[Federal Register Volume 64, Number 153 (Tuesday, August 10, 1999)]
[Notices]
[Pages 43414-43415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20491]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Rel. No. 23934; 812-11362]


Elk Associates Funding Corporation and Ameritrans Capital 
Corporation; Notice of Application

August 3, 1999.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an 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: Applicants, Elk Associates Funding Corporation 
(``Elk'') and Ameritrans Capital Corporation (``Ameritrans''), request 
an order approving their respective Non-Employee Directors Stock Option 
Plans (the ``Elk Plan'' and the ``Ameritrans Plan,'' collectively, the 
``Plans'') and the grant of certain stock options under the Plans.

FILING DATES: The application was filed on October 19, 1998 and amended 
on July 29, 1999.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on August 30, 1999, and should be accompanied by proof of service 
on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW, Washington, DC 
20549-0609. Applicants, c/o Perri Beth Irvings, Esquire, Stursberg & 
Veith, 405 Lexington Avenue, Suite 4949, New York, New York 10174-4902.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or George J. Zornada, Branch Chief, at (202) 942-
0528 (Division of Investment Management, Office of Investment Company 
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Elk, a New York corporation, is a business development company 
(``BDC'') within the meaning of section 2(a)(48) of the Act \1\ and is 
licensed as a small business investment company (``SBIC'') under the 
Small Business Act of 1958, as amended. Ameritrans is a newly-created 
Delaware corporation that elected to become a BDC on July 29, 1999.
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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. Applicants plan to enter into an Agreement and Plan of Share 
Exchange (the ``Share Exchange Plan''). Under the Share Exchange Plan, 
Elk would become a wholly-owned subsidiary of Ameritrans, and the 
holders of all of the outstanding shares of Elk's common stock would 
receive one share of Ameritrans stock for each share of Elk stock owned 
(the ``Share Exchange'').\2\ The Share Exchange is expected to take 
place as soon as practicable after issuance of the order by the 
Commission relating to the Share Exchange Plan. If the Share Exchange 
is consummated, Ameritrans will have the identical capital structure, 
management and board of directors (``Board'') that Elk has currently. 
Elk, as a subsidiary of Ameritrans, would continue to operate as an 
SBIC and Ameritrans would engage in broader lending and investment 
operations consistent with its status as a BDC but not subject to SBIC 
restrictions. Ameritrans will not engage in any substantive business 
activities prior to the completion of the Share Exchange. Neither 
applicant has an external investment adviser within the meaning of 
section 2(a)(20) of the Act.
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    \2\ The Share Exchange Plan must be approved by the shareholders 
of Elk and by the Commission. Applicants have submitted a separate 
application to the Commission regarding the Share Exchange (File No. 
812-11420).
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    3. Applicants request an order under section 61(a)(3)(B) of the Act 
approving the Plans. Each Plan provides for the grant of options to 
acquire shares of the relevant applicant's common stock to directors 
who are neither officers, employees nor interested persons (as defined 
by section 2(a)(19) of the Act) of applicants (``Non-Employee 
Directors'').\3\ Elk has a ten-member Board, six of whom are Non-
Employee Directors.
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    \3\ Each Elk Non-Employee Director currently receives a $2,000 
annual fee, $750 for each Board meeting attended and reimbursement 
for meeting-related expenses.
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    4. The Plans are identical, except that the Ameritrans Plan will 
not become effective unless and until the Share Exchange is completed. 
When the Share Exchange occurs, the Ameritrans Plan would become the 
successor Plan to the Elk Plan and options granted under the Elk Plan 
would be deemed to have been issued under the Ameritrans Plan and would 
be exercisable for shares of Ameritrans stock. In the event the Share 
Exchange is not approved, the Elk Plan would remain in effect.
    5. On August 21, 1998, the Board adopted the Elk Plan subject to 
approval by shareholders and the Commission. On September 28, 1998, 
Elk's shareholders approved the Elk Plan. The Board adopted the 
Ameritrans Plan on May 21, 1999 and the sole shareholder of Ameritrans 
approved the Ameritrans Plan on May 21, 1999. The Elk Plan will become 
effective on the date that it is approved by the Commission (``Approval 
Date'').
    6. The Elk Plan provides that on the later of the Approval Date or 
the first anniversary of the election or appointment of a Non-Employee 
Director to the Board (``Anniversary Date''), each Non-Employee 
Director then serving will receive an automatic grant of options to 
purchase a number of shares of Elk common stock (``Options'') 
determined by dividing $50,000 by the current market value of Elk's 
common stock on the Approval Date (``Initial Grants''). Following the 
Initial Grants, each new Non-Employee Director will automatically be 
granted a number of Options on his or her Anniversary Date to be 
determined by dividing $50,000 by the current market value of shares of 
Elk common stock on the date of grant. Based on length of service, four 
of the six Elk Non-Employee Directors would be granted Options on the 
Approval Date and the other two Non-Employee Directors upon their 
Anniversary Date. All Options become exercisable 12 months after the 
date of the grant if the Non-Employee Director remains on the Board. A 
total of 75,000 shares of Elk's common stock is issuable to Non-
Employee Directors under the Elk Plan.

