Document ID: SEC-2016-0213-0001
Agency: sec
Document Type: Notice
Title: Applications: Medallion Financial Corp.
Posted Date: 2016-02-09T05:00Z

[Federal Register Volume 81, Number 26 (Tuesday, February 9, 2016)]
[Notices]
[Pages 6905-6908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02442]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31980; 812-14433]

Medallion Financial Corp.; Notice of Application

February 3, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 23(a), 23(b) and 63 of the Act, and under sections 57(a)(4) 
and 57(i) of the Act and rule 17d-1 under the Act permitting certain 
joint transactions otherwise prohibited by section 57(a)(4) of the Act.

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SUMMARY: Summary of the Application: Applicant, Medallion Financial 
Corp. (the ``Company''), requests an order to permit it to issue 
restricted shares of its common stock to its officers and

[[Page 6906]]

employees under the terms of an employee compensation plan.

DATES: Filing Dates: The application was filed on March 17, 2015, and 
amended on July 15, 2015, September 24, 2015, and December 11, 2015.
    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 29, 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, Marisa T. Silverman, 
General Counsel, Medallion Financial Corp., 437 Madison Avenue, 38th 
Floor, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Laura L. Solomon, Senior Counsel, at 
(202) 551-6915, or Daniele Marchesani, Branch Chief, at (202) 551-6821, 
(Chief Counsel's Office, Division of Investment Management).

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 for 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. The Company, a Delaware corporation, is an internally managed, 
non-diversified, closed-end investment company that has elected to be 
regulated as a business development company (``BDC'') under the Act.\1\ 
The Company 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. The Company 
currently operates its business through three wholly-owned consolidated 
subsidiaries and one wholly-owned unconsolidated portfolio company. 
Shares of the Company's common stock are traded on the NASDAQ Global 
Select Market under the symbol ``TAXI.'' As of March 10, 2015, there 
were 24,771,864 shares of the Company's common stock outstanding. As of 
that date, the Company had 151 employees, including employees of its 
wholly-owned subsidiaries (``Wholly-Owned Subsidiaries'').
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    \1\ The Company was incorporated in Delaware in 1995 and 
commenced operations on May 29, 1996, in connection with the closing 
of its initial public offering and simultaneous acquisition of three 
established finance companies. 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. The Company currently has a eight-member board of directors (the 
``Board'') of whom three are ``interested persons'' of the Company 
within the meaning of section 2(a)(19) of the Act and five are not 
interested persons (the ``Non-interested Directors''). The Company has 
six directors who are neither officers nor employees of the Company.
    3. The Company believes that its successful performance depends on 
its ability to offer fair compensation packages to its professionals 
that are competitive with those offered by other investment management 
businesses. The Company believes that the ability to offer equity-based 
compensation to its professionals is vital to the Company's future 
growth and success. The Company wishes to adopt the 2015 Employee 
Restricted Stock Plan (the ``Plan'') providing for the periodic 
issuance 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) (the ``Restricted Stock'') for its employees and officers, 
and employees of its Wholly-Owned Subsidiaries (each a ``Participant,'' 
