Capital Southwest Corporation, 34066-34069 [2021-13664]
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khammond on DSKJM1Z7X2PROD with NOTICES
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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
collection of scientific or technological
data, and the utilization of science in
decision-making; suppression or
distortion of scientific or technological
findings, data, information, conclusions,
or technical results; disproportionate
harm to Federal scientists and
researchers from groups that are
historically underrepresented in
science, technology, and related fields;
or equitable delivery of the Federal
Government’s programs. Of interest is
information about how perceived
shortfalls in scientific integrity affect
public trust in science and about
mechanisms Federal agencies could use
to detect or deter potential violations of
scientific integrity policies before they
occur. [Please note: We do not seek
reports on alleged offenses that are in
violation of Federal scientific integrity
policies; we ask that you not provide
names of individuals who have been or
may be accused of engaging in or
subjected to such practices, personally
identifiable or sensitive information, or
specific allegations that should be
handled through other appropriate
channels, such as law enforcement,
Scientific Integrity Officers, or an Office
of Inspector General].
2. Effective policies and practices
Federal agencies could adopt to
improve the communication of scientific
and technological information:
Consider practices related but not
limited to: Engagement of Federal
scientists and contractors working on
scientific matters with news media and
on social media; protection of scientific
independence during clearance and
review processes; avoidance of political
or other improper interference in
research or data collection;
differentiation in official government
communications of references to
scientific publications and peerreviewed research versus science-based
or science-informed policy statements
and determinations.
3. Effective policies and practices
Federal agencies could adopt to address
scientific issues and the scientific
workforce:
Consider practices related but not
limited to: Handling scientific
disagreements about research methods
and conclusions; addressing gaps in
current scientific integrity policies
related to emerging technologies, such
as artificial intelligence and machinelearning, and evolving scientific
practices, such as citizen science and
community-engaged research;
supporting the professional
development of Federal scientists;
supporting scientists and researchers of
all genders, races, ethnicities, and
backgrounds and advance the equitable
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delivery of the Federal Government’s
programs; and Ensuring the
independence, autonomy, and
effectiveness of scientific integrity
officials and chief science officers.
4. Effective practices Federal agencies
could adopt to improve training of
scientific staff about scientific integrity
and the transparency into their
scientific integrity practices:
Consider practices related but not
limited to: Educating and informing
employees, contractors, and grantees in
scientific and technical positions, as
well as those who manage,
communicate, or make decisions based
on science and technology, of their
rights and responsibilities related to
agency scientific integrity policies;
reporting practices that promote
transparency in the implementation of
agency scientific integrity policies and
in the handling of any allegations of
misconduct; communicating to the
public about alleged lapses in scientific
integrity, substantiated violations of
scientific integrity policies, and
remedial actions taken; and minimizing
conflicts of interest in Federal science
and research misconduct.
5. Other important aspects of
scientific integrity and effective
approaches to improving trust in
Federal science:
Consider other elements that should
be included and addressed in the
scientific integrity policies of Federal
agencies, beyond those specified in the
2009 Presidential Memorandum, 2010
OSTP Memorandum, and 2021
Presidential Memorandum. Consider
also effective practices, in addition to
those specified above, that Federal
agencies could put in place to improve
scientific integrity and public trust in
Federal science, including for
proactively promoting rigorous,
objective scientific research and
streamlining implementation within
and across Federal departments and
agencies.
Dated: June 22, 2021.
Stacy Murphy,
Operations Manager.
[FR Doc. 2021–13640 Filed 6–25–21; 8:45 am]
BILLING CODE 3270–F1–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34309; 812–15212]
Capital Southwest Corporation
June 22, 2021.
Securities and Exchange
Commission.
AGENCY:
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ACTION:
Notice.
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, an pursuant sections
57(a)(4) and 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
pursuant section 23(c)(3) of the Act for
an exemption from section 23(c) of the
Act.
SUMMARY OF THE APPLICATION: Capital
Southwest Corporation (‘‘Company’’ or
‘‘Applicant’’), requests an order
(‘‘Order’’) to permit it to (i) issue
restricted shares of its common stock
(‘‘Restricted Stock’’) under the terms of
its 2021 Employee Restricted Stock
Award Plan (the ‘‘2021 Plan’’) as part of
the compensation package for certain of
its employees in the 2021 Plan, and (ii)
withhold shares of the Company’s
common stock or purchase shares of the
Company’s common stock from the
participants to satisfy tax withholding
obligations relating to the vesting of
Restricted Stock pursuant to the 2021
Plan.
