[Federal Register Volume 77, Number 8 (Thursday, January 12, 2012)]
[Notices]
[Pages 1965-1968]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-418]



[[Page 1965]]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29915; File No. 812-13857]


Central Securities Corporation; Notice of Application

January 6, 2012.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under sections 6(c), 17(d) and 23(c) 
of the Investment Company Act of 1940 (the ``Act'') and rule 17d-1 
under the Act.

-----------------------------------------------------------------------

SUMMARY: Summary of Application: Applicant requests an order to permit 
the adoption of an incentive compensation plan. The plan would permit 
the applicant to issue restricted shares of common stock, restricted 
stock units, shares of common stock granted as a bonus, and awards 
denominated in cash.
    Applicant: Central Securities Corporation (``Company'').

DATES: Filing Dates: The application was filed on January 3, 2011 and 
amended on October 31, 2011. The applicant has agreed to file an 
amendment during the notice period, the substance of which is reflected 
in this notice.
    Hearing or Notification of Hearing: An order granting the 
application 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 31, 2012, and should be accompanied by proof of 
service on the applicant, in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the writer's interest, 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: Elizabeth M. Murphy, Secretary, Commission, 100 F Street 
NE., Washington, DC 20549. Applicant, c/o Marlene A. Krumholz, Vice 
President and Secretary, Central Securities Corporation, 630 Fifth 
Avenue, New York, NY 10111.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

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. The Company, a Delaware corporation, is registered under the Act 
as a closed-end management investment company. The principal business 
of the Company is the ownership and management of its investment 
portfolio, which consists predominantly of equity securities. The 
Company is internally managed. The Company has six directors 
(``Board''), five of whom are not ``interested persons'' of the 
Company, as defined in section 2(a)(19) of the Act (``Non-interested 
Directors''), and six Employees (as defined below), including three 
officers, one of whom is also a director and an interested person of 
the Company. Shares of the Company are listed on the NYSE Amex. As of 
October 31, 2011, there were 22,779,391 shares of common stock of the 
Company (``Shares'') outstanding.
    2. Because the investment management business is highly 
competitive, the Company believes that its successful operation will 
depend on its ability to attract, motivate and retain its professional 
staff with competitive compensation packages similar to those offered 
by its competitors. Many of the companies with which the Company 
competes for management talent are not registered investment companies 
subject to the restrictions of the Act and thus are able to offer their 
directors, officers and other personnel various types of non-cash, 
deferred compensation, including opportunities for equity participation 
in the enterprise, as well as cash incentive and performance-based 
compensation. Accordingly, the Company seeks an order permitting the 
adoption of the Central Securities Corporation 2012 Incentive 
Compensation Plan (``Plan''). The Plan would permit the Company to 
issue restricted Shares (``Restricted Stock''),\1\ restricted stock 
units (``Restricted Stock Units''),\2\ grants of Shares as a bonus 
(``Bonus Stock''),\3\ and awards denominated in cash (``Cash Awards'') 
(collectively, ``Awards'') to Eligible Persons who are Employees.\4\ 
Under the Plan, dividend equivalents could be awarded in connection 
with any Awards under the Plan while the Awards are outstanding or 
otherwise subject to a restriction period on a like number of Shares. 
Certain Awards may be subject to performance conditions (``Performance 
Awards'').\5\
---------------------------------------------------------------------------

    \1\ Restricted Stock is stock that is subject to restrictions on 
transferability, risk of forfeiture and/or other restrictions.
    \2\ Restricted Stock Units represent rights to receive stock and 
are subject to certain restrictions and a risk of forfeiture.
    \3\ Except as otherwise determined by the compensation committee 
(``Committee''), Bonus Stock will vest immediately and will not be 
subject to any restrictions.
    \4\ ``Eligible Persons'' is defined to mean full-time employees, 
including officers, of the Company and its subsidiaries 
(``Employees'') and directors of the Company who at the time an 
Award is to be granted under the Plan are not Employees (``Non-
employee Directors''). Any future subsidiaries will comply with the 
terms and conditions of any order granted pursuant to this 
application.
    \5\ Performance Awards are defined under the Plan as Awards 
granted to Eligible Persons who are Employees that are conditioned 
upon satisfaction, during a period of at least one year but no more 
than ten years, of performance criteria established by the 
Committee.
---------------------------------------------------------------------------

