Kohlberg Capital Corporation

(Exact name of Registrant as specified in its charter)

 

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Delaware		20-5951150
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

 

295 Madison Avenue, 6th Floor

New York, New York 10017

(Address of principal executive offices)

 

(212) 455-8300

(Registrant’s telephone number, including area code)

 

 

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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes   x    No   ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x    Non-accelerated filer   ¨ Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨    No   x

 

The number of outstanding shares of common stock of the registrant as of July 1, 2008 was 21,234,482.

 

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Item 1.	Financial Statements

KOHLBERG CAPITAL CORPORATION

BALANCE SHEETS

		As of June 30, 2008			As of December 31, 2007
		(unaudited)
ASSETS
Investments at fair value:
Investments in debt securities (cost: 2008 – $401,253,551; 2007 – $423,439,764)		$	380,692,261		$	410,954,082
Investments in CLO fund securities managed by non-affiliates (cost: 2008 – $15,491,101; 2007– $15,385,580)			7,487,000			9,900,000
Investments in CLO fund securities managed by affiliate (cost: 2008 – $50,139,375; 2007 – $20,675,684)			49,356,236			21,120,000
Investments in equity securities (cost: 2008 – $5,096,298; 2007 - $5,043,950)			3,605,297			4,752,250
Investments in asset manager affiliates (cost: 2008 – $35,394,198; 2007 – $33,469,995)			65,210,050			58,585,360
Total investments at fair value			506,350,844			505,311,692
Cash and cash equivalents			14,291,881			12,088,529
Restricted cash			5,753,303			7,114,364
Interest and dividends receivable			4,255,203			5,592,637
Due from affiliates			317,664			540,773
Other assets			1,906,606			2,493,964
Total assets		$	532,875,501		$	533,141,959
LIABILITIES
Borrowings			230,000,000			255,000,000
Payable for open trades			11,232,952			5,905,000
Accounts payable and accrued expenses			3,813,765			6,141,892
Dividend payable			8,849,740			7,026,903
Total liabilities		$	253,896,457		$	274,073,795
Commitments and contingencies (note 8)
STOCKHOLDERS’ EQUITY
Common stock, par value $.01 per share, 100,000,000 common shares authorized; 21,334,732 and 21,234,482 common shares issued and outstanding at June 30, 2008 and 18,017,699 issued and outstanding at December 31, 2007			212,345			180,177
Capital in excess of par value			281,764,129			253,253,152
Distribution in excess of net investment income			(1,351,756	)		(1,661,884	)
Accumulated net realized losses			(621,993	)		—
Net unrealized appreciation (depreciation) on investments			(1,023,681	)		7,296,719
Total stockholders’ equity			278,979,044			259,068,164
Total liabilities and stockholders’ equity		$	532,875,501		$	533,141,959
NET ASSET VALUE PER SHARE		$	13.14		$	14.38

 

See accompanying notes to financial statements.

3

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Debt Securities and Bond Portfolio

 

Portfolio Company / Principal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
Advanced Lighting Technologies, Inc.6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Senior Secured Loan – Term Loan (First Lien) 5.2%, Due 6/13		$	1,965,463		$	1,965,463		$	1,965,463
Advanced Lighting Technologies, Inc.6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Senior Secured Loan – Deferred Draw Term Loan (First Lien) 5.2%, Due 6/13			358,617			350,356			358,617
Advanced Lighting Technologies, Inc. Home and Office Furnishings, Housewares, and Durable Consumer Products			Senior Secured Loan – Revolving Loan 5.5%, Due 6/13			—			—			—
Advanced Lighting Technologies, Inc.6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Junior Secured Loan – Second Lien Term Loan Note 8.5%, Due 6/14			5,000,000			5,000,000			5,000,000
Aero Products International, Inc.6 Personal and Non Durable Consumer Products (Mfg. Only)			Senior Secured Loan – Term Loan 6.4%, Due 4/12			3,118,560			3,118,560			3,118,560
Aerostructures Acquisition LLC6 Aerospace and Defense			Senior Secured Loan – Delayed Draw Term Loan 5.7%, Due 3/13			500,000			500,000			500,000
Aerostructures Acquisition LLC6 Aerospace and Defense			Senior Secured Loan – Term Loan 5.8%, Due 3/13			6,256,250			6,256,250			6,256,250
AGA Medical Corporation6 Healthcare, Education and Childcare			Senior Secured Loan – Tranche B Term Loan 4.7%, Due 4/13			3,832,209			3,829,612			3,678,921
AGS LLC6 Hotels, Motels, Inns, and Gaming			Senior Secured Loan – Delayed Draw Term Loan 5.5%, Due 5/13			444,280			438,420			422,066
AGS LLC6 Hotels, Motels, Inns, and Gaming			Senior Secured Loan – Initial Term Loan 5.5%, Due 5/13			3,175,402			3,133,518			3,016,632
AmerCable Incorporated 6 Machinery (Non–Agriculture, Non-Construction, Non-Electronic)			Senior Secured Loan – Initial Term Loan 6.4%, Due 6/14			5,930,063			5,930,063			5,930,063
Astoria Generating Company Acquisitions, LLC6 Utilities			Junior Secured Loan – Second Lien Term Loan C 6.6%, Due 8/13			4,000,000			4,045,065			3,875,000
Atlantic Marine Holding Company6 Cargo Transport			Senior Secured Loan – Term Loan 6.0%, Due 3/14			1,730,705			1,740,895			1,722,046
Aurora Diagnostics, LLC6 Healthcare, Education and Childcare			Senior Secured Loan – Tranche A Term Loan (First Lien) 7.0%, Due 12/12			4,411,091			4,371,841			4,371,841
Awesome Acquisition Company (CiCi’s Pizza)6 Personal, Food and Miscellaneous Services			Junior Secured Loan – Term Loan (Second Lien) 7.8%, Due 6/14			4,000,000			3,975,510			3,820,000

7

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Debt Securities and Bond Portfolio

 

Portfolio Company / Principal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
AZ Chem US Inc.6 Chemicals, Plastics and Rubber			Junior Secured Loan - Second Lien Term Loan 8.2%, Due 2/14		$	4,000,000		$	3,960,094		$	3,220,000
Bankruptcy Management Solutions, Inc.6 Diversified/Conglomerate Service			Senior Secured Loan - First Lien Term Loan 6.5%, Due 7/12			1,965,000			1,975,703			1,852,013
Bankruptcy Management Solutions, Inc.6 Diversified/Conglomerate Service			Junior Secured Loan - Loan (Second Lien) 8.7%, Due 7/13			2,456,250			2,489,685			1,915,875
Bay Point Re Limited3,6 Insurance			Senior Secured Loan - Loan 7.2%, Due 12/10			140,000			140,758			140,000
Bicent Power LLC6 Utilities			Junior Secured Loan - Advance (Second Lien) 6.8%, Due 12/14			4,000,000			4,000,000			3,730,000
BP Metals, LLC6 Mining, Steel, Iron and Non-Precious Metals			Senior Secured Loan - First Lien Term Loan (June 2008) 11.8%, Due 6/13			5,000,000			5,000,000			5,000,000
Caribe Information Investments Incorporated 6 Printing and Publishing			Senior Secured Loan - Term Loan 5.0%, Due 3/13			1,707,996			1,701,217			1,528,657
Cast & Crew Payroll, LLC (Payroll Acquisition)6 Leisure, Amusement, Motion Pictures, Entertainment			Senior Secured Loan - Initial Term Loan 5.8%, Due 9/12			10,608,400			10,643,466			10,608,400
CEI Holdings, Inc. (Cosmetic Essence)6 Personal and Non Durable Consumer Products (Mfg. Only)			Senior Secured Loan - Term Loan 4.9%, Due 3/14			1,698,723			1,615,524			1,528,851
Centaur, LLC6 Hotels, Motels, Inns, and Gaming			Senior Secured Loan - Term Loan (First Lien) 6.8%, Due 10/12			4,122,807			4,074,769			3,978,509
Centaur, LLC6 Hotels, Motels, Inns, and Gaming			Senior Secured Loan - Delayed Draw Term Loan 6.8%, Due 10/12			—			—			—
Charlie Acquisition Corp. Personal, Food and Miscellaneous Services			Mezzanine Investment - Senior Subordinated Notes 15.5%, Due 6/13			10,360,491			10,194,798			9,324,442
Clarke American Corp.6 Printing and Publishing			Senior Secured Loan - Tranche B Term Loan 5.3%, Due 6/14			2,970,000			2,970,000			2,524,500
Clayton Holdings, Inc6 Finance			Senior Secured Loan - Term Loan 5.5%, Due 12/11			298,714			299,747			298,714
CoActive Technologies, Inc.6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Senior Secured Loan - Term Loan (First Lien) 5.8%, Due 7/14			3,980,000			3,962,521			3,962,521
CoActive Technologies, Inc.6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Junior Secured Loan - Term Loan (Second Lien) 9.6%, Due 1/15			2,000,000			1,963,977			1,963,977
Coastal Concrete Southeast, LLC Buildings and Real Estate 4			Mezzanine Investment - Mezzanine Term Loan 10.0%, Due 3/13			8,454,087			8,084,396			7,608,679

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Debt Securities and Bond Portfolio

