[Federal Register Volume 82, Number 145 (Monday, July 31, 2017)]
[Notices]
[Pages 35575-35576]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16013]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32742; File No. 812-14740]


Capital Southwest Corporation

July 25, 2017.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order under section 23(c)(3) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
section 23(c) of the Act.

Summary of the Application:  Capital Southwest Corporation 
(``Company'') requests an order to amend a prior order \1\ that permits 
the Company to issue Restricted Stock \2\ to the Company's Participants 
\3\ under the terms of its 2010 Restricted Stock Award Plan, as amended 
on January 25, 2017 (the ``Amended Plan''). The Company seeks to amend 
the Prior Order to permit it to engage in certain transactions in 
connection with the Amended Plan and the Company's 2009 Stock Incentive 
Plan, as amended on May 23, 2017 (the ``Amended 2009 Plan'') that may 
constitute purchases by the Company of its own securities within the 
meaning of section 23(c) of the Act.
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    \1\ Investment Company Act Release Nos. 29450 (September 29, 
2010) (notice) and 29491 (October 26, 2010) (order) (the ``Prior 
Order'').
    \2\ As defined in the Prior Order.
    \3\ As defined in the Prior Order.

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Applicant:  Capital Southwest Corporation.

Filing Dates:  The application was filed on January 30, 2017, and 
amended on May 23, 2017, June 19, 2017, and July 19, 2007.

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 August 21, 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 Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090. Applicant: Bowen S. Deihl, Chief 
Executive Officer and President, Capital Southwest Corporation, 5400 
Lyndon B Johnson Freeway, Suite 1300, Dallas, Texas 75240.

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

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for the 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicant's Representations

    1. The Company is an internally managed, non-diversified, closed-
end investment company that has elected to be regulated as a business 
development company (``BDC'') under the Act. The Amended Plan 
authorizes the Company, among other things, to grant to Participants, 
in accordance with the terms and conditions of the Prior Order, 
Restricted Stock. Further, under the terms of the Amended 2009 Plan, 
the Company is authorized, among other things to grant to Participants 
options to acquire shares of the Company's common stock (``Common 
Stock''). The Company seeks to amend the Prior Order to permit it to 
withhold shares of the Company's Common Stock or purchase shares of 
Common Stock from the Participants to satisfy tax withholding 
obligations related to the vesting of Restricted Stock granted pursuant 
to the Amended Plan or the exercise of options to purchase shares of 
Common Stock granted pursuant to the Amended 2009 Plan. In addition, 
the Company seeks to permit employees to pay the exercise price of 
options to purchase shares of Common Stock granted pursuant to the 
Amended 2009 Plan with shares of Common Stock already held by them or 
pursuant to a net share settlement feature.\4\ The Company will 
continue to comply with all of the terms and conditions of the Prior 
Order.
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    \4\ Net share settlement allows the Company to deliver directly 
to the optionee only the number of shares underlying the portion of 
the option exercised less such number of shares as is equal to (X) 
the aggregate exercise price for the portion of the option being 
exercised divided by (Y) the Fair Market Value (as defined below) on 
the date of exercise. The Company states that the Compensation 
Committee of the Board has determined to use the closing sales price 
of the Common Stock on the NASDAQ Global Select Market (or any other 
such exchange on which the Common Stock may be traded in the future) 
on the date of the applicable transaction or other event as the fair 
market value (``Fair Market Value'') with respect to the Common 
Stock for all purposes under the Amended 2009 Plan.
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    2. On the date that the Restricted Stock vests (assuming no 
election has been made under section 83(b) of the Internal Revenue Code 
of 1986, as amended), the shares are released to the Participant and 
are available for sale or transfer (subject to the Company's share 
retention guidelines).\5\ The Company