APPLICANT: Capital Southwest
Corporation
FILING DATES: The application was filed
on March 29, 2021, and amended on
May 17, 2021 and on June 14, 2021.
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 emailing the
Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants
with a copy of the request by email.
Hearing requests should be received by
the Commission by 5:30 p.m. on July 16,
2021, and should be accompanied by
proof of service on the applicants, 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 emailing the
Commission’s Secretary at SecretarysOffice@sec.gov.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicants:
bdiehl@capitalsouthwest.com;
msarner@capitalsouthwest.com.
FOR FURTHER INFORMATION CONTACT:
Asen Parachkevov, Senior Counsel, at
(202) 551–6908 or Lisa Reid Ragen,
Branch Chief, at (202) 551–6825
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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
(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
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
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Applicant’s Representations
1. The Company, a Texas corporation,
is an internally managed, nondiversified, closed-end investment
company that has elected to be
regulated as a business development
company (‘‘BDC’’) under the Act.1 The
Company’s investment objective is to
produce attractive risk-adjusted returns
by generating current income from its
debt investments and capital
appreciation from its equity and equity
related investments.
2. Shares of the Company’s common
stock are traded on the NASDAQ Global
Select Market under the symbol
‘‘CSWC.’’ As of March 31, 2021, there
were 23,344,836 and 21,005,324 shares
of the Company’s common stock issued
and outstanding, respectively. As of
March 31, 2021, the Company had an
aggregate of 21 employees.
3. The Company currently has a
seven-member board of directors (the
‘‘Board’’), of whom one is an ‘‘interested
person’’ of the Company within the
meaning of section 2(a)(19) of the Act
and six are not interested persons (the
‘‘Non-interested Directors’’). The
Company has six directors who are
neither officers nor employees of the
Company.
4. The Company believes that its
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.
The Company believes the highly
specialized nature of its business, the
competitiveness of its market and the
small size of its employee base relative
to its assets and revenue make such
retentions even more critical for the
Company, and that the ability to offer
equity-based compensation to its
professionals is vital to the Company’s
future growth and success.
1 Capital
Southwest was incorporated in Texas in
1961. On March 30, 1988 Capital Southwest elected
to be regulated as a BDC. 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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5. The Commission previously issued
certain exemptive orders (the ‘‘Prior
Orders’’), which, among other things, (i)
permit the Company to issue restricted
shares of its common stock under the
terms of the Company’s 2010 Restricted
Stock Award Plan (the ‘‘2010 Plan’’) as
part of the compensation packages for
certain of its employees and certain
employees of its wholly-owned
subsidiaries, and (ii) allow the Company
to withhold shares of the Company’s
common stock or purchase shares of the
Company’s common stock from the
Participants (as defined in the 2010
Plan) to satisfy tax withholding
obligations relating to the vesting of
Restricted Stock (as defined in the 2010
Plan) pursuant to the 2010 Plan.2
6. The Company states that the right
to grant restricted stock awards under
the 2010 Plan will terminate on July 18,
2021 and that in connection with the
termination of the 2010 Plan, the Board
approved the 2021 Plan as part of the
compensation packages for certain of its
employees, the terms of which are, in all
material respects, identical to the 2010
Plan. The Company states that the relief
that Applicant is requesting under the
Order would provide the same relief
with respect to the 2021 Plan as
previously provided by the Commission
in the Prior Orders with respect to the
2010 plan. The Order would supersede
the Prior Orders, with the result that the
Company will no longer rely on the
Prior Orders if the Order is granted.