 

Portfolio Company / Prinicipal Business		Investment Interest Rate¹  /Maturity			Principal			Cost			Value²
Cooper-Standard Automotive Inc6 Automobile			Senior Unsecured Bond 8.4%, Due 12/14		$	4,000,000		$	3,196,812		$	2,940,000
DaimlerChrysler Financial Services Americas LLC6 Finance			Senior Secured Loan - Term Loan (First Lien) 6.8%, Due 8/12			3,979,975			3,709,025			3,295,897
Dealer Computer Services, Inc. (Reynolds & Reynolds)6 Electronics			Junior Secured Loan - Term Loan (Second Lien) 8.3%, Due 10/13			1,000,000			1,008,726			990,000
Dealer Computer Services, Inc. (Reynolds & Reynolds)6 Electronics			Junior Secured Loan - Term Loan (Third Lien) 10.3%, Due 4/14			5,500,000			5,462,361			5,462,361
Delta Educational Systems, Inc.6 Healthcare, Education and Childcare			Senior Secured Loan - Term Loan 8.3%, Due 6/12			2,812,107			2,812,107			2,798,047
Dresser, Inc.6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Junior Secured Loan - Term Loan (Second Lien) 8.5%, Due 5/15			3,000,000			2,961,813			2,888,760
DRI Holdings, Inc.6 Healthcare, Education and Childcare			Junior Secured Loan - US Term Loan (Second Lien) 9.1%, Due 7/15			6,000,000			5,366,194			5,700,000
Edgestone CD Acquisition Corp. (Custom Direct)6 Printing and Publishing			Senior Secured Loan - Term Loan (First Lien) 5.6%, Due 12/13			4,478,476			4,483,286			4,478,476
Edgestone CD Acquisition Corp. (Custom Direct)6 Printing and Publishing			Junior Secured Loan - Loan (Second Lien) 8.8%, Due 12/14			5,000,000			5,000,000			5,000,000
eInstruction Corporation6 Healthcare, Education and Childcare			Senior Secured Loan - Initial Term Loan 6.5%, Due 7/13			4,945,087			4,945,087			4,945,087
eInstruction Corporation6 Healthcare, Education and Childcare			Junior Secured Loan - Term Loan (Second Lien) 14.0%, Due 7/14			10,000,000			10,000,000			10,000,000
Emerson Reinsurance Ltd.3 Insurance			Senior Secured Loan - Series C Loan 8.1%, Due 12/11			1,000,000			1,000,000			1,000,000
Endeavor Energy Resources, L.P.6 Oil and Gas			Junior Secured Loan - Second Lien Term Loan 7.0%, Due 3/12			4,000,000			4,000,000			4,000,000
Fasteners For Retail, Inc.6 Diversified/Conglomerate Manufacturing			Senior Secured Loan - Term Loan 7.2%, Due 12/12			4,343,250			4,350,318			4,299,817
FD Alpha Acquisition LLC (Fort Dearborn)6 Printing and Publishing			Senior Secured Loan - US Term Loan 5.5%, Due 11/12			1,866,729			1,726,531			1,838,728
First American Payment Systems, L.P.6 Finance			Senior Secured Loan - Term Loan 5.6%, Due 10/13			3,642,000			3,642,000			3,550,950

9

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Debt Securities and Bond Portfolio
Portfolio Company / Prinicipal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
Flatiron Re Ltd.3,6 Insurance			Senior Secured Loan - Closing Date Term Loan 7.1%, Due 12/10		$	1,191,853		$	1,199,223		$	1,191,853
Flatiron Re Ltd.3,6 Insurance			Senior Secured Loan - Delayed Draw Term Loan 7.1%, Due 12/10			577,304			580,873			577,304
Ford Motor Company6 Automobile			Senior Secured Loan - Term Loan 5.5%, Due 12/13			1,979,899			1,977,715			1,616,717
Freescale Semiconductor, Inc. Electronics			Senior Subordinated Bond 10.1%, Due 12/16			3,000,000			3,008,716			2,287,500
Frontier Drilling USA, Inc.6 Oil and Gas			Senior Secured Loan - Term B Advance 6.6%, Due 6/13			2,000,000			1,998,067			1,870,000
Ginn LA Conduit Lender, Inc.10 Buildings and Real Estate 4			Senior Secured Loan - First Lien Tranche A Credit-Linked Deposit 6.0%, Due 6/11			1,257,143			1,224,101			942,857
Ginn LA Conduit Lender, Inc. 10 Buildings and Real Estate 4			Senior Secured Loan - First Lien Tranche B Term Loan 9.5%, Due 6/11			2,694,857			2,624,028			2,021,143
Ginn LA Conduit Lender, Inc. 10 Buildings and Real Estate 4			Junior Secured Loan - Second Lien Term Loan 13.5%, Due 6/12			3,000,000			2,715,997			750,000
Gleason Works, The6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Senior Secured Loan - New US Term Loan 4.4%, Due 6/13			2,437,280			2,444,134			2,303,230
Hawkeye Renewables, LLC6 Farming and Agriculture			Senior Secured Loan - Term Loan (First Lien) 7.2%, Due 6/12			2,908,544			2,849,012			2,190,774
HMSC Corporation (aka Swett and Crawford)6 Insurance			Junior Secured Loan - Loan (Second Lien) 8.2%, Due 10/14			5,000,000			4,817,204			4,550,000
Huish Detergents Inc.6 Personal and Non Durable Consumer Products (Mfg. Only)			Junior Secured Loan - Loan (Second Lien) 7.1%, Due 10/14			1,000,000			1,000,000			833,000
Hunter Fan Company6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Senior Secured Loan - Initial Term Loan (First Lien) 5.2%, Due 4/14			4,023,929			3,851,124			3,420,339
Hunter Fan Company6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Junior Secured Loan - Loan (Second Lien) 9.5%, Due 10/14			3,000,000			3,000,000			2,347,500
IAL Acquisition Co. (International Aluminum Corporation)6 Mining, Steel, Iron and Non-Precious Metals			Senior Secured Loan - Term Loan 5.2%, Due 3/13			3,022,981			3,022,981			3,022,981
Infiltrator Systems, Inc.6 Ecological			Senior Secured Loan - Term Loan 7.5%, Due 9/12			3,930,000			3,919,181			3,919,181

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Debt Securities and Bond Portfolio
Portfolio Company / Prinicipal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
Inmar, Inc.6 Retail Stores			Senior Secured Loan - Term Loan 5.0%, Due 4/13		$	3,755,829		$	3,755,829		$	3,755,829
Intrapac Corporation/Corona Holdco6 Containers, Packaging and Glass			Senior Secured Loan - 1st Lien Term Loan 6.4%, Due 5/12			5,850,000			5,870,517			5,850,000
Intrapac Corporation/Corona Holdco6 Containers, Packaging and Glass			Junior Secured Loan - Term Loans (Second Lien) 10.4%, Due 5/13			3,000,000			3,019,877			3,000,000
Jones Stephens Corp.6 Buildings and Real Estate 4			Senior Secured Loan - Term Loan 6.6%, Due 9/12			10,167,912			10,142,936			10,142,936
JW Aluminum Company6 Mining, Steel, Iron and Non-Precious Metals			Junior Secured Loan - Term Loan (2nd Lien) 8.7%, Due 12/13			5,371,429			5,388,768			5,210,286
Kepler Holdings Limited3,6 Insurance			Senior Secured Loan - Loan 8.3%, Due 6/09			5,000,000			5,013,426			5,000,000
KIK Custom Products Inc.6 Personal and Non Durable Consumer Products (Mfg. Only)			Junior Secured Loan - Loan (Second Lien) 7.9%, Due 12/14			5,000,000			5,000,000			3,400,000
La Paloma Generating Company, LLC6 Utilities			Junior Secured Loan - Loan (Second Lien) 6.3%, Due 8/13			2,000,000			2,015,677			1,890,000
LBREP/L-Suncal Master I LLC 6,10 Buildings and Real Estate 4			Senior Secured Loan - Term Loan (First Lien) 7.3%, Due 1/10			3,875,156			3,816,779			2,906,367
LBREP/L-Suncal Master I LLC6,10 Buildings and Real Estate 4			Junior Secured Loan - Term Loan (Second Lien) 11.3%, Due 1/11			2,000,000			1,920,194			500,000
LBREP/L-Suncal Master I LLC10 Buildings and Real Estate 4			Junior Secured Loan - Term Loan (Third Lien) 11.8%, Due 2/12			2,332,868			2,332,868			233,287
Legacy Cabinets, Inc.6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Senior Secured Loan - Term Loan 7.1%, Due 8/12			2,281,464			2,281,464			2,281,464
Levlad, LLC & Arbonne International, LLC6 Personal and Non Durable Consumer Products (Mfg. Only)			Senior Secured Loan - Term Loan 5.1%, Due 3/14			2,788,274			2,788,274			1,958,763
LN Acquisition Corp. (Lincoln Industrial)6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Junior Secured Loan - Initial Term Loan (Second Lien) 8.5%, Due 1/15			2,000,000			2,000,000			1,970,000
LPL Holdings, Inc.6 Finance			Senior Secured Loan - Tranche D Term Loan 4.8%, Due 6/13			3,321,819			3,343,382			3,155,728
MCCI Group Holdings, LLC6 Healthcare, Education and Childcare			Senior Secured Loan - Term Loan (First Lien) 6.7%, Due 12/12			5,944,995			5,927,035			5,927,035

