File No. 812-13714
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
THIRD AMENDED APPLICATION PURSUANT TO
SECTION 61(a)(3)(B) OF
THE INVESTMENT COMPANY ACT OF 1940
FOR AN ORDER OF THE COMMISSION
APPROVING A PROPOSAL TO GRANT CERTAIN
STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS
UNDER A STOCK OPTION PLAN
Submitted By
AMERICAN CAPITAL, LTD.
2 Bethesda Metro Center
14th Floor
Bethesda, Maryland 20814
(301) 951-6122
Comments and Questions Should Be Directed to:
Samuel A. Flax, Esq.
Executive Vice President & General Counsel
American Capital, Ltd.
2 Bethesda Metro Center
14th Floor
Bethesda, Maryland 20814
(301) 951-6122
Page 1 of 28 sequentially numbered pages.
Exhibit Index appears on sequential page number 16.
Date: September 16, 2010
UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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THIRD AMENDED APPLICATION
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PURSUANT TO SECTION 61(a)(3)(B) OF
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In the Matter of
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THE INVESTMENT COMPANY ACT
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OF 1940 FOR AN ORDER OF THE
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American Capital, Ltd.
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COMMISSION APPROVING A PROPOSAL
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2 Bethesda Metro Center
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TO GRANT CERTAIN STOCK OPTIONS
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14th Floor
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TO NON-EMPLOYEE DIRECTORS UNDER
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Bethesda, Maryland 20814
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A STOCK OPTION PLAN
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File No. 812-13714
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American Capital, Ltd. (the Company), a business development
company (BDC) within the meaning of Section 2(a)(48) of the Investment Company Act of 1940, as
amended
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(the 1940 Act), hereby submits this
third amended application (Application) for an order of the Securities and Exchange Commission (the Commission) under Section 61(a)(3)(B) of the 1940 Act, approving (1) the Companys proposal to grant certain
stock options under the Companys 2009 Stock Option Plan (the Plan) to directors of the Company who are not also employees or officers of the Company (collectively, Non-employee Directors) to purchase shares of the
Companys common stock (Shares), par value $0.01 per share (the Common Stock), with such grants being made available beginning on the date that the Commission issues an order granting the relief sought herein (the
Order Date); and (2) subsequent to the Order Date, grants of stock options to each new Non-employee Director who may be elected or appointed in the future to the Companys Board of Directors (the Board) and has not
been an employee of the Company at any time during
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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 1940 Act and makes available significant managerial assistance with respect to the issuers of such securities.
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the two-year period preceding the date on which an option is granted to such Non-employee Director. A copy of the Plan is attached hereto as
Exhibit C
. The order sought hereby will be
consistent with the Commissions orders pursuant to Section 61(a)(3)(B) approving certain stock option plans and stock options granted to non-employee directors of the Company and other BDCs. See, e.g.,
American Capital Strategies,
Ltd.,
Investment Company Act Release Nos. 28001 (Sep. 27, 2007) (Notice) and 28020 (Oct. 24, 2007) (Order);
Gladstone Capital Corporation
, Investment Company Act Release Nos. 25881 (Jan. 3, 2003) (Notice) and 25917 (Jan. 29, 2003)
(Order);
Utek Corporation
, Investment Company Release Nos. 25468 (March 20, 2002) (Notice) and 25529 (April 16, 2002) (Order); and
Medallion Financial Corp.
, Investment Company Act Release Nos. 24342 (March 17, 2000) (Notice)
and 24390 (April 12, 2000) (Order).
THE COMPANY
The Company, a Delaware corporation, was incorporated in 1986 to provide financial advisory services to and invest in small and medium
sized businesses. On August 29, 1997, the Company completed an initial public offering of 10,382,437 Shares and simultaneously became a non-diversified, closed end investment company that has elected to be treated as a BDC under the 1940 Act.
On October 1, 1997, the Company began operations so as to qualify to be taxed as a regulated investment company as defined in Subtitle A, Chapter 1, under Subchapter M of the Internal Revenue Code. As contemplated by these transactions, the
Company materially changed its business plan and format from structuring and arranging financing for buyout transactions on a fee-for-services basis to being primarily a lender to and investor in small and medium sized companies. The Common Stock is
traded on the NASDAQ Global Select Market under the symbol ACAS.
The Companys 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. It has grown significantly since its initial public offering and is now one of the largest BDCs and one of the largest U.S. publicly traded private equity funds. The Companys investments in portfolio companies
typically range from $5 million to $400 million. Its debt investments typically mature in five to ten years, and require periodic interest payments. The Company also invests in preferred stock and common stock of many of its portfolio companies. In
addition, the Company has begun an alternative asset management business, which involves the management of private investment funds through subsidiaries or portfolio companies and has a total of $11 billion under management.
THE COMPANYS MANAGEMENT AND BOARD OF DIRECTORS
The Company is internally managed with a nine member Board (with one current vacancy) and a senior management staff consisting of eight
executive officers (one of whom is also a director). Seven of the eight current members of the Board are not interested persons as defined in Section 2(a)(19) of the 1940 Act of the Company (Disinterested Directors). All
of the current Non-employee Directors of the Company are Disinterested Directors. The Companys investment decisions are either made by the Board, based on recommendations of the executive officers of the Company, or, for investments that meet
certain objective criteria established by the Board, by the executive officers of the Company, under authority delegated by the Board. The Company does not have an external investment adviser within the meaning of Section 2(a)(20)
of the 1940 Act.
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In addition to approving investment decisions, the Companys directors are actively
involved in the oversight of the Companys affairs and the Company relies extensively on the judgment and experience of its directors. Quarterly in-person meetings of the Board are generally held at the Companys executive offices in
Bethesda, Maryland. These meetings are lengthy and comprehensive. The Board also meets by telephone conference call on a monthly basis to hear reports on the prior months investing activities and on other occasions as needed. During the
calendar year that ended December 31, 2009, the Board held twenty-eight (28) formal meetings
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Generally, at
each quarterly Board meeting, the directors consider proposed investments and discuss the Companys financial and operating performance during the preceding quarter, current performance through the date of the meeting and projections for future
performance and consider strategic issues involving the Company. As part of the Boards analysis of financial and operating performance, the Board values the Companys assets on a quarterly basis, generally during the regular quarterly
Board meetings. Additionally, the directors may declare any quarterly dividends and discuss other matters, including: (i) the annual budget and operating plans and any revisions thereto; (ii) credit and loan policies; (iii) marketing;
(iv) leverage, asset and liability management; (v) funding, liquidity and capital resources; (vi) stockholder relations; and (vii) legal, accounting, taxation, regulatory and compliance matters. At the regular telephonic
meetings, the Board primarily considers reports on investing activities and investment proposals, and it also addresses other current or pending issues.
In addition to their duties as directors generally, the Company and its management relies on the Non-employee Directors for, among other
things, guidance and advice on operational issues, underwriting policies, credit policies, asset valuation and strategic direction. Management also regularly communicates with the Non-employee Directors on an individual basis, in order to solicit
their ideas and advice with respect to prospective investments and transactions, and operational matters.
In addition to
attending Board meetings, the Non-employee Directors also serve on the three committees of the Board; namely, the Executive Committee (the Executive Committee), the Audit and Compliance Committee (the Audit Committee) and the
Compensation and Corporate Governance Committee (the Compensation Committee). The Audit Committee is comprised of three directors, each of whom is a Non-employee Director. During the calendar year that ended December 31, 2009, the
Audit Committee held eleven (11) meetings. The core functions of the Audit Committee are to make recommendations as to the engagement or termination of the Companys outside auditors, to review the overall audit plan, to determine whether the
plan is appropriate and to recommend improvements, to review the external audit, to review internal accounting controls, to review the quality of internal reporting, to review the quarterly valuation of the Companys portfolio as proposed by
management and to make a recommendation with regard to it to the Board, to review the Companys loan underwriting procedures and the Companys asset valuation procedures, to supervise the Companys internal audit function and internal
auditor, including compliance with the internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002, and to review the Companys compliance with ethics and securities laws, including receiving
regular reports from the Companys Chief Compliance Officer.
