
[Federal Register: April 3, 2008 (Volume 73, Number 65)]
[Notices]               
[Page 18304-18306]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03ap08-90]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28228; 812-13368]

 
Kohlberg Capital Corporation; Notice of Application

March 28, 2008.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order under section 61(a)(3)(B) 
of the Investment Company Act of 1940 (the ``Act'').

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

Summary of Application: Applicant, Kohlberg Capital Corporation 
(``Kohlberg Capital''), requests an order approving the proposal to 
grant stock options to directors who are not also employees or officers 
of Kohlberg Capital (the ``Non-Employee Directors'') under its 2008 
Non-Employee Director Plan (the ``Plan'').

Filing Dates: The application was filed on February 27, 2007, and 
amended on February 13, 2008, and March 21, 2008. Applicants have 
agreed to file an amendment to the application 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

[[Page 18305]]

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 April 22, 
2008, and should be accompanied by proof of service on 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: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicant, 295 Madison Avenue, 
6th Floor, New York, NY, 10017.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 551-6817, or Julia Kim Gilmer, 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 is available for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-0102 (telephone 202-551-5850).

Applicant's Representations

    1. Kohlberg Capital, a Delaware corporation, is a business 
development company (``BDC'') within the meaning of section 2(a)(48) of 
the Act.\1\ Kohlberg Capital provides debt and equity growth capital to 
privately-held middle market companies and its investment objective is 
to generate current income and capital appreciation from the 
investments made by those companies in senior secured term loans, 
mezzanine debt and selected equity investments. Kohlberg Capital may 
also invest in loans to larger, publicly traded companies, high-yield 
bonds, distressed debt securities and debt and equity securities issued 
by collateralized debt obligation funds. Kohlberg Capital's business 
and affairs are managed under the direction of its board of directors 
(``Board''). Kohlberg Capital does not have an external investment 
adviser within the meaning of section 2(a)(20) of the Act.
---------------------------------------------------------------------------

    \1\ Section 2(a)(48) 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.
---------------------------------------------------------------------------

    2. Kohlberg Capital requests an order under section 61(a)(3)(B) of 
the Act that would approve the proposal under the Plan to issue stock 
options to Non-Employee Directors to purchase shares of Kohlberg 
Capital's common stock, $0.01 par value per share (``Common Stock''). 
Kohlberg Capital has a seven member Board, four of whom are not 
``interested persons'' (as defined in section 2(a)(19) of the Act) 
(``Disinterested Directors''). The Non-Employee Directors are all 
Disinterested Directors, but it is possible that Kohlberg Capital may 
have Non-Employee Directors in the future who are interested persons of 
Kohlberg Capital.\2\ The Board approved the Plan on February 5, 2008. 
Kohlberg Capital's shareholders will vote on the Plan at its 2008 
annual meeting of shareholders.
---------------------------------------------------------------------------

    \2\ Each Non-Employee Director receives an annual fee of 
$25,000, $500 for each committee meeting attended, and reimbursement 
of reasonable out-of-pocket expenses incurred in attending Board 
meetings. Each Non-Employee Director who serves as chairperson of a 
Board committee receives an additional $5,000 per year, except that 
the chairperson of the audit committee receives $10,000 per year.
---------------------------------------------------------------------------

    3. Kohlberg Capital's Non-Employee Directors are eligible to 
receive stock options under the Plan. The Plan provides for the 
issuance of a maximum of 75,000 shares of Kohlberg Capital's Common 
Stock, in the aggregate, to Non-Employee Directors. The Plan also 
provides that each Non-Employee Director will automatically be granted 
options to purchase 5,000 shares of Kohlberg Capital's Common Stock on 
the date of each annual meeting of shareholders of Kohlberg Capital 
during the term of the Plan. One-half of the grant of options will vest 
immediately and the remaining one-half of the grant of options will 
vest on the earlier of (a) the first anniversary of the date of the 
grant, or (b) the date immediately preceding the next annual meeting of 
shareholders. A Non-Employee Director who is appointed to serve on the 
Board outside the annual election cycle will automatically be granted 
options for a number of shares of Common Stock equal to the product of 
(x) the number of full months remaining until the next annual meeting 
of shareholders divided by 12 and (y) 5,000. One-half of the pro-rata 
grant will vest immediately and the remaining one-half of the pro-rata 
grant on the earlier of (a) the first anniversary of the preceding 
annual meeting of shareholders, or (b) the date immediately preceding 
the next annual meeting of shareholders.
    4. Under the terms of the Plan, the exercise price of an option 
will not be less than the current market value of, or if no such market 
value exists, the current net asset value per share of, Kohlberg 
Capital's Common Stock on the date of the issuance of the option.\3\ 
Options granted under the Plan will expire within ten years from the 
date of grant and may not be assigned or transferred other than by will 
or the laws of descent and distribution.
---------------------------------------------------------------------------

