80 FR 30746 - KCAP Financial, Inc.; Notice of Application
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 103 (May 29, 2015)
Federal Register Volume 80, Issue 103 (May 29, 2015)
| Page Range | 30746-30747 | |
| FR Document | 2015-12970 |
[Federal Register Volume 80, Number 103 (Friday, May 29, 2015)] [Notices] [Pages 30746-30747] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-12970] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 31645; File No. 812-14363] KCAP Financial, Inc.; Notice of Application May 21, 2015. AGENCY: Securities and Exchange Commission (``Commission''). ACTION: Notice of an application for an order under section 23(c)(3) of the Investment Company Act of 1940 (the ``Act'') for an exemption from section 23(c) of the Act. ----------------------------------------------------------------------- Summary of the Application: KCAP Financial, Inc. (``Company'') requests an order to amend a prior order \1\ that permits the Company to issue Restricted Stock \2\ to the Company's Employees \3\ under the terms of its Amended and Restated 2006 Equity Incentive Plan, as further amended and restate effective June 20, 2014 (the ``Incentive Plan''). The Company seeks to amend the Prior Order to permit it to engage in certain transactions in connection with the Incentive Plan that may constitute purchases by the Company of its own securities within the meaning of section 23(c) of the Act. --------------------------------------------------------------------------- \1\ Investment Company Act Release Nos. 28168 (Feb. 25, 2008) (notice) and 28199 (Mar. 24, 2008) (order) (the ``Prior Order''). \2\ As defined in the Prior Order. \3\ As defined in the Prior Order. Filing Dates: The application was filed on September 22, 2014, and --------------------------------------------------------------------------- amended on January 28, 2015, May 15, 2015, and May 21, 2015. Hearing or Notification of Hearing: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicant with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on June 15, 2015, and should be accompanied by proof of service on applicant, in the form of an affidavit, or for lawyers, a certificate of service. Pursuant to rule 0-5 under the Act, hearing requests should state the nature of the writer's interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. Applicant: c/o Dayl W. Pearson, President and Chief Executive Officer, KCAP Financial, Inc., 295 Madison Avenue, 6th Floor, New York, NY 10017. FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Senior Counsel, at (202) 551-6826, or David P. Bartels, Branch Chief, at (202) 551-6821, (Division of Investment Management, Chief Counsel's Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission's Web site by searching for the file number, or for the applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090. Applicant's Representations: 1. The Company is an internally managed, non-diversified, closed- end investment company that has elected to be regulated as a business development company (``BDC'') under the Act. The Incentive Plan authorizes the Company, among other things, to grant to its Employees in accordance with the terms and conditions of the Prior Order (i) Restricted Stock and (ii) options to acquire shares of the Company's common stock, par value $0.01 per share (``Common Stock'') in accordance with section 61(a)(3)(B) of the Act. The Company seeks to amend the Prior Order to permit it to withhold shares of the Company's Common Stock or purchase shares of Common Stock from the Participants \4\ to satisfy tax withholding obligations related to the vesting of Restricted Stock or the exercise of options to purchase shares of Common Stock granted pursuant to the Incentive Plan. In addition, the Company seeks to permit Participants to pay the exercise price of options to purchase shares of Common Stock granted pursuant to the Incentive Plan with shares of Common Stock already held by them or pursuant to a net share settlement feature.\5\ The Company will continue to comply with all of the terms and conditions of the Prior Order. --------------------------------------------------------------------------- \4\ As defined in the Prior Order. \5\ Net share settlement allows the Company to deliver only gain shares (i.e., shares of its Common Stock with a Fair Market Value (as defined below) equal to the option spread upon exercise) directly to the optionee without the need for the optionee to sell shares of Common Stock on the open market or borrow cash from third parties in order to exercise his or her options. The Company states that the Board has determined to use the closing sales price of the Common Stock on the NASDAQ Global Select Market (or any other such exchange on which the Common Stock may be traded in the future) on the date of the applicable transaction or other event as the fair market value (``Fair Market Value'') with respect to the Common Stock for all purposes under the Incentive Plan. --------------------------------------------------------------------------- 2. On the date that any Restricted Stock vests, such vested shares of the Restricted Stock are released to the Participant and are available for sale or transfer.