[Federal Register Volume 62, Number 202 (Monday, October 20, 1997)]
[Notices]
[Pages 54484-54485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27656]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22853; 812-10574]
Equus II Incorporated; Notice of Application
October 10, 1997.
AGENCY: Securities and Exchange Commission (the ``SEC'' or the
``Commission'').
ACTION: Notice of 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 Equus II Incorporated seeks an order
approving its 1997 Stock Incentive Plan (the ``Plan'') for certain of
its directors, and the grant of certain stock options under the Plan.
FILING DATES: The application was filed on March 11, 1997. Applicant
has agreed to file an amendment, the substance of which is incorporated
in this notice, during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on November 3,
1997, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street, N.W., Washington, D.C.
20549. Applicant, 2929 Allen Parkway, Suite 2500, Houston, Texas 77019.
FOR FURTHER INFORMATION CONTACT:
Lawrence W. Pisto, Senior Counsel, at (202) 942-0527, or Christine Y.
Greenlees, Branch Chief, at (202) 942-0564 (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 for a fee at the
SEC's Public Reference Branch, 450 5th Street, N.W., Washington, D.C.
20549 (tel. (202) 942-8090).
Applicant's Representations
1. Applicant is a business development company (``BDC'') within the
meaning of section 2(a)(48) of the Act.1 Applicant requests
an order pursuant to section 61(a)(3)(B) of the Act approving the Plan
as it applies to each director of the applicant who is neither an
officer nor an employee of the applicant (``Non-employee Director'')
and to each new Non-employee Director who may be elected in the future
to applicant's board of directors. The order also would approve the
automatic grant of options, pursuant to the Plan, to purchase shares of
applicant's common stock to each current and future Non-employee
Director.
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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's board of directors (the ``Board'') consists of eight
members. Five members of the Board are persons who are not ``interested
persons'' (as defined in section 2(a)(19) of the Act) of the applicant.
The Plan was approved by the Board on February 7, 1997, and by the
applicant's shareholders on April 9, 1997, at a special meeting of
shareholders. Officers, employees, and directors of the applicant are
eligible to participate in the Plan. Applicant seeks approval of the
Plan as it applies to Non-employee Directors. On May 15, 1997, the
Board implemented part of the Plan. The portion of the Plan applicable
to Non-employee Directors will not be implemented until an order is
received from the Commission approving that portion of the Plan.
3. Each Non-employee Director of the applicant receives an annual
director's fee of $20,000, a fee of $2,000 for each meeting of the
Board attended in person, a fee of $1,000 for participation in each
telephonic meeting and for each committee meeting attended, and
reimbursement of all out-of-pocket expenses relating to attendance at
meetings.
4. Equus Capital Management Corporation (``ECMC'') is an investment
adviser registered under the Investment Advisers Act of 1940 (the
``Advisers Act'') and serves as the applicant's management company.
ECMC receives no compensation from the applicant under section 205(1)
of the Advisers Act. Other than stock options issued to officers of the
applicant under the Plan, the applicant does not currently have
outstanding any warrants, options or rights to purchase its voting
securities.
5. The Plan provides that each Non-employee Director serving on the
Board as of the later of the date of approval of
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the Plan by: (a) The applicant's shareholders, or (b) an order of the
Commission, will be granted a nonqualified stock option to purchase
5,000 shares of common stock, $.01 par value (the ``Common Stock''), of
applicant that will vest 50% immediately and 16\2/3\% on the first,
second, and third anniversaries of the date of the grant. Each new Non-
employee Director will be granted upon his or her election a
nonqualified stock option for a similar number of shares. In addition,
beginning with the 1998 annual meeting of shareholders of applicant,
each Non-employee Director elected will, on the first business day
following the annual meeting, be granted a nonqualified stock option to
purchase 2,000 shares of Common Stock. The exercise price of the
options will be the closing price of the Common Stock on the American
Stock Exchange on the date the option is granted or, if no market for
the Common Stock exists, the current net asset value of the shares of
the Common Stock. Each option will be exercisable during the period
beginning six months after the date of the grant and ending ten years
after the date of the grant.
