SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.__ )
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EQUUS II INCORPORATED
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(Name of Registrant as Specified in Its Charter)
Dana Hiller, 2929 Allen Parkway, Suite 2500, Houston, TX 77019
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(2) Aggregate number of securities to which transaction applies:
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[ ] Fee paid previously with preliminary materials.
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EQUUS II INCORPORATED
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
(713) 529-0900
Supplement to Notice of and Proxy Statement
Relating to Annual Meeting of Stockholders
to be Held May 9, 2003
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This is to notify you that the portion of Item 3 of the Items of Business
to be considered at the Annual Meeting of Stockholders pertaining to the
amendment of the Fund's 1997 Stock Incentive Plan (the "1997 Plan") to permit
the granting of dividend equivalent rights to directors of the Fund who are
neither officers nor employees of the Fund is being withdrawn and will not be
considered at the meeting. Only the portion of Item 3 relating to the amendment
of the 1997 Plan to authorize the cancellation and reissuance of certain options
granted to non-employee directors of the Fund under the 1997 Plan will be
considered.
Attached is a revised Item 3-Approval of an Amendment to the Fund's 1997
Stock Incentive Plan and Cancellation and Reissuance of Certain Options to
Non-Employee Directors of the Fund under the Fund's 1997 Stock Incentive Plan.
By Order of the Board of Directors
TRACY H. COHEN,
Secretary
A new proxy card is not being provided. If you have already submitted a proxy
card, you do not need to submit a new card with respect to the revised Item 3.
If you have not already submitted a proxy card, the proxy card furnished with
the proxy statement may be used to vote on Item 3 as revised.
ITEM 3 -- APPROVAL OF AN AMENDMENT TO THE FUND'S 1997 STOCK INCENTIVE
PLAN AND CANCELLATION AND REISSUANCE OF CERTAIN OPTIONS GRANTED
TO NON-EMPLOYEE DIRECTORS UNDER THE 1997 STOCK INCENTIVE PLAN
On May 15, 1997, the Board of Directors of the Fund implemented an
executive compensation plan in the form of a stock option plan meeting the
requirements of Section 61(a)(3)(B) of the Investment Company Act to provide
incentive compensation to the individuals who manage the Fund. Officers,
employees, and directors of the Fund are eligible to participate in the 1997
Stock Incentive Plan (the "Plan"). The Plan was approved by the Board on
February 7, 1997, and by the Fund's stockholders on April 9, 1997. The portion
of the Plan applicable to non-employee directors was implemented following
receipt of an order from the Securities and Exchange Commission ("SEC") dated
November 4, 1997, approving that portion of the Plan.
The Fund proposes to make certain technical amendments to permit the Fund
to make a one-time grant of options to its non-employee directors to replace
certain outstanding options that will be cancelled. The Board believes that the
Plan plays an integral role in retaining the services of experienced personnel,
in encouraging such personnel to have a greater personal financial investment in
the Fund, and to align the interests of management with the Fund's stockholders
through increased employee ownership of the Fund.
The Fund does not have a profit-sharing plan as described in Section 57(n)
of the Act and does not pay incentive compensation to its management under
Section 205 of the Investment Adviser Act. Other than stock options issued to
officers and directors of the Fund under the Plan, the Fund does not currently
have outstanding any warrants, options, or rights to purchase its voting
securities.
In addition to providing for the grant of stock options to officers and
employees of the Fund, each non-employee director serving on the Board on
November 4, 1997, was granted a nonqualified stock option to purchase 5,500
shares of common stock, $.001 par value, of the Fund that vested 50% immediately
and 16-2/3% on the first, second, and third anniversaries of the date of grant.
Each new non-employee director is granted upon his or her election, a
nonqualified stock option for a similar number of shares. In addition, beginning
with the 1998 annual meeting of stockholders of the Fund, each non-employee
director elected was, and will be, on the first business day following the
annual meeting, granted a nonqualified stock option to purchase 2,200 shares of
common stock. The exercise price of the options is the closing price of the
common stock on the New York Stock Exchange on the date the option is granted or
if no market for the common stock exists, the current net asset value of the
shares of common stock. Each option is exercisable during the period beginning
six months after the date of grant and ending ten years after the date of grant.
