor as all-important or all-controlling but instead considered
each of the following factors collectively in light of all of the Company's
surrounding circumstances:
8
Nature and Quality of Investment Advisory Services. The Board,
including the Independent Directors, considered the nature and quality of the
services to be provided by the Advisor to the Company. In that connection, the
board reviewed the resources of the Advisor and the size, education and
experience of the Advisor's investment professionals.
Nature and Quality of Other Services. The Board considered the
nature, quality, cost and extent of administrative and shareholder services to
be performed by the Advisor under the Investment Management Agreement. The
Board, including the Independent Directors, also considered the nature and
extent of the Advisor's supervision of third-party service providers.
Fees and Expenses. The Board considered the management fee,
carried interest and estimated pro forma expense ratio (i) in comparison to the
management fee and expense ratios of a peer group of selected business
development companies in similar businesses and various private mezzanine and
private equity funds and (ii) in comparison to other types of registered
investment companies, private funds and other accounts managed by affiliates of
the Advisor that may invest in similar instruments.
Other Benefits. The Board also considered the benefits to the
Advisor (including the fees paid by the Company and the Company's stockholders)
associated with the Advisor and its affiliates providing non-advisory services
to the Company, including administrative services. The Directors also considered
the intangible benefits that accrue to the Advisor and its affiliates by virtue
of their relationship with the Company.
Based on the information reviewed and discussions held with
respect to each of the foregoing items, the Board, including a majority of the
Independent Directors, concluded in light of all of the Company's surrounding
circumstances that the compensation payable to the Advisor was reasonable in
relation to the services provided by the Advisor to the Company.
After these deliberations, the Board including a majority of
the Independent Directors approved the original Investment Management Agreement
between the Advisor and the Company as in the best interests of stockholder of
the Company.
The amended agreement was approved by the Board, including a
majority of the Independent Directors, at an in-person meeting held on March 2,
2007. In considering this amendment, the Board considered the Advisor's
statements that the amended language would not have any material impact on the
calculation of the incentive fee and also considered that the amended language
was intended to make clear that the formula complies with applicable
regulations. The Board also considered that on September 29, 2006, BlackRock and
Merrill Lynch & Co., Inc. ("Merrill Lynch") announced that they had completed
the plan entered into February 15, 2006 to merge Merrill Lynch's investment
management business, Merrill Lynch Investment Managers ("MLIM"), and BlackRock
to create a new independent asset management company with over $1 trillion in
assets under management. The new company operates under the BlackRock name and
is governed by a board of directors with a majority of independent members. As a
result of the transaction, Merrill Lynch owns approximately 49% of the combined
company (with a 45% voting interest therein). PNC retains approximately a 34%
ownership of the combined company, and the remainder is held by employees and
public stockholders. Prior to September 29, 2006, BlackRock was majority owned
by PNC.
The affirmative vote of the holders of a majority of the
outstanding shares of common stock of the Company is necessary to approve
Proposal 3.
THE BOARD HAS APPROVED SUBMITTING THIS PROPOSAL TO
STOCKHOLDERS. THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
9
* FOURTH PROPOSAL: TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP TO
SERVE AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE
YEAR ENDING DECEMBER 31, 2007.
Deloitte & Touche LLP ("D&T") has been selected as the
independent registered public accounting firm to audit the accounts of the
Company for and during the Company's fiscal year ending December 31, 2007. D&T
was approved by the Audit Committee of the Company and ratified by a majority of
the Company's Board, including a majority of the Independent Directors, by a
vote cast in person. The Company does not know of any direct or indirect
financial interest of D&T in the Company. Representatives of D&T will attend the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so and will be available to answer questions.
Audit Fees
Audit fees consist of fees billed for professional services
rendered for the audit of our year-end financial statements and services that
are normally provided by D&T in connection with statutory and regulatory
filings. We incurred audit fees of $220,000 and $160,000, respectively, for the
year ended December 31, 2006 and for the period ended December 31, 2005 related
to quarterly reviews associated with our Form 10-Q filings and for the annual
audits of our financial statements included as part of our Form 10-K filings.
"The period ended December 31, 2005" refers to the period July 25, 2005
(inception of operations) through December 31, 2005.
Audit-Related Fees
Audit-related services consist of fees billed for assurance
and related services that are reasonably related to the performance of the audit
or review of our financial statements and are not reported under "Audit Fees."
These services include attest services that are not required by statute or
regulation and consultations concerning financial accounting and reporting
standards. We incurred audit-related fees of $5,000 and $7,500, respectively,
for the year ended December 31, 2006 and for the period ended December 31, 2005
related to periodic examinations of the securities over which we had custody in
accordance with the requirements of rule 17f-2 of the 1940 Act.
Tax Services Fees
Tax fees consist of fees billed for professional services for
tax compliance. These services include assistance regarding federal, state and
local tax compliance. We incurred tax fees of $4,000 and $4,000, respectively
for the year ended December 31, 2006 and for the period ended December 31, 2005,
representing work related to our excise tax distribution requirements and their
respective form extensions.
All Other Fees
Other fees would include fees for products and services other
than the services reported above. There were no such fees charged to us for the
year ended December 31, 2006 or for the period ended December 31, 2005.
Audit Committee Policies and Procedures
The Audit Committee operates under a written charter adopted
by the Board. Management is responsible for our internal controls and the
financial reporting process. D&T, as our independent registered public
accounting firm ("Independent Auditors"), is responsible for performing an
independent audit of our financial statements in accordance with standards of
the Public Company Accounting Oversight Board (United States) and expressing an
opinion on the conformity of those audited financial statements in accordance
with accounting principles generally accepted in the United States. The Audit
Committee's responsibility is to monitor and oversee
10
these processes. The Audit Committee is also directly responsible for the
appointment, compensation and oversight of our Independent Auditors.
The Audit Committee has established a pre-approval policy that
describes the permitted audit, audit-related, tax and other services to be
provided by D&T. The policy requires that the Audit Committee pre-approve the
audit and non-audit services performed by the Independent Auditors in order to
assure that the provision of such service does not impair the Independent
Auditors' independence.
Any requests for audit, audit-related, tax and other services
that have not received general pre-approval must be submitted to the Audit
Committee for specific pre-approval, and cannot commence until such approval has
been granted. Normally, pre-approval is provided at regularly scheduled meetings
of the Audit Committee. However, the Audit Committee may delegate pre-approval
authority between meetings to one or more of its members. The member or members
to whom such authority is delegated shall report any pre-approval decisions to
the Audit Committee at its next scheduled meeting. The Audit Committee does not
delegate its responsibilities to pre-approve services performed by the
Independent Auditors to management.
