Equus Total Return, Inc.; Notice of Application, 92897-92901 [2016-30539]

Download as PDF Federal Register / Vol. 81, No. 244 / Tuesday, December 20, 2016 / Notices decisions and other information to the public, thereby providing greater clarity and consistency and resulting in less burdensome and more efficient regulatory compliance and facilitating performance of regulatory functions, and (2) provide greater harmonization among NYSE Arca, NYSE Arca Equities, NYSE and NYSE MKT rules of similar purpose. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 21 and Rule 19b– 4(f)(6) thereunder.22 At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: mstockstill on DSK3G9T082PROD with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEARCA–2016–161 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. All submissions should refer to File Number SR–NYSEARCA–2016–161. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http:// www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NYSEARCA–2016–161 and should be submitted on or before January 10, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–30553 Filed 12–19–16; 8:45 am] BILLING CODE 8011–01–P 21 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 22 17 VerDate Sep<11>2014 19:36 Dec 19, 2016 Jkt 241001 23 17 PO 00000 CFR 200.30–3(a)(12). Frm 00128 Fmt 4703 Sfmt 4703 92897 SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 32392; 812–14653] Equus Total Return, Inc.; Notice of Application December 14, 2016. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application for an order under section 6(c) of the Investment Company Act of 1940 (the ‘‘Act’’) for an exemption from sections 23(a), 23(b) and 63 of the Act; under section 61(a)(3)(B) of the Act permitting awards of common stock purchase options to non-employee directors; under section 57(i) of the Act and rule 17d–1 under the Act permitting certain joint transactions otherwise prohibited by section 57(a)(4) of the Act; and under section 23(c)(3) of the Act for an exemption from section 23(c) of the Act. AGENCY: Summary of the Application: Equus Total Return, Inc. (‘‘Applicant’’ or the ‘‘Fund’’) requests an order that would permit Applicant to (a) issue restricted shares of its common stock from treasury (‘‘Restricted Stock’’) or common stock purchase options (‘‘Options’’) as part of the compensation package for certain participants in its 2016 Equity Incentive Plan (the ‘‘Plan’’), (b) grant Options to directors who are not also employees or officers of the Applicant (‘‘Non-Employee Directors’’) under the Plan, (c) withhold shares of the Applicant’s common stock or purchase shares of Applicant’s common stock from participants to satisfy tax withholding obligations relating to the vesting of Restricted Stock or the exercise of Options that will be granted pursuant to the Plan, and (d) permit participants to pay the exercise price of Options with shares of Applicant’s common stock. Filing Dates: The application was filed on May 26, 2016, and amended on August 25, 2016, September 29, 2016 and November 23, 2016. 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 January 9, 2017, 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 E:\FR\FM\20DEN1.SGM 20DEN1 92898 Federal Register / Vol. 81, No. 244 / Tuesday, December 20, 2016 / Notices 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, U.S. Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. Applicant, 700 Louisiana Street, 48th Floor, Houston, TX 77002. FOR FURTHER INFORMATION CONTACT: Robert Shapiro, Senior Counsel, at (202) 551–7758, or Mary Kay Frech, Branch Chief, at (202) 551–6821 (Chief Counsel’s Office, Division of Investment Management). 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 an applicant using the Company name box, at http:// www.sec.gov/search/search.htm or by calling (202) 551–8090. mstockstill on DSK3G9T082PROD with NOTICES Applicant’s Representations 1. Applicant is an internally managed closed-end investment company that has elected to be regulated as a business development company (‘‘BDC’’) under the Act.1 Applicant represents that it has a total return investment strategy that seeks to provide the highest total return, consisting of capital appreciation and current income. The Fund attempts to maximize the return to shareholders in the form of current investment income and long-term capital gains by investing in the debt and equity securities of companies with a total enterprise value of between $5.0 million and $75.0 million, although the Fund may engage in transactions with smaller or larger investee companies from time to time. Shares of Applicant’s common stock are traded on the New York Stock Exchange under the symbol ‘‘EQS.’’ As of November 23, 2016, there were 12,673,646 shares of Applicant’s common stock outstanding. 2. Applicant is governed by a sevenmember board of directors (the ‘‘Board’’) of whom five are not ‘‘interested persons’’ of Applicant within the meaning of section 2(a)(19) of the Act. 3. Applicant believes that, because the market for superior investment 1 Section 2(a)(48) of the Act defines a BDC to be any closed-end investment company that operates for the purpose of making investments in securities described in sections 55(a)(1) through 55(a)(3) of the Act and makes available significant managerial assistance with respect to the issuers of such securities. VerDate Sep<11>2014 19:36 Dec 19, 2016 Jkt 241001 professionals is highly competitive, Applicant’s successful performance depends on its ability to offer fair compensation packages to its professionals that are competitive with those offered by other investment management businesses. Applicant states that the ability to offer equitybased compensation to its employees and Non-Employee Directors, which both aligns employee and Board behavior with stockholder interests and provides a retention tool, is vital to Applicant’s future growth and success. 4. On April 15, 2016, by unanimous vote, the Board adopted the Plan and recommended the same for approval by the Fund’s shareholders, which approval was granted at the annual meeting of the Fund’s shareholders held on June 13, 2016. The Plan became effective as of the date of such approval. The Plan authorizes the issuance of Options and Restricted Stock to the Applicant’s directors, including NonEmployee Directors, officers and other employees (‘‘Participants’’). 5. The Plan will be administered by the Board or the Compensation Committee of the Board (the Board or the Compensation Committee discharged to administer the Plan is referred to as the ‘‘Plan Administrator’’). The Plan Administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to Participants, and to determine the specific terms and conditions of each award, subject to the provisions of the Plan. Each issuance of Restricted Stock under the Plan will be approved by the required majority, as defined in section 57(o) of the Act, of the Fund’s directors (the ‘‘Required Majority’’) 2 on the basis that the issuance is in the best interests of the Fund and its shareholders. The date on which the Required Majority approves an issuance of Restricted Stock will be deemed the date on which the subject Restricted Stock is granted. 6. As described in more detail in the application, under the Plan, upon issuance of the requested order, each Non-Employee Director will receive a one-time grant of up to 21,000 shares of Restricted Stock and 42,000 Options. One fourth of the Restricted Stock and one fourth of the Options will vest immediately upon their grant. If a Non2 Section 57(o) of the Act provides that the term ‘‘required majority,’’ when used with respect to the approval of a proposed transaction, plan, or arrangement, means both a majority of a BDC’s directors or general partners who have no financial interest in such transaction, plan, or arrangement and a majority of such directors or general partners who are not interested persons of such company. PO 00000 Frm 00129 Fmt 4703 Sfmt 4703 Employee Director remains in service on the Board, the remainder of his or her Restricted Stock and Options will vest upon the earliest to occur of (i) a change in control of the Fund, or (ii) ratably over a three-year period from the date of grant. The awards of Restricted Stock and Options to Non-Employee Directors contemplated by the Plan are intended to be on a one-time basis. Future awards of Restricted Stock and/or Options under the Plan to the Non-Employee Directors are not contemplated, and any such future awards or changes to the amounts set forth in the application may not be made without Commission approval. 