Company Name: Medallion Financial Corp.
Public Availability Date:
May 11, 2004
Securities Exchange Act of 1934 - Rule 14a-8(i)(7)
Michael C. Carroll, Senior Vice President
Medallion Financial Corp.
437 Madison Avenue
New York, NY 10022
Re: Medallion Financial Corp.
SEC File No. 0-27812
Shareholder Proposal of Opportunity Partners LLP
Dear Mr. Carroll:
In a letter dated March 18, 2004, you notified the staff of the
Securities and Exchange Commission ("Commission") that Medallion
Financial Corp. "Medallion") proposes to omit from its year 2004 proxy
soliciting materials a shareholder proposal submitted by Opportunity
Partners LP ("Proponent"). The proposal states:
RESOLVED: The stockholders of Medallion Financial Corp.
("Medallion") request that an investment banking firm be engaged to
evaluate alternatives to maximize stockholder value including a sale of
the company.
You request our assurance that we would not recommend enforcement
action if Medallion omits the proposal in reliance on rule 14a-8(i)(7)
under the Securities Exchange Act of 1934, which permits a company to
exclude a shareholder proposal if it "deals with a matter relating to
the company's ordinary business operations."1
There appears to be some basis for your view that Medallion may
exclude the proposal under rule 14a-8(i)(7) relating to its ordinary
business operations. We note that the proposal appears to relate to both
extraordinary transactions and non-extraordinary transactions.
Accordingly, we will not recommend enforcement action to the Commission
if Medallion omits the proposal from its proxy materials in reliance on
14a-8(i)(7). In reaching this position, we have not found it necessary
to address the alternative bases for omission upon which Medallion
relies.
Sincerely,Mary A. Cole
Senior Counsel Endnotes
1 In connection with this
request, we also received and considered a March 23, 2004, letter
submitted to the staff by Proponent and a letter from Medallion dated
April 7, 2004.
Incoming Letter
March 18, 2004
VIA FEDERAL EXPRESS
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Office of Chief Counsel
Re: Medallion Financial Corp.
Commission File No. 0-27812
Omission of Shareholder Proposal
Ladies and Gentlemen:
Medallion Financial Corp., a Delaware corporation ("Medallion" or the
"Company"), received a letter dated September 22, 2003 from Mr. Phillip
Goldstein of Kimball & Winthrop, Inc. on behalf of Opportunity Partners
L.P. (the "Proponent") submitting a shareholder proposal together with a
supporting statement (the "Proposal"), a copy of which is attached
hereto as Exhibit A, for inclusion in Medallion's proxy materials for
its 2004 Annual Meeting. We hereby request confirmation that the Staff
of the Division of Investment Management of the Securities and Exchange
Commission (the "Staff") will not recommend an enforcement action if, in
reliance on certain provisions of Rule 14a-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), Medallion omits the
Proposal and supporting statement ("Supporting Statement") from its 2004
proxy materials.
Pursuant to Rule 14a-8(j)(2), this letter sets forth the grounds on
which the Corporation proposes to omit the Proposal from its proxy
materials. Further, Medallion files herewith six copies of the Proposal,
and encloses six copies of this letter pursuant to Rule 14a-8(j). By
copy of this letter and accompanying material, the Proponent is being
notified, pursuant to Rule 14a-8(j), of Medallion's intention to omit
the Proposal from Medallion's 2004 proxy materials.
Although Medallion has not yet finalized its schedule for the mailing
of the definitive proxy statements and other materials to its
stockholders and the filing of such materials with the Staff, the
Company will not mail and file such definitive materials before June 6,
2004.
As described in detail below, it is the Company's position that this
Proposal should be resolved in accordance with the guidance regarding
the Staff's recent no-action relief determination in BKF Capital Group,
Inc. (February 27, 2004), as we believe it relates to an identical
proposal and is entirely on point.
The Proposal states:
RESOLVED: The stockholders of Medallion Financial Corp.
("Medallion") request that an investment banking firm be engaged to
evaluate alternatives to maximize stockholder value including a sale of
the Company.
Supporting Statement:
The shares of Medallion trade at market price that is significantly
below their net asset value ("NAV") of approximately $9 per share.
Recently, Medallion's shares have been trading at a discount of more
than 20% from their NAV.
