[Federal Register Volume 65, Number 15 (Monday, January 24, 2000)]
[Notices]
[Pages 3747-3748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1635]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24254; 812-11250]


Franklin Capital Corporation; Notice of Application

January 18, 2000.
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: Applicant, Franklin Capital Corporation, 
requests an order approving its Non-Statutory Stock Option Plan (the 
``Director Plan'') and the grant of certain stock options under the 
Director Plan.

FILING DATES: The application was filed on August 6, 1998, and amended 
on April 14, 1999. Applicant has agreed to file an amendment during the 
notice period, the substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on February 11, 2000, and should be accompanied by proof of 
service on applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW, Washington, DC 
20549-0609. Applicant, 450 Park Avenue, New York, New York 10022.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 942-0574, or George J. Zornada, Branch Chief, at (202) 942-0564 
(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).

Applicant's Representations

    1. Applicant is an internally-managed business development company 
(``BDC'') within the meaning of section 2(a)(48) of the Act.\1\ 
Applicant does not have an external investment adviser within the 
meaning of section 2(a)(20) of the Act.
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. Applicant requests an order under section 61(a)(3)(B) of the Act 
approving the Director Plan for directors who are not employees, 
officers, or interested persons (as defined in section 2(a)(9) of the 
Act) of the applicant (``Eligible Directors'').\2\ Applicant has a five 
member board of directors (the ``Board''), four of whom are Eligible 
Directors. On August 5, 1997, applicant's Board adopted the Director 
Plan, and on September 9, 1997, applicant's shareholders approved the 
Director Plan. The Director Plan will become effective on the date that 
the Commission issues an order on the application (the ``Approval 
Date'').
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    \2\ Each Eligible Director receives director's fees equal to 
$12,000 per year. The Eligible Directors do not receive any other 
compensation for their services.
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    3. The Director Plan provides for the grant of stock options to 
purchase shares of applicant's common stock (``Options'') to each of 
the Eligible Directors on the Approval Date. A total of 30,000 shares 
of applicant's common stock is reserved for issuance under the Director 
Plan. Pursuant to the Director Plan, on the Approval Date, each of the 
Eligible Directors will be granted Options for 5,000 shares of common 
stock (20,000 shares total). The Options vest as follows: one-third of 
each Eligible Director's 5,000 Options will vest immediately, one-third 
will vest one year from the date of grant, and the remaining one-third 
will vest two years from the date of grant. The remaining 10,000 shares 
will be granted in the following manner: Options to purchase an 
additional 1,250 shares of common stock will be automatically granted 
to each Eligible Director upon his election, re-election, or 
appointment to the Board at the Year 2000 and Year 2001 annual 
shareholders' meetings.

[[Page 3748]]

    4. Under the Director Plan, the exercise price for Options will be 
the fair market value of the applicant's stock, defined as the closing 
price on the American Stock Exchange on the date of grant. Options 
granted under the Director Plan are exercisable for a period of 10 
years from the date of grant or a shorter period as the Board may 
establish. Options will become exercisable, in accordance with the 
vesting schedule prescribed in each Eligible Director's Option 
agreement. In the event of death or permanent and total disability of 
an Eligible Director during the Director's service, unexercised Options 
will become exercisable only during the period of twelve months 
following the date of death or disability. In the event of the 
termination of an Eligible Director's directorship for a reason other 
than by death or permanent and total disability, an Option shall be 
exercisable only during a period of thirty days following the date of 
termination. The Options will not be transferable except for 
disposition by gift, will, intestacy, or pursuant to a qualified 
domestic relations order as defined by section 414(p) of the Internal 
Revenue Code of 1986, as amended.
    5. Applicant's officers and employees, including any employee 
directors, are eligible to receive stock options under the Franklin 
Holding Corporation Stock Incentive Plan (the ``Employee Plan''). 
Eligible Directors are not eligible to receive stock options under the 
Employee Plan. The total number of shares of common stock issuable 
under the Director Plan and the Employee Plan is 75,000 shares (30,000 
shares under the Director Plan and 45,000 shares under the Employee 
Plan), representing 10.3% of the 730,588 shares of applicant's stock 
outstanding as of December 31, 1999. 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 the 
Employee Plan and the Director Plan.

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. 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) 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.
    3. Applicant represents that the terms of the Director Plan meet 
all the requirements of section 61(a)(3)(B) of the Act. Applicant 
states in support of the application that the Eligible Directors are 
actively involved in the oversight of applicant's affairs and that it 
relies on the judgment and experience of the Board. Applicant also 
states that the Eligible Directors provide guidance and advice on 
financial and operational issues, credit and loan policies, asset 
valuation, and strategic direction, as well as serve on committees. 
Applicant believes that the Options to be granted to the Eligible 
Directors provide significant incentives for the Eligible Directors to 
remain on the Board and to devote their best efforts to the success of 
applicant's business and the enhancement of shareholder value. 
Applicant also states that the Options will provide a means for the 
Eligible Directors to increase their ownership interests in applicant, 
thereby ensuring close identification of their interests with the 
interests of applicant's shareholders.
    4. Applicant submits that the terms of the Director Plan are fair 
and reasonable and do not involve overreaching of applicant or its 
shareholders. Applicant states that the number of voting securities 
that would result from the exercise of all Options issued or issuable 
to the directors, officer, and employees under the Director Plan and 
the Employee Plan is 75,000 shares, or 10.3% of the company's 
outstanding stock, which is below the percentage limitations in the 
Act. Applicant asserts that, given the small amount of common stock 
issuable upon the exercise of Options under the Director Plan, the 
exercise of Options would not have a substantial dilutive effect on the 
net asset value of the applicant's stock.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-1635 Filed 1-21-00; 8:45 am]
BILLING CODE 8010-01-M