SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant /_/
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
American Capital Strategies, Ltd.
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(Name of Registrant as Specified In Its Charter)
American Capital Strategies, Ltd.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.
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1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
N/A
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4) Proposed maximum aggregate value of transaction:
N/A
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration No.
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3) Filing party:
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4) Date filed:
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[AMERICAN CAPITAL STRATEGIES LOGO]
AMERICAN CAPITAL STRATEGIES, LTD.
2 BETHESDA METRO CENTER, 14th FLOOR
BETHESDA, MARYLAND 20814
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 3, 2000
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To the Stockholders:
The Annual Meeting of Stockholders of American Capital Strategies, Ltd.
(the "Company"), will be held at the offices of the Company, Two Bethesda Metro
Center, 14th Floor, Bethesda, Maryland 20814, on Wednesday, May 3, 2000, at
11:00 a.m., for the following purposes:
1. To elect three directors of the Company each to serve a three-year
term and until their successors are elected and qualified;
2. To consider the adoption of an amendment to the Company's Second
Amended and Restated Certificate of Incorporation (i) so as to
extend indemnification rights to the Company's employees, and (ii)
limit the exculpation from liability to the Company or its
stockholders for officers and directors in certain circumstances;
3. To consider approval of the Company's 2000 Employee Stock Option
Plan;
4. To consider approval of the Company's 2000 Disinterested Director
Stock Option Plan;
5. To consider an amendment to the Company's fundamental policies so as
to permit the Company to be an underwriter in limited circumstances
related to the Company's Directed Share Subscription Program;
6. To ratify the selection of Ernst & Young LLP to serve as independent
public accountants for the Company for the year ending December 31,
2000; and
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on March 21, 2000, are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
A proxy statement, form of proxy and self-addressed envelope are
enclosed. Please complete, date and sign the proxy card. Return it promptly in
the envelope provided, which requires no postage if mailed in the United States.
If you attend the meeting, you may withdraw your proxy and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS,
John E. Erickson
Vice President, Chief
Financial Officer and Secretary
April 4, 2000
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[AMERICAN CAPITAL STRATEGIES LOGO]
AMERICAN CAPITAL STRATEGIES, LTD.
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of American Capital Strategies, Ltd. (the
"Company"), for use at the Company's Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday, May 3, 2000, at 11:00 a.m. at the offices of
the Company, Two Bethesda Metro Center, 14th Floor, Bethesda, Maryland 20814,
and for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders, and at any adjournments thereof. This Proxy Statement, the
accompanying proxy card and the Company's Annual Report to Stockholders, which
includes audited financial statements for the year ended December 31, 1999, are
first being sent to stockholders on or about April 5, 2000.
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company and is revocable at any time prior to the voting of the proxy by the
filing of an instrument revoking it, or a duly executed proxy bearing a later
date, with the Secretary of the Company. In the event you attend the Annual
Meeting, you may revoke your proxy and cast your vote personally. Shares
represented by valid proxies will be voted in accordance with instructions
contained therein. If no specification is made, such shares will be voted FOR
the election of the three director nominees, FOR the amendments (the "Charter
Amendment") to the Company's Second Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") pertaining to indemnification
and exculpation rights, FOR approval of the Company's 2000 Employee Stock Option
Plan (the "New Employee Option Plan"), FOR approval of the Company's 2000
Disinterested Director Stock Option Plan (the "New Director Option Plan"), FOR
the amendment to the Company's fundamental policies so as to allow the Company
to be an underwriter under limited circumstance related to the Company's
Directed Share Subscription Program and FOR the ratification of Ernst & Young
LLP as the independent accountants of the Company.
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters set forth herein. Should any
other matter requiring a vote of stockholders arise, it is the intention of the
persons named in the proxies to vote in accordance with their judgment on such
matters.
The cost of soliciting proxies on the accompanying form will be borne by
the Company. In addition to the use of mail, officers of the Company may solicit
proxies by telephone or telecopy. Upon request, the Company will reimburse
brokers, dealers, banks, and trustees, or their nominees, for reasonable
expenses incurred by them in forwarding proxy material to beneficial owners of
the Common Stock.
The Board of Directors has fixed the close of business on March 21, 2000,
as the record date for determining the holders of Common Stock entitled to
receive notice of and to vote at the Annual Meeting and any adjournments thereof
("Record Date"). On the Record Date, there were issued and outstanding
18,253,708 shares of the Company's common stock, $0.01 par value per share (the
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"Common Stock"). Only holders of the Common Stock on the Record Date are
entitled to vote at the Annual Meeting and such holders will be entitled to one
vote for each share of Common Stock so held, which may be given in person or by
proxy duly authorized in writing. The presence in person or by proxy of a
majority in voting power of the Common Stock will constitute a quorum for the
transaction of business at the Annual Meeting.
The Company's principal executive offices are located at 2 Bethesda Metro
Center, 14th Floor, Bethesda, Maryland 20814. Notices of revocation of proxies
should be sent to that address.
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SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of February 29, 2000 (unless otherwise
indicated), the beneficial ownership of each current director, each nominee for
director, each of the executive officers (the "Executive Officers"), the
Executive Officers and directors as a group and each stockholder known to
management of the Company to own beneficially more than 5% of the outstanding
shares of Common Stock of the Company. Unless otherwise indicated, the Company
believes that the beneficial owner set forth in the table has sole voting and
investment power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)
- -------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Ballentine Capital Management, Inc............................ 1,050,000(2) 5.8%
10 Avon Meadow Lane
Avon, CT 06001
Directors and Executive Officers
Malon Wilkus.................................................. 834,625(3) 4.6%
2 Bethesda Metro Center, 14th Floor
Bethesda, Maryland 20814
David Gladstone............................................... 684,333(4) 3.7%
2 Bethesda Metro Center, 14th Floor
Bethesda, Maryland 20814
Adam Blumenthal............................................... 348,839(5) 1.9%
Roland Cline.................................................. 226,840(6) 1.2%
John Erickson................................................. 46,377(7) *
Stephen L. Hester............................................. 94,695(8) *
Robert L. Allbritton.......................................... 15,969(9) *
Neil M. Hahl.................................................. 12,388(9) *
Philip R. Harper.............................................. 13,689(10) *
Stan Lundine.................................................. 11,000(9) *
Alvin N. Puryear.............................................. 8,000(10) *
Stephen P. Walko.............................................. 15,300(9) *
Executive Officers and directors.............................. 2,312,054 12.7%
as a group (12 persons)
</TABLE>
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* Less than one percent.
(1) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock subject to options held by directors and Executive Officers of
the Company that are exercisable within 60 days of March 21, 2000, are
deemed outstanding for the purposes of computing such director's or
executive officer's beneficial ownership.
(2) Ballentine Capital Management, Inc. ("Ballentine"), a registered investment
adviser, is deemed to have beneficial ownership of and has the sole power
to vote or direct the vote of 1,050,000 shares of Common Stock as a result
of acting as investment adviser to certain managed accounts, with respect
to the shares of Common Stock directly owned by such managed accounts. Each
of the clients of Ballentine has the power to direct the receipt of
dividends from, and the proceeds from the sale of, such Common Stock. The
information in this footnote was obtained from Schedule 13-G filed with the
Securities and Exchange Commission by Ballentine for calendar year 1999.
(3) Includes 44,433 shares allocated to the account of Mr. Wilkus as a
participant in the American Capital Strategies, Ltd. Employee Investment
and Stock Ownership Plan (the "ESOP") over which Mr. Wilkus has voting
power under the terms of the ESOP.
(4) Includes 3,866 shares allocated to the account of Mr. Gladstone as a
participant in the Company's ESOP over which Mr. Gladstone has voting power
under terms of the ESOP.
(5) Includes 36,051 shares allocated to the account of Mr. Blumenthal as a
participant in the ESOP over which Mr. Blumenthal has voting power under
terms of the ESOP.
(6) Includes 36,908 shares allocated to the account of Mr. Cline as a
participant in the ESOP over which Mr. Cline has voting power under terms
of the ESOP and 8,900 shares issuable upon the exercise of options.
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(7) Includes 677 shares allocated to the account of Mr. Erickson as a
participant in the ESOP over which Mr. Erickson has voting power and 13,700
shares issuable upon the exercise of options, but does not include other
shares owned by the ESOP for which Mr. Erickson is the Trustee.
(8) Includes 10,928 shares allocated to the account of Mr. Hester as a
participant in the ESOP over which Mr. Hester has voting power, 12,548
shares issuable upon the exercise of options and 1,000 shares owned by Mr.
Hester's wife.
(9) Includes 10,000 shares issuable upon the exercise of stock options.
(10) Includes 5,000 shares issuable upon the exercise of stock options.
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PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the terms of the Certificate of Incorporation, the directors
are divided into three classes, composed of three directors each. The existing
classes of directors hold office for terms expiring at the annual meetings of
stockholders to be held in 2000, 2001 and 2002, respectively. Stockholders elect
one-third of the members of the Board of Directors annually.
The terms of Philip R. Harper, Stephen P. Walko and Malon Wilkus will
expire at the Annual Meeting, and each has been nominated to stand for
re-election at the Annual Meeting to hold office until the annual meeting to be
held in 2003 and his successor is elected and qualified. It is expected that
each of the nominees will be able to serve, but if any such nominee is unable to
serve for any reason, the proxies reserve discretion to vote or refrain from
voting for a substitute nominee or nominees. A stockholder using the enclosed
form of proxy can vote for or withhold his or her vote from any or all of the
nominees. The election of directors requires the vote of a plurality of the
Common Stock. If the proxy card is properly executed but unmarked, it is the
intention of the persons named as proxies to vote such proxy FOR the election of
all the nominees named below.
Certain information, as of the Record Date, with respect to each of the
directors of the Company including the three nominees for election at the Annual
Meeting and for each of the Executive Offices is set forth below.
<TABLE>
<CAPTION>
NAME AND YEAR FIRST
ELECTED DIRECTOR AGE BACKGROUND INFORMATION
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NOMINEES FOR DIRECTOR
<S> <C> <C>
Philip R. Harper (1997)............ 56 Mr. Harper has served as Chairman, Chief Executive Officer
and President, of US Investigations Services, Inc., a private
investigations company, since 1996. From 1991 to 1995,
Mr. Harper served a President of Wells Fargo Alarm Services.