7. The Plan will authorize the issuance of Options and Restricted Stock subject to certain forfeiture restrictions. The Restricted Stock will be subject to restrictions on transferability and other restrictions as required by the Plan Administrator from time to time. Except to the extent restricted by the Plan Administrator, a Participant granted an award of Restricted Stock will have all the rights of any other shareholder, including the right to vote the Restricted Stock and the right to receive dividends. During the restriction period (i.e., prior to the lapse of applicable forfeiture provisions), the Restricted Stock generally may not be sold, transferred, pledged, hypothecated, margined, or otherwise encumbered by the Participant. Except as the Plan Administrator otherwise determines, upon termination of a Participant’s service as a director, officer, and employee of the Fund during the applicable restriction period, Restricted Stock, for which forfeiture provisions have not lapsed at the time of such termination, shall be forfeited. 8. Applicant has reserved 2,534,728 shares for issuance under the Plan, whether as awards of Restricted Stock or as Options. If all of the shares of Restricted Stock under the Plan were issued and all Options issued under the Plan were issued and subsequently exercised, the total amount of additional common stock issued from treasury would equal 20% of the Fund’s shares of common stock presently outstanding. Any shares withheld from an award, either to satisfy tax withholding requirements, or pursuant to the delivery of shares of common stock or Restricted Stock upon the exercise of Options, will not be returned to the Plan reserve. The combined maximum amount of Restricted Stock that may be issued under the Plan to all Participants will be 10% of the outstanding common shares of the Fund on the effective date of the Plan, plus 10% of the number of shares issued or delivered by the Fund E:\FR\FM\20DEN1.SGM 20DEN1 mstockstill on DSK3G9T082PROD with NOTICES Federal Register / Vol. 81, No. 244 / Tuesday, December 20, 2016 / Notices (other than pursuant to compensation plans) during the term of the Plan.3 The maximum award of Options granted to any one individual will not exceed 1,000,000 shares of common stock (subject to adjustment for stock splits and similar events) for any calendar year period, net of any shares canceled or redeemed in connection with any tax withholding. The maximum award of shares of Restricted Stock issued to any one individual will not exceed 500,000 shares of common stock (subject to adjustment for stock splits and similar events) for any calendar year period, net of any shares canceled or redeemed in connection with any tax withholding. 9. The Plan permits the granting of (1) Options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (2) Options that do not so qualify. Options granted under the Plan will be non-qualified options if they fail to qualify as incentive options or exceed the annual limit on incentive stock options. Incentive stock options may only be granted to employees of the Fund and its subsidiaries. Non-qualified options may be granted to any persons eligible to receive incentive options, officers of the Fund and, subject to the requested order, to Non-Employee Directors. The option exercise price of each Option will be determined by the Plan Administrator but may not be less than 100% of the fair market value of the common stock on the date of grant, or if required under the Act, not less than the net asset value of the common stock on the date of grant. Fair market value for this purpose will be the last reported sale price of the shares of common stock on the New York Stock Exchange on the date of grant. The term of each Option will be fixed by the Plan Administrator and may not exceed ten years from the date of grant. The Plan Administrator will determine at what time or times each Option may be exercised. 10. The Plan provides that the Fund is authorized to withhold stock (in whole or in part) from any award of Restricted Stock granted in satisfaction of a Participant’s tax obligations. In addition, as discussed more fully in the application, the exercise of Options will result in the recipient being deemed to have received compensation in the amount by which the fair market value of the shares of the Fund’s common stock, determined as of the date of 3 For purposes of calculating compliance with this limit, the Fund will count as Restricted Stock all shares of the Fund’s common stock that are issued pursuant to the Plan less any shares that are forfeited back to the Fund and cancelled as a result of forfeiture restrictions not lapsing. VerDate Sep<11>2014 19:36 Dec 19, 2016 Jkt 241001 exercise, exceeds the exercise price. Accordingly, Applicant requests relief to withhold shares of its common stock or purchase shares of its common stock from Participants to satisfy tax withholding obligations related to the vesting of Restricted Stock or exercise of Options that will be granted pursuant to the Plan. Applicant also requests an exemption to permit Participants to pay the exercise price of Options with shares of the Fund’s common stock. Applicant’s Legal Analysis Sections 23(a) and (b), Section 63 1. Section 63 of the Act makes applicable to BDCs the provisions of section 23(a) of the Act, which generally prohibit a registered closed-end investment company from issuing securities for services or for property other than cash or securities. These provisions would prohibit the issuance of Restricted Stock as a part of the Plan. 2. Section 23(b) of the Act generally prohibits a registered closed-end investment company from selling any common stock of which it is the issuer at a price below its current net asset value. Section 63(2) of the Act makes section 23(b) applicable to BDCs unless certain conditions are met. Because Restricted Stock that would be granted under the Plan would not meet the terms of section 63(2), sections 23(b) and 63 would prevent the issuance of Restricted Stock. 3. Section 6(c) provides, in part, that the Commission may, by order upon application, conditionally or unconditionally exempt any person, security, or transaction, or any class or classes thereof, from any provision of the Act, if and to the extent that the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. 4. Applicant requests an order pursuant to section 6(c) of the Act granting an exemption from the provisions of sections 23(a), 23(b) and 63 of the Act. Applicant states that the Plan would not violate the concerns underlying these sections, which include: (a) Preferential treatment of investment company insiders and the use of options and other rights by insiders to obtain control of the investment company; (b) complication of the investment company’s structure that made it difficult to determine the value of the company’s shares; and (c) dilution of shareholders’ equity in the investment company. Applicant asserts that the Plan does not raise concerns about preferential treatment of PO 00000 Frm 00130 Fmt 4703 Sfmt 4703 92899 Applicant’s insiders because the Plan is a bona fide compensation plan of the type that is common among corporations generally. In addition, Applicants state that investors in the Fund will be protected to at least the same extent that they are currently protected under section 61(a)(3) of the Act. Applicant also asserts that the issuance of Restricted Stock would not become a means for insiders to obtain control of Applicant because the maximum amount of Restricted Stock that may be issued under the Plan at any one time will be ten percent of the outstanding shares of common stock of Applicant. 