We think one reason for the discount may
be Medallion's very high operating expenses. In 2003, operating
expenses are on course to exceed 90 cents per share. If so, that
will consume almost all of Medallion's income, leaving almost
nothing to be distributed to shareholders. On the other hand,
Medallion could be worth a substantial premium to a strategic
acquirer with greater resources and a lower cost of capital like a
bank that can cut expenses and capitalize on synergies to increase
revenue. In short, we think a sale of Medallion is the surest way to
enhance stockholder value. Therefore, the board should immediately
engage an investment banking firm to evaluate alternatives to
maximize shareholder value including a sale of Medallion. As set forth in more detail below, Medallion proposes to exclude the
Proposal from its 2004 proxy materials, because it believes that the
Proposal can be excluded under Rules 14a-8(i)(7), (3), (1), and (10).
1. Exclusion under Rule 14a-8(i)(7)
Rule 14a-8(i)(7) provides that a proposal and statement in support
thereof may be excluded from a registrant's proxy statement if it "deals
with a matter relating to the company's ordinary business operations."
Under this Rule, proposals may be excluded if they involve business
matters that are mundane and the proposal does not implicate any
substantial policy or other consideration. See Release No. 34-12999
(November 22, 1976). The Staff states that "the basic reason for this
policy is that it is manifestly impracticable in most instances for
stockholders to decide management problems at corporate meetings." See
Release 34-19135 (October 14, 1982) Note 45. Accordingly, the Rule
operates to exclude shareholder proposals that "deal with ordinary
business matters of a complex nature that [stockholders], as a group,
would not be qualified to make an informed judgment on, due to their
lack of business expertise and their lack of intimate knowledge of the
issuer's business." See Release No. 34-12999 (November 22, 1976).
The Staff has previously delineated the Rule's purpose and
application by specifying that:
"[T]he general underlying policy of this exclusion is
consistent with the policy of most state corporate laws: to confine the
resolution of ordinary business problems to management and the board of
directors, since it is impracticable for shareholders to decide to solve
such problems at an annual meeting.
The policy underlying the ordinary business exclusion
rests on two central considerations. The first relates to the subject
matter of the proposal. Certain tasks are so fundamental to management's
ability to run the company on a day-to-day basis that they could not, as
a practical matter, be subject to direct shareholder oversight . . . the
second consideration relates to the degree to which the proposal seeks
to micro-manage the company by probing too deeply into matters of a
complex nature upon which shareholders, as a group, would not be in a
position to make an informed judgment." Release No. 34-40018 (May 21,
1998).
The Proposal directs the Company to engage an investment banking firm
to "evaluate alternatives to maximize stockholder value." However,
maximizing the value of a corporation is one of the primary goals of the
board of directors of a for-profit corporation. Similarly, monitoring
and assessing the value of a company is an ongoing responsibility of a
company's board of directors. Consistent therewith, the Board routinely
considers and implements business strategies and oversees the management
of the Company, including but not limited to considering the engagement
of, and engaging, third-party advisers to aid the Company to increase
shareholder value.
While the Proposal refers to a sale of the Company as a potential
alternative, it does not limit the scope of the Proposal to a sale of
the whole Company or another extraordinary corporate transaction
involving all, or substantially all, of the Company's assets. The text
of the Proposal on its face would cover ordinary business matters as
well as extraordinary corporate transactions. The board of directors and
management of the Company could maximize shareholder value through any
number of actions short of an extraordinary corporate transaction, and
as discussed below, the Company's board of directors has indeed been
actively addressing shareholder value, and those other items within its
purview.
Furthermore, such a broad mandate intrudes upon ordinary business
matters that are reserved for management and the board of directors
under applicable corporate law. Pursuant to Section 141(a) of the
Delaware General Corporation Law (the "DGCL"), "the business and affairs
of every [Delaware] corporation organized under this chapter shall be
managed by or under the direction of a board of directors, except as may
otherwise be provided (under other provisions of the DGCL) or in its
certificate of incorporation." Thus, in the absence of a provision
reserving power to the stockholders in the certificate of incorporation
or a provision of the DGCL directing or requiring that stockholders take
action, the directors, rather than the stockholders, manage the business
and affairs of a Delaware corporation. The certificate of incorporation
of Medallion contains no reservation by the stockholders of the power or
duty to manage the business and affairs of Medallion. Rather, pursuant
to Article FIFTH of the certificate of incorporation of Medallion, "the
Board of Directors is expressly authorized and empowered to manage, or
direct the management of, the business and affairs of [Medallion] and to
exercise all such powers and do all such acts and things as may be
exercised or done by [Medallion] subject, nevertheless, to the
provisions of the Delaware General Corporation Law, [the] Restated
Certificate of Incorporation and the Bylaws of the Corporation." It is
well settled in Delaware that once the board of directors of a Delaware
corporation becomes charged with managing the business and affairs of a
corporation, it may not delegate the power and duty to manage the
business and affairs of the corporation to third parties, including
stockholders. In this regard, see Lehrman v. Cohen,
222 A.2d 800
(Del. 1966) wherein the Delaware Supreme Court stated, "it is settled,
of course, as a general principle, that directors may not delegate their
duty to manage the corporate enterprise . . . .The delegation of duty,
if any, is made not by the directors, but by stockholder action under
Section 141(a), via the certificate of incorporation." Id. at
808.