\6\ The Company states that value of the vested shares is deemed to be wage compensation for the Employee. As discussed more fully in the application, upon the exercise of certain options the amount by which the Fair Market Value of the shares of the Company's Common Stock, determined as of the date of exercise, exceeds the exercise price will be treated as ordinary income to the recipient of the option in the year of exercise. The Company states that any compensation income recognized by an employee generally is subject to federal withholding for [[Page 30747]] income and employment tax purposes. The Incentive Plan provides that the delivery of any shares, or the lifting or lapse of restrictions on any Award, shall be subject to the Participant's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. --------------------------------------------------------------------------- \6\ During the restriction period (i.e., prior to the lapse of the forfeiture restrictions), the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined, or otherwise encumbered by a Participant. --------------------------------------------------------------------------- 3. The Incentive Plan, as amended and restated effective June 20, 2014, was approved by the Company's board of directors (``Board''), including the required majority of the Company's directors with the meaning of section 57(o) of the Act. The Company states that the Board is permitted to allow the Company to withhold shares of Common Stock or purchase shares of Common stock from the Company's Employees to satisfy tax withholding obligations related to the vesting of Restricted Stock, or the exercise of options to acquire Common Stock or Restricted Stock granted pursuant to the Incentive Plan. The Company states that the Incentive Plan further provides the Board with discretion to permit the Company's Employees to pay the exercise price of options to purchase shares of Common Stock or Restricted Stock with shares of Common Stock already held by them or pursuant to net share settlement. Applicant's Legal Analysis: 1. Section 23(c) of the Act, which is made applicable to BDCs by section 63 of the Act, generally prohibits a BDC from purchasing any securities of which it is the issuer except in the open market, pursuant to tender offers or under other circumstances as the Commission may permit to ensure that the purchase is made on a basis that does not unfairly discriminate against any holders of the class or classes of securities to be purchased. The Company states that the withholding or purchase of shares of Restricted Stock and Common Stock in payment of applicable withholding tax obligations or of Common Stock in payment for the exercise price of a stock option might be deemed to be purchases by the Company of its own securities within the meaning of section 23(c) and therefore prohibited by the Act. 2. Section 23(c)(3) provides that the Commission may issue an order that would permit a BDC to purchase its shares in circumstances in which the purchase is made in a manner or on a basis that does not unfairly discriminate against any holders of the class or classes of securities to be purchased. The Company states that it believes that the requested relief meets the standards of section 23(c)(3). 3. The Company states that these purchases will be made on a basis which does not unfairly discriminate against the stockholders of the Company because all purchases of Common Stock will be at the closing sales price of the Common Stock on the NASDAQ Global Select Market on the relevant date (i.e., the public market price on the date of vesting of the Restricted Shares, the date of exercise of Non-Statutory Stock Options, and the date of a disqualifying disposition with respect to Incentive Stock Options). The Company further states that no transactions will be conducted pursuant to the requested order on days where there are no reported market transactions involving the Common Stock. The Company submits that because all transactions would take place at the public market price for the Company's common stock, the transactions would not be significantly different than could be achieved by any stockholder selling in a market transaction. 4. The Company submits that the proposed purchases do not raise concerns about preferential treatment of the Company's insiders because the Incentive Plan is a bona fide compensation plan of the type that is common among corporations generally. Further, the Company argues that the vesting schedule is determined at the time of the initial grant of the Restricted Stock and the option exercise price is determined at the time of the initial grant of the options. The Company represents that that all purchases may be made only as permitted by the Incentive Plan and in the discretion of the Board, which is composed of at least a majority of ``non-interested'' persons within the meaning of section 2(a)(19) of the Act. The Company argues that granting the requested relief would be consistent with policies underlying the provisions of the Act permitting the use of equity compensation as well as prior exemptive relief granted by the Commission for relief under section 23(c) of the Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Robert W. Errett, Deputy Secretary. [FR Doc. 2015-12970 Filed 5-28-15; 8:45 am] BILLING CODE 8011-01-P