In the event of the termination of a director's services because of death,
permanent disability, or retirement, any unvested options vest and the director
or, if the director is not living, the director's estate, may exercise his or
her options during the one-year period following the date of death, permanent
disability, or retirement. The termination of a director's services will not
otherwise accelerate the termination date of his or her options. Options may not
be assigned or transferred other than by will or the laws of descent and
distribution.
The establishment and amendment of stock option plans pursuant to which
options are granted to non-employee directors of a business development company
must be approved by the SEC. The Fund received an order from the SEC approving
the Plan in 1997. The Fund has filed an application with the SEC to permit the
award of dividend equivalent rights to non-employee directors and to permit a
special one-time grant of options to replace certain outstanding options that
will be cancelled. Implementation of the following amendments to the Plan and
the cancellation and reissuance of options to the non-employee directors is
subject to receipt of an order from the SEC approving such amendments and
options.
Non-employee directors hold options to purchase a total of 96,800 shares.
These options represent less than 9% of the total options outstanding and less
than 1.6% of the issued and outstanding shares of the Fund. The average exercise
price of outstanding options issued to the non-employee directors prior to 2003
is approximately $18.08 per share.
Each of the six non-employee directors has been granted and currently holds
the following options to purchase shares under the Plan:
Date of Grant Number of Options (1) Exercise Price
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11/4/1997 5,500 $ 21.82
5/14/1998 2,200 24.95
5/6/1999 2,200 (2) 14.15
5/10/2000 2,200 9.04
5/4/2001 2,200 8.45
5/7/2002 2,200 7.80
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Total 16,500
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The Board proposes to amend or modify the Plan, subject to stockholder
approval, to permit (1) the cancellation of outstanding options to purchase
96,800 shares held by non-employee directors (outstanding options granted prior
to 2003) and (2) a one-time grant of options to purchase 16,500 shares (15,400
shares in the case of Mr. Storms and Dr. Tuggle) to each non-employee director
at the closing price of the EQS shares on the date of the 2003 Annual Meeting.
As originally adopted, the Plan does not permit members of the Compensation
Committee to receive awards under the Plan other than Automatic Awards, as
defined in the Plan. This provision was included in the Plan at the time of its
original drafting to permit options granted under the Plan to qualify for the
exemption from Section 16(b) of the Securities Exchange Act of 1934 (short-swing
profits) provided by Rule 16b-3. Subsequent to the Plan's adoption, the SEC
amended Rule 16b-3 to broaden the types of exempt transactions. Under Rule
16b-3, as amended, the grant of options to directors are exempt from Section
16(b) if (1) the grant is approved by the board of directors of the issuer, a
committee of the board of directors that is comprised solely of two or more
Non-Employee Directors (as defined in Rule 16b-3), (2) the grant is approved by
the stockholders of the issuer, or (3) the equity securities so acquired are
held for a period of six months following acquisition.
The Board proposes the following amendment to the Plan:
1. Paragraph 1.2(a) of the Plan will be amended to read as follows:
(a) The Plan shall be administered by a Committee of disinterested
persons appointed by the Board of Directors of the Company (the
"Committee"), as constituted from time to time. The Committee shall consist
of at least two members of the Board of Directors. Each member of the
Committee shall be a "Non-Employee Director" as such term is defined in
Rule 16b-3 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
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(1) Includes a 10% stock dividend paid in December 2001.
(2) Mr. Storms and Dr. Tuggle each exercised options to purchase 1,100 shares
in 1999 and hold options to purchase 15,400 shares.
Other than the proposed cancellation of the 96,800 outstanding options and
the grant of 96,800 in replacement options, the Board does not propose to grant
non-employee directors any additional awards under the Plan (other than
Automatic Awards) without stockholder or SEC approval.
The Board unanimously recommends that each stockholder vote "FOR" the
ratification and approval of the proposed amendments to the 1997 Stock Incentive
Plan, the cancellation of the outstanding Automatic Awards granted to
non-employee directors of the Fund under the 1997 Stock Incentive Plan, and
the reissuance of an equivalent number of Automatic Awards at the closing price
of a share of common stock on the date of the 2003 Annual Meeting.
Implementation of the foregoing transactions will be subject to the
issuance by the SEC of an exemptive order permitting such transaction.