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The Compensation Committee is composed of three directors, each of whom is a Non-employee
Director. During the calendar year that ended December 31, 2009, the Compensation Committee held thirteen (13) meetings. The Compensation Committees primary responsibilities are to approve or disapprove of the Companys compensation
policies and arrangements for senior management, to monitor and make recommendations regarding the Companys corporate governance practices and procedures, and to monitor portfolio companies that are included on the Companys situation
report. Additionally, the Compensation Committee serves as the Boards standing nominating committee and as the administrator of the Companys option plans for employees, in which essentially all employees of the Company participate, and
of the Companys bonus program for employees.
The Companys Executive Committee is composed of three directors, two
of whom are Non-employee Directors. During the calendar year ended December 31, 2009, the Executive Committee had no formal meetings. The Executive Committee is on call to meet when a full meeting of the Board is not practicable. In addition,
the Executive Committee has served as the plan committee for the existing option plan for Non-employee Directors, although Non-employee Directors who are members of the Executive Committee have not participated in decisions directly affecting their
options.
THE NON-EMPLOYEE DIRECTORS
The following persons are the current Non-employee Directors of the Company:
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Mary C. (Molly) Baskin.
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Ms. Baskin has been Managing Director of the Ansley Consulting Group, a retained executive search firm, since 1999. From 1997 to
1999, Ms. Baskin served as Partner of Quayle Partners, a start-up consulting firm that she helped found. From 1996 to 1997, Ms. Baskin served as Vice President and Senior Relationship Manager for Harris Trust and Savings Bank. From 1990 to
1996, Ms. Baskin served as Director, Real Estate Division and Account Officer, Special Accounts Management Unit, for the Bank of Montreal.
Mr. Hahl is a general business consultant. He was President of The Weitling Group, a business consulting firm, from 1996 to 2001.
From 1995 to 1996, Mr. Hahl served as Senior Vice President of the American Financial Group. From 1982 to 1995, Mr. Hahl served as Senior Vice President and Chief Financial Officer and a Director of The Penn Central Corporation.
Mr.
Harper is the retired Chairman of US Investigations Services, Inc. (USIS) (k/n/a Altegrity Risk International), a company that provides business intelligence and risk management solutions, security and related services and expert
staffing solutions for businesses and federal agencies. He served as Chairman from 1996 to 2007. From 1996 to 2005, he was also the Chief Executive Officer and President of USIS. From 1991 to 1994, Mr. Harper served as President of Wells Fargo Alarm
Services. From 1988 to 1991, Mr. Harper served as President of Burns International Security ServicesWestern Business Unit. Mr. Harper served in the U.S. Army from 1961 to 1982, where he commanded airborne infantry and intelligence units.
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Mr.
Koskinen has served as the Non-Executive Chairman of Freddie Mac since September 2008 and also served as the interim CEO and the person performing the function of Principal Financial Officer of Freddie Mac for six months during 2009. Prior to that
he was President of the United States Soccer Foundation and a member of its Board from 2004 to 2008. He has also been a member of the Board of Directors of AES Corporation since 2004. From 2000 to 2003, Mr. Koskinen served as Deputy Mayor and
City Administrator of the District of Columbia. From 1994 to 2000, Mr. Koskinen served in the White House as Deputy Director for Management of the Office of Management and Budget and Assistant to the President and Chair of the Presidents
Council on Year 2000 Conversion. Prior to his service with the U.S. government, Mr. Koskinen served as the Vice President and later the President and Chief Executive Officer of The Palmieri Company, a company which restructured large, troubled
operating companies. He was also a member of the Board of Trustees of Duke University from 1985 to 1997, serving as Chairman of the Board from 1994 to 1997.
Mr.
Lundine is currently retired. From 1995 to 2008 he served as Of Counsel to the law firm of Sotir and Goldman and as Executive Director of the Chautauqua County Health Network, a consortium of four hospitals. He was also President of the Chautauqua
Integrated Delivery System, Inc., a for-profit Physician/Hospital organization. From 1987 to 1994, Mr. Lundine served as Lieutenant Governor of New York and chaired several boards and councils in addition to assisting the Governor on a variety of
tasks. From 1976 until 1987, Lundine was a Member of Congress serving on the Banking Committee and the Committee on Science and Technology. From 1970 until his election to Congress, Lundine was Mayor of Jamestown, NY and an executive or board member
of various governmental entities and institutions. Mr. Lundine is a Director of John G. Ullman and Associates, Inc. and serves on the Advisory Board of M&T Bank. He also serves on the Board of Directors of Chautauqua Institution and the Robert
H. Jackson Center. Previously he was also on the Board of Directors of U.S. Investigations, Inc. and National Forge Co.
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Kenneth D. Peterson, Jr.
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Mr. Peterson has been Chief Executive Officer of Columbia Ventures Corporation, a private equity firm holding interests in domestic
and international telecommunications specialty chemicals, energy, real estate and other industries, since 1988. He is a member of the Board of Directors of Metro One Telecommunications, Inc., Pac-West Telcom, Inc., Washington Policy Center and One
Communications Corp.
Dr. Puryear is a management consultant who specializes in advising businesses with high-growth potential. From 1970 to 2007,
Dr. Puryear was on the faculty of Baruch College of the City University of New York where he was the Lawrence N. Field Professor of Entrepreneurship and Professor of Management. Prior to 1970, Dr. Puryear held executive positions in
finance and information technology with the Mobil Corporation and Allied Chemical Company, respectively. He is also a member of the Board of Directors of the Bank of Tokyo-Mitsubishi UFG Trust Company and American Capital Agency Corp.
In the
past five years, Dr. Puryear has also served as a director of Green Point Financial Corp., Green Point Bank, North Fork Bancorporation and North Fork Bank.
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THE COMPANYS EXECUTIVE COMPENSATION PROGRAMS
The skill and experience of the Companys management and Board are critical to the Companys success. Officers and employees of
the Company receive cash compensation and benefits in the form of salaries, medical and life insurance benefits, and paid vacation and holiday time. Officers and employees, including directors who are employees, are eligible or have been eligible to
receive stock options under the Companys 1997 Stock Option Plan, 2000 Employee Stock Option Plan, 2002 Employee Stock Option Plan, 2003 Employee Stock Option Plan, 2004 Employee Stock Option Plan and 2005 Employee Stock Option Plan
(collectively, the Employee Plans). In addition, officers and employees are eligible to receive options under the Companys 2006 Stock Option Plan (the 2006 Option Plan) and the 2007 Stock Option Plan (the 2007
Option Plan), and the 2008 Stock Option Plan (the 2008 Option Plan and collectively with the 2006 Option Plan, the 2007 Option Plan, the Joint Plans) and the Plan. Non-employee Directors are not permitted to participate
in the Employee Plans.