Audit Committee Report
The Audit Committee has reviewed the audited financial
statements and met and held discussions with management regarding the audited
financial statements. Management has represented to the Audit Committee that our
financial statements were prepared in accordance with accounting principles
generally accepted in the United States. The Audit Committee has discussed with
D&T, our Independent Auditors, matters required to be discussed by Statement of
Auditing Standards No. 114 (The Auditor's Communication With Those Charged With
Governance). The Audit Committee received and reviewed the written disclosures
and the letter from the independent auditors required by Independence Standard
No. 1, Independence Discussions with Audit Committees, as amended by the
Independence Standards Board, and has discussed with the Independent Auditors
their independence.
Based on the Audit Committee's discussion with management and
the Independent Auditors, the Audit Committee's review of the audited financial
statements, the representations of management and the report of the Independent
Auditors to the Audit Committee, the Audit Committee recommends that the Board
include the audited financial statements in the Company's annual report on Form
10-K for the fiscal period ended December 31, 2006 for filing with the SEC. The
Audit Committee has also recommended and the Board, including a majority of the
Independent Directors, has approved, reappointing D&T to serve as the Company's
independent auditors for the year ending December 31, 2007.
The affirmative vote of a majority of the votes cast at the
Annual Meeting in person or by proxy is required to ratify the appointment of
D&T to serve as the Company's independent registered public accounting firm.
THE BOARD HAS APPROVED SUBMITTING THIS PROPOSAL TO
STOCKHOLDERS. THE BOARD, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
* * * * *
FURTHER INFORMATION ABOUT VOTING AND THE ANNUAL MEETING
The cost of soliciting proxies will be borne by the Company.
In addition, certain officers, directors and employees of each of the Company
and the Advisor (none of whom will receive additional compensation therefor) may
solicit proxies by telephone or mail.
11
Abstentions will be counted as shares present at the Annual
Meeting but not as votes cast and will not affect the result of the vote on
Proposals 1 and 4. Abstentions on Proposals 2 and 3 will have the same effect as
a negative vote.
All properly executed proxies received prior to the Annual
Meeting will be voted at the Annual Meeting in accordance with the instructions
marked thereon or otherwise as provided therein. Stockholders may revoke their
proxies at any time prior to the time they are voted by giving written notice to
the Secretary of the Company by delivering a subsequently dated proxy or by
attending and voting at the Annual Meeting.
The Board of the Company has fixed the close of business on
March 2, 2007 as the record date for the determination of Stockholders of the
Company entitled to notice of, and to vote at, the Annual Meeting. Stockholders
of the Company on that date will be entitled to one vote on each matter to be
voted on by the Company for each share held and a fractional vote with respect
to each fractional share held with no cumulative voting rights.
ADDITIONAL INFORMATION
INVESTMENT ADVISOR
Our investment activities are managed by the Advisor. The
Advisor is led by James R. Maher, Chairman and Chief Executive Officer of the
Company and the Advisor, and Michael B. Lazar, Chief Operating Officer of the
Company and the Advisor. They are supported by the Advisor's team of employees,
including 13 dedicated investment professionals, who have extensive experience
in commercial banking, investment banking, accounting, corporate law and private
equity investing. Since the commencement of our operations, our Advisor's team
of investment professionals, including our senior management, has evaluated more
than 600 investment opportunities and completed on our behalf more than 70
investments in middle-market companies investing in excess of $1 billion. Our
Advisor is responsible for identifying prospective customers, conducting
research on prospective investments, identifying and underwriting credit risk,
and monitoring our investments and portfolio companies on an ongoing basis.
The Advisor has an investment committee comprised of 13
members, including Messrs. Maher and Lazar and several senior executives of
BlackRock, Inc. ("BlackRock") and several of the principals of Kelso & Company,
L.P. (the "Kelso Principals"). The Investment Committee is responsible for
approving our investments. We benefit from the extensive and varied relevant
experience of the BlackRock executives and Kelso Principals serving on our
Investment Committee. Many of the BlackRock senior executives and the Kelso
Principals who are members of the Investment Committee have worked together in a
similar capacity since 1998. Although the BlackRock executives and Kelso
Principals who serve on the Investment Committee bring the benefit of expertise
they have gained at BlackRock, Kelso and elsewhere, neither of those
organizations provide us with investment advice. Nevertheless, we benefit from
the business and specific industry knowledge, transaction expertise and
deal-sourcing capabilities of BlackRock. The Kelso Principals who serve on the
investment committee bring the benefit of the expertise they gained at Kelso and
elsewhere including providing access to a broad network of contacts.
12
The executive officers of the Advisor are:
NAME POSITION
- ---- --------
James R. Maher Chief Executive Officer
Michael B. Lazar Chief Operating Officer
Frank D. Gordon Chief Financial Officer and Treasurer
Vincent B. Tritto Chief Compliance Officer
James R. Maher's biographical information is set forth above.
Michael B. Lazar is the Chief Operating Officer of the Company
and the Advisor. Mr. Lazar is a co-founder of the Company and has served as its
Chief Operating Officer since its formation in 2004. Previously, Mr. Lazar was a
Managing Director and Principal at Kelso & Company, one of the oldest and most
established firms specializing in private equity investing. Having originally
joined Kelso in 1993, Mr. Lazar was involved in Kelso's private equity
transactions since that time. Prior to joining Kelso, Mr. Lazar worked in the
Acquisition Finance Group at Chemical Securities, Inc. (predecessor to J.P.
Morgan Securities Inc.) where his responsibilities included working with
financial sponsors on the analysis, evaluation and financing of leveraged
buyouts. He began his career in the Corporate Finance and Structured Finance
Groups at Chemical Bank, where he focused on financings for leveraged companies.
Mr. Lazar received a B.A. degree, cum laude, from Dartmouth College. Mr. Lazar
is a director of Waste Services, Inc. and the New York Division of the March of
Dimes, a not for-profit organization whose mission is to prevent birth-defects,
premature birth and infant mortality. In addition, Mr. Lazar has served on the
Board of other Kelso portfolio companies. Mr. Lazar is 37 years old.
Frank D. Gordon is the Chief Financial Officer and Treasurer
of the Company and the Advisor. Mr. Gordon is a Managing Director of BlackRock's
high yield team. He was primarily responsible for the administration of several
structured finance entities managed by BlackRock, including compliance
monitoring, legal affairs and financial and stockholder reporting. Mr. Gordon
was instrumental in launching BlackRock's Magnetite and Senior Income series of
CDOs. Before joining BlackRock's high yield effort, Mr. Gordon was the
controller of Anthracite Capital, Inc., a publicly-owned real estate investment
trust managed by BlackRock. Prior to joining BlackRock in 1998, Mr. Gordon was
an attorney in the Structured Finance department of Skadden, Arps, Slate,
Meagher & Flom LLP. From 1987 to 1990, Mr. Gordon was Vice President in the
Fixed Income Research department of The First Boston Company. From 1983 to 1986,
Mr. Gordon was a senior accountant at Deloitte Haskins & Sells. Mr. Gordon
earned a B.S. in Economics from The Wharton School of the University of
Pennsylvania, and an M.B.A. degree, with honors, and a J.D. degree from the
University of Chicago. Mr. Gordon is 46 years old.