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Debt Securities and Bond Portfolio
Portfolio Company / Prinicipal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
MCCI Group Holdings, LLC6 Healthcare, Education and Childcare			Junior Secured Loan - Term Loan (Second Lien) 9.9%, Due 6/13		$	1,000,000		$	1,000,000		$	1,000,000
Murray Energy Corporation 6 Mining, Steel, Iron and Non-Precious Metals			Senior Secured Loan - Tranche B Term Loan (First Lien) 5.5%, Due 1/10			1,959,494			1,966,931			1,900,709
National Interest Security Company, L.L.C.6 Aerospace and Defense			Senior Secured Loan - Term Loan - 1st Lien 7.8%, Due 12/12			8,287,500			8,287,500			8,287,500
Northeast Biofuels, LP 6 Farming and Agriculture			Senior Secured Loan - Construction Term Loan 6.2%, Due 6/13			1,365,854			1,368,464			1,229,268
Northeast Biofuels, LP 6 Farming and Agriculture			Senior Secured Loan - Synthetic LC Term Loan 6.2%, Due 6/13			536,585			537,611			482,927
PAS Technologies Inc. Aerospace and Defense			Senior Secured Loan - Term Loan 7.4%, Due 6/11			3,958,333			3,938,709			3,938,709
PAS Technologies Inc. Aerospace and Defense			Senior Secured Loan - Incremental Term Loan Add On 7.3%, Due 6/11			800,562			800,562			800,562
Pegasus Solutions, Inc.6 Leisure, Amusement, Motion Pictures, Entertainment			Senior Secured Loan - Term Loan 6.1%, Due 4/13			5,725,000			5,725,000			5,725,000
Pegasus Solutions, Inc. Leisure, Amusement, Motion Pictures, Entertainment			Senior Unsecured Bond 10.5%, Due 4/15			2,000,000			2,000,000			2,000,000
Primus International Inc.6 Aerospace and Defense			Senior Secured Loan - Term Loan 4.9%, Due 6/12			1,252,922			1,255,174			1,221,599
QA Direct Holdings, LLC6 Printing and Publishing			Senior Secured Loan - Term Loan 6.9%, Due 8/14			4,962,406			4,917,438			4,917,438
Resco Products, Inc.6 Mining, Steel, Iron and Non-Precious Metals			Junior Secured Loan - Term Loan (Second Lien) 10.7%, Due 6/14			6,650,000			6,454,727			6,559,128
Rhodes Companies, LLC, The6 Buildings and Real Estate 4			Senior Secured Loan - First Lien Term Loan 10.3%, Due 11/10			1,771,111			1,694,768			1,363,756
Rhodes Companies, LLC, The6 Buildings and Real Estate 4			Junior Secured Loan - Second Lien Term Loan 11.6%, Due 11/11			2,003,722			2,013,473			1,269,037
San Juan Cable, LLC6 Broadcasting and Entertainment			Junior Secured Loan - Second Lien Term Loan 8.2%, Due 10/13			3,000,000			2,980,793			2,850,000
Schneller LLC6 Aerospace and Defense			Senior Secured Loan - Term Loan 6.2%, Due 6/13			4,718,391			4,677,759			4,694,799

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Debt Securities and Bond Portfolio
Portfolio Company / Prinicipal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
Seismic Micro-Technology, Inc. (SMT)6 Electronics			Senior Secured Loan - Term Loan 5.2%, Due 6/12		$	950,883		$	948,787		$	948,787
Seismic Micro-Technology, Inc. (SMT)6 Electronics			Senior Secured Loan - Term Loan 5.2%, Due 6/12			1,426,324			1,423,180			1,423,180
Specialized Technology Resources, Inc.6 Diversified/Conglomerate Service			Senior Secured Loan - Term Loan (First Lien) 5.0%, Due 6/14			3,950,050			3,950,050			3,950,050
Specialized Technology Resources, Inc.6 Diversified/Conglomerate Service			Junior Secured Loan - Loan (Second Lien) 9.5%, Due 12/14			7,500,000			7,500,000			7,500,000
Standard Steel, LLC6 Cargo Transport			Senior Secured Loan - Delayed Draw Term Loan 5.0%, Due 7/12			821,539			826,516			821,539
Standard Steel, LLC6 Cargo Transport			Senior Secured Loan - Initial Term Loan 5.3%, Due 7/12			4,076,499			4,101,193			4,076,499
Standard Steel, LLC6 Cargo Transport			Junior Secured Loan - Loan (Second Lien) 8.8%, Due 7/13			1,750,000			1,759,312			1,750,000
Stolle Machinery Company6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Senior Secured Loan - First Lien Term Loan 7.0%, Due 9/12			970,063			974,514			970,063
Stolle Machinery Company6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Junior Secured Loan - Loan (Second Lien) 9.0%, Due 9/13			700,000			709,663			700,000
TPF Generation Holdings, LLC6 Utilities			Junior Secured Loan - Second Lien Term Loan 7.1%, Due 12/14			2,000,000			2,030,724			1,900,000
TransAxle LLC Automobile			Senior Secured Loan - Revolver 6.8%, Due 8/11			600,000			596,509			597,905
TransAxle LLC6 Automobile			Senior Secured Loan - Term Loan 6.8%, Due 9/12			2,654,310			2,654,310			2,654,310
TUI University, LLC6 Healthcare, Education and Childcare			Senior Secured Loan - Term Loan 6.0%, Due 10/14			3,970,000			3,789,311			3,791,350
Twin-Star International, Inc.6 Home and Office Furnishings, Housewares, and Durable Consumer Products			Senior Secured Loan - Term Loan 5.6%, Due 4/13			4,950,000			4,950,000			4,950,000
United Maritime Group, LLC (fka Teco Transport Corporation)6 Cargo Transport			Junior Secured Loan - Term Loan (Second Lien) 10.0%, Due 12/13			4,500,000			4,500,000			4,500,000
Walker Group Holdings LLC6 Cargo Transport			Junior Secured Loan - Term Loan (Second Lien) 12.5%, Due 12/12			7,500,000			7,500,000			7,500,000

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Debt Securities and Bond Portfolio
Portfolio Company / Prinicipal Business		Investment Interest Rate¹ /Maturity			Principal			Cost			Value²
Water PIK, Inc.6 Personal and Non Durable Consumer Products (Mfg. Only)			Senior Secured Loan - Loan (First Lien) 5.7%, Due 6/13		$	1,975,025		$	1,963,467		$	1,935,525
Wesco Aircraft Hardware Corp.6 Aerospace and Defense			Junior Secured Loan - Second Lien Term Loan 8.6%, Due 3/14			4,132,887			4,163,765			4,070,894
WireCo WorldGroup Inc. Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Mezzanine Investment 11.0%, Due 2/15			5,000,000			4,778,705			5,000,000
WireCo WorldGroup Inc. 6 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Mezzanine Investment 11.0%, Due 2/15			10,000,000			10,000,000			10,000,000
Wolf Hollow I, LP 6 Utilities			Senior Secured Loan - Acquisition Term Loan 5.1%, Due 6/12			779,802			769,949			733,014
Wolf Hollow I, LP 6 Utilities			Senior Secured Loan - Synthetic Letter of Credit 4.7%, Due 6/12			668,412			659,966			628,307
Wolf Hollow I, LP 6 Utilities			Senior Secured Loan - Synthetic Revolver Deposits 4.7%, Due 6/12			167,103			164,992			157,077
Wolf Hollow I, LP 6 Utilities			Junior Secured Loan - Term Loan (Second Lien) 7.3%, Due 12/12			2,683,177			2,688,169			2,468,522
X-Rite, Incorporated 6 Electronics			Senior Secured Loan - Term Loan (First Lien) 9.5%, Due 10/12			990,013			985,710			990,013
X-Rite, Incorporated 6 Electronics			Junior Secured Loan - Loan (Second Lien) 10.5%, Due 10/13			1,000,000			1,000,000			1,000,000
Total Investment in Debt Securities and Bonds (137% of net asset value at fair value)					$	405,474,235		$	401,253,551		$	380,692,261

 

Equity Portfolio

 

Portfolio Company / Prinicipal Business		Investment			Percentage Interest			Cost			Value²
Aerostructures Holdings L.P.7			Partnership Interests			1.2	%	$	1,000,000		$	1,000,000
Aerospace and Defense
Allen–Vanguard Corporation3,7 Aerospace and Defense			Common Shares			0.0	%		42,541			25,680
Coastal Concrete Southeast, LLC7,8 Buildings and Real Estate 4			Warrants			3.5	%		474,140			—

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Equity Portfolio
Portfolio Company / Prinicipal Business		Investment			Percentage Interest			Cost			Value²
eInstruction Acquisition, LLC7 Healthcare, Education and Childcare			Membership Units			1.1	%		1,079,617			1,079,617
FP WRCA Coinvestment Fund VII, Ltd.3,7 Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			Class A Shares			0.7	%		1,500,000			1,500,000
Park Avenue Coastal Holding, LLC7 Buildings and Real Estate 4			Common Interests			2.0	%		1,000,000			—
Total Investment in Equity Securities (1% of net asset value at fair value)								$	5,096,298		$	3,605,297
CLO Fund Securities