5. Applicant further states that the Plan will not unduly complicate Applicant’s capital structure because equity-based incentive compensation arrangements are widely used among corporations and commonly known to investors. Applicant notes that the Plan has been submitted to and approved by the Fund’s stockholders. Applicant represents that the proxy materials submitted to Applicant’s stockholders contain a concise ‘‘plain English’’ description of the Plan and its potential dilutive effect. Applicant also states that on an ongoing basis it will comply with the proxy disclosure requirements in Item 10 of Schedule 14A under the Securities Exchange Act of 1934. Applicant further notes that the Plan will be disclosed to investors in accordance with the requirements of the Form N–2 registration statement for closed-end investment companies and pursuant to the standards and guidelines adopted by the Financial Accounting Standards Board for operating companies. Applicant also will comply with the disclosure requirements for executive compensation plans applicable to BDCs.4 Applicant thus concludes that the Plan will be adequately disclosed to investors and appropriately reflected in the market value of Applicant’s shares. 6. Applicant acknowledges that awards granted under the Plan may have a dilutive effect on the stockholders’ equity per share in Applicant, but believes that effect would be outweighed by the anticipated benefits of the Plan to Applicant and its stockholders. Applicant asserts that availability of Restricted Stock and 4 See Executive Compensation and Related Party Disclosure, Securities Act Release No. 8655 (Jan. 27, 2006) (proposed rule); Executive Compensation and Related Party Disclosure, Securities Act Release No. 8732A (Aug. 29, 2006) (final rule and proposed rule), as amended by Executive Compensation Disclosure, Securities Act Release No. 8756 (Dec. 22, 2006) (adopted as interim final rules with request for comments). E:\FR\FM\20DEN1.SGM 20DEN1 92900 Federal Register / Vol. 81, No. 244 / Tuesday, December 20, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES Options would enable the Fund to substitute or augment the overall cash compensation to directors, officers, and employees, and compensate its management for the loss of the carried interest that the Fund’s investment professionals would receive at a private equity firm, among other things. Applicant further asserts that the Plan will enhance the Fund’s ability to compensate its personnel competitively, while also aligning the interests of its personnel with the success of the Fund and the interests of its shareholders and preserving cash for further investment. In addition, Applicant states that its stockholders will be further protected by the conditions to the requested order that assure continuing oversight of the operation of the Plan by the Plan Administrator. Section 61(a)(3)(B) 7. Section 63(3) of the Act permits a BDC to sell its common stock at a price below current net asset value upon the exercise of any option issued in accordance with section 61(a)(3). Section 61(a)(3)(B) provides, in pertinent part, that a BDC may issue common stock purchase options to nonemployee directors pursuant to an executive compensation plan if: (i) The options expire by their terms within ten years; (ii) the exercise price of such options is not less than the current market value at the date of issuance or, if no such market value exists, the then current net asset value of such underlying voting securities; (iii) the proposal to issue such options is authorized by the company’s stockholders, and is approved by order of the Commission, upon application, on the basis that the terms of the proposal are fair and reasonable and do not involve overreaching of the company or its stockholders; (iv) the options are not transferable except for disposition by gift, will or intestacy; (v) no investment adviser of the company receives any compensation described in section 205(a)(1) of the Investment Advisers Act of 1940 (e.g., ‘‘performance-based’’ compensation), except to the extent permitted by section 205(b)(1) or (2) thereunder; and (vi) that the company does not have a profit-sharing plan described in section 57(n) of the Act. 8. In addition, section 61(a)(3) provides that the amount of the BDC’s voting securities that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance may not exceed 25% of the BDC’s outstanding voting securities, except that if the amount of voting securities that would result from the VerDate Sep<11>2014 19:36 Dec 19, 2016 Jkt 241001 exercise of all outstanding warrants, options, and rights issued to the BDC’s directors, officers and employees pursuant to any executive compensation plan would exceed 15% of the BDC’s outstanding voting securities, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options and rights at the time of issuance will not exceed 20% of the outstanding voting securities of the BDC. 9. Applicant represents that its proposal to grant Options to NonEmployee Directors meets all of the requirements of section 61(a)(3) of the Act. Applicant believes that the Options to be granted to Non-Employee Directors under the Plan will provide significant at-risk incentives to the Fund’s NonEmployee Directors to remain on the Board and to devote their best efforts to the success of the Fund’s business and the enhancement of stockholder value in the future. Applicant state that the Options will also provide a means for Non-Employee Directors to increase their ownership interests in the Fund, thereby ensuring close alignment of their interests with those of the Fund and its stockholders. Applicant asserts that by providing incentives in the form of such Options to its Non-Employee Directors, the Fund will be better able to maintain continuity in the membership of its Board and to attract, when necessary, and to retain as NonEmployee Directors the highly experienced, successful and motivated business and professional people that are critical to the Fund’s success as a BDC. 10. As noted above, Applicant states that the maximum number of voting securities of the Fund that would result from the exercise of all Options issuable under the Plan, combined with all shares of Restricted Stock that would be possible to award under the Plan is not more than 20% of the Fund’s outstanding shares of common stock, or 2,534,728 shares, which amount is below the percentage limitations in the Act. Applicant asserts that, given the relatively small number of Restricted Shares and Options that are proposed to be issued to Non-Employee Directors under the Plan, even if all Options granted thereunder were to vest and become immediately exercisable, the issuance of these securities under the Plan should not have a substantial dilutive effect on the net asset value of the common stock of the Fund. Section 57(a)(4), Rule 17d–1 11. Section 57(a) proscribes certain transactions between a BDC and persons related to the BDC in the manner PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 described in section 57(b) (‘‘57(b) persons’’), absent a Commission order. Section 57(a)(4) generally prohibits a 57(b) person from effecting a transaction in which the BDC is a joint participant absent such an order. Rule l7d–1, made applicable to BDCs by section 57(i) to the extent the Commission has not adopted a rule under section 57(a)(4), generally proscribes participation in a ‘‘joint enterprise or other joint arrangement or profit-sharing plan,’’ which includes a stock option or purchase plan. Officers, employees and directors of a BDC are 57(b) persons. Thus, the issuance of shares of Restricted Stock or Options could be deemed to involve a joint transaction involving a BDC and a 57(b) person in contravention of section 57(a)(4). Rule 17d–1(b) provides that, in considering relief pursuant to the rule, the Commission will consider (a) whether the participation of the BDC in a joint enterprise is consistent with the policies and purposes of the Act and (b) the extent to which such participation is on a basis different from or less advantageous than that of other participants. 