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 they are reimbursed for expenses relating thereto. 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 the Company set at $30,000 per board, in lieu of any payment from the portfolio company. (The fee paid to Non-employee directors serving on
the board of a portfolio company that is public is adjusted to reflect the fee paid to the portfolio companys independent directors.) In 2006, the Company established a Disinterested Director Retention Plan whereunder, subject to certain
restrictions and vesting requirements, Non-employee Directors are generally entitled to receive a payment upon termination of service as a director equal to a multiple of the number of years of service as a Non-employee Director and the retainer
payment then in effect. In December 2008, the Board voted to terminate further accruals of benefits under the Disinterested Director Retention Plan. Also, to the extent they meet eligibility requirements, including the issuance of necessary orders
by the Commission, and there are options available for issuance to them, the Non-employee Directors have been entitled to participate in the Companys 1997 Disinterested Director Stock Option Plan (the 1997 Disinterested Director
Plan), which was approved by the Commission on May 11, 1999, in Investment Company Act Release No. 23830, the Companys 2000 Disinterested Director Stock Option Plan (the 2000 Disinterested Director Plan and together
with the 1997 Disinterested Director Plan, the Disinterested Director Plans), which was approved by the Commission on February 28, 2006, in Investment Company Act Release No. 27254, the 2006 Option Plan, for which the
Commission approved the issuance of options to Non-employee Directors on February 16, 2007, in Investment Company Act Release No. 27702, the 2007 Option Plan, for which the Commission approved the issuance of options to Non-employee
Directors on October 24, 2007, in Investment Company Release No. 28020 and the 2008 Stock Option Plan, for which the Commission approved the issuance of options to Non-employee Directors on September 30, 2009, in Investment Company
Act Release No. 28935 (the Disinterested Directors Plans, the Joint Plans and the Employee Plans are collectively referred to herein as, the Other
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Plans).
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In
March 2009, the Compensation Committee concluded that given the changes in the Companys business since the 2008 Option Plan had been approved by the Board and the stockholders and considering the responsibilities of the Board that it was
necessary and appropriate for the Board to have additional opportunities to participate in stock-based compensation. Thus, the Compensation Committee recommended and the Board approved the establishment of the Plan and the participation by the
Non-employee Directors therein, pursuant to Section 61(a)(3)(B) of the 1940 Act, in order to allow the Company to continue to attract and retain highly qualified and motivated Non-employee Directors to assist the Company in its development. The
Company proposes to implement participation by the Non-employee Directors in the Plan to supplement the Disinterested Director Plans and the Joint Plans. The Company does not have a profit-sharing plan as described in Section 57(n) of the 1940
Act and, because it has no investment adviser, pays no compensation described in Section 205(a)(1) of the Investment Advisers Act of 1940 (Advisers Act).
The Company submitted the Plan to the Companys stockholders for approval at the annual meeting of stockholders held on
June 11, 2009, where it was approved by 65.9% of the Shares voted at the meeting with regard to the Plan. As required by Section 61(a)(3)(B) of the 1940 Act, the Company is applying herein for an order of the Commission approving the
Companys proposal to grant certain stock options to Non-employee Directors under the Plan.
APPLICABLE STATUTORY
PROVISIONS
Section 61(a)(3)(B) of the 1940 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 if certain conditions are met. These conditions are:
(1) that the options expire by their terms within ten years (Sections 61(a)(3)(A)(i) and 61(a)(3)(B)(i)(II));
(2) that the exercise price of the options is not less than the current market value of the underlying voting securities at the date of
the issuance of the options, or if no such market value exists, the then current net asset value of such underlying voting securities (Sections 61(a)(3)(A)(iii) and 61(a)(3)(B)(i)(II));
(3) that the proposal to issue such options is authorized by the companys stockholders, and is approved by order of the Commission,
upon application, on the basis that the terms of the proposal are fair and reasonable and do not involve overreaching of the company or its stockholders (Section 61(a)(3)(B)(i)(II));
(4) that the options are not transferable except for disposition by gift, will or intestacy (Section 61(a)(3)(B)(ii));
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The 1997 Disinterested Director Plan has expired, and, therefore, no additional options may be issued under it. The 2000 Disinterested Director Plan,
the 2006 Option Plan and the 2007 Option Plan have been amended so that no further options will be awarded to Non-employee Directors under any of them.
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(5) that no investment adviser of the company receives any compensation described in
Section 205(a)(1) of the Advisers Act (e.g., performance-based compensation), except to the extent permitted by Section 205(b)(1) or (2) thereunder (Section 61(a)(3)(B)(iii)); and
(6) that the company does not have a profit-sharing plan described in Section 57(n) of the 1940 Act (Section 61(a)(3)(B)(iv)).
In addition, Section 61(a)(3) of the 1940 Act provides that the amount of the BDCs voting securities that would
result from the exercise of all outstanding warrants, options and rights at the time of issuance may not exceed 25 per centum of the BDCs 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 BDCs directors, officers, and employees pursuant to any executive compensation plan, meeting the requirements of Section 61(a)(3)(B), would exceed 15 per
centum of the BDCs 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 shall not exceed 20 per centum of
the outstanding voting securities of the BDC.
Section 57(a)(4) of the 1940 Act, and Rule 17d-1 thereunder (as made
applicable to BDCs by Section 57(i) of the 1940 Act), taken together, generally prohibit a director of a BDC, acting as principal, from participating in, or effecting any transaction in connection with, any joint enterprise or other joint
arrangement or profit-sharing plan in which the BDC is a participant. Notwithstanding Section 57(a)(4), however, Section 57(j)(1) of the 1940 Act expressly permits any director of a BDC to acquire options to purchase voting securities of
the BDC, and securities issued on the exercise thereof, pursuant to an executive compensation plan offered by the BDC that meets the requirements of Section 61(a)(3)(B) of the 1940 Act.
Section 63(3) of the 1940 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 1940 Act.
THE COMPANYS STOCK OPTION PLANS
Subject to the Commission issuing an order on the Application, the Company will provide its Non-employee Directors
with the opportunity to acquire additional Shares through the exercise of options issued under the Plan. The Plan provides the Companys Non-employee Directors with at-risk compensation and a direct stake in the Companys success and helps
to ensure a closer identification of their personal interests with those of the Company and its stockholders.
The Board unanimously approved the Plan at a meeting of the Board held on April 6, 2009, including the affirmative
vote of a majority of the Disinterested Directors.
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As
noted above, the Companys stockholders reviewed and approved the Plan at the 2009 Annual Meeting of Stockholders held on June 11, 2009.
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At a Board meeting held on January 14, 2010, the Board approved an amendment to the Plan. At such Meeting, the Board determined that the amendment did
not require stockholder approval under Section 10 of the Plan or applicable law or NASDAQ listing requirements. The Company acknowledges that the Commission is not taking a position as to whether the Company is required to seek stockholder approval
for the amendment. Excerpts of the Boards resolutions adopted on January 14, 2010, evidencing the Boards adoption of amendments to the Plan and the Boards determination as to whether stockholder approval is required, is attached as
Exhibit B to the Application.
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The Employee Plans, the Joint Plans and the Plan
A maximum of 79,524,804 Shares, in the aggregate, have been subject to issuance under the Employee Plans, the Joint
Plans and the Plan to officers and employees
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. As of
August 18, 2010, options to purchase 10,044,692 of such Shares have been exercised, options for 32,122,006 Shares have been issued and are outstanding but not exercised and options may be issued for an additional 36,494,807 Shares. The remaining
68,616,813 Shares subject to issuance to officers and employees under the Employee Plans, the Joint Plans and the Plan represent 19.5% of the 350,309,123 Shares outstanding as of August 18, 2010.
Disinterested Director Plans, the 2006 Option Plan, the 2007 Option Plan and the 2008 Option Plan
A maximum of 1,770,000 Shares
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in the aggregate, have been subject to issuance under the Disinterested Director
Plans, the 2006 Option Plan, the 2007 Option Plan and the 2008 Option Plan to Non-employee
Directors
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. As of August 18, 2010, options to purchase
120,000 Shares have been exercised and options for 1,431,250 Shares have been issued and are outstanding but not exercised. As a result of amendments to the 2000 Disinterested Director Plan, the 2006 Option Plan and the 2007 Option Plan, no
additional Options will be issued to Non-employee Directors under those plans. Two of the existing Non-employees Directors have been granted options for a total of 223,750 Shares under the Disinterested Director Plans, the 2006 Option Plan, the 2007
Option Plan and the 2008 Option Plan, the Non-employee Director who joined the Board in 2007 has been granted options for 203,750 Shares under the Disinterested Director Plans, the 2006 Option Plan, the 2007 Option Plan and the 2008 Option Plan and
each of the other four Non-employee Directors, who have served on the Board since 1998 or earlier, have been granted options for a total of 228,750 Shares under the Disinterested Director Plan, the 2006 Option Plan, the 2007 Option Plan and the 2008
Option Plan. The 1,431,250 Shares subject to issuance to Non-employee Directors upon the exercise of outstanding Options under the Disinterested Director Plans, the 2006 Option Plan, 2007 Option Plan and the 2008 Option Plan represent 0.4% of the
350,309,123 Shares outstanding as of August 18, 2010. To the extent the number of Shares that would be issued upon the exercise of options issued under the Other Plans and the Plan exceeds 15% of the Companys outstanding voting securities, the
Company will comply with the 20% limit in section 61(a)(3) of the Act.
