[Federal Register Volume 64, Number 160 (Thursday, August 19, 1999)]
[Notices]
[Pages 45293-45294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21485]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23946; 812-11368]
Allied Capital Corporation; Notice of Application
August 12, 1999.
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, Allied Capital Corporation,
requests an order approving its stock option plan (the ``Plan'') to
grant options to directors who are neither employees nor officers of
applicant (the ``Eligible Directors'').
Filing Dates: The application was filed on October 20, 1998, and
amended on April 28, 1999. 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 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 on September 7, 1999, 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, SEC, 450 5th Street, NW, Washington, DC 20549-
0609. Applicant, 1919 Pennsylvania Avenue, NW, Washington, DC 20006-
3434.
FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at
(202) 942-0572, 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, NW, Washington, DC
20549-0102 (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's primary business
is making loans and investments in small and medium-sized companies.
Applicant's investment decisions are made by its management in
accordance with policies approved by applicant's board of directors
(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 the securities.
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2. Applicant requests an order under section 61(a)(3)(B) of the Act
approving the Plan for Eligible Directors, including each new Eligible
Director who may be appointed in the future to the Board. Applicant has
a twelve member Board, ten of whom are Eligible Directors.\2\ None of
the Eligible Directors is an ``interested person,'' as defined in
section 2(a)(19) of the Act, of applicant.
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\2\ Each of applicant's Eligible Directors receives $1,000 for
each meeting of the Board attended. In addition, members of the
executive committee of the Board receive annual compensation of
$10,000. Eligible Directors receive no other compensation for their
services to applicant.
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3. The Plan was approved by the Board on September 29, 1997, and
approved by applicant's shareholders on November 26, 1997. The Board
has implemented part of the Plan with respect to applicant's officers
and employee directors. The portion of the Plan applicable to Eligible
Directors will not be implemented until an order is received from the
Commission approving that portion of the Plan.
4. The Plan provides that each Eligible Director serving at the
time the requested order is issued, and each new Eligible Director at
the time he or she joins the Board, will be entitled to receive options
to purchase 10,000 shares. Thereafter, incumbent Eligible Directors
will be awarded options to purchase 5,000 shares each year. Options may
be granted under the Plan for a maximum of 6,250,000 shares, which is
approximately 12% of applicant's current outstanding shares. Applicant
has no warrants, options, or rights to purchase its voting stock
outstanding other than those issued pursuant to the Plan.
5. The exercise price of the options will be the closing price of
applicant's common stock on the Nasdaq National Market, or on the
exchange where applicant's shares are traded, on the date the option is
granted. Each option states the period or periods of time within which
the option may be exercised by the optionee, which may not exceed ten
years from the date the option is granted. All rights to exercise
options will terminate 60 days after an Eligible Director ceases to be
a director for any reason other than death or permanent disability. If
an Eligible Director dies or becomes permanently disabled, the Eligible
Directors estate may exercise his or her options during the one-year
period following the date of death or permanent disability. Options
will not be transferable other than by will or the laws of descent and
distribution. In the future, the Plan may be amended to permit options
to be transferable pursuant to a qualified domestic relations order
(``QDRO'') as defined by section 414(p) of the Internal Revenue Code of
1986, as amended (the ``Code'').\3\
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\3\ Applicant states that a QDRO is made pursuant to a court
order or decree under state domestic relations law (e.g., involving
divorce, child support, alimony, or marital property rights). Under
section 414(p) of the Code, a QDRO permits as state domestic
relations court to issue orders that will allow for employee plan
benefits to be paid to an alternate payee.
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6. Applicant's compensation committee (the ``Committee'') will
administer the Plan. The Committee, which currently has four members,
is and will be comprised of members of the Board who (a) are non-
employee directors; (b) have no financial interest in grants of stock
options to applicant's officers under the Plan; and (c) are not
``interested persons,'' as defined in section 2(a)(19) of the Act, of
applicant. Decisions by the Committee are subject to review and
approval by the full Board. The Plan may be modified, revised, or
terminated by the Board at any time. The Board is permitted to make any
modifications or revisions to any provision of the Plan without
shareholder approval except with respect to the number of shares
underlying options authorized for issuance under the Plan. The Plan as
it relates to grants of options to Eligible Directors will not be
modified materially from the description in the application without
obtaining an order of the Commission or approval of the Commission
staff.
[[Page 45294]]
Applicant's Legal Analysis
1. Section 61(a)(3)(B) of the Act provides, in pertinent part, that
a BDC may issue to its Eligible Directors options to purchase its
voting securities pursuant to an executive compensation plan, provided
that: (a) the options expire by their terms within 10 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 on the
basis that the terms of the proposal are fair and reasonable and does
not involve overreaching of the BDC or its shareholders; (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
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.
2. 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.
3. Applicant states that the terms of the Plan meet all the
requirements of section 61(a)(3)(B) of the Act. Applicant states that
the number of voting securities that would result from the exercise of
all options issued or issuable to officers and non-officer directors
under the Plan is 6,250,000 shares, or 12% of the company's outstanding
stock. The total number of shares of applicant's common stock issuable
under the Plan that may be granted in any one year to current Eligible
Directors represents about .08% of applicant's outstanding common
stock. Applicant states that given the small number of shares of common
stock issuable upon exercise of the options, the exercise of the
options pursuant to the Plan will not have a substantial dilutive
effect on the net asset value of applicant's common stock.
4. Applicant submits that the terms of the Plan are fair and
reasonable and do not involve overreaching of applicant or its
shareholders. Applicant states that the Eligible Directors are actively
involved in the management and oversight of applicant's business and
operations and are likely to have specific experience with respect to
industries in which applicant makes a significant number of
investments. Applicant asserts that the options will have value only to
the extent that applicant's market value increases above the exercise
price of the options, which will encourage the Eligible Directors to
remain on the Board and to devote their best efforts to the success of
applicant's business. In addition, applicant states that the Plan will
assist it in attracting qualified persons to serve as Eligible
Directors in future. Applicant further states that the options will
provide a means for the Eligible Directors to increase their ownership
interests in applicant, thereby ensuring close identification of their
interests with the interests of applicant and its shareholders.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21485 Filed 8-18-99; 8:45 am]
BILLING CODE 8010-01-M