7. The 2021 Plan will authorize the
issuance of shares of Restricted Stock by
the Company to certain of its
employees. The Company states that the
Restricted Stock will be subject to
restrictions on transferability and other
restrictions as required by the
Compensation Committee of the Board,
which will be comprised solely of ‘‘nonemployee directors’’ within the meaning
of rule 16b–3 under the Securities
Exchange Act of 1934 (the ‘‘Exchange
Act’’), each of whom also is not an
‘‘interested person’’ of the Company
within the meaning of section 2(a)(19) of
the Act. The Company states that except
to the extent restricted under the terms
of the 2021 Plan, a Participant (as
defined in the 2021 Plan) who is granted
Restricted Stock will have all the rights
of any other shareholder, including the
right to vote the Restricted Stock and
2 ‘‘Prior Orders’’ refers to the exemptive order
issued by the Commission on October 26, 2010 (see
Capital Southwest Corporation, Investment
Company Act Release Nos. 29450 (notice)
(September 29, 2010) and 29491 (order) (October
26, 2010)) and as amended by the exemptive order
issued by the Commission on August 22, 2017 (see
Capital Southwest Corporation, Investment
Company Act Release Nos. 32742 (notice) (July 25,
2017) and 32787 (order) (August 22, 2017)).
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the right to receive dividends. The
Company states that during the
restriction period (i.e., prior to the lapse
of the applicable forfeiture restrictions),
the Restricted Stock generally may not
be sold, transferred, pledged,
hypothecated, margined or otherwise
encumbered by the Participant. The
Company states that except as the Board
otherwise determines, upon termination
of a Participant’s employment during
the applicable restriction period,
Restricted Stock for which forfeiture
restrictions have not lapsed at the time
of such termination shall be forfeited.
8. The Company states that the value
of Restricted Stock generally will be
taxable to the recipient as ordinary
income in the years in which the
restrictions on the shares lapse and that
such value will be the fair market value
of the shares on the dates the
restrictions lapse. The Company states
that the 2021 Plan authorizes the
Company to withhold common stock (in
whole or in part) from any award of
restricted shares granted at the time the
Restricted Stock is taxed in satisfaction
of a Participant’s tax obligations.
9. The Company states that maximum
amount of Restricted Stock that may be
issued and outstanding will not at the
time of issuance of any Restricted Stock
exceed 10% of the Company’s
outstanding voting securities.3 In
addition, the Company states that no
Participant may be granted more than
25% of the shares reserved for issuance
under the 2021 Plan.
10. The Company states that each
issuance of Restricted Stock under the
2021 Plan will be approved by the
required majority, as defined in section
57(o) of the Act,4 of the Company’s
directors on the basis that the issuance
is in the best interests of the Company
and its shareholders. The Company
states that 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.
11. The Company states that the 2021
Plan was approved by the Board as a
whole, including the required majority
as defined in section 57(o) of the Act, on
3 For purposes of calculating compliance with
this limit, Capital Southwest counts as Restricted
Stock all shares of its common stock that are issued
pursuant to the 2021 Plan, less any shares that are
forfeited back to Capital Southwest and cancelled
as a result of forfeiture restrictions not lapsing.
4 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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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
March 26, 2021. The Company states
that if the Commission issues the Order,
the 2021 Plan will become effective
upon receipt of the approval of the
Company’s shareholders.
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Applicant’s Legal Analysis
Sections 23(a) and (b), Section 63
1. Under section 63 of the Act, the
provisions of section 23(a) of the Act
generally prohibiting a registered
closed-end investment company from
issuing securities for services or for
property other than cash or securities
are made applicable to BDCs. This
provision would prohibit the issuance
of Restricted Stock as a part of the 2021
Plan.
2. Section 23(b) generally prohibits a
registered closed-end management
investment company from selling its
common stock at a price below its
current net asset value (‘‘NAV’’). Section
63(2) makes section 23(b) applicable to
BDCs unless certain conditions are met.
Because Restricted Stock that would be
granted under the 2021 Plan would not
meet the terms of section 63(2), sections
23(b) and 63 prohibit the issuance of the
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 of persons, securities or
transactions, 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. The Company requests an order
pursuant to section 6(c) of the Act
granting an exemption from the
provisions of sections 23(a) and (b) and
section 63 of the Act. The Company
states that the concerns underlying
those sections 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 makes it
difficult to determine the value of the
company’s shares; and (c) dilution of
shareholders’ equity in the investment
company. The Company states that the
2021 Plan does not raise concerns about
preferential treatment of the Company’s
insiders because the 2021 Plan is a bona
fide compensation plan of the type
common among corporations generally.