The Plan
Under the Plan, a maximum of 750,000 Shares, in the aggregate, may be issued to Non-employee Directors. The 750,000 Shares subject
to issuance under the Plan represent 0.2% of the 350,309,123 Shares outstanding as of August 18, 2010.
Under the
Plan, options to purchase 93,750 Shares may be issued to any one Non-employee Director. The Plan provides that on the Order Date, options for 93,750 Shares will be granted to each of the seven Non-employee Directors who was a member of the Board as
of June 11, 2009 (the Initial Grants), provided that the Non-employee Director is a member of the Board on the Order Date. These options will be deemed to vest in three equal parts on each of the first three anniversaries of
June 11, 2009, or, if the Order Date is after any of such anniversaries, the options that would have vested on such an anniversary will instead be deemed to vest on the Order Date
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The
79,524,804 Shares subject to issuance under the Employee Plans, the Joint Plans and the Plan include 863,299 options to purchase Shares that have expired pursuant to the terms of the 1997 Stock Option Plan and the 2000 Employee Stock Option Plan.
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The
1,770,000 Shares subject to issuance under the Disinterested Director Plans, the 2006 Option Plan, the 2007 Option Plan and the 2008 Option Plan include 35,000 options to purchase Shares that have expired pursuant to the terms of the 1997
Disinterested Director Plan.
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and will expire on June 11, 2019. In the event that any person becomes a Non-employee Director after June 11, 2009, they will automatically receive an option grant to purchase 93,750
Shares (such grant being an Other Grant), 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 they become a Non-employee
Director and the Order Date. The options issued under the Other Grants will be deemed to vest in three equal parts on the first three anniversaries of the date that the person becomes a Non-employee Director, or, if the Order Date is after any such
anniversaries, the options that would have vested on any such anniversary shall vest on the Order Date and shall expire on the tenth anniversary of the date the person became a Non-employee Director. The exercise price of the options included in the
Initial Grants and the Other Grants will be the Fair Market Value of the Common Stock (as defined in the Plan) on the Order Date or, in the case of Other Grants granted later then the Order Date, the Fair Market Value of the Common Stock on the date
of the Other Grant.
The Plan provides that a committee of the Board may be appointed by the Board to administer the
provisions of the Plan relating to the Non-employee Directors (the Non-employee Director Committee). However, the functions of the Non-employee Director Committee will be solely administrative in nature, as the terms of the options to be
granted to the Non-employee Directors are specified in the application and in Article 6 of the Plan.
Under the terms of the
Plan, the options that may be granted to Non-employee Directors are subject to the following limitations: (1) the exercise price of such options shall be the Fair Market Value, as defined in the Plan; (2) the Initial Grants
will expire on June 11, 2019, and the Other Grants will expire on the tenth anniversary of the date the person became a Non-employee Director; (3) the Initial Grants and the Other Grants will vest and become exercisable in accordance with
Sections 6.6 and 6.7 of the Plan (as summarized above); (4) the options may not be assigned or transferred other than by will or the laws of descent and distribution; (5) in the event of the death or Disability (as defined in the Plan) of
a Non-employee Director during such directors service as a director, all such directors unexercised options shall immediately become exercisable and may be exercised (by such directors personal representative in the event of death)
for a period of three years following the date of such death or one year following the date of such Disability, but in no event after the respective expiration dates of such options; (6) in the event of the termination of a Non-employee
Directors service as a director for Cause (as defined in the Plan), any options held by such director not theretofore exercised shall terminate immediately upon such termination of service as a director and may not be exercised thereafter;
(7) if a Non-employee Directors service as a director is terminated for any reason other than by his or her death or Disability or by the Company for Cause, his or her options, to the extent then exercisable, may be exercised within one
year immediately following the date of termination, but in no event after the respective expiration date of such options; and (8) the price of the Common Stock purchased pursuant to the options and any withholding tax obligation must be paid in
cash. Although the Plan permits the exercise price of the options or the withholding tax to be paid by in Shares or, in the case of the exercise price, by surrender of exercisable options, Section 23(c) of the 1940 Act prohibits the Company
from accepting Common Stock or the surrender of options as a means for paying the exercise price of options or withholding tax without exemptive relief. For purposes of the Plan, Fair Market Value is defined as the value of the Common
Stock as of any date, determined as follows: (a) if the Common Stock is listed on any established exchange or traded on the NASDAQ Global Select
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Market, the Fair Market Value will be the closing sales price for the 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
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 Value Market Value will be determined in good faith by the Board, but in no event will be less than the current net asset value of the Common Stock.
The Plan also provides that upon the occurrence of certain changes in the Common Stock, such as a stock dividend, stock split
or recapitalization, the Option Price of outstanding options may be adjusted by the Committee. Section 11 of the Plan, in part, provides that the Committee may modify, extend, and renew outstanding options and grant options in substitution for
stock appreciation rights and other types of options. The Committee, however, will not adjust the exercise price of options granted under the Plan or engage in any of the activities specified in Section 11 of the Plan, unless the Company
receives written confirmation from the staff of the Commission or an order from the Commission that the Company may do so.
The Plan will expire on April 6, 2019. The Board will have authority to amend the Plan. However, amendments required to be approved
by the stockholders or the Commission under the laws of Delaware, the rules of The Nasdaq Stock Market, the applicable provisions of the 1940 Act (including Section 61), or in order to comply with the exemptions set forth in
Rule 16b-3 under the Securities Exchange Act of 1934 will not be effective until so approved. In addition, each option holder must approve any amendment to the Plan that affects his or her rights or obligations under any option granted
prior to the date of such amendment. The Plan will not be materially modified from the description in this Application without obtaining an order from the Commission or approval of the Commission staff.
The exact magnitude of the dilutive or accretive effect of options issued to Non-employee Directors under the Plan on the net asset value
of Common Stock of the Company is impossible to predict because the amount of the dilution or accretion will depend upon the exercise price of the options (i.e., the fair market value of Common Stock on the Order Date), as well as on the net asset
value of Shares and the number of Shares outstanding on the date the options are exercised. Nevertheless, given the relatively small amount of Common Stock issuable upon exercise of the options, the exercise of options pursuant to the Plan would
not, absent extraordinary circumstances, have a substantial dilutive effect on the net asset value of the Common Stock of the Company.
DISCUSSION
The proposal to grant certain options to Non-employee Directors under the Plan for which approval is sought by this Application meets all
the requirements of Section 61(a)(3)(B) of the 1940 Act. Specifically, the Plan provides such options:
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(i)
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Will expire by their terms within ten years from the date of the grant;
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(ii)
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Will have an exercise price not less than the current market value of the Common Stock at the date of issuance of the option, or if no market value exists, the current
net asset value per Share;
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12
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(iii)
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Will be issued pursuant to the Plan, an executive compensation plan that has been authorized by the stockholders of the Company and will be approved by order of the
Commission prior to the date of any issuance of options under the Plan; and
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(iv)
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Will be non-transferable except for disposition by will or intestacy.
