[Federal Register Volume 75, Number 181 (Monday, September 20, 2010)]
[Notices]
[Pages 57310-57312]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23408]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29416; File No. 812-13714]
American Capital, Ltd.; Notice of Application
September 14, 2010.
AGENCY: Securities and Exchange Commission (the ``Commission'').
ACTION: Notice of an application for an order under section 61(a)(3)(B)
of the Investment Company Act of 1940 (the ``Act'').
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SUMMARY: Summary of Application: Applicant, American Capital, Ltd.
requests an order approving a proposal to grant certain stock options
to
[[Page 57311]]
directors who are not also employees or officers of the applicant (the
``Non-employee Directors'') under its 2009 Stock Option Plan (the
``Plan'').
DATES: Filing Dates: The application was filed on November 5, 2009, and
amended on January 25, 2010, and September 7, 2010. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected in this notice.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on October 7, 2010, and should be accompanied by proof of
service on applicant, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Commission, 100 F Street,
NE., Washington, DC 20549-1090; Applicant, 2 Bethesda Metro Center,
14th Floor, Bethesda, Maryland 20814.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at
(202) 551-6876, or Michael W. Mundt, Assistant Director, at (202) 551-
6821 (Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicant's Representations
1. Applicant, a Delaware corporation, is a business development
company (``BDC'') within the meaning of section 2(a)(48) of the Act.\1\
Applicant's primary business objectives are to increase its net
operating income and net asset value by investing its assets in senior
debt, subordinated debt, with and without detachable warrants, and
equity of small to medium sized businesses with attractive current
yields and potential for equity appreciation. Applicant's investment
decisions are made either by its board of directors (the ``Board''),
based on recommendations of the executive officers of applicant, or,
for investments that meet certain objective criteria established by the
Board, by the executive officers of applicant, under authority
delegated by the Board. Applicant does not have an external investment
adviser within the meaning of section 2(a)(20) of the Act.
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\1\ Section 2(a)(48) defines a BDC to be any closed-end
investment company that operates for the purpose of making
investments in securities described in sections 55(a)(1) through
55(a)(3) of the Act and makes available significant managerial
assistance with respect to the issuers of such securities.
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2. Applicant requests an order under section 61(a)(3)(B) of the Act
approving its proposal to grant certain stock options under the Plan to
its Non-employee Directors.\2\ Applicant has a nine member Board with
one current vacancy. Seven of the eight current members of the Board
are not ``interested persons'' (as defined in section 2(a)(19) of the
Act) of the applicant (``Disinterested Directors''). All of the current
Non-employee Directors are Disinterested Directors. The Board approved
the Plan at a meeting of the Board held on April 6, 2009 and
applicant's stockholders approved the Plan at the annual meeting of
stockholders held on June 11, 2009.\3\
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\2\ The Non-employee Directors receive a $100,000 per year
retainer payment and $3,000 for each Board or committee meeting or
other designated Board-related meeting attended, and reimbursement
for related expenses. Non-employee Directors who chair a committee
of the Board receive an additional $10,000 retainer per year. Non-
employee Directors who serve as directors on the boards of portfolio
companies also receive an annual retainer from applicant set at
$30,000 per board, in lieu of any payment from the portfolio
company.
\3\ At a Board meeting held on January 14, 2010, the Board
approved an amendment to the Plan. At such meeting, the Board
determined that the amendment did not require stockholder approval
under Section 10 of the Plan or applicable law or NASDAQ listing
requirements. The Company acknowledges that the Commission is not
taking a position as to whether the Company is required to seek
stockholder approval for the amendment.