 

Portfolio Company / Prinicipal Business		Investment			Percentage Interest			Cost			Value²
Grant Grove CLO, Ltd.3			Subordinated Securities			22.2	%	$	4,521,101		$	4,250,000
Katonah III, Ltd.3			Preferred Shares			23.1	%		4,500,000			1,394,000
Katonah IV, Ltd.3			Preferred Shares			17.1	%		3,150,000			1,012,000
Katonah V, Ltd.3			Preferred Shares			26.7	%		3,320,000			831,000
Katonah VII CLO Ltd.3,9			Subordinated Securities			16.4	%		4,500,000			3,526,000
Katonah VIII CLO Ltd3,9			Subordinated Securities			10.3	%		3,400,000			2,955,000
Katonah IX CLO Ltd3,9			Preferred Shares			6.9	%		2,000,000			2,141,000
Katonah X CLO Ltd 3,9			Subordinated Securities			33.3	%		11,055,435			11,875,000
Katonah 2007-I CLO Ltd.3,9			Preferred Shares			100.0	%		29,183,940			28,859,236
Total Investment in CLO Fund Securities (20% of net asset value at fair value)								$	65,630,476		$	56,843,236

 

Affiliate Investments

 

Portfolio Company / Prinicipal Business		Investment			Percentage Interest			Cost			Value²
Katonah Debt Advisors			Preferred Shares			100.0	%	$	34,151,495		$	63,967,347
Asset Management Company
PKSI			Class A Shares			100.0	%		1,239,203			1,239,203
Asset Management Company
PKSI			Class B Shares			35.0	%		3,500			3,500
Asset Management Company
Total Investment in Affiliates (23% of net asset value at fair value)								$	35,394,198		$	65,210,050
Total Investments5 (181% of net asset value at fair value)								$	507,374,523		$	506,350,844

 

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1

A majority of the variable rate loans to our portfolio companies bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), which typically resets semi-annually, quarterly, or monthly. For each such loan, we have provided the weighted average annual stated interest rate in effect at June 30, 2008.

2

Reflects the fair market value of all existing investments as of June 30, 2008, as determined by our Board of Directors.

3

Non-U.S. company or principal place of business outside the U.S.

4

Buildings and real estate relate to real estate ownership, builders, managers and developers and excludes mortgage debt investments and mortgage lenders or originators. As of June 30, 2008, we had no exposure to mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset backed securities), companies providing mortgage lending or emerging markets investments either directly or through our investments in CLO funds.

5

The aggregate cost of investments for federal income tax purposes is approximately $507 million. The aggregate gross unrealized appreciation is approximately $32 million and the aggregate gross unrealized depreciation is approximately $33 million.

6

Pledged as collateral for the secured revolving credit facility (see Note 6 to the financial statements).

7

Non-income producing.

8

Warrants having a strike price of $0.01 and expiration date of March 2017.

9

An affiliate CLO Fund managed by Katonah Debt Advisors or its affiliate.

10

Loan or debt security is on non-accrual status and therefore is considered non-income producing.

		June 30, 2008 (unaudited)									December 31, 2007
Security Type		Cost			Fair Value			% 1			Cost			Fair Value			% 1
Senior Secured Loan		$	223,245,488		$	216,214,013			78	%	$	265,390,844		$	260,138,674			100	%
Junior Secured Loan			136,744,636			125,317,627			45			120,620,715			113,259,293			44
Mezzanine Investment			33,057,899			31,933,121			11			32,418,975			33,066,115			12
Senior Subordinated Bond			3,008,716			2,287,500			1			3,009,230			2,490,000			1
Senior Unsecured Bond			5,196,812			4,940,000			2			2,000,000			2,000,000			1
CLO Fund Securities			65,630,476			56,843,236			20			36,061,264			31,020,000			12
Equity Securities			5,096,298			3,605,297			1			5,043,950			4,752,250			2
Affiliate Asset Managers			35,394,198			65,210,050			23			33,469,995			58,585,360			23
Total		$	507,374,523		$	506,350,844			181	%	$	498,014,973		$	505,311,692			195	%

 

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  ¹ Calculated as a percentage of net asset value at fair value.

 

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The unaudited industry concentrations, based on the fair value of the Company’s investment portfolio as of June 30, 2008 and December 31, 2007, were as follows:

		June 30, 2008									December 31, 2007
Industry Classification		Cost			Fair Value			% 1			Cost			Fair Value			% 1
Aerospace and Defense		$	30,922,261		$	30,795,993			11	%	$	32,583,716		$	32,481,819			13	%
Asset Management Companies 2			35,394,198			65,210,050			23			33,469,995			58,585,360			23
Automobile			8,425,347			7,808,932			3			5,286,731			5,147,010			2
Broadcasting and Entertainment			2,980,793			2,850,000			1			2,978,999			2,782,500			1
Buildings and Real Estate 3			38,043,680			27,738,061			10			37,726,396			34,944,226			13
Cargo Transport			20,427,913			20,370,087			7			14,967,369			14,958,789			6
Chemicals, Plastics and Rubber			3,960,094			3,220,000			1			3,956,582			3,220,000			1
CLO Fund Securities			65,630,476			56,843,236			20			36,061,264			31,020,000			12
Containers, Packaging and Glass			8,890,393			8,850,000			3			8,895,059			8,895,059			3
Diversified/Conglomerate Manufacturing			4,350,318			4,299,817			2			8,931,343			8,718,855			3
Diversified/Conglomerate Service			15,915,438			15,217,938			5			17,962,721			17,303,969			7
Ecological			3,919,181			3,919,181			1			3,937,850			3,937,850			2
Electronics			13,837,480			13,101,840			5			15,830,382			15,158,502			6
Farming and Agriculture			4,755,088			3,902,969			1			4,800,651			4,058,835			2
Finance			10,994,153			10,301,289			4			11,590,697			11,209,824			4
Healthcare, Education and Childcare			43,120,803			43,291,897			16			46,715,870			46,637,705			18
Home and Office Furnishings, Housewares, and Durable Consumer Goods			21,398,407			20,323,383			7			24,091,185			23,265,816			9
Hotels, Motels, Inns and Gaming			7,646,708			7,417,207			3			9,364,165			9,091,041			4
Insurance			12,751,484			12,459,157			4			24,346,884			23,941,763			9
Leisure, Amusement, Motion Pictures, Entertainment			18,368,466			18,333,400			7			18,402,600			18,402,600			7
Machinery (Non-Agriculture, Non-Construction, Non-Electronic)			37,225,390			37,188,615			13			39,573,338			39,483,418			15
Mining, Steel, Iron and Non-Precious Metals			21,833,407			21,693,104			8			16,338,446			16,069,759			6
Oil and Gas			5,998,067			5,870,000			2			5,997,874			5,960,000			2
Personal and Non Durable Consumer Products (Mfg. Only)			15,485,826			12,774,698			5			17,315,776			14,750,095			6
Personal, Food and Miscellaneous Services			14,170,308			13,144,442			5			13,918,651			13,765,201			5
Printing and Publishing			20,798,472			20,287,799			7			21,622,999			21,236,473			8
Retail Stores			3,755,829			3,755,829			1			4,962,500			4,813,625			2
Utilities			16,374,543			15,381,920			6			16,384,930			15,471,598			6
Total		$	507,374,523		$	506,350,844			181	%	$	498,014,973		$	505,311,692			195	%

 

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1

Calculated as a percentage of net asset value at fair value.

2

Represents Katonah Debt Advisors and affiliates.

3

Buildings and real estate relate to real estate ownership, builders, managers and developers and excludes mortgage debt investments and mortgage lenders or originators. As of June 30, 2008 and December 31, 2007, the Company had no exposure to mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset backed securities) or companies providing mortgage lending.

 

The Company may invest up to 30% of the investment portfolio in opportunistic investments in high-yield bonds, debt and equity securities in CLO Funds, distressed debt or equity securities of public companies. The Company expects that these public companies generally will have debt that is non-investment grade. The Company also may invest in debt of middle market companies located outside of the United States, which investments (excluding the Company’s investments in CLO Funds) are generally not anticipated to be in excess of 10% of the investment portfolio at the time such investments are made. As a result of regulatory restrictions, the Company is not permitted to invest in any portfolio company in which Kohlberg & Co. or any fund that it manages has a pre-existing investment.

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At June 30, 2008 and December 31, 2007, approximately 13% and 11%, respectively, of the Company’s investments were foreign assets (including the Company’s investments in CLO Funds, which are typically domiciled outside the U.S. and represented approximately 11% and 6% of its portfolio on such dates).

 

At June 30, 2008 and December 31, 2007, the Company’s ten largest portfolio companies represented approximately 34% and 29%, respectively, of the total fair value of its investments. The Company’s largest investment, Katonah Debt Advisors which is its wholly-owned portfolio company, represented 13% and 12% of the total fair value of the Company’s investments at June 30, 2008 and December 31, 2007, respectively. Excluding Katonah Debt Advisors and CLO Fund securities, our ten largest portfolio companies represent approximately 17% of the total fair value of our investments at both June 30, 2008 and December 31, 2007.