Vincent B. Tritto is the Chief Compliance Officer and
Secretary of the Company and Chief Compliance Officer of the Advisor. Mr. Tritto
has worked at BlackRock since 2002. He also serves as the Secretary of the 58
active funds comprising the BlackRock Closed-End Funds and Anthracite Capital.
Prior to joining BlackRock, Mr. Tritto was Executive Director and Counsel at
Morgan Stanley Investment Management Inc. for four years. Previously, he was
Counsel (1998), and an associate (1988 through 1997), at the New York law firm
of Rogers & Wells. During this time he also served as a foreign associate at the
Tokyo law firm of Masuda & Ejiri, from 1992 to 1994. Mr. Tritto earned B.A.
degrees, cum laude, from the University of Rochester and a J.D. degree, cum
laude, from St. John's University School of Law in 1988, where he was managing
editor of the St. John's Law Review. Mr. Tritto is 45 years old.
13
ORGANIZATION OF THE ADVISOR
The Advisor is organized as a Delaware limited liability
company. The Advisor is an investment advisor registered as an investment
advisor with the SEC under the Advisers Act. The Advisor is controlled by James
R. Maher and Michael B. Lazar, the managing members of the Advisor. No investor
in the Advisor owns 25% or more of the Advisor's outstanding voting power.
ADMINISTRATION AGREEMENT
The Company has entered into an administration agreement with
BlackRock Financial Management, Inc. (the "Administrator"), a subsidiary of
BlackRock under which the Administrator provides administrative services to the
Company. For the year ended December 31, 2006, the Company incurred $588,741 for
administrative services expenses payable to the Administrator under the
administration agreement. For the period from July 25, 2005 (commencement of
operations) through December 31, 2005, the Company incurred $435,483 for
administrative services expenses payable to the Administrator under the
administration agreement.
The Company reimburses the Administrator for its allocable
portion of overhead and other expenses incurred by the Administrator in
performing its obligations under the administration agreement, including rent
and our allocable portion of the cost of certain of our officers and their
respective staffs. From time to time, the Administrator also may pay amounts
owed by the Company to third party providers of goods or services. The Company
will subsequently reimburse the Administrator for such amounts paid on its
behalf. For the year ended December 31, 2006 and the period July 25, 2005
(commencement of operations) through December 31, 2005, the Company reimbursed
the Administrator $33,829 and $198,875, respectively, for payments made on its
behalf to third party providers of goods and services.
PRINCIPAL EXECUTIVE OFFICES
The principal executive office of the Company, the Advisor and
the Administrator are located at 40 East 52nd Street, New York, New York 10022.
PRINCIPAL STOCKHOLDERS
The following table sets forth, at December 31, 2006,
information with respect to the ownership of our common stock by each
stockholder who owned more than 5% of our outstanding shares of common stock,
each director, our chief executive officer, each of our other executive officers
and our directors and executive officers as a group. Unless otherwise indicated,
we believe that each beneficial owner set forth in the table has sole voting and
investment power.
Percentage of
Type of Shares common stock
Name and address ownership owned outstanding
- ---------------- --------- ----- -----------
Virginia Retirement System Beneficial 14,171,334 37.66%
1200 East Main Street
Richmond, VA 23219
Performance Equity Management, LLC (1) Beneficial 7,085,667 18.83%
2 Pickwick Plaza, Suite 310
Greenwich, CT 06830
First Plaza Group Trust (1) Beneficial 7,085,667 18.83%
c/o JP Morgan Chase Bank, N.A.
3 Chase Metro Center - Fifth Floor
Brooklyn, NY 11245
14
Summer Street BRK Investors, L.L.C. Beneficial 5,668,534 15.06%
3001 Summer Street
Stamford, CT 06095
Officers and Directors:
James R. Maher (2) Beneficial 704,895 1.87%
Jerrold B. Harris Beneficial 42,536 *%
William E. Mayer Beneficial 17,723 *%
Francois de Saint Phalle Direct 354,466 *%
Maureen K. Usifer Direct 7,089 *%
Michael B. Lazar Beneficial 70,490 *%
Frank D. Gordon Direct 3,545 *%
Vincent B. Tritto Direct 71 *%
All officers and directors Direct/ 1,200,814 3.19%
as a group (8 persons)(3) Beneficial
_______________
* Represents less than 1%.
(1) Performance Equity Management, LLC and First Plaza Group Trust retain
shared power to vote or to direct the vote and to dispose or to direct the
disposition of the same 7,085,667 shares.
(2) Includes 102,914 shares owned indirectly by the individual's children,
246,715 shares owned indirectly by the individual's spouse and 108,554
owned indirectly by a family trust, as to each of which the individual
disclaims beneficial ownership.
(3) The address for all our officers and directors is c/o BlackRock Kelso
Capital Corporation, 40 East 52nd Street, New York, NY 10022.
The Advisor and certain entities it manages own shares of our
common stock, including BlackRock Kelso Capital Holding LLC ("Holding") which
owns 35,413,649 shares, or 94% of our common stock. However, neither Holding nor
the Advisor in its capacity as manager of Holding exercises voting control over
those shares because the right to vote those shares is, in some cases, passed
through to the owners of Holding or, in other cases, voted in the same
proportion as the voters that are passed through.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company has entered into an Investment Management
Agreement with the Advisor. Our senior management and the Chairman of our Board
have ownership and financial interests in the Advisor.
We have entered into a license agreement with BlackRock and
the Advisor pursuant to which BlackRock has agreed to grant to the Advisor, and
the Advisor has agreed to grant to us, a non-exclusive, royalty-free license to
use the name "BlackRock." In addition, we have entered into a license agreement
with Michael B. Lazar, our Chief Operating Officer, and the Advisor pursuant to
which Mr. Lazar has agreed to grant to the Advisor, and the Advisor has agreed
to grant to us, a non-exclusive, royalty-free license to use the name "Kelso."
Mr. Lazar obtained this limited right to license the name "Kelso" under an
agreement with Kelso.
Pursuant to the terms of the administration agreement,
BlackRock, through its wholly owned subsidiary, BlackRock Financial Management,
Inc., provides us with the office facilities and administrative services
necessary to conduct our day-to-day operations. Subject to BlackRock's
oversight, PFPC Inc., a subsidiary of The PNC Financial Services Group, Inc.
("PNC"), serves as our sub-administrator, accounting agent, investor services
agent and transfer agent and provides legal and regulatory support services.
