[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