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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(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
(Amendment No. 1)

Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
   
 
Check the appropriate box:
 
☒   Preliminary Proxy Statement
 
o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
 
o   Definitive Proxy Statement
 
o   Definitive Additional Materials
   
 
o   Soliciting Material Pursuant to Rule 14a-12
OHA INVESTMENT 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):

No fee required.
o
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
 
 
 
 
 
 
o
Fee paid previously with preliminary materials:
   
 
o
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.:
 
 
 
 
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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This document is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where such offer or sale is not permitted.

PRELIMINARY—SUBJECT TO COMPLETION—DATED OCTOBER 15, 2019

OHA INVESTMENT CORPORATION
1114 Avenue of the Americas, 27th Floor
New York, New York 10036

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

[•], 2019

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “Special Meeting”) of OHA Investment Corporation (“OHAI”), to be held on [•], 2019 at [•] [p.m.][a.m.], Eastern Time, at the offices of Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, NY 10036.

The notice of special meeting and the proxy statement/prospectus accompanying this letter provide an outline of the business to be conducted at the Special Meeting. At the Special Meeting, you will be asked to:

(i)approve the merger of Storm Acquisition Sub Inc. (“Acquisition Sub”), a wholly owned subsidiary of Portman Ridge Finance Corporation (“PTMN”), with and into OHAI (such proposal is referred to herein as the “Merger Proposal”), after which OHAI will merge immediately with and into PTMN; and
(ii)approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Merger Proposal (such proposal is referred to herein as the “Adjournment Proposal”).

OHAI and PTMN are proposing a combination of both companies by a merger and related transactions pursuant to the Agreement and Plan of Merger dated as of July 31, 2019 (as may be amended from time to time, the “Merger Agreement”) by and among OHAI, PTMN, Acquisition Sub and Sierra Crest Investment Management LLC (“Sierra Crest”) in which Acquisition Sub would merge with and into OHAI with OHAI surviving as a wholly-owned subsidiary of PTMN (the “First Merger”). Immediately following the First Merger, OHAI, as the surviving company, would merge with and into PTMN with PTMN continuing as the surviving company (the “Second Merger”, and together with the First Merger, the “Merger”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the First Merger (the “Effective Time”), each share of common stock, par value $0.001 per share, of OHAI (“OHAI Common Stock”) issued and outstanding immediately prior to the Effective Time (other than shares held by subsidiaries of OHAI or held, directly or indirectly, by PTMN or Acquisition Sub (“Canceled Shares”)) will be converted into the right to receive (i) an amount in cash equal to (A) $8,000,000 (the “Aggregate Cash Consideration”) divided by (B) the number of shares of OHAI Common Stock issued and outstanding as of the Determination Date (as defined below) (excluding any Canceled Shares) (such amount in cash, the “Cash Consideration”), and (ii) a number of shares of common stock, par value $0.01 per share, of PTMN (“PTMN Common Stock”) equal to the Exchange Ratio (as defined below) (the “Share Consideration” and, together with the Cash Consideration, the “Merger Consideration”). Furthermore, as additional consideration to the holders of shares of OHAI Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Canceled Shares), Sierra Crest will cause to be paid directly to such holders an aggregate amount in cash equal to $3,000,000 (the “Additional Cash Consideration”).

Under the Merger Agreement, on the day prior to the closing date of the merger, each of OHAI and PTMN will deliver to the other a calculation as of three days prior to the closing of the Merger (such date, the “Determination Date”) of its net asset value as of 5:00 p.m. Eastern Time (such calculation with respect to OHAI, the “Closing OHAI Net Asset Value” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case using a pre-agreed set of assumptions, methodologies and adjustments. Based on such calculations, the parties will calculate the “OHAI Per Share NAV”, which will be equal to (i) (A) the Closing OHAI Net Asset Value minus (B) the Aggregate Cash Consideration divided by (ii) the number of shares of OHAI Common Stock issued and outstanding as of the Determination Date (excluding any Canceled Shares), and the “PTMN Per Share NAV”, which will be equal to (I) the Closing PTMN Net Asset Value divided by (II) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. For purposes of the Merger Agreement, the “Exchange Ratio” will be equal to (i) the OHAI Per Share NAV divided by (ii) the PTMN Per Share NAV.

If the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger would exceed 19.9% of the number of issued and outstanding shares of PTMN Common Stock immediately prior to the Effective Time (the “Maximum Share Number”), the Aggregate Cash Consideration for all purposes of the Merger Agreement will be increased to the minimum extent necessary such that the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger does not exceed the Maximum Share Number.

The market value of the Merger Consideration will fluctuate with changes in the market price of OHAI Common Stock and PTMN Common Stock. We urge you to obtain current market quotations of OHAI Common Stock and PTMN Common Stock. OHAI Common Stock and PTMN Common Stock trade on The Nasdaq Global Select Market (the “Nasdaq”) under the ticker symbol “OHAI” and “PTMN,” respectively. The following table shows the closing sale prices of OHAI Common Stock and PTMN Common Stock, as reported on the Nasdaq on July 30, 2019, the last trading day before the execution of the Merger Agreement, and on [], 2019, the last full trading day before printing this document.

 
OHAI
Common Stock
PTMN
Common Stock
Closing Sales Price at July 30, 2019
$
1.0833
 
$
2.345
 
Closing Sales Price at [•], 2019
$
[•]
 
$
[•]
 

Your vote is extremely important. At the Special Meeting, you will be asked to vote on the Merger Proposal. The approval of the Merger Proposal requires the affirmative vote by the holders of at least a majority of the outstanding shares of OHAI Common Stock entitled to vote at the Special Meeting. You also may be asked to vote on a proposal to approve the Adjournment Proposal, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Merger Proposal. The approval of the Adjournment Proposal requires the affirmative vote of the holders of at least a majority of votes cast by holders of shares of OHAI Common Stock present at the Special meeting, in person or represented by proxy.

Abstentions and broker non-votes (which occur when a beneficial owner does not instruct its broker, bank or other institution or nominee holding its shares of OHAI Common Stock on its behalf) will not count as affirmative votes cast and will therefore have the same effect as votes against each of the Merger Proposal.

After careful consideration, on the recommendation of a special committee (“Special Committee”) of the board of directors of OHAI (the “OHAI Board”), the OHAI Board (other than directors affiliated with Oak Hill Advisors, L.P., the external investment adviser to OHAI, who abstained from voting) has unanimously approved the Merger and the Merger Agreement and unanimously recommends that OHAI Stockholders vote “FOR” the Merger Proposal and “FOR” for the Adjournment Proposal, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Merger Proposal.

It is very important that your shares be represented at the Special Meeting. Even if you plan to attend the meeting in person, we urge you to complete, date and sign the enclosed proxy card and promptly return it in the envelope provided. If you prefer, you can save time by voting through the Internet or by telephone as described in this proxy statement/prospectus and on the enclosed proxy card. We encourage you to vote via the Internet, if possible, as it saves us significant time and processing costs. Your vote and participation in the governance of OHAI are very important to us.

This proxy statement/prospectus describes the Special Meeting, the Merger, and the documents related to the Merger (including the Merger Agreement) that OHAI Stockholders should know before voting on the Merger Proposal and should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 15, for a discussion of the risks relating to the Merger. OHAI files annual, quarterly and current reports, proxy statements and other information about itself with the SEC. OHAI maintains a website at www.ohainvestmentcorporation.com and makes all of its annual, quarterly and current reports, proxy statements and other publicly filed information available on or through its website. You may also obtain such information, free of charge, and make shareholder inquiries by contacting OHAI at 1114 Avenue of the Americas, 27th floor, New York, New York 10036, Attention: Investor Relations, or by calling collect at (212) 852-1900. The SEC also maintains a website at http://www.sec.gov that contains such information.

 
Sincerely yours,
   
 
 
Steven T. Wayne
President and Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of PTMN Common Stock to be issued under this proxy statement/prospectus or determined if this proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [•], 2019 and it is first being mailed or otherwise delivered to OHAI Stockholders on or about [•], 2019.

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OHA INVESTMENT CORPORATION
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
(212) 852-1900

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [•], 2019

Notice is hereby given to the owners of shares of common stock (the “OHAI Stockholders”) of OHA Investment Corporation (“OHAI”) that:

A Special Meeting of Stockholders (the “Special Meeting”) of OHAI will be held at the offices of Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, NY 10036, on [•], 2019 at [•] [a.m.][p.m.], Eastern Time, for the following purposes:

(i)To approve the merger of Storm Acquisition Sub Inc. (“Acquisition Sub”), a wholly owned subsidiary of Portman Ridge Finance Corporation (“PTMN”), with and into OHAI (such proposal is referred to herein as the “Merger Proposal”), after which OHAI will merge immediately with and into PTMN; and
(ii)To approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Merger Proposal (such proposal is referred to herein as the “Adjournment Proposal”).

OHAI and PTMN are proposing a combination of both companies by a merger and related transactions pursuant to the Agreement and Plan of Merger dated as of July 31, 2019 (as may be amended from time to time, the “Merger Agreement”) by and among OHAI, PTMN, Acquisition Sub and Sierra Crest Investment Management LLC (“Sierra Crest”) in which Acquisition Sub would merge with and into OHAI with OHAI surviving as a wholly-owned subsidiary of PTMN (the “First Merger”). Immediately following the First Merger, OHAI, as the surviving company, would merge with and into PTMN with PTMN continuing as the surviving company (the “Second Merger”, and together with the First Merger, the “Merger”).

on the recommendation of a special committee (“Special Committee”) of the board of directors of OHAI (the “OHAI Board”), the OHAI Board (other than directors affiliated with Oak Hill Advisors, L.P., the external INVESTMENT advisEr to OHAI, who abstained from voting) has unanimously approved the Merger and the Merger Agreement and unanimously recommends that OHAI stockholders vote “FOR” the Merger Proposal and “FOR” for Adjournment Proposal, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the special meeting to Approve the Merger Proposal.

Enclosed is a copy of the proxy statement/prospectus and the proxy card. You have the right to receive notice of, and to vote at, the Special Meeting if you were an OHAI Stockholder of record at the close of business on November 5, 2019. Whether or not you expect to be present in person at the Special Meeting, please sign the enclosed proxy and return it promptly in the envelope provided, or authorize your proxy via the Internet or telephone. Instructions are shown on the proxy card.

Your vote is extremely important to OHAI. In the event there are not sufficient votes for a quorum or to approve the proposals at the time of the Special Meeting, the Special Meeting may be adjourned in order to permit further solicitation of proxies by OHAI.

The Merger and the Merger Agreement are each described in more detail in this proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to this proxy statement/prospectus is a copy of the Merger Agreement, attached as Annex A.

 
By Order of the Board of Directors,
   
 
   
 
 
Gregory Rubin
 
Secretary

[•], 2019

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This is an important meeting. To ensure proper representation at the meeting, please promptly authorize a proxy over the Internet or by telephone, or execute and return the accompanying proxy card, which is being solicited by the OHAI Board. Instructions are shown on the proxy card. Authorizing a proxy is important to ensure a quorum at the Special Meeting. Proxies may be revoked at any time before they are exercised by submitting a written notice of revocation or a subsequently executed proxy, or by attending the Special Meeting and voting in person.

Important notice regarding the availability of proxy materials for the Special Meeting, OHAI’s proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

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ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form N-14 filed with the U.S. Securities and Exchange Commission (the “SEC”) by PTMN (File No. 333-233664), constitutes a prospectus of PTMN under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of PTMN Common Stock to be issued to OHAI Stockholders as required by the Merger Agreement.

This document also constitutes a proxy statement of OHAI under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the Special Meeting, at which OHAI Stockholders will be asked to vote upon the Merger Proposal and the Adjournment Proposal.

You should rely only on the information contained in this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this proxy statement/prospectus. This proxy statement/prospectus is dated [•], 2019. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. Neither the mailing of this proxy statement/prospectus to OHAI Stockholders nor the issuance of PTMN Common Stock in connection with the Merger will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Except where the context otherwise indicates, information contained in this proxy statement/prospectus regarding PTMN has been provided by PTMN and information contained in this proxy statement/prospectus regarding OHAI has been provided by OHAI.

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The questions and answers below highlight only selected information from this proxy statement/prospectus. They do not contain all of the information that may be important to you. You should carefully read this entire document to fully understand the Merger Agreement and the transactions contemplated thereby (including the Merger) and the voting procedures for the Special Meeting.

Questions and Answers about the Special Meeting

Q:Why am I receiving these materials?
A:OHAI is furnishing these materials in connection with the solicitation of proxies by OHAI’s board of directors (the “OHAI Board”) for use at the special meeting of OHAI Stockholders to be held at [•] [p.m.][a.m.], Eastern Time, on [•], 2019 at the offices of Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, NY 10036, and any adjournments or postponements thereof (the “Special Meeting”).

This proxy statement/prospectus and the accompanying materials are being mailed on or about [•], 2019 to stockholders of record of OHAI described below and are available at www.proxyvote.com.

Q:What items will be considered and voted on at the Special Meeting?
A:At the Special Meeting, OHAI Stockholders will be asked to approve: (i) the merger of Acquisition Sub, with and into OHAI (such proposal is referred to herein as the “Merger Proposal”), after which OHAI will merge immediately with and into PTMN; and (ii) the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the Merger Proposal (such proposal is referred to herein as the “Adjournment Proposal”). No other matters will be acted upon at the Special Meeting without further notice.
Q:How does the OHAI Board recommend voting on the Merger Proposal at the Special Meeting?
A:The OHAI Board (other than directors affiliated with Oak Hill Advisors, L.P., the external investment adviser to OHAI, who abstained from voting), acting on the recommendation of the Special Committee, has unanimously approved the Merger and the Merger Agreement and unanimously recommends that OHAI Stockholders vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal (the “OHAI Board Recommendation”).
Q:What is the “Record Date” and what does it mean?
A: The record date for the Special Meeting is November 5, 2019 (the “Record Date”). The Record Date is established by the OHAI Board, and only holders of record of shares of OHAI Common Stock at the close of business on the Record Date are entitled to receive notice of the Special Meeting and vote at the Special Meeting. As of the Record Date, there were [•] shares of OHAI Common Stock outstanding.
Q:How many votes do I have?
A:Each share of OHAI Common Stock held by a holder of record as of the Record Date has one vote on each matter considered at the Special Meeting.
Q:How do I vote?
A:An OHAI Stockholder may vote in person at the Special Meeting or by proxy in accordance with the instructions provided below. An OHAI Stockholder may also authorize a proxy by telephone or through the Internet, using the toll-free telephone numbers or web address printed on your proxy card. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link.
By Internet: www.proxyvote.com
By telephone: (800) 690-6903 to reach a toll-free, automated touchtone voting line, or (855) 973-0092 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

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By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 5:00 p.m., Eastern Time, on [•], 2019.
In person: You may vote in person at the Special Meeting by requesting a ballot when you arrive. If your shares of OHAI Common Stock are held through a broker and you attend the Special Meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the Special Meeting.
Q:What if an OHAI Stockholder does not specify a choice for a matter when authorizing a proxy?
A:All properly executed proxies representing shares of OHAI Common Stock at the Special Meeting will be voted in accordance with the directions given. If the enclosed proxy card is signed and returned without any directions given, the shares of OHAI Common Stock will be voted “FOR” the Merger Proposal and the Adjournment Proposal.
Q:How can I change my vote or revoke a proxy?
A:You may revoke your proxy and change your vote by giving notice at any time before your proxy is exercised. A revocation may be effected by resubmitting voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received before the Special Meeting, by attending the Special Meeting and voting in person, or by a notice, provided in writing and signed by you, delivered to OHAI’s Secretary on any business day before the date of the Special Meeting.
Q:If my shares of OHAI Common Stock are held in a broker-controlled account or in “street name,” will my broker vote my shares for me?
A:No. You should follow the instructions provided by your broker on your voting instruction form. It is important to note that your broker will vote your shares only if you provide instructions on how you would like your shares to be voted at the applicable special meeting.
Q:What constitutes a “quorum” for the Special Meeting?
A:The presence at the Special Meeting, in person or by proxy, of the holders of a majority of the shares of OHAI Common Stock, outstanding and entitled to be cast on the Record Date, will constitute a quorum. Shares held by a broker or other nominee for which the nominee has not received voting instructions from the record holder and does not have discretionary authority to vote the shares on non-routine proposals (which are considered “broker non-votes” with respect to such proposals) will be treated as shares present for quorum purposes. Notwithstanding the foregoing, OHAI shall, at the request of PTMN, postpone the Special Meeting to a date specified by PTMN for the absence of a quorum or if OHAI has not received proxies representing a sufficient number of shares of OHAI Common Stock to approve the Merger Proposal; provided, that no such postponement pursuant to this sentence shall be required to be for a period exceeding 10 calendar days.
Q:What vote is required to approve each of the proposals being considered at the Special Meeting?
A:The affirmative vote of the holders of a majority of the outstanding shares of OHAI Common Stock entitled to vote at the Special Meeting is required to approve the Merger Proposal. The affirmative vote of the holders of at least a majority of the votes cast by holders of the shares of OHAI Common Stock present at the Special Meeting, in person or represented by proxy, will be required to approve the Adjournment Proposal.

Abstentions and broker non-votes will have the effect of a vote “against” the Merger Proposal.

Q:Do PTMN Stockholders have a right to vote?
A:No, the transaction is not required to be approved by PTMN’s stockholders (“PTMN Stockholders”).

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Q:What will happen if the Merger Proposal being considered at the Special Meeting is not approved by the required vote?
A:If the Merger does not close because the OHAI Stockholders do not approve the Merger Proposal or any of the other conditions to the closing of the Merger are not satisfied or waived, each of OHAI and PTMN will continue to operate independently under the management of their respective investment advisers, and each of OHAI’s and PTMN’s respective directors and executive officers will continue to serve as its directors and officers, respectively, until their successors are duly elected and qualified or their resignation. In addition, OHAI will not benefit from the expenses incurred in its pursuit to approve the Merger Proposal and under certain circumstances, OHAI will be required to pay half of PTMN’s expenses incurred in connection with the Merger, subject to a maximum reimbursement payment of $500,000.
Q:How will the final voting results be announced?
A:Preliminary voting results may be announced at the Special Meeting. Final voting results will be published by OHAI in a current report on Form 8-K within four business days after the date of the Special Meeting.
Q:Are the proxy materials available electronically?
A:In accordance with regulations promulgated by the SEC, OHAI has made the registration statement (of which this proxy statement/prospectus forms a part), the Notice of Special Meeting of Stockholders and the proxy card available to OHAI Stockholders on the Internet. Stockholders may (i) access and review the proxy materials of OHAI, (ii) authorize their proxies, as described in “The Special Meeting—Voting of Proxies” and/or (iii) elect to receive future proxy materials by electronic delivery via the Internet address provided below.

The registration statement (of which this proxy statement/prospectus forms a part), Notice of Special Meeting of Stockholders and the proxy card are available at www.proxyvote.com.

Q:Will my vote make a difference?
A:Yes. Your vote is needed to ensure that the Merger Proposal can be acted upon. Your vote is very important. Your immediate response will help avoid potential delays and may save significant additional expenses associated with soliciting stockholder votes.
Q:Whom can I contact with any additional questions?
A:If you are an OHAI Stockholder, you can contact OHAI’s Investor Relations Departments at the below contact information with any additional questions:

Investor Relations
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
(212) 852-1900

Q:Where can I find more information about OHAI and PTMN?
A:You can find more information about OHAI and PTMN in the documents described under the caption “Where You Can Find More Information.”
Q:What do I need to do now?
A:We urge you to carefully read this entire document, including its annexes. You should also review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors.

Questions and Answers about the Merger

Q:What will happen in the Merger?
A:OHAI shall be the surviving company of the merger between OHAI and Acquisition Sub and shall continue its existence as a corporation under the laws of the State of Maryland until the Second Merger. As of the effective time of the First Merger, the separate corporate existence of the Acquisition Sub shall cease. Immediately thereafter, pursuant to the Second Merger, the surviving company will merge with and into PTMN, with PTMN as the surviving entity.

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Q:What will OHAI Stockholders receive in the Merger?
A:Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of OHAI Common Stock issued and outstanding immediately prior to the Effective Time (other than Canceled Shares) will be converted into the right to receive (i) an amount in cash equal to (A) $8,000,000 (the “Aggregate Cash Consideration”) divided by (B) the number of shares of OHAI Common Stock issued and outstanding as of the Determination Date (as defined in the below) (excluding any Canceled Shares) (such amount in cash, the “Cash Consideration”), and (ii) a number of shares of PTMN Common Stock equal to the Exchange Ratio (the “Share Consideration” and, together with the Cash Consideration, the “Merger Consideration”). Furthermore, as additional consideration to the holders of shares of OHAI Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Canceled Shares), Sierra Crest will cause to be paid directly to such holders an aggregate amount in cash equal to $3,000,000 (the “Additional Cash Consideration”).
Q:How will the Exchange Ratio be determined?
A:Under the Merger Agreement, three days prior to the closing of the Merger (such date, the “Determination Date”), each of OHAI and PTMN will deliver to the other a calculation of its net asset value as of 5:00 p.m. Eastern Time on the day prior to the closing date of the Merger (such calculation with respect to OHAI, the “Closing OHAI Net Asset Value” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case, using a pre-agreed set of assumptions, methodologies and adjustments. Based on such calculations, the parties will calculate the “OHAI Per Share NAV”, which will be equal to (i) (A) the Closing OHAI Net Asset Value minus (B) the Aggregate Cash Consideration divided by (ii) the number of shares of OHAI Common Stock issued and outstanding as of the Determination Date (excluding any Canceled Shares), and the “PTMN Per Share NAV”, which will be equal to (I) the Closing PTMN Net Asset Value divided by (II) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. For purposes of the Merger Agreement, the “Exchange Ratio” will be equal to (i) the OHAI Per Share NAV divided by (ii) the PTMN Per Share NAV.
Q:Is the Aggregate Cash Consideration subject to any adjustment?
A:Yes, if the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger would exceed 19.9% of the issued and outstanding shares of PTMN Common Stock immediately prior to the closing of the First Merger (the “Maximum Share Number”), then the Aggregate Cash Consideration will be increased to the minimum extent necessary such that the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger does not exceed the Maximum Share Number.
Q:Who is responsible for paying the expenses relating to completing the Merger?
A: In general, all fees and expenses incurred in connection with the Merger shall be paid by the parties incurring such fees and expenses, whether or not the Merger is consummated. However, (i) PTMN and OHAI have agreed to split pro-rata based on their closing net asset values the costs associated with maintaining insurance for OHAI’s officers and directors subsequent to the completion of the Merger; (ii) PTMN and OHAI have agreed to pay 60% and 40%, respectively, of the costs of printing this proxy statement/prospectus; and (iii) OHAI will be required to pay half of PTMN’s expenses incurred in connection with the Merger, subject to a maximum reimbursement payment of $500,000, if the Merger Proposal is not approved by OHAI’s shareholders at the Special Meeting and PTMN is not otherwise entitled to the termination fee described elsewhere herein. It is expected that PTMN will incur approximately $1,000,000, or $0.03 per share, and OHAI will incur approximately $1,690,000, or $0.08 per share, of fees and expenses in connection with completing the Merger.

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Q:Will I receive dividends after the Merger?
A:Each OHAI Stockholder will become a stockholder of PTMN, and will receive any future dividends and distributions paid to PTMN Stockholders. PTMN anticipates that it will continue to pay quarterly distributions to its stockholders in accordance with the schedule below:

2019 Distribution Schedule:

 
Declaration Date
Record Date
Payable Date
1
December (2018)
January (2019)
January (2019)
2
March
April
April
3
August
August
August
4
November
November
November

2020 Forward Distribution Schedule:

 
Declaration Date
Record Date
Payable Date
1
February
February
February
2
May
May
May
3
August
August
August
4
November
November
November

PTMN intends to continue to make distributions on a quarterly basis to stockholders out of assets legally available for distribution. All distributions will be paid at the discretion of PTMN’s Board of Directors and will depend on PTMN’s earnings, financial condition, maintenance of its status as a “regulated investment company” under Subchapter M of the Code, compliance with applicable BDC regulations and such other factors as its Board of Directors may deem relevant from time to time. PTMN cannot guarantee that it will pay distributions to stockholders in the future. For a history of the dividends and distributions paid by PTMN since January 1, 2017, see “Market Price, Dividend and Distribution Information—PTMN.

PTMN has adopted a dividend reinvestment plan that provides for reinvestment of PTMN’s distributions on behalf of PTMN’s stockholders, unless a stockholder elects to receive cash as provided below. As a result, if PTMN’s Board of Directors authorizes, and PTMN declares, a cash distribution, then PTMN’s stockholders who have not “opted out” of PTMN’s dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of PTMN Common Stock, rather than receiving the cash. See “Portman Ridge Finance Corporation Dividend Reinvestment Plan” for additional information regarding PTMN’s dividend reinvestment plan.

Following the Effective Time, the record holders of shares of OHAI Common Stock shall be entitled to receive dividends or other distributions declared by PTMN’s Board of Directors, with a record date after the Effective Time theretofore payable with respect to the whole shares of PTMN Common Stock represented by such shares of OHAI Common Stock. For a history of the dividends and distributions paid by OHAI since January 1, 2017, see “Market Price, Dividend and Distribution Information—OHAI.

Q:Is the Merger subject to any third-party consents?
A:Under the Merger Agreement, OHAI and PTMN have agreed to cooperate with each other and use their reasonable best efforts to take, or cause to be taken, in good faith, all actions, and to do, or cause to be done, all things necessary, including to obtain as promptly as practicable all permits, consents, approvals, confirmations and authorizations of all third parties, in each case, that are necessary or advisable, to consummate the transactions contemplated by the Merger Agreement, including the Merger, in the most expeditious manner practicable. As of the date of this proxy statement/prospectus, OHAI and PTMN believe that they have obtained all necessary third-party consents other than approval by OHAI Stockholders of the Merger Proposal. There can be no assurance that any permits, consents, approvals, confirmations or authorizations will be obtained or that such permits, consents, approvals, confirmations or authorizations will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following the Merger.

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Q:How does PTMN’s investment objective and strategy differ from OHAI’s?
A: PTMN’s investment objective is to generate current income and, to a lesser extent, capital appreciation from its investments in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle-market companies. PTMN defines the middle-market as comprising companies with EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of $10 million to $50 million and/or total debt of $25 million to $150 million. PTMN primarily invests in first and second lien term loans which, because of their priority in a company’s capital structure, it expects will have lower default rates and higher rates of recovery of principal if there is a default and which it expects will create a stable stream of interest income. The investments in PTMN’s debt securities portfolio are all or predominantly below investment grade (i.e., “junk bonds”), and have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

OHAI’s investment objective is to generate both current income and capital appreciation primarily through debt investments, some of which include equity components. OHAI focuses primarily on providing creative direct lending solutions to middle market private companies across industry sectors.

