[Federal Register Volume 64, Number 65 (Tuesday, April 6, 1999)]
[Notices]
[Pages 16769-16771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8365]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. IC-23766, 812-11278]
Brantley Capital Corporation; Notice of Application
March 30, 1999.
AGENCY: Securities and Exchange Commission (``SEC'').
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, Brantley Capital Corporation, seeks
an order approving its Disinterested Director Option Plan (the
``Plan'').
FILING DATES: The application was filed on August 26, 1998 and amended
on February 19, 1999. Applicant has agreed to file an amendment, the
substance of which is reflected in the notice.
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 April 26, 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 SEC's
Secretary.
FOR FURTHER INFORMATION CONTACT: John K. Forst, Attorney Advisor, at
(202) 942-0569 (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.
20549-0102 (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\ Brantley Capital Management
L.L.C., (``Brantley'') an investment adviser registered under the
Investment Advisers Act of 1940 (``Advisers Act''), serves as
Applicant's investment adviser. Brantley is compensated based upon a
percentage of Applicant's assets, and receives no performance-based
compensation. Applicant's officers receive compensation directly or
indirectly from the fees paid to Brantley under the investment advisory
agreement but do not receive any other cash compensation from
Applicant. Applicant does not have a profit-sharing plan described in
section 57(n) 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 is managed by a board of directors (``Board'')
currently consisting of nine members, six of whom are persons who are
not officers or employees or otherwise considered ``interested
persons'' of Applicant within the meaning of section 2(a)(19) of the
Act. Every investment transaction by Applicant requires prior express
approval by the Board. Applicant also relies on its directors to review
and consider the best use of its resources. The directors review and
evaluate reports of outstanding commitments, required reserves for
follow-on financing, and funds available for future investment for the
purpose of evaluating and making these resource allocations. At least
once each calendar quarter, Applicant's directors review portfolio
investments, including those that are non-performing or performing
inadequately and evaluate Brantley's recommended course of action for
Applicant under the circumstances. In addition, on a calendar quarter
basis, Applicant's directors undertake a good faith valuation of
Applicant's investments for which no independent market valuations are
available.
3. Applicant requests an order under section 61(a)(3)(B) of the Act
approving the Plan for current or future directors who at the time of
issuance of the options are neither officers nor employees of Applicant
(``Non-officer Directors''. Each of Applicant's No-officer Directors
currently receives a monthly fee of $500 for serving on the Board and
an additional $1,000 for each meeting of the Board or a committee
[[Page 16770]]
attended. The Plan was adopted by the Board on October 21, 1996 and
approved by Applicant's initial shareholders prior to the public
offering on October 29, 1996. Applicant states that the Plan was
disclosed in the prospectus and subsequent periodic shareholder
reports. The Plan will become effective on the date it is approved by
the SEC.
4. The Plan provides that (i) each of the Non-officer Directors
will automatically be granted an option to purchase 2,000 shares of
Applicant's common stock (the ``Shares''), upon approval of the Plan by
the SEC, and (ii) immediately following Applicant's annual meeting of
stockholders in 1997 and each annual meeting of stockholders of
Applicant thereafter, each Non-officer Director then serving on the
Board will be granted options to purchase 2,000 Shares, subject to
adjustments for stock splits or combinations of Shares. A maximum of
75,000 Shares, or 2% of Applicant's outstanding shares, have been
authorized for issuance under the Plan.
5. The exercise price of the options will be the greater of (a) the
current market value \2\ of the Shares on the date the option is
granted (the ``Grant Date''), or (b) the current net asset value of the
Shares. Each option will be exercisable during the period beginning
twelve months after the Grant Date and ending not later than ten years
after the Grant Date.
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\2\ ``Current market value'' is defined in the Plan as the
average of the closing sale prices, as reported in The Wall Street
Journal, at which Shares were traded on the last five days on which
trading in the Shares was reported to have taken place on the Nasdaq
National Market prior to the option grant.
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6. In the event that a Non-officer Director's services are
terminated because of disability or death, the then outstanding options
of the Non-officer Director will become exercisable upon the later of
(a) six months after the Grant Date, and (b) the date of the
termination by reason of disability or death, and thereafter may be
exercised for a period of one year from the date of the termination,
but in no event after the expiration date of the option. In the event
that a Non-officer Director's services terminate for any reason other
than disability or death, the Plan provides that the then-outstanding
options of that Non-officer Director may be exercised for a period of
90 days from the date of such termination, but in no event after the
stated expiration date of each option.
7. Applicant's officers and employees, including employee
directors, are eligible to receive options under Applicant's stock
option plan for its officers and employees (``Officer Option Plan'').
Non-officer Directors are not entitled to receive stock option awards
under the Officer Option Plan. The total number of shares authorized
for issuance under the Officer Option Plan is 1,175,000 which
represents 24% of Applicant's outstanding Shares. Applicant states
that, under the Officer Option Plan, options for 325,000 Shares are
currently outstanding, of which 216,667 have vested. Applicant
represents and the Plan provides that the aggregate number of Shares it
will issue under the Plan and the Officer Option Plan will not exceed
the limits in section 61(a)(3)(C)(ii) of the Act. Applicant has no
warrants, options or rights to purchase its outstanding voting
securities other than those granted to its directors, officers and
employees pursuant to these two 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-officer 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 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 for
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 would comply with the
requirements of section 61(a)(3)(B) of the Act. 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
because the options may not be exercised until twelve months after the
Grant Date, the Plan provides Non-officer Directors with an incentive
to remain with the Applicant. In addition, Applicant states that under
the Plan, the amount of stock options that would be granted, assuming
the six current Non-officer Directors, would be up to 24,000 Shares in
1998 and 12,000 Shares each year commencing in 1999, or less than 1% of
the Shares outstanding. Applicant asserts that the exercise of stock
options pursuant to the Plan will not have a substantial dilutive
effect on the net asset value of the Shares. In addition, Applicant
states that the Shares underlying options outstanding under the Officer
Option Plan, together with Shares underlying options that would be
granted to Non-officer Directors under the Plan and Shares that would
result from the exercise of any other warrants, rights or options
issued by Applicant, if any, will not exceed the limits in section
61(a)(3)(C)(ii) of the Act. Applicant states that, other than stock
options provided for under the Plan and the Officer Option Plan, it
does not currently have outstanding warrants, options or rights to
purchase its voting securities.
5. Applicant states that its directors make a significant
contribution to the management of its business and to the review and
supervision of its portfolio investments. Applicant states that Non-
officer Directors provide it with skills and experience which are
critical to its success, including the approval of each proposed
investment, restructuring, follow-on financing, or disposition of an
existing investment. Applicant believes that its ability to make grants
of options under the Plan to Non-officer Directors provides a means of
retaining the services of its current Non-officer Directors and of
attracting qualified persons to serve as Non-officer Directors in the
future.
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For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-8365 Filed 4-5-99; 8:45 am]
BILLING CODE 8010-01-M