Document ID: SEC-2009-1307-0001
Agency: sec
Document Type: Notice
Title: American Capital, Ltd.; Notice of Application
Posted Date: 2009-09-11T04:00Z

[Federal Register: September 11, 2009 (Volume 74, Number 175)]
[Notices]               
[Page 46811-46813]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11se09-89]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28895; File No. 812-13535]

 
American Capital, Ltd.; Notice of Application

September 3, 2009.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an application for an order under section 61(a)(3)(B) 
of the

[[Page 46812]]

Investment Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Applicant, American Capital, Ltd. (f/k/a 
American Capital Strategies, Ltd.) requests an order approving a 
proposal to grant certain stock options to directors who are not also 
employees or officers of the applicant (the ``Non-employee Directors'') 
under its 2008 Stock Option Plan (the ``Plan'').

DATES:  Filing Dates: The application was filed on May 28, 2008 and 
amended on November 21, 2008, July 21, 2009, and August 28, 2009.

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 September 29, 2009, 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 Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090; Applicant, 2 Bethesda Metro 
Center, 14th Floor, Bethesda, Maryland 20814.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873, or Marilyn Mann, 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 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 March 13, 2008 and 
applicant's stockholders approved the Plan at the annual meeting of 
stockholders held on May 19, 2008.\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 Board meetings held on November 13, 2008 and July 9, 
2009, the Board approved amendments to the Plan. At each meeting, 
the Board determined that the applicable amendments did not require 
stockholder approval under Section 10 of the Plan or applicable law 
or NASDAQ listing requirements. Applicant acknowledges that the 
Commission is not taking a position as to whether applicant is 
required to seek stockholder approval for the amendments.
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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 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 May 19, 2008 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, 
the first part on the Order Date and the remaining two parts on May 19, 
2010 and May 19, 2011. Any person who becomes a Non-employee Director 
after May 19, 2008 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 May 19, 
2018, 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 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,

[[Page 46813]]

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.
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    \4\ Under the Plan, ``Fair Market Value'' is defined as follows: 
(a) If the common stock is listed on any established exchange or 
traded on the NASDAQ Global Select Market, the closing sales price 
of applicant's 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 2009 stock option plan (the ``2009 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 and the 2007 
Option Plan (collectively, the 2009 Option Plan, the 2007 Option Plan, 
the 2006 Option Plan, the Disinterested Director Plans and the Employee 
Plans are the ``Other Plans''). As of June 30, 2009, applicant had 
224,493,289 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 0.3% of applicant's outstanding 
voting securities as of June 30, 2009. As of June 30, 2009, 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 37,107,027 shares 
of applicant's common stock, or 16.5% of applicant's outstanding voting 
securities. As of June 30, 2009, 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 securities at the date 
of the issuance of the options, or if no market value exists, the 
current NAV 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 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 37,107,027 shares of applicant's 
common stock, or 16.5% of applicant's outstanding voting securities, as 
of June 30, 2009. 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 56,902,620 shares of applicant's common stock, or 25.3% of 
applicant's outstanding voting securities, as of June 30, 2009. 
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. E9-21889 Filed 9-10-09; 8:45 am]

BILLING CODE 8010-01-P