[Federal Register Volume 63, Number 108 (Friday, June 5, 1998)]
[Notices]
[Pages 30788-30789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14919]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23228; 812-10944]
Sirrom Capital Corporation; Notice of Application
May 29, 1998.
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, Sirrom Capital Corporation, requests
an order approving its Amended and Restated 1995 Stock Option Plan for
Non-Employee Directors (the ``Amended Plan''). The requested order
would supersede and existing order.
FILING DATES: The application was filed on December 31, 1997 and
amended on April 29, 1998.
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 June 23, 1998,
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, NW., Washington, DC 20549.
Applicant, 500 Church Street, Suite 200, Nashville, Tennessee 37219.
FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Staff Attorney, at
(202) 942-0574, or Edward P. Macdonald, 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 is available for a fee at the
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC
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 is a specialty
finance company that primarily makes loans to small businesses.
Applicant's investment objectives are to achieve both a high level of
current income and long-term growth in the value of its assets.
Applicant's investment decisions are made by a loan approval committee
comprised of senior management in accordance with policies approved by
its board of directors (the ``Board''). Applicant assists its portfolio
companies in establishing independent and effective boards of directors
and management teams, devising business strategies, obtaining necessary
financing, and increasing the value of the companies. 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 the Amended Plan for directors who are neither officers nor
employees of applicant during the two year period preceding the date of
grant of an option (``Non-Employee Directors'').\2\ On December 19,
1997, the Board adopted the Amended Plan subject to approval by the SEC
and applicant's shareholders. On April 17, 1998, applicant's
shareholders approved the Amended Plan. The Amended Plan will become
effective on the date it is approved by the SEC. The requested order
would supersede an existing order.\3\
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\2\ Currently, there are eight Non-Employee Directors: E. Townes
Duncan, William D. Eberle, Edward J. Mathias, Robert A. McCabe, Jr.,
Raymond H. Pirtle, Jr., L. Edward Wilson, P.E., Keith M. Thompson,
and John A. Morris, Jr., M.D. However, John A. Morris, Jr., M.D.
will not participate in the Amended Plan. Each Non-Employee Director
receives $10,000 per year if the Director attends 75% of the regular
board meetings held during the year and receives reimbursement of
expenses incurred in attending these meetings.
\3\ Sirrom Capital Corporation, Investment Company Act Release
No. 21667 (January 11, 1996).
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3. The Amended Plan provides for: (i) An initial automatic grant of
options to purchase 12,000 shares of applicant's common stock to a Non-
Employee Director upon election to the Board; and (ii) an automatic
grant of options to purchase an additional 4,000 shares of applicant's
common stock to each Non-Employee Director re-elected to the board in
April 1997 and April 1998 and to each Non-Employee Director who may be
re-elected to the Board in the future (collectively, ``Options''). A
total of 492,000 shares of applicant's common stock is issuable under
the Amended Plan.
4. Under the terms of the Amended Plan, the exercise price of an
Option is 100% of the current market price of applicant's common stock
on the date of issuance of the Option. The Options vest and become
exercisable on the first anniversary of the date of grant and expire
within ten years form the date of grant.
5. In the event of the death or disability of a Non-Employee
Director during the Director's service, unexercised Options immediately
become exercisable and may be exercised for a period of three years
following the date of death (by the Director's personal representative)
or one year following the date of disability. In the event of the
termination of a Non-Employee Director for cause, any unexercised
Options 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.
6. Applicant's officers and employees, including employee
directors, are eligible to receive options under applicant's two other
stock option plans (under which Non-Employee Directors are not entitled
to receive awards). The total number of shares of common stock that
would be issuable under the Amended Plan and these two other stock
option plans is 7,199,098 shares and represents 19.4% of the total
number of shares of applicant's outstanding common stock as of April
23, 1998. Applicant has no warrants, options or rights to purchase its
[[Page 30789]]
outstanding voting securities other than those granted to its
directors, officers, and employees pursuant to these three plans.
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 section 205(1) of the
Investment Advisers Act of 1940, 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 Amended Plan would comply with the
requirements of section 61(a) (3) (B) of the Act. Applicant submits
that the terms of the Amended Plan are fair and reasonable and do not
involve overreaching of applicant or its shareholders. Applicant states
that the Options would not be immediately exercisable and do not vest
until the first anniversary of the date of the grant. Applicant asserts
that under the Amended Plan, even if each of the current Non-Employee
Directors is re-elected for a period of three years, the total amount
of common stock issuable under the Options would be 164,000 shares
(28,000 shares of which would not yet be exercisable) or 0.44% of
applicant's outstanding common stock. In addition, applicant states
that the total number of shares of common stock issuable under the
Options that may be granted in any one year to the current Non-Employee
Directors represents .08% of applicant's outstanding common stock.
Applicant asserts that, given the small number of common stock issuable
upon exercise of the Options, the exercise of the Options pursuant to
the Amended Plan will not have a substantial dilutive effect on the net
asset value of applicant's common stock. Applicant states that, the
total amount of voting securities that would be issuable under the
Amended Plan at the time of issuance would not exceed 20% of
applicant's outstanding voting securities.
5. Applicant states that its directors are directly involved in the
oversight of the applicant's affairs, and applicant relies on the
judgment and experience of its directors. Applicant also states that
Non-Employee Directors are involved in applicant's ongoing operations
and marketing activities, and applicant's management regularly solicits
Non-Employee Directors for their ideas and advice with respect to
prospective investments, acquisitions, and operational matters.
Applicant believes that the Options will provide additional incentives
to Non-Employee Directors to remain on the Board. Applicant also
believes that the Options provide a means for Non-Employee Directors to
increase their ownership interests in the applicant, thereby further
ensuring close identification of their interests with those of the
applicant and its shareholders. Applicant asserts that incentives such
as Options will maintain continuity in the Board's membership and help
attract and retain highly experienced professionals that are critical
to applicant's success as a BDC.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14919 Filed 6-4-98; 8:45 am]
BILLING CODE 8010-01-M