From 1988 to 1991, Mr. Harper served as President of Burns
International Security Services-Western Business Unit.
Mr. Harper served in the U.S. Army from 1961 to 1982, where he
commanded airborne infantry and intelligence units.
Stephen P. Walko* (1997)........... 49 Mr. Walko has been President, Chief Executive Officer and a
Director of Decorative Surfaces International, Inc., a
manufacturer of wall coverings and laminates, since 1998.
From 1990 to 1998, he was President and a Director of
Textileather Corporation, a manufacturer of vinyl. Mr. Walko is a
Director of Bliss Salem Steel Corp. and Mobile Tool International,
Inc.
Malon Wilkus* (1986)............... 48 Mr. Wilkus founded the Company in 1986 and has served as the
Company's Chief Executive Officer since that time. From 1986 to
1999, he was also President. Mr. Wilkus served as Vice Chairman of
the Board of Directors of the Company from 1997 to 1998 and has
served as Chairman of the Board of Directors since 1998. Mr.
Wilkus is Chairman of Capital.com, Inc., an internet financial
services company. Mr. Wilkus is past Chairman and a current
Director of the National Center for Employee Ownership. Mr. Wilkus
is a member of the Board of Governors of the ESOP Association. He
has previously served on the boards of directors of ten
employee-owned corporations.
<CAPTION>
DIRECTORS WITH TERMS EXPIRING IN 2001
<S> <C> <C>
David Gladstone* (1997)............ 57 Mr. Gladstone has served as Vice Chairman of the Board of the
Company since 1998 and as Chairman from 1997 to 1998. From
1974 to 1997, Mr. Gladstone held various positions, including
Chairman and Chief Executive Officer, with Allied Capital
Corporation, a specialty finance company, and certain of its
predecessor companies. He is a trustee of Capital Automotive
REIT, a real estate investment trust. From 1992 to 1997,
Mr. Gladstone served as a Director and President and Chief
Executive Officer of Business Mortgage Investors, a Real Estate
Investment Trust. Mr. Gladstone served as a Director of The Riggs
National Corporation (the parent of Riggs Bank) from 1993 to May
1997 and of Riggs Bank from 1991 to 1993. He currently serves as a
Trustee Emeritus of The George Washington University.
Mr. Gladstone is a Member Emeritus of Capital Investor, a private
fund backed by Information Technology professionals to make
investments in start-up companies and is chairman of Coastal
Berry Company, a large farming business. He also an advisor to
the Women's Growth Fund, a venture capital fund that invests in
women-owned businesses.
</TABLE>
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<TABLE>
<S> <C> <C>
Robert L. Allbritton (1997)........ 31 Mr. Allbritton has served as Director since 1992, as Executive
Vice President from 1994 to 1998, and as President since 1998 of
Allbritton Communications Company, an owner of nine television
stations. Mr. Allbritton currently serves as Director of Riggs
National Corporation (owner of Riggs Bank, N.A.), Riggs Bank
Europe Limited, Perpetual Corporation (owner of Allbritton
Communications Company and a cable programming company), and
Allbritton Jacksonville, Inc. (owner of a television station). He
is also a director or an officer of eight subsidiary companies of
Perpetual Corporation or Albrittron Communications Company. Mr.
Allbritton also serves as a trustee of The Albritton Foundation
and Allbritton Art Institute.
Alvin N. Puryear (1998)............ 56 Dr. Puryear is the Lawrence N. Field Professor of Entrepreneurship
at Baruch College of the City University of New York and has been
on the faculty there since 1970. He is Director of the GreenPoint
Bank, GreenPoint Mortgage Company and GreenPoint Financial
Corporation.
<CAPTION>
DIRECTORS WITH TERMS EXPIRING IN 2002
<S> <C> <C>
Adam Blumenthal* (1993)............ 38 Mr. Blumenthal has served as the Company's President and Chief
Operating Officer since 1999. From 1995 to 1999, he was Executive
Vice President and from 1990 to 1995, he was a Vice President of
the Company. Mr. Blumenthal currently serves as a Director of
Capital.com, Inc., and Mobile Tool International, Inc.
Neil M. Hahl (1997)................ 51 Mr. Hahl has been President of The Weitling Group, a business
consulting firm, since 1996. From 1995 to 1996, Mr. Hahl
served as Senior Vice President of the American Financial
Group. From 1982 to 1996, Mr. Hahl served as Senior Vice
President and CFO of Penn Central Corporation. Mr. Hahl is
currently a Director of Buckeye Management Company, the
general partner of Buckeye Partners, L.P.
Stan Lundine (1997)................ 61 Mr. Lundine has served as Of Counsel for the law firm of Sotir and
Goldman since 1995 and as Executive Director of the Foundation for
Enterprise Development since 1997. From 1987 to 1994, he was the
Lieutenant Governor of the State of New York. Mr. Lundine is a
Director of US Investigations Services, Inc. John Ullmun &
Associates, Inc., and National Forge Company. From 1976 to 1986,
Mr. Lundine served as a member of the U.S. House of
Representatives.
<CAPTION>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<S> <C> <C>
Ronald H. Cline................... 51 Mr. Cline has been a Vice President of the Company since 1988.
John E. Erickson.................. 39 Mr. Erickson has served as Vice President and Chief Financial
Officer of the Company since 1998 and as Secretary since 1999. He
is a member of the Board of Directors of Capital.com, Inc. From 1990 to
1996, he served as Chief Financial Officer of Storage USA, Inc.,
an operator of self-storage facilities. From 1996 to 1998, he
served as President of Storage USA Franchise Corp., a subsidiary
of Storage USA, Inc.
Stephen L. Hester................. 62 Mr. Hester has served as a Vice President of the Company since 1994.
From 1994 to 1998, he was also General Counsel of the Company.
</TABLE>
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* Directors who are "Interested Persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940 (the "1940 Act"). Messrs. Blumenthal, Gladstone
and Wilkus are Interested Persons because they are employees and officers of the
Company. Mr. Walko is an Interested Person because he is an officer and employee
of Decorative Surfaces International, Inc., a company under "control," as
defined in Section 2(a)(9) of the 1940 Act, of the Company.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors holds regular quarterly meetings and meets on other
occasions when required by special circumstances. Certain directors also serve
on the Board's principal standing committees. The committees, their primary
functions, and memberships are as follows:
Executive Committee -- This Committee has the authority to exercise all
powers of the Board of Directors except for actions that must be taken by the
full Board of Directors under the Delaware General Corporation Law or the
Investment Company Act of 1940, as amended (the "1940 Act"). Members of the
Executive Committee are Messrs. Wilkus, Gladstone and Blumenthal. All three
members of the Executive Committee are "interested persons" under the 1940 Act.
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Audit Committee -- This committee makes recommendations to the Board of
Directors with respect to the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public accounts
and reviews the adequacy of the Company's internal accounting contracts. Members
of the Audit Committee are Messrs. Allbritton, Hahl, Walko and Lundine.
Compensation Committee -- This committee has the responsibility for
reviewing and approving the salaries, bonuses, and other compensation and
benefits of executive officers, reviewing and advising management regarding
benefits and other terms and conditions of compensation of management, and
administering the Company's Employee Option Plan. Members of the Compensation
Committee are Messrs. Puryear, Hahl and Harper.
The Board of Directors does not have a standing nominating committee.
Nominations for election to the Board of Directors may be made by the Board of
Directors, a nominating committee appointed by the Board of Directors, or by any
stockholder entitled to vote for the election of directors. Nominations made by
stockholders must be made by written notice (setting forth the information
required by the Company's Bylaws) received by the Secretary of the Company at
least 120 days in advance of an annual meeting or within 10 days of the date on
which notice of a special meeting for the election of directors is first given
to stockholders.
The Board of Directors held 18 formal meetings during 1999. The Executive
Committee held one formal meeting during 1999, the Compensation Committee held
ten formal meetings during 1999 and the Audit Committee held three formal
meetings during 1999. Each of the directors except Mr. Allbritton attended at
least 75% of the meetings of the Board of Directors and the committees on which
he served.
CERTAIN TRANSACTIONS
Mr. Walko, a director of the Company, is an executive officer and director
of Decorative Surfaces International, Inc. On April, 27, 1998, the Company
purchased Senior Subordinated Notes due 2008 in the aggregate principal amount
of $5,000,000 and Junior Subordinated Notes due 2008 in the aggregate principal
amount of $10,000,000 from Decorative Surfaces International, Inc., as well as
certain equity securities. Of the debt securities, only the Junior Subordinated
Notes remain outstanding. The Junior Subordinated Notes bear interest at the
rate of 14.5% per annum. This transaction was made in the ordinary course of the
Company's business of investing in and lending to small and mid-sized businesses
through investments in senior and subordinated debt with detachable common stock
warrants, preferred stock and common stock.
The Company has entered into a series of loan transactions with each of the
executive officers pertaining to the exercise of options under the Employee
Option Plan. As of June 7, 1999, the Company entered into Option Exercise
Agreements ("Option Exercise Agreements") with each of Messrs. Wilkus,
Blumenthal, Cline and Erickson providing for such loans and pertaining to the
exercise of options to purchase 117,428, 312,788, 181,032 and 25,000 shares of
Common Stock, respectively. As of August 6, 1999, and November 9, 1998, the
Company entered into Option Exercise Agreements with Messrs. Gladstone and
Hester, respectively, pertaining to the exercise of options to purchase 608,782
and 20,000 shares of Common Stock, respectively.