    3. The Plan also would permit the Company to make grants of vested 
Bonus Stock to Non-employee Directors without restrictions. Immediately 
following each annual meeting of stockholders, each Non-employee 
Director who is elected a director at, or who was previously elected 
and continues as a director after, that annual meeting shall receive an 
award of 500 Shares of Bonus Stock. In addition, at the effective date 
of any Non-employee Director's initial election to the Board, the Non-
employee Director will be granted 500 Shares of Bonus Stock.
    4. The Plan as proposed has been approved by the Board, including a 
majority of the Non-interested Directors. To the extent any material 
revisions are made to the proposed form of the Plan before it becomes 
final, the revised form of the Plan will be subject to final approval 
by the Board, including a majority of the Non-interested Directors. 
Subject to receipt of the order, the Board is expected to approve the 
submission of the Plan to stockholders for approval at the annual 
meeting of the Company in March 2012.
    5. The Plan will be administered by the Committee, which will be 
composed of three or more directors of the Company who (i) are Non-
interested Directors, (ii) are ``non-employee directors'' within the 
meaning of rule 16b-3 under the Securities Exchange Act of 1934 (the 
``Exchange Act''), and (iii) are ``outside directors'' as defined under 
section 162(m) of the Internal Revenue Code of 1986 (the ``Code''). The 
Plan permits the Committee to approve and recommend to the Board, and 
the Board has the full and final authority to ratify, grants of Awards.
    6. Grants under the Plan may be made only to Eligible Persons. In 
any thirty-

[[Page 1966]]

six month period during which the Plan is in effect, an Eligible Person 
may not be granted Awards under the Plan relating to more than 250,000 
Shares. In any event, no Eligible Person may be granted Awards 
denominated by reference to Shares, or be issued Shares in settlement 
of Awards not initially denominated by reference to Shares, that in the 
aggregate exceed 35% of the Shares initially reserved for issuance 
under the Plan, subject to adjustment under the Plan. Cash Awards that 
are settled in cash will not count against the limit described in the 
preceding sentence.\6\
---------------------------------------------------------------------------

    \6\ Cash Awards may be satisfied in cash, by delivery of the 
number of Shares valued at the fair market value on the payout date, 
or a combination thereof, as determined by the Committee. The amount 
that may be paid to any one Eligible Person with respect to Cash 
Awards may not exceed $3 million with respect to any fiscal year.
---------------------------------------------------------------------------

    7. The total number of Shares reserved and available for delivery 
in connection with Awards under the Plan is one million Shares. As of 
October 31, 2011, this represented 4.39% of the outstanding Shares. In 
no event will the number of Shares reserved and available for delivery 
in connection with Awards under the Plan exceed 4.4% of the outstanding 
Shares. The total maximum dilution to the Company's stockholders (in 
terms of net asset value (``NAV'') per Share) that would result from 
grants of Awards under the Plan would be approximately 4.21% (assuming 
that immediately after the effective date of the Plan, Awards covering 
all Shares available under the Plan are granted as Restricted Stock).
    8. In the event that a dividend, capital gain distribution or other 
distribution, recapitalization, forward or reverse stock split, 
reorganization, merger, consolidation, spin-off, combination, 
repurchase, share exchange, liquidation, dissolution or other similar 
corporate transaction affects the Shares, the Committee will, in such 
manner as it may deem equitable, adjust any or all of (i) the aggregate 
number of Shares subject to the Plan; (ii) the number and kind of 
Shares which may be delivered under the Plan; (iii) the number and kind 
of Shares by which per-person Award limitations are measured; and (iv) 
the number and kind of Shares subject to or deliverable in respect of 
outstanding Awards. In addition, after the occurrence of any such 
corporate transaction, the Committee will also have the authority to 
make provision for payment of cash or other property in respect of an 
Award.
    9. In addition, the Plan provides that Shares subject to Awards 
under the Plan that are canceled, expired, forfeited, settled in cash 
or otherwise terminated without a delivery of Shares to an Eligible 
Person, plus (i) the number of Shares withheld in payment of any taxes 
relating to any Award and (ii) the number of Shares surrendered in 
payment of any taxes relating to any Award, will again be available for 
Awards under the Plan, except that if any such shares could not again 
be available for Awards to a particular Eligible Person under any 
applicable law or regulation, such Shares will again be available 
exclusively for Awards to Eligible Persons who are not subject to such 
limitation.

