[Federal Register Volume 77, Number 124 (Wednesday, June 27, 2012)]
[Notices]
[Pages 38344-38347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-15638]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30121; 812-13666]


Medallion Financial Corp.; Notice of Application

June 21, 2012.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice of an 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 a proposal to grant certain stock options 
to directors who are not also employees or officers of the Applicant 
(the ``Eligible Directors'') under its Amended and Restated 2006 Non-
Employee Director Stock Option Plan (the ``Amended Director Plan'').

DATES: Filing Dates: The application was filed on June 12, 2009, and 
amended on June 28, 2010, May 12, 2011, and June 18, 2012.
    Hearing or Notification of Hearing: An order granting the 
application will be

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issued unless the Commission orders a hearing. Interested persons may 
request a hearing by writing to the Commission's Secretary and serving 
Applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the Commission by 5:30 p.m. on July 16, 
2012, and should be accompanied by proof of service on 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 
Commission's Secretary.

ADDRESSES: Elizabeth M. Murphy, Secretary, U.S. Securities and 
Commission, 100 F Street, NE., Washington, DC 20549-1090; Applicant, 
437 Madison Avenue, 38th Floor, New York, New York, 10022.

FOR FURTHER INFORMATION CONTACT: Lewis B. Reich, Senior Counsel, at 
(202) 551-6919, or Jennifer L. Sawin, Branch Chief, at (202) 551-6821 
(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 via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicant's Representations

    1. Applicant, a Delaware corporation, is a business development 
company (``BDC'') within the meaning of section 2(a)(48) of the Act.\1\ 
Applicant is a specialty finance company that has a leading position in 
originating, acquiring and servicing loans that finance taxicab 
medallions and various types of commercial businesses. Applicant 
operates its businesses through four wholly-owned subsidiaries, 
Medallion Funding LLC, Medallion Capital, Inc., Freshstart Venture 
Capital Corp., and Medallion Bank.\2\ Applicant is managed by its 
executive officers under the supervision of its board of directors 
(``Board''). Applicant's investment decisions are made by its executive 
officers under authority delegated by the Board. Applicant does not 
have an external investment adviser within the meaning of section 
2(a)(20) of the Act.
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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.
    \2\ The Applicant also conducts business through its asset-based 
lending division, Medallion Business Credit, an originator of loans 
to small businesses for the purpose of financing inventory and 
receivables, which prior to merging into Applicant on December 31, 
2007, was a wholly owned investment company subsidiary.
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    2. Applicant requests an order under section 61(a)(3)(B) of the Act 
approving its proposal to grant certain stock options under the Amended 
Director Plan to its Eligible Directors.\3\ The Amended Director Plan 
amends the Applicant's 2006 Non-Employee Director Stock Option Plan 
(the ``2006 Director Plan'') by increasing the maximum number of shares 
of Applicant's common stock (``Common Stock'') available for issuance 
from 100,000 under the 2006 Director Plan to 200,000 under the Amended 
Director Plan. Applicant has a nine member Board. Six of the seven 
current Eligible Directors on the Board are not ``interested persons'' 
(as defined in section 2(a)(19) of the Act) of the Applicant. The Board 
approved the Amended Director Plan at a meeting held on April 16, 2009, 
and Applicant's stockholders approved the Amended Director Plan at the 
annual meeting of stockholders held on June 5, 2009. The Amended 
