[Federal Register Volume 76, Number 153 (Tuesday, August 9, 2011)]
[Notices]
[Pages 48929-48931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20103]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29744; File No. 812-13853]
American Capital, Ltd.; Notice of Application
August 3, 2011.
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 of Application: Applicant, American Capital, Ltd. requests
an order approving a proposal to grant stock options to directors who
are not also employees or officers of the applicant (the ``Non-employee
Directors'') under its 2010 Disinterested Director Stock Option Plan
(the ``Plan'').
DATES: Filing Dates: The application was filed on December 21, 2010,
and amended on July 22, 2011, and July 26, 2011.
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 August 29, 2011, 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 Dalia Osman Blass, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.
Applicant's Representations
1. 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 (``NAV'') 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 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 29, 2010,\3\ and
applicant's stockholders approved the Plan at the annual meeting of
stockholders held on September 15, 2010.
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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 serve as the lead
director of the Board receive an additional $25,000 per year
retainer and Non-employee Directors who chair a committee of the
Board receive an additional $15,000 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\ The Board approved amendments to the Plan on April 28, 2011,
and July 21, 2011.
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3. Non-employee Directors are eligible to receive options under the
Plan.\4\ Under the Plan, a maximum of 1,250,000 shares of applicant's
common
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stock, in the aggregate, may be issued to Non-employee Directors and
options to purchase 156,250 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 September
15, 2010, will be granted options to purchase 156,250 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 September 15, 2010. Any
person who becomes a Non-employee Director after September 15, 2010,
will be entitled to receive options to purchase 156,250 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.
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\4\ The Plan would authorize the issuance of options only to
Non-Employee Directors and not to employees or officers of
applicant.
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4. Under the terms of the Plan, the exercise price of an option
will not be less than 100% of the current market value of the Shares on
the date of issuance of the option, or if no such market value exists,
the current NAV of the Shares on the date of issuance of the options.
The Initial Grants will expire on September 15, 2020, 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 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.
5. Applicant's officers and employees, including directors who are
employees, are eligible or have been eligible to receive options under
stock option plans that exclude Non-employee Directors as participants
(the ``Employee Plans''). Non-employee Directors have been eligible to
receive options under applicant's two Disinterested Director stock
option plans (the ``1997 Disinterested Director Plan'' and the ``2000
Disinterested Director Plan'', together the ``Disinterested Director
Plans''). Additionally, applicant's officers and employees, as well as
Non-employee Directors, are eligible or have been eligible to receive
options under applicant's 2006 stock option plan (the ``2006 Option
Plan''), applicant's 2007 stock option plan (the ``2007 Option Plan''),
applicant's 2008 stock option plan (the ``2008 Option Plan''), and
applicant's 2009 stock option plan (``2009 Option Plan'')
(collectively, the 2009 Option Plan, the 2008 Option Plan, the 2007
Option Plan, the 2006 Option Plan, the Disinterested Director Plans and
the Employee Plans are the ``Other Plans''). Non-employee Directors are
now eligible to receive options only under the Plan.\5\ As of July 14,
2011, applicant had 350,309,123 shares of common stock outstanding.\6\
The 1,250,000 shares of applicant's common stock that may be issued to
Non-employee Directors under the Plan represent 0.3% of applicant's
outstanding voting securities as of July 14, 2011. As of July 14, 2011,
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 50,200,843 shares
of applicant's common stock, or 14.3% of applicant's outstanding voting
securities. As of July 14, 2011, 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\ The 1997 Disinterested Director Plan has expired, and,
therefore, no additional options may be issued under it. The 2000
Disinterested Director Plan, the 2006 Option Plan, the 2007 Option
Plan and the 2008 Option Plan have been amended so that no further
options will be awarded to Non-employee Directors under any of them.
The Board has voted to terminate the granting of any further options
to Non-employee Directors under the 2009 Option Plan upon receipt of
an order granting the requested relief.
\6\ 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 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 directors. In
addition to their duties as Board members generally, applicant states
that the Non-employee Directors provide guidance and advice on
operational
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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 50,200,843 shares of applicant's
common stock, or 14.3% of applicant's outstanding voting securities, as
of July 14, 2011. 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 68,698,074 shares of applicant's common stock, or 19.6% of
applicant's outstanding voting securities, as of July 14, 2011.
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.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20103 Filed 8-8-11; 8:45 am]
BILLING CODE 8011-01-P