The Staff has taken the position that proposals relating to the
determination and implementation of a company's business strategies are
matters relating to the conduct of the company's ordinary business.
Accordingly, the Staff has consistently allowed companies to exclude
proposals under Rule 14a-8(i)(7) that in substance seek to have the
board of directors retain the services of an independent third party for
the general purpose of evaluating alternatives, even where some of the
proposed strategic alternatives are of an extraordinary nature.
While the Proposal refers to a sale of the Company as a potential
alternative, it does not limit the scope of the Proposal to a sale of
the whole Company or another extraordinary corporate transaction
involving all, or substantially all, of the Company's assets. The text
of the Proposal on its face would cover ordinary business matters as
well as extraordinary corporate transactions. The board of directors and
management of the Company could maximize shareholder value through any
number of actions short of an extraordinary corporate transaction, and
as discussed below, the Company's board of directors has indeed been
actively addressing shareholder value, and those other items within its
purview.
Furthermore, such a broad mandate intrudes upon ordinary business
matters that are reserved for management and the board of directors
under applicable corporate law. Pursuant to Section 141(a) of the
Delaware General Corporation Law (the "DGCL"), "the business and affairs
of every [Delaware] corporation organized under this chapter shall be
managed by or under the direction of a board of directors, except as may
otherwise be provided (under other provisions of the DGCL) or in its
certificate of incorporation." Thus, in the absence of a provision
reserving power to the stockholders in the certificate of incorporation
or a provision of the DGCL directing or requiring that stockholders take
action, the directors, rather than the stockholders, manage the business
and affairs of a Delaware corporation. The certificate of incorporation
of Medallion contains no reservation by the stockholders of the power or
duty to manage the business and affairs of Medallion. Rather, pursuant
to Article FIFTH of the certificate of incorporation of Medallion, "the
Board of Directors is expressly authorized and empowered to manage, or
direct the management of, the business and affairs of [Medallion] and to
exercise all such powers and do all such acts and things as may be
exercised or done by [Medallion] subject, nevertheless, to the
provisions of the Delaware General Corporation Law, [the] Restated
Certificate of Incorporation and the Bylaws of the Corporation." It is
well settled in Delaware that once the board of directors of a Delaware
corporation becomes charged with managing the business and affairs of a
corporation, it may not delegate the power and duty to manage the
business and affairs of the corporation to third parties, including
stockholders. In this regard, see Lehrman v. Cohen, 222 A.2d 800 (Del.
1966) wherein the Delaware Supreme Court stated, "it is settled, of
course, as a general principle, that directors may not delegate their
duty to manage the corporate enterprise . . . .The delegation of duty,
if any, is made not by the directors, but by stockholder action under
Section 141(a), via the certificate of incorporation." Id. at 808.
The Staff has taken the position that proposals relating to the
determination and implementation of a company's business strategies are
matters relating to the conduct of the company's ordinary business.
Accordingly, the Staff has consistently allowed companies to exclude
proposals under Rule 14a-8(i)(7) that in substance seek to have the
board of directors retain the services of an independent third party for
the general purpose of evaluating alternatives, even where some of the
proposed strategic alternatives are of an extraordinary nature.