In each case, the Company lent to the Executive Officer the full option
exercise price of $15.00 per share of Common Stock plus, in the case of
individuals other than Mr. Hester, additional sums for the payment of taxes
associated with the exercise of the options. The total amounts lent were
$1,870,357.61 to Mr. Wilkus, $5,104,214.72 to Mr. Blumenthal, $2,944,711.90 to
Mr. Cline, $411,783.09 to Mr. Erickson, $9,466,232.91 to Mr. Gladstone and
$300,000.00 to Mr. Hester. Each loan provides for the quarterly payment of
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interest with the full principal amount due at maturity, which is nine years
from the date of each loan, except that the maturity of Mr. Gladstone's loan is
three years from the date of the loan. The interest rate charged on the loans to
Messrs. Wilkus, Erickson Cline and Blumenthal is 5.27% per annum. The interest
rate on Mr. Gladstone's loan is 4.89% per annum and on Mr. Hester's loan is
4.56% per annum. Each loan is collateralized by a pledge of the shares of Common
Stock purchased with the loan. In addition, the loans to Messrs. Blumenthal,
Cline and Gladstone are secured by the pledge of certain split dollar life
insurance policies described below. See "EMPLOYMENT AGREEMENTS". The Company has
full recourse to each Executive Officer for all amounts due under his loan. As
required by the 1940 Act, each loan must be fully collateralized and will be due
60 days following termination of the Executive Officer's employment with the
Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain details of the aggregate
compensation paid to each of the three highest paid Executive Officers during
1999, as well as to each of the Executive Officers who was also a director. For
the aggregate compensation received by each non-employee director, see "DIRECTOR
COMPENSATION." During 1999, the Executive Officers did not receive any awards of
restricted stock or any payouts pursuant to a long-term incentive plan.
1999 COMPENSATION TABLE
PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED AS
COMPENSATION PART OF COMPANY
NAME OF PERSON, POSITION FROM COMPANY(1) EXPENSE(2)
- ------------------------ --------------- ----------
Malon Wilkus
Chief Executive Officer
and Chairman of the Board of
Directors.......................... $ 422,746 $ 4,800
David Gladstone
Vice Chairman of the Board of
Directors.......................... $ 422,746 $ 4,800
Adam Blumenthal
President,
Chief Operating Officer
and Director....................... $ 475,589 $ 4,800
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(1) The aggregate compensation from the Company for Messrs. Wilkus, Gladstone
and Blumenthal includes salary in the amount of $150,000, $150,000 and
$168,750, respectively, and bonus in the amount of $272,746, $272,746 and
$306,839, respectively. See "EMPLOYMENT AGREEMENTS."
(2) Represents the value of the Company's Common Stock allocated in 1999 to the
Executive Officer's account in the ESOP.
NOTE: The named Executive Officers' estimated annual benefits under the ESOP
upon retirement are not determinable.
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LONG TERM INCENTIVE PLANS
The Company maintains two long term incentive plans in which executive
officers of the Company participate: (i) the ESOP in which all employees of the
Company are eligible to participate after meeting minimum service requirements,
and (ii) the Employee Option Plan. The Company maintains no stock appreciation
rights plan or defined benefit or actuarial plan.
ESOP. The Company maintains the ESOP for the benefit of its employees and
enables them to share in the growth of the Company. The ESOP is a profit sharing
plan, qualified under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), designed to be invested primarily in Common Stock. The
ESOP provides that participants will receive allocations of Common Stock at
least equal to 3% of their annual compensation, up to certain statutory
maximums. The Company has the ability to make additional contributions also
subject to certain statutory maximums. Each ESOP participant vests in his or her
Common Stock ESOP account over a five-year period beginning on the date of first
employment. The ESOP also allows participants to make elective deferrals of a
portion of their income as contribution to a Section 401(k) profit sharing plan.
The Company does not match or otherwise make contributions to the profit sharing
plan.
Employee Option Plan. The Corporation established the Company's 1997 Stock
Option Plan (the "Employee Option Plan") for the purpose of attracting and
retaining executive officers and other key employees. Non-employee Directors may
not participate. Options for a maximum of 1,828,252 shares of Common Stock were
subject to issuance under the Employee Option Plan. Of such amount, options for
269,048 shares of Common Stock are outstanding and options for 1,543,300 shares
of Common Stock have been exercised. The Compensation Committee administers the
Employee Option Plan and may grant options for a maximum of 608,782 shares to
any single participant. The Compensation Committee uses such criteria as it
deems important to determine who will receive awards and the number of awarded
options. The Compensation Committee has the authority to set the exercise price
for options and to adjust the exercise price following the occurrence of events
such as stock splits, dividends, distribution and recapitalizations. Options may
be exercised during a period of no more ten years following the date of grant.
The Compensation Committee has the discretion to set the vesting period for
options and to permit the acceleration of vesting under certain circumstances.
Vesting is automatically accelerated upon the occurrence of specified change of
control transactions.
The following table shows for each of the named Executive Officers (1)
the number of options that were granted during 1999 under the Employee Option
Plan, (2) out of the total number of options granted to all employees, the
percentage granted to the named Executive Officer, (3) the exercise price, (4)
the expiration date, and (5) the potential realizable value of the options,
assuming that the market price of the underlying securities appreciates in value
from the date of grant to the end of the option term, at a 5% and 10% annualized
rate.
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<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed Annual
Number of Total Options Rates of Stock Price
Securities Granted to Exercise(1) Appreciation
Underlying Employees in or Base Expiration for Option Term
Options Granted Fiscal Year Price Date (2) 5% ($) 10% ($)
--------------- ----------- ----- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Malon Wilkus.......... 18,403(2) 8.6% N/A N/A N/A N/A
David Gladstone....... -- -- -- --
Adam Blumenthal....... 15,200(2) 7.1% N/A N/A N/A N/A
Roland Cline.......... 8,900 4.2% $ 18.75 6/8/2009 $104,947 $265,956
John Erickson......... 13,700 6.4% $ 18.75 6/8/2009 $161,547 $409,393
Stephen Hester........ 4,800 2.3% $ 18.75 6/8/2009 $ 56,601 $143,437
</TABLE>
- ------------------
(1) Computed as if conditional grants to Messrs. Wilkus and Blumenthal become
effective. See note 2.
(2) Represents a conditional grant that is conditioned on the approval by the
stockholders of the Company of the New Employee Option Plan.
N/A - Cannot be determined until options that have been conditionally granted
become fully effective.
DIRECTOR COMPENSATION
During 1999, each non-employee director received an annual retainer fee of
$10,000 and a fee of $1,000 for each meeting of the Board of Directors or each
separate committee meeting attended. For 2000, each non-employee director will
be paid an annual retainer of $10,000 and a fee of $1,000 for each meeting of
the Board of Directors or each separate committee meeting attended. Directors
are reimbursed for out-of-pocket expenses incurred in connection with Board and
committee meetings. Directors who are employees of the Company do not receive
additional compensation for service as a member of the Board of Directors.
The following table sets forth the compensation received by each
non-employee director during 1999:
NAME 1999 COMPENSATION
---- -----------------
Robert L. Allbritton $ 15,000
Neil M. Hahl $ 40,000
Philip R. Harper $ 39,000
Stan Lundine $ 32,000
Alvin N. Puryear $ 41,000
Stephen P. Walko $ 32,000
DIRECTOR OPTION PLAN
The Company established the 1997 Disinterested Director Stock Option Plan
(the "Director Option Plan") for directors who are not employees of the Company.
As of May 14, 1999, the SEC granted an exemption for the Director Option Plan,
which was required under the 1940 Act for the Director Option Plan to become
effective. The Director Option Plan provides for the issuance to participants of
options to purchase an aggregate of 150,000 shares of Common Stock. The five
eligible directors who were directors on the date of Board of Directors approval
of the Director Option Plan, November 6, 1997, received automatic grants of
options to purchase 15,000 shares of Common Stock. Dr. Puryear was granted
options as of September 15, 1998, the date he became a director, conditioned on
- 12 -
<PAGE>
the issuance of the SEC exemption order. Such options vest over a three-year
period on each of the first three anniversaries of the respective dates noted
above. The exercise price for all such options is $18.625 per share, which was
the closing price of the Common Stock on the Nasdaq Stock Market as of May 14,
1999, the date the SEC exemption order became effective.
Options that have been granted to date under the Director Option Plan will
expire on November 6, 2007, except that Dr. Puryear's options will expire on
September 15, 2008. Vesting of options will be automatically accelerated upon
the occurrence of specified change of control transactions and certain other
events including the death or disability of the director. Options to purchase a
maximum of 25,000 shares may be issued to any single participant under the
Director Option Plan. The Director Option Plan is currently administered by the
Company's Executive Committee (which is currently composed of directors who are
not eligible to participate in the Director Option Plan).
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of the named Executive
Officers. Each of the agreements, except Mr. Erickson's, provides for a
five-year term. However, two years before expiration of each agreement, its term
will be automatically renewed for an additional year, unless either party has
given six months advance written notice that the automatic extensions are to
cease. Mr. Erickson's agreement provides for a one year term that renews so that
there is always one year remaining.
The base salary under the employment agreements of Messrs. Gladstone,
Wilkus and Hester is $150,000 per year. The base salary under the employment
agreements of Messrs. Blumenthal and Cline is $135,000 and $132,500 per year,
respectively, subject to certain geographic cost of living adjustments. Mr.
Erickson's employment agreement provides for an annual base salary of $125,000.
Mr. Hester's base salary is subject to adjustment for part-time employment
status. The Board of Directors has the right to increase the base salary during
the term and also, generally, to decrease it, but not below the original base
salary, and has adjusted the base salaries of Messrs. Wilkus, Blumenthal,
Erickson, and Cline to $220,000, $200,000, $175,000 and $155,000, respectively.
The employment agreements provide that the Executive Officers are entitled to
participate in a performance based bonus program under which each will receive
up to 200% of his base salary depending on the Company's performance against
certain criteria to be established annually by the Compensation Committee of the
Board of Directors. Each executive officer will be entitled to receive 5% of
this bonus regardless of the Company's performance.