PFPC Trust Company, another subsidiary of PNC, serves as custodian of our
investment assets. Fees and indemnification in respect of BlackRock and the PFPC
entities as providers of such services were approved by our Board of Directors,
including the directors who are not "interested persons."
For the year ended December 31, 2006 and for the period July
25, 2005 (inception of operations) through December 31, 2005, we incurred
$216,365 and $83,919, respectively, for administrative, accounting, custodian
and transfer agency services fees payable to PFPC and its affiliates under the
related agreements.
15
We will not invest in any private company in which BlackRock,
Kelso, or any of their affiliates holds an existing investment, except to the
extent permitted by the 1940 Act. We may, however, co-invest on a concurrent
basis with other affiliates of BlackRock or Kelso, subject to compliance with
applicable allocation procedures.
On July 25, 2005, we issued approximately 33,333,333 shares of
our common stock to Holding, an entity for which the Advisor serves as manager,
in exchange for total consideration of $500,000,000 ($15.00 per share),
consisting of $80,282,060 in cash and a portfolio of short-term investments and
cash equivalents valued at $419,717,940. The transaction was effected in
accordance with our valuation procedures governing securities transactions with
affiliates and was ratified by our Board. Through reinvestment of dividends,
this amount has increased to 35,413,649 shares, or 94%, of our common stock.
However, neither Holding nor the Advisor in its capacity as manager of Holding
exercises voting control over those shares because the right to vote those
shares is, in some cases, passed through to the owners of Holding or, in other
cases, voted in the same proportion as the votes that are passed through.
On March 8, 2006, our Board authorized the issuance and sale
from time to time of up to $2,500,000 in aggregate net asset value of shares of
our common stock to certain existing and future employees of the Advisor at a
price per share equal to the greater of $15.00 or our most recently determined
net asset value per share at the time of sale. Pursuant to this authorization,
on April 1, 2006 we issued and sold to certain employees of the Advisor in a
private placement 54,000 shares of common stock for aggregate proceeds of
$810,000. Also pursuant to this authorization, on February 1 and March 1, 2007,
we issued and sold to certain employees of the Advisor in private placements a
total of approximately 90,200 shares of common stock for aggregate proceeds of
$1,353,000.
On August 10, 2006, the Board authorized the issuance and sale
from time to time of an unlimited number of shares of the our common stock to
the Advisor at a price per share equal to our most recently determined net asset
value per share at the time of sale, such shares to be used by the Advisor for
employee compensation and other purposes. Pursuant to this authorization, on
January 2, 2007, we issued and sold to the Advisor in a private placement 52,956
shares of common stock for aggregate proceeds of $790,665. Also pursuant to this
authorization, on February 26, 2007, we issued and sold to the Advisor in a
private placement approximately 133,133 shares of common stock for aggregate
proceeds of $2,000,000.
At December 31, 2006, the Advisor beneficially owned
indirectly approximately 775,000 shares of our common stock, representing
approximately 2.1% of the total shares outstanding. At December 31, 2006, other
entities affiliated with the Administrator and PNC beneficially owned indirectly
approximately 2,475,000 shares of our common stock, representing approximately
6.6% of the total shares outstanding. These percentages of shares outstanding
did not change appreciably from December 31, 2005. At December 31, 2006 and
December 31, 2005, a subsidiary of BlackRock owned 36.5% of the members'
interests (but less than 25% of the voting power) of the Advisor.
On September 29, 2006, BlackRock and Merrill Lynch & Co., Inc.
("Merrill Lynch") announced that they had completed the plan entered into
February 15, 2006 to merge Merrill Lynch's investment management business,
Merrill Lynch Investment Managers ("MLIM"), and BlackRock to create a new
independent asset management company with over $1 trillion in assets under
management. The new company operates under the BlackRock name and is governed by
a board of directors with a majority of independent members. As a result of the
transaction, Merrill Lynch owns approximately 49% of the combined company (with
a 45% voting interest therein). PNC retains approximately a 34% ownership of the
combined company, and the remainder is held by employees and public
stockholders. Prior to September 29, 2006, BlackRock was majority owned by PNC.
We earned $335,362 in interest income on investments in money
market securities issued by MLIM or its former affiliates for the year ended
December 31, 2006 and $337,180 for the period July 25, 2005
16
(inception of operations) through December 31, 2005. We held $26,750,000 in
money market securities issued by MLIM or its former affiliates at December 31,
2005, representing approximately 5.1% of our net assets. We did not hold any
MLIM-affiliated investments at December 31, 2006. From time to time, former
affiliates of MLIM may serve as broker/dealer or agent for us or for portfolio
companies in which we invest. For the period July 25, 2005 (inception of
operations) through December 31, 2006, we did not make any payments to former
MLIM affiliates for such services.
From time to time, the Company may invest in transactions in
which the Company's directors and officers or the officers and employees of the
Advisor have a pecuniary interest. Prior to making any such investment, the
Company will comply with the relevant provisions of the 1940 Act to the extent
they apply to the Company as a business development company and any other
applicable laws. Depending on the extent of the individual's pecuniary interest,
the Advisor will disclose the interest to its Investment Committee, the
Company's senior management and the Company's Board of Directors and may, among
other actions, seek the Board's approval to enter into the transaction and
require the individual to recuse himself or herself from the deliberations and
voting of our Board of Directors, the Advisor and its Investment Committee with
respect to the transaction.
Mr. Maher, is a former partner, and Mr. Mayer is currently a
partner, of Park Avenue Equity Partners, L.P. ("Park Avenue"), a private equity
fund manager specializing in middle-market management buyouts and growth capital
investments. In addition, an employee of the Advisor is a former employee of
Park Avenue. Mr. Maher and the employee have economic interests in Park Avenue.
Mr. Maher and Mr. Mayer own limited partner interests in the fund managed by
Park Avenue. During 2006, the Company purchased $5,250,000 of senior secured
loans of DynaVox Systems LLC and $14,400,000 of senior secured loans of Joerns
Healthcare, LLC et al., both of which are portfolio companies of the fund
managed by Park Avenue. The transactions were approved by the Advisor, its
Investment Committee and the Company's Board of Directors after disclosure of
these facts.
Mr. Maher owns a limited partnership interest in a private
equity fund managed by Vestar Capital Partners ("Vestar"), a private equity
management firm specializing in management buyouts and growth capital
investments. During 2006, the Company purchased the loans of DynaVox Systems LLC
and of Joerns Healthcare, LLC et al. described above, and a $16,000,000
participation in a senior secured loan of Gleason Corporation and $8,000,000
participation in subordinated debt of MediMedia USA, Inc., each of which are
portfolio companies of Vestar. The transactions were approved by the Advisor and
its Investment Committee after consideration of the significant relevant factors
and disclosed to the Company's Board of Directors.
