[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Notices]
[Pages 19097-19100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10644]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21915; 812-9744]
Medallion Financial Corp., et al.; Notice of Application
April 24, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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applicants: Medallion Financial Corp. (``Medallion''), Tri-Magna
Corporation (``Tri-Magna''), Medallion Funding Corp. (``MFC''), Alvin
Murstein, and Andrew Murstein.
relevant act sections: Order requested under section 6(c) of the Act
for an exemption from sections 12(d), 18(a), and 61(a) of the Act,
under sections 17(d) and 57(a)(4) of the Act and rule 17d-1 thereunder
permitting certain joint transactions, under section 17(b) of the Act
for an exemption from section 17(a) of the Act, and under section 57(c)
of the Act for an exemption from sections 57(a) (1), (2), and (3) of
the Act.
summary of applicatioN: Applicants request an order to permit Medallion
to acquire all the outstanding stock of Tri-Magna Corporation through a
merger and to acquire certain other companies. In addition, the order
would permit Medallion to engage in certain joint transactions with its
subsidiaries and would permit modified asset coverage requirements for
Medallion and its subsidiaries on a consolidated basis.
filing date: The application was filed on September 1, 1995 and amended
on January 16, 1996. Applicants have agreed to file an additional
amendment, the substance of which is incorporated herein, during the
notice period.
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
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 20, 1996,
and should be accompanied by proof of service on applicants, 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 may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549.
Applicants, Suite 2000, 205 East 42d Street, New York, NY 10017.
FOR FURTHER INFORMATION CONTACT:
James M. Curtis, Senior Counsel, at (202) 942-0563, or Robert A.
Robertson, 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.
Applicants' Representations
1. Medallion is a closed-end investment company. It was organized
for the purpose of acquiring: Tri-Magna, another closed-end investment
company; Edwards Capital Company, L.P. (``ECC''), a privately-held
limited partnership licensed as a Small Business Investment Company (an
``SBIC'') by the Small Business Administration (the ``SBA''); and
Transportation Capital Corp. (``TCC''), a Specialized Small Business
Investment Company (an ``SSBIC'') licensed by the SBA.\1\ Tri-Magna,
ECC, and TCC are referred to as the ``Acquired Companies.'' Medallion
plans to file an election under section 54 of the Act to be regulated
as a business development company (a ``BDC'') and, contemporaneous with
the acquisition of TCC and ECC, will register each company under the
Act as a closed-end investment company. Upon completion of these
transactions, Medallion will engage directly and/or through its
principal subsidiaries (the ``Subsidiaries'') primarily in the business
of making loans to small businesses and, to a lesser degree, in the
business of taxicab rooftop advertising.
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\1\ Concurrently with these acquisitions, Medallion will merge
with Tri-Magna and operate Tri-Magna's two subsidiaries, MFC, an
SSBIC, and Medallion Taxi Media, Inc. (``Media''), a corporation
providing taxicab rooftop advertising, as its own subsidiaries. In
1988, the SEC issued an order to MFC permitting it to create a
holding company structure, with MFC as a wholly-owned subsidiary of
such holding company, and permitting the holding company and its
subsidiaries to engage in certain joint transactions and other
activities otherwise prohibited under the Act. Medallion Financial
Corporation, Investment Company Act Release Nos. 16253 (Feb. 4,
1988) (notice) and 16296 (Mar. 1, 1988) (order).
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2. Medallion proposes to acquire all the outstanding shares of Tri-
Magna through a merger of Tri-Magna into Medallion (the ``Merger'') for
$20.00 per share in cash plus an additional dividend of $.50 per share
plus the accumulated earnings, if any, of Media to be paid immediately
prior to the Merger and to acquire the remaining Acquired Companies for
cash or Medallion stock or some combination thereof. Acquisitions for
cash will be financed from the proceeds of the initial public offering
of Medallion stock (the ``IPO''). The acquisitions will be closed
contemporaneously with the IPO.
3. At a meeting held on October 18, 1995, the full board of
directors of Tri-Magna voted unanimously to accept the recommendation
of a committee of its independent directors (the ``Independent
Committee'') to pursue the Merger, determining that the Merger is in
the best interests of and is fair to the stockholders of Tri-Magna. The
board of directors also unanimously recommended that the stockholders
of Tri-Magna approve the Merger. On December 21, 1995, the Merger
Agreement was executed and delivered by Tri-Magna and Medallion.