Both PTMN and OHAI seek to generate current income and capital appreciation primarily through investments in middle-market companies. PTMN generally invests in smaller middle-market companies than OHAI, and invests a higher proportion of its assets in first lien loans than OHAI. Additionally, PTMN seeks higher asset yields through an illiquidity premium, whereas OHAI’s assets are primarily liquid securities. Finally, PTMN historically has a portion of its assets in debt and subordinated securities issued by collateralized loan obligation funds (“CLO Funds”), which are not part of OHAI’s investment strategy.

Q:How will the combined company be managed following the Merger?
A:The directors of PTMN immediately prior to the Merger will remain the directors of PTMN and will hold office until their respective successors are duly elected and qualify, or their earlier death, resignation or removal. The officers of PTMN immediately prior to the Merger will remain the officers of PTMN and will hold office until their respective successors are duly appointed and qualify, or their earlier death, resignation or removal. Following the Merger, PTMN will continue to be managed by Sierra Crest, and there are not expected to be any material changes in PTMN’s investment objective or strategy. Over time, it is anticipated that PTMN will transition the investments acquired through the Merger into investments in smaller middle-market companies, consistent with PTMN’s current investment strategy.
Q:Are OHAI Stockholders able to exercise appraisal rights?
A:No. OHAI Stockholders will not be entitled to exercise appraisal rights (rights of an objecting stockholder under Maryland law) with respect to any matter to be voted upon at the Special Meeting.
Q:When do you expect to complete the Merger?
A:While there can be no assurance as to the exact timing, or that the Merger will be completed at all, PTMN and OHAI are working to complete the Merger in the fourth quarter of 2019. It is currently expected that the Merger will be completed promptly following receipt of the required OHAI Stockholder approval at the Special Meeting and satisfaction of the other closing conditions set forth in the Merger Agreement.
Q:Is the Merger expected to be taxable to OHAI Stockholders?
A:Subject to the discussion below, the Merger is intended to qualify as a “reorganization,” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the Merger qualifies as a reorganization for U.S. federal income tax purposes, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger”) of OHAI Common Stock who receive a combination of shares of PTMN Common Stock and cash, other than cash instead of a fractional share of PTMN Common Stock, in exchange for their OHAI Common Stock, will recognize gain (but not loss) in an amount equal to the lesser of (x) the amount by which the sum of the fair market value of the shares of PTMN Common Stock and cash (other than cash received instead of a fractional share of PTMN Common Stock) received by such holder in exchange for its shares of OHAI Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration) exceeds such holder’s adjusted basis in its shares of OHAI Common

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Stock, and (y) the amount of cash (other than cash received instead of fractional shares of PTMN Common Stock) received by such holder in exchange for its shares of OHAI Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration). Generally, any gain recognized upon the exchange will be capital gain, and any such capital gain will be long-term capital gain if the holding period for such shares of OHAI Common Stock is more than one year. Depending on certain facts specific to you, gain could instead be characterized as ordinary dividend income.

With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder is treated as additional merger consideration. It is possible, however, that the Additional Cash Consideration may be treated as ordinary income and not as cash received in exchange for a such holder’s OHAI Common Stock.

In addition, the Merger will not qualify as a reorganization if the fair market value of the PTMN Common Stock received by OHAI Stockholders in the Merger does not equal or exceed 40% of the aggregate consideration. As noted below under “Description of the Merger AgreementMerger Consideration,” the amount of PTMN Common Stock and cash to be transferred in the Merger is subject to adjustments. Moreover, there is a risk that OHAI Stockholders who sell all or a portion of their PTMN Common Stock received in the Merger for cash pursuant to the open market repurchase program described below under “Description of the Merger AgreementOpen Market Stock Repurchase Program” will be treated as having received cash, rather than PTMN Common Stock, in the Merger. Such sales may be treated as an increase in the amount of cash and a decrease in the amount of PTMN Common Stock transferred in the Merger for purposes of testing whether the Merger qualifies as a reorganization.

If the Merger does not qualify as a reorganization, U.S. holders of OHAI Common Stock will be treated as having sold their OHAI Common Stock in a taxable sale and will generally recognize gain or loss equal to the difference between the fair market value of the PTMN Common Stock and cash received (including such holder’s share of the Aggregate Cash Consideration and possibly, as discussed above, the Additional Cash Consideration) and the basis in his or her OHAI Common Stock. This gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the Merger, the holding period for such shares of OHAI Common Stock is greater than one year. The deductibility of capital losses is subject to limitations.

On the closing date of the Merger, PTMN and OHAI will use commercially reasonably efforts to make a determination, in consultation with tax counsel, as to whether or not the Merger qualifies as reorganization for U.S. federal income tax purposes, and, to the extent any such determination is made, PTMN will inform the OHAI Stockholders of such determination as soon as practicable after the closing. The determination will be based on the then-existing law, will assume the absence of changes in existing facts, may rely on assumptions and will rely on representations contained in certificates executed by officers of PTMN and OHAI.

The obligations of PTMN and OHAI to complete the Merger are not conditioned on the receipt of, and PTMN and OHAI will not receive, opinions from Simpson Thacher & Bartlett LLP (“STB”), counsel to PTMN, or Dechert LLP (“Dechert”), counsel to OHAI, to the effect that the Merger will qualify as a reorganization for U.S. federal income tax purposes. For more information, see “Certain Material U.S. Federal Income Tax Consequences of the Merger.OHAI Stockholders should consult with their own tax advisors to determine the tax consequences of the Merger to them.

Q:What happens if the Merger is not consummated?
A:If the Merger is not approved by the requisite vote of OHAI’s stockholders, or if the Merger is not completed for any other reason, OHAI’s stockholders will not receive any payment for their shares of OHAI Common Stock in connection with the Merger. Instead, OHAI will remain an independent company. In addition, under circumstances specified in the Merger Agreement, OHAI may be required to pay PTMN, or PTMN may be required to pay OHAI, a termination fee of approximately $1.3 million. See “Description of the Merger Agreement—Termination of the Merger Agreement.”

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SUMMARY OF THE MERGER

This summary highlights selected information contained elsewhere in this proxy statement/prospectus and may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus, including the other documents to which this proxy statement/prospectus refers for a more complete understanding of the Merger. In particular, you should read the annexes attached to this proxy statement/prospectus, including the Merger Agreement, which is attached as Annex A hereto, as it is the legal document that governs the Merger. See “Where You Can Find More Information.” For a discussion of the risk factors you should carefully consider, see the section entitled “Risk Factors” beginning on page 15.

The Parties to the Merger

OHA Investment Corporation
1114 Avenue of the Americas, 27th Floor
New York, New York 10036
(212) 852-1900

OHAI is a specialty finance company with an investment objective to generate both current income and capital appreciation primarily through debt investments, some of which may include equity components. OHAI focuses primarily on providing creative direct lending solutions to middle market private companies across industry sectors. OHAI’s investment activities are managed by Oak Hill Advisors, L.P. (“OHA”), OHAI’s investment adviser and administrator, and supervised by the Board of Directors of OHAI (“OHAI Board”), the majority of whose members are independent of OHA and its affiliates.

OHAI is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”), under the Investment Company Act of 1940, amended (the “1940 Act”). For federal income tax purposes, OHAI operates so as to be treated as a regulated investment company (“RIC”), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a BDC and a RIC, OHAI is required to comply with certain investment diversification and other regulatory requirements.

Portman Ridge Finance Corporation
650 Madison Avenue, 23rd Floor
New York, New York 10022
(212) 891-2880

PTMN was formed in August 2006 under the former name, Kohlberg Capital Corporation, and completed an initial public offering in December 2006. Until March 31, 2019, PTMN operated as an internally managed BDC. On April 1, 2019, PTMN converted to an external management structure.

PTMN is an externally managed, non-diversified closed-end investment company that is regulated as a BDC, under the 1940 Act. PTMN has elected to be treated for U.S. federal income tax purposes as a RIC under the Code and intends to operate in a manner to maintain its RIC status.

PTMN originates, structures, and invests in senior secured term loans and mezzanine debt primarily in privately-held middle-market companies (the “Debt Securities Portfolio”). In addition, from time to time PTMN may invest in the equity securities of privately held middle-market companies.

PTMN’s debt securities portfolio investment objective is to generate current income and, to a lesser extent, capital appreciation from the investments in senior secured term loans, mezzanine debt and selected equity investments in privately-held middle-market companies. PTMN defines the middle-market as comprising companies with EBITDA of $10 million to $50 million and/or total debt of $25 million to $150 million. PTMN primarily invests in first and second lien term loans which, because of their priority in a company’s capital structure, the fund expects will have lower default rates and higher rates of recovery of principal if there is a default and which it expects will create a stable stream of interest income. The investments in PTMN’s debt securities portfolio are all or predominantly below investment grade, and have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal.

PTMN invests primarily in loans to smaller private companies, publicly-traded companies, high-yield bonds, joint ventures, managed funds, partnerships, and distressed debt securities. PTMN may also receive warrants or options to purchase common stock in connection with its debt investments.

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PTMN also has historical investments in CLO Funds. PTMN’s investments in CLO Fund securities are primarily managed by its formerly wholly-owned asset management subsidiaries, Trimaran Advisors and Trimaran Advisors Management. These CLO Funds typically invest in broadly syndicated loans, high-yield bonds and other credit instruments.

Storm Acquisition Sub Inc.
650 Madison Avenue, 23rd Floor
New York, New York 10022
(212) 891-2880

Acquisition Sub is a Maryland corporation and a newly formed wholly-owned direct consolidated subsidiary of PTMN. Acquisition Sub was formed in connection with and for the sole purpose of the Merger and has no prior operating history.

Sierra Crest Investment Management LLC
650 Madison Avenue, 23rd Floor
New York, New York 10022
(212) 891-2880

Sierra Crest Investment Management LLC (“Sierra Crest”) is a Delaware limited liability company, located at 650 Madison Avenue, 23rd Floor, New York, NY 10022, registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Sierra Crest is an affiliate of BC Partners Advisors LP (“BC Partners”) and LibreMax Capital LLC (“LibreMax”). BC Partners is a leading buyout firm with a 30-year history investing across Europe and North America which had assets under management of over $25 billion as of July 2019. The assets under management for BC Partners are based on actively managed commitments of its managed funds and relevant vehicles formed for the purpose of co-investing alongside such funds. BC Partners operates a private equity investment platform, BCP PE, and a credit investment platform, BCP Credit, as fully integrated businesses. The investment activity of PTMN falls primarily within the BCP Credit platform. Integration with the broader BC Partners platform allows BCP Credit to leverage a team of over 60 investment professionals across its private equity platform including a seven-member operations team. The BCP Credit Investment team (the “Investment Team”) is led by Ted Goldthorpe who sits on both the BCP Credit and BCP PE investment committees. An affiliate of Sierra Crest currently manages a private BDC, BC Partners Lending Corporation, and two private funds in the BCP Credit platform.

Merger Structure

Pursuant to the terms of the Merger Agreement, at the effective time of the First Merger, Acquisition Sub will be merged with and into OHAI. OHAI will be the surviving company and will continue its existence as a corporation under the laws of the State of Maryland. As of the effective time of the First Merger, the separate corporate existence of Acquisition Sub will cease. Immediately after the occurrence of the First Merger, in the Second Merger, OHAI will merge with and into PTMN, with PTMN as the surviving entity.

Based on the number of shares of PTMN Common Stock issued and outstanding and the net asset value (“NAV”) of each of PTMN and OHAI as of June 30, 2019, it is expected that, following consummation of the Second Merger, PTMN Stockholders will own approximately 83% of the outstanding PTMN Common Stock and former OHAI Stockholders will own approximately 17% of the outstanding PTMN Common Stock. If the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger would exceed the Maximum Share Number, the Aggregate Cash Consideration for all purposes of the Merger Agreement will be increased to the minimum extent necessary such that the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger does not exceed the Maximum Share Number.

The Merger Agreement is attached as Annex A to this proxy statement/prospectus and is incorporated by reference into this proxy statement/prospectus. OHAI and PTMN encourage their respective stockholders to read the Merger Agreement carefully and in its entirety, as it is the principal legal document governing the Merger.

Merger Consideration

Subject to the terms and conditions of the Merger Agreement, at the Effective Time of the First Merger, each share of common stock, par value $0.001 per share, of OHAI (“OHAI Common Stock”) issued and

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outstanding immediately prior to the Effective Time (other than shares held by subsidiaries of OHAI or held, directly or indirectly, by PTMN or Acquisition Sub (“Canceled Shares”)) will be converted into the right to receive (i) an amount in cash equal to (A) $8,000,000 divided by (B) the number of shares of OHAI Common Stock issued and outstanding as of the Determination Date (excluding any Canceled Shares), and (ii) a number of shares of common stock, par value $0.01 per share, of PTMN (“PTMN Common Stock”) equal to the Exchange Ratio.

Under the Merger Agreement, on the Determination Date, each of OHAI and PTMN will deliver to the other a calculation of its net asset value as of 5:00 p.m. Eastern Time on the day prior to the closing date of the Merger (such calculation with respect to OHAI, the “Closing OHAI Net Asset Value” and such calculation with respect to PTMN, the “Closing PTMN Net Asset Value”), in each case using a pre-agreed set of assumptions, methodologies and adjustments. Based on such calculations, the parties will calculate the “OHAI Per Share NAV”, which will be equal to (i) (A) the Closing OHAI Net Asset Value minus (B) the Aggregate Cash Consideration divided by (ii) the number of shares of OHAI Common Stock issued and outstanding as of the Determination Date (excluding any Canceled Shares), and the “PTMN Per Share NAV”, which will be equal to (I) the Closing PTMN Net Asset Value divided by (II) the number of shares of PTMN Common Stock issued and outstanding as of the Determination Date. For purposes of the Merger Agreement, the “Exchange Ratio” will be equal to (i) the OHAI Per Share NAV divided by (ii) the PTMN Per Share NAV.

If the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger would exceed the Maximum Share Number, the Aggregate Cash Consideration for all purposes of the Merger Agreement will be increased to the minimum extent necessary such that the aggregate number of shares of PTMN Common Stock to be issued in connection with the First Merger does not exceed the Maximum Share Number.

Additional Cash Consideration

In connection with the transactions contemplated by the Merger Agreement, as additional consideration to the holders of shares of OHAI Common Stock that are issued and outstanding immediately prior to the Effective Time (excluding any Canceled Shares), Sierra Crest will cause to be paid directly to such holders an aggregate amount in cash equal to $3,000,000.

Market Price of Securities

Shares of PTMN Common Stock trade on the Nasdaq under the symbol “PTMN.” Shares of OHAI Common Stock trade on the Nasdaq under the symbol “OHAI.”

The following table presents the closing sales prices as of the last trading day before the execution of the Merger Agreement and the last trading day before the date of this proxy statement/prospectus, and the most recently determined NAV per share of each of PTMN Common Stock and OHAI Common Stock.

 
PTMN
Common Stock
OHAI
Common Stock
NAV per Share at June 30, 2019
$
3.73
 
$
1.83
 
Closing Sales Price at July 30, 2019
$
2.345
 
$
1.0833
 
Closing Sales Price at [•], 2019
$
[•]
 
$
[•]
 

Risks Relating to the Proposed Merger

The Merger and the other transactions contemplated by the Merger Agreement are subject to, among others, the following risks. OHAI Stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at the Special Meeting.

Because the market price of PTMN Common Stock and the net asset value per share of PTMN and OHAI will fluctuate, OHAI Stockholders cannot be sure of the market value or exact composition of the Merger Consideration they will receive until the closing date of the Merger.
Sales of shares of PTMN Common Stock after the completion of the Merger may cause the market price of PTMN Common Stock to decline.

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OHAI Stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger.
PTMN may be unable to realize the benefits anticipated by the Merger, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.
The announcement and pendency of the proposed Merger could adversely affect OHAI’s business, financial results and operations.
If the Merger does not close, OHAI will not benefit from the expenses incurred in its pursuit and, under certain circumstances, OHAI will be required to pay half of PTMN’s expenses incurred in connection with the Merger, subject to a maximum reimbursement payment of $500,000.
The termination of the Merger Agreement could negatively impact OHAI and PTMN.
Under certain circumstances, OHAI and PTMN are obligated to pay each other a termination fee upon termination of the Merger Agreement.
The Merger is subject to closing conditions, including OHAI Stockholder approval, that, if not satisfied or waived, will result in the Merger not being completed, which may result in material adverse consequences to OHAI’s business and operations.
PTMN and OHAI will be subject to operational uncertainties and contractual restrictions while the Merger is pending including, restrictions on pursuing alternatives to the Merger.
The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire OHAI prior to the completion of the proposed Merger.
If the Merger is not completed or OHAI is not otherwise acquired, OHAI may consider other strategic alternatives which are subject to risks and uncertainties.
PTMN and OHAI may waive one or more conditions to the Merger without resoliciting OHAI Stockholder approval.
The shares of PTMN Common Stock to be received by OHAI Stockholders as a result of the Merger will have different rights associated with them than shares of OHAI Common Stock currently held by them.
The market price of PTMN Common Stock after the Merger may be affected by factors different from those affecting PTMN Common Stock currently.
The U.S. federal income tax treatment of the Merger will not be known as of the date of the Special Meeting, and the position that the Merger qualifies as a “reorganization” might be challenged by the Internal Revenue Service.

See the section captioned “Risk Factors—Risks Relating to the Merger” below for a more detailed discussion of these factors.

Tax Consequences of the Merger

Subject to the discussion below, the Merger is intended to qualify as a “reorganization,” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). If the Merger qualifies as a reorganization for United States federal income tax purposes, U.S. holders (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger”) of OHAI Common Stock who receive a combination of shares of PTMN Common Stock and cash, other than cash instead of a fractional share of PTMN Common Stock, in exchange for their OHAI Common Stock, will recognize gain (but not loss) in an amount equal to the lesser of (x) the amount by which the sum of the fair market value of the shares of PTMN Common Stock and cash (other than cash received instead of a fractional share of PTMN Common Stock) received by such holder in exchange for its shares of OHAI Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration) exceeds such holder’s adjusted basis in its shares of OHAI Common Stock, and (y) the amount of cash (other than cash received instead of fractional shares of PTMN Common Stock) received by such holder in exchange for its shares of OHAI Common Stock (such cash including the holder’s share of the Aggregate Cash Consideration and possibly, as discussed below, the holder’s share of the Additional Cash Consideration). Generally, any gain recognized upon the exchange will be capital gain, and any such capital gain will be long-term capital gain if the holding period for such shares of OHAI Common Stock is more than one year. Depending on certain facts specific to you, gain could instead be characterized as ordinary dividend income.

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With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder is treated as additional merger consideration. It is possible, however, that the Additional Cash Consideration may be treated as ordinary income and not as cash received in exchange for such holder’s OHAI Common Stock.

In addition, the Merger will not qualify as a reorganization if the fair market value of the PTMN Common Stock received by OHAI shareholders in the Merger does not equal or exceed 40% of the aggregate consideration. As noted below under “Description of the Merger AgreementMerger Consideration,” the amount of PTMN Common Stock and cash to be transferred in the Merger is subject to adjustments. Moreover, there is a risk that OHAI shareholders who sell all or a portion of their PTMN Common Stock received in the Merger for cash pursuant to the open market repurchase program described below under “Description of the Merger AgreementOpen Market Stock Repurchase Program” will be treated as having received cash, rather than such PTMN Common Stock, in the Merger. Such sales may be treated as an increase in the amount of cash and a decrease in the amount of PTMN Common Stock transferred in the Merger for purposes of testing whether the Merger qualifies as a reorganization.

If the Merger does not qualify as a reorganization, U.S. holders of OHAI Common Stock will be treated as having sold their OHAI Common Stock in a taxable sale and will generally recognize gain or loss equal to the difference between the fair market value of the PTMN Common Stock and cash received (including such holder’s share of the Aggregate Cash Consideration and possibly, as discussed above, the Additional Cash Consideration) and the basis in his or her OHAI Common Stock. This gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the Merger, the holding period for such shares of OHAI Common Stock is greater than one year. The deductibility of capital losses is subject to limitations.

On the closing date of the Merger, PTMN and OHAI will use commercially reasonable efforts to make a determination, in consultation with tax counsel, as to whether or not the Merger qualifies as reorganization for U.S. federal income tax purposes, and, to the extent any such determination is made, PTMN will inform the OHAI Stockholders of such determination as soon as practicable after the closing. The determination will be based on the then-existing law, will assume the absence of changes in existing facts, may rely on assumptions and will rely on representations contained in certificates executed by officers of PTMN and OHAI.

The obligations of PTMN and OHAI to complete the Merger are not conditioned on the receipt of, and PTMN and OHAI will not receive, opinions from STB, counsel to PTMN, or Dechert, counsel to OHAI, to the effect that the Merger will qualify as a reorganization for U.S. federal income tax purposes. OHAI Stockholders should read the section captioned “Certain Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal income tax consequences of the Merger. Tax matters can be complicated and the tax consequences of the Merger to OHAI Stockholders will depend on their particular tax situation. OHAI Stockholders should consult with their own tax advisors to determine the tax consequences of the Merger to them.

Special Meeting of OHAI Stockholders

OHAI plans to hold the Special Meeting on [•], 2019, at [•] [a.m.][p.m.], Eastern Time, at Dechert LLP, located at 1095 Avenue of the Americas, 28th Floor, New York, NY 10036. At the Special Meeting, holders of OHAI Common Stock will be asked to approve the Merger Proposal and the Adjournment Proposal.

An OHAI Stockholder can vote at the Special Meeting if such stockholder owned shares of OHAI Common Stock at the close of business on the Record Date. As of that date, there were approximately [•] shares of OHAI Common Stock outstanding and entitled to vote. Approximately [•] of such total outstanding shares, or [•]%, were owned beneficially or of record by directors and executive officers of OHAI.

OHAI Board Recommendation

The OHAI Board (other than directors affiliated with OHA, who abstained from voting), acting on the recommendation of the Special Committee, has unanimously approved the Merger and the Merger Agreement and unanimously recommends that OHAI Stockholders vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal.

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Vote Required—OHAI

Each share of OHAI Common Stock held by a holder of record as of the Record Date has one vote on the Merger Proposal considered at the Special Meeting.

The Merger Proposal

The approval of the Merger Proposal requires the affirmative votes of the holders of a majority of the outstanding shares of OHAI Common Stock entitled to vote at the Special Meeting. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes “against” the Merger Proposal. PTMN Stockholder approval is not required for the Merger Proposal.

The Adjournment Proposal

The affirmative vote of the holders of at least a majority of the votes cast by holders of the shares of OHAI Common Stock present at the Special Meeting, in person or represented by proxy, will be required to approve the Adjournment Proposal.

Open Market Stock Repurchase Program

PTMN has agreed that if shares of PTMN Common Stock are trading at a price below 75% of its net asset value per share at any time during the twelve-month period from and after the Effective Time, the PTMN Board will promptly announce PTMN’s commitment to purchase, during the twelve-month period from and after such announcement, up to $10,000,000 worth of shares of PTMN Common Stock in open market transactions, at the then current market price. Such purchases will be in accordance with Rule 10b-18 under the Exchange Act.

Completion of the Merger

As more fully described in this proxy statement/prospectus and in the Merger Agreement, the completion of the Merger depends on a number of conditions being satisfied or, where legally permissible, waived. For information on the conditions that must be satisfied or waived for the Merger to occur, see “Description of the Merger—Conditions to the Closing of the Merger.” While there can be no assurances as to the exact timing, or that the Merger will be completed at all, PTMN and OHAI are working to complete the Merger in the fourth quarter of 2019. It is currently expected that the Merger will be completed promptly following receipt of the required OHAI Stockholder approval at the Special Meeting and satisfaction of the other closing conditions set forth in the Merger Agreement.

Termination of the Merger and Termination Fee

The Merger Agreement contains certain termination rights for PTMN and OHAI, each of which is discussed below in “Description of the Merger—Termination of the Merger Agreement.” The Merger Agreement provides that, in connection with the termination of the Merger Agreement under specified circumstances, OHAI may be required to pay PTMN, or PTMN may be required to pay OHAI, a termination fee of approximately $1.3 million. See “Description of the Merger Agreement—Termination of the Merger Agreement” for a discussion of the circumstances that could result in the payment of the termination fees. PTMN or OHAI, as applicable, will be the entities entitled to receive any termination fees under the Merger Agreement.

Reasons for the Merger

The OHAI Board (other than directors affiliated with OHA who abstained from voting) and the Special Committee determined that the Merger is in OHAI’s best interests and the best interests of OHAI’s stockholders. Certain material factors considered by the OHAI Board and the Special Committee that favored this conclusion included, among others:

the value to be received by OHAI Stockholders in connection with the Merger, including the Additional Cash Consideration to be paid by Sierra Crest;
the expected increased scale and liquidity of the combined company;
that OHAI Stockholders will benefit from PTMN’s lower fee structure and should expect to realize net investment income and distribution accretion within the first year following closing of the Merger;

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that OHAI’s credit facility will be paid off in full at the closing of the Merger. Based on PTMN’s lower borrowing cost, the combined company can expect to realize interest savings of approximately $0.5 million per annum;
the transaction is expected to deliver operational synergies for the combined company as a result of the pro forma larger scale and elimination of redundant OHAI expenses; and
if, at any time within one year after the closing date of the Merger, shares of PTMN Common Stock are trading at a price below 75% of its net asset value per share, PTMN will initiate a share buyback program of up to $10 million to support the trading price of the combined company for up to one year from the date such program is announced.

For a further discussion of the material factors considered by the Special Committee and the OHAI Board, see “The Merger—Reasons for the Merger.

Opinion of Financial Advisor to the OHAI Special Committee

In connection with the Merger, Keefe, Bruyette & Woods, Inc. (“KBW”) delivered a written opinion, dated July 30, 2019, as discussed in more detail in the section entitled “The Merger—Opinion of the Financial Advisor to the OHAI Special Committee'', to the Special Committee as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of OHAI Common Stock of the Merger Consideration in the First Merger. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by KBW in preparing the opinion, is attached as Annex B to this proxy statement/prospectus. The opinion was for the information of, and was directed to, the Special Committee (in its capacity as such) in connection with its consideration of the financial terms of the Merger. The opinion did not address the underlying business decision of OHAI to engage in the Merger or enter into the Merger Agreement or constitute a recommendation to the Special Committee or the OHAI Board in connection with the Merger, and it does not constitute a recommendation to any holder of OHAI Common Stock or any shareholder of any other entity as to how to vote in connection with the Merger or any other matter.

At the instruction of the Special Committee, a copy of KBW’s opinion was provided to the OHAI Board for informational purposes only prior to its deliberations relating to the approval of the Merger and the Merger Agreement. For more information, see the section entitled “The Merger—Opinion of the Financial Advisor to the OHAI Special Committee.

OHAI Stockholders Do Not Have Appraisal Rights

OHAI Stockholders will not be entitled to exercise appraisal rights (rights of an objecting stockholder under Maryland law) in connection with the Merger.

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RISK FACTORS

In addition to the other information included in this document, OHAI Stockholders should carefully consider the matters described below in determining whether to approve the Merger Proposal. The risks set out below are not the only risks PTMN and OHAI and, following the Merger, the combined company, face. Additional risks and uncertainties not currently known to PTMN and OHAI or that they currently deem to be immaterial also may materially adversely affect their or, following the Merger, the combined company’s, business, financial condition or operating results. If any of the following events occur, PTMN or OHAI or, following the Merger, the combined company’s, business, financial condition or results of operations could be materially adversely affected.