Specifically, the Company respectfully refers the Staff to the recent
no-action relief granted to BKF Capital Group, Inc. pursuant to
Rule 14a-8(i)(7) in a letter dated February 27, 2004, a copy of which is
attached hereto as Exhibit B for the Staff's convenience. The proposal
at issue in that matter was in all material respects identical to the
instant Proposal, and although the identity of the shareholder is not
necessarily material to the Staff's analysis, the proponent of that
proposal was Mr. Phillip Goldstein on behalf of Opportunity Partners
L.P., the same individual responsible for the instant Proposal. In
granting the no-action relief by informing BKF Capital Group, Inc. that
the Staff would not recommend enforcement, the Staff noted that
the proposal "appear[ed] to relate to both extraordinary transactions
and non-extraordinary transactions." See also, Telular Corporation
(December 5, 2003) (excluding a proposal to appoint a board committee to
explore strategic alternatives to maximize shareholder value appeared to
relate in part to non-extraordinary transactions), Archon Corporation
(March 10, 2003) (excluding a proposal to appoint a board committee to
explore strategic alternatives to maximize shareholder value), Lancer
Corporation (March 13, 2002) (excluding a proposal to retain an
investment bank to develop valuation of the company's shares and to
explore strategic alternatives to maximize shareholder value),
Virginia Capital Bancshares (January 16, 2001) (excluding a proposal
that board hire an investment bank to evaluate means to improve stock
value, including sale of the company), Vista Bancorp, Inc.
(January 22, 2001) (excluding a proposal calling for a qualified
financial advisory and bank consulting firm to be retained to explore
various strategic alternates [sic] for the future of Vista Bancorp,
including a sale or merger), Bowl America, Inc. (Sept. 19, 2000)
(excluding a proposal calling for board to retain an investment banker
to recommend ways to enhance shareholder value), Marsh Supermarkets,
Inc. (May 8, 2000) (excluding a proposal recommending that the board
engage an investment banker to explore all alternatives to enhance the
value of the company), NACCO Indust., Inc. (March 29, 2000)
(excluding a proposal recommending that the board of directors engage
the services of an investment banker to explore alternatives to
enhancing shareholder value, including, but not limited to, possible
sale, merger or other transaction for any or all assets of the company),
Sears, Roebuck and Co. (February 7, 2000) (excluding a proposal
requesting the company to hire an investment banker to arrange for the
sale of all or parts of the company), Bel Fuse, Inc. (April 24,
1991) (excluding a proposal calling for the hiring of an investment
banking firm to explore alternatives for maximizing stockholder value),
The Statesman Group, Inc. (March 22, 1990) (excluding a proposal
relating to a restructuring of the company, so as to maximize
shareholder value, with the assistance of investment bankers), and
Integrated Circuits Inc. (December 27, 1988) (excluding a proposal
relating to the engagement of an investment banker to make
recommendations to maximize shareholder value).
We are aware of instances in which the Staff has taken the position
that the sale of the company or a line of business is an extraordinary
event, and thus shareholder proposals relating thereto may not be
omitted from the subject company's proxy materials. For example, in
Allegheny Valley Bancorp, Inc. (January 3, 2001) the proposal
recommended that the board retain an investment bank "to solicit offers
for the purchase of the Bank's stock or assets." The proposal in
Allegheny Valley Bancorp called for the retention of an investment
bank for the specific purpose of soliciting offers for the purchase of
the Bank's stock or assets, and not for the general purpose of exploring
strategic alternatives to maximize shareholder value. Thus, in denying
no-action relief, the Staff noted that "the proposal relates to the sale
of the Company to the highest bidder." See also, Bergen Brunswig
Corporation (December 6, 2000) (proposal that the board of directors
arrange for the prompt sale of Bergen Brunswig Corporation to the
highest bidder, not excludable), The Student Loan Corporation
(March 18, 1999) (proposal to hire investment banker to explore all
alternatives to enhance the value of the company including a sale,
merger or premium tender offer share repurchases, not excludable).
The Proposal at issue here can be distinguished from Allegheny
Valley Bancorp, Bergen Brunswig, and The Student Loan Corporation
because the present Proposal does not seek a particular extraordinary
corporate transaction. Unlike the proposals in these no-action letters,
the Proposal is not focused on an extraordinary corporate transaction,
but on the ordinary business matter of enlisting an investment banker to
explore alternatives to maximize shareholder value. As discussed above,
numerous no-action letters reflect the Staff's view that proposals
related to hiring advisers to counsel a board of directors on "strategic
alternatives" are generally regarded as relating to non-extraordinary
matters and are considered part of the registrant's ordinary business.
Moreover, the Proponent states "one reason" the Company's shares trade
at a discount from their net asset value is its "high operating
expenses." Addressing this issue would not require an extraordinary
corporate transaction by either the Company or its Board. However, the
Proposal is not in any manner limited to extraordinary corporate
transactions, but rather focuses on general expense levels of the
Company, which could be addressed through non-extraordinary means.
