[Federal Register Volume 61, Number 232 (Monday, December 2, 1996)]
[Notices]
[Pages 63880-63881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30612]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22350; 812-10352]


Medallion Financial Corp.; Notice of Application

November 25, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for an Order under the Investment Company 
Act of 1940 (the ``Act'').

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APPLICANT: Medallion Financial Corp.

RELEVANT ACT SECTIONS: Order of exemption requested pursuant to section 
61(a)(3)(B) of the Act.

SUMMARY OF APPLICATION: Applicant requests an order approving 
applicant's 1996 Eligible Director stock option plan (the ``Director 
Plan'') and the grant of certain stock options thereunder.

FILING DATE: The application was filed on September 13, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on December 20, 
1996 and should be accompanied by proof of service on applicants, in 
the form of an affidavit, or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicant, 205 East 42nd Street, Suite 2020, New York, New York 
10017.

FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or Alison E. Baur, 
Branch Chief, at (202) 942-0564 (Division of Investment Management, 
Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicant's Representations

    1. Applicant is a business development company (``BDC'') within the 
meaning of section 2(a)(48) of the Act.\1\ Applicant requests an order 
pursuant to section 61(a)(3)(B) of the Act approving the Director Plan 
and pursuant to the Director Plan, the automatic grant of options to 
purchase shares of applicant's common stock to each director who is not 
an employee, officer, or interested person (as defined in section 
2(a)(19) of the Act) of applicant (``Eligible Director'') and to each 
new Eligible Director of applicant who may be elected or appointed in 
the future to applicant's board of directors. The Director Plan and a 
stock option plan for applicant's officers and employees, including 
employee directors, (the ``Employee Plan'') were approved by 
applicant's shareholders and board of directors at meetings held on May 
22, 1996. Applicant will implement the Director Plan subsequent to 
receiving an order of the SEC (``Approval Date'').
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    \1\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company that operates for the purpose of making 
investments in securities described in sections 55(a)(1) through 
55(a)(3) of the Act and makes available significant managerial 
assistance with respect to the issuers of such securities.
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    2. Applicant's principal focus is the origination and servicing of 
loans financing the purchase of taxicab medallions and related assets. 
Applicant also originates and services commercial installment loans 
secured by retail dry cleaning and coin operated laundromat equipment 
and other targeted industries. Further, applicant also operates a 
taxicab rooftop advertising business. Applicant operates its businesses 
through four subsidiaries, Medallion Funding Corp., Edwards Capital 
Corp., Transportation Capital Corp., and Medallion Taxi Media, Inc. The 
first three companies are registered investment companies and licensed 
as small business investment companies by the Small Business 
Administration. Applicant is managed by its executive officers under 
the supervision of its board of directors and has retained FMC 
Advisers, Inc. (the ``Sub-Adviser'') as an investment adviser.
    3. Each Eligible Director of applicant receives $10,000 a year for 
each year he serves, $2,000 for each board meeting attended, $1,000 for 
each committee meeting attended, $250 for each telephonic meeting in 
which he participates and reimbursement for related expenses. The 
Eligible Directors receive no other compensation for their services to 
applicant.
    4. Under the two Plans, an aggregate of 850,000 shares of 
applicant's common stock have been reserved for issuance to applicant's 
directors, officers, and employees (750,000 shares are reserved under 
the Employee Plan and 100,000 under the Director Plan). The shares 
reserved for issuance under the two Plans constitute 10.3% of the 
8,250,000 shares of applicant's common stock outstanding as of August 
31, 1996 with the shares reserved for issuance under the Employee Plan 
constituting 9.09% and the shares reserved for issuance under the 
Director Plan constituting 1.21%. Eligible Directors are not eligible 
to receive stock options under the Employee Plan. Applicant has no 
warrants, options, or rights to purchase its voting securities 
outstanding, other than those granted pursuant to the Employee Plan.
    5. The Director Plan provides for ``Initial Grants'' and 
``Automatic Grants.'' With respect to the Initial Grants, on the 
Approval Date the Eligible Directors serving at such time will be 
granted options to purchase the number of shares of common stock 
determined by dividing $100,000 by the current market value of the 
common stock, multiplied by the fraction that represents the portion of 
a full three-year term that the director has initially been elected to 
serve. After the Initial Grants have been made, all subsequent grants 
of options to Eligible Directors upon their election, reelection, or 
appointment to the board will be Automatic Grants. With respect to the 
Automatic Grants, at each annual meeting of applicant's shareholders 
after the Approval Date, each eligible director elected or re-elected 
to a three-year term will automatically be granted an option to 
purchase the number of shares of common stock determined by dividing 
$100,000 by the current market value of the common stock on the date of 
such election. Upon the election or appointment of an Eligible Director 
other than at an annual shareholder meeting, each such Eligible 
Director will automatically be granted an option to purchase that 
number of shares determined by (a) dividing $100,000 by the current 
market value of the common stock on the date of election and (b) 
multiplying the resulting quotient by a fraction, the numerator of 
which is equal to the number of whole months remaining in the new 
director's term and the denominator of which is 36.