In addition, section 61(a)(3)(B) of the
Act permits a BDC to issue to its
officers, directors and employees,
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pursuant to an executive compensation
plan, warrants, options and rights to
purchase the BDC’s voting securities,
subject to certain requirements. The
Company states that, for reasons that are
unclear, section 61 and its legislative
history do not address the issuance by
a BDC of restricted stock as incentive
compensation. The Company states,
however, that the issuance of Restricted
Stock is substantially similar, for
purposes of investor protection under
the Act, to the issuance of warrants,
options, and rights as contemplated by
section 61 of the Act. The Company also
asserts that the 2021 Plan would not
become a means for insiders to obtain
control of the Company because the
number of shares of the Company
issuable under the 2021 Plan would be
limited as set forth in the application.
5. The Company further states that the
2021 Plan will not unduly complicate
the Company’s structure because equitybased compensation arrangements are
widely used among corporations and
commonly known to investors. The
Company notes that the 2021 Plan will
be submitted to its shareholders for their
approval. The Company represents that
a concise, ‘‘plain English’’ description of
the 2021 Plan, including its potential
dilutive effect, will be provided in the
proxy materials that will be submitted
to the Company’s shareholders. The
Company also states that it will comply
with the proxy disclosure requirements
in Item 10 of Schedule 14A under the
Exchange Act. The Company further
notes that the 2021 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. In
addition, the Company will comply
with the disclosure requirements for
executive compensation plans
applicable to BDCs.5 The Company thus
concludes that the 2021 Plan will be
adequately disclosed to investors and
appropriately reflected in the market
value of the Company’s shares.
6. The Company acknowledges that,
while awards granted under the 2021
Plan would have a dilutive effect on the
shareholders’ equity in the Company,
that effect would be outweighed by the
5 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. 8765 (Dec.
22, 2006) (adopted as interim final rules with
request for comments).
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anticipated benefits of the 2021 Plan to
the Company and its shareholders. The
Company asserts that it needs the
flexibility to provide the requested
equity-based employee compensation in
order to be able to compete effectively
with other financial services firms for
talented professionals. These
professionals, the Company suggests, in
turn are likely to increase the
Company’s performance and
shareholder value. The Company also
asserts that equity-based compensation
will help align the interests of the
Company’s employees with those of its
shareholders. In addition, the Company
states that its shareholders will be
further protected by the conditions to
the requested order that assure
continuing oversight of the operation of
the 2021 Plan by the Company’s Board.
Section 57(a)(4), Rule 17d–1
7. 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 17d–1, made
applicable to BDCs by section 57(i),
proscribes participation in a ‘‘joint
enterprise or other joint arrangement or
profit-sharing plan,’’ which includes a
stock option or purchase plan.
Employees and directors of a BDC are
57(b) persons. Thus, the issuance of
shares of Restricted Stock 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 (i) whether
the participation of the company in a
joint enterprise is consistent with the
Act’s policies and purposes and (ii) the
extent to which that participation is on
a basis different from or less
advantageous than that of other
participants.
8. The Company requests an order
pursuant to sections 57(a)(4) and 57(i) of
the Act and under rule 17d–1 to permit
the Company to issue Restricted Stock
under the 2021 Plan. The Company
states that the 2021 Plan, although
benefiting the Participants and The
Company in different ways, is in the
interests of the Company’s shareholders
because the 2021 Plan will help align
the interests of the Company’s
employees and officers with those of its
shareholders, which will encourage
conduct on the part of those employees
and officers designed to produce a better
return for the Company’s shareholders.
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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices
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Additionally, 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 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 2021 Plan poses no
greater risk to stockholders than the
issuances permitted by section 57(j)(1)
of the Act.
Section 23(c)
9. 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 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.
10. 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).
11. Applicant submits that these
purchases will be made in a manner that
does not unfairly discriminate against
Applicant’s stockholders because all
purchases of Applicant’s stock will be at
the closing price of the common stock
on the Nasdaq Global Market (or any
primary exchange on which its shares of
common stock may be traded in the
future) on the relevant date (i.e., the
public market price on the date of grant
of Restricted Stock). Applicant submits
that because all transactions with
respect to the 2021 Plan will take place
at the public market price for the
Applicant’s common stock, these
transactions will not be significantly
different than could be achieved by any
stockholder selling in a market
transaction. Applicant represents that
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no transactions will be conducted
pursuant to the requested order on days
where there are no reported market
transactions involving Applicant’s
shares.