Medallion believes that the Proposal at hand is clearly more similar
to the proposals set forth in BKF Capital Group, Inc., Telular
Corporation, Archon Corporation, Lancer Corporation, Virginia Capital
Bancshares, Vista Bancorp, Bowl America, Marsh Supermarkets, NACCO,
Sears, Roebuck and Co., Bel Fuse, Inc., Statesman Group, Inc, and
Integrated Circuits Inc. where the Staff granted no-action relief in
each of those cases because the proposals at issue focused on
non-extraordinary business matters that were part of such companies
ordinary business operations: hiring an investment banker to "maximize
stockholder value." Each of these proposals, and the instant Proposal,
share a common demand: to require the board of directors of the
respective companies to hire a third party to assess and/or maximize the
value of the companies. Therefore, Medallion sees no basis for
distinguishing between the foregoing proposals calling for the hiring of
an investment banking firm to assist and advise a board of directors to
maximize stockholder value, and the instant Proposal requiring the Board
of Directors to engage an investment banking firm to "evaluate
alternatives to maximize stockholder value including a sale of the
Company." In each case, the proposals relate to the ordinary business
operations of the subject company. Choosing to retain an investment
banker as an adviser or consultant on matters of general business
strategy (i.e. to determine Medallion's value or enhance such value) is
a non-extraordinary transaction incident to the Board's managerial and
supervisory decisions concerning the development, implementation, and
oversight of business strategies designed to enhance Medallion's
financial performance and market value, functions the Board takes very
seriously. Indeed, as further described below, Medallion's Board has
engaged investment banking firms over the past years, including very
recently, as part of its responsibilities as charged under corporate
law. The responsibility of making such decisions is so essential and
fundamental to the core functions of the Board and so regularly carried
out on an ongoing basis, it must be considered part of Medallion's
ordinary business operations.
In sum, a review of no-action letters in this area shows that the
Staff has made an important distinction between proposals requesting the
Board of Directors or management to hire an investment banker (or take
other action) to proceed with a specific extraordinary transaction
(which proposals may not be omitted in reliance on subsection (i)(7)),
and those proposals which call on a board of directors or management to
hire an investment banker (or proceed with some other action) to assist
in enhancing shareholder value in a general way (which proposals may be
omitted in reliance on subsection (i)(7)). We submit the instant
Proposal falls into this latter category.
Additionally, it should be noted that Proponent's Supporting
Statement amply demonstrates that Proponent's Proposal focuses entirely
on matters reasonably considered ordinary business determinations,
including decisions essential to the Company's business strategy (i.e.
assess market value and decide on strategies to enhance such value,
addressing company operating expenses). When the Proposal and Supporting
Statement are read together, it is readily apparent that the scope of
corporate business matters that the Proposal addresses is not
exclusively extraordinary corporate transactions. The Proposal and its
Supporting Statement make clear that the sale of Medallion is not
mandated, but rather, that an investment banker be engaged for the much
more general purpose of evaluating "alternatives to maximize shareholder
value including sale of the Company." Accordingly, for the reasons
stated above Medallion believes the Proposal may be properly omitted
pursuant to Rule 14a-8(i)(7).
2. Exclusion under Rule 14a-8(i)(10)
Rule 14a-8(i)(10) permits omission of a proposal if it has already
been substantially implemented. The Staff has previously taken the
position that proposals to engage an investment banker are rendered moot
by the engagement of an investment banker. See, e.g., Health
Insurance of Vermont, Inc. , (February 28, 1995) (proposal for
company to hire an outside firm to review potential alternatives to
enhance shareholder value, including a merger of business and sale of
the company rendered moot by subsequent hiring of investment banker);
Borden Inc. , (February 23, 1994) (proposal for board to undertake
investment banking study to determine value of the company if non-food
businesses were divested and to make such study available to
shareholders rendered moot by prior engagement of investment banking
firm).
The facts in these letters are closely analogous to the situation at
hand. As previously disclosed in the Company's Annual Report on Form
10-K, filed with the Staff on March 15, 2004 (the relevant excerpts of
which are attached hereto as Exhibit C) and in connection with its long
term strategic business plan, Medallion has recently engaged two
nationally-recognized investment banking firms "to analyze and
investigate opportunities to maximize shareholder value, including a
possible sale" of two of its operating subsidiaries, Business Lenders,
LLC and Medallion Taxi Media, Inc. In effect, Medallion and its Board,
as part of its business strategy and responsibilities under corporate
law, have carried out the material content of the Proposal. The hiring
of yet another investment bank to follow the literal terms of the
Proposal would involve undue expense and would be a waste of corporate
assets, and would divert management's attention from the successful
implementation of its present business plan (i.e., the analysis and
investigation of strategic opportunities at two of its operating
subsidiaries and capitalizing on the financial synergies that Medallion
Bank offers (as described below), in each case with a view to maximize
shareholder value). Moreover, the Proposal's Supporting Statement that
the Company will benefit from a bank's lower cost of funds is now mooted
by the recent regulatory approval of the Company's new bank subsidiary,
Medallion Bank, which is further described below.