FINANCIAL STATEMENTS AND OTHER INFORMATION
WE WILL FURNISH, WITHOUT CHARGE, A COPY OF OUR MOST RECENT
ANNUAL REPORT AND THE MOST RECENT QUARTERLY REPORT SUCCEEDING THE ANNUAL REPORT,
IF ANY, TO ANY STOCKHOLDER UPON REQUEST. REQUESTS SHOULD BE DIRECTED TO THE
COMPANY AT 100 BELLEVUE PARKWAY, WILMINGTON, DELAWARE 19809 (TELEPHONE NUMBER
(212) 810-5800).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and
Section 30(h) of the 1940 Act require our officers and Directors, the officers
and directors of our investment advisor, affiliated persons of our investment
advisor, and persons who beneficially own more than 10% of our shares to file
certain reports of ownership ("Section 16 filings") with the SEC and us.
PRIVACY PRINCIPLES OF THE COMPANY
We are committed to maintaining the privacy of Stockholders
and to safeguarding their non-public personal information. The following
information is provided to help you understand what personal information we
17
collect, how we protect that information and why, in certain cases, we may share
information with select other parties.
Generally, we do not receive any non-public personal
information relating to our Stockholders, although certain non-public personal
information of our Stockholders may become available to us. We do not disclose
any non-public personal information about our Stockholders or former
Stockholders to anyone, except as permitted by law or as is necessary in order
to service Stockholder accounts (for example, to a transfer agent or third party
administrator).
We restrict access to non-public personal information about
the Stockholders to employees of the Advisor with a legitimate business need for
the information. We maintain physical, electronic and procedural safeguards
designed to protect the non-public personal information of our Stockholders.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholder proposals intended for inclusion in the Company's
proxy statement in connection with the Company's 2008 annual meeting of
Stockholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934
must be received by us at our principal executive offices by November 28, 2007.
In order for proposals made outside of Rule 14a-8 under the Exchange Act to be
considered "timely" within the meaning of Rule 14a-4(c) under the Exchange Act,
such proposals must be received by us at our principal executive offices not
later than January 30, 2008.
OTHER MATTERS
The management of the Company knows of no other matters which
are to be brought before the Annual Meeting. However, if any other matters not
now known properly come before the Annual Meeting, it is the intention of the
persons named in the enclosed form of proxy to vote such proxy in accordance
with their judgment on such matters.
Very truly yours,
JAMES R. MAHER
Chairman and Chief Executive Officer
March , 2007
18
APPENDIX A
AUDIT COMMITTEE CHARTER
BLACKROCK KELSO CAPITAL CORPORATION
(the "BDC")
AUDIT COMMITTEE CHARTER
I. ORGANIZATION AND QUALIFICATION OF COMMITTEE MEMBERS
---------------------------------------------------
There shall be an audit committee (the "Committee") of the
Board of Directors (the "Board") which shall be composed of members of the
Board, each of whom is independent, i.e. not an "interested person" of the BDC,
as that term is defined in Section 2(a)(19) of the Investment Company Act of
1940. In addition, the members shall not receive any compensation from the BDC,
or any subsidiary thereof, if applicable, except compensation for services as a
member of the BDC's Board or a committee of the Board. At such time that the BDC
is listed on the New York Stock Exchange ("NYSE"), each member must also meet
the independence requirements of audit committee members, as currently set forth
in Section 303.01 of NYSE's listing standards. Members shall have no
relationships with the BDC or its investment adviser, administrator or custodian
that may interfere with the exercise of their independence from management of
the BDC. The members and the Committee chair shall be elected by the full Board.
The members shall be "financially literate," i.e. have the
ability to understand fundamental financial statements. At such time that the
BDC is listed on NYSE, at least one member shall have accounting or related
financial management expertise, as the Board interprets such qualification in
its business judgment. The Board shall determine annually whether any member of
the Committee is an "audit committee financial expert" (ACFE) as defined in Item
3 of Form N-CSR. The Board may presume that an ACFE has the requisite accounting
or related financial management expertise, at such time that the BDC is listed
on NYSE. The designation of a person as an ACFE shall not impose any greater
responsibility or liability on that person than the responsibility or liability
imposed on such person as a member of the Committee.
At such time that the BDC is listed on NYSE, in the event a
member simultaneously serves on the audit committees of more than three public
companies, the Board must determine that such simultaneous service would not
impair the ability of such member to effectively serve on the BDC's audit
committee.
II. STATEMENT OF PRINCIPLE
----------------------
The function of the Committee is to assist the Board in
fulfilling its oversight responsibilities relating to the BDC's accounting and
financial reporting policies and practices. It is management's responsibility to
maintain appropriate systems for accounting and internal control and for the
presentation and integrity of the BDC's financial statements. It is the
independent accountants' responsibility to plan and carry out proper audits and
reviews. The independent accountants are ultimately accountable to the Board and
to the Committee, as representatives of shareholders.
The independent accountants for the BDC shall report directly
to the Committee.
A-1
III. DUTIES AND RESPONSIBILITIES
---------------------------
A. General
-------
1. oversee the quality and integrity of the BDC's accounting and
financial statement reporting process and the independent
audit and reviews thereof;
2. review and evaluate any issues raised by the independent
accountants or management regarding the accounting or
financial reporting policies and practices of the BDC, its
internal controls, and, as appropriate, the internal controls
of certain service providers; and to resolve disagreements
between management and the independent accountants regarding
financial reporting; and act as a liaison between the BDC's
independent accountants and the full Board; and
3. at such time that the BDC's common shares are listed on NYSE,
assist Board oversight of (a) the BDC's compliance with legal
and regulatory requirements; and (b) the performance of the
BDC's internal audit function, if applicable.
B. Specific
--------
1. (a) approve the selection, retention, termination and
compensation of independent accountants and the audit
and non-audit services to be rendered prior to their
engagement to provide such services, and, in
connection therewith, to evaluate the qualifications,
independence and performance of the independent
accountants;
(b) when required by applicable rules, to pre-approve all
audit and permissible non-audit services to be
provided by the independent accountants to the BDC,
to its investment adviser and to any entity
controlling, controlled by or under common control
with the investment adviser that provides ongoing
services to the BDC ("Covered Services Provider"), if
the engagement relates directly to the operations and
financial reporting of the BDC; and
(c) the Committee may delegate its responsibility to
pre-approve any such audit and permissible non-audit
services to the chair of the Committee, in accordance
with applicable laws, pursuant to the details of
pre-approval policies and procedures adopted by the
Committee.
