Document ID: SEC-2016-0192-0001
Agency: sec
Document Type: Notice
Title: Applications: Medallion Financial Corp.
Posted Date: 2016-02-05T05:00Z

[Federal Register Volume 81, Number 24 (Friday, February 5, 2016)]
[Notices]
[Pages 6322-6324]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02222]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31977; 812-14458]

Medallion Financial Corp.; Notice of Application

February 1, 2016.
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 Applicant (the 
``Eligible Directors'') under its 2015 Non-Employee Director Stock 
Option Plan (the ``Director Plan'').

Filing Dates: The application was filed on May 12, 2015, and amended on 
September 25, 2015 and January 14, 2016.

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 February 26, 2016, and should be accompanied by proof of 
service on Applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, 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 Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicant, 437 Madison Avenue, 
38th Floor, New York, New York 10022.

FOR FURTHER INFORMATION CONTACT: Deepak T. Pai, Senior Counsel, at 
(202) 551-6876, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Chief Counsel).

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. Applicant's common stock is listed on the NASDAQ 
Global Select Market.
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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\ 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.
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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 
Director Plan to its Eligible Directors.\3\ Applicant has an eight 
member Board, six of whom are Eligible Directors. Five of the six 
Eligible Directors on the Board are not ``interested persons'' (as 
defined in section 2(a)(19) of the Act) of Applicant. The Board 
approved the Director Plan at a meeting held on March 12, 2015, and 
Applicant's stockholders approved the Director Plan at the annual 
meeting of stockholders held on June 5, 2015. The Director Plan will 
become effective on the date on which the Commission issues an order on 
the application (the ``Order Date'').\4\
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    \3\ The Eligible Directors receive a $39,655 per year retainer 
payment, $3,965 for each Board meeting attended, $1,130 for each 
telephonic Board meeting, from $1,700 to $3,965 for each committee 
meeting attended, and reimbursement for related expenses.
    \4\ Applicant previously obtained similar relief for its Amended 
and Restated 1996 Non-Employee Director Stock Option Plan (the 
``1996 Director Plan''), the 2006 Non-Employee Director Stock Option 
Plan (the ``2006 Director Plan''), and the First Amended and 
Restated 2006 Non-Employee Director Stock Option Plan (the ``2006 
Amended Director Plan'').
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    3. Applicant's Eligible Directors currently are eligible to receive 
stock options under the 2006 Amended Director Plan and will be eligible 
to receive options under the Director Plan on the Order Date. Under the 
Director Plan, a maximum of 300,000 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 Director Plan provides for 
automatic grants of stock options to Eligible Directors. At each annual 
meeting of Applicant's stockholders after the Order Date, each Eligible 
Director elected or re-elected at such meeting to a three-year term 
will automatically be granted an option to purchase 12,000 shares of 
Applicant's common stock. Upon the election, reelection or appointment 
of an Eligible Director to the Board other than at the

[[Page 6323]]

annual stockholders' meeting, that Eligible Director will be granted an 
option to purchase that number of shares of common stock determined by 
multiplying 12,000 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 granted under the 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 Director Plan, the exercise price of an 
option will be the ``Fair Market Value'' of Applicant's 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 on the date of grant, or if no such market value exists, 
the fair market value of a share of common stock as determined by the 
Board pursuant to a reasonable method adopted in good faith for such 
purpose. Options granted under the 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 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 director at the time of the 
director's permanent disability or death.
    5. Applicant's officers and employees, including employee 
directors, are currently eligible to receive options under Applicant's 
Amended and Restated 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 
``2009 Restricted Stock Plan'').\5\ Eligible Directors are not eligible 
to receive restricted stock under the 2009 Restricted Stock Plan or 
stock options under the 2006 Employee Plan and are only eligible to 
receive stock options under the 2006 Amended Director Plan currently 
and under the Director Plan on the Order Date.
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    \5\ The 2009 Restricted Stock Plan provides for the periodic 
grant of shares of 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) to employees. On February 13, 2015 the 
Board approved the 2015 Employee Restricted Stock Plan (the ``2015 
Restricted Stock Plan''), providing for the periodic grants of 
shares of restricted stock for its employees, which will become 
effective when approved by both Applicant's stockholders and the 
Commission.
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    6. Under the Director Plan, the 2015 Restricted Stock Plan, the 
2009 Restricted Stock Plan, the 2006 Amended Director Plan and the 2006 
Employee Plan, an aggregate of 2,545,909 shares of Applicant's common 
stock have been reserved for issuance to Applicant's directors, 
officers and employees (300,000 shares are reserved for issuance under 
the Director Plan, 700,000 shares are reserved for issuance under the 
2015 Restricted Stock Plan, 545,909 shares are reserved for issuance 
under the 2009 Restricted Stock Plan,\6\ 200,000 shares are reserved 
for issuance under the 2006 Amended Director Plan, and 800,000 shares 
are reserved for issuance under the 2006 Employee Plan). 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 2015 
Restricted Stock Plan, the 2009 Restricted Stock Plan, the Director 
Plan, the 2006 Amended Director Plan, the 2006 Employee Plan and the 
1996 Employee Plan.\7\
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    \6\ Under the 2009 Restricted Stock Plan, 800,000 shares were 
initially reserved for issuance, but as of June 11, 2015, no future 
issuances of grants are permitted under the 2009 Restricted Stock 
Plan.
    \7\ No options remain issued, issuable or exercisable under the 
1996 Director Plan or the 2006 Director Plan.
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    7. The amount of voting securities of Applicant that would, on the 
Order Date, result from the grant of all restricted stock issued or 
issuable under the 2009 Restricted Stock Plan and 2015 Restricted Stock 
Plan is 1,245,909 shares; from the exercise of all options issued or 
issuable to Applicant's directors under the Director Plan is 300,000 
shares; from the exercise of all options issued or issuable to 
Applicant's directors under the 2006 Amended Director Plan is 153,000 
shares; from the exercise of all options issued or issuable to 
Applicant's officers and employees under the 2006 Employee Plan is 
422,520 shares; and from the exercise of all options issued or issuable 
to Applicant's officers and employees under the 1996 Employee Plan is 
58,442 shares, which totals approximately 5.12%, 1.23%, 0.63%, 1.74%, 
and 0.24%, respectively, of the 24,346,693 shares of Applicant's common 
stock outstanding on December 31, 2015. This totals 2,179,871 shares in 
the aggregate, or approximately 8.95% of the 24,346,693 shares of 
Applicant's common stock outstanding on December 31, 2015.

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) 
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 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 
paragraph (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

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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 Director Plan meets all the 
requirements of section 61(a)(3) of the Act. 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 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 alignment 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. As noted above, Applicant states that the amount of voting 
securities that would on the Order Date result from the grant of all 
restricted stock issued or issuable under the 2009 Restricted Stock 
Plan and 2015 Restricted Stock Plan and the exercise of all outstanding 
options issued or issuable to the directors, officers, and employees 
under the Director Plan, 2006 Amended Director Plan, the 2006 Employee 
Plan and the 1996 Employee Plan would be 2,179,871 shares of 
Applicant's common stock, or approximately 8.95% of Applicant's shares 
of common stock outstanding on December 31, 2015, 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 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.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02222 Filed 2-4-16; 8:45 am]
BILLING CODE 8011-01-P