Under each agreement, the Executive is contractually entitled to
participate in the Company's Employee Option Plan, although the Company has now
fulfilled its obligations with regard to the grant of options to each Executive
Officer under the Employee Option Plan. If the Company should terminate an
Executive Officer's employment by reason of the Executive Officer's disability,
the Executive Officer would be entitled for two years to receive from the
Company the difference between his base salary plus annual bonus and any
long-term disability benefits. Additionally, the Executive Officer's unvested
options that would have vested within one year of the disability termination
would vest. Vested options would expire unless exercised within 18 months of the
termination date. If the Company should terminate an Executive Officer's
employment for any reason other than a disability or misconduct, the Executive
Officer would be entitled to receive his base salary and bonus for two years
(Mr. Erickson would receive a $60,000 severance payment), although each
Executive Officer (other than Mr. Erickson) could choose to forgo the payments
and thus obtain a release from non-compete provisions applicable during this
period. These payments would also be made if the Executive Officer (other than
Mr. Erickson)resigned with good reason, which generally includes conduct by the
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<PAGE>
Company materially and adversely changing the executive's responsibilities and
duties, a material breach by the Company of the employment agreement or a change
in control of the Company. Mr. Gladstone's contract also defines good reason as
determination by him of a material difference with the Board of Directors.
Additionally, an Executive Officer's unvested stock options would generally vest
if his employment were terminated for any reason other than a disability or
misconduct or if he resigned with good reason.
The employment agreements of Messrs. Blumenthal, Cline and Gladstone
contain certain additional rights in the event of employment termination, other
than as a result of death or the Executive Officer's misconduct, and if the
Executive Officer either has a purchase note outstanding under an Option
Exercise Agreement or, as described below, an unamortized premium payment under
a Split Dollar Agreement. In such circumstances, at the election of the
Executive Officer, the Executive Officer and the Company would enter into a
supplemental employment agreement providing for continued employment with the
Company for nominal consideration and with limited duties, which would be
continued through the term of any such purchase note and Split Dollar Agreement.
Under the employment agreements of each of the Executive Officers, if the
Executive Officer dies, his estate will be entitled to receive the annual bonus
in the year of death. Additionally, he will be considered to have vested on the
date of death in those options that would vest within one year of the date of
death, and would forfeit any unvested options. All such vested options would
expire unless exercised within 18 months of the date of death.
In the event that the Company should terminate an Executive Officer's
employment as a result of the Executive Officer's misconduct or in the event
that the Executive Officer voluntary terminates his employment for other than
good reason, all unvested stock options would be forfeited and the Executive
Officer would have no more than 90 days to exercise any unexercised options.
Upon termination of employment, an Executive Officer would be subject to
certain non-compete covenants. These covenants would generally apply for the
longer of one year and the period the Executive Officer is receiving severance
payments. However, as noted above, during periods when Executive Officers are
receiving severance payments from the Company, they may terminate covenants
prohibiting competition by foregoing such payments.
Messrs. Blumenthal, Cline and Gladstone have also entered into "Split
Dollar Agreements" entitling them to participate in a split dollar life
insurance program. Under the program, the Company has paid or will pay the
premium of a life insurance policy on the life of the Executive Officer, with
the Executive Officer being deemed to receive income each year generally equal
to a level amortization or the premium over a ten-year period. While the
Executive Officer of his designee is the owner of the policy, the Company will
retain an interest in the policy equal to the unamortized amount of the premium.
Upon termination of employment, the Executive Officer will generally have an
obligation to pay to the Company the unamortized premium amount. In addition,
for so long as the Executive Officer remains an employee of the Company, the
Company will purchase a term life insurance policy in the amount of the
unamortized premium payment due on the split dollar policy. The total premiums
paid or to be paid on the split dollar policies of Messrs. Blumenthal, Cline and
Gladstone are $1,825,000, $504,000, and $481,575, respectively. Each of the
Executive Officers has pledged the split dollar insurance policies and benefits
payable thereunder as collateral for certain loans extended to them by the
Company for the purchase of Company Stock in connection with the exercise of
options under the Employee Option Plan. See "CERTAIN TRANSACTIONS."
- 14 -
<PAGE>
PROPOSAL 2: AMENDMENT TO THE CERTIFICATE OF INCORPORATION
REGARDING INDEMNIFICATION RIGHTS
GENERAL INFORMATION
Article VII of the Certificate of Incorporation generally provides for the
indemnification of the directors and officers of the Company against liabilities
they may incur as a result of their service as a director or officer of the
Company or as a director, officer or employee of or in other capacities for
another entity, if done so at the Company's request. Such indemnification is
provided to the fullest extent not otherwise prohibited by Section 145 of the
Delaware General Corporation Law ("DGCL"). Also, Article VII empowers the Board
of Directors to extend such right of indemnification to employees of the Company
or to person associated with the Company or affiliates of the Company in certain
capacities. By resolution, the Board has extended such rights to Company
employees. Article VIII of the Certificate of Incorporation also provides that
directors will be exculpated from liability to the Company or its stockholders
to the full extent permitted by Section 102(b)(7) of the DGCL.
The Company's Board of Directors has approved and recommends that the
stockholders adopt an amendment and restatement of Articles VII and VIII of the
Certificate of Incorporation (the "Charter Amendment") that would (i) extend
mandatory indemnification rights to the Company's employees, and (ii) provide
that exculpation from liability to the Company or its stockholders will not be
available in the case of a director's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in his service to the
Company and that indemnification also will not be available with regard thereto.
The proposed Charter Amendment is set forth in Appendix I to this Proxy
Statement.
BACKGROUND AND REASONS
Section 145 of the Delaware General Corporation Law generally provides
Delaware corporations broad powers to indemnify their present and former
directors, officers and persons affiliated with such corporations (including
employees) against expenses incurred in the defense of any lawsuit to which they
are made parties by reason of being or having been such directors, officers or
affiliated persons, subject to specified conditions and exclusions. To be
indemnified, such directors, officers or affiliated persons must have acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Company, shall not have been adjudged liable to the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct at issue was unlawful. Additionally,
pursuant to Delaware General Corporation Law, such indemnification is not
exclusive of any other right to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or otherwise.
Section 102(b)(7) of the DGCL generally empowers a Delaware corporation to
include in its certificate of incorporation a provision eliminating or limiting
the personal liability of a director to a corporation or its stockholders for
monetary damages for breach of fiduciary duty except for breaches of the
director's duty of loyalty to the corporation, for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of the law,
liability for certain unlawful dividend payments or stock repurchases or
transactions where the director derived improper personal benefit.
Section 17(h) of the 1940 Act, which is applicable to business development
companies such as the Company (a "BDC") by operation of Section 59 of the 1940
Act, prohibits the certificate of incorporation of any BDC from containing any
provision that protects or purports to protect any director or officer of the
- 15 -
<PAGE>
BDC against any liability to the BDC or its stockholders to which such director
or officer would otherwise be subject to by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of such director or officer's office.
The Company may, from time to time, be named a party to certain lawsuits in
connection with its business, and employees of the Company may be made parties
to such lawsuits, together with directors and officers of the Company.
Additionally, the officers or directors may from time to time be sued by the
Company or its stockholders for breach of fiduciary duty. As noted above, the
Certificate of Incorporation currently provides indemnification only to
directors and officers of the Company and not to employees of the Company,
although by resolution in accordance with the Certificate of Incorporation, the
Board of Directors has extended such right to employees. The Board believes that
providing the right of indemnification to employees of the Company, together
with its directors and officers, is important to the Company's ability to
attract and retain key personnel, and is in the best interest of the Company and
its stockholders. In order to assure that such right continues to be available
for employees, the Board of Directors has proposed, as part of the Charter
Amendment, amending Section 7.1 of the Certificate of Incorporation to provide
specifically such right and amending Section 7.3 of the Certificate of
Incorporation in a conforming manner so as to remove the Board of Directors'
discretion as to whether to indemnify employees.
By extending the right of indemnification to employees of the Company,
together with directors and officers, the Company would increase the number of
persons that it is obligated to indemnify, if such persons qualify for the right
of indemnification pursuant to the Certificate of Incorporation. This could have
the adverse effect of increasing the amount of the premiums paid by Company to
maintain insurance on behalf of such persons.
The second part of the Charter Amendment is to ensure conformity of the
Certificate of Incorporation to the 1940 Act. As noted above, the Certificate of
Incorporation exculpates directors of the Company from liability to the Company
or Stockholders to the fullest extent permitted by Section 1.02(b)(7) of the
DGCL, while Section 17(h) of 1940 Act limits the ability of the BDC to provide
exculpation in certain circumstances. Arguably, Section 1.02(b)(7) of the DGCL
allows a Corporation to provide exculpation in certain circumstances that
Section 17(h) of the 1940 Act does not permit. Although the Board believes that
current language in the Certificate of Incorporation regarding exculpation
substantially complies with the requirements of the 1940 Act and implicitly
precludes exculpation in contravention of such laws, the Board believes that the
proposed Charter Amendment, which explicitly adds the circumstances under which
exculpation is specifically precluded by the 1940 Act, is in the best interests
of the Company and its stockholders. The Charter Amendment also includes a
conforming amendment to Section 7.1 of the Certificate of Incorporation to
ensure that indemnification is not available to indemnitees in circumstances
where a director cannot be exculpated from liability to the Company.
The Charter Amendment is not part of an "anti-takeover" strategy enabling
the Board of Directors to render more difficult or discourage an attempt by
another person or entity to obtain control of the Company. The Charter Amendment
is not being advanced as a result of any known effort by any party to obtain
control of the Company.
VOTE REQUIRED
The approval of the Charter Amendment requires the affirmative vote by the
holders of a majority of the shares of Common Stock of the Company entitled to
vote at the Annual Meeting. The Board of Directors believes that the proposal is
in the best interests of the Company and its stockholders and has unanimously
- 16 -
<PAGE>
adopted the Charter Amendment. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE CHARTER AMENDMENT.
PROPOSAL 3: APPROVAL OF 2000 EMPLOYEE STOCK OPTION PLAN
GENERAL INFORMATION
The Compensation Committee, which consists entirely of directors who are
not employees of the Company, reviewed the Employee Option Plan and concluded
that the number of shares authorized and available for grant under the Employee
Option Plan is now insufficient to provide flexibility with respect to
stock-based compensation, or to establish appropriate long-term incentives to
achieve Company objectives. The Compensation Committee and the Board of
Directors believe that stock-based incentive compensation, particularly through
the award of stock options, is a key element of officer and key employee
compensation. Stock-based compensation advances the interests of the Company by
encouraging and providing for the acquisition of equity interests in the Company
by officers and key employees, thereby providing substantial motivation for
superior performance and more fully aligning their interests with stockholders.