and collectively, the ``Participants'').\2\
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    \2\ The Plan, except as noted in the application, will operate 
in a manner identical to the operation of the 2009 Employee Plan 
that is the subject of a prior order received by the Company. See 
Medallion Financial Corp., Investment Company Act Release Nos. 29201 
(Apr. 1, 2010) (notice) and 29258 (Apr. 26, 2010) (order).
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    4. The Plan will authorize the issuance of shares of Restricted 
Stock subject to certain forfeiture restrictions. These restrictions 
may relate to continued employment or service on the Board, achievement 
of specified performance objectives, or other restrictions deemed by 
the Committee (as defined below) to be appropriate.\3\ The Restricted 
Stock will be subject to restrictions on transferability and other 
restrictions as required by the Committee. Except to the extent 
restricted under the terms of the Plan, a Participant granted 
Restricted Stock will have all the rights of any other stockholder, 
including the right to vote the Restricted Stock and the right to 
receive dividends. During the restriction period, the Restricted Stock 
generally may not be sold, transferred, pledged, hypothecated, 
margined, or otherwise encumbered by the Participant. Except as 
otherwise provided for in a Participant's employment agreement or as 
the Board may determine, upon termination of a Participant's employment 
or service on the Board during the applicable restriction period, 
Restricted Stock for which forfeiture restrictions have not lapsed at 
the time of such termination shall be forfeited.
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    \3\ The Compensation Committee of the Board (the ``Committee'') 
is comprised solely of the Non-interested Directors.
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    5. The maximum amount of Restricted Stock that may be issued under 
the Plan will be 10% of the outstanding shares of common stock of the 
Company on the effective date of the Plan plus 10% of the number of 
shares of the Company's common stock issued or delivered by the Company 
(other than pursuant to compensation plans) during the term of the 
Plan.\4\ The Plan limits the total number of shares that may be awarded 
to any single Participant in a fiscal year to 200,000 shares. In 
addition, no Restricted Stock Participant may be granted more than 25% 
of the shares reserved for issuance under the Plan. The Plan will be 
administered by the Committee, which, upon approval of the required 
majority, as defined in section 57(o) of the Act,\5\ of the Board, will 
award shares of Restricted Stock to the Participants from time to time 
as part of the Participants' compensation based on a Participant's 
actual or expected performance and value to the Company.
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    \4\ For purposes of calculating compliance with this limit, the 
Company will count as Restricted Stock all shares of its common 
stock that are issued pursuant to the Plan less any shares that are 
forfeited back to the Company and cancelled as a result of 
forfeiture restrictions not lapsing.
    \5\ The term ``required majority,'' when used with respect to 
the approval of a proposed transaction, plan, or arrangement, means 
both a majority of a BDC's directors or general partners who have no 
financial interest in such transaction, plan, or arrangement and a 
majority of such directors or general partners who are not 
interested persons of such company.
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    6. Each issuance of Restricted Stock under the Plan will be 
approved by the required majority, as defined in section 57(o) of the 
Act, of the Company's directors on the basis that the issuance

