[Federal Register Volume 65, Number 58 (Friday, March 24, 2000)]
[Notices]
[Pages 15929-15930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7274]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24342; 812-11800]


Medallion Financial Corp.; Notice of Application

March 17, 2000.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under section 61(a)(3)(B) of 
the Investment Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Applicant, Medallion Financial Corp., requests 
an order approving its Amended and Restated 1996 Non-Employee Director 
Stock Option Plan (the ``Amended Plan''). The requested order would 
supersede an existing order.\1\
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    \1\ Medallion Financial Corp., Investment Company Act Release 
Nos. 22350 (Nov. 25, 1996) (notice) and 22417 (Dec. 23, 1996) 
(order).

FILING DATES:  The application was filed on October 4, 1999. Applicant 
has agreed to file an amendment during the notice period, the substance 
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of which is reflected in this notice.

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 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on April 11, 2000, 
and should be accompanied by proof of service on the applicant, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549-
0609; Applicant, 437 Madison Avenue, 38th Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Senior Counsel, at 
(202) 942-0553, or Christine Y. Greenlees, 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 at the 
SEC's Public Reference Branch, 450 Fifth Street, NW., Washington DC 
20549-0102 (tel. (202) 942-8090).

Applicant's Representations

    1. Applicant is business development company (``BDC'') within the 
meaning of section 2(a)(48) of the Act.\2\ Applicant's primary business 
is the origination and servicing of loans financing the purchase of 
taxicab medallions and related assets. Applicant is managed by its 
executive officers under the supervision of its board of directors 
(``Board'') and has retained FMC Advisers, Inc. (the ``Sub-Adviser``), 
an investment adviser registered under the Investment Advisers Act of 
1940, as its investment adviser. The Sub-Adviser is paid a fixed fee on 
a monthly basis and receives no performance-based compensation.
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    \2\ Section 2(a)(48) defines a BDC to be any closed-end 
investment company the 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 those securities.
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    2. Applicant requests an order under section 61(a)(3)(B) of the Act 
approving the Amended Plan \3\ for current and future directors who are 
neither officers nor employees of applicant (``Eligible Directors''). 
The Board consists of seven members, five of whom are Eligible 
Directors.\4\ On February 24, 1999, applicant's Board approved the 
Amended Plan, and on June 16, 1999, applicant's shareholders approved 
the Amended Plan. The Amended Plan will become effective on the date on 
which the SEC issues an order on the application (the ``Approval 
Date'').
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    \3\ The Amended Plan would replace the 1996 Non-Employee 
Director Stock Option Plan (the ``Original Plan'').
    \4\ Each Eligible Director receives $10,000 a year for each year 
of service, $2,000 for the first Board meeting held per quarter and 
$1,000 for any additional Board meetings held in that quarter, $250 
for each telephonic meeting of the Board, $1,000 for the first 
committee meeting held per quarter and for any committee meetings 
held on a date when there is not also a Board meeting, $500 for all 
other committee meetings and for each telephonic meeting in which 
the director participates, and reimbursement of related expenses. 
The directors receive no other compensation for their services to 
applicant.
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    3. The Amended Plan provides that: (i) On the Approval Date, the 
Eligible Director elected at the June 16, 1999 annual shareholders' 
meeting will be granted options to purchase 9,000 shares of applicant's 
common stock at the then Current Market Value;\5\ (ii) at each annual 
shareholders' meeting after the Approval Date, each Eligible Director 
elected or reelected at that meeting to a three-year term will be 
granted options to purchase 9,000 shares of applicant's common stock; 
and (iii) upon the election, reelection or appointment of an Eligible 
Director to the Board other than at the annual shareholders' meeting, 
that Eligible Director will be granted an option to purchase that 
number of shares of common stock determined by multiplying 9,000 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. A total of 100,000 shares of applicant's common stock is reserved 
for issuance under the Original/Amended Plan.
    4. Options granted under the Amended Plan become exercisable at 
each annual shareholders' meeting with respect to that number of shares 
that is determined by multiplying the number of shares covered by the 
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: 
(i) The date of grant; or (ii) the last annual shareholder's meeting, 
and the denominator of which will be the number of whole months for 
which the Eligible Director was elected. The exercise price of an 
option will be: (i) Not less than the Current Market Value of 
applicant's common stock; or (ii) if the stock is not quoted on the 
date of grant, equal to the current net asset value of the common stock 
as determined in good faith by the members of the Board not eligible to 
participate in the Amended Plan. To the extent permitted by law, the 
option exercise price may be paid in whole or in part in cash, by a 
note or in installments, or with shares of