![30746 Federal Register / Vol. 80, No. 103 / Friday, May 29, 2015 / Notices
provide more advance notice of permits the Company to issue Restricted investment company that has elected to
postponements and cancellations, or, in Stock 2 to the Company’s Employees 3 be regulated as a business development
the alternative, to compensate under the terms of its Amended and company (‘‘BDC’’) under the Act. The
arbitrators more than they are currently Restated 2006 Equity Incentive Plan, as Incentive Plan authorizes the Company,
paid for lost time and opportunities in further amended and restate effective among other things, to grant to its
the event of a late postponement or June 20, 2014 (the ‘‘Incentive Plan’’). Employees in accordance with the terms
cancellation.’’ 114 In addition, the The Company seeks to amend the Prior and conditions of the Prior Order (i)
Commission believes that increase the Order to permit it to engage in certain Restricted Stock and (ii) options to
amount of honoraria paid to arbitrators transactions in connection with the acquire shares of the Company’s
affected by a late cancellation of a Incentive Plan that may constitute common stock, par value $0.01 per
scheduled hearing would help FINRA purchases by the Company of its own share (‘‘Common Stock’’) in accordance
achieve its goal of retaining and securities within the meaning of section with section 61(a)(3)(B) of the Act. The
recruiting arbitrators to serve in its 23(c) of the Act. Company seeks to amend the Prior
dispute resolution forum. Accordingly, FILING DATES: The application was filed Order to permit it to withhold shares of
the Commission believes that the on September 22, 2014, and amended the Company’s Common Stock or
proposed rule change would further the on January 28, 2015, May 15, 2015, and purchase shares of Common Stock from
purposes of the Act as it is reasonably May 21, 2015. the Participants 4 to satisfy tax
designed to protect investors and the HEARING OR NOTIFICATION OF HEARING: withholding obligations related to the
public interest.115 An order granting the requested relief vesting of Restricted Stock or the
For the reasons stated above, the will be issued unless the Commission exercise of options to purchase shares of
Commission finds that the proposed orders a hearing. Interested persons may Common Stock granted pursuant to the
rule change is consistent with the Act request a hearing by writing to the Incentive Plan. In addition, the
and the rules and regulations Commission’s Secretary and serving Company seeks to permit Participants to
thereunder. applicant with a copy of the request, pay the exercise price of options to
personally or by mail. Hearing requests purchase shares of Common Stock
V. Conclusion granted pursuant to the Incentive Plan
should be received by the Commission
IT IS THEREFORE ORDERED, by 5:30 p.m. on June 15, 2015, and with shares of Common Stock already
pursuant to Section 19(b)(2) of the should be accompanied by proof of held by them or pursuant to a net share
Act,116 that the proposed rule change service on applicant, in the form of an settlement feature.5 The Company will
(SR–FINRA–2015–003), be, and hereby affidavit, or for lawyers, a certificate of continue to comply with all of the terms
is, approved. service. Pursuant to rule 0–5 under the and conditions of the Prior Order.
Act, hearing requests should state the 2. On the date that any Restricted
For the Commission, by the Division of
nature of the writer’s interest, any facts Stock vests, such vested shares of the
Trading and Markets, pursuant to delegated
authority.117 bearing upon the desirability of a Restricted Stock are released to the
hearing on the matter, the reason for the Participant and are available for sale or
Robert W. Errett,
request, and the issues contested. transfer.6 The Company states that value
Deputy Secretary. of the vested shares is deemed to be
[FR Doc. 2015–12971 Filed 5–28–15; 8:45 am]
Persons who wish to be notified of a
hearing may request notification by wage compensation for the Employee.
BILLING CODE 8011–01–P
writing to the Commission’s Secretary. As discussed more fully in the
application, upon the exercise of certain
ADDRESSES: Secretary, Securities and
options the amount by which the Fair
SECURITIES AND EXCHANGE Exchange Commission, 100 F Street NE.,
Market Value of the shares of the
COMMISSION Washington, DC 20549–1090. Company’s Common Stock, determined
Applicant: c/o Dayl W. Pearson, as of the date of exercise, exceeds the
[Investment Company Act Release No. President and Chief Executive Officer,
31645; File No. 812–14363] exercise price will be treated as ordinary
KCAP Financial, Inc., 295 Madison income to the recipient of the option in
KCAP Financial, Inc.; Notice of Avenue, 6th Floor, New York, NY the year of exercise. The Company states
Application 10017. that any compensation income
FOR FURTHER INFORMATION CONTACT: recognized by an employee generally is
May 21, 2015. Steven I. Amchan, Senior Counsel, at subject to federal withholding for
AGENCY: Securities and Exchange (202) 551–6826, or David P. Bartels,
Commission (‘‘Commission’’). Branch Chief, at (202) 551–6821, 4 As defined in the Prior Order.
