Regarding management fees, from the 10-K:
Professional fees decreased to $490,954 during 1998 as compared to
$520,161 during 1997 and $303,545 during 1996, due primarily to the higher costs
associated with the Special Meeting of Stockholders held during 1997. The costs
included the Fund's portion of the independent third party appraisal of the
Fund's investment in portfolio securities and the legal expenses related to the
filing of the exemptive order with the SEC.
The Management Company receives management fee compensation at an annual
rate of 2% of the net assets of the Fund paid quarterly in arrears. Such fees
amounted to $2,706,325, $2,794,795 and $1,848,253 during 1998, 1997 and 1996,
respectively. The increase during the year ended December 31, 1997 was due to
the issuance of $11,210,529 in new equity and an increase in net assets from
$103,223,308 to $144,470,752.
Through March 31, 1997, the Management Company also received or reimbursed
a management incentive fee equal to 20% of net realized capital gains less
unrealized capital depreciation, computed on a cumulative basis over the life of
the Fund. Management incentive fees of $55,825 and $1,058,012 were accrued
during the years ended December 31, 1997 and 1996, respectively. Deferred
management incentive fee expense for the years ended December 31, 1997 and 1996
totaled $426,501 and $6,488,693, respectively. Pursuant to the vote of the
stockholders at the Special Meeting, the Fund entered into a new management
agreement with the Management Company which eliminated incentive fees based on
capital gains. For the year ended December 31, 1998, due to the new management
agreement, there were no management incentive fees incurred. Pursuant to the
vote of the stockholders at the Special Meeting, the deferred incentive fee of
$11,210,529 at March 31, 1997, was paid on May 15, 1997, by the issuance of
459,973 unregistered shares of common stock of the Fund. The number of shares
issued was determined by dividing the deferred incentive fee by $24.37 per
share, the net asset value per share at March 31, 1997.
At the Special Meeting, shareholders approved the Equus II Incorporated
1997 Stock Incentive Plan ("Stock Incentive Plan") which authorizes the Fund to
issue options to the directors and officers of the Fund in an aggregate amount
of up to 20% of the outstanding shares of common stock of the Fund.
Implementation of this plan was subject to the receipt of an exemptive order
from the SEC, which was received on May 8, 1997.
The Stock Incentive Plan also provides that each director who is not an
officer of the Fund be granted an incentive stock option to purchase 5,000
shares of the Fund's common stock. In addition, beginning with the 1998 annual
meeting of shareholders, each director who was not an officer of the Fund was,
on the first business day following the annual meeting, granted a nonqualified
stock option to purchase 2,000 shares of the Fund's common stock.
Under the 1997 Stock Incentive Plan, options to purchase 939,131 and
927,131 shares of the Fund's common stock with a weighted average exercise price
of $17.66 and $17.54 per share were outstanding at December 31, 1998 and 1997,
respectively. The Fund had 671,849 and 431,308 shares in exercisable options
with a weighted average exercise price per share of $17.58 and $17.00 at
December 31, 1998 and 1997, respectively. Outstanding options at December 31,
1998 have exercise prices ranging from $17 to $27.44 and expire in May 2007
through May 2008. During 1998 and 1997, no
22<PAGE>
options were exercised. As of December 31, 1998, all options outstanding were
"out of the money" and would have an anti-dilutive effect on net assets per
share if exercised. If all options granted were exercised as of December 31,
1997, there would have been dilution of net assets per share of approximately
$1.28 per share, or 4.3%, as a result of such exercise. |