In order to provide the Company with greater flexibility to adapt to
changing economic and competitive conditions, and to implement long range goals
and expansion plans through stock-based compensation strategies that will
attract and retain those employees who are important to the long term success of
the Company, the Compensation Committee has recommended to the Board of
Directors and the Board of Directors approved the New Employee Option Plan,
subject to stockholder approval. Since the last increase in the number of
options available for grant under the Employee Option Plan, the number of
outstanding shares of Common Stock has increased by 7,198,934 to 18,253,708. A
copy of the New Employee Option Plan appears as Appendix II to this Proxy
Statement.
SUMMARY OF MATERIAL PROVISIONS OF THE NEW EMPLOYEE OPTION PLAN
The following is a summary of certain provisions of the New Employee Option
Plan. The complete text of the New Employee Option Plan is attached as Appendix
II to this Proxy Statement and is incorporated herein by reference.
The New Employee Option Plan provides for the issuance of options to
purchase a maximum of 2,000,000 shares of Common Stock or 11% of the 18,253,708
shares of Common Stock outstanding on the Record Date, to employees of the
Company and certain affiliates of the Company. Non-employee directors of the
Company are not eligible to participate. If the New Employee Option Plan is
approved by the stockholders, no further options will be granted under the
Employee Option Plan. Options granted under the New Employee Option Plan may be
exercised for a period of no more than ten years from the date of grant. Unless
sooner terminated by the Company's Board of Directors, the New Employee Option
Plan will terminate on March 30, 2010 and no additional awards may be made under
the New Employee Option Plan after that date. The maximum number of shares that
may be covered by options granted under the Plan for a single participant is
608,782.
Options granted under the New Employee Option Plan may be either "incentive
stock options" within the meaning of Section 422 of the Code ("ISO") or
non-qualified stock options, and entitle the optionee, upon exercise, to
purchase shares of Common Stock from the Company at a specified exercise price
per share. Incentive stock options must have a per share exercise price of no
less than the fair market value or, if the optionee owns or is treated as owning
(under Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company, 110% of the fair market value of a
share of Common Stock on the date of the grant. Non-qualified stock options
granted under the New Employee Option Plan must have a per share exercise price
- 17 -
<PAGE>
of no less than the fair market value of a share of Common Stock on the date of
the grant. Options are not transferable other than by laws of descent and
distribution and will generally be exercisable during an optionee's lifetime
only by the optionee.
The Compensation Committee will administer the New Employee Option Plan and
has the authority, subject to the provisions of the New Employee Option Plan, to
determine who will receive awards under the New Employee Option Plan and the
terms of such awards. The Compensation Committee has the authority to adjust the
number of shares available for options, the number of shares subject to
outstanding options and the exercise price for options following the occurrence
of events such as stock splits, dividends, distributions and recapitalizations.
However, without the approval of the Company's stockholders, and except in
connection with a stock split, stock dividend or similar event, the Compensation
Committee will not lower the exercise price for any outstanding options or issue
any replacement options for options previously granted at a higher exercise
price.
The Compensation Committee may provide that the exercise price of an option
may be paid in Common Stock. The Compensation Committee may also permit a
"cashless exercise" arrangement whereby an optionee, without payment of the
exercise price, receives upon exercise, shares having an aggregate fair market
value equal to the product of (i) the excess of the fair market value of a share
on the exercise date over the exercise price and (ii) the number of shares
covered by the option.
The 1940 Act imposes certain requirements on options granted under the New
Employee Option Plan including that the options must expire no later than ten
years from grant, that the options not be separately transferable other than by
gift, will or intestacy, that the exercise price must not be less than the
current market price for the Common Stock at the time of grant, that the plan
must be approved by the stockholders and a majority of the Company's directors
who are not Interested Persons, and the Corporation not have a profit-sharing
plan as described in the 1940 Act.
The following is a brief summary of the Federal income tax aspects of stock
options granted under the New Employee Option Plan based upon the Federal income
tax laws in effect on the date hereof. This summary is not intended to be
exhaustive and does not describe state or local tax consequences.
1. ISOs. No taxable income is realized by the participant upon the or
exercise of an ISO. If Common Stock is issued to a participant pursuant to the
exercise of an ISO, and if no disqualifying disposition of the shares is made by
the participant within two years of the date of grant or within one year after
the transfer of the shares to the participant, then: (i) upon the sale of the
shares, any amount realized in excess of the option price will be taxed to the
participant as a long-term capital gain, and any loss sustained will be a
capital loss, and (ii) no deduction will be allowed to the Company for Federal
income tax purposes. The exercise of an ISO will give rise to an item of tax
preference that may result in an alternative minimum tax liability for the
participant unless the participant makes a disqualifying disposition of the
shares received upon exercise.
If Common Stock acquired upon the exercise of an ISO is disposed of prior
to the expiration of the holding periods described above, then generally: (i)
the participant will realize ordinary income in the year of disposition in an
amount equal to the excess, if any, of the fair market value of the shares at
exercise (or, if less, the amount realized on the disposition of the shares)
over the option price paid for such shares, and (ii) the Company will be
entitled to deduct any such recognized amount. Any further gain or loss realized
by the participant will be taxed as short-term or long-term capital gain or
loss, as the case may be, and will not result in any deduction by the Company.
- 18 -
<PAGE>
Subject to certain exceptions for disability or death, if an ISO is
exercised more than three months following the termination of the participant's
employment, the option will generally be taxed as a non-qualified stock option.
2. Non-qualified Stock Options. With respect to non-qualified stock
options: (i) no income is realized by the participant at the time the option is
granted; (ii) generally upon exercise of the option, the participant realizes
ordinary income in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares on the date of
exercise and the Company will be entitled to a tax deduction in the same amount;
and (iii) at disposition, any appreciation (or depreciation) after date of
exercise is treated either as short-term or long-term capital gain or loss,
depending upon the length of time that the participant has held the shares.
NEW EMPLOYEE OPTION PLAN BENEFITS
The table below sets forth benefits to be received by the persons listed
therein in the event the New Employee Option Plan is approved by the
stockholders.
NUMBER OF SHARES
SUBJECT TO EXERCISE PRICE VALUE OF
NAME AND POSITION OPTION PER SHARE OPTIONS
- ----------------- ---------------- -------------- --------
Malon Wilkus, Chairman and 18,200 --(1) --(2)
Chief Executive Officer
Adam Blumenthal, President and 15,100 --(1) --(2)
Chief Operating Officer
Non-executive Officer
Employee Group.......... 0 -- --
- ------------------
(1) To be priced based on the closing price for the Common Stock on the Nasdaq
Stock Market on the date that the New Employee Option Plan becomes
effective.
(2) Because options will be priced in the future, the value of benefits cannot
be presently determined.
VOTE REQUIRED
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to adopt the New Employee Option Plan to help
attract and retain key persons of outstanding competence and to further align
their interests with those of the Company's stockholders.
A majority of the votes of all shares present, represented and entitled to
vote is necessary for approval of this proposal. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THE NEW EMPLOYEE OPTION PLAN.
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<PAGE>
PROPOSAL 4: APPROVAL OF THE 2000 DISINTERESTED DIRECTOR
STOCK OPTION PLAN
GENERAL INFORMATION
The Executive Committee, which consists entirely of directors who are not
eligible to participate in the Director Option Plan, reviewed the Director
Option Plan and concluded that the number of shares authorized and available for
grant under the Director Option Plan is now insufficient to provide flexibility
with respect to stock-based compensation for the directors who are not
employees. The Executive Committee and the Board of Directors believe that
stock-based incentive compensation, particularly through the award of stock
options, is a key element of non-employee director compensation. Thus, the
Executive Committee recommended and the Board of Directors approved, and subject
to stockholder approval and the issuance of an exemptive order by the SEC under
the 1940 Act, of the New Director Option Plan. Since the Director Option Plan
was approved by the stockholders, the number of outstanding shares of Common
Stock has increased from 7,198,934 to 18,253,708.
SUMMARY OF MATERIAL PROVISIONS OF THE NEW DIRECTOR OPTION PLAN
The following is a summary of certain provisions of the New Director Option
Plan. The complete text of the New Director Option Plan is attached as Appendix
III to this Proxy Statement and is incorporated herein by reference.
The New Director Option Plan provides for the issuance of options to
purchase a maximum of 150,000 shares of Common Stock or 0.1% of the 18,253,708
shares of Common Stock outstanding on the Record Date, to non-employee directors
of the Company. If the New Director Option Plan is approved by the stockholders
and the SEC, no further options will be granted under the Director Option Plan.
Options granted under the New Director Option Plan may be exercised for a period
of no more than ten years from the date of grant. Unless sooner terminated by
the Company's Board of Directors, the New Director Option Plan will terminate on
March 30, 2010 and no additional awards may be made under the New Director
Option Plan after that date. The maximum number of shares that may be covered by
options granted under the Plan for a single participant is 25,000.
Options granted under the New Director Option Plan will be non-qualified
stock options under the Code and entitle the optionee, upon exercise, to
purchase shares of Common Stock from the Company at a specified exercise price
per share. Stock options granted under the New Director Option Plan must have a
per share exercise price of no less than the fair market value of a share of
Common Stock on the date of the grant. Options will not transferable other than
by laws of descent and distribution and will generally be exercisable during an
optionee's lifetime only by the optionee.
A committee of the Board of Directors whose members do not include any
participants in the New Director Option Plan, which committee is currently the
Executive Committee, will administer the New Director Option Plan and have the
authority, subject to the provisions of the New Director Option Plan, to
determine who will receive awards under the New Director Option Plan and the
terms of such awards. The committee has the authority to adjust the number of
shares available for options, the number of shares subject to outstanding
options and the exercise price for options following the occurrence of events
such as stock splits, dividends, distributions and recapitalizations. However,
without the approval of the Company's stockholders, and except in connection
with a stock split, stock dividend or similar event, the committee will not
lower the exercise price for any outstanding options or issue any replacement
options for options previously granted at a higher exercise price.