[[Page 6907]]

is in the best interests of the Company and its stockholders. The date 
on which the required majority approves an issuance of Restricted Stock 
will be deemed the date on which the subject Restricted Stock is 
granted.
    7. The Plan has been approved by the Committee, as well as the 
Board, including the required majority as defined in section 57(o) of 
the Act. The Plan will be submitted for approval to the Company's 
stockholders, and will become effective upon such approval, subject to 
and following receipt of the order.

Applicant's Legal Analysis

Sections 23(a) and (b), Section 63

    1. Under section 63 of the Act, the provisions of section 23(a) of 
the Act generally prohibiting a registered closed-end investment 
company from issuing securities for services or for property other than 
cash or securities are made applicable to BDCs. This provision would 
prohibit the issuance of Restricted Stock as a part of the Plan.
    2. Section 23(b) generally prohibits a closed-end management 
investment company from selling its common stock at a price below its 
current net asset value (``NAV''). Section 63(2) makes section 23(b) 
applicable to BDCs unless certain conditions are met. Because 
Restricted Stock that would be granted under the Plan would not meet 
the terms of section 63(2), sections 23(b) and 63 prohibit the issuance 
of the Restricted Stock.
    3. Section 6(c) provides that the Commission may, by order upon 
application, conditionally or unconditionally exempt any person, 
security, or transaction, or any class or classes of persons, 
securities or transactions, from any provision of the Act, if and to 
the extent that the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    4. The Company requests an order pursuant to section 6(c) of the 
Act granting an exemption from the provisions of sections 23(a) and (b) 
and section 63 of the Act.\6\ The Company states that the concerns 
underlying those sections include: (a) Preferential treatment of 
investment company insiders and the use of options and other rights by 
insiders to obtain control of the investment company; (b) complication 
of the investment company's structure that made it difficult to 
determine the value of the company's shares; and (c) dilution of 
stockholders' equity in the investment company. The Company states that 
the Plan does not raise concerns about preferential treatment of the 
Company's insiders because the Plan is a bona fide compensation plan of 
the type common among corporations generally. In addition, section 
61(a)(3)(B) of the Act permits a BDC to issue to its officers, 
directors and employees, pursuant to an executive compensation plan, 
warrants, options and rights to purchase the BDC's voting securities, 
subject to certain requirements. The Company states that, for reasons 
that are unclear, section 61 and its legislative history do not address 
the issuance by a BDC of restricted stock as incentive compensation. 
The Company states, however, that the issuance of Restricted Stock is 
substantially similar, for purposes of investor protection under the 
Act, to the issuance of warrants, options, and rights as contemplated 
by section 61. The Company also asserts that the Plan would not become 
a means for insiders to obtain control of the Company because the 
number of shares of the Company issuable under the Plan would be 
limited as set forth in the application. Moreover, no individual 
Restricted Stock Participant could be issued more than 25% of the 
shares reserved for issuance under the Plan.
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    \6\ The Company asks that the order apply also to any future 
officers and employees of the Company and future employees of the 
Company's Wholly-Owned Subsidiaries that are eligible to receive 
Restricted Stock under the Plan. Additionally, to the extent that 
the Company creates or acquires additional Wholly-Owned 
Subsidiaries, and to the extent that such future Wholly-Owned 
Subsidiaries have employees to whom the relief requested herein 
would otherwise apply, the Company asks that such relief, if 
granted, be extended to such employees of any future Wholly-Owned 
Subsidiaries.
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    5. The Company further states that the Plan will not unduly 
complicate the Company's structure because equity-based compensation 
arrangements are widely used among corporations and commonly known to 
investors. The Company notes that the Plan will be submitted to its 
stockholders for their approval. The Company represents that a concise, 
``plain English'' description of the Plan, including its potential 
dilutive effect, will be provided in the proxy materials that will be 
submitted to the Company's stockholders. The Company also states that 
it will comply with the proxy disclosure requirements in Item 10 of 
Schedule 14A under the Securities Exchange Act of 1934 (the ``Exchange 
Act''). The Company further notes that the Plan will be disclosed to 
investors in accordance with the requirements of the Form N-2 
registration statement for closed-end investment companies, and 
pursuant to the standards and guidelines adopted by the Financial 
Accounting Standards Board for operating companies. In addition, the 
Company will comply with the disclosure requirements for executive 
compensation plans applicable to operating companies under the Exchange 
Act.\7\ The Company thus concludes that the Plan will be adequately 
disclosed to investors and appropriately reflected in the market value 
of the Company's shares.
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    \7\ The Company will comply with the amendments to the 
disclosure requirements for executive and director compensation, 
related party transactions, director independence and other 
corporate governance matters, and security ownership of officers and 
directors to the extent adopted and applicable to BDCs. See 
Executive Compensation and Related Party Disclosure, Securities Act 
Release No. 8655 (Jan. 27, 2006) (proposed rule); Executive 
Compensation and Related Party Disclosure, Securities Act Release 
No. 8732A (Aug. 29, 2006) (final rule and proposed rule), as amended 
by Executive Compensation Disclosure, Securities Act Release No. 
8765 (Dec. 22, 2006) (adopted as interim final rules with request 
for comments).
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    6. The Company acknowledges that, while awards granted under the 
Plan would have a dilutive effect on the stockholders' equity in the 
Company, that effect would be outweighed by the anticipated benefits of 
the Plan to the Company and its stockholders. The Company asserts that 
it needs the flexibility to provide the requested equity-based employee 
compensation in order to be able to compete effectively with other 
financial services firms for talented professionals. These 
professionals, the Company suggests, in turn are likely to increase the 
Company's performance and stockholder value. The Company also asserts 
that equity-based compensation would more closely align the interests 
of the Company's employees with those of its stockholders. In addition, 
the Company states that its stockholders will be further protected by 
the conditions to the requested order that assure continuing oversight 
of the operation of the Plan by the Company's Board.