12. Applicant represents that the
withholding provisions in the 2021 Plan
do not raise concerns about preferential
treatment of Applicant’s insiders
because the 2021 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. Applicant
represents that all purchases may be
made only as permitted by the 2021
Plan, which will be approved by the
Applicant’s stockholders prior to any
application of the relief. 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 2021 Plan will be authorized
by the Company’s shareholders.
2. Each issuance of Restricted Stock to
officers and employees will be approved
by the required majority, as defined in
section 57(o) of the Act, of the
Company’s directors on the basis that
such grant is in the best interests of the
Company and its shareholders.
3. The amount of voting securities
that would result from the exercise of all
of the Company’s outstanding warrants,
options, and rights, together with any
Restricted Stock issued and outstanding
pursuant to the 2021 Plan and any other
compensation plans of the Company, at
the time of issuance shall not exceed
25% of the outstanding voting securities
of the Company, except that if the
amount of voting securities that would
result from the exercise of all of the
Company’s outstanding warrants,
options, and rights issued to the
Company’s directors, officers, and
employees, together with any Restricted
Stock issued pursuant to the 2021 Plan
and any other compensation plans of
the Company, would exceed 15% of the
outstanding voting securities of the
Company, 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
2021 Plan and any other compensation
plans of the Company, at the time of
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issuance shall not exceed 20% of the
outstanding voting securities of the
Company.
4. The amount of Restricted Stock
issued and outstanding will not at the
time of issuance of any Restricted Stock
exceed 10% of the Company’s
outstanding voting securities.
5. The Board will review the 2021
Plan at least annually. In addition, the
Board will review periodically the
potential impact that the issuance of
Restricted Stock under the 2021 Plan
could have on the Company’s earnings
and NAV per share, such review to take
place prior to any decisions to grant
Restricted Stock under the 2021 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 2021 Plan will be in the
best interests of the Company’s
shareholders. This authority will
include the authority to prevent or limit
the granting of additional Restricted
Stock under the 2021 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–13664 Filed 6–25–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34 –92222; File No. SR–IEX–
2021–09]
Self-Regulatory Organizations:
Investors Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Provide
Temporary Remote Inspection Relief to
IEX Members for Calendar Year 2021
June 22, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on June 11,
2021, the Investors Exchange LLC
(‘‘IEX’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
E:\FR\FM\28JNN1.SGM
28JNN1
]]>Agencies
[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Notices]
[Pages 34066-34069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13664]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34309; 812-15212]
Capital Southwest Corporation
June 22, 2021.
AGENCY: Securities and Exchange Commission.
ACTION: Notice.
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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, an pursuant sections 57(a)(4)
and 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 pursuant section 23(c)(3) of the Act for an exemption from section
23(c) of the Act.
SUMMARY OF THE APPLICATION: Capital Southwest Corporation (``Company''
or ``Applicant''), requests an order (``Order'') to permit it to (i)
issue restricted shares of its common stock (``Restricted Stock'')
under the terms of its 2021 Employee Restricted Stock Award Plan (the
``2021 Plan'') as part of the compensation package for certain of its
employees in the 2021 Plan, and (ii) withhold shares of the Company's
common stock or purchase shares of the Company's common stock from the
participants to satisfy tax withholding obligations relating to the
vesting of Restricted Stock pursuant to the 2021 Plan.
APPLICANT: Capital Southwest Corporation
FILING DATES: The application was filed on March 29, 2021, and amended
on May 17, 2021 and on June 14, 2021.
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 emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request by email. Hearing requests should be received by
the Commission by 5:30 p.m. on July 16, 2021, and should be accompanied
by proof of service on the applicants, 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 emailing the
Commission's Secretary at [email protected].
ADDRESSES: The Commission: [email protected]. Applicants:
[email protected]; [email protected].
FOR FURTHER INFORMATION CONTACT: Asen Parachkevov, Senior Counsel, at
(202) 551-6908 or Lisa Reid Ragen, Branch Chief, at (202) 551-6825
[[Page 34067]]
(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 website by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicant's Representations
1. The Company, a Texas corporation, 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.\1\
The Company's investment objective is to produce attractive risk-
adjusted returns by generating current income from its debt investments
and capital appreciation from its equity and equity related
investments.