ACTION: Notice of an application for an (Division of Investment Management, 5 Net share settlement allows the Company to
order under section 23(c)(3) of the Chief Counsel’s Office). deliver only gain shares (i.e., shares of its Common
Stock with a Fair Market Value (as defined below)
Investment Company Act of 1940 (the SUPPLEMENTARY INFORMATION: The equal to the option spread upon exercise) directly
‘‘Act’’) for an exemption from section following is a summary of the to the optionee without the need for the optionee
23(c) of the Act. application. The complete application to sell shares of Common Stock on the open market
or borrow cash from third parties in order to
may be obtained via the Commission’s exercise his or her options. The Company states that
SUMMARY OF THE APPLICATION: KCAP Web site by searching for the file the Board has determined to use the closing sales
Financial, Inc. (‘‘Company’’) requests an number, or for the applicant using the price of the Common Stock on the NASDAQ Global
order to amend a prior order 1 that Company name box, at http:// Select Market (or any other such exchange on
which the Common Stock may be traded in the
www.sec.gov/search/search.htm or by
Lhorne on DSK2VPTVN1PROD with NOTICES
114 See Notice, 80 FR at 9774. See also FINRA
future) on the date of the applicable transaction or
calling (202) 551–8090. other event as the fair market value (‘‘Fair Market
Response Letter.
115 See 15 U.S.C. 78o–3(b)(6).
Applicant’s Representations: Value’’) with respect to the Common Stock for all
1. The Company is an internally purposes under the Incentive Plan.
116 15 U.S.C. 78s(b)(2). 6 During the restriction period (i.e., prior to the
117 17 CFR 200.30–3(a)(12). managed, non-diversified, closed-end
lapse of the forfeiture restrictions), the Restricted
1 Investment Company Act Release Nos. 28168 Stock may not be sold, transferred, pledged,
2 As defined in the Prior Order.
(Feb. 25, 2008) (notice) and 28199 (Mar. 24, 2008) hypothecated, margined, or otherwise encumbered
(order) (the ‘‘Prior Order’’). 3 As defined in the Prior Order. by a Participant.
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![Federal Register / Vol. 80, No. 103 / Friday, May 29, 2015 / Notices 30747
income and employment tax purposes. which does not unfairly discriminate SECURITIES AND EXCHANGE
The Incentive Plan provides that the against the stockholders of the Company COMMISSION
delivery of any shares, or the lifting or because all purchases of Common Stock
lapse of restrictions on any Award, shall [Release No. 34–75038; File No. SR–NYSE–
will be at the closing sales price of the 2015–06]
be subject to the Participant’s Common Stock on the NASDAQ Global
satisfaction of all applicable federal, Select Market on the relevant date (i.e., Self-Regulatory Organizations; New
state and local income and employment the public market price on the date of York Stock Exchange, LLC; Notice of
tax withholding obligations. vesting of the Restricted Shares, the date Filing of Amendment No. 1 and Order
3. The Incentive Plan, as amended
of exercise of Non-Statutory Stock Granting Accelerated Approval of a
and restated effective June 20, 2014, was
Options, and the date of a disqualifying Proposed Rule Change, as Modified by
approved by the Company’s board of
disposition with respect to Incentive Amendment No. 1, Adopting New
directors (‘‘Board’’), including the
Stock Options). The Company further NYSE Rule 124 To Conduct a Midday
required majority of the Company’s
states that no transactions will be Auction and Amending NYSE Rule 104
directors with the meaning of section
conducted pursuant to the requested To Codify the Obligation of Designated
57(o) of the Act. The Company states
order on days where there are no Market Makers To Facilitate the Midday
that the Board is permitted to allow the
reported market transactions involving Auction
Company to withhold shares of
Common Stock or purchase shares of the Common Stock. The Company May 22, 2015.