4. The consummation of the Merger is subject to certain conditions,
including (a) approval of the Merger Agreement by the holders of at
least a majority of the outstanding shares of Tri-Magna stock, (b)
approval by all governmental agencies and other third parties from whom
such approval is required, including the SEC and the SBA, (c) receipt
by Tri-Magna of an opinion from Gruntal & Co., Incorporated
(``Gruntal''), an investment banking firm engaged by the Independent
Committee, opining as to the fairness from a financial point of view of
the terms of the Merger to the stockholders of Tri-Magna, (d) the
successful negotiation and closing of the acquisitions of the other
Acquired Companies, and (e) the closing of the IPO.
5. Alvin Murstein and Andrew Murstein will serve as chief executive
officer and as president, respectively, of Medallion following the
Merger. Each of Alvin Murstein and Andrew Murstein currently holds 100
shares of Medallion's common stock through a trust. In addition, Alvin
Murstein will make a capital contribution of approximately $1,000,000
to Medallion in exchange for shares of Medallion stock valued at the
public offering price of Medallion shares sold in the IPO.
6. Myron Cohen, Robert Fanger, and Michael Miller (the ``Affiliated
Advisers'') will form and register an
[[Page 19098]]
investment adviser (the ``Sub-Adviser'') that will enter into a sub-
advisory contract (the ``Sub-Advisory Agreement'') with Medallion to
provide investment advisory services. The Affiliated Advisers presently
are officers and directors of Tri-Magna and collectively hold 14.9% of
Tri-Magna's outstanding stock. Following the IPO, the Affiliated
Advisers will resign their positions with Tri-Magna and will no longer
own Tri-Magna stock. Pursuant to the Sub-Advisory Agreement, Medallion
will pay the Sub-Adviser, in arrears, a monthly fee of $18,750 as
compensation for the services to be rendered and the expenses to be
paid by the Sub-Adviser.
7. The Sub-Advisory Agreement will be approved by a majority of the
non-interested directors of Medallion and a majority of Medallion's
voting securities outstanding immediately prior to the closing of the
IPO. The Sub-Advisory Agreement will be subject to section 15 of the
Act and will be terminable without penalty to Medallion on 60 days'
written notice by either party or by vote of a majority of Medallion's
outstanding voting securities and will terminate if assigned.
Applicants' Legal Analysis
Section 6(c)
1. Applicants request relief under section 6(c) of the Act from
sections 12(d), 18(a), and 61(a). Section 6(c) permits the SEC to
exempt any person or transaction from any provision of the Act if and
to the extent that such 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.
Sections 12(d) and 60
1. Section 12(d)(1) limits the amount of securities a registered
investment company may purchase of another registered investment
company. Section 60 applies the provisions of section 12 to BDCs.
2. Since Medallion will operate those of its Subsidiaries licensed
as an SBIC or SSBIC (the ``SBA Subsidiaries'') as wholly-owned
subsidiaries, the acquisition of the securities of the SBA
Subsidiaries, any loans or advances made to such SBA Subsidiaries by
Medallion, and any other transfer of assets from Medallion to the SBA
Subsidiaries will be exempt from sections 12(d)(1) (A) and (C) by
virtue of rule 60a-1, which exempts from those sections the acquisition
by a BDC of the securities of an investment company licensed by the SBA
that is operated as a wholly-owned subsidiary of the BDC. The making of
loans or advances by the SBA Susidiaries to Medallion, however, may
violate section 12(d) if such loans or advances were deemed to be
purchases by the SBA Subsidiaries of Medallion's debt securities.
Accordingly, applicants request under section 6(c) an exemption from
section 12(d)(1) to permit the acquisition by the SBA Subsidiaries of
any securities of Medallion representing indebtedness.
Sections 18(a) and 61(a)
1. Section 18(a) prohibits a registered closed-end investment
company from issuing any class of senior security unless such company
complies with the asset coverage requirements set forth in that
section. ``Asset coverage'' is defined in section 18(h) as the ration
which the value of the total assets of an issuer, less all liabilities
not represented by senior securities, bears to the aggregate amount of
senior securities of such issuer. Under section 18(a)(1)(A), senior
securities of closed-end investment companies representing indebtedness
must had an asset coverage of 300% immediately after their issuance or
sale and, under section 18(a)(2)(A), senior securities of such
companies representing stock must have an asset coverage of 200%.
Section 18(k) provides an exemption from the foregoing asset coverage
requirements for investment companies licensed by the SBA. Section
61(a) applies section18 to BDCs, with certain exceptions.