Applicant's Legal Analysis

Sections 18(d), 23(a) and 23(b) of the Act

    1. Section 18(d) of the Act generally prohibits a registered 
management investment company from issuing rights to purchase the 
company's shares.\7\ The Company states that section 18(d) would 
prohibit the issuance of certain Awards to Eligible Persons because no 
corresponding warrants or rights would be issued to shareholders, and 
such Awards would not be issued in connection with a reorganization.
---------------------------------------------------------------------------

    \7\ Section 18(d) permits a fund to issue only warrants or 
rights, ratably to a class of stockholders, that have an exercise 
period of no more than 120 days or in exchange for warrants in 
connection with a reorganization.
---------------------------------------------------------------------------

    2. Section 23(a) of the Act generally prohibits a registered 
closed-end investment company from issuing securities for services. The 
Company states that because Awards are a form of compensation, the 
issuance of stock-based Awards to Eligible Persons would constitute the 
issuance of securities for ``services'' and, therefore, absent an 
exemption, would fall within the prohibitions of section 23(a).
    3. Section 23(b) of the Act prohibits a registered closed-end 
investment company from selling common stock at below its current NAV. 
The Company states that, since Shares have often traded at a discount 
to their NAV and Awards under the Plan will be valued at the Fair 
Market Value of the stock,\8\ section 23(b) would in most cases 
prohibit the issuance of the Awards.
---------------------------------------------------------------------------

    \8\ For purposes of the Plan, ``Fair Market Value'' means the 
mean of the high and low sale prices of Shares as reported on the 
NYSE Amex (or such other national securities exchange or automated 
inter-dealer quotation system on which the Shares have been duly 
listed and approved for quotation and trading) on the relevant date, 
or if no sale of Shares is reported for such date, the next 
preceding day for which there is a reported sale.
---------------------------------------------------------------------------

    4. Section 6(c) of the Act 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. The Company requests an order under 
section 6(c) granting exemptions from section 18(d) and sections 23(a) 
and (b) of the Act to the extent necessary to implement the Plan.
    5. The Company states that, because Awards under the Plan may be 
issued only to Eligible Persons, Awards will not be granted to 
individuals with interests contrary to those of the Company's 
stockholders. The Company also asserts that the Plan would not become a 
means for insiders to obtain control of the Company because the number 
of shares of stock issuable under the Plan would not exceed 4.4% of the 
outstanding Shares of the Company. Moreover, as a condition to the 
requested order, no Eligible Person could be issued more than 35% of 
the Shares reserved for issuance under the Plan. In addition, in no 
event may the total number of Shares of the Company, with respect to 
which all types of Awards may be granted to an Eligible Person under 
the Plan, exceed 250,000 Shares within any thirty-six month period 
during which the Plan is in effect.
    6. The Company believes that the potential dilutive impact of the 
Plan would not be significant, particularly if the establishment of the 
Plan attracts talented professionals who enhance management of the 
Company's assets, thus increasing the value of the Company's assets and 
enhancing stockholders' interests. The Company asserts that it needs 
the flexibility to provide equity-based employee compensation in order 
to be able to compete effectively with investment management companies 
for talented professionals. The Company also asserts that equity-based 
compensation would more closely align the interests of Eligible Persons 
with those of its stockholders.
    7. The Company further states that the Plan will be submitted to 
stockholders for their approval. The Company represents that the proxy 
statement to be submitted to its stockholders will contain a concise, 
``plain English'' description of the Plan and its potential dilutive 
effect and will comply with the proxy disclosure requirements in Item 
10 of Schedule 14A under the Exchange Act. The Company further notes 
that the existence and nature of the Awards granted will be disclosed 
to investors in