12. Applicant requests an order pursuant to section 57(i) of the Act and rule 17d–1 under the Act to permit Applicant to issue Restricted Stock and Options under the Plan. Applicant acknowledges that its role is necessarily different from the other Participants because the other Participants are its directors, officers, and employees. Applicant asserts, however, that the Fund’s participation with respect to the Plan will not be ‘‘less advantageous’’ than that of the Participants. Applicant states that the Fund, either directly or indirectly, is responsible for the compensation of the Participants; the Plan is simply the Fund’s chosen method of providing such compensation. Moreover, Applicant believes that the Plan will benefit the Fund by enhancing its ability to attract and retain highly qualified personnel. Applicant further asserts that the Plan, although benefiting the Participants and the Fund in different ways, is in the interest of the Fund’s stockholders, because it will help align the interests of its directors, officers, and employees with those of its stockholders, which will encourage conduct on the part of these individuals to produce a better return for the Fund’s stockholders. Applicant also states that section 57(j)(1) of the Act expressly permits any director, officer or employee of a BDC to acquire warrants, options and rights to purchase voting securities of such BDC, and the securities issued upon the E:\FR\FM\20DEN1.SGM 20DEN1 Federal Register / Vol. 81, No. 244 / Tuesday, December 20, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES exercise or conversion thereof, pursuant to an executive compensation plan which meets the requirements of section 61(a)(3)(B) of the Act. Applicant submits that the issuance of Restricted Stock pursuant to the Plan poses no greater risk to stockholders than the issuances permitted by section 57(j)(1) of the Act. Section 23(c) 13. 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 tenders, or under other circumstances as the Commission may permit to ensure that the purchases are 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. Applicant 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 an Option might be deemed to be purchases by the Fund of its own securities within the meaning of section 23(c) and therefore prohibited by the Act. 14. Section 23(c)(3) of the Act permits a BDC to purchase securities of which it is the issuer in circumstances in which the repurchase 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. Applicant believes that the requested relief meets the standards of section 23(c)(3). 15. Applicant submits that these purchases will be made in a manner that does not unfairly discriminate against Applicant’s stockholders because Applicant will use the closing sales price of its shares of common stock on the New York Stock Exchange (or any primary exchange on which its shares of common stock may be traded in the future) as the ‘‘fair market value’’ of its common stock under the Plan (i.e., the public market price on the date of grant of Restricted Stock and the date of grant of Options). Applicant submits that because all transactions with respect to the Plan will take place at the public market price for the Fund’s common stock, these transactions will not be significantly different than could be achieved by any stockholder selling in a transaction on the New York Stock Exchange. Applicant represents that no transactions will be conducted pursuant to the requested order on days where there are no reported market transactions involving Applicant’s shares. VerDate Sep<11>2014 19:36 Dec 19, 2016 Jkt 241001 16. Applicant represents that the withholding provisions in the Plan do not raise concerns about preferential treatment of Applicant’s insiders because the Plan is a bona fide compensation plan of the type that is common among corporations generally. Furthermore, 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. Applicant represents that all purchases may be made only as permitted by the Plan, which has been approved by the Fund’s stockholders. Applicant believes that granting the requested relief would be consistent with the policies underlying the provisions of the Act permitting the use of equity compensation as well as prior exemptive relief granted by the Commission under section 23(c) of the Act. Applicant’s Conditions Applicant agrees that the order granting the requested relief will be subject to the following conditions: 1. The Plan will be authorized by the Fund’s shareholders. 2. Each issuance of Restricted Stock to a Participant will be approved by the Required Majority on the basis that such grant is in the best interest of the Fund and its shareholders. 3. The amount of voting securities that would result from the exercise of all of the Fund’s outstanding warrants, Options and rights, together with any Restricted Stock issued pursuant to the Plan, at the time of issuance shall not exceed 25% of the outstanding voting securities of the Fund, except that if the amount of voting securities that would result from the exercise of all of the Fund’s outstanding warrants, Options and rights issued to the Fund’s directors, officers and employees, together with any Restricted Stock issued pursuant to the Plan, would exceed 15% of the outstanding voting securities of the Fund, then the total amount of voting securities that would result from the exercise of all outstanding warrants, Options and rights, together with any Restricted Stock issued pursuant to the Plan, at the time of issuance shall not exceed 20% of the outstanding voting securities of the Fund. 4. The maximum amount of shares of Restricted Stock that may be issued under the Plan will be 10% of the outstanding shares of common stock of the Fund on the effective date of the Plan plus 10% of the number of shares of the Fund’s common stock issued or delivered by the Fund (other than PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 92901 pursuant to compensation plans) during the term of the Plan. 5. The Board will review the Plan at least annually. In addition, the Board will review periodically the potential impact that the issuance of Restricted Stock under the Plan could have on the Fund’s earnings and net asset value per share, such review to take place prior to any decisions to grant Restricted Stock under the Plan, but in no event less frequently than annually. Adequate procedures and records will be maintained to permit such review. The Board will be authorized to take appropriate steps to ensure that the issuance of Restricted Stock under the Plan will be in the best interest of the Fund and its shareholders. This authority will include the authority to prevent or limit the granting of additional Restricted Stock under the Plan. All records maintained pursuant to this condition will be subject to examination by the Commission and its staff. For the Commission, by the Division of Investment Management, under delegated authority. Brent J. Fields, Secretary. [FR Doc. 2016–30539 Filed 12–19–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79543; File No. 10–227] In the Matter of the Application of MIAX PEARL, LLC for Registration as a National Securities Exchange; Findings, Opinion, and Order of the Commission December 13, 2016. I. Introduction On August 12, 2016, MIAX PEARL, LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’) submitted to the Securities and Exchange Commission (‘‘Commission’’) an application for Registration as a National Securities Exchange (‘‘Form 1 Application’’) under Section 6 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’), seeking registration as a national securities exchange under Section 6 of the Exchange Act.1 Notice of the Form 1 Application was published for comment in the Federal Register on September 14, 2016,2 and the Commission received no comments. 1 15 U.S.C. 78f. Securities Exchange Act Release No. 78793 (September 8, 2016), 81 FR 63238 (‘‘Notice’’). 2 See E:\FR\FM\20DEN1.SGM 20DEN1