    \3\ Under the Plan, ``current market value'' is the closing 
price of the Common Stock on the NASDAQ Global Select Market on the 
date the option is granted.
---------------------------------------------------------------------------

    5. Kohlberg Capital's officers and employees have been eligible to 
receive options under Kohlberg Capital's 2006 equity incentive plan 
under which Non-Employee Directors are not entitled to participate (the 
``Employee Plan''). As of December 31, 2007, Kohlberg Capital had 
18,017,699 shares of Common Stock outstanding.\4\ The 75,000 shares of 
Kohlberg Capital's Common Stock that may be issued to Non-Employee 
Directors under the Plan represent 0.42% of Kohlberg Capital's 
outstanding voting securities as of December 31, 2007. As of the same 
date, Kohlberg Capital had no outstanding warrants or rights to 
purchase its voting securities and the amount of voting securities that 
would result from the exercise of all outstanding options issued to 
Kohlberg Capital's officers and employees under the Employee Plan would 
be 1,315,000 shares of Common Stock, or approximately 7.30% of Kohlberg 
Capital's outstanding voting securities.
---------------------------------------------------------------------------

    \4\ Kohlberg Capital's Common Stock constitutes the only voting 
security of applicant currently outstanding.
---------------------------------------------------------------------------

Applicant's Legal Analysis

    1. Section 63(3) of the Act permits a BDC to sell its common stock 
at a price below current net asset value upon the exercise of any 
option issued in accordance with section 61(a)(3). Section 61(a)(3)(B) 
provides, in pertinent part, that a BDC may issue to its non-employee 
directors options to purchase its voting securities pursuant to an 
executive compensation plan, provided that: (a) The options expire by 
their terms within ten years; (b) the exercise price of the options is 
not less than the current market value of the underlying securities at 
the date of the issuance of the options, or if no market exists, the 
current net asset value of the voting securities; (c) the proposal to 
issue the options is authorized by the BDC's shareholders, and is 
approved by order of the Commission upon application; (d) the options 
are not transferable except for disposition by

[[Page 18306]]

gift, will or intestacy; (e) no investment adviser of the BDC receives 
any compensation described in section 205(a)(1) of the Investment 
Advisers Act of 1940, except to the extent permitted by clause (b)(1) 
or (b)(2) of that section; and (f) the BDC does not have a profit-
sharing plan as described in section 57(n) of the Act.
    2. In addition, section 61(a)(3) provides that the amount of the 
BDC's voting securities that would result from the exercise of all 
outstanding warrants, options, and rights at the time of issuance may 
not exceed 25% of the BDC's outstanding voting securities, except that 
if the amount of voting securities that would result from the exercise 
of all outstanding warrants, options, and rights issued to the BDC's 
directors, officers, and employees pursuant to an executive 
compensation plan would exceed 15% of the BDC's outstanding voting 
securities, then the total amount of voting securities that would 
result from the exercise of all outstanding warrants, options, and 
rights at the time of issuance will not exceed 20% of the outstanding 
voting securities of the BDC.
    3. Kohlberg Capital represents that its proposal to grant certain 
stock options to Non-Employee Directors under the Plan meets all the 
requirements of section 61(a)(3)(B). Kohlberg Capital states that the 
Board is actively involved in the oversight of its affairs and that it 
relies extensively on the judgment and experience of its Board. In 
addition to their duties as Board members generally, Kohlberg Capital 
states that the Non-Employee Directors provide guidance and advice on 
operational matters, asset valuation and strategic direction, as well 
as serving on committees. Kohlberg Capital believes that the 
availability of options under the Plan will provide significant at-risk 
incentives to Non-Employee Directors to remain on the Board and devote 
their best efforts to ensure Kohlberg Capital's success. Kohlberg 
Capital states that the options will provide a means for the Non-
Employee Directors to increase their ownership interests in Kohlberg 
Capital, thereby ensuring close identification of their interests with 
those of Kohlberg Capital and its shareholders. Kohlberg Capital 
asserts that by providing incentives such as options, it will be better 
able to maintain continuity in the Board's membership and to attract 
and retain the highly experienced, successful and dedicated business 
and professional people who are critical to Kohlberg Capital's success 
as a BDC.
    4. Kohlberg Capital states that the amount of voting securities 
that would result from the exercise of all outstanding options issued 
to its officers and employees under the Employee Plan would be 
1,315,000 shares of Kohlberg Capital's Common Stock, or approximately 
7.30% of its outstanding voting securities as of December 31, 2007, 
which is below the percentage limitations in the Act. Kohlberg Capital 
asserts that, given the relatively small amount of Common Stock 
issuable to Non-Employee Directors upon their exercise of options under 
the Plan, the exercise of such options would not, absent extraordinary 
circumstances, have a substantial dilutive effect on the net asset 
value of Kohlberg Capital's Common Stock.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-6876 Filed 4-2-08; 8:45 am]

BILLING CODE 8011-01-P