The committee may provide that the exercise price of an option may be paid
in Common Stock. The committee may also permit a "cashless exercise" arrangement
whereby an optionee, without payment of the exercise price, receives upon
exercise, shares having an aggregate fair market value equal to the product of
(i) the excess of the fair market value of a share on the exercise date over the
exercise price and (ii) the number of shares covered by the option.
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<PAGE>
The 1940 Act imposes certain requirements on options granted under the New
Director Option Plan including that the options must expire no later than ten
years from grant, that the options not be separately transferable other than by
gift, will or intestacy, that the exercise price must not be less than the
current market price for the Common Stock at the time of grant, that the plan
must be approved by the stockholders, and the Corporation not have a
profit-sharing plan as described in the 1940 Act. In addition, the proposal to
issue options under the New Director Option Plan must be approved and an
executive order issued by the SEC on the basis that the proposal is fair and
reasonable and does not involve overreaching of the Company or its stockholders.
In the event of a dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, a merger or share exchange in
which the Company is not the surviving corporation, other capital reorganization
in which more than 50% of the shares of the Company entitled to vote are
exchanged or such other corporate reorganization as may be described by the
Committee, any outstanding options under the New Director Option Plan will be
immediately fully exercisable by an optionee.
In the event of death or the disability (as defined in the Director Option
Plan) of a participant during his or her service as a director, all of his
unexercised options will immediately become exercisable and may be exercised for
a period of three years following the date of death or one year following the
date of Disability (but no later than the expiration date of the option). In the
event of termination of a participant's service as a director for cause (as
defined in the New Director Option Plan), all of his or her unexercised options
terminate immediately upon such termination, unless otherwise determined by the
committee. If a person ceases to be a non-employee director for any reason other
than death, disability or termination by the Company for cause, his or her
options generally will be exercisable for a period of one year thereafter (but
not later than the expiration date of the option). The New Director Option Plan
may be amended by the Board of Directors, except that the Board may not (i)
change any option previously made under the New Director Option Plan in a manner
which would impair the recipients' rights without their consent, or (ii) amend
the New Director Option Plan without approval of the Company's stockholders, if
required by law.
The following is a brief summary of the Federal income tax aspects of stock
options granted under the New Director Option Plan based upon the Federal income
tax laws in effect on the date hereof. This summary is not intended to be
exhaustive and does not describe state or local tax consequences. Because all
options granted under the New Director Option Plan are non-qualified stock
options, (i) no income is realized by the participant at the time the option is
granted; (ii) generally upon exercise of the option, the participant realizes
ordinary income in an amount equal to the difference between the option price
paid for the shares and the fair market value of the shares on the date of
exercise and the Company will be entitled to a tax deduction in the same amount;
and (iii) at disposition, any appreciation (or depreciation) after date of
exercise is treated either as short-term or long-term capital gain or loss,
depending upon the length of time that the participant has held the shares.
VOTE REQUIRED
The Board of Directors believes that it is in the best interests of the
Company and its stockholders to adopt the New Director Option Plan, to help
attract and retain key persons of outstanding competence and to further align
their interests with those of the Company's stockholders.
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<PAGE>
A majority of the votes of all shares present, represented and entitled to
vote is necessary for approval of this proposal. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THE NEW DIRECTOR OPTION PLAN.
PROPOSAL 5: APPROVAL OF AMENDMENT TO FUNDAMENTAL POLICIES
GENERAL INFORMATION
In accordance with the 1940 Act, the Corporation has adopted certain
investment objectives and restrictions as its fundamental policies (the
"Fundamental Policies"), which may not be changed without the approval of the
holders of the majority, as defined in the 1940 Act, of the Company's
outstanding voting securities. One of the Fundamental Policies provides that the
Company will not "act as an underwriter of securities of other issuers (except
to the extent that it may be deemed an 'underwriter' of securities purchased by
it that must be registered under the [Securities Act of 1933, as amended (the
1933 Act")] before they may be offered or sold to the public). . . ."
The Board of Directors of the Company has adopted a Directed Share
Subscription Program (the "Share Program") that will generally allow
stockholders of the Company to participate in certain initial public offerings
by portfolio companies of the Company and is described in more detail below. The
Board of Directors has been advised that the Company's activities under the
Share Program could cause the Company to be an underwriter under the 1933 Act
and, consequently, to violate the Fundamental Policy. The Board of Directors
has, thus, proposed that this Fundamental Policy be amended so that it will
provide as follows:
The Company will not act as an underwriter of securities of
other issuers (except to the extent that it may (i) be deemed
an underwriter of securities purchased by it that must be
registered under the 1933 Act before they may be offered or
sold to the public or (ii) underwrite securities to be
distributed to or purchased by stockholders of the Company in
connection with offerings of securities by companies in which
the Company is a stockholder). . . ."
BACKGROUND AND REASONS
The Share Program was adopted by the Board of Directors as a means of
providing an opportunity to stockholders of the Company to participate directly
in the initial public offerings of stock of portfolio companies. Under the Share
Program, the Company will seek (but will not be obligated) to provide
stockholders of the Company the right to subscribe for shares in connection with
such initial public offerings. Such shares may be either new shares or shares
already owned by the Company. The right to subscribe for shares, which right
will be non-transferable, will generally be offered in proportion to the number
of shares of Common Stock owned by a stockholder, subject to certain minimums
and legal restrictions on participation by certain classes of stockholders of
the Company in such offerings. Participation will be offered to those
stockholders owning Common Stock as of a record date to be set by the Board of
Directors with regard to each offering. The Company does not expect to make
advance announcements of the record date for any particular offering or to make
announcements of offerings with regard to any particular portfolio company until
after the portfolio company has filed a registration statement for the offering
with the SEC. Participation in the Share Program will require that each
participant follow certain procedures for subscribing and paying for purchased
shares.
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<PAGE>
As noted above, the Board of Directors has been advised that the Company's
activities under the Share Program could render it an underwriter under the 1933
Act in violation of the Fundamental Policies. The Board of Directors has
considered that acting as an underwriter and related aspects of the Share
Program could expose the Company to certain additional liabilities and risks.
Nevertheless, it has determined that implementation of Share Program is in the
overall interest of the Company's stockholders and, therefore, it is
recommending to the stockholders that they approve the proposed amendment to the
Fundamental Policies.
VOTE REQUIRED
Under the 1940 Act, approval of an amendment to the Fundamental Policies
requires an affirmative vote of the majority of all of the Company's outstanding
voting securities, regardless of whether the holders of such shares are present
and entitled to vote at the Annual Meeting. Considering the number of shares of
Common Stock (the Company's only outstanding voting securities) that were
outstanding as of the record date for the Annual Meeting, a total of 9,126,854
shares of Common Stock must be voted in favor of this amendment to the
Fundamental Policies. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT TO THE FUNDAMENTAL POLICIES.
PROPOSAL 5: RATIFICATION OF SELECTION OF AUDITORS
Ernst & Young LLP has served as independent public accountants for the
Company since 1993 and has been selected to serve in such capacity for the year
ending December 31, 2000, by all of those members of the Board of Directors who
are not "interested persons" of the Company, as defined in the 1940 Act. This
selection is subject to ratification or rejection by the stockholders of the
Company. Ernst & Young LLP has no financial interest in the Company. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting, will have an opportunity to make a statement if he or she so desires
and is expected to be available to respond to appropriate questions. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ERNST & YOUNG LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS TO THE COMPANY.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
and the disclosure requirements of Item 405 of SEC Regulation S-K require the
directors and executive officers of the Company, and any persons holding more
than 10% of any class of equity securities of the Company, to report their
ownership of such equity securities and any subsequent changes in that ownership
to the Securities and Exchange Commission, The Nasdaq Stock Market and the
Company. Based solely on a review of the written statements and copies of such
reports furnished to the Company by its executive officers, directors and
greater than 10% beneficial owners, the Company believes that during fiscal 1999
all Section 16(a) filing requirements applicable to its executive officers,
directors and stockholders were timely satisfied.
PROPOSALS OF STOCKHOLDERS
Any proposal intended to be presented for action at the 2001 Annual Meeting
of Stockholders by any stockholder of the Company must be received by the
Secretary of the Company not later than December 1, 2000, in order for such
proposal to be considered for inclusion in the Company's Proxy Statement and
proxy relating to its 2001 Annual Meeting of Stockholders. If such proposal is
in compliance with all of the requirements of Rule 14a-8 under the Exchange Act,
the proposal will be included in Company's proxy statement and proxy form
relating to such meeting. Such proposals should be submitted by certified mail,
return receipt requested. Nothing in this paragraph shall be deemed to require
the Company to include any stockholder proposal that does not meet all the
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<PAGE>
requirements for such inclusion established by the Securities and Exchange
Commission in effect at that time.
METHOD OF COUNTING VOTES
All duly executed proxies will be voted in accordance with the instructions
set forth on the back side of the proxy card except that if no choice is
specified, shares will be voted FOR the election of all nominees for Director.
Abstentions and `non-votes' will be counted as present only for purposes of
determining a quorum. Abstentions are treated as votes against the proposals
presented to the stockholders other than the election of directors. Because
directors are elected by a plurality of the votes cast, abstentions are not
considered in the election. A "non-vote" occurs when a nominee holding shares on
behalf of a beneficial owner votes on one proposal but does not vote on another
proposal because the nominee does not have discretionary voting power and has
not received instructions from the beneficial owner.
FINANCIAL STATEMENTS AVAILABLE
A copy of the Company's 1999 Annual Report containing audited financial
statements accompanies this Proxy Statement. The Annual Report does not
constitute a part of the proxy solicitation material.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH STOCKHOLDER UPON WRITTEN
REQUEST A COPY (WITHOUT EXHIBITS, UNLESS OTHERWISE REQUESTED) OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC") FOR THE YEAR ENDED DECEMBER 31, 1999. REQUESTS FOR COPIES
SHOULD BE ADDRESSED TO KELLEY GREGORY, INVESTOR RELATIONS, AMERICAN CAPITAL
STRATEGIES, LTD., 2 BETHESDA METRO CENTER, 14th FLOOR, BETHESDA, MARYLAND 20814.