2. ensure receipt from the independent accountants of a formal
written statement delineating all the relationships between
them and the BDC, consistent with Independence Standards Board
Standard 1; evaluate the independence of the accountants; and
actively engage in a dialogue with them regarding matters that
might reasonably be expected to affect their independence;
3. consider in consultation with the independent accountants, the
scope and plan of upcoming external audits to assure
completeness of coverage and effective use of audit resources;
4. meet with the BDC's independent accountants, at least twice a
year and more often if required, to review the conduct and
results of each audit and review of the BDC's financial
statements, and discuss the matters stated in SAS 61
"Communications with Audit Committees," as amended by SAS 89
and 90, and any other communications required to be discussed
with the Committee pursuant to applicable laws and
regulations, including their:
(a) conclusions and recommendations on the adequacy of the
internal controls both of the BDC and its service
providers together with the responses of the
appropriate management, including the status of
previous audit recommendations;
A-2
(b) reasoning in accepting or questioning sensitive
accounting estimates by management;
(c) reasoning in not recognizing material audit adjustments
proposed by them;
(d) judgments about the quality and appropriateness, (not
just the acceptability), of the BDC's critical
accounting principles used, including the degree of
aggressiveness or conservatism in the application of
such principles in its financial reporting;
(e) views as to the adequacy and clarity of disclosures in
the BDC's financial statements in relation to generally
accepted accounting principles;
(f) views of how the use of generally acceptable
alternatives to critical accounting and tax principles,
disclosure practices and valuation policies, preferred
by them, would have affected the financial statements;
(g) conclusions regarding any serious disagreements,
difficulties or disputes with management encountered
during the course of the audit;
(h) discussion of any significant risks to which the BDC
is, or might be exposed, and the steps management has
taken to minimize such risks;
(i) discussion of any significant changes to the audit
plan;
(j) discussion of other matters related to the conduct of
the audit required to be communicated to the Committee
under generally accepted auditing standards;
(k) material written communications to the management of
the BDC such as any management letter or schedules of
unrecognized audit adjustments; and
(l) non-audit services provided by the BDC's independent
accountants to the BDC's investment adviser or any
adviser affiliate that provides ongoing services to the
BDC, which services were not pre-approved by the
Committee (and consideration by the Committee of
whether the performance of such services is compatible
with maintaining the independent accountant's
independence).
5. meet periodically with the BDC's independent accountants in
separate executive sessions to discuss any other matters or
communications required under applicable laws or which they or
the Committee deem advisable or appropriate to discuss;
6. meet periodically with management in separate executive
sessions, including to review with the BDC's principal
executive officer and/or principal financial officer in
connection with required certifications on Form N-CSR any
significant deficiencies in the design or operation of
internal control over financial reporting or material
weaknesses therein and any reported evidence of fraud
involving management or other employees who have a significant
role in the BDC's internal control over financial reporting;
7. at such time that the BDC is listed on NYSE, meet periodically
with the BDC's internal auditors (or other personnel
responsible for the internal audit function), if applicable,
in separate executive sessions;
8. authorize and oversee investigations into any matters within
the Committee's scope of responsibilities, or as specifically
delegated to the Committee by the Board;
A-3
9. consider and evaluate the effect upon the BDC of significant
changes in accounting principles, practices, controls or
procedures proposed or contemplated by management or the
independent accountants;
10. review management's discussion and analysis of financial
statements to be included in the BDC's annual report;
11. establish procedures for the receipt, retention and treatment
of complaints received by the BDC relating to accounting,
internal accounting controls, or auditing matters, and the
confidential, anonymous submission by employees of the BDC of
concerns about accounting or auditing matters pertaining to
the BDC, and to address reports from attorneys or auditors of
possible violations of federal or state law or fiduciary duty;
12. at such time that the BDC is listed on NYSE, discuss the BDC's
earnings press releases, as applicable, as well as financial
information and earnings guidance provided to analysts and
ratings agencies;
13. at such time that the BDC is listed on NYSE, at least
annually, obtain and review a report by the independent
accountant describing: the firm's internal quality-control
procedures; any material issues raised by the most recent
internal quality-control review, or peer review, of the firm,
or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the
firm, and any steps taken to deal with any such issues; and
(to assess the auditor's independence) all relationships
between the independent auditor and the Fund;
14. at such time that the BDC is listed on NYSE, at least
annually, set clear hiring policies for employees or former
employees of the independent accountants; and
15. at such time that the BDC is listed on NYSE, at least
annually, provide the audit committee report required by Item
306 of Regulation S K for proxy statements relating to the
election of directors/trustees; and
16. report to the Board on a regular and timely basis.
IV. ADDITIONAL PROVISIONS
---------------------
The BDC shall provide appropriate funding (as determined by
the Committee) for it to carry out its duties and its responsibilities,
including: (a) for payment of compensation to the BDC's independent accountants
or other public accounting firm providing audit, review or attest services for
the BDC, (b) for payment of compensation to any special counsel and other
advisors employed by the Committee, (c) for the ordinary administrative expenses
of the Committee, and (d) for continuing education programs to enable Committee
members to keep abreast of industry and regulatory development and to gain
continuing insights to best practices of audit committees. In performing its
duties the Committee shall consult, as it deems appropriate, with the members of
the Board, officers and employees of the BDC, the investment adviser, the BDC's
counsel and the BDC's other service providers.
On an annual basis, the Committee shall review and reassess
the adequacy of this charter and recommend to the full Board any changes the
Committee deems appropriate. In addition, on an annual basis, the Committee
shall evaluate its performance as a whole and that of its individual members to
assess whether it is functioning effectively.
A-4
APPENDIX B
DIRECTORS' SHARE HOLDINGS
The following table sets forth the dollar range of our equity
securities beneficially owned by each of our directors at December 31, 2006. We
are not part of a "family of investment companies" as that term is defined in
the 1940 Act.
DOLLAR RANGE OF EQUITY
SECURITIES IN THE
DIRECTOR COMPANY(1)
---------------------------- -------------------------
INTERESTED DIRECTOR:
James R. Maher Over $1,000,000
INDEPENDENT DIRECTORS:
Jerrold B. Harris $500,001 - $1,000,000
William E. Mayer $100,001 - $500,000
Francois de Saint Phalle Over $1,000,000
Maureen K. Usifer $100,001 - $500,000
________________
(1) Dollar ranges are as follows: None; $1 - $10,000; $10,001 -
$50,000; $50,001 - $100,000; $100,001 - $500,000; $500,001 -
$1,000,000; or over $1,000,000.
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APPENDIX C
CURRENT INVESTMENT MANAGEMENT AGREEMENT
Set forth below is the section of the current Investment
Management Agreement that describes the compensation paid to the Advisor under
the Investment Management Agreement.
8. Compensation of the Advisor.
---------------------------
(a) The Advisor, for its services to the BDC, will be entitled
to receive a management fee (the "Management Fee") from the BDC. The Management
Fee will be calculated at an annual rate of 2.00% of total assets. For services
rendered under this Agreement during the period commencing from the Closing
through and including the first twelve months of operations, the Management Fee
will be payable monthly in arrears based on the asset valuation for the prior
month or, prior to the BDC's first valuation, its assets upon the commencement
of its business. For services rendered under this Agreement after that time, the
Management Fee will be paid quarterly in arrears based on the asset valuation
for the prior quarter.