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Moreover, the Company is managed by its own officers and directors and has no investment adviser within the meaning of
Section 2(a)(20) of the 1940 Act who receives performance-based compensation described in Section 205 of the Advisers Act; and, as previously discussed, the Company does not have a profit-sharing plan of the type described in
Section 57(n) of the 1940 Act.
As of August 18, 2010, the Company had 350,309,123 Shares
outstanding
6
and (assuming the obtaining of the requested
approval of the Commission of the Plan), the maximum number of voting securities of the Company that would result from the exercise of all outstanding options issued and all options issuable to the Companys directors, officers and employees
under the Plan and the Other Plans would be 70,981,813
7
Shares, or 20.2% of the outstanding voting securities as of August 18, 2010. As of August 18, 2010, however, options to purchase only 33,553,256 Shares were outstanding, representing 9.5% of the Companys outstanding voting
securities.
As of August 18, 2010, the Company had no outstanding warrants, options, or rights to purchase its voting
securities, other than the outstanding options issued to its directors, officers and employees under the Other Plans and the Plan. No such securities (other than the aforementioned options) are available under any of the Companys executive
compensation programs. Thus, as of August 18, 2010, the amount of the Companys voting securities that would result from the exercise of all outstanding options issued to the Companys directors, officers, and employees under the
Other Plans and the Plan would be 33,553,256 Shares, or 9.5% of the Companys outstanding voting securities. To the extent the number of Shares that would be issued upon the exercise of options issued under the Other Plans and the Plan exceeds
15% of Companys outstanding voting securities, the Company will comply with the 20% limit in section 61(a)(3) of the Act.
As noted above, the maximum number of voting securities that would result from the exercise of all outstanding options issued and all
options issuable to the Companys directors, officers, and employees under the Other Plans and the Plan equals 20.2% of the Companys outstanding voting securities. The 750,000 Shares that would result from the exercise of all options
issuable to Non-employee Directors under the Plan would represent, as of August 18, 2010, only 0.2% of the Companys outstanding voting securities. Thus, the issuance of the options to Non-employee Directors under the Plan would not cause
the restrictions in Section 61(a)(3) of the Act to be exceeded.
6
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The Common Stock constitutes the only voting security of the Company currently outstanding.
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7
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This total includes (i) options for 32,122,006 Shares issued and outstanding to employees and officers, (ii) options for 36,494,807 Shares issuable to
employees and officers, (iii) options for 1,431,250 Shares issued and outstanding to Non-employee Directors and (iv) options for 933,750 Shares issuable to Non-employee Directors.
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13
The options granted under the Plan to Non-employee Directors will vest according to the
respective schedules for the Initial Grants and the Other Grants, and, thus, the Plan would provide Non-employee Directors with an incentive to remain directors of the Company. The options granted pursuant to the Plan have no value unless the price
of the Common Stock exceeds the exercise price of the option. Thus, Non-employee Directors who receive grants of options pursuant to the Plan will benefit from them only to the extent that the Companys business succeeds, and the market value
of the Common Stock increases and remains above the exercise price of the options.
The Company believes that the options to
be granted to its Non-employee Directors will provide significant at-risk incentives to the Non-employee Directors to remain on the Board and to devote their best efforts to ensure the success of the Companys business in the future, as they
have done in the past. The options will only have value to the extent the Company is able to increase the market value of the Common Stock above the exercise price of the options. The options will also provide a means for the Non-employee Directors
to increase their ownership interests in the Company, thereby helping to ensure close identification of their interests with those of the Company and its stockholders. By providing incentives in the form of such stock options to its Non-employee
Directors, the Company will be better able to maintain continuity in the membership of its Board and to attract, when necessary, and to retain as directors the highly experienced, successful and dedicated business and professional people that are
critical to the Companys success as a BDC.
Commission approval of grants of options to Non-employee Directors by the
Committee on the terms set forth herein, without the necessity of future applications to the Commission for approval on a person-by-person basis, is appropriate under the circumstances described herein. The exercise price of any options to be
granted is required by both the 1940 Act and the Plan to be no less than 100% of the current market value of the Shares on the date of issuance of the option or if no such market value exists, the current net asset value of the Shares on the date of
issuance of the option. Further, the amount of the Companys Common Stock that can be acquired by any individual Non-employee Director pursuant to such options is limited. The total number and percentage of Shares that can be issued pursuant to
options granted to all Non-employee Directors as a group also is limited by both the terms of the Plan and Section 61(a)(3) of the 1940 Act.
REQUEST FOR RELIEF
For the foregoing reasons, the Company requests that the Commission grant an order pursuant to Section 61(a)(3)(B) of the 1940 Act
approving the Companys proposal to grant certain stock options to Non-employee Directors under the Plan.
14
AUTHORIZATION
All actions necessary to authorize the execution and filing of this Application under the Companys charter have been taken, and the
person signing and filing this Application is authorized to do so on behalf of the Company.
The verification required by Rule
0-2(d) under the 1940 Act is attached to
Exhibit A
. Resolutions of the Companys Board adopting and then amending the Plan, directing the Plans submission to stockholders, and authorizing the execution and filing of this
Application are attached as
Exhibit B
. The Plan is attached hereto as
Exhibit C
.
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AMERICAN CAPITAL, LTD.
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By:
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/s/ S
AMUEL
A.
F
LAX
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Samuel A. Flax
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Executive Vice President,
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General Counsel and Secretary
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Dated: September 16, 2010
15
EXHIBIT INDEX
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Description
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Exhibit No.
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Page No.
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Verification
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A
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17
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Resolutions of the American Capital, Ltd. Board Adopted April 6, 2009 and January 14, 2010
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B
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18
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2009 Stock Option Plan
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C
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20
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16
EXHIBIT A
VERIFICATION
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State of Maryland
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)
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)ss:
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County of Montgomery
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)
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The undersigned being duly sworn
deposes and says that he has duly executed the Application, dated September 16, 2010, for an order of the Securities and Exchange Commission approving a stock option plan for non-interested directors and the grant of certain stock options thereunder
pursuant to Section 61(a)(3)(B) of the Investment Company Act of 1940, as amended, for and on behalf of American Capital, Ltd.; that he is the Executive Vice President, General Counsel and Secretary of such company; and that all action by
stockholders, directors and other bodies necessary to authorize deponent to execute and file such instrument has been taken. Deponent further says that he is familiar with such instrument, and the contents thereof, and that the facts therein set
forth are true to the best of his knowledge, information and belief.
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/s/ S
AMUEL
A.
F
LAX
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Samuel A. Flax
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Executive Vice President, General Counsel and Secretary
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Subscribed and sworn before me, a notary public, this
16
th
day of September, 2010.
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/s/ P
AMELA
P
OWELL
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Name: Pamela Powell
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My Commission Expires: August 28, 2014
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[Official Seal]
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17
EXHIBIT B
AMERICAN CAPITAL, LTD. (the Corporation)
RESOLUTIONS OF THE BOARD OF DIRECTORS
EXCERPT OF RESOLUTIONS ADOPTED APRIL 6, 2009
WHEREAS
, the Compensation and Corporate Governance Committee has recommended to the Board of Directors adoption of
a 2009 Stock Option Plan (the Option Plan).
NOW, THEREFORE, BE IT RESOLVED
, the Board of
Directors hereby approves adoption of the Option Plan and its submission to the Stockholders for their approval at the Annual Meeting of Stockholders; and be it
FURTHER RESOLVED
, that 15,750,000 shares of Common Stock are hereby reserved from issuance except pursuant to the
Option Plan; and be it
FURTHER RESOLVED
, that the Option Plan be presented to the stockholders at the
Annual Meeting of Stockholders to be held on June 11, 2009, with the recommendation of the Board of Directors that such plan should be approved; and be it
FURTHER RESOLVED
, that the officers of the Corporation shall be authorized to submit an application to the
Securities and Exchange Commission for the necessary statutory consent to issue options under the Plan to non-employee members of the Board of Directors; and be it
FURTHER RESOLVED,
that the officers of the Corporation shall be, and they hereby are, authorized to execute and
deliver such documents and instruments and to take such other actions as they may deem necessary or appropriate in order to implement the intents and purposes of these resolutions.
