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Federal Register / Vol. 86, No. 87 / Friday, May 7, 2021 / Notices
fide compensation plan of the type that is common among corporations generally. In addition, section 61a4B of the Act permits a BDC to issue to its directors, officers, employees, and general partners warrants, options, and rights to purchase the BDCs voting securities pursuant to an executive compensation plan, subject to certain conditions.
Applicant states that section 61 and its legislative history do not address the issuance by a BDC of restricted stock as incentive compensation. Applicant believes, 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. 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 Plans at any one time will be ten percent of the outstanding shares of common stock of Applicant.
5. Applicant further states that the Restricted Stock feature will not unduly complicate Applicants capital structure because equity-based incentive compensation arrangements are widely used among corporations and commonly known to investors.
Applicant notes that the Plans will be submitted for approval to the Applicants stockholders. Applicant represents that the proxy materials submitted to Applicants stockholders will contain a concise plain English description of the Plans and their potential dilutive effect. Applicant also states that it will comply with the proxy disclosure requirements in Item 10 of Schedule 14A under the Exchange Act.
Applicant further notes that the Plans will be disclosed to investors in accordance with the requirements of the Form N2 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.5 Applicant thus concludes that the Plans will be adequately disclosed 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. 8756 Dec.
22, 2006 adopted as interim final rules with request for comments.

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to investors and appropriately reflected in the market value of Applicants shares.
6. Applicant acknowledges that awards granted under the Plans 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 Plans to Applicant and its stockholders. Moreover, based on the manner in which the issuance of Restricted Stock pursuant to the Plans will be administered, the Restricted Stock will be no more dilutive than if Applicant were to issue only Options to Employee Participants, as is permitted by section 61a4 of the Act. Applicant asserts that it needs the flexibility to provide the requested equity-based compensation in order to be able to compete effectively for talented personnel with commercial banks, investment banks, and other publicly traded companies that also are not investment companies registered under the Act. Applicant believes that awards of Restricted Stock will benefit Applicants stockholders and business prospects. Applicant also asserts that equity-based compensation would more closely align the interests of Applicants employees and Non-Employee Directors with those of its stockholders. 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 Plans by the Board.
Section 57a4, Rule 17d1
7. Section 57a proscribes certain transactions between a BDC and persons related to the BDC in the manner described in section 57b 57b persons, absent a Commission order.
Section 57a4 generally prohibits a 57b person from effecting a transaction in which the BDC is a joint participant absent such an order. Rule 17d1, made applicable to BDCs by section 57i, 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 57b persons. Thus, the issuance of shares of Restricted Stock could be deemed to involve a joint transaction involving a BDC and a 57b person in contravention of section 57a4. Rule 17d1b 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
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advantageous than that of other participants.
8. Applicant requests an order pursuant to sections 57a4 and 57i of the Act and rule 17d1 under the Act to permit Applicant to issue Restricted Stock under the Plans. Applicant acknowledges that its role is necessarily different from the other participants because the other participants are its directors, officers, and employees. It notes, however, that the Plans are in the interest of the Applicants stockholders, because the Plans will help align the interests of Applicants employees with those of its stockholders, which will encourage conduct on the part of those employees designed to produce a better return for Applicants stockholders.
Additionally, section 57j1 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 61a4B of the Act. Applicant submits that the issuance of Restricted Stock pursuant to the Plans poses no greater risk to stockholders than the issuances permitted by section 57j1 of the Act.
Section 23c 9. Section 23c 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 23c and therefore prohibited by the Act.
10. Section 23c3 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 23c3.
11. Applicant submits that these purchases will be made in a manner that
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