REQUESTS MAY ALSO BE DIRECTED TO MS. GREGORY AT (301) 951-6122 OR TO
[email protected] ON THE INTERNET. COPIES MAY ALSO BE ACCESSED
ELECTRONICALLY BY MEANS OF THE SEC'S HOME PAGE ON THE INTERNET AT
HTTP://WWW.SEC.GOV. THE ANNUAL REPORT ON FORM 10-K IS NOT PART OF THE PROXY
SOLICITATION MATERIALS.
OTHER MATTERS
The Board of Directors does not intend to bring other matters before the
Annual Meeting except items incident to the conduct of the meeting. However, on
all matters properly brought before the meeting by the Board or others, the
persons named as proxies in the accompanying proxy, or their substitutes, will
vote in accordance with their best judgment.
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APPENDIX I
CERTIFICATE OF AMENDMENT NO. 2
OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AMERICAN CAPITAL STRATEGIES, LTD., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY AS FOLLOWS:
FIRST: The Board of Directors of the Corporation duly adopted resolutions in
accordance with Section 242 of the General Corporation Law of the
State of Delaware proposing, declaring advisable and recommending
this amendment (the "Certificate of Amendment") to the Second Amended
and Restated Certificate of Incorporation (the "Certificate of
Incorporation") of the Corporation. Accordingly, Articles VII and
VIII of the Certificate of Incorporation are amended and restated in
the entirety as follows:
ARTICLE VII
INDEMNIFICATION
Section 7.1. Right to Indemnification. Each person who was
or is made a party or is threatened to be made a party to or
is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact:
(a) that he or she is or was a director,
officer or employee of the Corporation, or
(b) that he or she, being at the time a
director, officer or employee of the Corporation, is
or was serving at the request of the Corporation as a
director, trustee, officer, employee or agent of
another corporation or of a partnership, joint
venture, trust or other enterprise, including service
with respect to an employee benefit plan
(collectively, "another enterprise" or "other
enterprise"),
whether either in case (a) or in case (b) the basis of such
proceeding is alleged action or inaction (x) in an official
capacity as a director, officer or employee of the
Corporation, or as a director, trustee, officer, employee or
agent of such other enterprise, or (y) in any other capacity
related to the Corporation or such other enterprise while so
serving as a director, trustee, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to
the fullest extent not prohibited by Section 145 of the
General Corporation Law, (or any successor provision or
provisions, respectively) as the same exists or may
hereafter be amended, respectively (but, in the case of any
amendment to Section 145 of the General Corporation Law,
with respect to actions taken prior to such amendment, only
to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss
(including, without limitation, attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such person
in connection therewith if such person satisfied the
applicable level of care to permit such indemnification
under the General Corporation Law, provided however, that
nothing in this Article VII shall indemnify any person to
<PAGE>
the extent that such person has committed willful
misfeasance, bad faith, gross negligence or reckless
disregard involved in the conduct of such person's duties to
or for the Corporation. The persons indemnified by this
Article VII are hereinafter referred to as "indemnities."
Such indemnification as to such alleged action or inaction
shall continue as to an indemnitee who has after such
alleged action or inaction ceased to be a director, officer
or employee of the Corporation, or director, officer,
employee or agent of another enterprise; and shall inure to
the benefit of the indemnitee's heirs, executors and
administrators. The right to indemnification conferred in
this Article VII: (i) shall be a contract right; (ii) shall
not be affected adversely as to any indemnitee by any
amendment of this Certificate with respect to any action or
inaction occurring prior to such amendment; and (iii) shall,
subject to any requirements imposed by law and the Bylaws,
include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its
final disposition."
Section 7.2. Relationship to Other Rights and Provisions
Concerning Indemnification. The rights to indemnification
and to the advancement of expenses conferred in this Article
VII shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, this
Certificate, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. The Bylaws may contain
such other provisions concerning indemnification, including
provisions specifying reasonable procedures relating to and
conditions to the receipt by indemnitees of indemnification,
provided that such provisions are not inconsistent with the
provisions of this Article VII.
Section 7.3. Agents and Employees. The Corporation may, to
the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the
advancement of expenses, to any agent of the Corporation (or
any person serving at the Corporation's request as a
director, trustee, officer, employee or agent of another
enterprise) or to persons who are or were a director,
officer, employee or agent of any of the Corporation's
affiliates, predecessor or subsidiary corporations or of a
constituent corporation absorbed by the Corporation in a
consolidation or merger or who is or was serving at the
request of such affiliate, predecessor or subsidiary
corporation or of such constituent corporation as a
director, officer, employee or agent of another enterprise,
in each case as determined by the Board of Directors to the
fullest extent of the provisions of this Article VII in
cases of the indemnification and advancement of expenses of
directors and officers of the Corporation, or to any lesser
extent (or greater extent, if permitted by law) determined
by the Board of Directors.
ARTICLE VIII
LIMITATION ON LIABILITY OF DIRECTORS
A director of the Corporation shall, to the maximum extent
now or hereafter permitted by Section 102(b)(7) of the
General Corporation Law (or any successor provision or
provisions), have no personal liability to the Corporation
or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such
director has committed willful misfeasance, bad faith, gross
negligence or reckless disregard of such director's duties
involved in the conduct of the office of director.
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<PAGE>
SECOND: That the annual meeting of the stockholders of the Corporation was
duly called and held upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware at which meeting the
necessary number of shares was voted in favor of said amendment.
THIRD: The aforesaid amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law
of the State of Delaware.
FOURTH: This Certificate of Amendment to the Certificate of Incorporation is
to become effective upon filing.
IN WITNESS WHEREOF, the undersigned, AMERICAN CAPITAL STRATEGIES, LTD., has
caused this Certificate of Amendment to be executed on its behalf by its
President and attested to by its Secretary as of this _____ day of __________,
2000.
ATTEST: AMERICAN CAPITAL STRATEGIES, LTD.
By:
- ------------------------------ ---------------------------------
John E. Erickson Name: Malon Wilkus
Vice President, Chief Financial Title: Chief Executive Officer
Officer and Secretary
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<PAGE>
APPENDIX II
AMERICAN CAPITAL STRATEGIES, LTD.
2000 EMPLOYEE STOCK OPTION PLAN
1. Definitions
In this Plan, except where the context otherwise indicates, the
following definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation"), including parents or subsidiaries of
the Company which become such after adoption of the Plan.
1.2. "Agreement" means a written agreement granting an Option that is
executed by the Company and the Optionee.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means the committee of the Board appointed by the
Board to administer the Plan. Unless otherwise determined by the Board, the
Compensation Committee of the Board shall be the Committee.
1.6. "Common Stock" means the common stock, par value $.01 per share,
of the Company.
1.7. "Company" means American Capital Strategies, Ltd., a Delaware
corporation.
1.8. "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.
1.9. "Date of Grant" means the date on which an Option is granted under
the Plan.
1.10. "Director" means a member of the Board of Directors of the
Company or any Affiliate.
1.11. "Eligible Individual" means any Employee or Director or who is
also an Employee. Persons who are Directors of the Company who are not also
Employees are not officers or Employees shall not be Eligible Individuals.
1.12. "Employee" means any employee of the Company or an Affiliate or
any person who has been hired to be an employee of the Company or an Affiliate.
1.13. "Fair Market Value" means the fair market value of a Share as
determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.14. "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.
<PAGE>
1.15. "1940 Act" means the Investment Company Act of 1940, as amended.
1.16. "Nonstatutory Stock Option" means an Option granted under the
Plan that is not an Incentive Stock Option.
1.17. "Option" means an option to purchase Shares granted under the
Plan.
1.18. "Option Period" means the period during which an Option may be
exercised.
1.19. "Option Price" means the price per Share at which an Option may
be exercised, provided, however, that 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 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, the Option Price shall not be less than one hundred and ten percent
(110%) of the Fair Market Value on the Date of Grant. The Option Price of any
Option shall be subject to adjustment to the extent provided in Article 9
hereof, subject to Section 6.4 hereof.
1.20. "Optionee" means an Eligible Individual to whom an Option has
been granted.
1.21. "Plan" means the American Capital Strategies, Ltd. 2000 Employee
Stock Option Plan.
1.22. "Share" means a share of Common Stock.
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, subject
to the provisions of the Plan. The Committee shall have plenary authority and
discretion, subject to the provisions of the Plan, to determine the terms (which
terms need not be identical) of all Options including, but not limited to, which
Eligible Individuals shall be granted Options, the time or times at which
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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 Nonstatutory
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, 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 binding and final.
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 is 2,000,000 Shares.
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 Nonstatutory 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 Nonstatutory 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. 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
shall be determined by the Committee and specifically set forth in the
Agreement, provided, however, that an Option shall not be exercisable after ten
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<PAGE>
years (five years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) from its Date of Grant.
6.3. The maximum number of Shares that may be covered by Options
granted to any Eligible Individual during the term of this Plan shall not exceed
608,782 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 or 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.
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; (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) 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.
7.3. To the extent provided in an Option Agreement and permitted by the
1940 Act and other applicable law, 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
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<PAGE>
Committee, shall be secured by a pledge of the Shares received upon exercise of
the Option and shall bear interest at a rate fixed by the Committee.
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 Optionee's
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 (i) as are in effect
among the stockholders of the Company at the time such Shares are acquired, (ii)
as the Committee shall deem appropriate and (iii) as are required by applicable
law.
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 (i) the number and class of Shares subject to outstanding Options, (ii) the
Option Price of outstanding Options, and (iii) the aggregate number and class of
Shares that may be issued under the Plan.
10. Termination or Amendment
The Board may amend, alter, suspend or terminate the Plan in any
respect at any time; 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 (i) the
Company's stockholders to the extent stockholder approval is required by
applicable law or regulations and (ii) 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 nor any Shares
issued 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, the Committee
may modify, extend or renew the terms of any outstanding Options, or accept the
surrender of outstanding Options granted under the Plan or options and stock
appreciation rights granted under any other plan of the Company or an Affiliate
(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
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<PAGE>
than the surrendered options and stock appreciation rights, 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 Optionee's rights or obligations under such
Option.