2. Medallion will be a BDC and each of the SBA Subsidiaries will be
closed-end investment companies registered under the Act and,
accordingly, subject to the provisions of, and the exemptions available
under, section 18 on an individual basis (as modified by section 61(a)
with respect to Medallion). In addition, as a holding company for
controlled, closed-end investment company subsidiaries, such as the SBA
Subsidiaries, applicants believe that Medallion may be subject to the
asset coverage requirements of section 61(a) on a consolidated basis
because it may be deemed to be an indirect issuer of senior securities
with respect to the SBA Subsidiaries' indebtedness. Accordingly,
applicants request under section 6(c) an exemption from sections 18(a)
and 61(a) to treat borrowings by any of the SBA Subsidiaries and the
SBA's preferred stock interest in such SBA Subsidiaries as liabilities
and indebtedness not represented by senior securities in applying the
asset coverage requirements of section 18(a) to Medallion and the SBA
Subsidiaries on a consolidated basis.
Sections 17(b) and 57(c)
1. Section 17(b) of the Act permits the SEC to exempt a proposed
transaction from section 17(a) if evidence establishes that (a) the
terms of the proposed transaction, including the consideration to be
paid or received, are reasonable and fair and do not involve
overreaching on the part of any person concerned; (b) the proposed
transaction is consistent with the policy of each registered investment
company concerned; and (c) the proposed transaction is consistent with
the general purposes of the Act. Section 57(c) permits the SEC to
exempt a proposed transaction from sections 57(a) (1), (2), and (3)
using substantially the same standard imposed by section 17(b).
Sections 17(a) and 57(a)
1. Section 17(a) of the Act generally prohibits sales or purchases
of securities between registered investment companies and any
affiliated person of that company. Paragraphs (1), (2), and (3) of
section 57(a) impose substantially the same prohibitions on
transactions between BDCs and certain of their affiliates, including
any director, officer, or employee of a BDC and any entity controlled
by a director, officer, or employee of a BDC.
2. Medallion will be an affiliated person of its Subsidiaries by
reason of its ownership of all their voting stock, and the Subsidiaries
will be affiliated persons of Medallion and of each other by reason of
their common control by Medallion. Applicants believe that Media and
another Subsidiary that Medallion may organize in the future
(``Newco'') will be fully-owned subsidiaries, as defined in rule 17a-3,
and, therefore, transactions between each of them and Medallion will be
exempt from section 17(a) under rule 17a-3.\2\ In addition, applicants
believe that additional investments in any of the Subsidiaries by
Medallion in the form of stock purchases, capital contributions or
loans do not violate section 17(a) since the seller (a Subsidiary) will
be the issuer of any securities issued and will be controlled by the
purchaser (Medallion). Applicants believe, however, that loans from the
SBA Subsidiaries to Medallion will not be exempt from section 17(a), as
such
[[Page 19099]]
Subsidiaries will not be fully-owned and the lender (the SBA
Subsidiary) will be controlled by the borrower (Medallion).
Accordingly, absent an exemptive order, such loans could be deemed to
violate section 17(a).
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\2\ Rule 17a-3 provides in pertinent part that transactions
solely between a registered investment company and one or more of
its ``fully owned subsidiaries'' are exempt from section 17(a) Rule
17a-3 defines a ``fully owned subsidiary'' as a subsidiary that,
among other things, is not indebted to any person other than its
parent, the parent's other fully owned subsidiaries, and/or banks or
insurance companies in any amount that is material in relation to
the particular subsidiary.
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3. Applicants also believe that from the perspective of the SBA
Subsidiaries, purchases and sales of portfolio securities between
Medallion and the SBA Subsidiaries also would be violations of section
17(a) as such transactions would not involve securities issued by
Medallion or the SBA Subsidiaries.\3\ Since Medallion, an ``upstream
affiliated person,'' would be a participant to such transactions, the
exemption provided by rule 17a-6 would not be available.
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\3\ Applicants believe that such transactions would be exempt
from the perspective of medallion under rules 57b-1 and 17a-6, since
the SBA Subsidiaries will be ``downstream affiliated persons'' of
Medallion. Applicants also believe that transactions between the SBA
Subsidiaries and Media or Newco also would be exempt under rule 17a-
6.
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4. Applicants believe that small business or other concerns
(``Portfolio Companies'') to which loans may be made by Medallion or
the SBA Subsidiaries, which may become affiliated persons of Medallion
and/or the SBA Subsidiaries, may borrow from, or sell securities issued
by such concerns to, Medallion and the SBA Subsidiaries. Such
transactions may be prohibited by section 17(a), since (a) in the case
of a sale of securities by a Portfolio Company, the sale may not be
part of a general offering to as class of the issuer's stockholders, or
(b) in the case of a loan, the Portfolio Company may not be controlled
by Medallion or the SBA Subsidiaries. In addition, such transactions
may violate section 57(a) since rule 57b-1 only exempts transactions
with affiliates of downstream affiliates of a BDC that are affiliated
within the meaning of section 2(a)(3) (C) or (D). Accordingly,
transactions between Medallion and Portfolio Companies of which an SBA
Subsidiary owns 5% of the outstanding voting securities would not be
exempted by rule 57b-1.