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[Federal Register Volume 81, Number 244 (Tuesday, December 20, 2016)]
[Notices]
[Pages 92897-92901]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30539]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32392; 812-14653]


Equus Total Return, Inc.; Notice of Application

December 14, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 23(a), 23(b) and 63 of the Act; under section 61(a)(3)(B) of 
the Act permitting awards of common stock purchase options to non-
employee directors; under section 57(i) of the Act and rule 17d-1 under 
the Act permitting certain joint transactions otherwise prohibited by 
section 57(a)(4) of the Act; and under section 23(c)(3) of the Act for 
an exemption from section 23(c) of the Act.

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 Summary of the Application: Equus Total Return, Inc. (``Applicant'' or 
the ``Fund'') requests an order that would permit Applicant to (a) 
issue restricted shares of its common stock from treasury (``Restricted 
Stock'') or common stock purchase options (``Options'') as part of the 
compensation package for certain participants in its 2016 Equity 
Incentive Plan (the ``Plan''), (b) grant Options to directors who are 
not also employees or officers of the Applicant (``Non-Employee 
Directors'') under the Plan, (c) withhold shares of the Applicant's 
common stock or purchase shares of Applicant's common stock from 
participants to satisfy tax withholding obligations relating to the 
vesting of Restricted Stock or the exercise of Options that will be 
granted pursuant to the Plan, and (d) permit participants to pay the 
exercise price of Options with shares of Applicant's common stock.

 Filing Dates: The application was filed on May 26, 2016, and amended 
on August 25, 2016, September 29, 2016 and November 23, 2016.

 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 January 9, 2017, 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

[[Page 92898]]

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, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090. Applicant, 700 Louisiana Street, 
48th Floor, Houston, TX 77002.

FOR FURTHER INFORMATION CONTACT: Robert Shapiro, Senior Counsel, at 
(202) 551-7758, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Chief Counsel's Office, Division of Investment Management).

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 an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicant's Representations

    1. Applicant is an internally managed closed-end investment company 
that has elected to be regulated as a business development company 
(``BDC'') under the Act.\1\ Applicant represents that it has a total 
return investment strategy that seeks to provide the highest total 
return, consisting of capital appreciation and current income. The Fund 
attempts to maximize the return to shareholders in the form of current 
investment income and long-term capital gains by investing in the debt 
and equity securities of companies with a total enterprise value of 
between $5.0 million and $75.0 million, although the Fund may engage in 
transactions with smaller or larger investee companies from time to 
time. Shares of Applicant's common stock are traded on the New York 
Stock Exchange under the symbol ``EQS.'' As of November 23, 2016, there 
were 12,673,646 shares of Applicant's common stock outstanding.
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    \1\ Section 2(a)(48) of the Act defines a BDC to be any closed-
end investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. Applicant is governed by a seven-member board of directors (the 
``Board'') of whom five are not ``interested persons'' of Applicant 
within the meaning of section 2(a)(19) of the Act.
    3. Applicant believes that, because the market for superior 
investment professionals is highly competitive, Applicant's successful 
performance depends on its ability to offer fair compensation packages 
to its professionals that are competitive with those offered by other 
investment management businesses. Applicant states that the ability to 
offer equity-based compensation to its employees and Non-Employee 
Directors, which both aligns employee and Board behavior with 
stockholder interests and provides a retention tool, is vital to 
Applicant's future growth and success.
    4. On April 15, 2016, by unanimous vote, the Board adopted the Plan 
and recommended the same for approval by the Fund's shareholders, which 
approval was granted at the annual meeting of the Fund's shareholders 
held on June 13, 2016. The Plan became effective as of the date of such 
approval. The Plan authorizes the issuance of Options and Restricted 
Stock to the Applicant's directors, including Non-Employee Directors, 
officers and other employees (``Participants'').
    5. The Plan will be administered by the Board or the Compensation 
Committee of the Board (the Board or the Compensation Committee 
discharged to administer the Plan is referred to as the ``Plan 
Administrator''). The Plan Administrator has full power to select, from 
among the individuals eligible for awards, the individuals to whom 
awards will be granted, to make any combination of awards to 
Participants, and to determine the specific terms and conditions of 
each award, subject to the provisions of the Plan. Each issuance of 
Restricted Stock under the Plan will be approved by the required 
majority, as defined in section 57(o) of the Act, of the Fund's 
directors (the ``Required Majority'') \2\ on the basis that the 
issuance is in the best interests of the Fund and its shareholders. The 
date on which the Required Majority approves an issuance of Restricted 
Stock will be deemed the date on which the subject Restricted Stock is 
granted.
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    \2\ Section 57(o) of the Act provides that the term ``required 
majority,'' when used with respect to the approval of a proposed 
transaction, plan, or arrangement, means both a majority of a BDC's 
directors or general partners who have no financial interest in such 
transaction, plan, or arrangement and a majority of such directors 
or general partners who are not interested persons of such company.
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    6. As described in more detail in the application, under the Plan, 
upon issuance of the requested order, each Non-Employee Director will 
receive a one-time grant of up to 21,000 shares of Restricted Stock and 
42,000 Options. One fourth of the Restricted Stock and one fourth of 
the Options will vest immediately upon their grant. If a Non-Employee 
Director remains in service on the Board, the remainder of his or her 
Restricted Stock and Options will vest upon the earliest to occur of 
(i) a change in control of the Fund, or (ii) ratably over a three-year 
period from the date of grant. The awards of Restricted Stock and 
Options to Non-Employee Directors contemplated by the Plan are intended 
to be on a one-time basis. Future awards of Restricted Stock and/or 
Options under the Plan to the Non-Employee Directors are not 
contemplated, and any such future awards or changes to the amounts set 
forth in the application may not be made without Commission approval.
    7. The Plan will authorize the issuance of Options and Restricted 
Stock subject to certain forfeiture restrictions. The Restricted Stock 
will be subject to restrictions on transferability and other 
restrictions as required by the Plan Administrator from time to time. 
Except to the extent restricted by the Plan Administrator, a 
Participant granted an award of Restricted Stock will have all the 
rights of any other shareholder, including the right to vote the 
Restricted Stock and the right to receive dividends. During the 
restriction period (i.e., prior to the lapse of applicable forfeiture 
provisions), the Restricted Stock generally may not be sold, 
transferred, pledged, hypothecated, margined, or otherwise encumbered 
by the Participant. Except as the Plan Administrator otherwise 
determines, upon termination of a Participant's service as a director, 
officer, and employee of the Fund during the applicable restriction 
period, Restricted Stock, for which forfeiture provisions have not 
lapsed at the time of such termination, shall be forfeited.
    8. Applicant has reserved 2,534,728 shares for issuance under the 
Plan, whether as awards of Restricted Stock or as Options. If all of 
the shares of Restricted Stock under the Plan were issued and all 
Options issued under the Plan were issued and subsequently exercised, 
the total amount of additional common stock issued from treasury would 
equal 20% of the Fund's shares of common stock presently outstanding. 
Any shares withheld from an award, either to satisfy tax withholding 
requirements, or pursuant to the delivery of shares of common stock or 
Restricted Stock upon the exercise of Options, will not be returned to 
the Plan reserve. The combined maximum amount of Restricted Stock that 
may be issued under the Plan to all Participants will be 10% of the 
outstanding common shares of the Fund on the effective date of the 
Plan, plus 10% of the number of shares issued or delivered by the Fund