11.2. Anything contained herein to the contrary notwithstanding,
Options may, at the discretion of the Committee, be granted under the Plan in
substitution for stock appreciation rights and options to purchase shares of
capital stock of another corporation which 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. 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 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.
12. Effectiveness of the Plan
The Plan and any amendment thereto shall be effective on the later of
(1) the date which the company closes its initial public offering of Shares, and
(ii) 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.
Options may be granted prior to stockholder approval of the Plan, and the date
on which any such Option is granted shall be the Date of Grant for all purposes
provided that (a) each such Option shall be subject to stockholder approval of
the Plan, (b) no Option may be exercised prior to such stockholder approval, and
(c) any such Option shall be void ab initio if such stockholder approval is not
obtained.
13. Withholding
The Company's obligation to 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 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: (i) tendering a cash
payment, (ii) authorizing the Company to withhold Shares otherwise issuable to
the Optionee, or (iii) delivering to the Company already owned and unencumbered
Shares.
14. Term of the Plan
Unless sooner terminated by the Board pursuant to Section 10, the Plan
shall terminate on March 30, 2010, 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.
- 6 -
<PAGE>
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.
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.
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<PAGE>
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 Committee's complete satisfaction, with
all rules and regulations, under federal, state or local law deemed applicable
by the Committee.
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<PAGE>
APPENDIX III
AMERICAN CAPITAL STRATEGIES, LTD.
2000 DISINTERESTED DIRECTOR STOCK OPTION PLAN
1. Definitions.
In this 2000 Disinterested Director Stock Option Plan, except
where the context otherwise indicates, the following definitions apply:
1.1 -- Act means the Investment Company Act of 1940, as amended
1.2 -- 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 parents or subsidiaries of the Company which become
such after adoption of the Plan.
1.3 -- Agreement means a written agreement granting an Option that
is executed by the Company and the Optionee.
1.4 -- Board means the Board of Directors of the Company.
1.5 -- Cause has the meaning set forth in Section 7.3.
1.6 -- Code means the Internal Revenue Code of 1986, as amended.
1.7 -- Committee means the committee of the Board and appointed by
the Board to administer the Plan which committee will be
composed solely of Directors who are not participants in the
Plan. Unless otherwise determined by the Board, the Executive
Committee of the Board shall be the Committee.
1.8 -- Common Stock means the common stock, par value $0.01 per
share, of the Company.
1.9 -- Company means American Capital Strategies, Ltd., a Delaware
corporation.
1.10 -- Date of Exercise means the date on which the Company receives
notice of the exercise of an Option in accordance with the
terms of Section 7.1.
1.11 -- Date of Grant means the date on which an Option is granted
under the Plan.
1.12 -- Director means a member of the Board of Directors of the
Company.
1.13 -- Disability means permanent and total disability within the
meaning of Section 22(e)(3) of the code, as determined by the
Committee.
1.14 -- Eligible Individual means any Director of the Company who is
not also an Employee and has not been an Employee at any time
during the two-year period preceding the date on which an
Option is granted to such Director.
1.15 -- Employee means any employee of the Company or an Affiliate or
any person who has been hired to be an employee of the
Company or an Affiliate.
1.16 -- Fair Market Value means the fair market value of a Share as
determined by the Committee pursuant to a reasonable method
adopted in good faith for such purpose.
<PAGE>
1.17 -- Nonstatutory Stock Option means an Option granted under the
Plan that does not qualify as an incentive stock option under
Section 422 of the Code.
1.18 -- Option means an option to purchase Shares under the Plan.
1.19 -- Option Period means the period during which an Option may be
exercised.
1.20 -- Option Price means the price per Share at which an Option may
be exercised. The Option Price shall be determined by the
Committee; provided, however, the Option Price shall be not
less than the Fair Market Value of a Share as of the date of
issuance of the Option. The Option Price of any Option shall
be subject to adjustment to the extent provided in Article 9
hereof, subject to Section 6.4.
1.21 -- Optionee means an Eligible Individual to whom an Option has
been granted.
1.22 -- Plan means the American Capital Strategies, Ltd. 2000
Disinterested Director Stock Option Plan.
1.23 -- Share means a share of Common Stock.
2. Purpose.
The Plan is intended to assist the Company 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 have plenary authority and discretion,
subject to the provisions of the Plan, to determine the terms (which
terms need not be identical) of all Options including, but not limited
to, which Eligible Individuals shall be granted Options, the time or
times at which Options are granted, the Option Price, the number of
Shares subject to an 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
other restrictions on Options. 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. The
determinations of the Committee on the matters referred to in this
Article 3 shall be binding and final.
4. Eligibility.
Options may be granted only to Eligible Individuals.
5. Stock Subject to the Plan.
5.1 -- Subject to adjustment provided in Article 9 hereof, the
maximum number of Shares that may be issued under the Plan is
150,000 Shares.
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.
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<PAGE>
6. Options.
6.1 -- All Options granted under the Plan shall be Nonstatutory
Stock Options. Each Option granted under the Plan 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 the Plan as the Committee may specify.
6.2 -- The Option Period for Options granted to Eligible Individuals
shall be determined by the Committee and specifically set
forth in the Agreement, provided however, that an Option
shall not be exercisable after ten years from its Date of
Grant.
6.3 -- The maximum number of Shares that may be covered by Options
granted to any Eligible Individual during the term of this
Plan shall not exceed 25,000 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 or 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.
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.
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; (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; or (c) 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.
- 3 -
<PAGE>
7.3 -- In the event of the death or Disability of an Optionee during
his service as a director, all of his or her unexercised
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. In the event of the termination of an
Optionee's service as a director for Cause, any Options held
by him or her under this Plan not theretofore exercised shall
terminate immediately 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 Optionee's service as a
director was terminated for "Cause," if it finds that the
Optionee willfully violated any of the Company's 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. If an
Optionee's service as a director is terminated for any reason
other than by his death or Disability or by the Company for
Cause, his 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, except as otherwise provided in an
Agreement. An Option may be exercised during the Optionee's 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 (i) as are in effect among the stockholders of the Company at
the time such Shares are acquired, (ii) as the Committee shall deem
appropriate and (iii) as are required by applicable law.
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 (i) the number
and class of Shares subject to outstanding Options, (ii) the Option
Price of outstanding Options, and (iii) the aggregate number and class
of Shares that may be issued under the Plan.
10. Termination or Amendment.
The Board may amend, alter, suspend or terminate the Plan in
any respect at any time; 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 (i) the Company's stockholders to the extent
stockholder approval is required by applicable law or regulations and
(ii) each affected Optionee if such amendment, alteration, suspension
- 4 -
<PAGE>
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 nor any
Shares issued 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, the
Committee may modify, extend or renew the terms of any
outstanding Options, or accept the surrender of outstanding
Options granted under the Plan 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 lower exercise price than
the surrendered options and stock appreciation rights, 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 Optionee's rights or obligations under such Option.
11.2 -- Anything contained herein to the contrary notwithstanding,
Options may, at the discretion of the Committee, be granted
under the Plan in substitution for stock appreciation rights
and options to purchase shares of capital stock of another
corporation which 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. 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 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.
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 twenty-four (24) months after
such adoption by the Board and provided, further, that if required by
the Act, the Plan or any amendment thereto 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. Options may be granted prior to stockholder
approval of the Plan or the issuance of necessary governmental
exemptions or consent, and the date on which any such Option is granted
shall be the Date of Grant for all purposes provided that (a) each such
Option shall be subject to stockholder approval and of the issuance of
such governmental exemptions or consents, (b) no Option may be
exercised prior to such stockholder approval and (c) any such Option
shall be void ab initio if such stockholder approval or such
governmental exemptions or consents are not obtained.
13. Withholding.
The Company's obligation to 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 and in
accordance with rules prescribed by the Committee, an Optionee may
satisfy any such withholding tax obligation by any of the following
- 5 -
<PAGE>
means or by combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold Shares otherwise issuable to
the Optionee; or (iii) delivering to the Company already owned and
unencumbered Shares.
14. Term of the Plan.
Unless sooner terminated by the Board pursuant to Article 12
hereof, the Plan shall terminate on March 30, 2010, 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.
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 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 of the same.
16.4 -- Theinterests 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 in accordance with the laws of the
State of Delaware.
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
- 6 -
<PAGE>
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 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 Committee's complete
satisfaction, with all rules and regulations, under federal,
state or local law deemed applicable by the Committee.
- 7 -
<PAGE>
DETACH HERE
PROXY
AMERICAN CAPITAL STRATEGIES, LTD.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS OF AMERICAN CAPITAL
STRATEGIES, LTD. (THE "COMPANY") TO BE HELD ON MAY 3, 2000.
The undersigned hereby appoints John Erickson and Thomas McHale and each of
them, as proxies, with full power of substitution, to vote all shares of the
undersigned as shown below on this proxy at the Annual Meeting of Stockholders
of the Company to be held at the offices of the Company, Two Bethesda Metro
Center, 14th Floor, Bethesda, Maryland 20814 on May 3, 2000, at 11:00 a.m.,
local time, and any adjournments thereof.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
<PAGE>
DETACH HERE
|X| Please mark votes as in this example.
Your shares will be voted in accordance with your instructions. If no
choice is specified, shares will be voted FOR the election of all nominees for
Director.
1. Election of Directors.
Nominees: Philip R. Harper, Stephen P. Walko and Malon Wilkus
FOR AGAINST ABSTAIN
2. Approval of the Charter Amendment | | | | | |
3. Approval of 2000 Employee
Stock Option Plan | | | | | |
4. Approval of 2000 Disinterested
Director Stock Option Plan | | | | | |
5. Approval of Amendment to
Fundamental Policies | | | | | |
6. Ratification of appointment of Ernst
& Young LLP as auditors. | | | | | |
7. In their discretion on any matter that may properly come before said meeting
or any adjournment thereof.
FOR WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
| | | |
| | --------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT | |
Please sign exactly as your name appears on your stock
certificate. If registered in the names of two or more persons,
each should sign. Executors, administrators, trustees,
guardians, attorneys, and corporate officers should show their
full titles.
PLEASE SIGN HERE AND RETURN PROMPTLY.
Signature: _________________________________ Date: ___________________
Signature: _________________________________ Date: ___________________