Accordingly, because the Proposal has been "substantially
implemented" so as to render the Proposal moot, Medallion believes that
the Proposal may be properly omitted pursuant to Rule 14a-8(i)(10).
3. Exclusion under Rule 14a-8(i)(3)
Rule 14a-8(i)(3) provides that a registrant may exclude a proposal
from its proxy materials if the proposal or supporting statement is
contrary to the Staff's proxy rules, including Rule 14a-9, which
prohibits false or misleading statements in proxy soliciting materials.
Medallion believes that significant portions of the Proposal are false
and/or misleading.
The Proposal states, "Recently, Medallion's shares have been trading
at a discount of more than 20% from their NAV." In December 2003,
Medallion's stock price reached as high as $9.50 per share, or 6.86%
above the net asset value of $8.89 as reported in Medallion's Annual
Report on Form 10-K for the period ending December 31, 2003. Medallion
shares continue to currently trade at or near book value, not at a
"discount of more than 20%" as the Proponent portrays in the Supporting
Statement. Indeed, the Company's stock market price increased a
cumulative 137.25% in 2003, from $4.00 per share on January 1, 2003 to
$9.49 per share on December 31, 2003. This statement is therefore
significantly misleading.
The phrase "Medallion could be worth a substantial premium to a
strategic acquirer with greater resources and a lower cost of capital
like a bank" is materially misleading. In October 2003, Medallion
received approval from the Federal Deposit Insurance Corporation (the
"FDIC") for federal deposit insurance for its wholly-owned subsidiary,
Medallion Bank. Medallion Bank, a Utah industrial loan corporation, is a
depository banking institution subject to regulatory oversight and
examination by both the FDIC and the Utah Department of Financial
Institutions. One of the many benefits of FDIC approval is Medallion
Bank's ability to accept federally-insured deposits, which will greatly
lower the cost of funds throughout the entire Company. Medallion
believes that Medallion Bank will reduce its borrowing costs and
increase its margins significantly. Thus, the instant Proposal that
implores Medallion to sell to an acquirer who benefits from a bank cost
of funds is now misleading (and also moot) given that the new Medallion
Bank provides benefits to the Company identical to those suggested by
the Proposal's Supporting Statement.
Finally, the phrase "we think a sale of Medallion is the surest way
to enhance stockholder value" is misleading. It is Medallion's argument
that a sale of the Company is not only imprudent in light of its recent
financial strides, but may have the reverse effect of reducing
stockholder value. Medallion has issued a press release, dated October
7, 2003, that indicates the belief of management that "Medallion Bank
will give [the Company] an excellent platform to grow two of [its] most
profitable lending areas, taxicab medallion lending and asset-based
lending. One of the many benefits of this approval is the ability to
accept FDIC-insured deposits, which will greatly lower [the Company's]
cost of funds." In a subsequent press release, dated January 8, 2004,
Medallion announced that "[c]ustomers of Medallion Financial won
[approximately] 80%, or 40 of the 50 non-limited taxicab medallions that
were auctioned" in the City of Chicago. In discussing the possibility
that 900 new taxicab medallions will be issued in the City of New York
over the next three years, Medallion stated, "Many of [its] customers
were successful bidders at [the last] auction, and [the Company is]
hopeful they will also be successful at this upcoming auction." Thus,
not only does Medallion believe that the recent establishment of
Medallion Bank, the recent acquisition of medallions in Chicago, and the
issuance of medallions in the New York City market will enhance
stockholder value, but it has made available to the public specific
evidence of its beliefs.
In sum, as described above, the Proposal is false and misleading.
Thus, the Proposal violates Rule 14a-9, which prohibits false or
misleading statements in proxy soliciting materials. Accordingly,
Medallion believes the Proposal can properly be omitted from its 2004
proxy materials pursuant to Rule 14a-8(i)(3), which provides that a
registrant may exclude a proposal from its proxy materials if the
proposal or supporting statement is contrary to the Staff's proxy rules.
