

[Federal Register: August 3, 2007 (Volume 72, Number 149)]
[Notices]               
[Page 43298-43300]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03au07-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27917; 812-13290]

 
Medallion Financial Corp.; Notice of Application

July 30, 2007.
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 2006 Non-Employee Director

[[Page 43299]]

Stock Option Plan (the ``2006 Director Plan'').

DATES: The application was filed on May 10, 2006 and amended on July 
30, 2007.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be 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 August 24, 2007, 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: 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: Shannon Conaty, Senior Counsel, at 
(202) 551-6827, or Nadya B. Roytblat, Assistant Director, 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 is available for a fee at the 
Public Reference Desk, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-0102 (telephone 202-551-5850).

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 five wholly-owned subsidiaries, 
Medallion Funding Corp., Medallion Capital, Inc., Medallion Business 
Credit, LLC, Freshstart Venture Capital Corp. and Medallion Bank. 
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.
    2. Applicant requests an order under section 61(a)(3)(B) of the Act 
approving its proposal to grant certain stock options under the 2006 
Director Plan to its Eligible Directors.\2\ 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 2006 Director Plan at a meeting 
held on February 15, 2006 and Applicant's stockholders approved the 
2006 Director Plan at the annual meeting of stockholders held on June 
16, 2006.\3\ The 2006 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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    \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 Eligible Directors receive a $35,000 per year retainer 
payment, $3,500 for each Board meeting attended, $1000 for each 
telephonic Board meeting, from $1,500 to $3,000 for each committee 
meeting attended, and reimbursement for related expenses.
    \3\ On May 31, 2007, the Company's Board of Directors amended 
the 2006 Director Plan by unanimous board consent. The Company and 
its legal counsel have determined that such changes did not 
necessitate a shareholder vote under Section 10 of the 2006 Director 
Plan or pursuant to the provisions to the Act and the rules 
promulgated thereunder.
    \4\ Applicant previously obtained similar relief for its 1996 
Amended and Restated Non-Employee Director Stock Option Plan (the 
``1996 Director Plan'', and together with the 2006 Director Plan, 
the ``Director Plans''). 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). The 1996 Director Plan expired on May 
21, 2006. Applicant intends to implement the 2006 Director Plan to 
replace the 1996 Director Plan.
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    3. Applicant's Eligible Directors are eligible to receive options 
under the 2006 Director Plan. Under the 2006 Director Plan, a maximum 
of 100,000 shares of applicant's common stock, in the aggregate, may be 
issued to Eligible Directors. There is no limit on the number of 
applicant's common stock which may be issued to any one Eligible 
Director. Each of the Eligible Directors elected at the annual meeting 
of the Board on June 16, 2006 and on June 1, 2007 will be granted 
options to purchase 9,000 shares of applicant's common stock on the 
Approval Date. The 2006 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 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 2006 Director Plan will 
become exercisable at each annual meeting of applicant's shareholders 
with respect to one-third the number of shares covered by such option.
    4. Under the terms of the 2006 Director Plan, the exercise price of 
an option will not be less than 100% of the current market value of, or 
if the stock is not quoted on the date of the grant, the current net 
asset value per share of, applicant's common stock on the date of the 
issuance of the option as determined in good faith by the members of 
the Board not eligible to participate in the 2006 Director Plan (the 
``Director Plan Committee'').\5\ Options granted under the 2006 
Director Plan will expire ten years from the date of grant and may not 
be assigned or transferred other than by will or the laws of descent 
and distribution. Any Eligible Director holding exercisable options 
under the 2006 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 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

[[Page 43300]]

director at the time of the director's permanent disability or death.
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    \5\ Under the 2006 Director Plan, ``current market value'' 
(defined as ``fair market value'') is the closing sales price of 
applicant's common shares as quoted on the NASDAQ Global Select 
Market on the date of the grant, as reported in the Wall Street 
Journal (Northeast Edition).
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    5. Applicant's officers and employees, including employee 
directors, are eligible or have been eligible to receive options under 
applicant's 1996 Employee Stock Option Plan (the ``1996 Employee 
Plan''), which expired on May 21, 2006, and the 2006 Employee Stock 
Option Plan (the ``2006 Employee Plan'', and, together with the 1996 
Employee Plan, the ``Employee Plans''). Eligible Directors are not 
eligible to receive stock options under the Employee Plans. The 
remaining 2,061,304 shares of applicant's common stock subject to 
issuance to officers and employees under the Employee Plans represent 
11.78% of the 17,502,515 shares of applicant's common stock outstanding 
as of June 30, 2007. Eligible Directors are eligible or have been 
eligible to participate in applicant's Director Plans under which 
175,749 shares of applicant's common stock remain for issuance, 
representing 1.00% of shares of applicant's common stock outstanding as 
of June 30, 2007. The 100,000 shares of applicant's common stock that 
may be issued to Eligible Directors under the 2006 Director Plan 
represent 0.57% of shares of applicant's common stock outstanding as of 
June 30, 2007. Therefore, the maximum number of applicant's voting 
securities that would result from the exercise of all outstanding 
options issued and all options issuable to directors, officers, and 
employees under the Director Plans and the Employee Plans would be 
2,237,053 shares of applicant's common stock, or approximately 12.78% 
of shares of applicant's common stock outstanding as of June 30, 2007. 
Applicant has no outstanding warrants, options, or rights to purchase 
its voting securities, other than the options granted or to be granted 
to its directors, officers, and employees under the Director Plans and 
the Employee Plans.

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 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 its proposal to grant certain stock 
options to Eligible Directors under the 2006 Director Plan meets all 
the requirements of section 61(a)(3)(B). 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 2006 
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 maximum amount of voting securities 
that would result from the exercise of all outstanding options issued 
or issuable to the directors, officers, and employees under the 
Director Plans and Employee Plans would be 2,237,053 shares of 
applicant's common stock, or approximately 12.78% of applicant's shares 
of common stock outstanding as of June 30, 2007, 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 2006 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.
Nancy M. Morris,
Secretary.
[FR Doc. E7-15058 Filed 8-2-07; 8:45 am]

BILLING CODE 8010-01-P