 

Investment in CLO Fund Securities

 

The Company typically makes a minority investment in the most junior class of securities of CLO Funds (typically preferred shares or subordinated securities) managed by Katonah Debt Advisors and may selectively invest in securities issued by funds managed by other asset management companies. It is the Company’s intention that its aggregate CLO Investments generally not exceed 10% of the Company’s total investment portfolio. Preferred shares or subordinated securities issued by CLO Funds are entitled to recurring dividend distributions which generally equal the net remaining cash flow of the payments made by the underlying CLO Fund’s securities less contractual payments to senior bond holders and CLO Fund expenses. CLO Funds managed by Katonah Debt Advisors (“CLO fund securities managed by affiliate”) invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which we have any investment are generally diversified secured or unsecured corporate debt and exclude mortgage pools or mortgage securities (residential mortgage bonds, commercial mortgage backed securities, or related asset-backed securities), debt to companies providing mortgage lending and emerging markets investments. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the fund less payments made to senior bond holders and less fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred stock.

 

On January 23, 2008, the Company’s wholly-owned asset management company, Katonah Debt Advisors, closed a new $315 million CLO Fund. The Company received a structuring fee upon closing and Katonah Debt Advisors expects to earn an ongoing asset management fee based on the par amount of the underlying investments in the CLO Fund. Securities issued by CLO Funds managed by Katonah Debt Advisors are primarily held by third parties. Kohlberg Capital invested approximately $29 million to acquire all of the shares of the most junior class of securities of this latest CLO Fund.

 

As of June 30, 2008, all of the CLO Funds in which the Company holds investments maintained the original issue credit ratings on all rated classes of their securities and were continuing to make cash payments to all classes of investors. As of June 30, 2008, the Company’s seasoned CLO Fund securities had an average annual cash yield of approximately 34%.

 

The subordinated securities and preferred stock securities are considered equity positions in the CLO Funds and, as of June 30, 2008 and December 31, 2007, the Company had approximately $57 million and $31 million, respectively, of such CLO equity investments at fair value. The cost basis of the Company’s investment in CLO Fund equity securities as of June 30, 2008 was approximately $66 million and aggregate unrealized losses on the CLO Fund securities totaled approximately $9 million. The cost basis of the Company’s investment in CLO Fund equity securities as of December 31, 2007 was approximately $36 million and aggregate unrealized losses on the CLO Fund securities totaled approximately $5 million.

 

Fair Value Measurements

 

The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (“SFAS 157”) as of January 1, 2008, which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. SFAS 157 defines fair value, establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Investments measured and reported at fair value are classified and disclosed in one of the following categories.

 

Level I – Quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I include listed equities and listed securities. As required by SFAS 157, the Company does not adjust the quoted price for these investments, even in situations where we hold a large position and a sale could reasonably affect the quoted price.

 

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Investments which are generally included in this category include illiquid corporate loans and bonds and less liquid, privately held or restricted equity securities for which some level of recent trading activity has been observed.

 

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Level III – Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value may require significant management judgment or estimation. Even if observable-market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level III if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation process.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

 

The following table summarizes the fair value of investments by the above SFAS 157 fair value hierarchy levels as of June 30, 2008:

 

		Level I			Level II			Level III			Total
Debt securities		$	—		$	—		$	380,692,261		$	380,692,261
CLO fund securities			—			—			56,843,236			56,843,236
Equity securities			—			—			3,605,297			3,605,297
Asset manager affiliates			—			—			65,210,050			65,210,050

 

The following table summarizes the Level III investments by valuation methodology as of June 30, 2008:

 

Fair Value Based on		Debt  Securities			CLO Fund  Securities			Equity  Securities			Asset  Manager  Affiliates			Total
Third party pricing service			8	%		—	%		—	%		—	%		8	%
Public / private company comparables			67			—			—			13			80
Discounted cash flow			—			11			—			—			11
Residual enterprise value			—			—			1			—			1
Total			75	%		11	%		1	%		13	%		100	%

 

As a BDC, it is required that the Company invest primarily in the debt and equity of non-public companies for which there is little, if any, market-observable information. As a result, most, if not all, of the Company’s investments at any given time will most likely be deemed Level III investments. The Company believes that investments classified as Level III for SFAS 157 have a further hierarchal framework which prioritizes and ranks such valuations based on the degree of independent and observable inputs, objectivity of data and models and the level of judgment required to adjust comparable data. The hierarchy of such methodologies are presented in the above table and discussed below in descending rank.

 

Investment values derived by a third party pricing service are deemed Level III values since such values are not traded on an active public exchange and may represent a traded or broker quote on an asset that is infrequently traded.

 

Values derived for debt securities using public/private company comparables generally utilize market-observable data from such comparables and specific, non-public and non-observable financial measures (such as earnings or cash flows) for the private, underlying company/issuer. Such non-observable company/issuer data is typically provided on a monthly basis, is certified as correct by the management of the company/issuer and audited by an independent accounting firm on an annual basis. Since such private company/issuer data is not publicly available it is not deemed market-observable data and, as a result, such investment values are grouped as Level III assets.

 

Values derived for asset manager affiliates using public/private company comparables generally utilize market-observable data from such comparables and specific, non-public and non-observable financial measures (such as assets under management, historical and prospective earnings) for the asset manager affiliate. The Company recognizes that comparable asset managers may not be fully comparable to its asset manager affiliates and typically identifies a range of performance measures and/or adjustments within the comparable population for which to determine value. Since any such ranges and adjustments are entity specific they are not considered market-observable data and thus require a Level III grouping.

 

Values derived through use of discounted cash flow models and residual enterprise value models typically have little, if any, market activity or market-observable data for such investments. Such investments are grouped as Level III assets.  

 

The changes in investments measured at fair value for which the Company has used Level III inputs to determine fair value are as follows:

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		Six Months Ended June 30, 2008
		Debt Securities			CLO Fund  Securities			Equity  Securities			Asset Manager  Affiliates			Total
Balance, December 31, 2007		$	410,954,082		$	31,020,000		$	4,752,250		$	58,585,360		$	505,311,692
Transfers in/out of Level 3			—			—			—			—			—
Net accretion of discount			261,908			709,977			—			—			971,885
Purchases (sales), net			(21,826,128	)		28,859,236			52,349			1,924,203			9,009,660
Total gain (loss) realized and unrealized included in earnings			(8,697,601	)		(3,745,977	)		(1,199,302	)		4,700,487			(8,942,393	)
Balance, June 30, 2008		$	380,692,261		$	56,843,236		$	3,605,297		$	65,210,050		$	506,350,844
Changes in unrealized gains (losses) included in earnings related to investments still held at reporting date		$	(8,075,608	)	$	(3,745,977	)	$	(1,199,302	)	$	4,700,487		$	(8,320,400	)

 

5. AFFILIATE ASSET MANAGERS

 

Wholly-Owned Asset Manager

 

Prior to its IPO, the Company issued an aggregate of 2,226,333 common shares, having a value of approximately $33 million, to affiliates of Kohlberg & Co. to acquire Katonah Debt Advisors. As a result, Katonah Debt Advisors is a wholly-owned portfolio company. As of June 30, 2008, Katonah Debt Advisors and its affiliates had approximately $2.3 billion of assets under management.

 

Katonah Debt Advisors manages CLO Funds primarily for third party investors that invest in broadly syndicated loans, high yield bonds and other credit instruments issued by corporations. These CLO Funds do not invest in asset-backed securities secured by commercial mortgages, residential mortgages or other consumer borrowings. At June 30, 2008, Katonah Debt Advisors had approximately $2.3 billion of assets under management and the Company’s 100% equity interest in Katonah Debt Advisors was valued at approximately $64 million. As a manager of the CLO Funds, Katonah Debt Advisors receives contractual and recurring management fees and may receive a one-time structuring fee from the CLO Funds for its management and advisory services. The annual fees which Katonah Debt Advisors receives are generally based on a fixed percentage of assets under management (at par value and not subject to changes in market value), and Katonah Debt Advisors generates annual operating income equal to the amount by which its fee income exceeds it operating expenses. In future years, Katonah Debt Advisors may receive accrued incentive fees upon the liquidation of CLO Funds it manages, provided such CLO Funds have achieved a minimum investment return to holders of their subordinated securities or preferred stock.

 

On January 2, 2008, the Katonah Debt Advisors platform acquired substantially all of the assets of Scott’s Cove Capital Management LLC (“Scott’s Cove”), an asset manager focused on an event-driven credit long short investment strategy. As a result of the acquisition, approximately $60 million of fee paying assets under management integrated within the Katonah Debt Advisors asset management platform. In connection with the acquisition, Katonah Debt Advisors entered into employment agreements with three Scott’s Cove investment professionals, and expects these individuals will assist in structuring, raising and investing new funds to be managed by Katonah Debt Advisors.

 

The Company expects to receive distributions of recurring fee income and to generate capital appreciation from its investment in the asset management business of Katonah Debt Advisors. By making investments in CLO Funds raised by Katonah Debt Advisors in the future, for which the Company expects to receive a current cash return, the Company can help Katonah Debt Advisors to raise these funds which in turn will increase its assets under management which will result in additional management fee income.