Based on the foregoing discussion, Medallion believes that the
Proposal may properly be omitted from its 2004 proxy materials pursuant
to subsections (3), (7), and (10) of Rule 14a-8(i). Medallion
respectfully requests the Staff confirm that it will not recommend
enforcement if the Proposal is omitted from the 2004 proxy materials. If
the Staff disagrees with Medallion's conclusion that the Proposal may be
so omitted, we request the opportunity to confer with the Staff prior to
the issuance of its position.
If you have any questions or need any additional information with
regard to the enclosed or the foregoing, please contact the undersigned
at (212) 328-3615.
Please indicate your receipt of this letter and the enclosures by
signing the enclosed copy of this letter and returning it to the
undersigned in the enclosed stamped, self-addressed envelope.
Very truly yours,
Michael C. Carroll
Enclosures
cc:
Mr. Phillip Goldstein
Opportunity Partners L.P.
Incoming Letter 2:
April 7, 2004
VIA FEDERAL EXPRESS
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Office of Chief Counsel
Re: Medallion Financial Corp.
Commission File No. 0-27812
Omission of Shareholder Proposal
Ladies and Gentlemen:
Medallion Financial Corp. ("Medallion" or the "Company") is writing
in response to the March 23, 2004 letter from Mr. Phillip Goldstein on
behalf of Opportunity Partners L.P. (the "Proponent") to the Staff of
the Division of Investment Management of the Securities and Exchange
Commission (the "Staff") regarding a shareholder proposal and supporting
statement (the "Proposal") submitted for inclusion in Medallion's proxy
materials for its 2004 Annual Meeting of Shareholders. A copy of the
letter is attached hereto as Exhibit A (the "Proponent Response
Letter").
On March 18, 2004, Medallion submitted a letter (the "No-Action
Letter Request") to request confirmation that the Staff would not
recommend an enforcement action if, in reliance on certain provisions of
Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), Medallion excluded the Proposal from its 2004 proxy
materials.
As described in detail below, the Company respectfully disagrees with
the assertions in the Proponent Response Letter, and again requests the
relief specified in the No-Action Letter Request.
Pursuant to Rule 14a-8(j), Medallion files herewith six copies of
this letter and a copy of this letter and accompanying material is being
forwarded to the Proponent.
1. Discussion
The Proponent Response Letter fails to state an effective case
against exclusion. In fact, the Proponent concedes that Medallion will
likely prevail in this matter, based on the Staff's recent no-action
relief provided in BKF Capital Group, Inc. (February 27, 2004).
Moreover, the Proponent Response Letter further concedes that Medallion
has, consistent with the Proposal, hired two nationally-recognized
investment banking firms to consider alternatives to maximize
shareholder value. Finally, the Proponent admits that the Company's
shares have been trading at a "narrower discount" from the data
presented in the Proponent's supporting statement. For the reasons set
forth in the No-Action Letter request and in the brief discussion below,
the Company respectfully asserts that the Proposal fails to comply with
Rule 14a-8.
1. Proponent's Response Regarding Exclusion under Rule
14a-8(a)(i)(7): Ordinary Business Operations of the Company
The Proponent concedes that the instant Proposal is "substantially
identical" to the recent proposal the Proponent submitted to BKF Capital
Group, Inc. and that "the Company should be granted no action relief"
under Rule 14a-8(i)(7) in light of the Staff's no-action assurances in
BKF Capital Group, Inc. (February 27, 2004). However, the
Proponent Response Letter states that the Staff's analysis under Rule
14a-8(i)(7) was entirely incorrect. The Proponent attempts to establish
that the standard used by the Staff in BKF Capital Group, Inc.
was inappropriate. In fact, the Proponent states an intention "to bring
an action for declaratory and injunctive relief if [the] proposal is not
included in BKF Capital Group's proxy material." Ultimately, we believe
the Proponent will not prevail, given the exacting standard employed by
the courts to overturn a Staff no-action decision. In Amalgamated
Clothing & Textile Workers Union v. Wal-Mart Stores, Inc. , the
federal district court case cited by the Proponent, the court noted that
"the ultimate criterion" for interpreting an administrative regulation
is the agency's interpretation of the regulation, "which becomes of
controlling weight unless that interpretation is 'plainly erroneous
or inconsistent with the regulation. '" (emphasis added) 821 F.Supp.
877, 883. While we recognize that no-action letters are not on a
precedential par with formal SEC rulemaking or adjudication, we contend,
as the court held, "courts have relied on the consistency of the SEC
staff's position and reasoning on a given issue, or the lack of
consistency, in determining whether a proposal that was deemed
excludable by the SEC staff can in fact be omitted under Rule
14a-8[(i)]7." Id. at 885.
