Filing Details

 

Item 2.

Identity and Background.

Sims Capital Management LLC (“SCM”):

 

David C. Sims:

 

Luke E. Sims:

 

Each of the persons identified in this Amendment to Schedule 13D is a party to that certain Joint Filing Agreement attached as Exhibit 99.1 to the Schedule 13D filed on July 28, 2016.

Item 3.

Source and Amount of Funds or Other Consideration.

SCM purchased Shares with investment funds held by advisory clients.  SCM owns no Shares itself.

To the knowledge of SCM, no borrowed funds were used by advisory clients in purchasing Shares, except that advisory client Peregrine Investment Fund LLC (“Peregrine”), a private investment fund affiliated with the reporting persons, maintains a customary brokerage margin account and some portion of Peregrine’s purchases may have been made with borrowed funds.

Luke E. Sims used his personal investment funds to purchase Shares.

Item 4.

Purpose of Transaction.

The reporting persons have purchased Shares because they believe the Shares are undervalued.  The reporting persons, or any of them, may from time to time purchase additional Shares, either in the open market, in privately-negotiated transactions, or otherwise.  Moreover, the reporting persons, or any of them, may from time to time dispose of Shares, either in the open market, in privately-negotiated transactions, or otherwise.

The Fund reportedly created a special committee (“Special Committee”) of its Board of Directors (“Board”) in November 2015.  The purpose of this Special Committee was to consider the Fund’s strategic options.

The creation of the Special Committee was, to the best of SCM’s knowledge, first publicly reported in mid-February 2016.

In late April 2016, SCM sent a letter to the Special Committee proposing various strategic options for the Special Committee to consider, including strategies to utilize the Fund’s approximately $45 million of net realized and unrealized capital losses (“Tax Losses”).  Nothing came of these various SCM-proposed strategic options.

In late June 2016, the Fund announced a complex merger proposal (“Proposed Merger”) for the merger of the Fund into a newly-created entity (Great Elm Capital Corp.) (“Survivor”), which proposal also included significant investments by funds affiliated with MAST Capital Management, LLC (“MAST”), and managerial roles by various current MAST principals and employees.  The Proposed Merger included, among other things, the contribution by MAST and MAST affiliates to the Survivor of certain junk (high yield) bonds and/or other securities issued by high risk and/or financially-troubled issuers.

Since the announcement of the Proposed Merger through mid‑July 2016, SCM sent three (3) letters to the Fund’s Board raising various issues with respect to: (i) the convoluted structure and complexity of the Proposed Merger, and (ii) raising specific issues with respect to the quality and pricing of certain of the MAST assets proposed to be contributed to the Survivor in the Proposed Merger, particularly the securities of Avanti Communications PLC.  (Copies of these letters are included as exhibits to this filing.)  The investing public apparently agrees with our assessment of the Proposed Merger since the Fund’s stock price declined after the Proposed Merger was announced and continues to trade at a significant discount (currently approximately 26%) from the Fund’s March 31, 2016 net asset value (NAV) of $3.61 per share.

SCM sent another letter, dated August 11, 2016, to the Fund’s Board of Directors raising concerns with respect to: (i) the flawed sale process employed by the Special Committee (and in turn endorsed by the full Fund Board) and (ii) the extravagant consulting payments (estimated by SCM to be in the range of $9 Million) payable post-closing to Messrs. John Stuart and Gregg Felton, the sole principals and officers of the Fund’s current investment advisor.  (A copy of this letter is included as an exhibit to this Amendment to Schedule 13D.)  This $9 Million estimate represents fifteen percent (15%) of the current $60 Million equity market capitalization of the Fund.  SCM challenged the Fund Board to seek an advisory report from the U.S. Securities and Exchange Commission (“SEC”) with respect to the fairness of the Proposed Merger to Fund shareholders.  This procedure to request an advisory report from the SEC is expressly allowed pursuant to Section 25 of the Investment Company Act of 1940 (the “1940 Act”).  If the Fund Board refuses to seek such an advisory report from the SEC, then SCM will seek to line up holders of Fund shares holding at least 25% of the outstanding shares in order to seek such an advisory report directly from the SEC (again as expressly allowed and contemplated by the 1940 Act).

 

SCM sent a letter, dated September 6, 2016, to the Fund’s Board of Directors: (i) detailing some of the publicly-available information with respect to MAST’s recent investment performance and (ii) raising the related issue as to why the draft Registration Statement/Proxy Statement doesn’t include any information with respect to MAST’s historic investment performance.

 

SCM believes that Fund shareholders will be better served by turning down the Proposed Merger, and then proceeding to liquidate the Fund.  (We acknowledge the fact that liquidation will result in the destruction of the value of the Tax Losses, but we have not been successful in getting the Special Committee or the entire Fund Board to address this issue.)  SCM does not necessarily believe that liquidation is the best option available to the Fund and its shareholders, but believes that it is far preferable to the Proposed Merger.

SCM believes that Fund shareholders should receive a minimum consideration of Fund NAV as of June 30, 2016 ($3.59 per share), plus a pro rata share of the Fund’s net investment income from that date to the date of liquidation.   Based upon its recent financial performance, the Fund has been generating positive net investment income.

To the extent the actions described herein may be deemed to constitute a “control purpose” with respect to the Securities Exchange Act of 1934, as amended, and the regulations thereunder, the reporting persons have such a purpose.  Except as noted in this Amendment to Schedule 13D, none of the reporting persons currently has any plans or proposals, which relate to, or would result in, any of the matters referred to in paragraphs (a) through (j), inclusive of Item (4) of Schedule 13D.  Such persons may, at any time and from time to time, review or reconsider their positions and formulate plans or proposals with respect thereto.

(b) Each reporting person (in the group) has beneficial ownership of Shares as follows:

Sims Capital Management LLC:

David C. Sims:

Luke E. Sims

(c) During the 60-day period preceding the filing of this Amendment to Schedule 13D, the reporting persons have sold Shares in the open market as follows:

 

Name	Trade Date	Number of Shares Sold	Price Per Share
Sims Capital Management LLC	10/14/16	10,114	$2.72
Sims Capital Management LLC	10/17/16	64,077	$2.72
Sims Capital Management LLC	10/18/16	14,361	$2.70
Sims Capital Management LLC	10/19/16	165,025	$2.71

(d) Each advisory client of Sims Capital Management LLC has the right to receive dividends from, and the proceeds from the sale of, Shares held by such advisory client.  Luke E. Sims has the right to receive dividends from, and the proceeds from the sale of, his individually-owned Shares.

Item 6.

Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.

Not applicable.

 

_______________________

*  Previously filed

SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.