 

The revenue that Katonah Debt Advisors generates through the fees it receives for managing CLO Funds and after paying the expenses associated with its operations, including compensation of its employees, may be distributed to the Company. Any distributions of Katonah Debt Advisors’ net income are recorded as dividends from affiliate asset manager. As with all other investments, Katonah Debt Advisors’ fair value is periodically determined. The valuation is primarily based on an analysis of both a percentage of its assets under management and Katonah Debt Advisors’ estimated operating income. Any change in value from period to period is recognized as unrealized gain or loss.

 

As a separately regarded entity for tax purposes, Katonah Debt Advisors, L.L.C. is taxed at normal corporate rates. For tax purposes, any distributions of taxable net income earned by Katonah Debt Advisors to the Company would generally need to be distributed to the Company’s shareholders. Generally, such distributions of Katonah Debt Advisors’ income to the Company’s shareholders will be considered as qualified dividends for tax purposes. Katonah Debt Advisors’ taxable net income will differ from GAAP net income for both deferred tax timing adjustments and permanent tax adjustments. Deferred tax timing adjustments may include differences between lease cash payments to GAAP straight line expense and adjustments for the recognition and timing of depreciation, bonuses to employees, stock option expense, and interest rate caps. Permanent differences may include adjustments, limitations or disallowances for meals and entertainment expenses, penalties and tax goodwill amortization.

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Tax goodwill amortization was created upon the purchase of 100% of the equity interests in Katonah Debt Advisors prior to the Company’s IPO in exchange for shares of the Company’s stock valued at $33 million. Although this transaction was a stock transaction rather than an asset purchase and thus no goodwill was recognized for GAAP purposes, for tax purposes such exchange was considered an asset purchase under Section 351(a) of the Code. At the time of the transfer, Katonah Debt Advisors had equity of approximately $1 million resulting in tax goodwill of approximately $32 million which will be amortized for tax purposes on a straight-line basis over 15 years, resulting in an annual difference between GAAP income and taxable income by approximately $2 million per year over such period.

 

At June 30, 2008 and at December 31, 2007 a net amount due from affiliates totaled approximately $320,000 and approximately $540,000, respectively.

 

Summarized financial information for Katonah Debt Advisors follows:

		As of  June 30, 2008			As of  December 31, 2007
		(Unaudited)			(Unaudited)
Assets:
Current assets		$	8,704,543		$	7,035,155
Noncurrent assets			355,718			396,111
Total assets		$	9,060,261		$	7,431,266
Liabilities:
Current liabilities			4,293,946			4,254,202
Total liabilities		$	4,293,946		$	4,254,202

 

		Six Months Ended  June 30, 2008			Six Months Ended  June 30, 2007
		(Unaudited)			(Unaudited)
Gross revenue		$	7,077,883		$	4,969,190
Total expenses			5,895,132			3,830,938
Net income (loss)		$	1,182,751		$	1,138,252
Dividends declared		$	350,000		$	—
Cumulative undistributed net income		$	3,017,895		$	1,065,542

 

 The Company intends to distribute the current and accumulated net income of Katonah Debt Advisors in the future.

 

Distressed Debt Platform

		Six Months Ended June, 2008
		(Unaudited)
Pre-tax net increase in stockholders’ equity resulting from operations		$	7,492,537
Net unrealized losses on investments transactions not taxable			8,320,400
Expenses not currently deductible			(476,470	)
Taxable income before deductions for distributions		$	15,336,467
Taxable income before deductions for distributions per outstanding share		$	0.72

 

8. COMMITMENTS AND CONTINGENCIES

 

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the needs of the Company’s investment in portfolio companies. Such instruments include commitments to extend credit and may involve, in varying degrees, elements of credit risk in excess of amounts recognized on the Company’s balance sheet. Prior to extending such credit, the Company attempts to limit its credit risk by conducting extensive due diligence, obtaining collateral where necessary and negotiating appropriate financial covenants. As of June 30, 2008 and December 31, 2007, the Company had committed to make a total of approximately $3 million and $4 million, respectively, of investments in various revolving senior secured loans, of which approximately $600,000 was funded as of June 30, 2008 and $865,000 was funded as of December 31, 2007. As of June 30, 2008 and December 31, 2007, the Company had committed to make a total of approximately $875,000 and $8 million, respectively, of investments in a delayed draw senior secured loans of which none was funded as of June 30, 2008 and approximately $5 million was funded as of December 31, 2007.

 

Katonah Debt Advisors is currently a party to an agreement with Bear Stearns entered into in connection with a warehouse credit line established to fund the initial accumulation of assets for three CLO funds, pursuant to which agreement Katonah Debt Advisors has undertaken certain “first loss” commitments, as described in more detail below. In return for Katonah Debt Advisors’ first loss commitment, Katonah Debt Advisors is entitled to receive net interest income from the underlying assets in the loan warehouse. In the future, Kohlberg Capital or Katonah Debt Advisors may enter into similar agreements in connection with funding the initial accumulation of senior secured corporate loans and certain other debt securities for future CLO Funds that Katonah Debt Advisors will manage. Such “first loss” commitments relate to (i) losses (if any) as a result of individual loan investments being ineligible for purchase by a new CLO Fund (typically due to a payment default on such loan) when such fund formation is completed or, (ii) if a new CLO Fund has not been completed before the expiration of the related warehouse credit line, the loss (if any, and net of any accumulated interest income) on the resale of loans and debt securities funded by such warehouse credit line. In return for our first loss commitment, we receive net interest income from the underlying assets in the loan warehouse.

 

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Katonah Debt Advisors has engaged Bear Stearns to structure and raise three CLO funds, to be named Katonah 2007-I CLO Ltd. (“Katonah 2007”), Katonah 2008-I CLO Ltd. (“Katonah 2008-I”) and Katonah 2008-II CLO Ltd. (“Katonah 2008-II” and, together with Katonah 2007 and Katonah 2008-I, the “CLO Funds”), and to be managed by Katonah Debt Advisors (directly or indirectly through a services contract with an affiliate of Katonah Debt Advisors). The agreement with Bear Stearns survives the merger of Bear Stearns with JPMorgan Chase in June 2008 and continues to be in effect in accordance with its original terms. As part of this engagement, Katonah Debt Advisors entered into certain credit lines with Bear Stearns to accumulate and fund into a loan warehouse the initial assets for the CLO Funds. As mentioned above, Katonah Debt Advisors has undertaken a first loss commitment, requiring Katonah Debt Advisors to reimburse Bear Stearns for (i) certain losses (if any) incurred on the assets warehoused for the CLO Funds prior to their completion, or (ii) if one or all of the CLO Funds fail to close, a portion of the losses (if any) on the resale of the warehoused assets. On January 23, 2008, Katonah Debt Advisors and Bear Stearns closed Katonah 2007. Kohlberg Capital received a structuring fee upon closing and Katonah Debt Advisors expects to earn an ongoing asset management fee based on the par amount of the underlying investments in Katonah 2007. Approximately $212 million of assets were transferred from the loan warehouse into Katonah 2007 and such assets are no longer subject to a first loss obligation. While the securities issued by the CLO funds managed by Katonah Debt Advisors are primarily held by third parties, Kohlberg Capital invested approximately $29 million to acquire all of the shares of the most junior class of securities of Katonah 2007. In connection with the closing of Katonah 2007, Katonah Debt Advisors’ maximum first loss obligation amount under its commitment letter with Bear Stearns was reduced from $22.5 million to $18 million.

 

As of June 30, 2008, Katonah 2008-I and Katonah 2008-II had acquired an aggregate of approximately $152 million and $123 million in assets, respectively, determined on the basis of the par value of such assets. If the portfolio of remaining warehoused assets for Katonah 2008-I and Katonah 2008-II had been liquidated in accordance with the terms of the engagement with Bear Stearns on June 30, 2008, the loss on such portfolio would have exceeded our maximum first loss obligation. Katonah Debt Advisors is currently in discussions with Bear Stearns regarding the timing and structure of the remaining CLO Funds, and its ability to access the warehouse credit line contemplated by the Bear Stearns commitment letter.

 

As of June 30, 2008, the Company funded approximately $1.2 of our $2.5 million total commitment to PKSI which is an investment in the Class A shares of PKSI.

 

9. STOCKHOLDERS’ EQUITY

 

On December 11, 2006, the Company completed its IPO of 14,462,000 shares of common stock at $15.00 per share, less an underwriting discount and IPO expenses paid by the Company totaling $1.22 per share for net proceeds of approximately $200 million. Prior to its IPO, the Company issued to affiliates of Kohlberg & Co. a total of 3,484,333 shares of its common stock for the acquisition of certain subordinated securities issued by CLO Funds and for the acquisition of Katonah Debt Advisors. On April 28, 2008 the Company completed a rights offering which resulted in the issuance of 3.1 million common shares and net proceeds of approximately $27 million. During the year ended December 31, 2007, the Company issued 71,366 shares of common stock under its dividend reinvestment plan. During the six months ended June 30, 2008, the Company issued 116,783 shares of common stock under its dividend reinvestment plan and 100,250 shares of restricted stock. The total number of shares issued and outstanding as of June 30, 2008 was 21,334,732 and 21,234,482, respectively and shares issued and outstanding as of December 31, 2007 was 18,017,699.