[[Page 1967]]

accordance with standards or guidelines adopted by the Financial 
Accounting Standards Board and the requirements of the Commission under 
Item 402 of Regulation S-K, Item 8 of Schedule 14A under the Exchange 
Act, and Item 18 of Form N-2. In addition, the Company will comply with 
the disclosure requirements for executive compensation plans applicable 
to operating companies under the Exchange Act. The Company concludes 
that the Plan will be adequately disclosed to investors and 
appropriately reflected in the market value of its stock.
    8. The Company also states that stockholders will be protected by 
the conditions to the requested order that assure continuing oversight 
of the operation of the Plan by the Board. Under these conditions, the 
Board will review the Plan at least annually. In addition, the 
Committee periodically will review the potential impact that the grant 
or vesting of Awards could have on the Company's earnings and NAV per 
Share, such review to take place prior to any decisions to grant 
Awards, but in no event less frequently than annually. Adequate 
procedures and records will be maintained to permit such review. The 
Committee will be authorized to take appropriate steps to ensure that 
neither the grant nor the vesting of Awards would have an effect 
contrary to the interests of the stockholders of the Company. This 
authority will include the authority to prevent or limit the grant of 
additional Awards.

Section 17(d) of the Act

    9. Section 17(d) of the Act and rule 17d-1 under the Act, generally 
prohibit an affiliated person of a registered investment company, or an 
affiliated person of such a person, from participating in a joint 
enterprise, joint arrangement, or profit-sharing plan in which the 
registered investment company is a participant, unless the Commission 
by order approves the transaction. Rule 17d-1(c) defines a joint 
enterprise to include any stock purchase plan. Section 2(a)(3) of the 
Act defines an ``affiliated person'' of another person to include any 
officer, director, partner, copartner or employee of such other person. 
Because all Eligible Persons are either Non-employee Directors or 
Employees of the Company, the Eligible Persons fall within the scope of 
section 17(d) and rule 17d-1 and, consequently, are prohibited from 
participating in the Plan, absent the requested relief.
    10. The Company requests an order pursuant to section 17(d) and 
rule 17d-1 to permit the operation of the Plan. Rule 17d-1 provides 
that, in considering relief pursuant to the rule, the Commission will 
consider whether the participation of the registered investment company 
in such joint enterprise, arrangement or plan is consistent with the 
policies and purposes of the Act, and the extent to which such 
participation is on a basis different from, or less advantageous than, 
that of other participants. The Company states that the Plan, although 
benefiting Eligible Persons and the Company in different ways, is in 
the interests of stockholders of the Company because the Plan will help 
attract, motivate and retain talented professionals and help align the 
interests of employees with those of its stockholders. Thus, the 
Company asserts that the Plan is consistent with the policies and 
purposes of the Act and that the Company's participation in the Plan 
will be on a basis no less advantageous than that of other 
participants.

Section 23(c) of the Act

    11. Section 23(c) of the Act generally prohibits a registered 
closed-end investment company from purchasing any securities of which 
it is the issuer except in the open market, pursuant to tender offers 
or under other circumstances as the Commission may permit by order to 
insure that the purchase is made on a basis that does not unfairly 
discriminate against any holders of the class or classes of securities 
to be purchased.
    12. The Company states that to the extent that the withholding of 
Shares by the Company or the delivery of Shares by the Eligible Person 
in satisfaction of withholding taxes is considered to be a ``purchase'' 
by the Company of its own securities, section 23(c) would prohibit the 
transaction. The Company therefore requests an order under section 
23(c) to permit these purchases. The Company states that these 
purchases will be made on a basis which does not unfairly discriminate 
against the stockholders of the Company because the Company will 
purchase its shares from Eligible Persons at their Fair Market Value, 
as defined in the Plan, on the relevant date, which would not be 
significantly different from the price at which all other stockholders 
could sell their shares on the NYSE Amex.