Section 57(a)(4), Rule 17d-1

    7. Section 57(a) proscribes certain transactions between a BDC and 
persons related to the BDC in the manner described in section 57(b) 
(``57(b) persons''), absent a Commission order. Section 57(a)(4) 
generally prohibits a 57(b) person from effecting a transaction in 
which the BDC is a joint participant absent such an order. Rule 17d-1, 
made applicable to BDCs by section 57(i), proscribes participation in a 
``joint enterprise or other joint arrangement or profit-sharing plan,'' 
which includes a stock option or purchase plan. Employees and directors 
of a BDC are

[[Page 6908]]

57(b) persons. Thus, the issuance of shares of Restricted Stock could 
be deemed to involve a joint transaction involving a BDC and a 57(b) 
person in contravention of section 57(a)(4). Rule 17d-1(b) provides 
that, in considering relief pursuant to the rule, the Commission will 
consider (i) whether the participation of the company in a joint 
enterprise is consistent with the Act's policies and purposes and (ii) 
the extent to which that participation is on a basis different from or 
less advantageous than that of other participants.
    8. The Company requests an order pursuant to section 57(a)(4) and 
rule 17d-1 to permit the Company to grant shares of Restricted Stock 
pursuant to the Plan. The Company states that the Plan, although 
benefiting the Participants and the Company in different ways, is in 
the interests of the Company's stockholders because the Plan will help 
align the interests of the Company's employees and officers with those 
of its stockholders, which will encourage conduct on the part of those 
employees and officers designed to produce a better return for the 
Company's stockholders.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief will 
be subject to the following conditions:
    1. The Plan will be authorized by the Company's stockholders.
    2. Each issuance of Restricted Stock to a Participant will be 
approved by the required majority, as defined in section 57(o) of the 
Act, of the Company's directors on the basis that such issuance is in 
the best interest of the Company and its stockholders.
    3. The amount of voting securities that would result from the 
exercise of all of the Company's outstanding warrants, options, and 
rights, together with any Restricted Stock issued pursuant to the Plan, 
at the time of issuance shall not exceed 25% of the outstanding voting 
securities of the Company, except that if the amount of voting 
securities that would result from the exercise of all of the Company's 
outstanding warrants, options, and rights issued to the Company's 
directors, officers, and employees, together with any Restricted Stock 
issued pursuant to the Plan, would exceed 15% of the outstanding voting 
securities of the Company, then the total amount of voting securities 
that would result from the exercise of all outstanding warrants, 
options, and rights, together with any Restricted Stock issued pursuant 
to the Plan, at the time of issuance shall not exceed 20% of the 
outstanding voting securities of the Company.
    4. The maximum amount of shares of Restricted Stock that may be 
issued under the Plan will be 10% of the outstanding shares of common 
stock of the Company on the effective date of the Plan plus 10% of the 
number of shares of the Company's common stock issued or delivered by 
the Company (other than pursuant to compensation plans) during the term 
of the Plan.
    5. The Board will review the Plan at least annually. In addition, 
the Board will review periodically the potential impact that the 
issuance of Restricted Stock under the Plan could have on the Company's 
earnings and NAV per share, such review to take place prior to any 
decisions to grant Restricted Stock under the Plan, but in no event 
less frequently than annually. Adequate procedures and records will be 
maintained to permit such review. The Board will be authorized to take 
appropriate steps to ensure that the grant of Restricted Stock under 
the Plan would not have an effect contrary to the interests of the 
Company's stockholders. This authority will include the authority to 
prevent or limit the granting of additional Restricted Stock under the 
Plan. All records maintained pursuant to this condition will be subject 
to examination by the Commission and its staff.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02442 Filed 2-8-16; 8:45 am]
 BILLING CODE 8011-01-P