[[Page 35576]]

states the value of the Restricted Stock will generally be taxable to 
the recipient as ordinary income in the years in which the restrictions 
on the shares lapse. Such value will be the fair market value of the 
shares on the dates the restrictions lapse. The Company states that its 
obligations to make cash payments pursuant to a Restricted Stock award 
or deliver the shares is subject to the Participant's satisfaction of 
all applicable federal, state and local income and employment tax 
withholding obligations.
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    \5\ During the restriction period (i.e., prior to the lapse of 
the forfeiture restrictions), the Restricted Stock may not be sold, 
transferred, pledged, hypothecated, margined, or otherwise 
encumbered by a Participant.
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    3. As discussed more fully in the application, upon the exercise of 
an option, the amount by which the fair market value of the shares of 
the Company's Common Stock received, determined as of the date of 
exercise, exceeds the exercise price will be treated as ordinary income 
to the recipient of the option in the year of exercise. The Company 
states that in accordance with applicable regulations of the IRS, the 
Company requires the optionee to pay to it an amount sufficient to 
satisfy taxes required to be withheld in respect of such compensation 
income at the time of the exercise of the option.
    4. The Amended Plan and the Amended 2009 Plan were approved by the 
Company's board of directors (``Board''), including the required 
majority of the Company's directors with the meaning of section 57(o) 
of the Act. The Company states that the Compensation Committee of the 
Board, in its discretion, may permit a Participant to irrevocably elect 
to have the Company withhold Common Shares, or to deliver to the 
Company Common Shares that the Participant already owns, having a value 
equal to the amount required to be withheld to satisfy the 
Participant's tax withholding obligations related to the vesting of 
Restricted Stock under the Amended Plan, or the exercise of options to 
acquire Common Stock granted pursuant to the Amended 2009 Plan. The 
Company states that the Amended 2009 Plan further provides the 
Compensation Committee of the Board with discretion to permit the 
Company's employees to pay the exercise price of options to purchase 
shares of Common Stock with shares of Common Stock already held by them 
or pursuant to net share settlement.

Applicant's Legal Analysis

    1. Section 23(c) of the Act, which is made applicable to BDCs by 
section 63 of the Act, generally prohibits a BDC from purchasing any 
securities of which it is the issuer except in the open market, 
pursuant to tender offers or under such other circumstances as the 
Commission may permit to ensure that the purchase is made on a basis 
that does not unfairly discriminate against any holders of the class or 
classes of securities to be purchased. The Company states that the 
withholding or purchase of shares of Common Stock in payment of 
applicable withholding tax obligations or of Common Stock in payment 
for the exercise price of a stock option might be deemed to be 
purchases by the Company of its own securities within the meaning of 
section 23(c) and therefore prohibited by the Act.
    2. Section 23(c)(3) provides that the Commission may issue an order 
that would permit a BDC to purchase its shares in circumstances in 
which the purchase is made in a manner or on a basis that does not 
unfairly discriminate against any holders of the class or classes of 
securities to be purchased. The Company states that it believes that 
the requested relief meets the standards of section 23(c)(3).
    3. The Company states that these purchases will be made on a basis 
which does not unfairly discriminate against the stockholders of the 
Company because all purchases of Common Stock will be at the closing 
sales price of the Common Stock on the NASDAQ Global Select Market (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 vesting of the Restricted Shares and the date of grant of 
options). The Company further states that no transactions will be 
conducted pursuant to the requested order on days where there are no 
reported market transactions involving the Common Stock. The Company 
submits that because all transactions would take place at the public 
market price for the Company's Common Stock, the transactions would not 
be significantly different than could be achieved by any shareholder on 
the Nasdaq Global Select Market.
    4. The Company submits that the proposed purchases do not raise 
concerns about preferential treatment of the Company's insiders because 
the Amended Plan and the Amended 2009 Plan are bona fide compensation 
plans of the type that is common among corporations generally. Further, 
the Company argues that the vesting schedule is determined at the time 
of the initial grant of the Restricted Stock and the option exercise 
price is determined at the time of the initial grant of the options. 
The Company represents that all purchases may be made only as permitted 
by the Amended Plan and the Amended 2009 Plan, which were approved by 
the Board prior to the application for relief. The Company argues that 
granting the requested relief would be consistent with policies 
underlying the provisions of the Act permitting the use of equity 
compensationas well as prior exemptive relief granted by the Commission 
for relief under section 23(c) of the Act.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16013 Filed 7-28-17; 8:45 am]
BILLING CODE 8011-01-P