5. Applicants believe that the requested relief from sections 17(a)
and 57(a) (1), (2), and (3) meets the standards for relief because the
SBA Subsidiaries will be wholly-owned by Medallion and because no
officers or directors of Medallion, the SBA Subsidiaries or any
controlling persons or other ``upstream affiliated persons'' of
Medallion will have any financial interest (other than as shareholders
of Medallion) in (a) transactions with Portfolio Companies which may
become affiliates of Medallion and/or the SBA Subsidiaries and (b) the
purchase and sale of securities or other property or the borrowing of
money or other property solely between Medallion and its SBA
Subsidiaries, there can be no overreaching on the part of any person
and no harm to the public interest will occur in such transactions.
Sections 17(d) and 57(a)(4) and Rule 17d-1
1. Section 17(d) and rule 17d-1 make it unlawful for an affiliated
person of a registered investment company or any affiliated person of
such person, acting as principal, to participate in or effect any
transaction in connection with any joint enterprise or arrangement in
which any such registered company or a company controlled by it is a
participant, unless an application respecting such transaction has been
granted by the SEC. Section 57(a)(4) imposes substantially the same
prohibitions on joint transactions involving BDCs and certain of their
affiliates, including any director, officer or employee of a BDC and
any entity controlled by a director, officer, or employee of a BDC.
Section 57(i) provides that the rules and regulations under section
17(d) shall apply to transactions subject to section 57(a)(4) in the
absence of rules under that section. No rules with respect to joint
transactions have been adopted under section 57(a)(4) and, therefore,
the standards set forth under rule 17d-1 govern the order requested
herein.
2. In passing upon applications filed pursuant to rule 17d-1, the
SEC is directed by rule 17d-1(b) to consider whether the participation
of the registered investment company in a joint enterprise or
arrangement is consistent with the provisions, policies and purposes of
the Act and the extent to which such participation is on a basis
different from or less advantageous than that of other participants.
3. The proposed Merger and the transactions contemplated thereby in
which Tri-Magna, MFC, Medallion, the Affiliated Advisers, Alvin
Murstein, and Andrew Murestein will participate may be deemed to be a
joint enterprise or transaction in which they have a joint
participation in the profits. In addition, applicants believe that it
may become necessary or desirable for Medallion and its Subsidiaries to
participate together with third persons which have no other affiliation
with Medallion or its Subsidiaries in joint transactions such as
investments in the same or different securities of the same issuer,
either simultaneously or sequentially. Section 17(d) and rule 17d-1 may
prohibit such joint participation by Medallion and the SBA
Subsidiaries. Accordingly, applicants request an order of the SEC under
sections 17(d) and 57(a)(4) of the Act and rule 17d-1 thereunder
permitting Medallion and the SBA Subsidiaries to participate in any
joint enterprise or joint arrangement involving other participants only
to the extent that any such transaction would not be prohibited if
Medallion and the SBA Subsidiaries were not separate companies.
4. Applicants believe that transactions with the Portfolio
Companies would not result in overreaching on the part of any person.
Applicants also believe that there can also be no overreaching on the
part of any person and no harm to the public interest will occur in the
purchase and sale of securities or other property or the borrowing of
money or other property between Medallion and its SBA Subsidiaries, so
long as Medallion and its Subsidiaries are the sole participants in
such transactions because Medallion will own all the voting stock of
the SBA Subsidiaries and, together, all three entities will in effect
operate as a single economic unit. In addition, since the SBA
Subsidiaries will have the same fundamental investment policies as
those of Medallion, such transactions will be consistent with the
fundamental policies of both. Finally, applicants believe that the
relief requested herein is consistent with the purposes of the Act.
Applicants' Conditions
As a condition to the granting of the exemptive relief sought, each
of Medallion and the SBA Subsidiaries will comply with the following
conditions:
1. Medallion will at all times own and hold beneficially and of
record all of the outstanding voting capital stock of the SBA
Subsidiaries.