18
EXCERPT OF RESOLUTIONS ADOPTED JANUARY 14, 2010
WHEREAS
, the Compensation and Corporate Governance Committee has recommended to the Board of Directors the amendment of certain
provisions of the 2009 Stock Option Plan (the Option Plan).
NOW, THEREFORE, BE IT RESOLVED
, the Board of
Directors hereby approves adoption of such amendments to the Option Plan in the form presented to this meeting of the Board of Directors; and be it
FURTHER RESOLVED
, that the Board of Director determines that such amendments do not require the approval of the stockholders of
the Corporation; and be it
FURTHER RESOLVED
, that the officers of the Corporation shall be authorized to submit an
amended application to the Securities and Exchange Commission for the necessary statutory consent to issue options under the Plan to non-employee members of the Board of Directors; and be it
FURTHER RESOLVED,
that the officers of the Corporation shall be, and they hereby are, authorized to execute and deliver such
documents and instruments and to take such other actions as they may deem necessary or appropriate in order to implement the intents and purposes of these resolutions.
19
EXHIBIT C
AMERICAN CAPITAL, LTD.
2009 STOCK OPTION PLAN
1. Definitions
In
this Plan, except where the context otherwise indicates, the following definitions apply:
1.1 Affiliate means a
parent or subsidiary corporation of the Company, as defined in Sections 424(e) and (f) of the Code (but substituting the Company for employer corporation), including any parent or subsidiary of the Company which becomes
such after adoption of the Plan.
1.2 Agreement means a written agreement granting an Option that is in such form
as the Committee in its discretion shall determine and is executed by the Company and the Optionee.
1.3 Board
means the Board of Directors of the Company.
1.4. Cause has the meaning set forth in Section 7.5.
1.5. Code means the Internal Revenue Code of 1986, as amended.
1.6. Committee means the committee(s) of the Board appointed by the Board to administer the Plan. Unless otherwise determined
by the Board, (a) the Executive Committee of the Board shall be the Committee with respect to participation by and Option grants to Eligible Individuals who are Non-Employee Directors, and (b) the Compensation and Corporate Governance
Committee of the Board shall be the Committee with respect to participation by and Option grants to all other Eligible Individuals.
1.7. Common Stock means the common stock, par value $.01 per share, of the Company.
1.8. Company means American Capital, Ltd., a Delaware corporation.
1.9. Date of Exercise means the date on which the Company receives notice of the exercise of an Option in accordance with the
terms of Article 7.
1.10. Date of Grant means the date on which an Option is granted under the Plan.
1.11. Director means a member of the Board of Directors of the Company.
1.12. Director Effective Date means the date on which the Securities and Exchange Commission grants an order approving the
Plan as it applies to the participation of Non-Employee Directors.
1.13. Director Option Shares has the meaning
set forth in Section 5.1.
1.14. Disability means a permanent and total disability within the meaning of
Section 22(e)(3) of the Code, as determined by the Committee.
20
1.15. Eligible Individual means any Employee or any Director, including any
Non-Employee Director.
1.16. Employee means any person who the Committee determines to be an employee of the
Company or, if permitted by law, an Affiliate.
1.17. Employee Option Shares has the meaning set forth in
Section 5.1.
1.18. Fair Market Value means, as of any date, the value of the Common Stock determined as
follows: (a) if the Common Stock is listed on any established exchange or traded on The NASDAQ Global Select Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such 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 of Grant, as reported in
The Wall Street Journal
or such other source as
the Board deems reliable; or (b) in the absence of closing sales price on such exchanges or markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board, but in no event shall be less than the current net
asset value of the Common Stock.
1.19. Incentive Stock Option means an Option granted under the Plan that
qualifies as an incentive stock option under Section 422 of the Code and that the Company designates as such in the Agreement granting the Option.
1.20. Initial Eligible Director means any Non-Employee Director who is an Eligible Individual as of June 11, 2009.
1.21. 1940 Act means the Investment Company Act of 1940, as amended.
1.22. Non-Employee Director means any Director who is not also an Employee of the Company.
1.23. Nonqualified Stock Option means an Option granted under the Plan that is not an Incentive Stock Option.
1.24. Option means an option to purchase Shares granted under the Plan.
1.25. Option Period means the period during which an Option may be exercised.
1.26. Option Price means the price per Share at which an Option may be exercised, provided, however, that, except as the
Option Price may be adjusted to the extent provided in Article 9 hereof (subject to Section 6.4 hereof), the Option Price shall not be less than the Fair Market Value as of the Date of Grant. Notwithstanding the foregoing, in the case of
an Incentive Stock Option granted to a Ten-Percent Stockholder, the Option Price shall not be less than one hundred and ten percent (110%) of the Fair Market Value on the Date of Grant.
1.27. Optionee means an Eligible Individual to whom an Option has been granted.
1.28. Plan means the American Capital, Ltd. 2009 Stock Option Plan, as such may be amended from time to time.
21
1.29. Required Majority means a required majority of the Board, as defined in
Section 57(o) of the 1940 Act.
1.30. Share means a share of Common Stock.
1.31. Ten-Percent Stockholder means an Optionee who (applying the rules of Section 424(d) of the Code) owns stock
possessing more than ten percent of the total combined voting power of all classes of stock of the Company or an Affiliate.
2. Purpose
The
Plan is intended to assist the Company and its Affiliates in attracting and retaining Eligible Individuals of outstanding ability and to promote the identification of their interests with those of the stockholders of the Company.
3. Administration
The Committee shall administer the Plan and shall have plenary authority, in its discretion, to award Options to Eligible Individuals who
are Employees, subject to the provisions of the Plan and the approval of such award by a Required Majority. The Committee shall have plenary authority and discretion, subject to the provisions of the Plan and the approval by a Required Majority and
to the extent permitted by, and consistent with, exemptive or other relief that may be granted by the SEC, to determine the terms (which terms need not be identical) of all Options granted to Employees, including, but not limited to, which Employees
shall be granted Options, the time or times at which Options are granted, the Option Price, the number of Shares subject to an Option, whether an Option shall be an Incentive Stock Option or a Nonqualified Stock Option, any provisions relating to
vesting, any circumstances in which Options terminate or Shares may be repurchased by the Company, the period during which Options may be exercised and any other restrictions on Options. In making these determinations, the Committee may take into
account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and its Affiliates, and such other factors as the Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall have plenary authority to construe and interpret the Plan and the Agreements, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan or the Agreements, including, but not limited to, any determination to accelerate the vesting of outstanding Options. The determinations of the Committee on the matters referred to in this
Article 3 shall be subject to approval by a Required Majority. The Committee may delegate its authority under this Article 3 and the terms of the Plan to the extent it deems desirable and is consistent with the requirements of applicable law.
4. Eligibility
Options may be granted only to Eligible Individuals and only Employees shall be eligible to receive Incentive Stock Options.
5. Stock Subject to the Plan
5.1. Subject to adjustment as provided in Article 9, the maximum number of Shares that may be issued under the Plan pursuant to
Option grants to Eligible Individuals other than Non-Employee Directors is 15,000,000 Shares (the Employee Option Shares), and the maximum number of Shares that may be issued under the Plan pursuant to Option grants to Eligible
Individuals who are Non-Employee Directors is 750,000 Shares (the Director Option Shares).
22
5.2. If an Option expires or terminates for any reason without having been fully exercised,
the unissued Shares which had been subject to such Option shall become available for the grant of additional Options.