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\1\ Capital Southwest was incorporated in Texas in 1961. On
March 30, 1988 Capital Southwest elected to be regulated as a BDC.
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. Shares of the Company's common stock are traded on the NASDAQ
Global Select Market under the symbol ``CSWC.'' As of March 31, 2021,
there were 23,344,836 and 21,005,324 shares of the Company's common
stock issued and outstanding, respectively. As of March 31, 2021, the
Company had an aggregate of 21 employees.
3. The Company currently has a seven-member board of directors (the
``Board''), of whom one is an ``interested person'' of the Company
within the meaning of section 2(a)(19) of the Act and six are not
interested persons (the ``Non-interested Directors''). The Company has
six directors who are neither officers nor employees of the Company.
4. The Company believes that its 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. The Company believes the highly specialized nature of its
business, the competitiveness of its market and the small size of its
employee base relative to its assets and revenue make such retentions
even more critical for the Company, and that the ability to offer
equity-based compensation to its professionals is vital to the
Company's future growth and success.
5. The Commission previously issued certain exemptive orders (the
``Prior Orders''), which, among other things, (i) permit the Company to
issue restricted shares of its common stock under the terms of the
Company's 2010 Restricted Stock Award Plan (the ``2010 Plan'') as part
of the compensation packages for certain of its employees and certain
employees of its wholly-owned subsidiaries, and (ii) allow the Company
to withhold shares of the Company's common stock or purchase shares of
the Company's common stock from the Participants (as defined in the
2010 Plan) to satisfy tax withholding obligations relating to the
vesting of Restricted Stock (as defined in the 2010 Plan) pursuant to
the 2010 Plan.\2\
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\2\ ``Prior Orders'' refers to the exemptive order issued by the
Commission on October 26, 2010 (see Capital Southwest Corporation,
Investment Company Act Release Nos. 29450 (notice) (September 29,
2010) and 29491 (order) (October 26, 2010)) and as amended by the
exemptive order issued by the Commission on August 22, 2017 (see
Capital Southwest Corporation, Investment Company Act Release Nos.
32742 (notice) (July 25, 2017) and 32787 (order) (August 22, 2017)).
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6. The Company states that the right to grant restricted stock
awards under the 2010 Plan will terminate on July 18, 2021 and that in
connection with the termination of the 2010 Plan, the Board approved
the 2021 Plan as part of the compensation packages for certain of its
employees, the terms of which are, in all material respects, identical
to the 2010 Plan. The Company states that the relief that Applicant is
requesting under the Order would provide the same relief with respect
to the 2021 Plan as previously provided by the Commission in the Prior
Orders with respect to the 2010 plan. The Order would supersede the
Prior Orders, with the result that the Company will no longer rely on
the Prior Orders if the Order is granted.
7. The 2021 Plan will authorize the issuance of shares of
Restricted Stock by the Company to certain of its employees. The
Company states that the Restricted Stock will be subject to
restrictions on transferability and other restrictions as required by
the Compensation Committee of the Board, which will be comprised solely
of ``non-employee directors'' within the meaning of rule 16b-3 under
the Securities Exchange Act of 1934 (the ``Exchange Act''), each of
whom also is not an ``interested person'' of the Company within the
meaning of section 2(a)(19) of the Act. The Company states that except
to the extent restricted under the terms of the 2021 Plan, a
Participant (as defined in the 2021 Plan) who is granted 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.
The Company states that during the restriction period (i.e., prior to
the lapse of the applicable forfeiture restrictions), the Restricted
Stock generally may not be sold, transferred, pledged, hypothecated,
margined or otherwise encumbered by the Participant. The Company states
that except as the Board otherwise determines, upon termination of a
Participant's employment during the applicable restriction period,
Restricted Stock for which forfeiture restrictions have not lapsed at
the time of such termination shall be forfeited.
8. The Company states that the value of Restricted Stock generally
will be taxable to the recipient as ordinary income in the years in
which the restrictions on the shares lapse and that such value will be
the fair market value of the shares on the dates the restrictions
lapse. The Company states that the 2021 Plan authorizes the Company to
withhold common stock (in whole or in part) from any award of
restricted shares granted at the time the Restricted Stock is taxed in
satisfaction of a Participant's tax obligations.