2. The SBA Subsidiaries will have the same fundamental investment
policies as those of Medallion, as set forth in Medallion's
registration statement; the SBA Subsidiaries will not engage in any
other action described in section 13(a) of the Act, unless such action
shall have been authorized by Medallion after approval of such action
by a vote of a majority (as defined in the Act) of the outstanding
voting securities of Medallion.
3. Medallion will not cause or permit the SBA Subsidiaries to enter
into, renew or perform any investment advisory or underwriting contract
or agreement, written or oral, as contemplated by section 15 of the
Act, unless the terms of any such contract or agreement and any renewal
thereof shall
[[Page 19100]]
have been approved in compliance with said section 15; and where any
vote of the stockholders of the SBA Subsidiaries would be required by
said section 15, unless the stockholders of Medallion also shall have
approved the same by a vote of a majority (as defined in the Act) of
the outstanding voting securities of Medallion; or where any action of
the directors of the SBA Subsidiaries would be required by said section
15, unless the board of directors of Medallion, including a majority of
those directors who are not parties to any such contract or agreement
or interested persons of any such party, also shall have approved the
same.
4. Medallion will not, and will not cause or permit any SBA
Subsidiary to, issue any senior security or sell any senior security of
which Medallion or any SBA Subsidiary is the issuer except as
hereinafter set forth:
(a) each of the SBA Subsidiaries may continue to have outstanding
and may issue additional shares of its preferred stock to the SBA in
accordance with applicable SBA regulations; and
(b) Medallion and each SBA Subsidiary may issue and sell to banks,
insurance companies, and other financial institutions its secured or
unsecured promissory notes or other evidences of indebtedness in
consideration of any loan, or any extension or renewal thereof made by
private arrangement, and each SBA Subsidiary may issue debt securities
held or guaranteed by the SBA, provided the following conditions are
met:
(i) such notes or evidences of indebtedness are not intended to be
publicly distributed,
(ii) such notes or evidences of indebtedness are not convertible
into, exchangeable for, or accompanied by any options to acquire, any
equity security, and
(iii) immediately after the issuance or sale of any such notes or
evidences of indebtedness, Medallion and its Subsidiaries on a
consolidated basis, and Medallion, individually, shall have the asset
coverage required by section 18(a) of the Act, (as modified by section
61(a) for Medallion), except that, in determining whether Medallion and
its Subsidiaries on a consolidated basis have the asset coverage
required by section 18(a) of the Act (as modified by section 61(a)),
any SBA preferred stock interest in the SBA Subsidiaries and any
borrowings by the SBA Subsidiaries shall not be considered senior
securities and, for purposes of the definition of ``asset coverage'' in
section 18(h), shall be treated as indebtedness not represented by
senior securities.
5. No person shall serve as a director of any SBA Subsidiary who
shall not have been elected as a director of Medallion at its most
recent annual meeting, as contemplated by section 16(a) of the Act and
subject to the provisions thereof relating to the filling of vacancies.
Notwithstanding the foregoing, the board of directors of each SBA
Subsidiary will be elected by Medallion as sole stockholder.
6. Any small business or other concern to which loans may be made
by Medallion or any of the SBA Subsidiaries, which may become an
affiliated person of Medallion and/or the SBA Subsidiaries, may borrow
from, or sell securities issued by it to, Medallion and the SBA
Subsidiaries, provided that such transaction meets the requirements for
an exemption pursuant to rule 17a-6 promulgated pursuant to the Act,
except to the extent that it fails to meet the requirements of such
rule solely because another member of the group of Medallion and its
SBA Subsidiaries is also a party to the transaction or has, or within 6
months prior to the transaction had, or pursuant to an arrangement will
acquire, a direct or indirect financial interest in the small business
or other concern. In addition, Medallion and the SBA Subsidiaries may
effect purchases and sales of securities and other property or the
borrowing of money or other property, provided that Medallion and its
SBA Subsidiaries are the sole participants in such transactions.
7. Medallion and its SBA Subsidiaries, as a group or individually,
may participate in any join enterprise or joint arrangement involving
other participants, provided that such transaction meets the
requirements for an exemption pursuant to rule 17d-1 except to the
extent it fails to meet the requirements of such rule solely because
any of Medallion and its SBA Subsidiaries as a group are, or propose to
be, participants in the joint enterprise or joint arrangement.
8. Medallion will acquire securities of its SBA Subsidiaries
representing indebtedness only if, in each case, the prior approval of
the SBA has been obtained. Medallion and its SBA Subsidiaries will
purchase and sell portfolio securities between themselves only if, in
each case, the prior approval of the SBA has been obtained.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-10644 Filed 4-29-96; 8:45 am]
BILLING CODE 8010-01-M