As discussed in detail in the No-Action Letter Request, the Proposal
is in all material respects identical to the proposal in BKF Capital
Group, Inc., and is substantially similar to shareholder proposals
in which the Staff previously determined that it would not recommend
enforcement action if such proposals were excluded, as such proposals
related to ordinary business operations of the companies.
We respectfully submit that, in accordance with state corporate law,
the day-to-day business affairs of the Company should be managed by its
officers and directors. See Del. Code Ann. Tit. 8 § 141(a). Clearly, the
Proponent feels that the Proposal is important, but that alone does not
make it a proper subject for shareholder action.
2. Proponent's Response Regarding Exclusion under Rule 14a-8(i)(10):
Substantially Implemented
The Proponent acknowledges that the Company "is in the process of
engaging an investment banking firm to explore the sale of one of its
subsidiaries and has recently retained another investment banking firm
to explore the sale of another subsidiary." However, the Proponent
argues the Proposal has not been substantially implemented because the
investment banking firms were not hired to evaluate the sale of the
Company as a whole.
We respectfully disagree with the Proponent's interpretation of the
Proposal's language. The Proposal requests "an investment banking firm
be engaged to evaluate alternatives to maximize stockholder value," and
while the Proposal suggests a sale of the Company be explored (by using
the word "including"), it is not in any way limited by such measures. We
submit that Medallion has conformed to the Proposal's request to
maximize shareholder value in two material ways. First, consistent with
the Proposal, Medallion has hired two nationally-recognized investment
banking firms to "analyze and investigate opportunities to maximize
shareholder value, including a possible sale of part or all of the
subsidiar[ies]." See Medallion Financial Corp.'s Annual Report on Form
10-K, filed on March 15, 2004 (The Company hired two investment banking
firms to consider strategic alternatives for two of its operating
subsidiaries). Second, the formation of our Medallion Bank subsidiary
will greatly lower the cost of funds throughout the entire Company.
Medallion believes that Medallion Bank will reduce borrowing costs
throughout the Company and increase its margins significantly, which we
believe will further enhance shareholder value. The Proponent's
supporting statement states that the Company could benefit from the
lower cost of funds of a bank. We fully believe that our FDIC-insured
Medallion Bank is indeed such a bank.
Accordingly, because the Proposal has been "substantially
implemented" by the Company so as to render the Proposal moot, Medallion
reasserts its belief that it may be properly omitted pursuant to Rule
14a-8(i)(10).
3. Proponent's Response to Exclusion under Rule 14a-8(i)(3): False
or Misleading Statements
Finally, the Proponent "concede[s] that [the Company's shares] have
recently been trading at a narrower discount." However, the Proponent
contends, "nothing [contained in the supporting statement] said or
omitted is false or misleading." We respectfully disagree with this
contention, and first refer the Staff to our discussion of this item on
pages 8 and 9 of the No-Action Letter Request.
Second, contrary to the implication in the Proponent Response Letter,
the Board of Directors of the Company conducted "a fair and balanced
discussion" (Proponent's request) of the Proposal in addition to its
ordinary business at its March 2, 2004 quarterly meeting. In fact, the
Company has spoken with the Proponent on several occasions prior to the
filing of the No-Action Letter Request. During those conversations, the
Proponent was informed that the Proposal had been (and would be)
discussed with the Company's management and Board of Directors. The
Board determined that the action contemplated in the Proposal was
appropriate for management and within Board oversight. While the Company
appreciates the input of the Proponent, we firmly believe the substance
of the Proposal is within the purview of the Board and management and
should remain there.
Based on the foregoing discussion, Medallion reasserts its belief
that the Proposal may properly be omitted from its 2004 proxy materials
pursuant to subsections (3), (7) and (10) of Rule 14a-8(i). Accordingly,
Medallion respectfully requests the Staff confirm that it will not
recommend enforcement if the Proposal is omitted from the 2004 proxy
materials. If the Staff disagrees with Medallion's conclusion that the
Proposal may be so omitted, we request the opportunity to confer with
the Staff prior to the issuance of its position.
If the Staff has any questions or needs any additional information
with regard to the enclosed or the foregoing, please contact the
undersigned at (212) 328-3615.
Please indicate your receipt of this letter and the enclosures by
signing the enclosed copy of this letter and returning it to the
undersigned in the enclosed stamped, self-addressed envelope.
Very truly yours,
Michael C. Carroll
cc:
Mr. Phillip Goldstein
Opportunity Partners L.P. |