Common stock from the Company’s submits that because all transactions
Employees to satisfy tax withholding would take place at the public market I. Introduction
obligations related to the vesting of price for the Company’s common stock, On February 2, 2015, New York Stock
Restricted Stock, or the exercise of the transactions would not be Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’)
options to acquire Common Stock or significantly different than could be filed with the Securities and Exchange
Restricted Stock granted pursuant to the achieved by any stockholder selling in Commission (‘‘Commission’’), pursuant
Incentive Plan. The Company states that a market transaction. to Section 19(b)(1) of the Securities
the Incentive Plan further provides the Exchange Act of 1934 (‘‘Act’’) 1 and Rule
Board with discretion to permit the 4. The Company submits that the
19b–4 thereunder,2 a proposed rule
Company’s Employees to pay the proposed purchases do not raise
change to institute a daily, single-price
exercise price of options to purchase concerns about preferential treatment of
auction during the trading day in certain
shares of Common Stock or Restricted the Company’s insiders because the lower-volume securities (‘‘Midday
Stock with shares of Common Stock Incentive Plan is a bona fide Auction’’) and to amend NYSE Rule 104
already held by them or pursuant to net compensation plan of the type that is to address the responsibilities and
share settlement. common among corporations generally. duties of Designated Market Makers
Applicant’s Legal Analysis: Further, the Company argues that the (‘‘DMMs’’) to facilitate the Midday
1. Section 23(c) of the Act, which is vesting schedule is determined at the Auction. The proposed rule change was
made applicable to BDCs by section 63 time of the initial grant of the Restricted published in the Federal Register on
of the Act, generally prohibits a BDC Stock and the option exercise price is February 23, 2015.3 The Commission
from purchasing any securities of which determined at the time of the initial has received one comment letter on the
it is the issuer except in the open grant of the options. The Company proposal.4 On April 6, 2015, pursuant to
market, pursuant to tender offers or represents that that all purchases may Section 19(b)(2) of the Act,5 the
under other circumstances as the be made only as permitted by the Commission designated a longer period
Commission may permit to ensure that within which to approve the proposed
Incentive Plan and in the discretion of
the purchase is made on a basis that rule change, disapprove the proposed
the Board, which is composed of at least
does not unfairly discriminate against rule change, or institute proceedings to
any holders of the class or classes of a majority of ‘‘non-interested’’ persons
within the meaning of section 2(a)(19) of determine whether to disapprove the
securities to be purchased. The proposed rule change.6 On May 20,
Company states that the withholding or the Act. The Company argues that
purchase of shares of Restricted Stock granting the requested relief would be
1 15 U.S.C. 78s(b)(1).
and Common Stock in payment of consistent with policies underlying the 2 17 CFR 240.19b–4.
applicable withholding tax obligations provisions of the Act permitting the use 3 See Securities Exchange Act Release No. 74281
or of Common Stock in payment for the of equity compensation as well as prior (Feb. 17, 2015), 80 FR 9496 (‘‘Notice’’). In the
exercise price of a stock option might be exemptive relief granted by the Notice, the Exchange stated its intention to submit
Commission for relief under section a request for exemptive relief, pursuant to Rule
deemed to be purchases by the 611(d) of Regulation NMS, 17 CFR 242.611(d), from
Company of its own securities within 23(c) of the Act. the requirements of Rule 611 of Regulation NMS.
the meaning of section 23(c) and For the Commission, by the Division of See Notice, 80 FR at 9497 n.21. In Amendment No.
therefore prohibited by the Act. 1, see infra, note 7, the Exchange stated that it will
Investment Management, pursuant to no longer submit a request for exemptive relief
2. Section 23(c)(3) provides that the delegated authority. because the Exchange believes that the proposed
Commission may issue an order that Midday Auction fits within the exception provided
Robert W. Errett,
would permit a BDC to purchase its by Rule 611(b)(3) of Regulation NMS, 17 CFR
shares in circumstances in which the Deputy Secretary. 242.611(b)(3). See infra, Section III.
4 See Letter from Theodore R. Lazo, Managing
purchase is made in a manner or on a [FR Doc. 2015–12970 Filed 5–28–15; 8:45 am]
Director and Associate General Counsel, Securities
basis that does not unfairly discriminate BILLING CODE 8011–01–P
Industry and Financial Markets Association, to
Lhorne on DSK2VPTVN1PROD with NOTICES
against any holders of the class or Brent J. Fields, Secretary, Commission (Mar. 20,
classes of securities to be purchased. 2015).
5 15 U.S.C. 78s(b)(2).
The Company states that it believes that
6 See Securities Exchange Act Release No. 74648,
the requested relief meets the standards
80 FR 19385 (Apr. 10, 2015). The Commission
of section 23(c)(3). designated May 24, 2015, as the date by which it
3. The Company states that these should approve, disapprove, or institute
purchases will be made on a basis Continued
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Document Created: 2015-12-15 15:31:09
Document Modified: 2015-12-15 15:31:09
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Notice of an application for an order under section 23(c)(3) of the Investment Company Act of 1940 (the ``Act'') for an exemption from section 23(c) of the Act. | |
| Dates | The application was filed on September 22, 2014, and | |
| Contact | Steven I. Amchan, Senior Counsel, at (202) 551-6826, or David P. Bartels, Branch Chief, at (202) 551-6821, (Division of Investment Management, Chief Counsel's Office). | |
| FR Citation | 80 FR 30746 |
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