RISKS RELATING TO THE MERGER

Because the market price of PTMN Common Stock and the net asset value per share of PTMN and OHAI will fluctuate, OHAI Stockholders cannot be sure of the market value or exact composition of the Merger Consideration they will receive until the closing date of the Merger.

The market value of the Merger Consideration may vary from the closing price of PTMN Common Stock on the date the Merger was announced, on the date that this proxy statement/prospectus was mailed to stockholders, on the date of the Special Meeting and on the date the Merger is completed and thereafter. Any change in the market price of PTMN Common Stock prior to completion of the Merger will affect the market value of the aggregate Merger Consideration that OHAI Stockholders will receive upon completion of the Merger. Additionally, the Exchange Ratio and the Aggregate Cash Consideration may fluctuate as the respective net asset values of PTMN and OHAI change prior to the closing date of the Merger.

Accordingly, at the time of the Special Meeting, OHAI Stockholders will not know or be able to calculate the overall composition or market value of the Merger Consideration they would receive upon completion of the Merger. Neither PTMN nor OHAI is permitted to terminate the Merger Agreement or resolicit the vote of their respective stockholders solely because of changes in the market price of shares of PTMN Common Stock. There will be no adjustment to the Merger Consideration for changes in the market price of shares of PTMN Common Stock. In addition, the U.S. federal income tax treatment of the Merger will not be known as of the date of the Special Meeting, and the position that the Merger qualifies as a “reorganization” might be challenged by the Internal Revenue Service.

Changes in the market price of PTMN Common Stock may result from a variety of factors, including, among other things:

changes in the business, operations or prospects of PTMN;
the financial condition of current or prospective portfolio companies of PTMN;
interest rates or general market or economic conditions;
market assessments of the likelihood that the Merger will be completed and the timing of completion of the Merger; and
market perception of the future profitability of the combined company.

See “Special Note Regarding Forward-Looking Statements” for other factors that could cause the market price of PTMN Common Stock to change.

These factors are generally beyond the control of PTMN. It should be noted that the range of high and low closing sales prices of PTMN Common Stock as reported on Nasdaq for the six months ended June 30, 2019, was a low of $2.25 to a high of $3.75. However, historical trading prices are not necessarily indicative of future performance. You should obtain current market quotations for shares of PTMN Common Stock prior to the Special Meeting.

Sales of shares of PTMN Common Stock after the completion of the Merger may cause the market price of PTMN Common Stock to decline.

Based on the number of outstanding shares of OHAI Common Stock as of June 30, 2019, the net asset value per share of PTMN Common Stock and the net asset value per share of OHAI Common Stock on such date, PTMN would issue approximately 7,384,848 shares of PTMN Common Stock pursuant to the Merger Agreement (after accounting for anticipated expenses of both parties related to the transaction). Former OHAI

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Stockholders may decide not to hold the shares of PTMN Common Stock that they will receive pursuant to the Merger Agreement. Certain OHAI Stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of PTMN Common Stock that they receive pursuant to the Merger Agreement. In addition, PTMN Stockholders may decide not to hold their shares of PTMN Common Stock after completion of the Merger. In each case, such sales of PTMN Common Stock could have the effect of depressing the market price for PTMN Common Stock and may take place promptly following the completion of the Merger.

OHAI Stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger.

OHAI Stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective percentage ownership interests in OHAI prior to the Merger. Consequently, OHAI Stockholders should expect to exercise less influence over the management and policies of the combined company following the Merger than they currently exercise over the management and policies of OHAI.

If the Merger is consummated, based on the number of shares of PTMN Common Stock issued and outstanding on the closing date of the Merger, the net asset value per share of PTMN Common Stock and the net asset value per share of OHAI Common Stock, each as of June 30, 2019, it is expected PTMN Stockholders will own approximately 83% of the outstanding PTMN Common Stock and OHAI Stockholders will own approximately 17% of the outstanding PTMN Common Stock. In addition, both prior to and after completion of the Merger, subject to certain restrictions in the Merger Agreement and stockholder approval, PTMN may issue additional shares of PTMN Common Stock (including, subject to certain restrictions under the 1940 Act, at prices below PTMN Common Stock’s then current net asset value per share), all of which would further reduce the percentage ownership of the combined company held by former OHAI Stockholders. In addition, the issuance or sale by PTMN of shares of PTMN Common Stock at a discount to net asset value poses a risk of dilution to stockholders.

PTMN may be unable to realize the benefits anticipated by the Merger, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.

The realization of certain benefits anticipated as a result of the Merger will depend in part on the integration of OHAI’s investment portfolio with PTMN’s and the integration of OHAI’s business with PTMN’s. There can be no assurance that OHAI’s investment portfolio or business can be operated profitably or integrated successfully into PTMN’s operations in a timely fashion or at all. The dedication of management resources to such integration may detract attention from the day-to-day business of the combined company and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in connection with such integration and failure of OHAI’s investment portfolio to perform as expected, could have a material adverse effect on the financial results of the combined company.

PTMN also expects to achieve certain cost savings from the Merger when the two companies have fully integrated their portfolios. It is possible that the estimates of the potential cost savings could ultimately be incorrect. The cost savings estimates also assume PTMN will be able to combine the operations of PTMN and OHAI in a manner that permits those cost savings to be fully realized. If the estimates turn out to be incorrect or if PTMN is not able to successfully combine OHAI’s investment portfolio or business with the operations of PTMN, the anticipated cost savings may not be fully realized, or realized at all, or may take longer to realize than expected.

The announcement and pendency of the proposed Merger could adversely affect OHAI’s business, financial results and operations.

The announcement and pendency of the proposed Merger could cause disruptions in and create uncertainty surrounding OHAI’s business, including affecting its relationships with its existing and future borrowers and employees, which could have a significant negative impact on its future revenues and results of operations, regardless of whether the Merger is completed. In particular, OHA could potentially lose important personnel as

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a result of the departure of employees who decide to pursue other opportunities in light of the proposed transaction and its existing borrowers may elect to refinance their loans with other lenders. In addition, OHAI has diverted, and will continue to divert, significant management resources towards the completion of the Merger, which could have a significant negative impact on its future revenues and results of operations.

OHAI is also subject to restrictions on the conduct of its business prior to the completion of the Merger as provided in the Merger Agreement, generally requiring OHAI to conduct its business only in the ordinary course and subject to specific limitations, including, among other things, certain restrictions on its ability to make certain capital expenditures, investments and acquisitions, sell, transfer or dispose of our assets, amend its organizational documents and enter into or modify certain contracts. These restrictions could prevent OHAI from pursuing otherwise attractive business opportunities, industry developments and future opportunities and may otherwise have a significant negative impact on its future revenues and results of operations.

If the Merger does not close, OHAI will not benefit from the expenses incurred in its pursuit and under certain circumstances, OHAI will be required to pay half of PTMN’s expenses incurred in connection with the Merger, subject to a maximum reimbursement payment of $500,000.

The Merger may not be completed. If the Merger is not completed, OHAI will have incurred substantial expenses for which no ultimate benefit will have been received. OHAI has incurred out-of-pocket expenses in connection with the Merger for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Merger is not completed. In addition, under certain circumstances, OHAI will be required to pay half of PTMN’s expenses incurred in connection with the Merger, subject to a maximum reimbursement payment of $500,000.

The termination of the Merger Agreement could negatively impact OHAI.

If the Merger Agreement is terminated, there may be various consequences, including:

OHAI’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger;
the market price of OHAI Common Stock might decline to the extent that the market price prior to termination reflects a market assumption that the Merger will be completed;
OHAI may not be able to find a party willing to pay an equivalent or more attractive price than the price PTMN agreed to pay in the Merger; and
the payment of any termination fee or reimbursement of expenses, if required under the circumstances, could adversely affect the financial condition and liquidity of OHAI.

Under certain circumstances, OHAI is obligated to pay a termination fee to PTMN upon termination of the Merger Agreement.

No assurance can be given that the Merger will be completed. The Merger Agreement provides for the payment by OHAI of a termination fee under certain circumstances. See “Description of the Merger Agreement—Termination of the Merger Agreement” for a discussion of the circumstances that could result in the payment of a termination fee.

The Merger is subject to closing conditions, including stockholder approval, that, if not satisfied or waived, will result in the Merger not being completed, which may result in material adverse consequences to OHAI’s business and operations.

The Merger is subject to closing conditions, including certain approvals of OHAI Stockholders that, if not satisfied, will prevent the Merger from being completed. The closing condition that OHAI Stockholders approve the Merger may not be waived under applicable law and must be satisfied for the Merger to be completed. OHAI currently expects that all directors and executive officers of OHAI will vote their shares of OHAI Common Stock in favor of the proposals presented at the Special Meeting. If OHAI Stockholders do not approve the Merger and the Merger is not completed, the resulting failure of the Merger could have a material adverse impact on OHAI’s business and operations.

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PTMN and OHAI will be subject to operational uncertainties and contractual restrictions while the Merger is pending including, restrictions on pursuing alternatives to the Merger.

Uncertainty about the effect of the Merger may have an adverse effect on PTMN and OHAI and, consequently, on the combined company following completion of the Merger. These uncertainties may impair PTMN’s and OHAI’s abilities to motivate key personnel until the Merger is consummated and could cause those that deal with PTMN and OHAI to seek to change their existing business relationships with PTMN and OHAI, respectively. In addition, the Merger Agreement restricts PTMN and OHAI from taking actions that they might otherwise consider to be in their best interests. These restrictions may prevent PTMN and OHAI from pursuing certain business opportunities that may arise prior to the completion of the Merger including, restrictions on our pursuing alternatives to the Merger. Please see the section entitled “Description of the Merger Agreement—Conduct of Business Pending Completion of the Merger” for a description of the restrictive covenants to which OHAI and PTMN are subject.

The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire OHAI prior to the completion of the proposed Merger.

The Merger Agreement limits OHAI’s ability to pursue alternatives to the Merger. The Merger Agreement contains non-solicitation and other provisions that, subject to limited exceptions, limit OHAI’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of OHAI. OHAI can consider and participate in discussions and negotiations with respect to an alternative proposal only in very limited circumstances so long as certain notice and other procedural requirements are satisfied. In addition, subject to certain procedural requirements (including the ability of PTMN to revise its offer) and the payment of a $1.3 million termination fee, OHAI may terminate the Merger Agreement and enter into an agreement with a third party that makes a superior proposal. These provisions may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of OHAI from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in connection with the Merger.

If the Merger is not completed or OHAI is not otherwise acquired, OHAI may consider other strategic alternatives which are subject to risks and uncertainties.

If the Merger is not completed, OHAI Board may review and consider various alternatives available to OHAI, including, among others, continuing as a stand-alone public company with no material changes to its business or seeking an alternate transaction. These strategic or other alternatives available to OHAI may involve various additional risks to its business, including, among others, distraction of its management team and associated expenses as described above in connection with the proposed Merger, and risks and uncertainties related to its ability to complete any such alternatives and other variables which may adversely affect its operations.

The shares of PTMN Common Stock to be received by OHAI Stockholders as a result of the Merger will have different rights associated with them than shares of OHAI Common Stock currently held by them.

The rights associated with OHAI Common Stock are different from the rights associated with PTMN Common Stock. See “Comparison of PTMN and OHAI Stockholder Rights.”

The market price of PTMN Common Stock after the Merger may be affected by factors different from those affecting PTMN Common Stock currently.

The businesses of PTMN and OHAI differ in some respects and, accordingly, the results of operations of the combined company and the market price of PTMN Common Stock after the Merger may be affected by factors different from those currently affecting the independent results of operations of each of PTMN and OHAI. These factors include:

a larger stockholder base;
a different portfolio composition; and
a different capital structure.

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Accordingly, the historical trading prices and financial results of PTMN may not be indicative of these matters for the combined company following the Merger. For a discussion of the business of PTMN and of certain factors to consider in connection with its business, see “Business of Portman Ridge Finance Corporation.” For a discussion of the business of OHAI and of certain factors to consider in connection with its business, see “Business of OHA Investment Corporation” As described elsewhere in the proxy statement/prospectus, the risks associated with an investment in PTMN and OHAI are substantially identical.

The U.S. federal income tax treatment of the Merger will not be known as of the date of the Special Meeting, and the position that the Merger qualifies as a “reorganization” might be challenged by the Internal Revenue Service.

The U.S. federal income tax consequences of the Merger depend on whether the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code. The Merger will not qualify as a reorganization if the fair market value of the PTMN Common Stock received by OHAI Stockholders in the Merger does not equal or exceed 40% of the aggregate consideration. While it is intended that the Merger qualify as a reorganization, no assurances can be given that the aforesaid threshold will be met. As noted below under “Description of the Merger AgreementMerger Consideration,” the amount of PTMN Common Stock and cash to be transferred in the Merger is subject to adjustments. Therefore, it will not be known at the time of the Special Meeting whether the Merger will qualify as a reorganization. Moreover, there is a risk that OHAI Stockholders who sell their PTMN Common Stock received for cash pursuant to the open market repurchase program described below under “Description of the Merger AgreementOpen Market Stock Repurchase Program” will be treated as having received cash, rather than PTMN Common Stock, in the Merger.

On the closing date of the Merger, PTMN and OHAI will use commercially reasonable efforts to make a determination, in consultation with tax counsel, as to whether or not the Merger qualifies as a reorganization for U.S. federal income tax purposes, and, to the extent any such determination is made, PTMN will inform the OHAI Stockholders of such determination as soon as practicable after the closing. The determination will be based on the then-existing law, will assume the absence of changes in existing facts, may rely on assumptions and will rely on representations contained in certificates executed by officers of PTMN and OHAI. The obligations of PTMN and OHAI to complete the Merger are not conditioned on the receipt of, and PTMN and OHAI will not receive, opinions from STB, counsel to PTMN, or Dechert, counsel to OHAI, to the effect that the Merger will qualify as a reorganization for U.S. federal income tax purposes. OHAI Stockholder votes will not be resolicited in the event that the Merger does not qualify as a reorganization for U.S. federal income tax purposes. Furthermore, even if PTMN and OHAI determine that the Merger qualifies as a reorganization for U.S. federal income tax purposes, the Internal Revenue Service may assert a contrary position.

The U.S. federal income tax treatment of the Additional Cash Consideration is not entirely clear, and the position taken that the Additional Cash Consideration is part of the total cash consideration received by OHAI Stockholders pursuant to the Mergers might be challenged by the Internal Revenue Service.

With respect to the Additional Cash Consideration, there is limited authority addressing the tax consequences of the receipt of merger consideration from a party other than the acquiror and, as a result, the tax consequences of the receipt of the Additional Cash Consideration are not entirely clear. PTMN and Sierra Crest intend to take the position that the Additional Cash Consideration received by a U.S. holder (as defined in the section entitled “Material U.S. Federal Income Tax Consequences of the Merger”) is treated as additional merger consideration. It is possible, however, that the Internal Revenue Service would assert a contrary position that the Additional Cash Consideration be treated as taxable ordinary income and not as cash received in exchange for a such holder’s OHAI Common Stock.

RISKS RELATING TO PTMN

Economic recessions or downturns may have a material adverse effect on PTMN’s business, financial condition and results of operations, and could impair the ability of its portfolio companies to repay loans.

Economic recessions or downturns may result in a prolonged period of market illiquidity which could have a material adverse effect on PTMN’s business, financial condition and results of operations. Unfavorable economic conditions also could increase PTMN’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to PTMN. These events could limit PTMN’s investment originations, limit its ability to grow and negatively impact its operating results.

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In the event of economic recessions and downturns, the financial results of middle-market companies, like those in which PTMN invests, will likely experience deterioration, which could ultimately lead to difficulty in meeting debt service requirements and an increase in defaults. Additionally, the end markets for certain of PTMN’s portfolio companies’ products and services would likely experience negative financial trends. The performances of certain of PTMN’s portfolio companies have been, and may continue to be, negatively impacted by these economic or other conditions, which may ultimately result in PTMN’s receipt of a reduced level of interest income from its portfolio companies and/or losses or charge-offs related to its investments, and, in turn, may adversely affect distributable income. Further, adverse economic conditions may decrease the value of collateral securing some of PTMN’s loans and the value of its equity investments. As a result, PTMN may need to modify the payment terms of its investments, including changes in PIK interest provisions and/or cash interest rates. These factors may result in PTMN’s receipt of a reduced level of interest income from its portfolio companies and/or losses or charge-offs related to its investments, and, in turn, may adversely affect distributable income and have a material adverse effect on PTMN’s results of operations.

Capital markets may experience periods of disruption and instability and PTMN cannot predict when these conditions will occur. Such market conditions could materially and adversely affect debt and equity capital markets in the United States and abroad, which could have a negative impact on PTMN’s business, financial condition and results of operations.

From time-to-time, capital markets may experience periods of disruption and instability. For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and various foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. There have been more recent periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future. If similar adverse and volatile market conditions repeat in the future, PTMN and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow.

Moreover, the reappearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time or worsened market conditions, including as a result of U.S. government shutdowns or the perceived creditworthiness of the United States, could make it difficult for PTMN to borrow money or to extend the maturity of or refinance any indebtedness it may have under similar terms and any failure to do so could have a material adverse effect on PTMN’s business. Unfavorable economic conditions, including future recessions, also could increase PTMN’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to PTMN. PTMN may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause PTMN to reduce the volume of loans it originates and/or funds, adversely affect the value of PTMN’s portfolio investments or otherwise have a material adverse effect on its business, financial condition, results of operations and cash flows.

The United Kingdom referendum decision to leave the European Union may create significant risks and uncertainty for global markets and PTMN’s investments.

The decision made in the United Kingdom referendum in June 2016 to leave the European Union has led to volatility in global financial markets, and in particular in the markets of the United Kingdom and across Europe, and may also lead to weakening in consumer, corporate and financial confidence in the United Kingdom and Europe. As of February 2019, the process for the United Kingdom to exit the European Union, and the longer term economic, legal, political and social framework to be put in place between the United Kingdom and the European Union remain unclear and may to lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. In particular, the decision made in the United Kingdom referendum may lead to a call for similar referenda in other European jurisdictions which may cause increased economic volatility and uncertainty in the European and global markets. This volatility and uncertainty may have an adverse effect on the economy generally and on the ability of PTMN and its portfolio companies to execute its respective strategies and to receive attractive returns.

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Terrorist attacks, acts of war or natural disasters may affect any market for PTMN Common Stock, impact the businesses in which PTMN invests and harm its business, operating results and financial condition.

Terrorist attacks, acts of war or natural disasters may disrupt PTMN’s operations, as well as the operations of the businesses in which PTMN invests. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Further terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which PTMN invests directly or indirectly and, in turn, could have a material adverse impact on PTMN’s business, operating results and financial condition. Losses from terrorist attacks and natural disasters are generally uninsurable.

Risks Related to PTMN’s Business and Structure

Ineffective internal controls could impact PTMN’s business and operating results.

PTMN’s internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If PTMN fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if PTMN experiences difficulties in their implementation, its business and operating results could be harmed and PTMN could fail to meet its financial reporting obligations.

Sierra Crest has limited prior experience managing a BDC or a RIC.

Sierra Crest has limited experience managing a BDC or a RIC and may not be able to successfully operate PTMN’s business or achieve PTMN’s investment objective. As a result, an investment in PTMN Common Stock may entail more risk than the shares of common stock of a comparable company with a substantial operating history.

The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles previously managed by Sierra Crest’s management team. For example, under the 1940 Act, BDCs are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private or thinly-traded public companies. Moreover, qualification for RIC tax treatment under Subchapter M of the Code requires, among other things, satisfaction of source-of-income, asset diversification and other requirements. The failure to comply with these provisions in a timely manner could prevent PTMN from qualifying as a BDC or RIC or could force PTMN to pay unexpected taxes and penalties, which could be material. Sierra Crest’s limited experience in managing a portfolio of assets under such constraints may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve PTMN’s investment objective.

Sierra Crest and its affiliates, including PTMN’s officers and some of PTMN’s directors, face conflicts of interest caused by compensation arrangements with PTMN and its affiliates, which could result in actions that are not in the best interests of PTMN’s stockholders.

Sierra Crest and its affiliates will receive substantial fees from PTMN in return for their services, including certain incentive fees based on the performance of PTMN’s investments. These fees could influence the advice provided to PTMN. Generally, the more equity PTMN sells in private offerings and the greater the risk assumed by PTMN with respect to PTMN’s investments, the greater the potential for growth in PTMN’s assets and profits, and, correlatively, the fees payable by PTMN to Sierra Crest. These compensation arrangements could affect Sierra Crest or its affiliates’ judgment with respect to private offerings of equity and investments made by PTMN, which allows Sierra Crest to earn increased asset management fees.

PTMN may be obligated to pay Sierra Crest incentive compensation even if it incurs a net loss due to a decline in the value of PTMN’s portfolio.

PTMN’s Investment Advisory Agreement entitles Sierra Crest to receive incentive compensation on income regardless of any capital losses. In such case, PTMN may be required to pay Sierra Crest incentive compensation for a fiscal quarter even if there is a decline in the value of PTMN’s portfolio or if PTMN incurs a net loss for that quarter.

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Any incentive fee payable by PTMN that relates to PTMN’s net investment income may be computed and paid on income that may include interest that has been accrued, but not yet received, including original issue discount, which may arise if PTMN receives fees in connection with the origination of a loan or possibly in other circumstances, or contractual PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. To the extent PTMN does not distribute accrued PIK interest, the deferral of PIK interest has the simultaneous effects of increasing the assets under management and increasing the base management fee at a compounding rate, while generating investment income and increasing the incentive fee at a compounding rate. In addition, the deferral of PIK interest would also increase the loan-to-value ratio at a compounding rate if the issuer’s assets do not increase in value, and investments with a deferred interest feature, such as PIK interest, may represent a higher credit risk than loans on which interest must be paid in full in cash on a regular basis.

For example, if a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously included in the calculation of the incentive fee will become uncollectible. Sierra Crest is not under any obligation to reimburse PTMN for any part of the incentive fee it received that was based on accrued income that PTMN never received as a result of a default by an entity on the obligation that resulted in the accrual of such income, and such circumstances would result in PTMN paying an incentive fee on income it never received.

There may be conflicts of interest related to obligations that Sierra Crest’s senior management and investment team has to other clients.

The members of the senior management and investment team of Sierra Crest serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as PTMN does, or of investment funds managed by the same personnel. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in PTMN’s best interests or in the best interest of PTMN’s stockholders. PTMN’s investment objective may overlap with the investment objectives of such investment funds, accounts or other investment vehicles. In particular, PTMN relies on Sierra Crest to manage PTMN’s day-to-day activities and to implement PTMN’s investment strategy. Sierra Crest and certain of its affiliates are presently, and plan in the future to continue to be, involved with activities that are unrelated to PTMN. As a result of these activities, Sierra Crest, its officers and employees and certain of its affiliates will have conflicts of interest in allocating their time between PTMN and other activities in which they are or may become involved, including the management of its affiliated funds. Sierra Crest and its officers and employees will devote only as much of its or their time to PTMN’s business as Sierra Crest and its officers and employees, in their judgment, determine is reasonably required, which may be substantially less than their full time.

PTMN relies, in part, on Sierra Crest to assist with identifying and executing upon investment opportunities and on PTMN’s Board of Directors to review and approve the terms of PTMN’s participation in co-investment transactions with Sierra Crest and its affiliates. Sierra Crest and its affiliates are not restricted from forming additional investment funds, entering into other investment advisory relationships or engaging in other business activities. These activities could be viewed as creating a conflict of interest in that the time and effort of the members of Sierra Crest, its affiliates and their officers and employees will not be devoted exclusively to PTMN’s business, but will be allocated between PTMN and such other business activities of Sierra Crest and its affiliates in a manner that Sierra Crest deems necessary and appropriate.

An affiliate of Sierra Crest manages BC Partners Lending Corporation, which is a BDC that will invest primarily in debt and equity of privately-held middle-market companies, similar to those PTMN targets for investment. Therefore, there may be certain investment opportunities that satisfy the investment criteria for BC Partners and PTMN. BC Partners operates as a distinct and separate company and any investment in PTMN Common Stock will not be an investment in BC Partners. In addition, certain of PTMN’s executive officers serve in substantially similar capacities for BC Partners and three of PTMN’s independent directors serve as independent directors of BC Partners.

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The time and resources that individuals employed by Sierra Crest devote to PTMN may be diverted and PTMN may face additional competition due to the fact that individuals employed by Sierra Crest are not prohibited from raising money for or managing other entities that make the same types of investments that PTMN targets.

Neither Sierra Crest nor individuals employed by Sierra Crest are generally prohibited from raising capital for and managing other investment entities that make the same types of investments as those PTMN targets. As a result, the time and resources that these individuals may devote to PTMN may be diverted. In addition, PTMN may compete with any such investment entity for the same investors and investment opportunities. On October 23, 2018, the SEC issued an order granting an application for exemptive relief to an affiliate of Sierra Crest that allows BDCs managed by Sierra Crest, including PTMN, to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions, with other funds managed by Sierra Crest or its affiliates, including BCP Special Opportunities Fund I LP and BCP Special Opportunities Fund II LP and any future funds that are advised by Sierra Crest or its affiliated investment advisers. Affiliates of Sierra Crest, whose primary business includes the origination of investments, engage in investment advisory business with accounts that compete with PTMN.

PTMN’s base management and incentive fees may induce Sierra Crest to make speculative investments or to incur leverage.

The incentive fee payable by PTMN to Sierra Crest may create an incentive for Sierra Crest to make investments on PTMN’s behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to Sierra Crest is determined may encourage Sierra Crest to use leverage to increase the leveraged return on PTMN’s investment portfolio. The part of the management and incentive fees payable to Sierra Crest that relates to PTMN’s net investment income is computed and paid on income that may include interest income that has been accrued but not yet received in cash, such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities. This fee structure may be considered to involve a conflict of interest for Sierra Crest to the extent that it may encourage Sierra Crest to favor debt financings that provide for deferred interest, rather than current cash payments of interest.

In addition, the fact that PTMN’s base management fee is payable based upon PTMN’s gross assets, which would include any borrowings for investment purposes, may encourage Sierra Crest to use leverage to make additional investments. Under certain circumstances, the use of leverage may increase the likelihood of defaulting on PTMN’s borrowings, which would disfavor holders of PTMN Common Stock. Such a practice could result in PTMN’s investing in more speculative securities than would otherwise be in PTMN’s best interests, which could result in higher investment losses, particularly during cyclical economic downturns.

Sierra Crest relies on key personnel, the loss of any of whom could impair its ability to successfully manage PTMN.

PTMN’s future success depends, to a significant extent, on the continued services of the officers and employees of Sierra Crest or its affiliates. The loss of services of one or more members of Sierra Crest’s management team, including members of PTMN’s investment team, could adversely affect PTMN’s financial condition, business and results of operations.