6. Options
6.1. Options granted under the Plan shall be either Incentive Stock Options or Nonqualified Stock Options, as designated by
the Committee. Each Option granted under the Plan shall be clearly identified either as an Incentive Stock Option or a Nonqualified Stock Option and shall be evidenced by an Agreement that specifies the terms and conditions of the grant. Options
granted to Eligible Individuals shall be subject to the terms and conditions set forth in this Article 6 and such other terms and conditions not inconsistent with this Plan as the Committee may specify subject to approval by the Required
Majority. All Incentive Stock Options shall comply with the provisions of the Code governing incentive stock options and with all other applicable rules and regulations.
6.2. The Option Period for Options granted to Eligible Individuals other than Non-employee Directors shall be determined by the
Committee, subject to approval by the Required Majority, provided, however, that an Option shall not be exercisable after ten years (five years in the case of an Incentive Stock Option granted to an Employee who on the Date of Grant is a Ten-Percent
Stockholder) from its Date of Grant. The Option Period shall be set forth in the Agreement.
6.3. Subject to adjustment as
provided in Article 9, the maximum number of Shares that may be covered by Options granted to any Eligible Individual who is not a Non-Employee Director during the term of this Plan shall not exceed 1,406,250 Shares, and the maximum number of Shares
that may be covered by Options granted to any other Eligible Individual during the term of this Plan shall not exceed 93,750 Shares.
6.4. Notwithstanding anything to the contrary in this Plan, without the approval of the stockholders of the Company, no Option shall be
issued in exchange for or as a reissuance of any outstanding Option and the Option Price for any outstanding Option shall not be changed, if the effect of such exchange or change would be to reduce the Option Price for any outstanding Option, except
as necessary to reflect the effect of a stock split, stock dividend or similar event in which case such exchange or change shall be subject to Article 9 hereof.
6.5. Notwithstanding anything to the contrary in this Plan, all grants of Options to Eligible Individuals who are Non-Employee Directors
under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with this Article 6. No person shall have any discretion to select which of such Eligible Individuals shall be granted Options or to determine the
number of Shares to be covered by Options.
6.6. Each Initial Eligible Director shall be automatically granted an Option to
purchase 93,750 Shares on and as of the Director Effective Date. Although such Options will be issued as of the Director Effective Date, such Options shall be deemed to vest over a three-year period commencing on June 11, 2009, with one-third
of the total number of Shares subject to each such Option vesting on each of the first three anniversaries following June 11, 2009,
provided,
that if the Director Effective Date does not occur before any such anniversary, the Shares
subject to such Options that would have otherwise vested on such anniversary shall instead vest on the Director Effective Date.
23
The Option Period for such Options shall expire on the later of June 11, 2019 and the three-year anniversary of the Director Effective Date. The Option Price for each Share granted under
this Section 6.6 shall be the Fair Market Value on the Director Effective Date.
6.7. Each Non-Employee Director who
becomes an Eligible Individual after June 11, 2009, shall be entitled to receive, to the extent that there are Director Option Shares that have not been issued or are not reserved for future issuance upon the exercise of other Options issued to
Non-Employee Directors, an Option to purchase 93,750 Shares. Such Option shall be issued on the later of the Director Effective Date and the date the person becomes a Non-Employee Director. Although such Options may be issued after the date the
person becomes a Non-Employee Director, such Options shall be deemed to vest over a three-year period commencing on the date such person becomes a Non-Employee Director, with one-third of the total number of Shares subject to each such Option
vesting on each of the first three anniversaries following the date such person becomes a Non-Employee Director,
provided,
that if the Director Effective Date does not occur before any such anniversary, the Shares subject to such Options that
would have otherwise vested on such anniversary shall instead vest on the Director Effective Date. The Option Period for such Options shall expire on the later of the tenth anniversary of the date such person becomes a Non-Employee Director and the
three-year anniversary of the Director Effective Date. The Option Price for each Share granted under this Section 6.6 shall be the Fair Market Value on the later of the Director Effective Date and the date the person becomes a Non-Employee
Director.
7. Exercise of Options
7.1. An Option may, subject to the terms of the applicable Agreement under which it is granted, be exercised in whole or in part by the
delivery to the Company of written notice of the exercise, in such form as the Committee may prescribe, accompanied by full payment of the Option Price for the Shares with respect to which the Option is exercised as provided in Section 7.2
hereof.
7.2. Payment of the aggregate Option Price for the Shares with respect to which an Option is being exercised shall be
made in cash; provided, however, that the Committee, in its sole discretion, may provide in an Agreement that part or all of such payment may be made by the Optionee in one or more of the following manners: (a) by delivery (including
constructive delivery) to the Company of Shares valued at Fair Market Value on Date of Exercise (provided that such Shares, if acquired pursuant to an Option granted hereunder or pursuant to any other compensation plan maintained by the Company or
any Affiliate, have been held by the participant for at least six months); (b) by delivery on a form prescribed by the Committee of a properly executed exercise notice and irrevocable instructions to a registered securities broker approved by
the Committee to sell Shares and promptly deliver cash to the Company; (c) for Options granted to Eligible Individuals other than Non-Employee Directors, by delivery of a promissory note as provided in Section 7.3 hereof; or (d) by
surrender to the Company of an Option (or a portion thereof) that has become exercisable and the receipt from the Company upon such surrender, without any payment to the Company (other than required tax withholding amounts), of (x) that number
of Shares (equal to the highest whole number of Shares) having an aggregate Fair Market Value as of the date of surrender equal to that number of Shares subject to the Option (or portion thereof) being surrendered multiplied by an amount equal to
the excess of (i) the Fair Market Value on the date of surrender over (ii) the Option Price, plus (y) an amount of cash equal to the Fair Market Value of any fractional Share to which the Optionee would be entitled but for the
parenthetical in clause (x) above relating to whole number of Shares. Any such surrender shall be treated as the exercise of the Option (or portion thereof).
24
7.3. To the extent provided in an Option Agreement and permitted by the 1940 Act and other
applicable law, including Section 402 under the Sarbanes-Oxley Act of 2002, the Committee may accept as payment of the Option Price a promissory note executed by the Optionee evidencing his or her obligation to make future cash payment thereof.
Promissory notes made pursuant to this Section 7.3 shall be payable upon such terms as may be determined by the Committee, shall be secured by a pledge of the Shares received upon exercise of the Option, shall bear interest at a rate fixed by
the Committee and shall otherwise comply with the provisions of Section 57(j)(2) of the 1940 Act.
7.4. Optionees are
required to notify the Company in writing within thirty (30) days after the date of any disposition of shares of Common Stock acquired upon exercise of an Incentive Stock Option within two years after the Date of Grant or within one year after
such shares were transferred to the Optionee, which notice shall state the number of shares sold or transferred, the date the shares were sold or transferred, and the sale price.
7.5. With respect to any Option granted to an Optionee who is a Non-Employee Director:
(a) In the event of death or Disability during the Optionees service as a Director, the unexercised portions of each of his or her
Options shall immediately become exercisable and may be exercised (by his or her personal representative in the event of such death) for a period of three years following the date of such death or one year following the date of such Disability, but
in no event after the respective expiration dates of such Options.
(b) In the event of the termination of such an
Optionees service as a Director for Cause, the unexercised portions of each of his or her Options shall immediately terminate upon such termination of service as a Director and may not be exercised thereafter, unless otherwise determined by
the Committee. The Committee in its sole discretion may determine that an Optionees service as a Director was terminated for Cause, if it finds that the Optionee willfully violated any of the Companys policies on ethical
business conduct or engaged in any activity or conduct during his or her service as a director which was inimical to the best interests of the Company.
(c) In the event of such an Optionees service as a director is terminated for any reason other than by his or her death or
Disability or by the Company for Cause, the unexercised portions of each of his or her Options, to the extent then exercisable, may be exercised within one year immediately following the date of termination, but in no event after the respective
expiration dates of such Options.