(b) For purposes of this Agreement, the net assets of the BDC
shall be calculated pursuant to the procedures adopted by resolutions of the
Directors of the BDC for calculating the value of the BDC's assets or delegating
such calculations to third parties.
(c) The Advisor will be entitled to receive a fee (the
"Carried Interest") in an amount equal to, (i) commencing on the Ramp-Up Date
and prior to the first day of the calendar quarter during which the Public
Market Event occurs, (A) 50% (payable at the same time as, and not in advance
of, any distributions in respect of the BDC's common shares) of the amount by
which the Cumulative Adjusted Common Distributions exceed the Hurdle until the
cumulative payments that have been made in respect of the Carried Interest
pursuant to this clause (i) since the Ramp-Up Date equal 20% of the sum of the
amount paid pursuant to this clause (i) plus the amount of the Cumulative
Adjusted Common Distributions since the Ramp-Up Date, and thereafter (B) an
amount (payable at the same time as, and not in advance of, any distributions in
respect of the BDC's common shares) such that, after payment thereof, the
cumulative payments that have been made in respect of the Carried Interest
pursuant to this clause (i) since the Ramp-Up Date equal 20% of the sum of the
amount paid pursuant to this clause (i) plus the amount of the Cumulative
Adjusted Common Distributions since the Ramp-Up Date and (ii) commencing on and
after the first day of the calendar quarter during which the Public Market Event
occurs, (A) 50% (payable at the same time as, and not in advance of, any
distributions in respect of the BDC's common shares) of the amount by which the
cumulative distributions and amounts distributable out of net income (including
realized capital gains in excess of realized capital losses) in respect of the
BDC's common shares (1) since the Public Market Event or (2) during the four
calendar quarters most recently completed prior to or within 15 days after the
date of declaration, whichever is most recent, exceed the Hurdle until the
cumulative payments that have been made in respect of the Carried Interest
pursuant to this clause (ii) equal 20% of the sum of the amount distributed
pursuant to this clause (ii) plus the amount of the Cumulative Adjusted Common
Distributions (1) since the Public Market Event or (2) during the four calendar
quarters most recently completed prior to or within 15 days after the date of
declaration, whichever is most recent, and thereafter (B) an amount (payable at
the same time as, and not in advance of, any distributions in respect of the
Common Shares) equal to the excess of (1) 20% of the sum of the amount
distributed pursuant to this clause (ii) plus the amount of the Measurement
Period Adjusted Common Distributions (as defined below) over (2) the portion of
the amount in item (1) above previously distributed during such four preceding
quarters.
(d) For purposes of Section 8(c), (i) "Public Market Event"
means the completion by the BDC of an initial public offering of its common
shares registered under the Securities Act of 1933 and the commencement of
trading of such common shares on a national securities exchange; (ii) "Hurdle"
means the product of 2% times the quarterly net asset value of the BDC
attributable to its common shares as of the beginning of such quarter (or such
measurement period) calculated after giving effect to any distributions in
respect of such quarter (or such measurement period) times the number of
quarters in the measurement period (which, after the Public Market Event, will
be four quarters); (iii) "Cumulative Adjusted Common Distributions" means the
excess of the cumulative distributions and amounts distributable out of net
income (including realized capital gain in excess of
C-1
realized capital losses) in respect of the common shares over the net amount of
capital depreciation, if any, at the time of determination; (iv) "Measurement
Period Adjusted Common Distributions" means the aggregate distributions and
amounts distributable out of net income (including realized capital gains in
excess of realized capital losses) in respect of the common shares during the
four calendar quarters most recently completed prior to or within 15 days after
the date of declaration of any distribution under Section 8(c), less any
increases in net capital depreciation attributable to the common shares during
such four quarter period or plus any decrease in such net capital depreciation
but only to the extent that both (A) such decrease did not exceed the net amount
of capital depreciation at the beginning of such period and (B) such decrease
did not exceed the excess of cumulative realized capital gains over cumulative
realized capital losses since commencement of operations; and (v) "Ramp-up Date"
means such time that 90% of the assets of the BDC are invested in portfolio
companies in accordance with the BDC's investment objective, excluding
investments in cash, cash equivalents, U.S. government securities and other
high-quality debt investments that mature in one year or less from the date of
investment, or the first anniversary of the date on which the BDC first draws
funds under accepted subscriptions for its common shares, whichever is sooner.
(e) The Advisor shall only be entitled to the Carried Interest
if such fees are not, have not, or will not be paid to the Advisor or an
affiliate through another mechanism.
(f) Alternatively, the Carried Interest may be paid pursuant
to a dividend on a preferred share (the "Special S Share") to be issued by the
BDC. For avoidance of doubt, if the Special S Share is issued by the BDC the
Carried Interest will not be paid pursuant to this agreement.
C-2
APPENDIX D
AMENDED INVESTMENT MANAGEMENT AGREEMENT
Set forth below is the section of the amended Investment
Management Agreement that describes the compensation paid to the Advisor under
the Investment Management Agreement. No other sections of the Investment
Management Agreement are being amended.
8. Compensation of the Advisor.
---------------------------
(a) The Advisor, for its services to the BDC, will be entitled
to receive a management fee (the "Management Fee") from the BDC. The Management
Fee will be calculated at an annual rate of 2.00% of total assets. The
Management Fee will be paid quarterly in arrears based on the asset valuation as
of the end of the prior quarter.
(b) For purposes of this Agreement, the assets and net assets
of the BDC shall be calculated pursuant to the procedures adopted by resolutions
of the Directors of the BDC for calculating the value of the BDC's assets or
delegating such calculations to third parties.