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3. Applicant's officers, employees, and Non-employee Directors are
eligible to receive options under the Plan. Under the Plan, a maximum
of 750,000 shares of applicant's common stock, in the aggregate, may be
issued to Non-employee Directors and options to purchase 93,750 shares
of applicant's common stock may be issued to any one Non-employee
Director. On the date that the Commission issues an order on the
application (``Order Date''), each of the seven Non-employee Directors
serving on the Board as of June 11, 2009 will be granted options to
purchase 93,750 shares of applicant's common stock (the ``Initial
Grants''), provided that the Non-employee Director is a member of the
Board on the Order Date. The options issued under the Initial Grants
will vest in three equal parts on each of the first three anniversaries
of June 11, 2009. Any person who becomes a Non-employee Director after
June 11, 2009 will be entitled to receive options to purchase 93,750
shares of applicant's common stock (the ``Other Grants''), if and to
the extent that there are options available for grant to Non-employee
Directors under the Plan. Each Other Grant will be effective on the
later of the date such person becomes a Non-employee Director and the
Order Date. The options issued under the Other Grants will vest in
three equal parts on each of the first three anniversaries of the date
such person becomes a Non-employee Director.
4. Under the terms of the Plan, the exercise price of an option
will not be less than 100% of the current market value, or if no such
market value exists, the current net asset value (``NAV'') per share of
applicant's common stock on the date of the issuance of the option
(``Fair Market Value'').\4\ The Initial Grants will expire on June 11,
2019, and the Other Grants will expire on the tenth anniversary of the
date the person becomes a Non-employee Director. Options granted under
the Plan may not be assigned or transferred other than by will or the
laws of descent and distribution. In the event of the death or
disability (as defined in the Plan) of a Non-employee Director during
such director's service, all such director's unexercised options will
immediately become exercisable and may be exercised for a period of
three years following the date of death (by such director's personal
representative) or one year following the date of disability, but in no
event after the respective expiration dates of such options. In the
event of the termination of a Non-employee Director for cause, any
unexercised options will terminate immediately. If a Non-employee
Director's service is terminated for any reason other than by death,
disability, or
[[Page 57312]]
for cause, the options may be exercised within one year immediately
following the date of termination, but in no event later than the
expiration date of such options.
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\4\ Under the Plan, ``Fair Market Value'' is defined as follows:
(a) if applicant's common stock is listed on any established
exchange or traded on the NASDAQ Global Select Market, the closing
sales price of the common stock as quoted on such exchange or market
(or if the common stock is traded on multiple exchanges or markets,
the exchange or market with the greatest volume of trading in the
common stock) on the date on which an option is granted under the
Plan, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or (b) in the absence of closing sales
prices on such exchanges or markets for the common stock, the Fair
Market Value will be determined in good faith by the Board, but in
no event shall be less than the current NAV per share of common
stock.
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5. Applicant's officers and employees are eligible or have been
eligible to receive options under stock option plans that exclude Non-
employee Directors as participants (the ``Employee Plans''),
applicant's 2006 stock option plan (the ``2006 Option Plan''),
applicant's 2007 stock option plan (the ``2007 Option Plan''), and
applicant's 2008 stock option plan (the ``2008 Option Plan''). Non-
employee Directors have been eligible to receive options under
applicant's two Disinterested Director stock option plans (the
``Disinterested Director Plans''), the 2006 Option Plan, the 2007
Option Plan and the 2008 Option Plan (collectively, the 2008 Option
Plan, the 2007 Option Plan, the 2006 Option Plan, the Disinterested
Director Plans and the Employee Plans are the ``Other Plans''). As of
August 18, 2010, applicant had 350,309,123 shares of common stock
outstanding.\5\ The 750,000 shares of applicant's common stock that may
be issued to Non-employee Directors under the Plan represent 0.2% of
applicant's outstanding voting securities as of August 18, 2010. As of
August 18, 2010, the amount of voting securities that would result from
the exercise of all outstanding options issued to applicant's
directors, officers, and employees under the Other Plans and the Plan
would be 33,553,256 shares of applicant's common stock, or 9.5% of
applicant's outstanding voting securities. As of August 18, 2010,
applicant had no outstanding warrants, options, or rights to purchase
its voting securities other than the outstanding options issued to
applicant's directors, officers, and employees under the Other Plans
and the Plan.