[[Page 15930]]

applicants' common stock or such other lawful consideration as the non-
Eligible Directors determine. If the option exercise price is paid: (i) 
By note or in installments, any such arrangement will comply with 
section 62 of the Act; (ii) with shares of applicant's common stock, 
applicant will seek exemptive relief from section 63 of the Act, or 
(iii) by such other lawful consideration as the non-Eligible Directors 
determine, applicant will seek exemptive relief from section 57(a)(1) 
of the Act.
    5. An Eligible Director holding exercisable options under the 
Amended Plan who ceases to be an Eligible Director for any reason, 
other than death, may exercise the rights the director had under the 
options on the date the director ceased to be an Eligible Director for 
a period of up to three months following that date. No additional 
options held by the director will become exercisable after the three 
month period. Upon the death of an Eligible 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 the director's death. The Amended Plan 
will expire ten years from December 23, 1996, the date on which the 
Original Plan was approved by the SEC. Each option granted under the 
Amended Plan will expire five years from the date of grant. Options 
will not be transferable except for disposition by will or intestacy.
    6. Applicant's officers and employees, including employee 
directors, are eligible to receive stock options under the Medallion 
Financial Corp. 1996 Stock Option Plan (the ``Employee Plan''). 
Eligible Directors are not eligible to receive stock options under the 
Employee Plan. The total number of shares of common stock issuable 
under the Original/Amended Plan and the Employee Plan is approximately 
1,600,000 (approximately 1,500,000 shares are reserved for issuance 
under the Employee Plan and approximately 100,000 are reserved for the 
Original/Amended Plan). The shares reserved for issuance under the two 
plans represent 11.4% of the 14,024,433 shares of applicant's common 
stock outstanding as of December 31, 1999. Applicant has no warrants, 
options or rights to purchase its outstanding voting securities other 
than those granted or to be granted to its directors, officers and 
employees pursuant to the Original/Amended Plan and the Employee Plan.

Applicant's Legal Analysis

    1. Section 61(a)(3)(B) of the Act provides, in pertinent part, that 
a BDC may issue to its Eligible Directors options to purchase its 
voting securities pursuant to an executive compensation plan, provided 
that: (i) The options expire by their terms within 10 years; (ii) The 
exercise price of the options is not less than current market value of 
the underlying securities at the date of the issuance of the options, 
or if no market exists, the current net asset value of the voting 
securities; (iii) The proposal to issue the options is authorized by 
the BDC's shareholders, and is approved by order of the SEC on the 
basis that the terms of the proposal are fair and reasonable and do not 
involve overreaching of the BDC or its shareholders; (iv) The options 
are not transferable except for disposition by gift, will, or 
intestacy; (v) No investment adviser of the BDC receives any 
compensation described in paragraph (1) of section 205 of the 
Investment Advisers Act of 1940, except to the extent permitted by 
clause (A) or (B) of that section; and (vi) the BDC does not have a 
profit-sharing plan as described in section 57(n) of the Act.
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    \5\ ``Current Market Value'' is defined as the closing price as 
reported in the Wall Street Journal, Northeast Edition, as quoted on 
the NASDAQ National Market on the date of grant.
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    2. 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 will not exceed 
20% of the outstanding voting securities of the BDC.
    3. Applicant represents that the terms of the Amended Plan meet all 
the requirements of section 61(a)(3)(B) of the Act. Applicant contends 
that the options that may be granted under the Amended Plan have 
substantially the same terms as the options that are currently issuable 
under the Original Plan, differing only in the calculation of the 
number of share issuable upon the election, reelection or appointment 
of an Eligible Director. In addition, applicant states that on the 
Approval Date, the number of voting securities that would result from 
an exercise of all options issued or issuable to the officers, 
directors and employees under the Employee Plan and the Original/
Amended Plan is approximately 1,600,000 shares, or 11.4% of applicant's 
outstanding common stock as of December 31, 1999. Applicant asserts 
that, given the small number of shares of common stock issuable upon 
the exercise of options under the Amended Plan, the exercise of options 
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 shareholder's 
meeting after an Eligible Director's election, appointment or 
reelection, and only if the Eligible Director continues to serve on 
applicant's Board.
    4. Applicant submits that the terms of the Amended Plan are fair 
and reasonable and do not involve overreaching of applicant or its 
shareholders. Applicant states that the Eligible Directors are actively 
involved in the oversight of applicant's affairs and that it relies on 
the judgment and experience of its directors. Applicant also states 
that the extensive and varied financial, regulatory, political, and 
legal experience of its directors enhance applicant's ability to 
accomplish its investment objectives. Applicant submits that the 
Amended Plan will provide significant incentives to the Eligible 
Directors to remain on the Board and to devote their best efforts to 
the success of applicant's business. Applicant also states that the 
options will provide a means for the Eligible Directors to increase 
their ownership interests in applicant, thereby ensuring close 
identification of their interests with the interests of applicant's 
shareholders.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-7274 Filed 3-23-00; 8:45 am]
BILLING CODE 8010-01-M