[[Page 43415]]

    7. Under the terms of the Elk Plan, the exercise price of the 
Options will be the current market price of Elk's common stock on the 
later of the Approval Date or the Anniversary Date. The Plans expire 
ten years after the Approval Date and the Options expire five years 
from the date of grant. Options may not be assigned or transferred 
other than by the laws of descent and distribution. In the event of 
death of a Non-Employee Director during the Director's service, 
unexercised Options may be exercised for a period of one year following 
the date of death (by the Director's personal representative) but in no 
event after the respective expiration dates of such Options. If a Non-
Employee Director ceases to be a director for any reason, other than 
because of death, any unexercised Options may be exercised within one 
year from the date the Non-Employee Director ceases to be a director, 
but in no event later than the expiration date of the Option.
    8. As of March 31, 1999, Elk had outstanding 11,745,600 shares of 
common stock. Elk's officers and employees, including employee 
directors, are eligible to receive options under Elk's other stock 
option plan (under which Non-Employee Directors are not entitled to 
participate) (``Other Plan''). A maximum of 200,000 shares, or 11.5% of 
Elk's outstanding common stock, may be issued under both the Elk Plan 
and the Other Plan. Of the 125,000 shares issuable under the Other 
Plan, 75,000 shares, representing 4.3% of Elk's outstanding common 
stock, are subject to granted options. Elk has no other warrants, 
options or rights to purchase its outstanding voting securities.

Applicants' Legal Analysis

    1. Section 61(a)(3)(B) of the 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, 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 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 Commission 
upon application; (d) the options are not transferable except for 
disposition by gift, will or intestacy; (e) no investment adviser of 
the BDC receives any compensation described in section 205(1) of the 
Investment Advisers Act of 1940, except to the extent permitted by 
clause (A) or (B) of that section; and (f) the BDC does not have a 
profit-sharing plan as described in section 57(n) of the Act.
    2. In addition, section 61(a)(3)(C) 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 oustanding voting securities of the BDC.
    3. Applicants represent that the Plans would comply with all of the 
requirements of section 61(a)(3)(B) of the Act. Applicants state in 
support of their application that the Board actively oversees Elk's 
affairs, that Elk relies extensively on the judgment and experience of 
the Board, and that Non-Employee Directors play an important role on 
budgetary and operational issues, credit and loan policies, asset 
valuation and strategic direction, as well as serving on Board 
committees. Applicants believe that the Plans will provide additional 
incentives to Non-Employee Directors to remain on the Board and devote 
their best efforts to ensure the success of applicants. Applicants also 
believe that the Options will provide significant at-risk incentives to 
the Non-Employee Directors, thereby further ensuring close 
identification of their interests with those of the applicants and 
their shareholders. Applicants assert that by providing incentives such 
as Options, applicants will be able to maintain continuity in the 
Board's membership and to attract and retain highly experienced and 
skilled professionals who are critical to each applicant's success as a 
BDC.
    4. Applicants submit that the terms of the Plans are fair and 
reasonable and do not involve overreaching of applicants or their 
shareholders. Applicants state that the Options are not immediately 
exercisable, will become exercisable 12 months after the date of grant, 
and then only if the grantee remains a Non-Employee Director. No 
Options will become exercisable due to the consummation of the Share 
Exchange. Applicants also state that the total number of shares of 
common stock issuable under the Elk Plan to Non-Employee directors 
represents 4.3% of Elk's outstanding common stock. Applicants assert 
that the Options will have value only to the extent that the market 
value of Elk's stock (or Ameritrans' stock if the Share Exchange 
occurs) increases above the exercise price of the Options and that the 
exercise of the Options under the Plans would not have a substantial 
dilutive effect on the net asset value of Elk's (or Ameritrans') common 
stock. Applicants state that the total amount of voting securities that 
would result from the exercise of all outstanding warrants, options and 
rights upon approval of the Elk Plan would represent 11.5% of Elk's 
outstanding voting securities, an amount within the percentage 
limitations set forth in section 61(a)(3)(C) of the Act.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-20491 Filed 8-9-99; 8:45 am]
BILLING CODE 8010-01-M