(c) The Advisor will be entitled to receive additional
compensation (the "Carried Interest"), payable at the same time as, and not in
advance of, any payment of a Common Distribution (the "Current Distribution"),
as follows:
(i) during the period from the Ramp-Up Date until the
first day of the calendar quarter during which the Public Market Event
occurs (the "PME Trigger Date"), the Carried Interest shall be in an
amount equal to:
(1) 50% of the amount by which the Cumulative Adjusted
Reference Amount including the Current Distribution,
exceed the Hurdle earned for the period from the
Ramp-Up Date through the date of the Current
Distribution, until the cumulative payments that have
been made in respect of the Carried Interest pursuant
to this clause (i) since the Ramp-Up Date equal 20% of
the Cumulative Adjusted Reference Amount earned since
the Ramp-Up Date, and thereafter
(2) an amount such that, after payment thereof, the
cumulative payments that have been made in respect of
the Carried Interest pursuant to this clause (i) since
the Ramp-Up Date equal 20% of the Cumulative Adjusted
Reference Amount earned since the Ramp-Up Date; and
(ii) during the period from the PME Trigger Date until the
first anniversary of the PME Trigger Date, the Carried Interest shall
be in an amount equal to:
(1) 50% of the amount by which the Measurement Period
Adjusted Reference Amount earned since the PME Trigger
Date exceed the Hurdle for the period from the PME
Trigger Date through the date of the Current
Distribution, until the cumulative payments that have
been made in respect of the Carried Interest pursuant
to this clause (ii) since the PME Trigger Date equal
20% of the Measurement Period Adjusted Reference Amount
earned since the PME Trigger Date, and thereafter
(2) an amount such that, after payment thereof, the
cumulative payments that have been made in respect of
the Carried Interest pursuant to this clause (ii) since
D-1
the PME Trigger Date equal 20% of the Measurement
Period Adjusted Reference amount earned since the PME
Trigger Date; and
(iii) commencing on and after the first anniversary of the
PME Trigger Date, the Carried Interest shall be in an amount equal to:
(1) 50% of the amount by which the amount of the
Measurement Period Adjusted Reference Amount earned
during the four calendar quarters most recently
completed prior to or within 15 days after the date of
the Current Distribution exceed the Hurdle for those
four quarters, until the cumulative payments that have
been made in respect of the Carried Interest pursuant
to this clause (iii) equal 20% of the Measurement
Period Adjusted Reference Amount earned during those
four quarters, and thereafter
(2) an amount such that, after payment thereof, the
cumulative payments that have been made in respect of
the Carried Interest pursuant to this clause (iii)
during the four most recent calendar quarters equal 20%
of the Measurement Period Adjusted Reference Amount
earned during those four quarters;
provided, however, that Carried Interest shall not include any amounts of
capital gain that would violate Section 205(b)(3) of the Investment Advisers Act
of 1940 as interpreted from time to time by the Securities and Exchange
Commission or its staff.
(d) For purposes of Section 8(c), the following terms shall
have the meanings ascribed to them below:
(i) Public Market Event" means the completion by the BDC
of an initial public offering of its common shares registered under the
Securities Act of 1933 and the commencement of trading of such common
shares on a national securities exchange;
(ii) "Hurdle" for any measurement period means the product
of 2% times sum of the net asset values of the BDC attributable to its
common shares as of the beginning of each calendar quarter (or as of
the Ramp-Up Date in the calendar quarter in which the Ramp-Up Date
occurs) during the respective measurement period calculated after
giving effect to any Common Distributions during that period;
(iii) "Common Distribution" means a distribution paid in
respect of the BDC's common shares;
(iv) "Cumulative Adjusted Reference Amount" as of any date
means the aggregate cumulative Common Distributions and amounts
distributable out of taxable net income (including net realized capital
gain only to the extent in excess of net unrealized capital
depreciation, if any), as of that date;
(v) "Measurement Period Adjusted Reference Amount" for any
measurement period means the aggregate Common Distributions and amounts
distributable out of taxable net income during that period (including
realized capital gains only to the extent in excess of Measurement
Period Adverse Capital Events during that period);
(vi) "Measurement Period Adverse Capital Events" for any
measurement period means the combination of (A) realized capital loss
occurring during that period (excluding realized capital loss during
that period that result from the conversion of unrealized capital
depreciation that occurred prior to that period into a realized capital
loss during that period) plus (B) net unrealized capital depreciation,
if any, occurring during that period; and
D-2
(vii) "Ramp-up Date" means such time that 90% of the
assets of the BDC are invested in portfolio companies in accordance
with the BDC's investment objective, excluding investments in cash,
cash equivalents, U.S. government securities and other high-quality
debt investments that mature in one year or less from the date of
investment, or the first anniversary of the date on which the BDC first
draws funds under accepted subscriptions for its common shares,
whichever is sooner.
(e) The Advisor shall only be entitled to the Carried Interest
as a fee hereunder if such compensation is not, has not, or will not be paid to
the Advisor or an affiliate through another mechanism.
(f) Alternatively, the Carried Interest may be paid pursuant
to a dividend on a preferred share (the "Special S Share") to be issued by the
BDC. For avoidance of doubt, if the Special S Share is issued by the BDC the
Carried Interest will not be paid pursuant to this agreement.
D-3
BlackRock Kelso Capital Corporation
MR A SAMPLE
DESIGNATION (IF ANY)
ADD 1
ADD2
___ Mark this box with an X if you have made
changes to your name or address details above.
_________________________________________________________________________________________________________________
Annual Meeting Proxy Card - Common Shares
_________________________________________________________________________________________________________________
A. Election of Directors
1. The Board of Directors recommends a vote FOR the listed nominees.
For Withhold For Withhold
01 - James R. Maher ___ ___ 04 - Francois de Saint Phalle ___ ___
02 - Jerrold B. Harris ___ ___ 05 - Maureen K. Usifer ___ ___
03 - William E. Mayer ___ ___
B. Issues
The Board of Directors recommends a vote FOR the following proposals.
For Against Abstain
2. To amend the Company's Certificate of Incorporation to ___ ___ ___
expand the number of authorized shares of common stock from
40 million to 100 million.
3. To amend the Company's Investment Management Agreement. ___ ___ ___
4. To ratify the selection of Deloitte & Touche LLP to serve as ___ ___ ___
the Company's independent registered public accounting firm
for the year ending December 31, 2007.
Mark this box with an X if you have made comments below ___
________________________________________________
________________________________________________
________________________________________________
C. Authorized Signatures - Sign Here - This Section must completed for your instructions to be executed.
Please be sure to sign and date this proxy. Please sign exactly as your name appears on this proxy. When
shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, or
trustee, or guardian, please give full title as such. If a corporation, please sign in full corporate name
by president or other authorized officer. If a partnership, please sign in partnership name by authorized
person.
Signature 1 Signature 2 Date (mm/dd/yyyy)
________________________ ________________________ __ __ / __ __ / __ __ __ __
Number of Shares of Common Stock owned
________________________
_________________________________________________________________________________________________________________
Proxy - BlackRock Kelso Capital Corporation
_________________________________________________________________________________________________________________
COMMON SHARES
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael B. Lazar and Frank D. Gordon, and both of them, as proxies, both with
the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on
the reverse side hereof, all of the Common Shares of BlackRock Kelso Capital Corporation (the "Company") held
of record by the undersigned on March 2, 2007 at the Annual Meeting of Shareholders of the Company to be held
on March 27, 2007 or at any adjournments or postponements thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS. IN THEIR DISCRETION, THE
PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY BE PRESENTED TO THE MEETING OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF.
PLEASE MARK BOXES IN BLUE OR BLACK INK.
SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED POSTAGE PAID ENVELOPE.