Sierra Crest may retain additional consultants, advisors and/or operating partners to provide services to PTMN, and such additional personnel will perform similar functions and duties for other organizations which may give rise to conflicts of interest.

BC Partners may work with or alongside one or more consultants, advisors (including senior advisors and CEOs) and/or operating partners who are retained by BC Partners on a consultancy or retainer or other basis, to provide services to PTMN and other entities sponsored by BC Partners including the sourcing of investments and other investment-related and support services. The functions undertaken by such persons with respect to PTMN and any of its investments will not be exclusive and such persons may perform similar functions and duties for other organizations which may give rise to conflicts of interest. Such persons may also be appointed to the board of directors of companies and have other business interests which give rise to conflicts of interest with the interests of PTMN or a portfolio entity of PTMN. Stockholders should note that such persons may retain compensation that will not offset the base management fee payable to Sierra Crest, including that: (i) such

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persons are permitted to retain all directors’ fees, monitoring fees and other compensation received by them in respect of acting as a director or officer of, or providing other services to, a portfolio entity and such amounts shall not be credited against the base management fee; and (ii) certain of such persons may be paid a deal fee, a consultancy fee or other compensation where they are involved in a specific project relating to PTMN, which fee will be paid either by PTMN or, if applicable, the relevant portfolio entity.

The compensation PTMN pays to Sierra Crest was determined without independent assessment on PTMN’s behalf, and these terms may be less advantageous to PTMN than if such terms had been the subject of arm’s-length negotiations.

The compensation PTMN pays to Sierra Crest was not entered into on an arm’s-length basis with an unaffiliated third party. As a result, the form and amount of such compensation may be less favorable to PTMN than they might have been had these been entered into through arm’s-length transactions with an unaffiliated third party.

Sierra Crest’s influence on conducting PTMN’s operations gives it the ability to increase its fees, which may reduce the amount of cash flow available for distribution to PTMN’s stockholders.

Sierra Crest is paid a base management fee calculated as a percentage of PTMN’s gross assets and unrelated to net income or any other performance base or measure. Sierra Crest may advise PTMN to consummate transactions or conduct its operations in a manner that, in Sierra Crest’s reasonable discretion, is in the best interests of PTMN’s stockholders. These transactions, however, may increase the amount of fees paid to Sierra Crest. Sierra Crest’s ability to influence the base management fee paid to it by PTMN could reduce the amount of cash flow available for distribution to PTMN’s stockholders.

PTMN operates in a highly competitive market for investment opportunities.

A large number of entities compete with PTMN to make the types of investments that it makes. PTMN competes with other BDCs, as well as a number of investment funds, investment banks and other sources of financing, including traditional financial services companies, such as commercial banks and finance companies. Many of PTMN’s competitors are substantially larger and have considerably greater financial, marketing and other resources than PTMN. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to PTMN. This may enable some of PTMN’s competitors to make commercial loans with interest rates that are lower than the rates PTMN typically offers. PTMN may lose prospective portfolio investments if it does not match its competitors’ pricing, terms and structure. If PTMN does match its competitors’ pricing, terms or structure, it may experience decreased net interest income. In addition, some of PTMN’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships and build their market shares. Furthermore, many of PTMN’s potential competitors are not subject to the regulatory restrictions that the 1940 Act imposes on PTMN as a BDC. As a result of this competition, there can be no assurance that PTMN will be able to identify and take advantage of attractive investment opportunities or that it will be able to fully invest its available capital. If PTMN is not able to compete effectively, its business and financial condition and results of operations will be adversely affected.

If Sierra Crest is unable to source investments effectively, PTMN may be unable to achieve its investment objectives and provide returns to stockholders.

PTMN’s ability to achieve its investment objective depends on Sierra Crest’s ability to identify, evaluate and invest in suitable companies that meet PTMN’s investment criteria. Accomplishing this result on a cost-effective basis is largely a function of Sierra Crest’s marketing capabilities, its management of the investment process, its ability to provide efficient services and its access to financing sources on acceptable terms. Failure to source investments effectively could have a material adverse effect on PTMN’s business, financial condition and results of operations.

PTMN may have difficulty paying distributions required to maintain its RIC status if PTMN recognizes income before or without receiving cash equal to such income.

In accordance with the Code, PTMN includes in income certain amounts that it has not yet received in cash, such as non-cash PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. The increases in loan balances as a result of contracted non-cash PIK arrangements are included

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in income for the period in which such non-cash PIK interest was received, which is often in advance of receiving cash payment, and are separately identified on PTMN’s statements of cash flows. PTMN also may be required to include in income certain other amounts that it will not receive in cash. Any warrants that PTMN receives in connection with its debt investments generally are valued as part of the negotiation process with the particular portfolio company. As a result, a portion of the aggregate purchase price for the debt investments and warrants is allocated to the warrants that PTMN receives. This generally results in the associated debt investment having “original issue discount” for tax purposes, which PTMN must recognize as ordinary income as it accrues. This increases the amounts that PTMN is required to distribute to maintain PTMN’s qualification for tax treatment as a RIC. Because such original issue discount income might exceed the amount of cash received in a given year with respect to such investment, PTMN might need to obtain cash from other sources to satisfy such distribution requirements. Other features of the debt instruments that PTMN holds may also cause such instruments to generate original issue discount.

Since, in certain cases, PTMN may recognize income before or without receiving cash representing such income, PTMN may have difficulty meeting the annual distribution requirement necessary to maintain RIC tax treatment under the Code. Accordingly, PTMN may have to sell some of its investments at times and/or at prices it would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If PTMN is not able to obtain cash from other sources, it may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax. For additional discussion regarding the tax implications of a RIC, see “Business of Portman Ridge Finance Corporation—Regulation—Taxation as a Regulated Investment Company.

Any unrealized losses PTMN experiences on its loan portfolio may be an indication of future realized losses, which could reduce PTMN’s resources available to make distributions.

As a BDC, PTMN is required to carry PTMN’s investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith by PTMN’s Board of Directors pursuant to a valuation methodology approved by PTMN’s Board of Directors. Decreases in the market values or fair values of PTMN’s investments will be recorded as unrealized losses. An unrealized loss in PTMN’s loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of PTMN’s resources available to pay dividends or interest and principal on PTMN’s securities and could cause you to lose all or part of your investment.

PTMN may experience fluctuations in its quarterly and annual operating results and credit spreads.

PTMN could experience fluctuations in its quarterly and annual operating results due to a number of factors, some of which are beyond its control, including its ability to make investments in companies that meet its investment criteria, the interest rate payable on the debt securities PTMN acquires (which could stem from the general level of interest rates, credit spreads, or both), the default rate on such securities, prepayment upon the triggering of covenants in its middle-market loans as well as its CLO Funds, its level of expenses, variations in and timing of the recognition of realized and unrealized gains or losses, the degree to which PTMN encounters competition in its markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

PTMN is exposed to risks associated with changes in interest rates and spreads.

Changes in interest rates may have a substantial negative impact on PTMN’s investments, the value of its securities and its rate of return on invested capital. A reduction in the interest spreads on new investments could also have an adverse impact on PTMN’s net interest income. An increase in interest rates could decrease the value of any investments PTMN holds which earn fixed interest rates, including mezzanine securities and high-yield bonds, and also could increase its interest expense, thereby decreasing its net income. An increase in interest rates due to an increase in credit spreads, regardless of general interest rate fluctuations, could also negatively impact the value of any investments PTMN holds in its portfolio.

In addition, an increase in interest rates available to investors could make an investment in PTMN’s securities less attractive than alternative investments, a situation which could reduce the value of PTMN’s securities. Conversely, a decrease in interest rates may have an adverse impact on PTMN’s returns by requiring

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PTMN to seek lower yields on its debt investments and by increasing the risk that its portfolio companies will prepay its debt investments, resulting in the need to redeploy capital at potentially lower rates. A decrease in market interest rates may also adversely impact its returns on idle funds, which would reduce its net investment income.

The interest rates of PTMN’s term loans to its portfolio companies that extend beyond 2021 might be subject to change based on recent regulatory changes.

LIBOR, the London interbank offered rate, is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. PTMN typically uses LIBOR as a reference rate in term loans PTMN extends to portfolio companies such that the interest due to PTMN, pursuant to a term loan extended to a partner company, is calculated using LIBOR. Some of PTMN’s term loan agreements with partner companies contain a stated minimum value for LIBOR.

In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced the desire to phase out LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the SOFR a new index calculated by short-term repurchase agreements, backed by Treasury securities. Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether these alternative reference rates will attain market acceptance as replacements for LIBOR.

If LIBOR ceases to exist, PTMN may need to renegotiate any credit agreements extending beyond 2021 with its prospective portfolio companies that utilize LIBOR as a factor in determining the interest rate. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on PTMN’s cost of capital and net investment income cannot yet be determined.

PTMN borrows money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in PTMN.

Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in PTMN. PTMN has issued senior securities, and in the future may borrow from, or issue additional senior securities (such as preferred or convertible securities or debt securities) to, banks and other lenders and investors. Subject to prevailing market conditions, PTMN intends to grow its portfolio of assets by raising additional capital, including through the prudent use of leverage available to PTMN. Lenders and holders of such senior securities would have fixed dollar claims on PTMN’s assets that are superior to the claims of PTMN’s common stockholders. Leverage is generally considered a speculative investment technique. Any increase in PTMN’s income in excess of interest payable on its outstanding indebtedness would cause PTMN’s net income to increase more than it would have had PTMN not incurred leverage, while any decrease in PTMN’s income would cause net income to decline more sharply than it would have had PTMN not incurred leverage. Such a decline could negatively affect PTMN’s ability to make distributions to its stockholders and service its debt obligations. In addition, PTMN’s common stockholders will bear the burden of any increase in PTMN’s expenses as a result of leverage. There can be no assurance that PTMN leveraging strategy will be successful.

PTMN’s outstanding indebtedness imposes, and additional debt it may incur in the future will likely impose, financial and operating covenants that restrict PTMN’s business activities, including limitations that could hinder PTMN’s ability to finance additional loans and investments or to make the distributions required to maintain PTMN’s status as a RIC. A failure to add new debt facilities or issue additional debt securities or other evidences of indebtedness in lieu of or in addition to existing indebtedness could have a material adverse effect on PTMN’s business, financial condition or results of operations.

The following table illustrates the effect of leverage on returns from an investment in PTMN’s common stock as of June 30, 2019, assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.

Assumed Return on PTMN’s Portfolio (Net of Expenses)(1)
 
-10
%
 
-5
%
 
0
 
 
5
%
 
10
%
Corresponding return to common stockholder(2)
 
(27.2
)%
 
(16.2
)%
 
(5.2
)%
 
5.7
%
 
16.7
%

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(1)The assumed portfolio return is required by SEC regulations and is not a prediction of, and does not represent, PTMN’s projected or actual performance. Actual returns may be greater or less than those appearing in the table. Pursuant to SEC regulations, this table is calculated as of June 30, 2019. As a result, it has not been updated to take into account any changes in assets or leverage since such date.
(2)Assumes $305.5 million in total assets, $122.8 million in debt outstanding and $139.2 million in net assets as of as of June 30, 2019 and a weighted average interest rate of 5.6% as of June 30, 2019.

PTMN’s indebtedness could adversely affect PTMN’s financial health and PTMN’s ability to respond to changes in PTMN’s business.

With certain limited exceptions, PTMN is only allowed to borrow amounts or issue senior securities such that its asset coverage, as defined in the 1940 Act, is at least 200% (or the 150% asset coverage ratio effective as of March 29, 2019) immediately after such borrowing or issuance. The amount of leverage that PTMN employs in the future will depend on its management’s and its Board of Directors’ assessment of market and other factors at the time of any proposed borrowing. There is no assurance that a leveraging strategy will be successful. As a result of the level of PTMN’s leverage:

PTMN’s exposure to risk of loss is greater if it incurs debt or issue senior securities to finance investments because a decrease in the value of PTMN’s investments has a greater negative impact on its equity returns and, therefore, the value of its business if PTMN did not use leverage;
the decrease in PTMN’s asset coverage ratio resulting from increased leverage and the covenants contained in documents governing PTMN’s indebtedness (which may impose asset coverage or investment portfolio composition requirements that are more stringent than those imposed by the 1940 Act) limit PTMN’s flexibility in planning for, or reacting to, changes in its business and industry, as a result of which it could be required to liquidate investments at an inopportune time;
PTMN is required to dedicate a portion of its cash flow to interest payments, limiting the availability of cash for dividends and other purposes; and
PTMN’s ability to obtain additional financing in the future may be impaired.

PTMN cannot be sure that its leverage will not have a material adverse effect on PTMN’s business, financial condition, results of operations and cash flows. In addition, PTMN cannot be sure that additional financing will be available when required or, if available, will be on terms satisfactory to it. Further, even if PTMN is able to obtain additional financing, it may be required to use some or all of the proceeds thereof to repay its outstanding indebtedness.

PTMN’s Board of Directors has approved its ability to incur additional leverage as permitted by recent legislation.

The 1940 Act generally prohibits BDCs from incurring indebtedness unless immediately after such borrowing they have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However, the recently enacted SBCA has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. In other words, prior to the enactment of the SBCA, a BDC could borrow $1 for investment purposes for every $1 of investor equity. Now, for those BDCs that satisfy the SBCA’s approval and disclosure requirements, the BDC can borrow $2 for investment purposes for every $1 of investor equity.

In accordance with the SBCA, on March 29, 2018, PTMN’s Board of Directors, including a “required majority” approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, PTMN’s asset coverage requirements for senior securities changed from 200% to 150%, effective March 29, 2019. However, despite the SBCA, PTMN will continue to be prohibited by the indentures governing its 2022 Notes from making distributions on PTMN Common Stock if PTMN’s asset coverage, as defined in the 1940 Act, falls below 200%. In any such event, PTMN would be prohibited from making distributions required in order to maintain its status as a RIC.

Leverage magnifies the potential for loss on investments in PTMN’s indebtedness and on invested equity capital. As PTMN uses leverage to partially finance its investments, you will experience increased risks of

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investing in PTMN’s securities. If the value of PTMN’s assets increases, then leveraging would cause the net asset value attributable to PTMN Common Stock to increase more sharply than it would have had PTMN not leveraged. Conversely, if the value of PTMN’s assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had PTMN not leveraged its business. Similarly, any increase in PTMN’s income in excess of interest payable on the borrowed funds would cause its net investment income to increase more than it would without the leverage, while any decrease in PTMN’s income would cause net investment income to decline more sharply than it would have had it not borrowed. Such a decline could negatively affect PTMN’s ability to pay common stock dividends, scheduled debt payments or other payments related to its securities. Leverage is generally considered a speculative investment technique.

PTMN may default under the Revolving Credit Facility or any future borrowing facility it enters into or be unable to amend, repay or refinance any such facility on commercially reasonable terms, or at all, which could have a material adverse effect on PTMN’s business, financial condition, results of operations and cash flows.

In the event PTMN defaults under the Revolving Credit Facility or any other future borrowing facility, PTMN’s business could be adversely affected as it may be forced to sell a portion of its investments quickly and prematurely at prices that may be disadvantageous to it in order to meet it’s outstanding payment obligations and/or support working capital requirements under the Revolving Credit Facility or such future borrowing facility, any of which would have a material adverse effect on its business, financial condition, results of operations and cash flows. In addition, following any such default, the agent for the lenders under the Revolving Credit Facility or such future borrowing facility could assume control of the disposition of any or all of PTMN’s assets, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on PTMN’s business, financial condition, results of operations and cash flows.

Provisions in the Revolving Credit Facility or any other future borrowing facility may limit PTMN’s discretion in operating PTMN’s business.

The Revolving Credit Facility is, and any future borrowing facility may be, backed by all or a portion of PTMN’s loans and securities on which the lenders will or, in the case of a future facility, may have a security interest. PTMN may pledge up to 100% of its assets and may grant a security interest in all of its assets under the terms of any debt instrument PTMN enters into with lenders. PTMN expects that any security interests it grants will be set forth in a pledge and security agreement and evidenced by the filing of financing statements by the agent for the lenders. In addition, PTMN expects that the custodian for its securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the lender or its designee. If PTMN were to default under the terms of any debt instrument, the agent for the applicable lenders would be able to assume control of the timing of disposition of any or all of its assets securing such debt, which would have a material adverse effect on PTMN’s business, financial condition, results of operations and cash flows.

In addition, any security interests as well as negative covenants under the Revolving Credit Facility or any other borrowing facility may limit PTMN’s ability to create liens on assets to secure additional debt and may make it difficult for PTMN to restructure or refinance indebtedness at or prior to maturity or obtain additional debt or equity financing. In addition, if PTMN’s borrowing base under the Revolving Credit Facility or any other borrowing facility were to decrease, PTMN would be required to secure additional assets in an amount equal to any borrowing base deficiency. In the event that all of PTMN’s assets are secured at the time of such a borrowing base deficiency, it could be required to repay advances under the Revolving Credit Facility or any other borrowing facility or make deposits to a collection account, either of which could have a material adverse impact on PTMN’s ability to fund future investments and to make stockholder distributions.

In addition, under the Revolving Credit Facility or any future borrowing facility, PTMN will be subject to limitations as to how borrowed funds may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage, which may affect the amount of funding that may be obtained. There may also be certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies and charge-offs, a violation of which could limit further advances and, in some cases, result in an event of default. An event of default under the Revolving Credit Facility or any other

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borrowing facility could result in an accelerated maturity date for all amounts outstanding thereunder, which could have a material adverse effect on PTMN’s business and financial condition. This could reduce PTMN’s revenues and, by delaying any cash payment allowed to it under the Revolving Credit Facility or any other borrowing facility until the lenders have been paid in full, reduce PTMN’s liquidity and cash flow and impair its ability to grow its business and maintain its qualification as a RIC.

Because PTMN intends to continue to distribute substantially all of its income and net realized capital gains to its stockholders, PTMN will need additional capital to finance its growth.

In order to continue to qualify as a RIC, to avoid payment of excise taxes and to minimize or avoid payment of U.S. federal income taxes, PTMN intends to continue to distribute to its stockholders substantially all of its net ordinary income and realized net capital gains except for certain net long-term capital gains (which PTMN may retain, pay applicable U.S. federal income taxes with respect thereto, and elect to treat as deemed distributions to its stockholders). As a BDC, in order to incur new debt, PTMN is generally required to meet a coverage ratio of total assets to total senior securities, which includes all of PTMN’s borrowings and any preferred stock PTMN may issue in the future, of at least 200% (or the 150% asset coverage ratio effective as of March 29, 2019), as measured immediately after issuance of such security. This requirement limits the amount that PTMN may borrow. Because PTMN will continue to need capital to grow its loan and investment portfolio, this limitation may prevent it from incurring debt and require it to issue additional equity at a time when it may be disadvantageous to do so. PTMN cannot assure you that debt and equity financing will be available to it on favorable terms, or at all, and debt financings may be restricted by the terms of such borrowings. Also, as a business development company, PTMN generally is not permitted to issue equity securities priced below net asset value without stockholder approval. If additional funds are not available to PTMN, it could be forced to curtail or cease new lending and investment activities.

PTMN may from time to time expand its business through acquisitions, which could disrupt its business and harm its financial condition.

PTMN may pursue potential acquisitions of, and investments in, businesses complementary to its business and from time to time engage in discussions regarding such possible acquisitions. Such acquisition and any other acquisitions PTMN may undertake involve a number of risks, including:

failure of the acquired businesses to achieve the results PTMN expects;
substantial cash expenditures;
diversion of capital and management attention from operational matters;
PTMN’s inability to retain key personnel of the acquired businesses;
incurrence of debt and contingent liabilities and risks associated with unanticipated events or liabilities; and
the potential disruption and strain on PTMN’s existing business and resources that could result from its planned growth and continuing integration of its acquisitions.

If PTMN fails to properly evaluate acquisitions or investments, it may not achieve the anticipated benefits of such acquisitions, it may incur costs in excess of what it anticipates, and management resources and attention may be diverted from other necessary or valuable activities. Any acquisition may not result in short-term or long-term benefits to PTMN. If PTMN is unable to integrate or successfully manage any business that it acquires, it may not realize anticipated cost savings, improved efficiencies or revenue growth, which may result in reduced profitability or operating losses.

PTMN may invest through joint ventures, partnerships or other special purpose vehicles and its investments through these vehicles may entail greater risks, or risks that it otherwise would not incur, if PTMN otherwise made such investments directly.

PTMN may make indirect investments in portfolio companies through joint ventures, partnerships or other special purpose vehicles (“Investment Vehicles”). In general, the risks associated with indirect investments in portfolio companies through a joint venture, partnership or other special purpose vehicle are similar to those associated with a direct investment in a portfolio company. While PTMN intends to analyze the credit and

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business of a potential portfolio company in determining whether or not to make an investment in an Investment Vehicle, it will nonetheless be exposed to the creditworthiness of the Investment Vehicle. In the event of a bankruptcy proceeding against the portfolio company, the assets of the portfolio company may be used to satisfy its own obligations prior to the satisfaction of PTMN’s investment in the Investment Vehicle (i.e., PTMN’s investment in the Investment Vehicle could be structurally subordinated to the other obligations of the portfolio company). In addition, if PTMN is to invest in an Investment Vehicle, PTMN may be required to rely on its partners in the Investment Vehicle when making decisions regarding the Investment Vehicle’s investments, accordingly, the value of the investment could be adversely affected if PTMN’s interests diverge from those of its partners in the Investment Vehicle.

PTMN’s Board of Directors may change PTMN’s investment objective, operating policies and strategies without prior notice or stockholder approval.

PTMN’s Board of Directors has the authority to modify or waive certain of PTMN’s operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, PTMN’s Board of Directors may not change the nature of PTMN’s business so as to cease to be, or withdraw its election as, a BDC. PTMN cannot predict the effect any changes to its current operating policies and strategies would have on its business and operating results. Nevertheless, the effects may adversely affect PTMN’s business and they could negatively impact PTMN’s ability to pay you dividends and could cause you to lose all or part of your investment in PTMN’s securities.

PTMN’s businesses may be adversely affected by litigation and regulatory proceedings.

From time to time, PTMN may be subject to legal actions as well as various regulatory, governmental and law enforcement inquiries, investigations and subpoenas. In any such claims or actions, demands for substantial monetary damages may be asserted against PTMN and may result in financial liability or an adverse effect on its reputation among investors. PTMN may be unable to accurately estimate its exposure to litigation risk when it records balance sheet reserves for probable loss contingencies. As a result, any reserves PTMN establishes to cover any settlements or judgments may not be sufficient to cover its actual financial exposure, which may have a material impact on its results of operations or financial condition. In regulatory enforcement matters, claims for disgorgement, the imposition of penalties and the imposition of other remedial sanctions are possible.

Regulations governing PTMN’s operation as a BDC affect PTMN’s ability to, and the way in which it raises, additional capital.

PTMN’s business requires a substantial amount of additional capital. PTMN may acquire additional capital from the issuance of senior securities or other indebtedness, the issuance of additional shares of PTMN Common Stock or from securitization transactions. However, PTMN may not be able to raise additional capital in the future on favorable terms or at all. PTMN may issue debt securities or preferred securities, which it refers to collectively as “senior securities,” and PTMN may borrow money from banks or other financial institutions, up to the maximum amount permitted by the 1940 Act. The 1940 Act permits PTMN to issue senior securities or incur indebtedness only in amounts such that its asset coverage, as defined in the 1940 Act, equals at least 200% (or the 150% asset coverage ratio effective as of March 29, 2019) immediately after such issuance or incurrence. With respect to certain types of senior securities, PTMN must make provisions to prohibit any dividend distribution to its stockholders or the repurchase of certain of its securities, unless it meets the applicable asset coverage ratios at the time of the dividend distribution or repurchase. If the value of PTMN’s assets declines, it may be unable to satisfy the asset coverage test. Furthermore, any amounts that PTMN uses to service its indebtedness would not be available for distributions to its common stockholders.

All of the costs of offering and servicing such debt or preferred stock (if issued by PTMN in the future), including interest or preferential dividend payments thereon, will be borne by PTMN’s common stockholders. The interests of the holders of any debt or preferred stock PTMN may issue will not necessarily be aligned with the interests of its common stockholders. In particular, the rights of holders of PTMN’s debt or preferred stock to receive interest, dividends or principal repayment will be senior to those of PTMN’s common stockholders. Also, in the event PTMN issues preferred stock, the holders of such preferred stock will have the ability to elect two members of PTMN’s Board of Directors. In addition, PTMN may grant a lender a security interest in a significant portion or all of PTMN’s assets, even if the total amount PTMN may borrow from such lender is less than the amount of such lender’s security interest in its assets.

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PTMN is not generally able to issue and sell its common stock at a price below net asset value per share. PTMN may, however, sell its common stock at a price below the then-current net asset value of its common stock if its Board of Directors determines that such sale is in the best interests of PTMN and its stockholders, and its stockholders approve, giving PTMN the authority to do so. Although PTMN currently does not have such authorization, it previously sought and received such authorization from its stockholders in the past and may seek such authorization in the future. In any such case, the price at which PTMN’s securities are to be issued and sold may not be less than a price which, in the determination of PTMN’s Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). PTMN is also generally prohibited under the 1940 Act from issuing securities convertible into voting securities without obtaining the approval of its existing stockholders. Sales of common stock at prices below net asset value per share dilute the interests of existing stockholders, have the effect of reducing PTMN’s net asset value per share and may reduce its market price per share. In addition to issuing securities to raise capital as described above; PTMN may securitize a portion of the loans to generate cash for funding new investments. If PTMN is unable to successfully securitize PTMN’s loan portfolio, PTMN’s ability to grow its business and fully execute its business strategy and its earnings (if any) may be adversely affected. Moreover, even successful securitization of PTMN’s loan portfolio might expose it to losses, as the residual loans in which it does not sell interests tend to be those that are riskier and more apt to generate losses.

The application of the risk retention rules under Section 941 of the Dodd-Frank Act to CLOs may have broader effects on the CLO and loan markets in general, potentially resulting in fewer or less desirable investment opportunities for PTMN.

Section 941 of the Dodd-Frank Act added a provision to the Exchange Act requiring the seller, sponsor or securitizer of a securitization vehicle to retain no less than five percent of the credit risk in assets it sells into a securitization and prohibiting such securitizer from, directly or indirectly, hedging or otherwise transferring the retained credit risk. The responsible federal agencies adopted final rules implementing these restrictions on October 22, 2014. The U.S. risk retention rules became effective with respect to CLOs two years after publication in the Federal Register. Under the final rules, the asset manager of a CLO is considered the sponsor of a securitization vehicle and is required to retain five percent of the credit risk in the CLO, which may be retained horizontally in the equity tranche of the CLO or vertically as a five percent interest in each tranche of the securities issued by the CLO.