[[Page 63881]]

    6. Options granted under the Director Plan become exercisable at 
each annual meeting of shareholders (but not in the event applicant 
holds an annual meeting of shareholders in 1996) with respect to that 
number of shares that is determined by multiplying the number of shares 
covered by such option by a fraction, the numerator of which will equal 
the number of whole months elapsed since the most recent to have 
occurred of either (a) the date of the grant or (b) the last annual 
meeting of shareholders, and the denominator of which will be the 
number of whole months for which such director was elected. The 
exercise price of the options would be 100% of the current market value 
of applicant's common stock on the Nasdaq Stock Market at the date of 
grant, or if the stock is not so quoted at such time, then equal to the 
current net asset value of the common stock as determined in good faith 
by members of the board of directors not eligible to participate in the 
Director Plan.
    7. Eligible Directors holding exercisable options under the 
Director Plan who cease to be eligible directors for any reason, other 
than death, may exercise the rights they had under such options at the 
time they ceased to be an eligible director for three months following 
the date on which such director ceased to be an eligible director. No 
additional options held by such directors shall become exercisable 
thereafter. Upon the death of a director, those entitled to do so under 
the director's will or the laws of descent and distribution will have 
the right, at any time within twelve months after the date of death, to 
exercise in whole or in part any rights which were available to the 
director at the time of his or her death. The Director Plan will expire 
ten years after the Approval Date and each option will expire five 
years from the date of grant.

Applicant's Legal Analysis

    1. Section 63(3) of the Act permits a BDC to sell its common stock 
at a price below current net asset value upon the exercise of any 
option issued in accordance with section 61(a)(3) of the Act.
    2. Section 61(a)(3)(B) of the Act provides, in pertinent part, that 
a BDC may issue to its non-employee directors options to purchase its 
voting securities pursuant to an executive compensation plan, provided 
that: (a) The options expire by their terms within ten years; (b) the 
exercise price of the options is not less than the current market value 
of the underlying securities at the date of the issuance of the 
options, or if no such market exists, the current net asset value of 
such voting securities; (c) the proposal to issue such options is 
authorized by the BDC's shareholders, and is approved by order of the 
SEC upon application; (d) the options are not transferable except for 
disposition by gift, will, or intestacy; (e) no investment adviser of 
the BDC receives any compensation described in section 205(a) of the 
Investment Advisers Act of 1940, except to the extend permitted by 
clause (A) or (B) of that section; and (f) the BDC does not have a 
profit-sharing plan as described in section 57(n) of the Act.
    3. In addition, section 61(a)(3)(B) of the Act provides that the 
amount of the BDC's voting securities that would result from the 
exercise of all outstanding warrants, options, and rights at the time 
of issuance may not exceed 25% of the BDC's outstanding voting 
securities, except that if the amount of voting securities that would 
result from the exercise of all outstanding warrants, options, and 
rights issued to the BDC's directors, officers, and employees pursuant 
to an executive compensation plan would exceed 15% of the BDC's 
outstanding voting securities, then the total amount of voting 
securities that would result from the exercise of all outstanding 
warrants, options, and rights at the time of issuance shall not exceed 
20% of the outstanding voting securities of the BDC.
    4. Applicant represents that the Director Plan and the Initial and 
the Automatic Grants would meet the requirements of section 61(a). In 
addition, in support of its application, applicant states that its 
directors are actively involved in the oversight of applicant's affairs 
and that applicant relies on the judgment and experience of its 
directors. Further, applicant states that is directors have extensive 
and varied financial, regulatory, political, and legal experience which 
enhance applicant's ability to accomplish its investment objectives. 
Applicant states that the Director Plan will provide incentives to the 
Eligible Directors to remain on the board and devote their best efforts 
to the success of applicant's business.
    5. Applicant submits that the terms of the Director Plan are fair 
and reasonable and do not involve overreaching of applicant or its 
shareholders. On the Approval Date, the number of applicant's voting 
securities that would result from the exercise of all options issued or 
issuable to applicant's directors, officers, and employees under both 
Plans is 850,000 shares of 10.3% of applicant's outstanding shares on 
August 31, 1996. Applicant submits that given the small number of 
shares of common stock issuable upon the exercise of options which may 
be granted under the Director Plan should not have a substantial 
dilutive effect on the net asset value of applicant's common stock. 
Further, the options will vest in three annual installments commencing 
with the first annual shareholders' meeting after the Eligible 
Director's election, appointment, or re-election, and only if the 
Eligible Director continues to serve on applicant's board of directors.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30612 Filed 11-29-96; 8:45 am]
BILLING CODE 8010-01-M