[[Page 92899]]

(other than pursuant to compensation plans) during the term of the 
Plan.\3\ The maximum award of Options granted to any one individual 
will not exceed 1,000,000 shares of common stock (subject to adjustment 
for stock splits and similar events) for any calendar year period, net 
of any shares canceled or redeemed in connection with any tax 
withholding. The maximum award of shares of Restricted Stock issued to 
any one individual will not exceed 500,000 shares of common stock 
(subject to adjustment for stock splits and similar events) for any 
calendar year period, net of any shares canceled or redeemed in 
connection with any tax withholding.
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    \3\ For purposes of calculating compliance with this limit, the 
Fund will count as Restricted Stock all shares of the Fund's common 
stock that are issued pursuant to the Plan less any shares that are 
forfeited back to the Fund and cancelled as a result of forfeiture 
restrictions not lapsing.
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    9. The Plan permits the granting of (1) Options to purchase common 
stock intended to qualify as incentive stock options under Section 422 
of the Code and (2) Options that do not so qualify. Options granted 
under the Plan will be non-qualified options if they fail to qualify as 
incentive options or exceed the annual limit on incentive stock 
options. Incentive stock options may only be granted to employees of 
the Fund and its subsidiaries. Non-qualified options may be granted to 
any persons eligible to receive incentive options, officers of the Fund 
and, subject to the requested order, to Non-Employee Directors. The 
option exercise price of each Option will be determined by the Plan 
Administrator but may not be less than 100% of the fair market value of 
the common stock on the date of grant, or if required under the Act, 
not less than the net asset value of the common stock on the date of 
grant. Fair market value for this purpose will be the last reported 
sale price of the shares of common stock on the New York Stock Exchange 
on the date of grant. The term of each Option will be fixed by the Plan 
Administrator and may not exceed ten years from the date of grant. The 
Plan Administrator will determine at what time or times each Option may 
be exercised.
    10. The Plan provides that the Fund is authorized to withhold stock 
(in whole or in part) from any award of Restricted Stock granted in 
satisfaction of a Participant's tax obligations. In addition, as 
discussed more fully in the application, the exercise of Options will 
result in the recipient being deemed to have received compensation in 
the amount by which the fair market value of the shares of the Fund's 
common stock, determined as of the date of exercise, exceeds the 
exercise price. Accordingly, Applicant requests relief to withhold 
shares of its common stock or purchase shares of its common stock from 
Participants to satisfy tax withholding obligations related to the 
vesting of Restricted Stock or exercise of Options that will be granted 
pursuant to the Plan. Applicant also requests an exemption to permit 
Participants to pay the exercise price of Options with shares of the 
Fund's common stock.