On February 9, 2018, the D.C. Circuit Court ruled in favor of an appeal brought by the Loan Syndications and Trading Association (the “LSTA”) against the SEC and the Board of Governors of the Federal Reserve System (the “Applicable Governmental Agencies”) that managers of so-called “open market CLOs” are not “securitizers” under Section 941 of the Dodd-Frank Act and, therefore, are not subject to the requirements of the U.S. risk retention rules (the “Appellate Court Ruling”). The LSTA was appealing from a judgment entered by the D.C. District Court, which granted summary judgment in favor of the SEC and Federal Reserve and against the LSTA with respect to its challenges.

On April 5, 2018, the D.C. District Court entered an order implementing the Appellate Court Ruling and thereby vacated the U.S. risk retention rules insofar as they apply to CLO managers of  “open market CLOs.” In addition, the Applicable Governmental Agencies did not request that the case be heard by the United States Supreme Court. Since the Applicable Governmental Agencies have not successfully challenged the Appellate Court Ruling and the D.C. District Court has issued the above-described order implementing the Appellate Court Ruling, collateral managers of open market CLOs are no longer required to comply with the U.S. risk retention rules at this time. As such, it is possible that some collateral managers of open market CLOs will decide to dispose of the notes constituting the “eligible vertical interest” or “eligible horizontal interest” they were previously required to retain, or decide to take other action with respect to such notes that is not otherwise permitted by the U.S. risk retention rules. As a result of this decision, certain CLO managers of  “open market CLOs” will no longer be required to comply with the U.S. risk retention rules solely because of their roles as managers of  “open market CLOs”, and there may be no “sponsor” of such securitization transactions and no party may be required to acquire and retain an economic interest in the credit risk of the securitized assets of such transactions.

There can be no assurance or representation that any of the transactions, structures or arrangements currently under consideration by or currently used by CLO market participants will comply with the U.S. risk retention rules to the extent such rules are reinstated or otherwise become applicable to open market CLOs. The ultimate

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impact of the U.S. risk retention rules on the loan securitization market and the leveraged loan market generally remains uncertain, and any negative impact on secondary market liquidity for securities comprising a CLO may be experienced due to the effects of the U.S. risk retention rules on market expectations or uncertainty, the relative appeal of other investments not impacted by the U.S. risk retention rules and other factors.

If PTMN does not invest a sufficient portion of its assets in Qualifying Assets, it could be precluded from investing according to its current business strategy.

As a BDC, PTMN may not acquire any assets other than assets of the type listed in Section 55(a) of the 1940 Act (“Qualifying Assets”) unless, at the time of and after giving effect to such acquisition, at least 70% of PTMN’s total assets are Qualifying Assets. See “Business of Portman Ridge Finance Corporation—Regulation.

PTMN believes that most of the senior loans and mezzanine investments that it acquires constitute Qualifying Assets. However, investments in the securities of CLO Funds generally do not constitute Qualifying Assets, and PTMN may invest in other assets that are not Qualifying Assets. If PTMN does not invest a sufficient portion of its assets in Qualifying Assets, it may be precluded from investing in what it believes are attractive investments, which would have a material adverse effect on its business, financial condition and results of operations. Similarly, these rules could prevent PTMN from making follow-on investments in existing portfolio companies (which could result in the dilution of its position).

PTMN’s ability to enter into transactions with its affiliates is restricted.

PTMN is prohibited under the 1940 Act from participating in certain transactions with certain of its affiliates without the prior approval of the members of PTMN’s independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of PTMN’s outstanding voting securities is its affiliate for purposes of the 1940 Act and PTMN is generally prohibited from buying or selling any securities (other than PTMN’s securities) from or to such affiliate, absent the prior approval of PTMN’s independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of PTMN’s affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of PTMN’s independent directors and, in some cases, the SEC. If a person acquires more than 25% of PTMN’s voting securities, PTMN will be prohibited from buying or selling any security (other than any security of which PTMN is the issuer) from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such person, absent the prior approval of the SEC. Similar restrictions limit PTMN’s ability to transact business with its officers or directors or their affiliates.

A failure on PTMN’s part to maintain PTMN’s status as a BDC would significantly reduce PTMN’s operating flexibility.

If PTMN fails to maintain PTMN’s status as a BDC, PTMN might be regulated as a closed-end investment company that is required to register under the 1940 Act, which would subject PTMN to additional regulatory restrictions and significantly decrease PTMN’s operating flexibility. In addition, any such failure could cause an event of default under PTMN’s outstanding indebtedness, which could have a material adverse effect on PTMN’s business, financial condition or results of operations.

PTMN’s business and operations could be negatively affected if it becomes subject to any securities litigation or stockholder activism, which could cause PTMN to incur significant expense, hinder execution of investment strategy and impact its stock price.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been brought against that company. Stockholder activism, which could take many forms or arise in a variety of situations, has been increasing in the BDC space recently. While PTMN is currently not subject to any securities litigation or stockholder activism, it may in the future become the target of securities litigation or stockholder activism. Securities litigation and stockholder activism, including potential proxy contests, could result in substantial costs and divert management’s and PTMN’s Board of Directors’ attention and resources from PTMN’s business. Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to PTMN’s future, adversely affect PTMN’s relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, PTMN may be required to incur significant legal fees and other expenses related to any securities litigation and activist stockholder matters. Further, PTMN’s stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism.

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PTMN will be subject to corporate-level U.S. federal income taxes if it is unable to qualify as a RIC under Subchapter M of the Code.

To maintain RIC tax treatment under the Code, PTMN must meet the following annual distribution, income source and asset diversification requirements:

The annual distribution requirement for a RIC will be satisfied if PTMN distributes to its stockholders on an annual basis at least 90% of its net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because PTMN uses debt financing, it is subject to certain asset coverage ratio requirements under the 1940 Act and is (and may in the future become) subject to certain financial covenants under loan, indenture and credit agreements that could, under certain circumstances, restrict PTMN from making distributions necessary to satisfy the distribution requirement. If PTMN is unable to obtain cash from other sources, it could fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income taxes.
The source income requirement will be satisfied if PTMN obtains at least 90% of its income for each year from dividends, interest, gains from the sale of stock or securities or similar sources.
The asset diversification requirement will be satisfied if PTMN meets certain asset diversification requirements at the end of each quarter of its taxable year. To satisfy this requirement, at least 50% of the value of PTMN’s assets must consist of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of PTMN’s assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by PTMN and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” If PTMN does not satisfy the diversification requirements as of the end of any quarter, it will not lose its status as RIC provided that (i) PTMN satisfied the requirements in a prior quarter and (ii) its failure to satisfy the requirements in the current quarter is not due in whole or in part to an acquisition of any security or other property.

Failure to meet these requirements may result in PTMN’s having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of PTMN’s investments will be in private companies, and therefore will be illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. Moreover, if PTMN fails to maintain RIC tax treatment for any reason and is subject to corporate-level U.S. federal income taxes, the resulting taxes could substantially reduce PTMN’s net assets, the amount of income available for distribution and the amount of its distributions. Such a failure would have a material adverse effect on PTMN and on its stockholders.

Risks Associated with PTMN’s Information Technology Systems

PTMN relies on various information technology systems to manage its operations. Information technology systems are subject to numerous risks including unanticipated operating problems, system failures, rapid technological change, failure of the systems that operate as anticipated, reliance on third-party computer hardware, software and IT service providers, computer viruses, telecommunication failures, data breaches, denial of service attacks, spamming, phishing attacks, computer hackers and other similar disruptions, any of which could materially adversely impact PTMN’s consolidated financial condition and results of operations. Additional risks include, but are not limited to, the following:

Disruptions in current systems or difficulties in integrating new systems.

PTMN regularly maintains, upgrades, enhances or replaces its information technology systems to support its business strategies and provide business continuity. Replacing legacy systems with successor systems, making changes to existing systems or acquiring new systems with new functionality have inherent risks including disruptions, delays, or difficulties that may impair the effectiveness of PTMN’s information technology systems.

Internal and external cyber threats, as well as other disasters, could impair PTMN’s ability to conduct business effectively.

The occurrence of a disaster, such as a cyber-attack against PTMN or against a third-party that has access to PTMN’s data or networks, a natural catastrophe, an industrial accident, failure of PTMN’s disaster recovery systems, or consequential employee error, could have an adverse effect on PTMN’s ability to communicate or

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conduct business, negatively impacting its operations and financial condition. This adverse effect can become particularly acute if those events affect PTMN’s electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of PTMN’s data.

PTMN depends heavily upon computer systems to perform necessary business functions. Despite PTMN’s implementation of a variety of security measures, PTMN’s computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering. Like other companies, PTMN may experience threats to its data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through PTMN’s computer systems and networks. Such an attack could cause interruptions or malfunctions in PTMN’s operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damages and remediation.

Third parties with which PTMN does business may also be sources of cybersecurity or other technological risk. PTMN outsources certain functions and these relationships allow for the storage and processing of its information, as well as client, counterparty, employee, and borrower information. While PTMN engages in actions to reduce its exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure, destruction, or other cybersecurity incident that affects PTMN’s data, resulting in increased costs and other consequences as described above.

Risks Related to PTMN’s Investments

PTMN’s investments may be risky, and you could lose all or part of your investment.

PTMN invests primarily in senior secured term loans, mezzanine debt, selected equity investments issued by middle-market companies, CLO Funds and the Joint Venture managed by PTMN’s Surviving Asset Manager Affiliate. The investments in PTMN’s debt securities portfolio are all or predominantly below investment grade, may be highly leveraged, and therefore have speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Defaults by portfolio companies may harm PTMN’s operating results.

Secured Loans. When PTMN extends secured term loans, it generally takes a security interest (either as a first lien position or as a second lien position) in the available assets of these portfolio companies, including the equity interests of their subsidiaries, which PTMN expects to assist in mitigating the risk that it will not be repaid. However, there is a risk that the collateral securing PTMN’s loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital, and, in some circumstances, PTMN’s lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a loan is secured does not guarantee that PTMN will receive principal and interest payments according to the loan’s terms, or at all, or that PTMN will be able to collect on the loan should PTMN be forced to exercise its remedies.

Mezzanine Debt. PTMN’s mezzanine debt investments generally are subordinated to senior loans and generally are unsecured. This may result in an above average amount of risk and volatility or loss of principal.

These investments may entail additional risks that could adversely affect PTMN’s investment returns. To the extent interest payments associated with such debt are deferred, such debt is subject to greater fluctuations in value based on changes in interest rates and such debt could subject PTMN to phantom income. Since PTMN generally does not receive any cash prior to maturity of the debt, the investment is of greater risk.

Equity Investments. PTMN has made and expects to make selected equity investments in the middle-market companies. In addition, when PTMN invests in senior secured loans or mezzanine debt, it may acquire warrants in the equity of the portfolio company. PTMN’s goal is ultimately to dispose of such equity interests and realize gains upon its disposition of such interests. However, the equity interests PTMN receives may not appreciate in value and, in fact, may decline in value. Accordingly, PTMN may not be able to realize gains from its equity interests, and any gains that it does realize on the disposition of any equity interests may not be sufficient to offset any other losses it experiences.

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Risks Associated with Middle-Market Companies. Investments in middle-market companies also involve a number of significant risks, including:

limited financial resources and inability to meet their obligations, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of PTMN’s realizing the value of any guarantees it may have obtained in connection with its investment;
shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;
dependence on management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on PTMN’s portfolio company and, in turn, on PTMN;
less predictable operating results, being parties to litigation from time to time, engaging in rapidly changing businesses with products subject to a substantial risk of obsolescence and requiring substantial additional capital expenditures to support their operations, finance expansion or maintain their competitive position;
difficulty accessing the capital markets to meet future capital needs; and
generally less publicly available information about their businesses, operations and financial condition.

Risks Associated with CLO Fund Investments. Investments in CLO Funds also involve a number of significant risks, including:

CLOs typically are comprised of a portfolio of senior secured loans; payments on CLO investments are and will be payable solely from the cash-flows from such senior secured loans;
CLO investments are exposed to leveraged credit risk;
CLO Funds are highly leveraged;
there is the potential for interruption and deferral of cash-flow from CLO investments;
interest rates paid by corporate borrowers are subject to volatility;
the inability of a CLO collateral manager to reinvest the proceeds of the prepayment of senior secured loans may adversely affect PTMN;
our CLO investments are subject to prepayments and calls, increasing re-investment risk;
PTMN has limited control of the administration and amendment of any CLO in which it invests;
senior secured loans of CLOs may be sold and replaced resulting in a loss to PTMN;
PTMN’s financial results may be affected adversely if one or more of its significant equity or junior debt investments in a CLO vehicle defaults on its payment obligations or fails to perform as PTMN expects; and
non-investment grade debt involves a greater risk of default and higher price volatility than investment grade debt.

PTMN’s portfolio investments for which there is no readily available market, including its investment in its Asset Manager Affiliates, its Joint Venture and its investments in CLO Funds, are recorded at fair value as determined in good faith by PTMN’s Board of Directors. As a result, there is uncertainty as to the value of these investments.

PTMN’s investments consist primarily of securities issued by privately-held companies, the fair value of which is not readily determinable. In addition, PTMN is not permitted to maintain a general reserve for anticipated loan losses. Instead, PTMN is required by the 1940 Act to specifically value each investment and record an unrealized gain or loss for any asset that it believes has increased or decreased in value. PTMN values these securities at fair value as determined in good faith by its Board of Directors pursuant to a valuation methodology approved by its Board of Directors. These valuations are initially prepared by PTMN’s management and reviewed by PTMN’s Valuation Committee of the Board of Directors (the “Valuation Committee”), which

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uses its best judgment in arriving at the fair value of these securities. However, PTMN’s Board of Directors retains ultimate authority to determine the appropriate valuation for each investment.

PTMN has engaged an independent valuation firm to provide third-party valuation consulting services to its Board of Directors. Each quarter, the independent valuation firm performs third-party valuations on PTMN’s material investments in illiquid securities, such that they are reviewed at least once during a trailing 12-month period. These third-party valuation estimates are one of the relevant data points in PTMN’s Board of Director’s determination of fair value. PTMN’s Board of Directors intends to continue to engage an independent valuation firm in the future to provide certain valuation services, including the review of certain portfolio assets, as part of the quarterly and annual year-end valuation process. In addition to such third-party input, the types of factors that may be considered in valuing PTMN’s investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly-traded companies, discounted cash flow and other relevant factors. Substantially all of PTMN’s investment in the Asset Manager Affiliates was sold on December 31, 2018. Prior thereto, PTMN’s investment in its Asset Manager Affiliates was carried at fair value, which was determined after taking into consideration a percentage of assets under management and a discounted cash flow model incoporating different levels of discount rates depending on the hierarchy of fees earned (including the likelihood of realization of senior, subordinate and incentive fees) and prospetive modeled performance. Such valuation included an analysis of comparable asset management companies. In addition, PTMN’s investment in its Joint Venture is carried at fair value, which is determined based on the fair value of the investments held by the Joint Venture. Because such valuations, and particularly valuations of private investments and private companies, are inherently uncertain and may be based on estimates, PTMN’s determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed. PTMN’s net asset value could be adversely affected if its determinations regarding the fair value of its illiquid investments were materially higher than the values that it ultimately realizes upon the disposal of such securities.

PTMN is a non-diversified investment company within the meaning of the 1940 Act, and therefore it may invest a significant portion of its assets in a relatively small number of issuers, which subjects PTMN to a risk of significant loss if any of these issuers defaults on its obligations under any of its debt instruments or as a result of a downturn in the particular industry.

PTMN is classified as a non-diversified investment company within the meaning of the 1940 Act, and therefore it may invest a significant portion of PTMN’s assets in a relatively small number of issuers in a limited number of industries. Beyond the asset diversification requirements associated with its qualification as a RIC, PTMN does not have fixed guidelines for diversification, and while it is not targeting any specific industries, relatively few industries may become significantly represented among PTMN’s investments. To the extent that PTMN assumes large positions in the securities of a small number of issuers, its net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer, changes in fair value over time or a downturn in any particular industry. PTMN may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.

Defaults by PTMN’s portfolio companies could harm PTMN’s operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by PTMN or other debt holders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets. Such events could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt that PTMN holds and the value of any equity securities it owns. PTMN may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

When PTMN is a debt or minority equity investor in a portfolio company, which generally is the case, it may not be in a position to control the entity, and the portfolio company’s management may make decisions that could decrease the value of PTMN’s investment.

Most of PTMN’s investments are either debt or minority equity investments in its portfolio companies. Therefore, PTMN is subject to the risk that a portfolio company may make business decisions with which it disagrees, and the stockholders and management of such company may take risks or otherwise act in ways that

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do not serve PTMN’s interests. As a result, a portfolio company may make decisions that could decrease the value of PTMN’s portfolio holdings. In addition, PTMN generally is not in a position to control any portfolio company by investing in its debt securities.

PTMN may have limited access to information about privately held companies in which it invests.

PTMN invests primarily in privately-held companies. Generally, little public information exists about these companies, and PTMN is required to rely on the ability of its investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. These companies and their financial information are not subject to the Sarbanes-Oxley Act of 2002 and other rules that govern public companies. If PTMN is unable to uncover all material information about these companies, it may not make a fully informed investment decision, and it may lose money on its investment.

Prepayments of PTMN’s debt investments by PTMN’s portfolio companies could negatively impact its operating results.

PTMN is subject to the risk that the investments it makes in its portfolio companies may be repaid prior to maturity. When this occurs, it generally reinvests these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments typically have substantially lower yields than the debt being prepaid, and PTMN could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. Consequently, PTMN’s results of operations could be materially adversely affected if one or more of its portfolio companies elects to prepay amounts owed to PTMN. Additionally, prepayments could negatively impact PTMN’s return on equity, which could result in a decline in the market price of PTMN Common Stock.

PTMN may be unable to invest the net proceeds raised from offerings and repayments from investments on acceptable terms, which would harm PTMN’s financial condition and operating results.

Until PTMN identifies new investment opportunities, PTMN intends to either invest the net proceeds of future offerings and repayments from investments in interest-bearing deposits or other short-term instruments or use the net proceeds from such offerings to reduce then-outstanding debt obligations. PTMN cannot assure you that it will be able to find enough appropriate investments that meet its investment criteria or that any investment it completes using the proceeds from an offering will produce a sufficient return.

PTMN’s portfolio companies may incur debt that ranks equal with, or senior to, PTMN’s investments in such companies.

PTMN invests primarily in debt securities issued by PTMN’s portfolio companies. In some cases portfolio companies are permitted to have other debt that ranks equal with, or senior to, the debt securities in which PTMN invests. By their terms, such debt instruments may provide that the holders thereof are entitled to receive payment of interest or principal on or before the dates on which PTMN is entitled to receive payments in respect of the debt securities in which it invests. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to PTMN’s investment in that portfolio company would typically be entitled to receive payment in full before PTMN receives any distribution in respect of its investment. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to PTMN. In the case of debt ranking equal with debt securities in which PTMN invests, PTMN would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company.

Second priority liens on collateral securing loans that PTMN makes to its portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and PTMN.

Certain loans that PTMN makes are secured by a second priority security interest in the same collateral pledged by a portfolio company to secure senior debt owed by the portfolio company to other traditional lenders. Often the senior lender has procured covenants from the portfolio company prohibiting the incurrence of additional secured debt, without the senior lender’s consent. Prior to, and as a condition of, permitting the portfolio company to borrow money from PTMN secured by the same collateral pledged to the senior lender, the

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senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In many such cases, the senior lender will require PTMN to enter into an “intercreditor agreement” prior to permitting the portfolio company to borrow from PTMN. Typically, the intercreditor agreements PTMN is requested to execute expressly subordinate PTMN’s debt instruments to those held by the senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security agreement. Because of the control PTMN may cede to senior lenders under intercreditor agreements it may enter, PTMN may be unable to realize the proceeds of any collateral securing some of PTMN’s loans.

There may be circumstances where PTMN’s debt investments could be subordinated to claims of other creditors or PTMN could be subject to lender liability claims.

Even though PTMN may have structured certain of its investments as senior loans, if one of PTMN’s portfolio companies were to go bankrupt, depending on the facts and circumstances, including the size of PTMN’s investment and the extent to which PTMN actually provided managerial assistance to that portfolio company, a bankruptcy court might recharacterize PTMN’s debt investment and subordinate all or a portion of PTMN’s claim to that of other creditors. In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. It is possible that PTMN could become subject to a lender’s liability claim, including as a result of actions taken in rendering significant managerial assistance.

PTMN’s investments in equity securities involve a substantial degree of risk.

PTMN purchases common stock and other equity securities, including warrants. Although equity securities have historically generated higher average total returns than fixed-income securities over the long term, equity securities have also experienced significantly more volatility in those returns. The equity securities PTMN acquire may fail to appreciate and may decline in value or become worthless, and PTMN’s ability to recover its investment depends on PTMN’s portfolio company’s success. Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights.

The lack of liquidity in PTMN’s investments may adversely affect its business.

PTMN may invest in securities issued by private companies. These securities may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly-traded securities. The illiquidity of these investments may make it difficult for PTMN to sell these investments when desired. In addition, if PTMN is required to liquidate all or a portion of its portfolio quickly, PTMN may realize significantly less than the value at which it had previously recorded these investments. PTMN’s investments are usually subject to contractual or legal restrictions on resale or are otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of PTMN’s investments may make it difficult for PTMN to dispose of them at a favorable price, and, as a result, it may suffer losses.

PTMN’s investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

PTMN’s investment strategy contemplates that a portion of its investments may be in securities of foreign companies. Investing in foreign companies may expose PTMN to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

Although it is anticipated that most of PTMN’s investments will be denominated in U.S. dollars, its investments that are denominated in a foreign currency will be subject to the risk that the value of a particular

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currency may change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments.

The disposition of PTMN’s investments may result in contingent liabilities.

PTMN currently expects that a significant portion of its investments will involve lending directly to private companies. In connection with the disposition of an investment in private securities, PTMN may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. PTMN may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through PTMN’s return of certain distributions previously made to PTMN.

PTMN may not receive any return on its investment in the CLO Funds in which it has invested.

As of December 31, 2018, PTMN had $45.0 million at fair value invested in the subordinated securities, preferred shares, or other securities issued by the CLO Funds managed by certain third-party asset managers. Subordinated securities are the most junior class of securities issued by the CLO Funds and are subordinated in priority of payment to every other class of securities issued by these CLO Funds. Therefore, they only receive cash distributions if the CLO Funds have made all cash interest payments to all other debt securities issued by the CLO Fund. The subordinated securities are also unsecured and rank behind all of the secured creditors, known or unknown, of the CLO Fund, including the holders of the senior securities issued by the CLO Fund. Consequently, to the extent that the value of a CLO Fund’s loan investments has been reduced as a result of conditions in the credit markets, or as a result of defaulted loans or individual fund assets, the value of the subordinated securities at their redemption could be reduced.

Risks Related to PTMN Common Stock

PTMN may not be able to pay distributions to its stockholders, PTMN’s distributions may not grow over time, and a portion of distributions paid to PTMN’s stockholders may be a return of capital.

PTMN intends to continue to make distributions on a quarterly basis to its stockholders out of assets legally available for distribution. PTMN may not be able to achieve investment results that will allow it to make a specified level of cash distributions or year-to-year increases in cash distributions. PTMN’s ability to pay distributions might be adversely affected by, among other things, the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to PTMN as a BDC could limit PTMN’s ability to pay distributions. In addition, due to the asset coverage test applicable to PTMN as a BDC and covenants that PTMN agreed to in connection with the issuance of the 2022 Notes, PTMN is limited in its ability to make distributions in certain circumstances. In this regard, PTMN agreed in connection with its issuance of the 2022 Notes that for the period of time during which the 2022 Notes are outstanding, PTMN will not violate (regardless of whether PTMN is subject to) Section 18(a)(1)(B) as modified by Section 61(a)(1) of the 1940 Act. These provisions generally prohibit PTMN from declaring any cash dividend or distribution upon PTMN Common Stock, or purchasing any such common stock if PTMN’s asset coverage, as defined in the 1940 Act, is below 200% (or the 150% asset coverage ratio effective as of March 29, 2019) at the time of the declaration of the dividend or distribution or the purchase and after deducting the amount of such dividend, distribution or purchase. Further, if PTMN invests a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution.

All distributions will be paid at the discretion of PTMN’s Board of Directors and will depend on PTMN’s earnings, its financial condition, maintenance of its RIC status, compliance with applicable BDC regulations and such other factors as PTMN’s Board of Directors may deem relevant from time to time. PTMN cannot assure you that it will pay distributions to its stockholders in the future.

When PTMN makes quarterly distributions, it will be required to determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or capital. To the extent there is a return of capital, investors will be required to reduce their basis in PTMN’s stock for U.S. federal income tax purposes, which may result in higher tax liability when the shares are sold, even if they have not

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increased in value or have lost value. PTMN’s distributions have over the last several years included a significant return of capital component. For more information about PTMN’s distributions over the last several years that have included a return of capital component, see “Business of PTMN—Investment Portfolio.

Shares of PTMN’s common stock may be purchased by Sierra Crest or its affiliates.

Sierra Crest and its affiliates may purchase shares of PTMN’s common stock for any reason deemed appropriate; provided, however, that it is intended that neither Sierra Crest nor its respective affiliates will hold 5% or more of PTMN’s outstanding shares of common stock. Sierra Crest and its affiliates will not acquire any shares of PTMN’s common stock with the intention to resell or re-distribute such shares. The purchase of common stock by Sierra Crest and its affiliates could create certain risks, including, but not limited to, the following:

Sierra Crest and its affiliates may have an interest in disposing of PTMN’s assets at an earlier date so as to recover their investment in PTMN’s common stock; and
substantial purchases of shares by Sierra Crest and its affiliates may limit Sierra Crest’s ability to fulfill any financial obligations that it may have to PTMN or incurred on its behalf.

Investing in shares of PTMN’s common stock may involve an above average degree of risk.

The investments PTMN makes in accordance with its investment objective may result in a higher amount of risk, volatility or loss of principal than alternative investment options. PTMN’s investments in portfolio companies may be highly speculative, and therefore, an investment in PTMN’s common stock may not be suitable for investors with lower risk tolerance.

Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value, and PTMN cannot assure you that the market price of its common stock will not decline below the net asset value of the stock.

PTMN cannot predict the price at which its common stock will trade. Shares of closed-end investment companies frequently trade at a discount to their net asset value and PTMN’s stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that PTMN’s net asset value per share may decline. PTMN cannot predict whether shares of its common stock will trade above, at or below its net asset value. The risk of loss associated with this characteristic of closed-end investment companies may be greater for investors expecting to sell shares of common stock soon after the purchase of such shares of common stock. In addition, if PTMN’s common stock trades below its net asset value, it will generally not be able to issue additional shares of its common stock at its market price without first obtaining the approval of its stockholders and PTMN’s independent directors.

PTMN’s share price may be volatile and may fluctuate substantially.

The market price and liquidity of the market for shares of PTMN’s common stock may be significantly affected by numerous factors, some of which are beyond its control and may not be directly related to its operating performance. These factors include:

price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of securities of BDCs or other companies in PTMN’s sector, which are not necessarily related to the operating performance of these companies or to PTMN;
PTMN’s inability to deploy or invest its capital;
fluctuations in interest rates;
any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;
operating performance of companies comparable to PTMN;
changes in regulatory policies or tax rules, particularly with respect to RICs or BDCs;

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inability to maintain PTMN’s qualification as a RIC for U.S. federal income tax purposes;
changes in earnings or variations in operating results;
changes in the value of PTMN’s portfolio;
general economic conditions and trends; and
departure of key personnel.