8. Restrictions on Transfer
Options shall not be transferable other than by will or the laws of descent and distribution. An Option may be exercised during the
Optionees lifetime only by the Optionee or, in the event of his or her legal disability, by his or her legal representative. The Shares acquired pursuant to the Plan shall be subject to such restrictions and agreements regarding sale,
assignment, encumbrances, or other transfers or dispositions thereof (a) as are in effect among the stockholders of the Company at the time such Shares are acquired, (b) as the Committee shall deem appropriate and (c) as are required
by applicable law.
25
9. Capital Adjustments
In the event of any change in the outstanding Common Stock by reason of any stock dividend, split-up (or reverse stock split),
recapitalization, reclassification, reorganization, reincorporation, combination or exchange of shares, merger, consolidation, liquidation or similar change in corporate structure, the Committee may, in its discretion and to the extent necessary to
compensate for the effect thereof, provide for a substitution for or adjustment in (a) the number and class of Shares subject to outstanding Options, (b) the Option Price of outstanding Options, (c) the aggregate number and class of
Shares that may be issued under the Plan, and (d) for the maximum number of Shares with respect to which an Employee may be granted Options during the period specified in Section 6.3. The Committee, however, will not adjust the exercise
price of options granted under the Plan or engage in any of the activities specified in Article 11, unless the Company receives written confirmation from the staff of the Commission or an order from the Commission that the Company may do so.
10. Termination or Amendment
The Board may amend, alter, suspend or terminate the Plan in any respect at any time and to the extent permitted by, and consistent with,
exemptive or other relief that may be granted by the SEC; provided, however, that after the Plan has been approved by the stockholders of the Company, no amendment, alteration, suspension or termination of the Plan shall be made by the Board without
approval of (a) the Companys stockholders to the extent stockholder approval is required by applicable law or regulations or the requirements of the principal exchange or interdealer quotation system on which the Common Stock is listed,
if any, and (b) each affected Optionee if such amendment, alteration, suspension or termination would adversely affect his or her rights or obligations under any Option granted prior to the date of such amendment, alteration, suspension or
termination. No Option may be granted under the Plan during any suspension or after termination of the Plan.
11. Modification,
Extension and Renewal of Options; Substituted Options
11.1. Subject to the terms and conditions of the Plan and to the
extent permitted by, and consistent with, exemptive or other relief that may be granted by the SEC and the approval of any such action by a Required Majority, the Committee may modify, extend or renew the terms of any outstanding Options (other than
Options issued to a Non-employee Director), or accept the surrender of outstanding Options granted under the Plan or options under any other plan of the Company (to the extent not theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised). Subject to Section 6.4, any such substituted Options may specify a longer term than the surrendered options, or have any other provisions that are authorized by the Plan.
Notwithstanding the foregoing, however, no modification of an Option shall, without the consent of the Optionee, alter or impair any of the Optionees rights or obligations under such Option.
11.2. Anything contained herein to the contrary notwithstanding, Options may, at the discretion of the Committee and with the approval of
a Required Majority, be granted under the Plan in substitution for stock appreciation rights and options to purchase shares of capital stock of another corporation that is merged into, consolidated with, or all or a substantial portion of the
property or stock of which is acquired by, the Company or one of its Affiliates and the holders of such options or stock appreciation rights as a result of such transaction become Eligible Individuals (other than Non-employee Directors). The terms
and conditions of the substitute Options so granted may vary from the terms and conditions set forth in this Plan to such extent as the Committee (with the approval of a Required Majority) may deem appropriate in order to conform, in whole or part,
to the provisions of the options and stock appreciation rights in substitution for which they are granted, to the extent consistent with Section 61(2)(3)(B).
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12. Effectiveness of the Plan
The Plan and any amendment thereto shall be effective on the date on which it is adopted by the Board, provided that any such adoption
requiring stockholder approval is subject to approval by vote of the stockholders of the Company within 12 months after such adoption by the Board. In addition, to the extent that the Plan pertains to the issuance of Options to Non-Employee
Directors and, if required by the 1940 Act, the Plan (or any amendment thereto) with regard to the issuance of Options to Non-Employee Directors shall not become effective until the Securities and Exchange Commission or other governmental authority
shall have granted the necessary exemptions or other consents pursuant thereto, but to the extent legally permissible, any such effectiveness shall be deemed to occur retroactive to the adoption thereof by the Board.
13. Withholding
The Companys obligation to issue or deliver Shares or pay any amount pursuant to the terms of any Option shall be subject to the
satisfaction of applicable federal, state and local tax withholding requirements. To the extent provided in the applicable Agreement subject to SEC exemptive or interpretive relief from Section 23(c) of the 1940 Act and in accordance with rules
prescribed by the Committee, an Optionee may satisfy any such withholding tax obligation by any of the following means or by a combination of such means: (a) tendering a cash payment, (b) authorizing the Company to withhold Shares
otherwise issuable to the Optionee, or (c) delivering to the Company already owned and unencumbered Shares.
14. Term of the Plan
Unless sooner terminated by the Board pursuant to Article 10, the Plan shall terminate on April 6, 2019, and no
Options may be granted after such date. The termination of the Plan shall not affect the validity of any Option outstanding on the date of termination.
15. Indemnification of Committee
In addition to such other rights of indemnification as they may have as Directors or as members of the Committee, the members of the
Committee shall be indemnified by the Company against the reasonable expenses, including attorneys fees, actually and reasonably incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted hereunder, and against all amounts reasonably paid by them in settlement thereof or paid
by them in satisfaction of a judgment in any such action, suit or proceeding, if such members acted in good faith and in a manner which they believed to be in, and not opposed to, the best interests of the Company.
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16. General Provisions
16.1. The establishment of the Plan shall not confer upon any Eligible Individual any legal or equitable right against the Company, any
Affiliate or the Committee, except as expressly provided in the Plan.
16.2. The Plan does not constitute inducement or
consideration for the employment or service of any Eligible Individual, nor is it a contract between the Company or any Affiliate and any Eligible Individual. Participation in the Plan shall not give an Eligible Individual any right to be retained
in the service of the Company or any Affiliate.
16.3. Neither the adoption of this Plan nor its submission to the
stockholders, shall be taken to impose any limitations on the powers of the Company or its Affiliates to issue, grant, or assume options, warrants, rights, or restricted stock, otherwise than under this Plan, or to adopt other stock option or
restricted stock plans or to impose any requirement of stockholder approval upon the same.
16.4. The interests of any
Eligible Individual under the Plan are not subject to the claims of creditors and may not, in any way, be assigned, alienated or encumbered except as provided in an Agreement.
16.5. The Plan shall be governed, construed and administered in accordance with the laws of the State of Delaware and it is the intention
of the Company that Incentive Stock Options granted under the Plan qualify as such under Section 422 of the Code.
16.6.
The Committee may require each person acquiring Shares pursuant to Options hereunder to represent to and agree with the Company in writing that such person is acquiring the Shares without a view to distribution thereof. The certificates for such
Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares issued pursuant to the Plan shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange or interdealer quotation system upon which the Common Stock is then listed or quoted, and any applicable
federal or state securities laws. The Committee may place a legend or legends on any such certificates to make appropriate reference to such restrictions. The certificates for Shares acquired pursuant to an Option may also include any legend which
the Committee deems appropriate to reflect restrictions contained in this Plan or in the applicable Agreement or to comply with the Delaware General Corporation Law.
16.7. The Company shall not be required to issue any certificate or certificates for Shares upon the exercise of Options, or record any
person as a holder of record of such Shares, without obtaining, to the complete satisfaction of the Committee, the approval of all regulatory bodies deemed necessary by the Committee, and without complying to the Committees complete
satisfaction, with all rules and regulations, under federal, state or local law deemed applicable by the Committee.
16.8. To
the extent this Plan provides for issuance of stock certificates to reflect the issuance of Shares, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange or
automated dealer quotation system on which the Shares are traded.
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American Capital Strategies (NASDAQ:ACAS)
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American Capital Strategies (NASDAQ:ACAS)
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