9. The Company states that maximum amount of Restricted Stock that
may be issued and outstanding will not at the time of issuance of any
Restricted Stock exceed 10% of the Company's outstanding voting
securities.\3\ In addition, the Company states that no Participant may
be granted more than 25% of the shares reserved for issuance under the
2021 Plan.
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\3\ For purposes of calculating compliance with this limit,
Capital Southwest counts as Restricted Stock all shares of its
common stock that are issued pursuant to the 2021 Plan, less any
shares that are forfeited back to Capital Southwest and cancelled as
a result of forfeiture restrictions not lapsing.
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10. The Company states that each issuance of Restricted Stock under
the 2021 Plan will be approved by the required majority, as defined in
section 57(o) of the Act,\4\ of the Company's directors on the basis
that the issuance is in the best interests of the Company and its
shareholders. The Company states that 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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\4\ 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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11. The Company states that the 2021 Plan was approved by the Board
as a whole, including the required majority as defined in section 57(o)
of the Act, on
[[Page 34068]]
March 26, 2021. The Company states that if the Commission issues the
Order, the 2021 Plan will become effective upon receipt of the approval
of the Company's shareholders.
Applicant's Legal Analysis
Sections 23(a) and (b), Section 63
1. Under section 63 of the Act, the provisions of section 23(a) of
the Act generally prohibiting a registered closed-end investment
company from issuing securities for services or for property other than
cash or securities are made applicable to BDCs. This provision would
prohibit the issuance of Restricted Stock as a part of the 2021 Plan.
2. Section 23(b) generally prohibits a registered closed-end
management investment company from selling its common stock at a price
below its current net asset value (``NAV''). Section 63(2) makes
section 23(b) applicable to BDCs unless certain conditions are met.
Because Restricted Stock that would be granted under the 2021 Plan
would not meet the terms of section 63(2), sections 23(b) and 63
prohibit the issuance of the 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 of persons,
securities or transactions, 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. The Company requests an order pursuant to section 6(c) of the
Act granting an exemption from the provisions of sections 23(a) and (b)
and section 63 of the Act. The Company states that the concerns
underlying those sections 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 makes it difficult to
determine the value of the company's shares; and (c) dilution of
shareholders' equity in the investment company. The Company states that
the 2021 Plan does not raise concerns about preferential treatment of
the Company's insiders because the 2021 Plan is a bona fide
compensation plan of the type common among corporations generally. In
addition, section 61(a)(3)(B) of the Act permits a BDC to issue to its
officers, directors and employees, pursuant to an executive
compensation plan, warrants, options and rights to purchase the BDC's
voting securities, subject to certain requirements. The Company states
that, for reasons that are unclear, section 61 and its legislative
history do not address the issuance by a BDC of restricted stock as
incentive compensation. The Company states, however, that the issuance
of Restricted Stock is substantially similar, for purposes of investor
protection under the Act, to the issuance of warrants, options, and
rights as contemplated by section 61 of the Act. The Company also
asserts that the 2021 Plan would not become a means for insiders to
obtain control of the Company because the number of shares of the
Company issuable under the 2021 Plan would be limited as set forth in
the application.
5. The Company further states that the 2021 Plan will not unduly
complicate the Company's structure because equity-based compensation
arrangements are widely used among corporations and commonly known to
investors. The Company notes that the 2021 Plan will be submitted to
its shareholders for their approval. The Company represents that a
concise, ``plain English'' description of the 2021 Plan, including its
potential dilutive effect, will be provided in the proxy materials that
will be submitted to the Company's shareholders. The Company also
states that it will comply with the proxy disclosure requirements in
Item 10 of Schedule 14A under the Exchange Act. The Company further
notes that the 2021 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. In addition, the Company will comply with the
disclosure requirements for executive compensation plans applicable to
BDCs.\5\ The Company thus concludes that the 2021 Plan will be
adequately disclosed to investors and appropriately reflected in the
market value of the Company's shares.
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\5\ 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. 8765 (Dec. 22, 2006) (adopted as interim final rules with
request for comments).