Certain provisions of the Delaware General Corporation Law and PTMN’s certificate of incorporation and bylaws could deter takeover attempts and have an adverse impact on the price of PTMN’s common stock.

The Delaware General Corporation Law, PTMN’s certificate of incorporation and its bylaws contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for PTMN. These anti-takeover provisions may inhibit a change in control in circumstances that could give the holders of PTMN’s common stock the opportunity to realize a premium over the market price of its common stock.

Risks Related to Our Investment Advisory Relationship with Sierra Crest

Sierra Crest selects PTMN’s investments and PTMN’s Stockholders have no input with respect to investment decisions.

Sierra Crest selects PTMN’s investments and PTMN’s stockholders have no input with respect to investment decisions. As a result, PTMN will be subject to all of the business risks and uncertainties associated with the origination of new investments, including the risk that PTMN will not achieve its investment objective and that the value of your investment could decline substantially or become worthless.

PTMN is dependent upon Sierra Crest for PTMN’s future success.

PTMN has no employees and, as a result, depends on the diligence, skill and network of business contacts of Sierra Crest’s investment professionals to source appropriate investments for PTMN. PTMN depends on members of Sierra Crest’s investment team to appropriately analyze PTMN’s investments and Sierra Crest’s investment committee to approve and monitor PTMN’s portfolio investments. Sierra Crest’s investment committee, together with the other members of its investment team, evaluate, negotiate, structure, close and monitor PTMN’s investments. PTMN’s future success will depend on the continued availability of the members of Sierra Crest’s investment committee and the other investment professionals available to the Sierra Crest. PTMN does not have employment agreements with these individuals or other key personnel of Sierra Crest, and PTMN cannot provide any assurance that unforeseen business, medical, personal or other circumstances would not lead any such individual to terminate his or her relationship with Sierra Crest. The loss of a material number of senior investment professionals to which Sierra Crest has access, could have a material adverse effect on PTMN’s ability to achieve PTMN’s investment objective as well as on PTMN’s financial condition and results of operations. In addition, PTMN cannot assure you that Sierra Crest will remain PTMN’s investment adviser or that PTMN will continue to have access to Sierra Crest’s investment professionals or its information and deal flow.

The structure under PTMN’s Investment Advisory Agreement may induce Sierra Crest to pursue speculative investments and incur leverage, which may not be in the best interests of PTMN’s stockholders.

The incentive fees payable by PTMN to Sierra Crest under PTMN’s Investment Advisory Agreement may create an incentive for Sierra Crest to pursue investments on PTMN’s behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangement. The incentive fees payable to Sierra Crest are calculated based on a percentage of PTMN’s return on invested capital. This may encourage Sierra Crest to use leverage to increase the return on PTMN’s investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of PTMN’s common stock. In addition, Sierra Crest receives the incentive fees based, in part, upon net capital gains realized on PTMN’s investments. Unlike that portion of incentive fees based on income, there is no hurdle rate applicable to the portion of the incentive fees based on net capital gains. As a result, Sierra Crest may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income-producing securities. Such a practice could result in PTMN’s investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

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Moreover, because the base management fees payable to Sierra Crest under PTMN’s Investment Advisory Agreement are payable based on PTMN’s gross assets, excluding cash and cash equivalents but including those assets purchased with borrowed amounts, Sierra Crest has a financial incentive to incur leverage which may not be consistent with PTMN’s stockholders’ interests.

Sierra Crest’s liability is limited under PTMN’s Investment Advisory Agreement, and PTMN is required to indemnify Sierra Crest against certain liabilities, which may lead Sierra Crest to act in a riskier manner on PTMN’s behalf than it would when acting for its own account.

Under PTMN’s Investment Advisory Agreement, Sierra Crest does not assume any responsibility to PTMN other than to render the services described in PTMN’s Investment Advisory Agreement, and it is not be responsible for any action of PTMN’s Board of Directors in declining to follow Sierra Crest’s advice or recommendations. Pursuant to PTMN’s Investment Advisory Agreement, Sierra Crest and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Sierra Crest are not liable to PTMN for their acts under PTMN’s Investment Advisory Agreement, absent criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations. PTMN has agreed to indemnify, defend and protect Sierra Crest and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Sierra Crest with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance of any of Sierra Crest’s duties or obligations under PTMN’s Investment Advisory Agreement or otherwise as Sierra Crest for PTMN, and not arising out of criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations under PTMN’s Investment Advisory Agreement. These protections may lead Sierra Crest to act in a riskier manner when acting on PTMN’s behalf than it would when acting for its own account.

Sierra Crest is able to resign upon 60 days’ written notice, and PTMN may not be able to find a suitable replacement within that time, resulting in a disruption in PTMN’s operations that could adversely affect PTMN’s financial condition, business and results of operations.

PTMN is externally managed pursuant to PTMN’s Investment Advisory Agreement. Pursuant to PTMN’s Investment Advisory Agreement, Sierra Crest has the right to resign upon 60 days’ written notice, whether a replacement has been found or not. If Sierra Crest resigns, it may be difficult to find a replacement with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If a replacement is not found quickly, PTMN’s business, results of operations and financial condition as well as PTMN’s ability to pay distributions are likely to be adversely affected and the value of PTMN’s shares may decline. In addition, the coordination of PTMN’s internal management and investment activities is likely to suffer if PTMN is unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by Sierra Crest. Even if a comparable service provider or individuals performing such services are retained, whether internal or external, their integration into PTMN’s business and lack of familiarity with PTMN’s investment objective may result in additional costs and time delays that may materially adversely affect PTMN’s business, results of operations and financial condition.

PTMN may not replicate its historical performance, or the historical success of other investment vehicles advised by Sierra Crest.

PTMN cannot provide any assurance that it will replicate its own historical performance, the historical success of Sierra Crest or the historical performance of other investment vehicles that Sierra Crest and its investment team advised in the past. Accordingly, PTMN’s investment returns could be substantially lower than the returns achieved by PTMN in the past or by other clients of Sierra Crest. PTMN can offer no assurance that Sierra Crest will be able to continue to implement PTMN’s investment objective with the same degree of success as it has had in the past.

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RISKS RELATING TO OHAI

Risks Relating to OHAI’s Investments

OHAI’s investment in OCI Holdings, LLC (“OCI”) remains subject to risks resulting from Medicare reimbursement rate reductions in the state of Texas that have had a negative impact on OCI’s earnings and cash flow.

OCI’s business as a home health provider of pediatric services to Medicaid patients in Texas has been negatively impacted by Medicaid reimbursement rate reductions implemented by the state of Texas effective December 15, 2016. Even prior to the implementation of these reductions, OCI experienced pressures on rates in certain parts of its business and reductions in visit volumes. In May 2017, the Texas Legislature agreed to the 2018/2019 Biennium Budget. The 2018/2019 Biennium Budget, which went into effect on September 1, 2017, restored approximately 25% of the rate cuts subject to a number of specific provisions relating to pediatric therapy reimbursement. OCI management continues to address its cost base and pursue operating initiatives to best position itself for success in the new rate reimbursement environment. As part of the effort to navigate the challenging rate environment, as posted on its website in January 2018, OCI was selected by Superior Healthplan, a nationally recognized Healthcare Maintenance Organization, for a therapy and evaluations services agreement utilizing its clinical resources and extensive independent research experience. Additionally, in June 2019, the 86th Texas Legislative Session concluded with the passage of the State of Texas’s 2020/2021 Biennium Budget. The Budgeted Medicaid payment rates for Physical, Occupational, and Speech Therapies for the September 1, 2019 to August 31, 2021 period, as confirmed by the Texas Health and Human Services Commission in July, are set to increase approximately 10%, and the payment percentage for Assistants was increased. However, there can be no assurance that such developments will positively impact OHAI’s investments in OCI. As of December 31, 2018 and June 30, 2019, OHAI’s investments in OCI represent 3.3% and 3.7% of OHAI’s total investment portfolio including cash and cash equivalents, respectively. For the year ended December 31, 2018, investment income related to OHAI’s investments in OCI represented 32.7% of total investment income. This investment was placed on non-accrual status beginning in the fourth quarter of 2018.

OHAI’s ATP Oil & Gas Corporation (“ATP”) limited term royalty interest (“ORRI”) is dependent on continued oil and gas production from the Telemark field. In April 2018, Statoil USA E&P, Inc. (“Statoil”), now known as Equinor, resumed limited production on the wells located in MC 941 and 942. Prior to that date, the wells had been shut-in since November 2016 in connection with certain bankruptcy proceedings of Bennu Oil & Gas, LLC, the successor in title to ATP (“Bennu”). Notwithstanding the resumption of production and production payments, we are still unlikely to recover OHAI’s full investment in the ORRIs.

In 2011 and 2012, OHAI purchased from ATP, predecessor in title to Bennu, limited-term ORRIs in certain offshore oil and gas producing properties operated by Bennu in the Gulf of Mexico. Under this arrangement, OHAI purchased the right to portions (ranging from 5.0% to 10.8%) of the monthly production proceeds from oil and gas properties known as the Gomez and Telemark properties. The terms of the ORRIs provide that they will terminate after we receive payments that equal OHAI’s investment in the ORRIs plus a time-value factor that is calculated at a rate of 13.2% per annum.

In November 2016, in connection with its Chapter 7 bankruptcy proceedings, Bennu ceased production on the Titan Production Facility (the floating production platform in the Gulf of Mexico utilized by Bennu for production with respect to the Telemark field in which we have an ORRI) and shut-in all related wells. On August 17, 2017, the Chapter 7 Trustee filed a motion to authorize a sale of certain assets of Bennu, including MC 941 and MC 942, to Statoil. The Court authorized the sale by order entered on September 14, 2017. In April 2018, Statoil (known as Equinor effective May 15, 2018) resumed limited production on the wells located in MC 941 and 942 in the Telemark field. Such production has been intermittent (due to certain maintenance and weather-related suspensions) and each well is producing at varying levels. OHAI began receiving production payments in the second quarter of 2018. The value of OHAI’s ORRI is dependent on continued production from the Telemark field. Even though production payments have resumed, OHAI is still unlikely to recover OHAI’s full investment in the ORRIs.

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As of June 30, 2019, OHAI’s unrecovered investment was $42.5 million, and OHAI had received aggregate production payments of $40.5 million since the date of ATP’s bankruptcy filing. In addition, as of June 30, 2019, OHAI had incurred legal and consulting fees totaling $6.5 million in connection with the enforcement of OHAI’s rights under the ORRIs, $6.5 million of which has been added to the unrecovered investment balance under the terms of the ORRI agreements.

Disruption and instability in U.S. or global capital markets could materially and adversely affect OHAI’s business.

The U.S. and global capital markets experienced extreme volatility and disruption during the economic downturn that began in mid-2007, and the U.S. economy was in a recession for several consecutive calendar quarters during the same period. In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt, which created concerns about the ability of certain nations to continue to service their sovereign debt obligations. More recently, the implications of the United Kingdom’s referendum decision to leave the European Union and the policies of the current U.S. presidential administration remain unclear. These market and economic disruptions affected, and these and other similar market and economic disruptions may in the future affect, the U.S. capital markets, which could adversely affect OHAI’s business and that of OHAI’s portfolio companies. At various times, these disruptions resulted in, and may in the future result in, increased spreads between the yields realized on riskier debt securities and those realized on securities perceived to be risk-free, a lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the repricing of credit risk. These conditions may reoccur for a prolonged period of time again or materially worsen in the future, including as a result of U.S. government shutdowns or further downgrades to the U.S. government’s sovereign credit rating or the perceived credit worthiness of the United States or other large global economies. Unfavorable economic conditions, including future recessions, also could increase OHAI’s funding costs, limit OHAI’s access to the capital markets or result in a decision by lenders not to extend credit to OHAI. OHAI may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may cause OHAI to reduce the volume of loans OHAI originates and/or funds, adversely affect the value of OHAI’s portfolio investments or otherwise have a material adverse effect on OHAI’s business, financial condition and results of operations.

OHAI’s investments are risky and highly speculative.

OHAI invests primarily in senior and junior secured, unsecured and subordinated loans of U.S. private and public middle market companies. However, OHAI may also invest in equity, distressed debt and other assets.

Senior Secured Loans. When OHAI makes a senior secured debt investment in a portfolio company, OHAI generally takes a security interest in the available assets of the portfolio company, including the equity interests of its subsidiaries, which OHAI expects to help mitigate the risk that OHAI will not be repaid. However, there is a risk that the collateral securing OHAI’s investment may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. In some circumstances, OHAI’s lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that an investment is secured does not guarantee that OHAI will receive principal and interest payments according to the contractual terms, or at all, or that OHAI will be able to collect on the investment should OHAI enforce OHAI’s remedies.

Junior Secured Debt. Junior secured debt investments are secured debt investments (including second lien loans) that rank after senior secured debt in priority of payment. As other creditors may rank senior to any junior secured debt held by OHAI in the event of insolvency, junior secured debt may have an above average amount of risk and volatility or loss of principal.

Unsecured Debt. Unsecured debt investments do not benefit from a security interest in the assets of the portfolio company. As such, in the event of insolvency, any secured creditors of the portfolio company would have priority over OHAI with respect to the proceeds from the sale of such company’s assets and the proceeds from such sale may not be sufficient to repay OHAI’s debt.

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Subordinated Debt. Subordinated debt investments are debt investments in which the holder has contractually agreed to be subordinated to other creditors. As such, in the event of insolvency, any creditor with a security interest or who ranks senior to the subordinated debt under the agreement governing the debt, including certain unsecured creditors, would have priority over OHAI with respect to the proceeds from the sale of the portfolio company’s assets, and the proceeds from such sale may not be sufficient to repay OHAI’s debt.

Preferred Stock and Other Equity Investments. OHAI may invest directly in the equity securities of portfolio companies. In addition, when OHAI invests in loans and other debt securities, OHAI may acquire common or preferred equity securities as well. OHAI’s goal is generally to exit such equity interests and realize gains upon OHAI’s disposition of interests. However, the equity interests OHAI receives may not appreciate in value and may end up declining in value. Accordingly, OHAI may not be able to realize gains from OHAI’s equity interests, and any gains that OHAI does realize on the disposition of any equity interests may not be sufficient to offset any other losses OHAI experiences.

Distressed Debt. OHAI may from time to time invest in distressed debt or the loans that OHAI hold may become distressed. Distressed debt investments may not produce income, may require OHAI to bear certain expenses to protect OHAI’s investment and may subject OHAI to uncertainty as to when, in what manner and for what value such distressed debt will eventually be satisfied.

Middle-Market Companies. Investing in middle market companies involves a number of significant risks, including:

such companies may have limited financial resources and may be unable to meet their obligations under their debt securities that OHAI holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of OHAI realizing on any guarantees OHAI may have obtained in connection with OHAI’s investment;
such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;
such companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on OHAI’s portfolio company and, in turn, on OHAI;
limited public information exists about many of these companies and, if OHA’s investment professionals are unable to uncover all material information necessary to evaluate the potential returns from investing in such companies, OHAI may not make a fully informed investment decision, and OHAI may lose money on OHAI’s investments;
such companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position; and
such companies may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness, including any debt securities held by OHAI, upon maturity.

OHAI’s portfolio is concentrated in a limited number of portfolio companies and industries, which will subject OHAI to a risk of significant loss if any of these companies performs poorly or defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.

OHAI is classified as a non-diversified management investment company within the meaning of the 1940 Act, which means that OHAI is not limited by the 1940 Act with respect to the proportion of OHAI’s assets that OHAI may invest in securities of a single issuer. Beyond the asset diversification requirements associated with OHAI’s qualification as a RIC under Subchapter M of the Code, OHAI does not have fixed guidelines for diversification. OHAI’s portfolio is currently concentrated in a limited number of portfolio companies.

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As a result, the aggregate returns OHAI realizes may be significantly adversely affected if a small number of investments perform poorly or if OHAI needs to write down the value of any one investment. Additionally, a downturn in any particular industry in which OHAI is invested could also significantly impact OHAI’s net asset value and the aggregate returns OHAI realizes.

OHAI’s investments in securities rated below investment grade are speculative in nature and are subject to additional risk factors such as increased possibility of default, illiquidity of the security, and changes in value based on changes in interest rates.

OHAI typically invests in securities that are not rated by any rating agency, but OHAI believes that if such securities were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s Ratings Services). Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” or “junk” securities and are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations. Securities rated below investment grade generally offer a higher current yield than that available from investment grade securities but typically involve greater risk. These securities are especially sensitive to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to changes in interest rates. During periods of economic downturn or rising interest rates, issuers of below investment grade instruments may experience financial stress that could adversely affect their ability to make payments of principal and interest and increase the possibility of default. In addition, the secondary market for below-investment grade securities may not be as liquid as the secondary market for more highly rated securities.

Many of OHAI’s portfolio companies may incur debt that ranks equally with, or senior to, OHAI’s debt securities in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to OHAI.

OHAI has invested a portion of OHAI’s capital in second lien, subordinated and unsecured debt securities issued by OHAI’s portfolio companies and intend to continue to do so in the future. Such portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt securities in which OHAI invests. Such subordinated investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or in general economic conditions. If OHAI makes a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations. By their terms, senior debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which OHAI is entitled to receive payments in respect of the debt securities in which OHAI invests. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to OHAI’s investment in that portfolio company would typically be entitled to receive payment in full before OHAI receives any distribution in respect of OHAI’s investment. After repaying senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligation to OHAI where OHAI is junior creditor. In the case of debt ranking equally with debt securities in which OHAI invests, OHAI would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Additionally, certain loans that OHAI makes to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from any realization of, the collateral to repay their obligations in full before OHAI would. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan

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obligations secured by the second priority liens, then OHAI, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

OHAI has made in the past, and may make in the future, unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in the collateral of such companies. Liens on a portfolio company’s collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from any realization of, such collateral to repay their obligations in full before OHAI would. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy OHAI’s unsecured loan obligations after payment in full of all loans secured by collateral. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then OHAI’s unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.

The rights OHAI may have with respect to the collateral securing the loans OHAI makes to OHAI’s portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that OHAI enters into with the holders of such senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be taken at the direction of the holders of the obligations secured by the first priority liens:

the ability to cause the commencement of enforcement proceedings against the collateral;
the ability to control the conduct of such proceedings;
the approval of amendments to collateral documents;
releases of liens on the collateral; and
waivers of past defaults under collateral documents.

OHAI may not have the ability to control or direct such actions, even if OHAI’s rights are adversely affected.

Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of OHAI’s portfolio investments, reducing OHAI’s net asset value through increased unrealized depreciation.

As a BDC, OHAI is required to carry OHAI’s investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of the OHAI Board and in accordance with generally accepted accounting principles. Decreases in the market values or fair values of OHAI’s investments are recorded as unrealized depreciation. Any unrealized depreciation in OHAI’s loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to OHAI with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of OHAI’s income available for distribution in future periods and could materially adversely affect OHAI’s ability to service OHAI’s outstanding borrowings. Depending on market conditions, OHAI could incur substantial losses in future periods, which could reduce OHAI’s net asset value and have a material adverse impact on OHAI’s business, financial condition and results of operations.

A portion of OHAI’s portfolio investments are recorded at fair value as determined in good faith by or under the direction of the OHAI Board and, as a result, there may be uncertainty as to the value of OHAI’s portfolio investments.

A portion of OHAI’s portfolio investments take the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable, and OHAI values these securities at fair value as determined in good faith by or under the direction of the OHAI Board, including to reflect significant events affecting the value of OHAI’s securities. OHAI’s portfolio consists of 28% of investments classified as Level 3 based on fair value as of June 30, 2019. This means that OHAI’s portfolio valuations are based on unobservable inputs and OHAI’s own assumptions about how market participants would price the asset or liability in question. Inputs into the determination of fair value of OHAI’s

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portfolio investments require significant management judgment or estimation. Even if observable market data is available, such information may be the result of consensus pricing information or broker quotes, which may include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information.

Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, OHAI’s determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. OHAI’s net asset value could be adversely affected if OHAI’s determinations regarding the fair value of OHAI’s investments were materially higher than the values that OHAI ultimately realizes upon the disposal of such securities.

OHAI adjusts quarterly the valuation of OHAI’s portfolio to reflect the OHAI Board’s determination of the fair value of each investment in OHAI’s portfolio. Any changes in fair value are recorded in OHAI’s consolidated statement of operations as net unrealized appreciation (depreciation) on investments.

The lack of liquidity in OHAI’s investments may adversely affect OHAI’s business.

A substantial portion of OHAI’s investments are and will be subject to legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The illiquidity of these investments may make it difficult for OHAI to sell such investments if the need arises. In addition, if OHAI is required to liquidate all or a portion of OHAI’s portfolio quickly, OHAI may realize significantly less than the value at which OHAI has previously recorded OHAI’s investments.

Generally OHAI does not hold controlling equity interests in OHAI’s portfolio companies, and therefore, OHAI may not be in a position to exercise control over OHAI’s portfolio companies or to prevent decisions by management of OHAI’s portfolio companies that could decrease the value of OHAI’s investments.

To the extent OHAI does not hold a controlling equity position in a portfolio company, OHAI is subject to the risk that a portfolio company in which OHAI does not have a controlling interest may make business decisions with which OHAI disagrees, and that the management and/or stockholders of such portfolio company may take risks or otherwise act in ways that are adverse to OHAI’s interests. Due to the lack of liquidity of the debt and equity investments that OHAI typically holds in OHAI’s portfolio companies, OHAI may not be able to dispose of OHAI’s investments in the event OHAI disagrees with the actions of a portfolio company and may therefore suffer a decrease in the value of OHAI’s investments.

Prepayments of OHAI’s debt investments by OHAI’s portfolio companies could adversely impact OHAI’s results of operations and reduce OHAI’s return on equity.

OHAI is subject to the risk that the investments OHAI makes in OHAI’s portfolio companies may be prepaid prior to maturity. OHAI may use the proceeds from such prepayments to reduce OHAI’s outstanding borrowings or invest such proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments, if any, will typically have substantially lower yields than the debt investment being prepaid, and OHAI could experience significant delays in reinvesting these amounts. Any future investment in a new portfolio company may be at lower yields than the debt investment that was prepaid. As a result, OHAI’s results of operations could be materially adversely affected if one or more of OHAI’s portfolio companies elect to prepay amounts owed to OHAI. Additionally, prepayments could negatively impact OHAI’s return on equity, which could result in a decline in the market price of OHAI’s common stock.

OHAI’s portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interests rates may make it more difficult for portfolio companies to make periodic payments on their loans.

OHAI’s portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity. This risk and the risk of default is increased to the extent that the loan documents do not require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. In addition, if general interest rates rise, there is a risk that OHAI’s portfolio companies will be unable to pay escalating interest amounts, which could result in a default under OHAI’s investment. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a

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material adverse effect on their business and operations and could, over time, lead to increased defaults. Any failure of one or more of OHAI’s portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments, including as a result of an increase in contractual interest rates, could have a material adverse effect on OHAI’s business, financial condition and results of operations.

OHAI may choose to waive or defer enforcement of covenants in the debt securities held in OHAI’s portfolio, which may cause OHAI to lose all or part of OHAI’s investment in these companies.

OHAI structures the debt investments in OHAI’s portfolio companies to include business and financial covenants placing affirmative and negative obligations on the operation of OHAI’s business and its financial condition. However, from time to time OHAI may elect to waive breaches of these covenants, including OHAI’s right to payment, or waive or defer enforcement of remedies, such as acceleration of obligations or foreclosure on collateral, depending upon the financial condition and prospects of the particular portfolio company. These actions may reduce the likelihood of OHAI’s receiving the full amount of future payments of interest or principal and may be accompanied by a deterioration in the value of the underlying collateral, as many of these companies may have limited financial resources, may be unable to meet future obligations and may go bankrupt. This could negatively impact OHAI’s ability to pay distributions and could adversely affect OHAI’s business, financial condition, and results of operations.

OHAI’s loans could be subject to equitable subordination by a court or OHAI could be subject to lender liability claims.

Courts may apply the doctrine of equitable subordination to subordinate the claim or lien of a lender against a borrower to claims or liens of other creditors of the borrower, when the lender or its affiliates is found to have engaged in unfair, inequitable or fraudulent conduct. The courts have also applied the doctrine of equitable subordination when a lender or its affiliates is found to have exerted inappropriate control over the borrower, including control resulting from the ownership of equity interests in a client. OHAI has in the past made, and from time to time in the future may make, direct equity investments or received warrants in connection with loans. Payments on one or more of OHAI’s loans, particularly a loan to a borrower in which OHAI also holds an equity interest, may be subject to claims of equitable subordination. If OHAI was deemed to have the ability to control or otherwise exercise influence over the business and affairs of one or more of OHAI’s portfolio companies (including through the provision of managerial assistance to that portfolio company) resulting in economic hardship to other creditors of that company, this control or influence may constitute grounds for equitable subordination and a court may treat one or more of OHAI’s secured loans as if it were unsecured or common equity in the portfolio company. In that case, if the portfolio company were to liquidate, OHAI would be entitled to repayment of OHAI’s loan on a pro-rata basis with other unsecured debt or, if the effect of subordination was to place OHAI at the level of common equity, then on an equal basis with other holders of the portfolio company’s common equity only after all of its obligations relating to its debt and preferred securities had been satisfied.

In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that OHAI could become subject to a lender’s liability claim, including as a result of actions taken if OHAI renders managerial assistance to the borrower.

OHAI makes loans that may include payment-in-kind or “PIK” interest or dividends or accretion of original issue discount provisions, which could increase the risk of default by OHAI’s portfolio companies.

Some of the loans OHAI makes or acquires provide for the payment by portfolio companies of PIK interest or dividends or accreted original issue discount at maturity. Such loans have the effect of deferring a portfolio company’s payment obligation until the end of the term of the loan, which may make it difficult for OHAI to identify and address developing problems with a portfolio company in terms of its ability to repay OHAI. Particularly in a rising interest rate environment, loans containing PIK and original issue discount provisions can give rise to negative amortization on a loan, resulting in a borrower owing more at the end of the term of a loan than what it owed when the loan was originated. Any such developments may increase the risk of default on OHAI’s loans by borrowers. In addition, loans containing PIK may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral.

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In addition, to the extent that OHAI invests in original issue discount instruments and the accretion of original issue discount constitutes a portion of OHAI’s income, OHAI will be exposed to risks associated with the requirement to include such non-cash income in taxable prior to receipt of cash. As a result, OHAI may fail to maintain its status as a RIC if it does not have the cash resources to timely distribute such amounts to its stockholders.

OHAI may incur risk with respect to investments OHAI acquires through assignments or participations of interests.