Applicant's Legal Analysis

Sections 23(a) and (b), Section 63

    1. Section 63 of the Act makes applicable to BDCs the provisions of 
section 23(a) of the Act, which generally prohibit a registered closed-
end investment company from issuing securities for services or for 
property other than cash or securities. These provisions would prohibit 
the issuance of Restricted Stock as a part of the Plan.
    2. Section 23(b) of the Act generally prohibits a registered 
closed-end investment company from selling any common stock of which it 
is the issuer at a price below its current net asset value. Section 
63(2) of the Act makes section 23(b) applicable to BDCs unless certain 
conditions are met. Because Restricted Stock that would be granted 
under the Plan would not meet the terms of section 63(2), sections 
23(b) and 63 would prevent the issuance of Restricted Stock.
    3. Section 6(c) provides, in part, that the Commission may, by 
order upon application, conditionally or unconditionally exempt any 
person, security, or transaction, or any class or classes thereof, from 
any provision of the Act, if and to the extent that the exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    4. Applicant requests an order pursuant to section 6(c) of the Act 
granting an exemption from the provisions of sections 23(a), 23(b) and 
63 of the Act. Applicant states that the Plan would not violate the 
concerns underlying these sections, which include: (a) Preferential 
treatment of investment company insiders and the use of options and 
other rights by insiders to obtain control of the investment company; 
(b) complication of the investment company's structure that made it 
difficult to determine the value of the company's shares; and (c) 
dilution of shareholders' equity in the investment company. Applicant 
asserts that the Plan does not raise concerns about preferential 
treatment of Applicant's insiders because the Plan is a bona fide 
compensation plan of the type that is common among corporations 
generally. In addition, Applicants state that investors in the Fund 
will be protected to at least the same extent that they are currently 
protected under section 61(a)(3) of the Act. Applicant also asserts 
that the issuance of Restricted Stock would not become a means for 
insiders to obtain control of Applicant because the maximum amount of 
Restricted Stock that may be issued under the Plan at any one time will 
be ten percent of the outstanding shares of common stock of Applicant.
    5. Applicant further states that the Plan will not unduly 
complicate Applicant's capital structure because equity-based incentive 
compensation arrangements are widely used among corporations and 
commonly known to investors. Applicant notes that the Plan has been 
submitted to and approved by the Fund's stockholders. Applicant 
represents that the proxy materials submitted to Applicant's 
stockholders contain a concise ``plain English'' description of the 
Plan and its potential dilutive effect. Applicant also states that on 
an ongoing basis it will comply with the proxy disclosure requirements 
in Item 10 of Schedule 14A under the Securities Exchange Act of 1934. 
Applicant further notes that the Plan will be disclosed to investors in 
accordance with the requirements of the Form N-2 registration statement 
for closed-end investment companies and pursuant to the standards and 
guidelines adopted by the Financial Accounting Standards Board for 
operating companies. Applicant also will comply with the disclosure 
requirements for executive compensation plans applicable to BDCs.\4\ 
Applicant thus concludes that the Plan will be adequately disclosed to 
investors and appropriately reflected in the market value of 
Applicant's shares.
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    \4\ See Executive Compensation and Related Party Disclosure, 
Securities Act Release No. 8655 (Jan. 27, 2006) (proposed rule); 
Executive Compensation and Related Party Disclosure, Securities Act 
Release No. 8732A (Aug. 29, 2006) (final rule and proposed rule), as 
amended by Executive Compensation Disclosure, Securities Act Release 
No. 8756 (Dec. 22, 2006) (adopted as interim final rules with 
request for comments).
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    6. Applicant acknowledges that awards granted under the Plan may 
have a dilutive effect on the stockholders' equity per share in 
Applicant, but believes that effect would be outweighed by the 
anticipated benefits of the Plan to Applicant and its stockholders. 
Applicant asserts that availability of Restricted Stock and

[[Page 92900]]

Options would enable the Fund to substitute or augment the overall cash 
compensation to directors, officers, and employees, and compensate its 
management for the loss of the carried interest that the Fund's 
investment professionals would receive at a private equity firm, among 
other things. Applicant further asserts that the Plan will enhance the 
Fund's ability to compensate its personnel competitively, while also 
aligning the interests of its personnel with the success of the Fund 
and the interests of its shareholders and preserving cash for further 
investment. In addition, Applicant states that its stockholders will be 
further protected by the conditions to the requested order that assure 
continuing oversight of the operation of the Plan by the Plan 
Administrator.

Section 61(a)(3)(B)

    7. Section 63(3) of the Act permits a BDC to sell its common stock 
at a price below current net asset value upon the exercise of any 
option issued in accordance with section 61(a)(3). Section 61(a)(3)(B) 
provides, in pertinent part, that a BDC may issue common stock purchase 
options to non-employee directors pursuant to an executive compensation 
plan if: (i) The options expire by their terms within ten years; (ii) 
the exercise price of such options is not less than the current market 
value at the date of issuance or, if no such market value exists, the 
then current net asset value of such underlying voting securities; 
(iii) the proposal to issue such options is authorized by the company's 
stockholders, and is approved by order of the Commission, upon 
application, on the basis that the terms of the proposal are fair and 
reasonable and do not involve overreaching of the company or its 
stockholders; (iv) the options are not transferable except for 
disposition by gift, will or intestacy; (v) no investment adviser of 
the company receives any compensation described in section 205(a)(1) of 
the Investment Advisers Act of 1940 (e.g., ``performance-based'' 
compensation), except to the extent permitted by section 205(b)(1) or 
(2) thereunder; and (vi) that the company does not have a profit-
sharing plan described in section 57(n) of the Act.
    8. In addition, section 61(a)(3) provides that the amount of the 
BDC's voting securities that would result from the exercise of all 
outstanding warrants, options, and rights at the time of issuance may 
not exceed 25% of the BDC's outstanding voting securities, except that 
if the amount of voting securities that would result from the exercise 
of all outstanding warrants, options, and rights issued to the BDC's 
directors, officers and employees pursuant to any executive 
compensation plan would exceed 15% of the BDC's outstanding voting 
securities, then the total amount of voting securities that would 
result from the exercise of all outstanding warrants, options and 
rights at the time of issuance will not exceed 20% of the outstanding 
voting securities of the BDC.
    9. Applicant represents that its proposal to grant Options to Non-
Employee Directors meets all of the requirements of section 61(a)(3) of 
the Act. Applicant believes that the Options to be granted to Non-
Employee Directors under the Plan will provide significant at-risk 
incentives to the Fund's Non-Employee Directors to remain on the Board 
and to devote their best efforts to the success of the Fund's business 
and the enhancement of stockholder value in the future. Applicant state 
that the Options will also provide a means for Non-Employee Directors 
to increase their ownership interests in the Fund, thereby ensuring 
close alignment of their interests with those of the Fund and its 
stockholders. Applicant asserts that by providing incentives in the 
form of such Options to its Non-Employee Directors, the Fund will be 
better able to maintain continuity in the membership of its Board and 
to attract, when necessary, and to retain as Non-Employee Directors the 
highly experienced, successful and motivated business and professional 
people that are critical to the Fund's success as a BDC.
    10. As noted above, Applicant states that the maximum number of 
voting securities of the Fund that would result from the exercise of 
all Options issuable under the Plan, combined with all shares of 
Restricted Stock that would be possible to award under the Plan is not 
more than 20% of the Fund's outstanding shares of common stock, or 
2,534,728 shares, which amount is below the percentage limitations in 
the Act. Applicant asserts that, given the relatively small number of 
Restricted Shares and Options that are proposed to be issued to Non-
Employee Directors under the Plan, even if all Options granted 
thereunder were to vest and become immediately exercisable, the 
issuance of these securities under the Plan should not have a 
substantial dilutive effect on the net asset value of the common stock 
of the Fund.