Director Plan will become effective on the date on which the Commission 
issues an order on the application (the ``Approval Date'').\4\
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    \3\ The Eligible Directors receive a $38,500 per year retainer 
payment, $3,850 for each Board meeting attended, $1100 for each 
telephonic Board meeting, from $1,650 to $3,850 for each committee 
meeting attended, and reimbursement for related expenses. The 
Eligible Directors also receive $1,485 for each board meeting 
attended for one of the wholly-owned subsidiaries (other than 
Medallion Bank).
    \4\ Applicant previously obtained similar relief for its 1996 
Amended and Restated Non-Employee Director Stock Option Plan and its 
2006 Director Plan. (See Medallion Financial Corp., Investment 
Company Act Rel. Nos. 22350 (Nov. 25, 1996) (notice) and 22417 (Dec. 
23, 1996) (order), as amended by Medallion Financial Corp., 
Investment Company Act Rel. Nos. 24342 (Mar. 17, 2000) (notice) and 
24390 (Apr. 12, 2000) (order) and Medallion Financial Corp., 
Investment Company Act Release Nos. 27917 (July 30, 2007) (notice) 
and 27955 (Aug. 28, 2007) (order).) The 1996 Director Plan expired 
on May 21, 2006, and was replaced by the 2006 Director Plan. 
Applicant also obtained relief for its 2009 Employee Restricted 
Stock Plan, permitting it to issue restricted stock (i.e., stock 
that, at the time of issuance, is subject to certain forfeiture 
restrictions and thus is restricted as to its transferability until 
such forfeiture restrictions have lapsed) (the ``Restricted Stock'') 
to its employees. (See Medallion Financial Corp., Investment Company 
Act Rel. Nos. 29201 (Apr. 1, 2010) (notice) and 29258 (Apr. 26, 
2010) (order)) and that plan was subsequently approved by the 
Applicant's stockholders at the annual meeting of stockholders held 
on June 11, 2010.
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    3. Applicant's Eligible Directors are eligible to receive options 
under the Amended Director Plan. Under the Amended Director Plan, a 
maximum of 200,000 shares of Applicant's Common Stock, in the 
aggregate, may be issued to Eligible Directors and there is no limit on 
the number of shares of Applicant's Common Stock that may be issued to 
any one Eligible Director. The Amended Director Plan also provides that 
(i) at each annual shareholders' meeting after the Approval Date, each 
Eligible Director elected or re-elected at that meeting to a three-year 
term will automatically be granted options to purchase 9,000 shares of 
Applicant's Common Stock; and (ii) 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. The options issued under the Amended 
Director Plan will vest and become exercisable with respect to one-
third of the number of shares covered by such option on each of the 
first three anniversaries of the date of the grant.
    4. Under the terms of the Amended Director Plan, the exercise price 
of an option will be the ``Fair Market Value'' of the Common Stock, 
which is the closing price of the Common Stock as reported in the Wall 
Street Journal, Northeast Edition, as quoted on the NASDAQ Global 
Select Market, the successor to the NASDAQ National Market, on the date 
of grant, or if no such market value exists, the fair market value of a 
share (which may not be less than the current net asset value per 
share), as determined by a committee consisting of directors of the 
Applicant who are not eligible to participate in the 2006 Director Plan 
or the Amended Director Plan pursuant to a reasonable method adopted in 
good faith for such purpose. Options granted under the Amended Director 
Plan will expire ten years from the date of grant and may not be 
transferred other than by will or the laws of descent and distribution. 
Any Eligible Director holding exercisable options under the Amended 
Director Plan who ceases to be an Eligible Director for any reason, 
other than permanent disability, death or removal for cause, 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