OHAI has in the past acquired, and may in the future acquire, loans through assignments or participations of interests in such loans. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to such debt obligation. However, where OHAI acquires an assignment or participation interest, OHAI’s rights may be more restricted than those of the assigning institution, and OHAI may not be able to unilaterally enforce all rights and remedies under an assigned debt obligation and with regard to any associated collateral. A participation typically results in a contractual relationship only with the institution participating out the interest, such as a bank or broker-dealer, and not directly with the borrower, and OHAI may not directly benefit from the collateral supporting the debt obligation in which OHAI has purchased the participation. As a result, OHAI will be exposed to the credit risk of both the borrower and the institution selling the participation. Further, in purchasing participations, OHAI may not be able to conduct the same level of due diligence on a borrower or the quality of the loan with respect to which OHAI is buying a participation as OHAI would conduct if OHAI was investing directly in the loan. This difference may result in OHAI being exposed to greater credit risk with respect to such loans than OHAI expected when initially purchasing the participation.

Economic downturns or recessions could impair OHAI’s portfolio companies’ operations and ability to satisfy obligations to their respective lenders, including OHAI, which could negatively impact OHAI’s ability to pay dividends.

The conditions and overall strength of the international, national and regional economies, including interest rate fluctuations, changes in capital markets and changes in the prices of their primary commodities and products, generally affect OHAI’s portfolio companies. These factors could adversely impact the results of operations of OHAI’s portfolio companies.

OHAI’s portfolio companies may be susceptible to economic downturns or recessions and may be unable to satisfy financial covenants or to repay OHAI’s loans during these periods. Adverse economic conditions also may decrease the value of collateral securing OHAI’s loans and the value of OHAI’s equity investments. Economic downturns or recessions could lead to financial losses in OHAI’s portfolio and decreases in revenues, net income and assets. A portfolio company’s failure to satisfy financial or operating covenants imposed by OHAI or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on the assets securing such loans, which could trigger cross-defaults under other agreements and jeopardize OHAI’s portfolio company’s ability to meet its obligations under the debt securities that OHAI holds and adversely impacts the value of any equity securities OHAI owns. These events could temporarily or permanently reduce the fair value of certain of OHAI’s investments, prevent OHAI from making additional investments and harm OHAI’s operating results or ability to pay dividends.

Risks Relating to OHAI’s Business and Structure

OHAI operates in a highly competitive market for investment opportunities.

A number of entities compete with OHAI to make the types of investments that OHAI targets. OHAI competes with other BDCs, public and private investment funds, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Some of OHAI’s competitors are substantially larger and may have greater financial, technical and marketing resources than OHAI has. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to OHAI. In addition, some of OHAI’s competitors may have higher risk tolerances or different risk assessments than OHAI does, which could allow them to consider a wider variety of investments and establish more portfolio relationships than OHAI does. Furthermore, many of OHAI’s competitors are not subject to the regulatory restrictions that the 1940 Act and the Code impose on OHAI as a BDC and a RIC, respectively.

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The competitive pressures OHAI faces may have a material adverse effect on OHAI’s business, financial condition and results of operations. As a result of this competition, OHAI may not be able to take advantage of attractive investment opportunities from time to time, and OHAI may not be able to identify and make investments that are consistent with OHAI’s investment objectives. If OHAI is unable to source attractive investments, OHAI may hold a greater percentage of OHAI’s assets in cash or operate with less leverage than anticipated, which could impact potential returns on OHAI’s portfolio.

OHAI does not seek to compete primarily based on the interest rates OHAI will offer, and OHAI believes that some of OHAI’s competitors may make loans with interest rates that will be comparable to or lower than the rates OHAI offers. OHAI may lose investment opportunities if OHAI does not match OHAI’s competitors’ pricing, terms and structure. However, if OHAI matches OHAI’s competitors’ pricing, terms and structure, OHAI may experience decreased net investment income and increased risk of credit loss.

OHAI is dependent upon senior management personnel of OHA and on OHA’s ability to hire and retain qualified personnel.

OHAI depends on OHA’s investment management team, for the identification, final selection, structuring, closing and monitoring of OHAI’s investments. OHA’s investment team is integral to OHAI’s asset management activities and has critical industry experience and relationships that OHAI relies on to implement OHAI’s business plan. OHAI’s future success depends on continued service to these investment team members and/or additional qualified personnel. The departure of any of the members of OHA’s investment team could have a material adverse effect on OHAI’s ability to achieve its investment objective. As a result, OHAI may not be able to operate its business as it expects, and its ability to compete could be harmed, which could cause its operating results to suffer.

OHAI’s business model depends to a significant extent upon strong referral relationships with financial sponsors, and the inability of OHA to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect OHAI’s business.

OHAI expects that OHA will maintain and develop its relationships with financial sponsors, and OHAI will rely to a significant extent upon these relationships to provide OHAI with potential investment opportunities. If OHA fails to maintain its existing relationships or develop new relationships with other sponsors or sources of investment opportunities, OHA will not be able to grow OHAI’s investment portfolio. In addition, individuals with whom OHA has relationships are not obligated to provide OHA with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for OHAI. If OHA is unable to source investment opportunities, OHAI may hold a greater percentage of OHAI’s assets in cash than anticipated, which could impact potential returns on OHAI’s portfolio.

There are significant potential conflicts of interest which could adversely impact OHAI’s investment returns.

OHAI’s executive officers and directors, and certain investment professionals of OHA, serve or may serve as officers, directors, principals or investment professionals of entities that operate in the same or a related line of business as OHAI does or of investment funds managed by OHAI’s affiliates. OHA and its affiliates also manage private investment funds, and may manage other funds in the future, that have investment objectives or mandates that are similar, in whole and in part, to OHAI’s. Accordingly, such individuals and OHA may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of OHAI or OHAI’s stockholders. For example, the principals of OHA may face conflicts of interest in the allocation of investment opportunities to OHAI and such other funds.

OHA has adopted an investment allocation policy that governs the allocation of investment opportunities among the investment funds (including OHAI) that are managed by OHA and its affiliates. To the extent an investment opportunity is appropriate for OHAI or any other investment fund managed by OHA or its affiliates, OHA will adhere to its investment allocation policy in order to determine the allocation of such opportunity among the various investment funds. Although OHA’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, OHAI and OHAI’s stockholders could be adversely affected to the extent investment opportunities are allocated among OHAI and other investment vehicles managed or sponsored by, or affiliated with, investment professionals of OHA, OHAI’s executive officers and directors.

BDCs generally are not permitted to co-invest on a concurrent basis with certain affiliated entities in the absence of an exemptive order from the SEC. However, BDCs are permitted to and may simultaneously

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co-invest in transactions where price is the only negotiated point. In an order dated April 25, 2016, the SEC granted exemptive relief permitting OHAI, subject to the satisfaction of certain conditions, to co-invest in certain investment transactions with certain OHA affiliates where terms other than price are negotiated. OHAI believes this relief enhances OHAI’s ability to further OHAI’s investment objectives and strategy and may also increase favorable investment opportunities for OHAI, in part, by allowing OHAI to participate in larger investments, together with OHAI’s co-investment affiliates, than would be available to OHAI if such relief had not been obtained. However, there can be no assurance that such exemptive relief will permit OHAI to fully achieve these goals.

OHA’s investment allocation policy is also designed to manage and mitigate conflicts of interest associated with the allocation of investment opportunities if OHAI is able to co-invest, either pursuant to SEC interpretive positions or OHAI’s exemptive order, with other funds managed by OHA or its affiliates. Under the investment allocation policy, if OHAI is permitted to co-invest pursuant to an exemptive order, co-investments would be allocated pursuant to the conditions of the exemptive order.

Generally, for any initial allocation of a purchase under the investment allocation policy, if OHAI is able to co-invest pursuant to SEC interpretive positions or the SEC exemptive relief, a portion of each opportunity that is appropriate for OHAI and any affiliated fund will be offered to OHAI and such other affiliated fund and other participating portfolios as determined by OHA based on two inputs: (i) available cash (which includes available cash, unfunded capital commitments and, at the discretion of OHA, leverage) and (ii) maximum issuer sizes (which is determined at the discretion of OHA, taking into consideration account investment guidelines and other factors). Initial trade allocations may be adjusted by OHA in making a final allocation determination, including in cases where OHA is limited in its ability to allocate across all accounts. The outcome of any allocation determination may result in the allocation of all or none of an investment opportunity to OHAI, and there can be no assurance that OHAI will have an opportunity to participate in certain investments that fall within OHAI’s investment objectives.

Based on the foregoing methodology, accounts with higher available cash than OHAI has will generally have a higher initial allocation percentage to an investment. Likewise, an account with a larger maximum issuer size than OHAI is permitted to have under the RIC diversification requirements or other applicable law will generally have a higher initial allocation percentage to an investment.

OHA seeks to treat all clients fairly and equitably such that none receive preferential treatment over the others over time, in a manner consistent with its fiduciary duty to each of them; however, in some instances, especially in instances of limited liquidity, the factors may not result in allocations or may result in situations where certain funds receive allocations where others do not.

In addition, because OHAI expects to make investments alongside other investment funds, accounts and other investment vehicles managed by OHA, consistent with existing regulatory guidance and OHA’s allocation procedures, OHAI may subsequently be prohibited by the 1940 Act from re-negotiating the terms of such co-investments, including with respect to granting loan waivers or concessions or in connection with a restructuring, reorganization or similar transaction involving the portfolio company, to the extent that other investment funds, accounts or other investment vehicles managed by OHA continue to hold such investments at the time. As a result, OHAI may have to sell such investments at such time in order to avoid violating the 1940 Act or otherwise not participate in the re-negotiation of the terms of such co-investments, which may result in investment losses or lost opportunities to generate additional income, or may otherwise negatively impact OHAI.

OHAI may need to raise additional capital to grow because OHAI must distribute most of OHAI’s income.

OHAI must distribute at least 90% of OHAI’s investment company taxable income to OHAI’s stockholders to maintain OHAI’s RIC status and such distributions will not be available to fund new investments. OHAI may need additional capital to fund growth in OHAI’s investments. A reduction in the availability of new capital could limit OHAI’s ability to grow. OHAI expects to borrow from financial institutions and may, if warranted by market conditions and in the best interests of OHAI’s stockholders, issue additional debt and equity securities. If OHAI fails to obtain funds from such sources or from other sources to fund OHAI’s investments, it could limit

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OHAI’s ability to grow, which may have an adverse effect on the value of OHAI’s securities. In addition, as a BDC, OHAI’s ability to borrow or issue preferred stock may be restricted if OHAI’s total assets are less than 150% of OHAI’s total borrowings and preferred stock (subject to the changes to OHAI’s asset coverage requirements discussed above).

OHAI’s ability to secure additional financing and satisfy OHAI’s financial obligations under indebtedness outstanding from time to time will depend upon OHAI’s future operating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, many of which are beyond OHAI’s control. The prolonged continuation or worsening of current economic and capital market conditions could have a material adverse effect on OHAI’s ability to secure financing on favorable terms, if at all.

If OHAI is unable to obtain debt capital, then OHAI’s equity investors will not benefit from the potential for increased returns on equity resulting from leverage to the extent that OHAI’s investment strategy is successful, and OHAI may be limited in OHAI’s ability to make new commitments or fundings to OHAI’s portfolio companies.

Failure to further extend OHAI’s Credit Facility could also have a material adverse effect on OHAI’s results of operations and financial position and OHAI’s ability to pay expenses and make distributions.

In September 2016, OHAI entered into a Credit Agreement (the “OHAI Credit Facility”) with Midcap Financial Trust, as administrative agent. The OHAI Credit Facility, which was scheduled to mature on March 9, 2018, was subsequently extended to September 9, 2018, as permitted under the existing Credit Agreement. On September 7, 2018, OHAI entered into an amendment to extend the maturity date of the OHAI Credit Facility to September 9, 2019, which can be extended for an additional six-month period at OHAI’s option. On August 5, 2019, OHAI exercised its option to extend the OHAI Credit Facility through March 9, 2020. If the participating lenders do not renew or further extend the OHAI Credit Facility, the outstanding principal balance on that date will be due and payable. If OHAI is unable to further extend OHAI’s current OHAI Credit Facility or find a new source of borrowing on acceptable terms, OHAI will be required to pay down the amounts outstanding under the current OHAI Credit Facility through one or more of the following: (1) available cash balances, (2) principal collections on OHAI’s securities pledged under the facility, (3) at OHAI’s option, interest collections on OHAI’s securities pledged under the facility, or (4) possible liquidation of some or all of OHAI’s loans and other assets, any of which could have a material adverse effect on OHAI’s results of operations and financial position and may force OHAI to decrease or stop paying certain expenses and/or making distributions to stockholders until amounts outstanding under the OHAI Credit Facility are repaid. In addition, OHAI’s stock price could decline significantly, OHAI would be restricted in OHAI’s ability to acquire new investments and OHAI’s independent registered public accounting firm could raise an issue as to OHAI’s ability to continue as a going concern.

Any failure on OHAI’s part to maintain OHAI’s status as a BDC would reduce OHAI’s operating flexibility.

The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs may not acquire any “non-qualifying asset” unless at the time of such acquisition at least 70% of their total assets are invested in specified types of qualifying assets, primarily in private companies or small U.S. public companies, cash, cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less. Any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against OHAI and/or expose OHAI to claims of private litigants. In addition, if OHAI fails to maintain OHAI’s qualification as a BDC, OHAI may be subject to substantially greater regulation under the 1940 Act as a registered closed-end investment company. Compliance with such regulations would significantly decrease OHAI’s operating flexibility and could significantly increase OHAI’s costs of doing business.

Regulations governing OHAI’s operation as a BDC affect OHAI’s ability to raise, and the way in which OHAI raises, additional capital. As a BDC, the necessity of raising additional capital may expose OHAI to risks, including the typical risks associated with leverage.

Under the provisions of the 1940 Act, OHAI is currently permitted, as a BDC, to issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which OHAI refers to collectively as “senior securities,” in amounts such that OHAI’s asset coverage, as defined in the 1940 Act,

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equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of OHAI’s assets declines, OHAI may be unable to satisfy the relevant asset coverage requirements and, as a result, OHAI will be limited in OHAI’s ability to use debt capital to finance OHAI’s operations. Also, any amounts that OHAI uses to service OHAI’s indebtedness would not be available for distributions to OHAI’s common stockholders. Furthermore, as a result of issuing senior securities, OHAI would also be exposed to typical risks associated with leverage, including an increased risk of loss. As of June 30, 2019, OHAI had $30.0 million outstanding and $4.0 million availability for borrowing under the OHAI Credit Facility.

If OHAI issues preferred stock, the preferred stock would rank “senior” to common stock in OHAI’s capital structure, preferred stockholders would generally vote together with common stockholders but would have separate voting rights on certain matters and might have other rights, preferences or privileges more favorable than those of OHAI’s common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of OHAI’s common stock or otherwise be in stockholders’ best interest.

As a BDC, OHAI is not generally able to issue and sell OHAI’s common stock at a price below net asset value per share. OHAI may, however, sell OHAI’s common stock at a price below the then-current net asset value per share of OHAI’s common stock if the OHAI Board determines that such sale is in the best interests of OHAI and its stockholders, and OHAI’s stockholders approve such sale. In any such case, the price at which OHAI’s securities are to be issued and sold may not be less than a price that, in the determination of the OHAI Board, closely approximates the market value of such securities (less any distributing commission or discount). If OHAI raises additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, OHAI’s common stock, then the percentage ownership of OHAI’s stockholders at that time will decrease, and stockholders might experience dilution. This dilution would occur as a result of a proportionately greater decrease in a stockholder’s interest in OHAI’s earnings and assets and voting interest in OHAI than the increase in OHAI’s assets resulting from such issuance. Because the number of future shares of common stock that may be issued below OHAI’s net asset value per share and the price and timing of such issuances are not currently known, OHAI cannot predict the actual dilutive effect of any such issuance. OHAI cannot determine the resulting reduction in OHAI’s net asset value per share of any such issuance. OHAI also cannot predict whether shares of OHAI’s common stock will trade above, at or below OHAI’s net asset value in the future.

OHAI also may make rights offerings to OHAI’s stockholders at prices less than net asset value, subject to applicable requirements of the 1940 Act. If OHAI raises additional funds by issuing more shares of OHAI’s common stock or issuing senior securities convertible into, or exchangeable for, OHAI’s common stock, the percentage ownership of OHAI’s stockholders may decline at that time and such stockholders may experience dilution. Moreover, OHAI can offer no assurance that OHAI will be able to issue and sell additional equity securities in the future, on terms favorable to OHAI or at all.

OHAI borrows money, which magnifies the potential for loss on amounts invested and may increase the risk of investing in OHAI.

The use of leverage magnifies the potential for loss on amounts invested and, therefore, increases the risks associated with investing in our securities. As of June 30, 2019, OHAI had $30.0 million outstanding under the OHAI Credit Facility. OHAI may borrow from and issue senior debt securities to banks, insurance companies and other lenders in the future. Lenders of these senior securities, including the OHAI Credit Facility, will have fixed dollar claims on our assets that are superior to the claims of our stockholders, and OHAI would expect such lenders to seek recovery against our assets in the event of a default. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had OHAI not leveraged. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had OHAI not borrowed. Such a decline could also negatively affect our ability to make distribution payments on our common stock. Leverage is generally considered a speculative investment technique. OHAI’s ability to service any debt that OHAI incurs will depend largely on OHAI’s financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, as the management fee payable to OHA is payable based on OHAI’s gross assets, including those assets acquired through the use of leverage, OHA has a financial incentive to incur leverage which may not be consistent with OHAI’s stockholders’ interests. In addition, OHAI’s stockholders bear the burden of any increase in OHAI’s expenses as a result of

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leverage, including any increase in the management fee payable to OHA. The amount of leverage that OHAI employs depends on OHA’s and OHAI Board’s assessment of market and other factors at the time of any proposed borrowing. OHAI cannot assure you that OHAI will be able to obtain credit at all or on terms acceptable to OHAI.

As a BDC, OHAI generally is required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of OHAI’s borrowings and any preferred stock that OHAI may issue in the future, of at least 150% (subject to the additional limitations imposed by the OHAI Credit Facility). OHAI is separately subject to a debt to tangible net worth ratio of not more than 1.00 to 1.00 (200% minimum asset coverage) with respect to certain provisions of the OHAI Credit Facility. If OHAI’s asset coverage declines below OHAI’s 150% asset coverage ratio, OHAI will not be able to incur additional debt and could be required to sell a portion of OHAI’s investments to repay some debt when it is otherwise disadvantageous for OHAI to do so. This could have a material adverse effect on OHAI’s operations, and OHAI may not be able to make distributions. The amount of leverage that OHAI employs will depend on OHA’s and the OHAI Board’s assessment of market and other factors at the time of any proposed borrowing. OHAI cannot assure you that OHAI will be able to obtain credit at all or on terms acceptable to OHAI.

The following table illustrates the effect of leverage on returns from an investment in OHAI’s common stock as of June 30, 2019, assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.

Assumed Return on OHAI’s Portfolio (Net of Expenses)(1)
 
-10
%
 
-5
%
 
0
 
 
5
%
 
10
%
Corresponding return to common stockholder(2)
 
-36
%
 
-27
%
 
-17
%
 
-8
%
 
1
%
(1)The assumed portfolio return is required by SEC regulations and is not a prediction of, and does not represent, OHAI’s projected or actual performance. Actual returns may be greater or less than those appearing in the table. Pursuant to SEC regulations, this table is calculated as of June 30, 2019. As a result, it has not been updated to take into account any changes in assets or leverage since such date.
(2)Assumes $80.3 million in total assets, $30.0 million in debt outstanding and $37.0 million in net assets as of as of June 30, 2019 and a weighted average interest rate of 7.44% as of June 30, 2019. The returns to common stockholder assume OHAI does not reinvest $2.8 million of cash and cash equivalents on OHAI’s balance sheet as of June 30, 2019.

Based on OHAI’s outstanding indebtedness of $30.0 million as of June 30, 2019 and the weighted average interest rate of 7.44% as of that date, OHAI’s investment portfolio would have been required to experience an annual return of at least 3.4% to cover annual interest payments on the outstanding debt.

Substantially all of OHAI’s assets are subject to security interests under the OHAI Credit Facility, and if OHAI defaults on OHAI’s obligations under the OHAI Credit Facility, OHAI may suffer adverse consequences, including foreclosure on OHAI’s assets.

As of June 30, 2019, substantially all of OHAI’s assets were pledged as collateral under the OHAI Credit Facility. If OHAI defaults on its obligations under this facility, the lenders may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests. In such event, OHAI may be forced to sell its investments to raise funds to repay OHAI’s outstanding borrowings in order to avoid foreclosure and these forced sales may be at times and at prices OHAI would not consider advantageous. Moreover, such deleveraging could significantly impair OHAI’s ability to effectively operate its business in the manner in which OHAI has historically operated. As a result, OHAI could be forced to curtail or cease new investment activities and lower or eliminate the dividends that OHAI has historically paid to OHAI’s stockholders.

It is likely that the terms of any current or future long-term credit facility OHAI may enter into in the future could constrain OHAI’s ability to grow OHAI’s business.

Under the OHAI Credit Facility, current lenders have, and any future lender or lenders may have, fixed dollar claims on OHAI’s assets that are senior to the claims of OHAI’s stockholders and, thus, will have a preference over OHAI’s stockholders with respect to OHAI’s assets in the collateral pool.

The OHAI Credit Facility also subjects OHAI to various financial and operating covenants. For example, the OHAI Credit Facility requires OHAI to maintain debt to tangible net worth ratio, as defined in the credit agreement, of not more than 1.00 to 1.00 as determined on the last day of the month. If this ratio exceeds 1.00 to 1.00, OHAI may not be able to incur additional debt, which could have a material adverse effect on OHAI’s

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operations, and OHAI may not be able to make distributions to OHAI’s stockholders. Future credit facilities and borrowings will likely subject OHAI to similar or additional covenants.

The OHAI Credit Facility generally contains customary default provisions such as a debt to tangible net worth ratio, debt to fair market value ratio and a restriction on changing OHAI’s business. An event of default under the OHAI Credit Facility would likely result in, among other things, termination of the availability of further funds under the OHAI Credit Facility and accelerated maturity dates for all amounts outstanding under the OHAI Credit Facility, which would likely disrupt OHAI’s business and, potentially, the business of the portfolio companies whose loans OHAI finances through the OHAI Credit Facility. This could reduce OHAI’s investment income and, by delaying any cash payment allowed to OHAI under the OHAI Credit Facility until the lenders have been paid in full, reduce OHAI’s liquidity and cash flow and impair OHAI’s ability to grow its business and maintain its status as a RIC.

OHAI is exposed to risks associated with changes in interest rates.

Since OHAI borrows money to make investments, OHAI’s net investment income will depend, in part, upon the difference between the rate at which OHAI borrows funds and the rate at which OHAI invests those funds. As a result, a significant change in market interest rates may have a material adverse effect on OHAI’s net investment income. In periods of rising interest rates, OHAI’s cost of funds would increase, except to the extent OHAI issues fixed rate debt or preferred stock, which could reduce OHAI’s net investment income. OHAI may use interest rate risk management techniques in an effort to limit OHAI’s exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.

In addition, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to OHAI’s debt investments over time. Interest rate fluctuations may have a substantial negative impact on OHAI’s investments, the value of OHAI’s common stock and OHAI’s rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments or a reduction in the spread between the interest rates on OHAI’s investments and the interest rates payable on OHAI’s borrowings could have an adverse impact on OHAI’s net investment income. In addition, a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to OHAI’s debt investments over time. There is a risk that the portfolio companies in which OHAI holds floating rate debt investments will be unable to pay escalating interest amounts if general interest rates rise, resulting in a default under OHAI’s investment. In addition, increasing payment obligations under floating rate loans may cause OHAI’s portfolio companies to refinance or otherwise repay OHAI’s loans prior to maturity. An increase in interest rates would make it easier for OHAI to meet or exceed the incentive fee hurdle rate and may result in a substantial increase of the amount of incentive fees payable to OHA with respect to OHAI’s pre-incentive fee net investment income. Also, an increase in interest rates available to investors could make investment in OHAI’s common stock less attractive if OHAI is not able to increase its dividend rate, which could reduce the market value of OHAI’s common stock.

OHAI’s fee arrangement may create incentives for OHA that are not fully aligned with the interests of OHAI’s stockholders and may induce OHA to pursue speculative investments.

Pursuant to the terms of the Investment Advisory Agreement with OHA, OHAI pay base management and incentive fees to OHA. The base management fee is based on OHAI’s average adjusted gross assets and the incentive fee is computed and paid on income, both of which include leverage. As a result, investors in OHAI’s common stock will invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than one might achieve through direct investments. Because the base management fee is based on OHAI’s average adjusted gross assets, OHA benefits when OHAI incurs debt or use leverage. In addition, the incentive fee payable to OHA is calculated based on a percentage of OHAI’s return on invested capital. This may encourage OHA to use leverage to increase the return on OHAI’s investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would impair the value of OHAI’s common stock and the amount of distributions OHAI makes to stockholders.

In addition, OHA receives the incentive fee based, in part, upon net capital gains realized on OHAI’s investments. Unlike that portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains. As a result, OHA may have a tendency to invest more of OHAI’s capital in investments that are likely to result in capital gains as compared to income producing

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securities. Moreover, for the purpose of calculating OHA’s capital gains incentive fee, any gains and losses associated with OHAI’s investment portfolio as of September 30, 2014 are excluded. As the capital gains fee is not payable by OHAI to OHA with respect to any legacy investments, OHA may be incented to dispose of those investments with the aim of substituting them with assets for which a capital gains fee would be payable. These incentives could result in OHAI’s investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns or result in OHAI exiting an investment sooner than that which would have otherwise been optimal for OHAI.

The incentive fee payable by OHAI to OHA also may induce OHA to invest on OHAI’s behalf in instruments that have a deferred interest feature, even if such deferred payments would not provide cash necessary to enable OHAI to pay current distributions to OHAI’s stockholders. Under these investments, OHAI would accrue interest over the life of the investment but would not receive the cash income from the investment until the end of the term. OHAI’s net investment income used to calculate the income portion of the incentive fee, however, includes accrued interest. Thus, a portion of this incentive fee would be based on income that OHAI has not yet received in cash. In addition, the “catch-up” portion of the incentive fee may encourage OHA to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and distribution amounts.

OHAI may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent OHAI so invests, will bear its ratable share of any such investment company’s expenses, including management and performance fees. OHAI will also remain obligated to pay management and incentive fees to OHA with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of OHAI’s stockholders will bear his or her share of the management and incentive fee of OHA as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which OHAI invests.

OHAI may be obligated to pay OHA an incentive fee based on income even if OHAI incurs a loss.

OHA is entitled to an incentive fee based on income for each fiscal quarter in an amount equal to a percentage of the excess of OHAI’s pre-incentive fee net investment income for that quarter (before deducting incentive compensation) above a performance threshold for that quarter. Since the performance threshold is based on a percentage of OHAI’s net asset value, decreases in OHAI’s net asset value reduce the performance threshold required for OHA to earn an incentive fee based on income. OHAI’s pre-incentive fee net investment income for purposes of calculating the incentive fee excludes realized and unrealized capital losses or depreciation that OHAI may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on OHAI’s statement of operations for that quarter. Thus, OHAI may be required to pay OHA an incentive fee for a fiscal quarter even if there is a decline in the value of OHAI’s portfolio or OHAI incurs a net loss for that quarter.