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\5\ Applicant's common stock constitutes the only voting
security of applicant currently outstanding.
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Applicant's Legal Analysis
1. Section 63(3) of the Act permits a BDC to sell its common stock
at a price below current NAV upon the exercise of any option issued in
accordance with section 61(a)(3). Section 61(a)(3)(B) provides, in
pertinent part, that a BDC may issue to its non-employee directors
options to purchase its voting securities pursuant to an executive
compensation plan, provided that: (a) The options expire by their terms
within ten years; (b) the exercise price of the options is not less
than the current market value of the underlying voting securities at
the date of the issuance of the options, or if no market value exists,
the current NAV of the underlying voting securities; (c) the proposal
to issue the options is authorized by the BDC's shareholders, and is
approved by order of the Commission upon application; (d) the options
are not transferable except for disposition by gift, will or intestacy;
(e) no investment adviser of the BDC receives any compensation
described in section 205(a)(1) of the Investment Advisers Act of 1940,
except to the extent permitted by clause (b)(1) or (b)(2) of that
section; and (f) the BDC does not have a profit-sharing plan as
described in section 57(n) of the Act.
2. In addition, section 61(a)(3) provides that the amount of the
BDC's voting securities that would result from the exercise of all
outstanding warrants, options, and rights at the time of issuance may
not exceed 25% of the BDC's outstanding voting securities, except that
if the amount of voting securities that would result from the exercise
of all outstanding warrants, options, and rights issued to the BDC's
directors, officers, and employees pursuant to any executive
compensation plan would exceed 15% of the BDC's outstanding voting
securities, then the total amount of voting securities that would
result from the exercise of all outstanding warrants, options, and
rights at the time of issuance will not exceed 20% of the outstanding
voting securities of the BDC.
3. Applicant represents that its proposal to grant certain stock
options to Non-employee Directors under the Plan meets all the
requirements of section 61(a)(3)(B). Applicant states that the Board is
actively involved in the oversight of applicant's affairs and that it
relies extensively on the judgment and experience of its Board. In
addition to their duties as Board members generally, applicant states
that the Non-employee Directors provide guidance and advice on
operational issues, underwriting policies, credit policies, asset
valuation and strategic direction, as well as serving on committees.
Applicant believes that the availability of options under the Plan will
provide significant at-risk incentives to Non-employee Directors to
remain on the Board and devote their best efforts to ensure applicant's
success. Applicant states that the options will provide a means for the
Non-employee Directors to increase their ownership interests in
applicant, thereby ensuring close identification of their interests
with those of applicant and its stockholders. Applicant asserts that by
providing incentives such as options, applicant will be better able to
maintain continuity in the Board's membership and to attract and retain
the highly experienced, successful and dedicated business and
professional people who are critical to applicant's success as a BDC.
4. As noted above, applicant states that the amount of voting
securities that would result from the exercise of all outstanding
options issued to applicant's directors, officers, and employees under
the Other Plans and the Plan would be 33,553,256 shares of applicant's
common stock, or 9.5% of applicant's outstanding voting securities, as
of August 18, 2010. However, applicant represents that the maximum
number of voting securities that would result from the exercise of all
outstanding options issued and all options issuable to applicant's
directors, officers, and employees under the Plan and the Other Plans
would be 70,981,813 shares of applicant's common stock, or 20.2% of
applicant's outstanding voting securities, as of August 18, 2010.
Applicant states that to the extent the number of shares of common
stock that would be issued upon the exercise of options issued under
the Other Plans and the Plan exceeds 15% of applicant's outstanding
voting securities, applicant will comply with the 20% limit in section
61(a)(3) of the Act.
5. Applicant asserts that, given the relatively small amount of
common stock issuable to Non-employee Directors upon their exercise of
options under the Plan, the exercise of such options would not, absent
extraordinary circumstances, have a substantial dilutive effect on the
NAV of applicant's common stock.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23408 Filed 9-17-10; 8:45 am]
BILLING CODE 8010-01-P