 

10. STOCK OPTIONS

 

During 2006 and as amended in 2008, the Company established a stock option plan (the “Plan”) and reserved 2,000,000 shares of common stock for issuance under the Plan. The purpose of the Plan is to provide officers and prospective employees of the Company with additional incentives and align the interests of its employees with those of its shareholders. Options are exercisable at a price equal to the fair market value (market closing price) of the shares on the day the option is granted.

 

On December 11, 2006, concurrent with the completion of the Company’s IPO, options to purchase a total of 910,000 shares of common stock were granted to the Company’s executive officers and directors with an exercise price per share of $15.00 (the public offering price of the common stock). Such options vest equally over two, three or four years from the date of grant and have a ten-year exercise period. During the year ended December 31, 2007, the Company granted 495,000 options to its employees with a weighted average exercise price per share of $16.63, with a risk-free rate ranging between 4.6% to 5.3%, with volatility rates ranging between 20.5% to 22.4% and for which 25% of such options vest on each of the subsequent four grant date anniversaries and have a ten-year exercise period. During the six months ended June 30, 2008, and as approved by shareholders during the annual shareholders’ meeting on June 13, 2008, 20,000 options were granted to non-employee directors as partial annual compensation for their services as director. These grants were made with a ten-year exercise period with an exercise price of $11.97, with a risk free rate of 4.6% with a volatility rate of 28% and for which 50% of such options vest upon grant date and 50% vest on the first grant date anniversary.

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During the year ended December 31, 2007, 90,000 options granted to employees were forfeited. During the six months ended June 30, 2008, 15,000 options granted to employees were forfeited. As of June 30, 2008, 1,320,000 total options were outstanding, 412,500 of which were exercisable. The options have an estimated remaining contractual life of 8 years and 6 months.

 

During the six months ended June 30, 2008, the weighted average grant date fair value per share for options granted during the period was $1.50. During the year ended December 31, 2007, the weighted average grant date fair value per share for options granted during the period was $1.90. For both the six months ended June 30, 2008 and the year ended December 31, 2007, the weighted average grant date fair value per share for options forfeited during the period was $1.81. Information with respect to options granted, exercised and forfeited under the Plan for the six months ended June 30, 2008 is as follows:

 

		Shares			Weighted Average Exercise Price per Share			Weighted Average Contractual Remaining Term (years)			Aggregate Intrinsic Value 1
Options outstanding at January 1, 2008			1,315,000		$	15.52
Granted			20,000		$	11.97
Exercised			—
Forfeited			(15,000	)	$	16.36
Outstanding at June 30, 2008			1,320,000		$	15.46			8.5		$	—
Total vested at June 30, 2008			412,500		$	15.33			8.5

 

¹ Represents the difference between the market value of the options at June 30, 2008 and the cost for the option holders to exercise the options.

 

The Company uses a Binary Option Pricing Model (American, call option) as its valuation model to establish the expected value of all stock option grants. For the six months ended June 30, 2008, total stock option expense of approximately $310,000 was recognized and expensed at the Company; of this amount approximately $250,000 was expensed at the Company and approximately $60,000 was expensed at Katonah Debt Advisors. At June 30, 2008, the Company had approximately $1.2 million of compensation cost related to unvested stock-based awards the cost for which is expected to be recognized and allocated between the Company and Katonah Debt Advisors over a weighted average period of 2.0 years.

Restricted Stock

 

On June 13, 2008, the Company’s shareholders approved the Company’s 2006 Equity Incentive Plan, as amended. As of June 13, 2008, the board of directors had approved the grant of awards of 100,250 shares of restricted stock to certain executive officers of the Company. Such awards of restricted stock will vest as to 50% of the shares on the third anniversary of the grant date and the remaining 50% of the shares on the fourth anniversary of the grant date. During the six months ended June 30, 2008, the Company recognized non-cash compensation expense of approximately $12,000 relating to restricted stock grants. Dividends are paid on all outstanding shares of restricted stock, whether or not vested. In general, shares of unvested restricted stock are forfeited upon the recipient’s termination of employment.

 

On June 13, 2008, the Company’s Board of Directors authorized the Company to allow employees who agree to cancel options that they hold to receive shares of the Company's common stock to receive 1 share of restricted stock for every 5 options so cancelled. The shares of restricted stock received by employees through any such transaction will vest annually generally over the remaining vesting schedule as was applicable to the cancelled options. On June 30, 2008 none of such shares were vested. Subsequently on July 1, 2008, employees holding options to purchase 1,250,000 shares individually entered into agreements to cancel such options and to receive 250,000 shares of restricted stock. As a result, as of July 1, 2008, after giving effect to these option cancellations and restricted stock awards, there were options to purchase 70,000 shares of common stock outstanding and there were 350,250 shares of restricted stock outstanding.

 

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11. OTHER EMPLOYEE COMPENSATION

 

The Company adopted a 401(k) plan (“401K Plan”) effective January 1, 2007. The 401K Plan is open to all full time employees. The Plan permits an employee to defer a portion of their total annual compensation up to the Internal Revenue Service annual maximum based on age and eligibility. The Company makes contributions to the 401K Plan of up to 2.67% of the employee’s first 74.9% of maximum eligible compensation, which fully vest at the time of contribution. For the three and six months ended June 30, 2008, the Company made contributions to the 401K Plan of approximately $10,000 and $20,000. The Company contributed $5,000 for both the three and six months ended June 30, 2007.

 

The Company has also adopted a deferred compensation plan (“Pension Plan”) effective January 1, 2007. Employees are eligible for the Pension Plan provided that they are employed and working with the Company for at least 100 days during the year and remain employed as of the last day of the year. Employees do not make contributions to the Pension Plan. On behalf of the employee, the Company contributes to the Pension Plan 1) 8.0% of all compensation up to the Internal Revenue Service annual maximum and 2) 5.7% excess contributions on any incremental amounts above the social security wage base limitation and up to the Internal Revenue Service annual maximum. Employees vest 100% in the Pension Plan after five years of service. For the three and six months ended June 30, 2008, the Company made contributions to the Pension Plan of approximately $50,000 and $100,000. The Company contributed $25,000 for both the three and six months ended June 30, 2007.

 

12. IMPACT OF NEW ACCOUNTING STANDARDS

 

		Debt Securities			CLO Fund Securities			Equity Securities			Affiliate Asset Managers			Total Portfolio
2006 Activity:
Purchases / originations /draws		$	191,706,724		$	20,870,000		$	—		$	33,394,995		$	245,971,719
Pay-downs / pay-offs / sales			(533,315	)		—			—			(72,710	)		(606,025	)
Net amortized premium			(406,025	)		—			—			—			(406,025	)
Increase in fair value			—			—			—			4,252,710			4,252,710
Fair Value at December 31, 2006		$	190,767,384		$	20,870,000		$	—		$	37,574,995		$	249,212,379
2007 Activity:
Purchases / originations /draws		$	336,182,774		$	14,775,000		$	5,043,950		$	75,000		$	356,076,724
Pay-downs / pay-offs / sales			(104,037,559	)		—			—			—			(104,037,559	)
Net accretion of discount			260,848			416,264			—			—			677,112
Net realized gains			266,317			—			—			—			266,317
Increase (decrease) in fair value			(12,485,682	)		(5,041,264	)		(291,700	)		20,935,365			3,116,719
Fair Value at December 31, 2007		$	410,954,082		$	31,020,000		$	4,752,250		$	58,585,360		$	505,311,692
Year to Date 2008 Activity:
Purchases / originations /draws		$	33,592,201		$	28,859,236		$	52,349		$	1,924,203		$	64,427,989
Pay-downs / pay-offs / sales			(55,418,329	)		—			—			—			(55,418,329	)
Net accretion of discount			261,908			709,977			—			—			971,885
Net realized losses			(621,993	)		—			—			—			(621,993	)
Increase (decrease) in fair value			(8,075,608	)		(3,745,977	)		(1,199,302	)		4,700,487			(8,320,400	)
Fair Value at June 30, 2008		$	380,692,261		$	56,843,236		$	3,605,297		$	65,210,050		$	506,350,844

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In December 2007, we committed to make an investment in a new distressed investment platform organized by Steven Panagos and Jonathan Katz and named Panagos and Katz Situational Investing (“PKSI”). Mr. Panagos was most recently national practice leader of Kroll Zolfo Cooper’s Corporate Advisory and Restructuring Practice and Mr. Katz was the founding partner of Special Situations Investing, a distressed investing vehicle of JP Morgan. We expect that funds managed by PKSI will invest in the debt and equity securities of companies that are restructuring due to financial or operational distress. We also expect that PKSI may selectively originate new credit facilities with borrowers that are otherwise unable to access traditional credit markets. We committed to invest up to $2.5 million directly in PKSI through an investment in Class A shares. We have a 35% economic interest in PKSI through our investment in Class B shares on which we will receive our pro rata share of its operating income and may make an investment of up to $25 million in funds managed by PKSI on which we will receive investment income. PKSI may also source distressed debt opportunities in which we may make direct investments. As of June 30, 2008, we funded approximately $1.2 million of our $2.5 million total commitment to PKSI which is an investment in the Class A shares of PKSI.