Under the terms of OHAI’s investment advisory agreement, OHAI may have to pay capital gain incentive fees to OHA in periods in which OHAI has incurred a net realized loss on the sale of OHAI’s investments.

Pursuant to the terms of OHAI’s investment advisory agreement, any gains and losses associated with OHAI’s investment portfolio as of September 30, 2014, or the legacy portfolio, are excluded from the capital gains fee calculation. As a result, we may have to pay OHA a capital gains incentive fee in periods in which we have incurred a net realized loss on the sale of OHAI’s investments to the extent that some or all of the realized losses relate to the legacy portfolio.

OHAI will become subject to corporate-level income tax if OHAI is unable to maintain OHAI’s qualification as a RIC under Subchapter M of the Code.

Although OHAI has elected to be treated as a RIC under Subchapter M of the Code, no assurance can be given that OHAI will be able to maintain OHAI’s RIC status. To maintain RIC tax treatment under the Code, OHAI must meet the following annual distribution, income source and asset diversification requirements.

The annual distribution requirement for a RIC will be satisfied if OHAI distributes to OHAI’s stockholders on an annual basis at least 90% of OHAI’s net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because OHAI uses debt financing, OHAI is subject to certain asset coverage ratio requirements under the 1940 Act and

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financial covenants under credit agreements, that could, under certain circumstances, restrict OHAI from making distributions necessary to satisfy the distribution requirement. If OHAI is unable to obtain cash from other sources, OHAI could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

The income source requirement will be satisfied if OHAI obtains at least 90% of its income for each year from distributions, interest, gains from the sale of stock or securities or similar sources.
The asset diversification requirement will be satisfied if OHAI meets certain asset diversification requirements at the end of each quarter of OHAI’s taxable year. Failure to meet those requirements may result in OHAI’s having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of OHAI’s investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If OHAI fails to qualify for RIC tax treatment for any reason and become subject to corporate income tax, the resulting corporate taxes could substantially reduce OHAI’s net assets, the amount of income available for distribution and the amount of OHAI’s distributions. Such a failure would have a material adverse effect on OHAI, the net asset value of OHAI’s common stock and the total return, if any, obtainable from an investment in OHAI’s common stock.

OHAI may have difficulty satisfying the annual distribution requirement in order to qualify and maintain RIC status if OHAI recognizes income before or without receiving cash representing such income.

In accordance with generally accepted accounting principles, or GAAP, and tax requirements, OHAI includes in income certain amounts that OHAI has not yet received in cash, such contractual PIK interest, which represents contractual interest added to a loan balance and due at the end of such loan’s term. The increases in loan balances as a result of contractual PIK arrangements are included in income for the period in which such PIK interest was accrued, which is typically in advance of receiving cash payment, and are separately identified on OHAI’s statements of cash flows. In addition, certain loans may also include any of the following: end-of-term payments, “make whole” interest or dividend provisions, exit fees, balloon payment fees or prepayment fees, which may require OHAI to include certain amounts in income prior to receiving the related cash.

Since in certain cases OHAI may recognize income before or without receiving cash representing such income, OHAI may have difficulty meeting the RIC tax requirement to distribute at least 90% of OHAI’s net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any. Under such circumstances, OHAI may have to sell some of OHAI’s investments at times OHAI would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If OHAI is unable to obtain cash from other sources and are otherwise unable to satisfy such distribution requirements, OHAI may fail to qualify for the federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level income tax on all OHAI’s income.

The failure in cyber-security systems, as well as the occurrence of events unanticipated in OHAI’s disaster recovery systems and management continuity planning, could impair OHAI’s ability to conduct business effectively.

The occurrence of a disaster such as a cyber attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in OHAI’s disaster recovery systems, or a support failure from external providers, could have an adverse effect on OHAI’s ability to conduct business and on OHAI’s results of operations and financial condition, particularly if those events affect OHAI’s computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of OHAI’s OHA personnel were unavailable in the event of a disaster, OHAI’s ability to effectively conduct OHAI’s business could be severely compromised.

OHAI depends heavily upon computer systems to perform necessary business functions. Despite OHAI’s implementation of a variety of security measures, OHAI’s computer systems could be subject to cyber attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, OHAI may experience threats to OHAI’s data and systems, including malware and computer virus

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attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, OHAI’s computer systems and networks, or otherwise cause interruptions or malfunctions in OHAI’s operations, which could result in damage to OHAI’s reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss.

OHAI are highly dependent on information systems and systems failures could significantly disrupt OHAI’s business, which may, in turn, negatively affect the market price of OHAI’s common stock and OHAI’s ability to pay distributions.

OHAI’s business is highly dependent on third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in OHAI’s activities. OHAI’s financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond OHAI’s control and adversely affect OHAI’s business. There could be:

sudden electrical or telecommunications outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
disease pandemics;
events arising from local or larger scale political or social matters, including terrorist acts; and
cyber attacks.

These events, in turn, could have a material adverse effect on OHAI’s operating results and negatively affect the market price of OHAI’s common stock and OHAI’s ability to pay distributions to OHAI’s stockholders.

The OHAI Board may change OHAI’s investment objectives, operating policies and strategies without prior notice or stockholder approval.

The OHAI Board has the authority to modify or waive OHAI’s investment objectives, operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, OHAI may not change the nature of OHAI’s business so as to cease to be, or withdraw OHAI’s election as, a BDC. OHAI cannot predict the effect any changes to OHAI’s current investment objectives, operating policies and strategies would have on OHAI’s business, operating results and value of OHAI’s stock. Nevertheless, the effects may adversely affect OHAI’s business and impact OHAI’s ability to make distributions.

Changes in laws or regulations governing OHAI’s operations or the operations of OHAI’s portfolio companies may adversely affect OHAI’s business.

Changes in or uncertainty regarding laws or regulations, or the interpretations of the laws and regulations, which govern BDCs, RICs or non-depository commercial lenders could significantly affect OHAI’s operations and OHAI’s cost of doing business. OHAI is subject to federal, state and local laws and regulations and is subject to judicial and administrative decisions that affect OHAI’s operations, including OHAI’s loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if OHAI expands its business into jurisdictions that have adopted more stringent requirements than those in which OHAI currently conducts business, then OHAI may have to incur significant expenses in order to comply or OHAI may have to restrict its operations. In addition, if OHAI does not comply with applicable laws, regulations and decisions, then OHAI may lose licenses needed for the conduct of its business and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon its business results of operations or financial condition. Similarly changes in or uncertainty regarding laws and regulations (or the interpretation of such laws and regulations) which govern OHAI’s portfolio companies could adversely affect their operations and cost of doing business which in turn could adversely affect their ability to make payments to OHAI and adversely affect OHAI’s financial condition and results of operations.

In addition, uncertainty regarding legislation and regulations affecting the financial services industry or taxation could also adversely impact OHAI’s business or the business of OHAI’s portfolio companies.

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OHA can resign upon 60 days’ notice, and OHAI may not be able to find a suitable replacement within that time, resulting in a disruption in OHAI’s operations that could adversely affect OHAI’s financial condition, business and results of operations.

OHA has the right, under both OHAI’s investment advisory agreement and OHAI’s administration agreement, to resign at any time upon 60 days’ written notice, whether OHAI has found a replacement or not. If OHA resigns, OHAI may not be able to find a new investment advisor or new administrator, as applicable, or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If OHAI is unable to do so quickly, OHAI’s operations are likely to experience a disruption, OHAI’s financial condition, business and results of operations as well as OHAI’s ability to pay distributions are likely to be adversely affected, and the market price of OHAI’s shares may decline. In addition, the coordination of OHAI’s internal management and investment or administration activities, as applicable, is likely to suffer if OHAI is unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by OHA and its affiliates. Even if OHAI are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with OHAI’s investment objective may result in additional costs and time delays that may adversely affect OHAI’s financial condition, business and results of operations.

Risks Relating to an Investment in OHAI’s Securities

OHAI’s shares currently trade at a substantial discount from net asset value and may continue to do so over the long term.

Shares of closed-end investment companies, including BDCs, frequently trade at a market price that is less than the net asset value that is attributable to those shares. The possibility that shares of OHAI’s common stock will trade at a substantial discount from net asset value over the long term is separate and distinct from the risk that OHAI’s net asset value will decrease. Although OHAI cannot predict whether shares of OHAI’s common stock will trade above, at or below OHAI’s net asset value, OHAI’s common stock has consistently traded below OHAI’s net asset value since the fourth quarter of 2008. When OHAI’s common stock trades below its net asset value, OHAI is generally not able to issue additional shares of OHAI’s common stock at its market price without first obtaining the approval for such issuance from OHAI’s stockholders and OHAI’s independent directors. Any offering of OHAI’s common stock that requires stockholder approval must occur, if at all, within one year after receiving such stockholder approval. If additional funds are not available to OHAI, OHAI could be forced to curtail or cease OHAI’s new lending and investment activities, and OHAI’s net asset value could decrease and OHAI’s level of distributions could be impacted.

OHAI’s common stock price may be volatile and may decrease substantially.

The trading price of OHAI’s common stock may fluctuate substantially. The price of OHAI’s common stock that will prevail in the market may be higher or lower than the price you pay, depending on many factors, some of which are beyond OHAI’s control and may not be directly related to OHAI’s operating performance. These factors include the following:

price and volume fluctuations in the overall stock market or in securities of BDCs from time to time;
investor demand for OHAI’s shares;
exclusion of OHAI’s common stock from certain market indices which could reduce the ability of certain investment funds to own OHAI’s common stock;
changes in regulatory policies or tax guidelines with respect to RICs and BDCs;
the loss of RIC status;
actual or anticipated changes in OHAI’s earnings or fluctuations in OHAI’s operating results;
any shortfall in revenue or net investment income or any increase in losses from levels expected by stockholders or securities analysts;
changes in accounting guidelines governing valuation of OHAI’s investments;
changes, or perceived changes, in the value of OHAI’s portfolio investments;

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departures of OHA’s key personnel;
operating performance of companies comparable to us; and
general economic conditions and trends and other external factors.

In the past, following periods of volatility in the market price of a company’s securities or for other reasons, securities class action litigation has been brought against that company. Due to the potential volatility of OHAI’s stock price or for other reasons, OHAI may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from OHAI’s business.

OHAI’s stockholders may not receive distributions, OHAI’s distributions may not grow over time or a portion of OHAI’s distributions may be a return of capital.

OHAI intends to make distributions on a quarterly basis to its stockholders out of assets legally available for distribution. OHAI cannot assure you that it will achieve investment results that will allow it to make a specified level of cash distributions or year-to-year increases in cash distributions. OHAI’s ability to pay distributions may be adversely affected by the impact of one or more of the risk factors described herein. In addition, due to the asset coverage test applicable to OHAI as a BDC, OHAI may be prohibited in OHAI’s ability to make distributions in certain limited circumstances. OHAI cannot assure you that you will receive distributions at a particular level or at all.

If OHAI’s distributions exceed OHAI’s taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be characterized as a return of capital to OHAI’s stockholders. To the extent there is a return of capital, stockholders will be required to reduce their basis in OHAI’s stock for U.S. federal income tax purposes, resulting in a higher reported capital gain or lower reported capital loss when those shares of OHAI’s common stock are sold or otherwise disposed of. Under the current OHAI Credit Facility, OHAI is limited to distributing no more than 110% of OHAI’s taxable income for that tax year.

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COMPARATIVE FEES AND EXPENSES
   
Comparative Fees and Expenses Relating to the Merger

The following tables are intended to assist you in understanding the costs and expenses that an investor in the common stock of PTMN or OHAI bears directly or indirectly, and, based on the assumptions set forth below, the pro forma costs and expenses estimated to be incurred by the combined company in the first year following the Merger. PTMN and OHAI caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this document contains a reference to fees or expenses paid or to be paid by “you,” “PTMN” or “OHAI,” stockholders will indirectly bear such fees or expenses as investors in PTMN or OHAI, as applicable.

 
Actual
Pro Forma
Stockholder transaction expenses
 
PTMN
(acquiring
fund
)
 
OHAI
(target
fund
)
 
 
 
Sales load (as a percentage of offering price)
 
None
(1) 
 
None
(1) 
 
None
(1) 
Offering expenses (as a percentage of offering price)
 
None
(1) 
 
None
(1) 
 
None
(1) 
Dividend reinvestment plan expenses
 
None
(2) 
 
None
(2) 
 
None
(1) 
Total stockholder transaction expenses (as a percentage of offering price)
 
None
 
 
None
 
 
None
 
 
Actual
Pro Forma
Estimated annual expenses (as a percentage of net assets attributable to common stock):(3)
PTMN
(acquiring
fund)
OHAI
(target
fund)
 
Base management fees(4)
 
2.95
%
 
3.19
%
 
2.90
%
Incentive fees(5)
 
0.00
%
 
0.12
%
 
0.21
%
Interest payments on borrowed funds(6)
 
5.70
%
 
6.39
%
 
5.57
%(9)
Other expenses(7)
 
7.67
%
 
8.27
%
 
3.71
%
Acquired fund fees and expenses
 
0.00
%
 
0.00
%
Total annual expenses(8)
 
16.32
%
 
17.98
%
 
12.39
%
*Represents an amount less than 0.1%.
(1)Purchases of shares of common stock of PTMN or OHAI on the secondary market are not subject to sales charges, but may be subject to brokerage commissions or other charges. The table does not include any sales load (underwriting discount or commission) that stockholders may have paid in connection with their purchase of shares of PTMN Common Stock or OHAI Common Stock in a prior underwritten offering or otherwise.
(2)The estimated expenses associated with the respective distribution reinvestment plans are included in “Other expenses.”
(3) “Consolidated net assets attributable to common stock” equals net assets at June 30, 2019. For the pro forma columns, the combined net assets of PTMN on a pro forma basis as of June 30, 2019, were used. See “Unaudited Selected Pro Forma Consolidated Financial Data” for more information.
(4)For the period from the date of PTMN’s Investment Advisory Agreement (the “Effective Date”) through June 30, 2019, the end of the first calendar quarter after the Effective Date, PTMN’s base management fee was calculated at an annual rate of 1.50% of PTMN’s gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, as of the end of such calendar quarter. Subsequently, the base management fee will be 1.50% of PTMN’s average gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters; provided, however, that the base management fee will be 1.00% of PTMN’s average gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, that exceed the product of  (i) 200% and (ii) the value of PTMN’s net asset value at the end of the most recently completed calendar quarter. OHAI’s base management fee is paid quarterly in arrears, and is calculated by multiplying the average value of its total assets (excluding cash, cash equivalents and U.S. Treasury Bills that are purchased with borrowed funds solely for the purpose of satisfying quarter-end diversification requirements related to its election to be taxed as a RIC under the Code), as of the end of the two immediately prior fiscal quarters, by a rate of 1.75% per annum.
(5)PTMN’s incentive fee consists of two parts: (1) a portion based on PTMN’s pre-incentive fee net investment income (the “Income-Based Fee”) and (2) a portion based on the net capital gains received on PTMN’s portfolio of securities on a cumulative basis for each calendar year, net of all realized capital losses and all unrealized capital depreciation on a cumulative basis, in each case calculated from the Effective Date, less the aggregate amount of any previously paid capital gains Incentive Fee (the “Capital Gains Fee”). The Income-Based Fee will be 17.50% of pre-incentive fee net investment income with a 7.00% hurdle rate. The Capital Gains Fee will be 17.50%. OHAI’s incentive fee consists of two parts. The first part, the investment income incentive fee, is calculated and payable quarterly in arrears based on its pre-incentive fee net investment income for the fiscal quarter for which the fee is being calculated. Pre-incentive fee net investment income means interest income, dividend income, royalty payments, net profits interest payments, and any other income (including any other fees, such as commitment, origination, syndication, structuring, diligence,

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monitoring and consulting fees or other fees that OHAI receives from portfolio companies) accrued during the fiscal quarter, minus its operating expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that OHAI has not yet received in cash. Accordingly, OHAI may pay an incentive fee based partly on accrued investment income, the collection of which is uncertain or deferred. Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of OHAI’s net assets (defined as total assets less liabilities at the end of the immediately preceding fiscal quarter) is compared to a “hurdle rate” of 1.75% per quarter (7% annualized). OHA receives no incentive fee for any fiscal quarter in which OHAI’s pre-incentive fee net investment income does not exceed the hurdle rate. OHA receives an incentive fee equal to 100% of OHAI’s pre-incentive fee net investment income for any fiscal quarter in which OHAI’s pre-incentive fee net investment income exceeds the hurdle rate but is less than 2.1875% (8.75% annualized) of net assets (also referred to as the “catch up” provision) plus 20% of OHAI’s pre-incentive fee net investment income for such fiscal quarter greater than 2.1875% (8.75% annualized) of net assets. The second part of the incentive fee, the capital gains incentive fee, is determined and payable in arrears as of the end of each fiscal year (or, upon termination of OHAI’s investment advisory agreement, as of the termination date). The capital gains incentive fee is equal to 20% of OHAI’s cumulative aggregate realized capital gains from September 30, 2014 through the end of that fiscal year, computed net of OHAI’s cumulative aggregate realized capital losses and cumulative aggregate unrealized depreciation on investments for the same time period. The aggregate amount of any previously paid capital gains incentive fees to OHA is subtracted from the capital gains incentive fee calculated. If such amount is negative, then there is no capital gains fee for such year. For the purposes of the capital gains incentive fee, any gains and losses associated with OHAI’s investment portfolio as of September 30, 2014 shall be excluded from the capital gains incentive fee calculation. The figure in the table for OHAI assumes an estimated capital gains incentive fee of approximately $46,000 and will be payable to OHA on the earlier of December 31, 2019 or the closing date of the Merger.

(6)The figure in the table for PTMN is derived by annualizing the actual second quarter 2019 borrowing costs of PTMN and that the annualized weighted average borrowing costs under all of its financing facilities, including amortized costs and expenses, is 7.05%. The figure in the table for OHAI assumes it borrows $30.0 million under the OHAI Credit Facility as of June 30, 2019 and that the annualized weighted average borrowing costs under the financing facilities, including amortized costs and expenses, is 7.89%. Because the total assumed borrowing ($30.0 million) represents 81.38% of its average net assets for the six months ended June 30, 2019 ($36.9 million), the borrowing cost as a percentage of net assets set forth in the table above is 6.39% (or 35.81% of 17.86%).
(7)In the case of PTMN, other expenses include insurance, accounting, legal and auditing fees and state franchise taxes, as well as the reimbursement of the compensation of administrative personnel and fees payable to PTMN’s directors who do not also serve in an executive officer capacity for PTMN or Sierra Crest. The percentage presented in the table does not include a non-recurring lease impairment charge of approximately $1.4 million, and reflects actual amounts incurred during the three months ended June 30, 2019 on an annualized basis. In the case of OHAI, other expenses include accounting, legal and auditing fees and excise and state taxes, as well as the reimbursement of the compensation of administrative personnel and fees payable to OHAI’s independent directors. The amount presented in the table reflects actual amounts incurred during the three months ended June 30, 2019, excluding costs related to the strategic alternative review process.
(8) “Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. PTMN and OHAI borrow money to leverage and increase their total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period), rather than the total assets, including assets that have been funded with borrowed monies. The percentage presented in the table does not include a non-recurring lease impairment charge of approximately $1.4 million, and reflects actual amounts incurred during the three months ended June 30, 2019 on an annualized basis.
(9)This is based on the assumption that borrowings and interest costs after the Merger will remain the same as those costs prior to the Merger. PTMN expects over time that as a result of additional investment purchases, and in turn, additional borrowings on the financing facilities after the Merger, the combined company’s interest payments on borrowed funds may be more than the amounts estimated in the Unaudited Pro Forma Combined Statement of Operations of the Merger and, accordingly, that estimated total expenses may be different than as reflected in the Unaudited Pro Forma Combined Statement of Operations of the Merger for the three months ended June 30, 2019. However, the actual amount of leverage employed at any given time cannot be predicted.

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Example

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in PTMN, OHAI or the combined company’s common stock following the Merger on a pro forma basis. In calculating the following expense amounts, each of PTMN and OHAI has assumed that it would have no additional leverage and that its annual operating expenses would remain at the levels set forth in the tables above. Calculations for the pro forma combined company following the Merger assume that the Merger closed on June 30, 2019 and that the leverage and operating expenses of PTMN and OHAI remain at the levels set forth in the tables above. Transaction expenses related to the Merger are not included in the following examples.

 
1 year
3 years
5 years
10 years
You would pay the following expenses on a $1,000 investment:
 
 
 
 
 
 
 
 
 
 
 
 
PTMN, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)
$
163
 
$
436
 
$
651
 
$
1,008
 
OHAI, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)
$
180
 
$
514
 
$
817
 
$
1,458
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PTMN, assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)
$
172
 
$
455
 
$
674
 
$
1,026
 
OHAI, assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)
$
190
 
$
524
 
$
827
 
$
1,468
 
 
1 year
3 years
5 years
10 years
Pro forma combined company following the Merger
 
 
 
 
 
 
 
 
 
 
 
 
You would pay the following expenses on a $1,000 investment:
 
 
 
 
 
 
 
 
 
 
 
 
Assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)
$
122
 
$
340
 
$
527
 
$
891
 
Assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)
$
130
 
$
361
 
$
556
 
$
921
 

The foregoing tables are to assist you in understanding the various costs and expenses that an investor in PTMN, OHAI or, following the Merger, the combined company’s common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, performance of PTMN, OHAI, and the combined company will vary and may result in a return greater or less than 5%. The incentive fee under each of PTMN’s Investment Advisory Agreement and OHAI’s investment advisory agreement, which, assuming a 5% annual return, would either not be payable or have an immaterial impact on the expense amounts shown above in the example where there is no return from net realized capital gains, and thus are not included in those examples. Under each of PTMN’s Investment Advisory Agreement and OHAI’s Investment Advisory Agreement, no incentive fee would be payable if PTMN, OHAI or the combined company, as applicable, has a 5% annual return with no capital gains, however, there would be incentive fees payable in the examples where the entire return is derived from realized capital gains. If sufficient returns are achieved on investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, expenses, and returns to investors, would be higher. The example assumes that all dividends and other distributions are reinvested at net asset value. Under certain circumstances, reinvestment of dividends and other distributions under the relevant dividend reinvestment plan may occur at a price per share that differs from net asset value. See “Portman Ridge Finance Corporation Dividend Reinvestment Plan” and “OHA Investment Corporation Dividend Reinvestment Plan” for additional information regarding PTMN’s and OHAI’s dividend reinvestment plan, respectively.

The example and the expenses in the table above should not be considered a representation of PTMN’s, OHAI’s, or, following the Merger, the combined company’s, future expenses, and actual expenses may be greater or less than those shown.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains statements that constitute forward-looking statements, which relate to PTMN, OHAI or, following the Merger, the combined company, regarding future events or the future performance or future financial condition of PTMN, OHAI or, following the Merger, the combined company. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about PTMN, OHAI or, following the Merger, the combined company, their industry and their respective beliefs and assumptions. The forward-looking statements contained in this proxy statement/prospectus involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including:

the ability of the parties to consummate the Merger described in this proxy statement/prospectus on the expected timeline, or at all;
the failure of OHAI Stockholders to approve the Merger Proposal;
the ability to realize the anticipated benefits of the proposed Merger;
the effects of disruption on the business of PTMN and OHAI from the proposed Merger;
the effect that the announcement or consummation of the Merger may have on the trading price of PTMN Common Stock;
the combined company’s plans, expectations, objectives and intentions, as a result of the Merger;
any potential termination of the Merger Agreement or action of OHAI Stockholders with respect to any proposed transaction;
changes in PTMN’s and/or OHAI’s NAV in the future;
PTMN’s and OHAI’s future operating results;
PTMN’s and OHAI’s business prospects and the prospects of their portfolio companies;
the effect of investments that PTMN and OHAI expect to make and the competition for those investments;
PTMN’s and OHAI’s contractual arrangements and relationships with third parties;
actual and potential conflicts of interest with PTMN and OHAI, and their respective affiliates;
the dependence of PTMN’s and OHAI’s future success on the general economy and its effect on the industries in which they invest;
the ability of PTMN’s and OHAI’s portfolio companies to achieve their objectives;
the use of borrowed money to finance a portion of PTMN’s and OHAI’s investments;
the adequacy of financing sources and working capital;
the timing of cash flows, if any, from the operations of PTMN’s and OHAI’s portfolio companies;
general economic and political trends and other external factors;
the ability of Sierra Crest and OHA to locate suitable investments for PTMN and OHAI and to monitor and administer their respective investments;
the ability of Sierra Crest and OHA or their affiliates to attract and retain highly talented professionals;
PTMN’s and OHAI’s ability to qualify and maintain their respective qualifications as a RIC and as a business development company;
general price and volume fluctuations in the stock markets; and
the effect of changes to tax legislation and PTMN’s and OHAI’s respective tax position.

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” “predict,” “potential,” “plan” or similar words. The forward-looking statements

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contained in this proxy statement/prospectus involve risks and uncertainties. Actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” and elsewhere in this proxy statement/prospectus.

The forward-looking statements included in this proxy statement/prospectus are based on information available on the date of this proxy statement/prospectus. Actual results could differ materially from those anticipated in any forward-looking statements and future results could differ materially from historical performance. You are advised to consult any additional disclosures that PTMN or OHAI may make directly to you or through reports that each has filed or in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. This proxy statement/prospectus contains statistics and other data that have been obtained from or compiled from information made available by third-party service providers. PTMN and OHAI have not independently verified such statistics or data.

You should understand that, under Sections 27A(b)(2)(B) of the Securities Act, and Section 21E(b)(2)(B) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this proxy statement/prospectus, any prospectus supplement or in periodic reports PTMN files under the Exchange Act.

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SELECTED CONSOLIDATED FINANCIAL DATA OF PTMN

The following selected consolidated financial data of PTMN as of and for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 is derived from the audited consolidated financial statements of PTMN. The following selected financial data for the six months ended June 30, 2019 and 2018 is derived from the unaudited consolidated financial statements of PTMN. The financial data should be read in conjunction with PTMN’s consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Portman Ridge Finance Corporation” included elsewhere in this proxy statement/prospectus.

 
Six Months
Ended
June 30,
2019
Six Months
Ended
June 30,
2018
Year
Ended
December 31,
2018
Year
Ended
December 31,
2017
Year
Ended
December 31,
2016
Year
Ended
December 31,
2015
Year
Ended
December 31,
2014
 
(In Thousands, Except Share and Per Share Data)
Income Statement Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest and related portfolio income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest and Dividends
$
10,361
 
$
11,548
 
$
22,495
 
$
26,363
 
$
34,132
 
$
39,812
 
$
34,803
 
Fees and other income
 
111
 
 
107
 
 
245
 
 
491