Section 57(a)(4), Rule 17d-1

    11. Section 57(a) proscribes certain transactions between a BDC and 
persons related to the BDC in the manner described in section 57(b) 
(``57(b) persons''), absent a Commission order. Section 57(a)(4) 
generally prohibits a 57(b) person from effecting a transaction in 
which the BDC is a joint participant absent such an order. Rule l7d-1, 
made applicable to BDCs by section 57(i) to the extent the Commission 
has not adopted a rule under section 57(a)(4), generally proscribes 
participation in a ``joint enterprise or other joint arrangement or 
profit-sharing plan,'' which includes a stock option or purchase plan. 
Officers, employees and directors of a BDC are 57(b) persons. Thus, the 
issuance of shares of Restricted Stock or Options could be deemed to 
involve a joint transaction involving a BDC and a 57(b) person in 
contravention of section 57(a)(4). Rule 17d-1(b) provides that, in 
considering relief pursuant to the rule, the Commission will consider 
(a) whether the participation of the BDC in a joint enterprise is 
consistent with the policies and purposes of the Act and (b) the extent 
to which such participation is on a basis different from or less 
advantageous than that of other participants.
    12. Applicant requests an order pursuant to section 57(i) of the 
Act and rule 17d-1 under the Act to permit Applicant to issue 
Restricted Stock and Options under the Plan. Applicant acknowledges 
that its role is necessarily different from the other Participants 
because the other Participants are its directors, officers, and 
employees. Applicant asserts, however, that the Fund's participation 
with respect to the Plan will not be ``less advantageous'' than that of 
the Participants. Applicant states that the Fund, either directly or 
indirectly, is responsible for the compensation of the Participants; 
the Plan is simply the Fund's chosen method of providing such 
compensation. Moreover, Applicant believes that the Plan will benefit 
the Fund by enhancing its ability to attract and retain highly 
qualified personnel. Applicant further asserts that the Plan, although 
benefiting the Participants and the Fund in different ways, is in the 
interest of the Fund's stockholders, because it will help align the 
interests of its directors, officers, and employees with those of its 
stockholders, which will encourage conduct on the part of these 
individuals to produce a better return for the Fund's stockholders. 
Applicant also states that section 57(j)(1) of the Act expressly 
permits any director, officer or employee of a BDC to acquire warrants, 
options and rights to purchase voting securities of such BDC, and the 
securities issued upon the

[[Page 92901]]

exercise or conversion thereof, pursuant to an executive compensation 
plan which meets the requirements of section 61(a)(3)(B) of the Act. 
Applicant submits that the issuance of Restricted Stock pursuant to the 
Plan poses no greater risk to stockholders than the issuances permitted 
by section 57(j)(1) of the Act.

Section 23(c)

    13. 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 tenders, or under other circumstances as the Commission may permit 
to ensure that the purchases are 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. Applicant 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 an Option might be deemed to be 
purchases by the Fund of its own securities within the meaning of 
section 23(c) and therefore prohibited by the Act.
    14. Section 23(c)(3) of the Act permits a BDC to purchase 
securities of which it is the issuer in circumstances in which the 
repurchase 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. Applicant believes that the requested relief meets the 
standards of section 23(c)(3).
    15. Applicant submits that these purchases will be made in a manner 
that does not unfairly discriminate against Applicant's stockholders 
because Applicant will use the closing sales price of its shares of 
common stock on the New York Stock Exchange (or any primary exchange on 
which its shares of common stock may be traded in the future) as the 
``fair market value'' of its common stock under the Plan (i.e., the 
public market price on the date of grant of Restricted Stock and the 
date of grant of Options). Applicant submits that because all 
transactions with respect to the Plan will take place at the public 
market price for the Fund's common stock, these transactions will not 
be significantly different than could be achieved by any stockholder 
selling in a transaction on the New York Stock Exchange. Applicant 
represents that no transactions will be conducted pursuant to the 
requested order on days where there are no reported market transactions 
involving Applicant's shares.
    16. Applicant represents that the withholding provisions in the 
Plan do not raise concerns about preferential treatment of Applicant's 
insiders because the Plan is a bona fide compensation plan of the type 
that is common among corporations generally. Furthermore, 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. Applicant represents that all 
purchases may be made only as permitted by the Plan, which has been 
approved by the Fund's stockholders. Applicant believes that granting 
the requested relief would be consistent with the policies underlying 
the provisions of the Act permitting the use of equity compensation as 
well as prior exemptive relief granted by the Commission under section 
23(c) of the Act.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief will 
be subject to the following conditions:
    1. The Plan will be authorized by the Fund's shareholders.
    2. Each issuance of Restricted Stock to a Participant will be 
approved by the Required Majority on the basis that such grant is in 
the best interest of the Fund and its shareholders.
    3. The amount of voting securities that would result from the 
exercise of all of the Fund's outstanding warrants, Options and rights, 
together with any Restricted Stock issued pursuant to the Plan, at the 
time of issuance shall not exceed 25% of the outstanding voting 
securities of the Fund, except that if the amount of voting securities 
that would result from the exercise of all of the Fund's outstanding 
warrants, Options and rights issued to the Fund's directors, officers 
and employees, together with any Restricted Stock issued pursuant to 
the Plan, would exceed 15% of the outstanding voting securities of the 
Fund, then the total amount of voting securities that would result from 
the exercise of all outstanding warrants, Options and rights, together 
with any Restricted Stock issued pursuant to the Plan, at the time of 
issuance shall not exceed 20% of the outstanding voting securities of 
the Fund.
    4. The maximum amount of shares of Restricted Stock that may be 
issued under the Plan will be 10% of the outstanding shares of common 
stock of the Fund on the effective date of the Plan plus 10% of the 
number of shares of the Fund's common stock issued or delivered by the 
Fund (other than pursuant to compensation plans) during the term of the 
Plan.
    5. The Board will review the Plan at least annually. In addition, 
the Board will review periodically the potential impact that the 
issuance of Restricted Stock under the Plan could have on the Fund's 
earnings and net asset value per share, such review to take place prior 
to any decisions to grant Restricted Stock under the Plan, but in no 
event less frequently than annually. Adequate procedures and records 
will be maintained to permit such review. The Board will be authorized 
to take appropriate steps to ensure that the issuance of Restricted 
Stock under the Plan will be in the best interest of the Fund and its 
shareholders. This authority will include the authority to prevent or 
limit the granting of additional Restricted Stock under the Plan. All 
records maintained pursuant to this condition will be subject to 
examination by the Commission and its staff.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2016-30539 Filed 12-19-16; 8:45 am]
 BILLING CODE 8011-01-P