6. In the event that a Non-employee Director's services are
terminated because of death, permanent disability, or retirement, any
invested options will vest, and the Non-employee Director or, if the
Non-employee Director is not living, the Non-employee Director's
estate, may exercise his or her options during the one-year period
following the date of death, permanent disability, or retirement. The
termination of a Non-employee Director's services will not otherwise
accelerate the termination date of his or her options. Options may not
be assigned or transferred other than by will or the laws of descent
and distribution.
Applicant's Legal Analysis
1. Section 63(3) of the Act permits a BDC to sell its common stock
at a price below current net asset value upon the exercise of any
option issued in accordance with section 61(a)(3) of the Act.
2. Section 61(a)(3)(B) of the Act provides, in pertinent part, that
a BDC may issue to its Non-employee Directors options to purchase its
voting securities pursuant to an executive compensation plan, provided
that: (a) The options expire by their terms within ten years; (b) the
exercise price of the options is not less than the current market value
of the underlying securities at the date of the issuance of the
options, or if no market exists, the current net asset value of the
voting securities; (c) the proposal to issue the options is authorized
by the BDC's shareholders, and is approved by order of the SEC 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 paragraph (1) of section
205 of the Advisers Act, except to the extent permitted by clause (A)
or (B) of that section; and (f) the BDC does not have a profit-sharing
plan as described in section 57(n) of the Act.
3. In addition, section 61(a)(3)(B) of the Act provides that the
amount of the BDC's voting securities that would result from the
exercise of all outstanding warrants, options, and rights at the time
of issuance may not exceed 25% of the BDC's outstanding voting
securities, except that if the amount of voting securities that would
result from the exercise of all outstanding warrants, options, and
rights issued to the BDC's directors, officers, and employees pursuant
to an executive compensation plan would exceed 15% of the BDC's
outstanding voting securities, then the total amount of voting
securities that would result from the exercise of all outstanding
warrants, options, and rights at the time of issuance will not exceed
20% of the outstanding voting securities of the BDC.
4. Applicant represents that the Plan and the options that would be
granted automatically to current and future Non-employee Directors
would comply with the requirements of section 61(a)(3)(B) of the Act.
In addition, in support of its application, applicant states that its
directors devote substantial time and attention to matters relating to
applicant's portfolio companies, thus functioning more like the board
of an operating company than the board of a traditional investment
company. Applicant relies extensively on the judgment and experience of
its directors, and believes that these factors are critical to its
success. Further, applicant states that the Plan would provide
incentives to the Non-employee Directors to remain on the Board and
devote their best efforts to the success of applicant's business.
5. Applicant submits that the terms of the Plan are fair and
reasonable and do not involve overreaching of applicant or its
shareholders. Under the Plan, the amount of stock options that would be
granted to the six current Non-employee Directors would be 30,000
shares in 1997 and 12,000 shares each year commencing in 1998, or
approximately 1% of the 4,300,682 shares of Common Stock outstanding.
Applicant submits that, given the relatively small number of options
that may be granted and exercised by Non-employee Directors under the
Plan, the exercise of stock options pursuant to the Plan will not have
a substantial dilutive effect on the net asset value of applicant's
Common Stock. In addition, the total amount of voting securities that
would result from the exercise of all outstanding warrants, options,
and rights at the time of issuance would not exceed 20% of the
outstanding voting securities of the applicant. Further, because the
options may not be exercised until six months after the date of grant
and 50% of the stock options granted to Non-employee Directors vest on
a ratable basis over the three years following the date of grant, the
plan provides Non-employee Directors with an incentive to remain with
the applicant.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27656 Filed 10-17-97; 8:45 am]
BILLING CODE 8010-01-M