Applicant's Conditions

    The Company agrees that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The Board will maintain a Committee, none of the members of 
which will be ``interested persons'' of the Company as defined in the 
Act. The Committee will administer the Plan and will be composed of 
three or more directors of the Company who (i) are Non-interested 
Directors, (ii) are ``non-employee directors'' within the meaning of 
rule 16b-3 under the Exchange Act, and (iii) are ``outside directors'' 
as defined under section 162(m) of the Code.
    2. The Plan will not be implemented unless it is approved by a 
majority of the votes cast by stockholders at a meeting called to 
consider the Plan. Any amendment to the Plan will be subject to the 
approval of the Company's stockholders to the extent such approval is 
required by applicable law or regulation or the Board otherwise 
determines. Unless terminated or amended, during the fifth year of the 
Plan (and each fifth year thereafter), the Plan shall be submitted for 
reapproval to the Company's stockholders and all Awards made during 
that year shall be contingent upon stockholder reapproval.
    3. Awards are not transferable or assignable, except as the 
Committee will specifically approve to facilitate estate planning or to 
a beneficiary upon an Eligible Person's death or by will or the laws of 
descent and distribution. Awards may also be transferred pursuant to a 
qualified domestic relations order.
    4. The maximum number of Shares available for delivery in 
connection with Awards under the Plan (other than any Shares issued in 
payment of dividend equivalents) will be 1 million Shares, subject to 
adjustment for corporate transactions, and in no event will the number 
of Shares reserved and available for delivery in connection with Awards 
under the Plan exceed 4.4% of the outstanding Shares.
    5. The Board will review the Plan at least annually. In addition, 
the Committee periodically will review the potential impact that the 
grant or vesting of Awards could have on the Company's earnings and NAV 
per Share, such review to take place prior to any decisions to grant 
Awards, but in no event less frequently than annually. Adequate 
procedures and records will be maintained to permit such review, and 
the Committee will be authorized to take appropriate steps to ensure 
that neither the grant nor the vesting of Awards would have an effect 
contrary to the interests of investors in the Company. This will 
include the authority to prevent or limit the grant of additional 
Awards. All records maintained pursuant to this condition

[[Page 1968]]

will be subject to examination by the Commission and its staff.
    6. Awards under the Plan are issuable only to Eligible Persons. No 
person will be granted Awards denominated by reference to Shares, or be 
issued Shares in settlement of Awards not initially denominated by 
reference to Shares, that in the aggregate exceed 35% of the Shares 
initially reserved for issuance under the Plan, subject to adjustment 
under the Plan. Subject to the immediately preceding limitation, in any 
thirty-six month period during which the Plan is in effect, no person 
may be granted Awards under the Plan relating to more than 250,000 
Shares, which amount may be adjusted to reflect certain corporate 
transactions or events that affect the Company's stock. Grants to Non-
employee Directors are limited to those described in condition 7 below.
    7. In each fiscal year, a Non-employee Director will be granted 500 
Shares of vested Bonus Stock without restrictions, which amount may be 
adjusted to reflect certain corporate transactions. At the effective 
date of any Non-employee Director's initial election to the Board, such 
Non-employee Director will be granted 500 Shares of vested Bonus Stock 
without restrictions, which amount may be adjusted to reflect certain 
corporate transactions.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin O'Neill,
Deputy Secretary.
[FR Doc. 2012-418 Filed 1-11-12; 8:45 am]
BILLING CODE 8011-01-P