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6. The Company acknowledges that, while awards granted under the
2021 Plan would have a dilutive effect on the shareholders' equity in
the Company, that effect would be outweighed by the anticipated
benefits of the 2021 Plan to the Company and its shareholders. The
Company asserts that it needs the flexibility to provide the requested
equity-based employee compensation in order to be able to compete
effectively with other financial services firms for talented
professionals. These professionals, the Company suggests, in turn are
likely to increase the Company's performance and shareholder value. The
Company also asserts that equity-based compensation will help align the
interests of the Company's employees with those of its shareholders. In
addition, the Company states that its shareholders will be further
protected by the conditions to the requested order that assure
continuing oversight of the operation of the 2021 Plan by the Company's
Board.
Section 57(a)(4), Rule 17d-1
7. 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 17d-1,
made applicable to BDCs by section 57(i), proscribes participation in a
``joint enterprise or other joint arrangement or profit-sharing plan,''
which includes a stock option or purchase plan. Employees and directors
of a BDC are 57(b) persons. Thus, the issuance of shares of Restricted
Stock 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 (i) whether the participation of the company
in a joint enterprise is consistent with the Act's policies and
purposes and (ii) the extent to which that participation is on a basis
different from or less advantageous than that of other participants.
8. The Company requests an order pursuant to sections 57(a)(4) and
57(i) of the Act and under rule 17d-1 to permit the Company to issue
Restricted Stock under the 2021 Plan. The Company states that the 2021
Plan, although benefiting the Participants and The Company in different
ways, is in the interests of the Company's shareholders because the
2021 Plan will help align the interests of the Company's employees and
officers with those of its shareholders, which will encourage conduct
on the part of those employees and officers designed to produce a
better return for the Company's shareholders.
[[Page 34069]]
Additionally, 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 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 2021 Plan poses no greater risk to
stockholders than the issuances permitted by section 57(j)(1) of the
Act.
Section 23(c)
9. 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 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.
10. 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).
11. Applicant submits that these purchases will be made in a manner
that does not unfairly discriminate against Applicant's stockholders
because all purchases of Applicant's stock will be at the closing price
of the common stock on the Nasdaq Global Market (or any primary
exchange on which its shares of common stock may be traded in the
future) on the relevant date (i.e., the public market price on the date
of grant of Restricted Stock). Applicant submits that because all
transactions with respect to the 2021 Plan will take place at the
public market price for the Applicant's common stock, these
transactions will not be significantly different than could be achieved
by any stockholder selling in a market transaction. 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.
12. Applicant represents that the withholding provisions in the
2021 Plan do not raise concerns about preferential treatment of
Applicant's insiders because the 2021 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. Applicant represents that all
purchases may be made only as permitted by the 2021 Plan, which will be
approved by the Applicant's stockholders prior to any application of
the relief. 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 2021 Plan will be authorized by the Company's shareholders.
2. Each issuance of Restricted Stock to officers and employees will
be approved by the required majority, as defined in section 57(o) of
the Act, of the Company's directors on the basis that such grant is in
the best interests of the Company and its shareholders.
3. The amount of voting securities that would result from the
exercise of all of the Company's outstanding warrants, options, and
rights, together with any Restricted Stock issued and outstanding
pursuant to the 2021 Plan and any other compensation plans of the
Company, at the time of issuance shall not exceed 25% of the
outstanding voting securities of the Company, except that if the amount
of voting securities that would result from the exercise of all of the
Company's outstanding warrants, options, and rights issued to the
Company's directors, officers, and employees, together with any
Restricted Stock issued pursuant to the 2021 Plan and any other
compensation plans of the Company, would exceed 15% of the outstanding
voting securities of the Company, 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 2021 Plan and any other compensation plans of
the Company, at the time of issuance shall not exceed 20% of the
outstanding voting securities of the Company.
4. The amount of Restricted Stock issued and outstanding will not
at the time of issuance of any Restricted Stock exceed 10% of the
Company's outstanding voting securities.
5. The Board will review the 2021 Plan at least annually. In
addition, the Board will review periodically the potential impact that
the issuance of Restricted Stock under the 2021 Plan could have on the
Company's earnings and NAV per share, such review to take place prior
to any decisions to grant Restricted Stock under the 2021 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 2021 Plan will be in the best interests of the
Company's shareholders. This authority will include the authority to
prevent or limit the granting of additional Restricted Stock under the
2021 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.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-13664 Filed 6-25-21; 8:45 am]
BILLING CODE 8011-01-P