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month period. In the event of removal of an Eligible Director for 
cause, all outstanding options held by such director shall terminate as 
of the date of the director's removal. Upon the permanent disability or 
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 permanent 
disability or death, to exercise in whole or in part any rights which 
were available to the director at the time of the director's permanent 
disability or death.
    5. Applicant's officers and employees, including employee 
directors, are eligible or have been eligible to receive options under 
Applicant's 2006 Employee Stock Option Plan (the ``2006 Employee 
Plan''), which replaced the Amended and Restated 1996 Stock Option Plan 
(the ``1996 Employee Plan''), which expired on May 21, 2006. 
Applicant's employees are also eligible to receive grants of restricted 
stock under its 2009 Employee Restricted Stock Plan (the ``Restricted 
Stock Plan'').\5\ Eligible Directors are not eligible to receive stock 
options or Restricted Stock under the 2006 Employee Plan, the 1996 
Employee Plan or under the Restricted Stock Plan. Eligible Directors 
are eligible or have been eligible to participate in the Applicant's 
2006 Director Plan under which no shares of the Applicant's Common 
Stock remain for issuance. Under the Amended Director Plan, the 
Restricted Stock Plan and the 2006 Employee Plan, an aggregate of 
1,800,000 shares of the Applicant's Common Stock have been reserved for 
issuance to the Applicant's directors, officers and employees (800,000 
shares are reserved for issuance under the 2006 Employee Plan, 800,000 
shares under the Restricted Stock Plan and 200,000 shares under the 
Amended Director Plan). The remaining 156,155 shares of the Applicant's 
Common Stock subject to issuance to officers and employees under the 
2006 Employee Plan represent 0.73% of the 21,451,243 shares of the 
Applicant's Common Stock outstanding as of June 15, 2012. The remaining 
627,392 shares of the Applicant's Common Stock subject to issuance to 
officers and employees under the Restricted Stock Plan represent 2.93% 
of the Applicant's Common Stock outstanding as of June 15, 2012. The 
200,000 shares that would be available for issuance under the Amended 
Director Plan would comprise 0.93% of the Applicant's Common Stock 
outstanding as of June 15, 2012. The Applicant has no restricted stock, 
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 Restricted Stock Plan, Amended 
Director Plan, the 2006 Director Plan, the 1996 Employee Plan and the 
2006 Employee Plan.
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    \5\ As of June 15, 2012, grants of 172,608 shares of Restricted 
Stock have been made under the Restricted Stock Plan. \\
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    6. The amount of voting securities of the Applicant that would, on 
the Approval Date, result from the grant of all restricted stock issued 
or issuable under the Restricted Stock Plan is 800,000 shares, from the 
exercise of all options issued or issuable to the Applicant's directors 
under the Amended Director Plan is 200,000 shares, from the exercise of 
all options issued or issuable to the Applicant's officers and 
employees under the 2006 Employee Plan is 800,000 shares, and from the 
exercise of all options issued or issuable to the Applicant's officers 
and employees under the 1996 Employee Plan is 331,214 shares, which is 
approximately 3.73%, 0.93%,\6\ 3.73%, and 1.54%, respectively, of the 
21,451,243 shares of the Applicant's Common Stock outstanding on June 
15, 2012. This totals 2,131,214 shares in the aggregate, or 
approximately 9.94% of the 21,451,243 shares of the Applicant's Common 
Stock outstanding on June 15, 2012. No options remain issued, issuable 
or exercisable under the 1996 Director Plan.
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    \6\ The increase of 100,000 shares under the Amended Director 
Plan represents 0.47% of the Applicant's outstanding Common Stock.
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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). Section 61(a)(3)(B) 
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 market exists, the 
current net asset value of the voting securities; (c) the proposal to 
issue the options is authorized by the BDC's shareholders, and is 
approved by order of the Commission 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)(1) of the Investment Advisers Act of 1940, 
except to the extent permitted by clause (b)(1) or (b)(2) of that 
section; and (f) the BDC does not have a profit-sharing plan as 
described in section 57(n) of the Act.
    2. In addition, section 61(a)(3) 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 any 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 its proposal to grant certain stock 
options to Eligible Directors under the Amended Director Plan meets all 
the requirements of section 61(a)(3). Applicant states that the Board 
is actively involved in the oversight of Applicant's affairs and that 
it relies extensively on the judgment and experience of its Board. In 
addition to their duties as Board members generally, Applicant states 
that the Eligible Directors provide guidance and advice on financial 
and operational issues, credit and loan policies, asset valuation and 
strategic direction, as well as serving on committees. Applicant 
believes that the availability of options under the Amended Director 
Plan will provide significant at-risk incentives to Eligible Directors 
to remain on the Board and devote their best efforts to ensure 
Applicant's success. Applicant 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 those of Applicant and its stockholders. Applicant asserts that by 
providing incentives such as options, Applicant will be better able to 
maintain continuity in the Board's membership and to attract and retain 
the highly experienced, successful and motivated business and 
professional people who are critical to Applicant's success as a BDC.
    4. Applicant states that the amount of voting securities that would 
on the Approval Date result from the grant of

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all restricted stock issued or issuable under the Restricted Stock Plan 
and the exercise of all outstanding options issued or issuable to the 
directors, officers, and employees under the Amended Director Plan, the 
2006 Employee Plan and the 1996 Employee Plan would be 2,131,214 shares 
of Applicant's Common Stock, or approximately 9.94% of Applicant's 
shares of Common Stock outstanding on June 15, 2012, which is below the 
percentage limitations in the Act. Applicant asserts that, given the 
relatively small amount of Common Stock issuable to Eligible Directors 
upon their exercise of options under the Amended Director Plan, the 
exercise of such options would not, absent extraordinary circumstances, 
have a substantial dilutive effect on the net asset value of 
Applicant's Common Stock.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-15638 Filed 6-26-12; 8:45 am]
BILLING CODE 8011-01-P