 

Both Katonah Debt Advisors and PKSI are considered affiliate investments. As of June 30, 2008, our affiliate asset manager investments at fair value are approximately $65 million.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Our business activities contain elements of market risks. We consider our principal market risks to be fluctuations in interest rates and the valuations of our investment portfolio. Managing these risks is essential to our business. Accordingly, we have systems and procedures designed to identify and analyze our risks, to establish appropriate policies and thresholds and to continually monitor these risks and thresholds by means of administrative and information technology systems and other policies and processes.

 

Interest Rate Risk

 

Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio.

 

Our investment income is affected by fluctuations in various interest rates, including LIBOR and prime rates. As of June 30, 2008, approximately 89% of our loans at fair value in our portfolio were at floating rates with a spread to an interest rate index such as LIBOR or the prime rate. We generally expect that future portfolio investments will predominately be floating rate investments. As of June 30, 2008, we had $230 million of borrowings outstanding at a floating rate tied to prevailing commercial paper rates plus a margin of 0.85%.

 

Because we borrow money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by floating rate assets in our investment portfolio.

 

We have analyzed the potential impact of changes in interest rates on interest income net of interest expense. Assuming that our balance sheet at June 30, 2008 were to remain constant and no actions were taken to alter the existing interest rate sensitivity, a hypothetical increase or decrease of a 1% change in interest rates would correspondingly affect net interest income proportionately by approximately 1% over a one-year period. Correspondingly, a hypothetical increase or decrease of a 1% change in interest rates would correspondingly affect net interest expense proportionately by approximately 1% over a one-year period. Because most of our investments at June 30, 2008 were floating rate with a spread to an index similar to our financing facility, we would not expect a significant impact on our net interest spread.

 

Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect a net change in assets resulting from operations or net income. Accordingly, no assurances can be given that actual results would not materially differ from the potential outcome simulated by this estimate.

 

We did not hold any derivative financial instruments for hedging purposes as of June 30, 2008. In connection with the Facility established on February 14, 2007 and as amended on October 1, 2007, our special purpose subsidiary may be required under certain circumstances to enter into interest rate swap agreements or other interest rate hedging transactions.

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Portfolio Valuation

 

We carry our investments at fair value, as determined in good faith by our Board of Directors pursuant to procedures approved by our Board of Directors. Investments for which market quotations are readily available are valued at such market quotations. The Board of Directors has retained an independent valuation firm to provide third-party valuation consulting services, which consist of certain limited procedures that we identify and request the independent valuation firm to perform. During the preceding twelve months ended June 30, 2008, approximately 55% of our investments were investments that were marked to market or for which we utilized the valuation services provided by the independent valuation firm in connection with the determination of fair value by our Board of Directors. Investments for which there is not a readily available market value are valued at fair value as determined in good faith by our Board of Directors under a valuation policy and a consistently applied valuation process. However, due to the inherent uncertainty of determining the fair value of investments that cannot be marked to market, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments or from the values that would have been placed on our assets by other market participants, and the differences could be material. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations that are assigned. The types of factors that we may take into account in fair value pricing of our investments include, as relevant, the nature and realizable value of any collateral, third party valuations, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly-traded securities, recent sales of or offers to buy comparable companies, and other relevant factors.

 

Our Board of Directors is ultimately and solely responsible for determining the fair value of portfolio investments on a quarterly basis in good faith. Duff & Phelps, LLC, an independent valuation firm, provided, third party valuation consulting services to our Board of Directors, which consisted of certain limited procedures that our Board of Directors identified and requested them to perform. For the preceding twelve months ended June 30, 2008, our Board of Directors asked Duff & Phelps, LLC to perform the limited procedures on 43 investments comprising approximately 52% of the total investments at fair value for which market or third party quotations are not readily available. Upon completion of the limited procedures, Duff & Phelps, LLC concluded that the fair value of those investments subjected to the limited procedures did not appear to be unreasonable. In the future, our Board of Directors may continue to utilize the services of Duff & Phelps, LLC or may use another third party valuation provider.

Item 4T.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures. The Company’s management, under the supervision and with the participation of various members of management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our CEO and CFO have concluded that our current disclosure controls and procedures are effective as of the end of the period covered by this report.

 

Changes in Internal Control Over Financial Reporting . The Company’s management, under the supervision and with the participation of various members of management, including our CEO and our CFO, has evaluated any change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Management has concluded that there have been no changes in the Company’s internal control over financial reporting identified in connection with this evaluation that occurred during the quarter ended June 30, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. Other Information

Item 1.

Legal Proceedings

 

Neither we, nor any of our subsidiaries, are currently a party to any material legal proceedings, other than routine litigation and administrative proceedings arising in the ordinary course of business. Such proceedings are not expected to have a material adverse effect on the business, financial conditions, or results of our operations.

 

Item 1A.

Risk Factors

 

There were no material changes from the risk factors previously disclosed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and as updated in our Form N-2 filed on July 9, 2008.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

Item 3.

Defaults Upon Senior Securities

 

None.

Item 4.

Submission of Matters to a Vote of Security Holders

 

On June 13, 2008, we held our annual meeting of shareholders. The following five matters were submitted to a vote of the shareholders:

 

1.

To elect three directors, each for a term of three years;

 

2.

To ratify the selection of Deloitte & Touche LLP as our independent registered public accountant;

3.

To approve a proposal to authorize the Company, with approval of its Board of Directors, to sell shares of its common stock or warrants, options or rights to acquire its common stock at a price below the then current net asset value per share of common stock;

 

4.

To approve the Amended and Restated 2006 Equity Incentive Plan allowing for the issuance of options to acquire shares, restricted stock awards and other share-based awards thereunder;

5.

To approve the 2008 Non-Employee Director Plan allowing for issuance to the Company’s non-employee directors of options to acquire shares thereunder.

 

The results of the shares voted with regard to each of these matters are as follows:

 

1.

Election of Directors

 

Director		For			Withheld
Albert G. Pastino			14,459,021			352,035
C. Michael Jacobi			14,434,579			376,477
Samuel P. Frieder			11,693,968			3,117,088

 

2.

Ratification of appointment of Deloitte & Touche LLP

 

For		Against		Abstain		Broker Non-Votes
14,740,448		43,501		27,106		—

3.

Authorize the Company, with approval of its Board of Directors, to sell shares of its common stock or warrants, options or rights to acquire its common stock at a price below the then current net asset value per share of common stock

 

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For		Against		Abstain		Broker Non-Votes
9,776,147		1,495,045		97,482		3,442,382

 

4.

Approve the Amended and Restated 2006 Equity Incentive Plan

 

For		Against		Abstain		Broker Non-Votes
9,965,703		1,330,364		72,608		3,442,381

 

5.

Approve the 2008 Non-Employee Director Plan

 

For		Against		Abstain		Broker Non-Votes
9,959,207		1,343,408		66,060		3,442,381

Item 5.

Other Information

 

None.

Item 6.

Exhibits

Exhibit Number		Description of Document
4.1		Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K, as filed on June 19, 2008 (File No. 814-00735).
10.1		2008 Non-Employee Director Plan (incorporated herein by reference to Exhibit 99.I.4 of Kohlberg Capital Corporation’s Form N-2, as amended (File No. 333-151268)).
10.2		Amended and Restated 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K, as filed on June 19, 2008 (File No. 814-00735).
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer Pursuant to 18 U. S. C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer Pursuant to 18 U. S. C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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*	Submitted herewith.

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Table of Contents

 

Exhibit Index

Exhibit Number		Description of Document
4.1		Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K, as filed on June 19, 2008 (File No. 814-00735).
10.1		2008 Non-Employee Director Plan (incorporated herein by reference to Exhibit 99.I.4 of Kohlberg Capital Corporation’s Form N-2, as amended (File No. 333-151268)).
10.2		Amended and Restated 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K, as filed on June 19, 2008 (File No. 814-00735).
31.1*		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer Pursuant to 18 U. S. C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer Pursuant to 18 U. S. C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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*	Submitted herewith.

 

61

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CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS AMENDED

 

I, Dayl W. Pearson, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2008 of Kohlberg Capital Corporation (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 11, 2008		By:	/ S / D AYL W. P EARSON
			Dayl W. Pearson
			President and Chief Executive Officer
			(Principal Executive Officer)

 

 

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CERTIFICATION PURSUANT TO

RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS AMENDED

 

I, Michael I. Wirth, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2008 of Kohlberg Capital Corporation (the “registrant”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 11, 2008		By:	/ S / M ICHAEL I. W IRTH
			Michael I. Wirth
			Chief Financial Officer and Chief Compliance Officer
			(Principal Financial Officer)

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CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the accompanying Quarterly Report of Kohlberg Capital Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2008 (the “Report”), I, Dayl W. Pearson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 11, 2008		By:	/ S / D AYL W. P EARSON
			Dayl W. Pearson
			President and Chief Executive Officer
			(Principal Executive Officer)

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CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the accompanying Quarterly Report of Kohlberg Capital Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2008 (the “Report”), I, Michael I. Wirth, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 11, 2008		By:	/ S / M ICHAEL I. W IRTH
			Michael I. Wirth
			Chief Financial Officer and Chief Compliance Officer
			(Principal Financial Officer)

 

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